Banks and the Currency.

it is readily perceived that an increase in the currency of the world, by the substitution of paper, even when convertible into coin, will increase the quantity of exchangeable commodities in the world beyond what would have existed had such increase of currency not taken place. Under such circumstances, a sudden reduction of the currency, by the rejection of the paper which had been employed, could not fail to derange all the relations of society, by diminishing the quantity of currency, whilst the articles to be exchanged through its agency would suffer no such diminution. An immediate depression in the price of all commodities would be the inevitable consequence of an unqualified return to a metallic currency, upon the supposition that the quantity of gold and silver annually produced should remain undiminished. But, if this return to a metallic currency should be attempted at a period when the annual product of these metals, either from temporary or permanent causes, should have considerably decreased, all the great interests of society would be most seriously disordered; property of every description would rapidly fall in value; the relations between creditor and debtor would be violently and suddenly changed. This change would be greatly to the injury of the debtor; the property which would be necessary to discharge his debts would exceed that which he had received from his creditor; the one would be ruined without the imputation of crime, whilst the other would be enriched without the semblance of merit. Until the engagements existing at the moment of such a change are discharged, and the price of labor and of commodities is reduced to the proportion which it must bear to the quantity of currency employed as the medium of their exchange, enterprise of every kind will be repressed, and misery and distress universally prevail. When this shall be effected, the relations of society, founded upon a new basis, will be equitable and just, and tend to promote and secure the general prosperity.

portable articles will also be affected, by the reduction in the currency employed in effecting their exchange. It is even probable that the quantity of exchangeable articles will be diminished. Whilst the appreciation of the currency is perceptibly advancing, the manufacturer will not hazard his capital in producing articles the price of which is rapidly declining. The merchant will abstain from purchasing, under the apprehension of a further reduction of price, and of the difficulty of revending at a profit. It is even probable that the interest of money will fall, whilst the cry of scarcity of money will be incessant. Under such circumstances, loans will not be required, except to meet debts of immediate urgency. None will be demanded for the prosecution of enterprises by which the productive energies of the community will be increased.

As the measures which have been adopted by England and several of the continental States of Europe, for returning to a metallic currency advance, the interest of those States which have adhered to it will be affected. Whilst gold and silver were, in the former States, dispensed with as coin, they were sought for merely as commodities. The quantity necessary for their manufactures was readily obtained without deranging, in any serious degree, the currency of other States.

It has been estimated that from eighty to one hundred and twenty millions of dollars were necessary to England. Taking the mean sum, and admitting that the other European States engaged in the same effort require an equal amount, a supply of two hundred millions of dollars is necessary. The commencement of the measures necessary to obtain that portion of this sum which cannot in a short time be drawn from the annual product of the mines, may not be immediately felt by other States. But when these measures approach their completion; when a large quantity of gold and silver is necessarily withdrawn from the currency of other States, the price of specie will, in the latter, appreciate, and the price of all commodities will decline. All the evils incident to an

Such, it is contended by the advocates of a paper currency, are the circumstances under which the principal States of Europe are endeavoring to re-appreciating currency will be felt in those States, turn to a metallic currency. For a century past though in a less degree than where a paper curthe currency of those States has been greatly in- rency had been exclusively adopted. The examcreased by the employment of paper, founded, it ple presented by the return to a metallic currency is true, originally, upon a metallic basis. During in France, even in the midst of a revolution, the last twenty years this paper has ceased to be which probably had some influence upon the deconvertible into specie; and as no systematic effort cision of this question by other States, is behas been made to prevent excessive issues, it has lieved to be in no degree analogous in its principal become redundant, and, consequently, depreciated. circumstances. At the precise period that this Notwithstanding this depreciation, the productions change was operating, England and the prinof those countries it is believed have more rapidly cipal continental States abandoned the precious increased than those of countries where a metallic metals as currency. The supply demanded by currency has been preserved. The efforts that are France was not only at hand, but was seeking the seriously made by those States to return to a me- very employment which that change had made tallic currency, will be the repression of enterprise indispensable. At the same time, immense sums of every description among themselves. It will were brought into France by her conquering arbe foreseen that the currency must appreciate, and mies, which, being raised by military contributions, that all other articles must depreciate in value. had in some degree rendered a resort to paper curThe effects of this appreciation of money will be rency in the United States necessary. At present first manifested in those States by the fall of the the civilized world is at peace, and each State is price of all articles which cannot be exported. In endeavoring, by systematic measures, to secure to the progress of these measures, the price of the ex-itself a just participation of equal and reciprocal

Banks and the Currency.

commerce. The States which are now attempt-like all other articles, by the demand for them,

Banks and the Currency.

4. That the issue of the currency be made not only to depend upon the demand for it, but that an equivalent be actually received;

5. That an equivalent can only be found in the delivery of an equal amount of gold or silver, or of public stock;

6. That whenever from any cause it may become redundant, it may be funded at an interest a fraction below that which was surrendered at its issue.

made directly by Government, excessive issues have quickly ensued, and depreciation has been the immediate consequence. Where the experiment has been attempted through the agency of banks it has invariably failed. In both cases, instead of being used as a mean of supplying a cheap and stable currency, invariably regulated by the demand, for effecting the exchanges required by the wants and convenience of society, it has been employed as a financial resource, or made the instrument of unrestrained cupidity. In no 1. This proposition needs no elucidation. Coincase has any attempt been made to determine the age and the regulation of money have, in all naprinciples upon which such a currency, to be sta- tions, been considered one of the highest acts of ble, must be founded. Instead of salutary re- sovereignty. It may well be doubted, however, straints being imposed upon the moneyed institu- whether a sovereign power over the coinage necestions which have been employed, the vital princi-sarily gives the right to establish a paper currency. ple of whose being is gain, they have not simply been left to the guidance of their own cupidity, but have been stimulated to excessive issues, to supply deficiencies in the public revenue. This is known to have been the case, in an eminent degree, in the experiment which has been attended 2. A metallic currency, having an intrinsic value, with most success. The issues of the Bank of independent of that which is given to it by the England, on account of the Government, were sovereign authority, does not depend upon the stafrequently so great as to destroy the demand for bility of the Government for its value. Revoludiscounts by individuals. In consequence of these tions may arise; insurrections may menace the excessive issues, the interest of money fell below existence of the Government: a metallic currency five per cent., the rate at which the bank dis- rises in value under such circumstances; it becomes counted; the demand for discount at the bank, more valuable, compared with every species of therefore, ceased. It is, indeed, not surprising that property, whether moveable or immoveable, in prono systematic effort has been made to restrain ex-portion to the instability of the Government. Not cessive issues. In the case of banks, the experiments which have been made were intended to be temporary; they were the result of great and sudden pressure, which left but little leisure for the examination of a subject so abstruse.

The power to establish such a currency ought not only to be unquestionable, but unquestioned. Any doubt of the legality of the exercise of such an authority could not fail to mar any system which human ingenuity could devise.

so with a paper currency: its credit depends, in a great degree, upon the confidence reposed in the stability of the authority by which it was issued. Should that authority be overthrown by foreign force or intestine commotion, an immediate depreciation, if not an absolute annihilation, of its value would ensue.

The employment of a paper circulation convertible into specie, the favorite system of modern States, having, as has been attempted to be shown 3. It might, however, be saved from such dein a previous part of this report, the inevitable struction by a well-grounded confidence in the tendency to produce the necessity of resorting, in justice and intelligence of the Government which every national emergency, to paper not so convert- should succeed that which had been overthrown. ible, imposes upon those who are called to admin- The history of modern times furnishes examples ister the affairs of nations the duty of thoroughly that are calculated to inspire this confidence. examining the subject, with a view, if practicable, In France, during the revolution which has just to avoid that necessity. If the examination should terminated, the public debt was reduced to onenot result in the establishment of a paper curren-third of its amount. The same rule was applied cy, unconnected with specie, it may lead to the imposition of salutary checks against excessive issues, when the necessity of suspending payment may occur.

It has already been said that every attempt which has been made to introduce a paper currency has failed. It may also be said, that of all the systems which, during the discussion of this interesting subject, both in Europe and the United States, have been proposed, none are free from objections. It is possible that no system can be devised which will be entirely free from objection. To insure the possibility of employing such a currency with advantage, it is necessary

1. That the power of the Government over the currency be absolutely sovereign;

2. That its stability be above suspicion; 3. That its justice, morality, and intelligence, be unquestionable;

to the public debt of the Dutch Republic, when it fell under French domination. In the successive political changes to which France has, since that period, been subjected, the public debt and the public engagements have been maintained with the strictest good faith. In Holland, that portion of the public debt which had been abolished by the French Government has been restored. In the opinion of well informed men, however, the conditions connected with that restoration were so onerous as to render it almost nominal. Indeed, the public debt in that country had become so disproportionate to the means of the nation when deprived of the resources it enjoyed when the debt was contracted, that the reduction which it underwent while the country was annexed to the French Empire was not generally considered an evil. The reduction of the national debt of France during the Revolution was perhaps equally indispen

Banks and the Currency.

sable. If the intelligence of the age, and the influence of public opinion, even in States where the reign of law was but imperfectly established, have been sufficient to induce the Governments which have alternately succeeded each other for the last twenty-five years, in France and Holland, to respect the public engagements which had been previously contracted, well-grounded expectations may be cherished that the period is rapidly passing away when the public faith of nations can be violated with impunity.

of currency will continne to command the attention of statesmen, and that the abuses which have resulted from improper changes in the currency will not again occur in the same degree.

4. When the currency is metallic no addition can be made to it without giving an equivalent. It is indispensable that this condition should be annexed to the acquisition of the paper currency, preliminary to its entering into circulation. If it can be put in circulation only on paying its nominal amount in that which has a general and fixed value, determined by the consent of other nations, it will continue to preserve that value during the time it circulates, unless the relation which it bore at the time of its issue to the quantity of articles the exchanges of which it is destined to perform shall be varied.

If public engagements, under such circumstances, have been considered obligatory upon those who have successively administered the affairs of those nations, a reasonable confidence may be reposed in the fulfilment of the obligations which may be contracted by existing Governments, where the reign of law is firmly estab- 5. As a paper currency is issued upon the nalished. It is not denied that a paper currency fur- tional credit, the whole property of the nation is nishes strong temptations to abuse. Millions may pledged for its redemption, whenever, by any cirbe issued in a few days, and the deficiencies in the cumstance, it may become the interest of the comrevenue promptly supplied, if the condition of re-munity that it should be redeemed. It is therefore ceiving an equivalent is abandoned. The moment the currency shall be issued as a financial resource, depreciation will follow, and all the relations of society will be disturbed. If the Government of the nation in which a paper currency has been established shall be deeply impressed with this truth, will it not be restrained from the apprehended abuse? Currency of every kind is liable to great abuses. The history of the coinage of every nation whose annals are known, is little more than a detail of the frauds which have been practised by Governments upon the people. Until the twentieth year of the reign of Edward III. of England, a pound troy of silver, of standard fineness, and a pound sterling, were synonymous terms; twenty shillings sterling being, in fact, a pound troy of standard silver. Change followed change in rapid succession, until, in the reign of Elizabeth, a pound troy of standard silver was directed to be coined into sixty-two shillings. This immense change in the value of the currency was effected in the space of about two centuries. In other modern States, during the same period, changes not less important occurred in the coinage. Frequently, these changes were effected by deteriorating the standard fineness of the coin. For more than a century past, the coinage of the civilized world has undergone no material change with a view to the practice of fraud upon the people. Whether this forbearance is to be attributed to an improvement in the morality of modern Governments, or to a more correct understanding of the principles of currency and of the consequences that must result from every change by which the relations of society are affected, it furnishes just ground of expectation that they will not hereafter be attempted. Nothing more is necessary to secure an unalterable adherence to the maxims upon which it is manifestly necessary that a paper currency must be founded, in order to preserve a uniformity of value than the same morality and the same intelligence. Without assuming the principle of the perfectibility of human nature, the hope may be indulged that the nature

manifest that it should not issue upon the credit of any individual, or association of individuals. A part can never be equal to the whole. The credit of any individual, or association of individuals, cannot be equivalent to that of the nation, of which they form a part. But it may be said that, although the credit of individuals is not equivalent to the credit of the nation, yet an equivalent for a particular portion of that credit may be found in the pledge or mortgage of property of equal or greater value than the currency issued upon it. This may be true; but the value of property has been continually fluctuating: it will continue to fluctuate, after giving to the advocates of a paper currency full credit for the superior stability which they suppose will attempt its substitution for gold and silver as the standard of value. But this is not the only objection to the acceptance of property, as a pledge for the payment, by individuals, of an equivalent for the paper currency which may be advanced upon such pledge. Frauds will be practised by pledging property which is encumbered, which it would be extremely difficult to detect. The Government will be involved in endless litigation with individuals who are interested in the encumbrances by which its rights to the property pledged is embarrassed. In such contests, the interest of the Government is always endangered, even where right is on its side. It is not qualified to enter into such litigations with an equal chance of success. The feelings of the community are always, except in flagrant cases of fraud, upon the side of an individual supposed to be struggling with the overwhelming influence of authority. Besides, in all contests of this nature, something of the respect for the Government, which ought to be cherished by the citizens, especially of a free State, will be lost. The situation is invidious, and ought not voluntarily to be assumed by a Government jealous of its dignity and purity of character. It is therefore believed that a national currency cannot be issued with safety, with a reasonable prospect of success, and with sufficient security against redundancy, but in exchange for gold and silver of

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a definite standard, or for the public stock at certain fixed rates. When issued in exchange for them, and for them alone, there is, though not the same, yet perhaps an equal security against redundancy as in the case of a metallic currency. When it is issued in exchange for coin, there is no addition made to the currency. When it is issued in exchange for public stock, commanding, previously to the exchange, its par value in coin, the party who acquires the currency parts with that which was equal to specie, and is deprived of the annual interest which it produced. Unless the interest of the currency, resulting from its scarcity, should exceed that paid upon the stock, it would not be demanded in exchange for the stock. In either case, the danger of redundancy is extremely remote. By the exchange of specie for currency, the active capital of the country will be increased to the amount of the currency; and the capacity of the nation to redeem it, whenever it shall, by any circumstance whatever, become expedient, will be unquestionable.

Government, to meet its engagements previously contracted, would raise their price in the market, and render the obligation to discharge those engagements in the precious metals not only extremely onerous, but, perhaps, sometimes impracticable. In such a state, a compromise with the public creditors would seem to be a preliminary measure. This, under any circumstances, would be a measure of great delicacy and difficulty, and, in some cases, would probably be utterly impracticable.

6. Whenever, from any cause, the currency should become redundant, the redundancy may be funded at a rate of interest a fraction below the rate of legal interest.

In determining the rate at which it may be funded, due regard should be paid to the rate of interest previously existing in the State. The rate of interest, it is conceived, ought not to depend (and, where a metallic currency prevails, does not depend) solely upon the amount of currency necessary to perform with facility the exBut it may be doubted whether, under such con- changes required by the wants and convenience of ditions, a paper currency ever can be put in circu- society. In a new country, where there is but a lation. Under a Government firmly established, slight accumulation of capital, the interest of conducted by upright and enlightened councils, money will be high, notwithstanding there may and possessing absolute power over the currency, be even a redundancy of currency beyond what is it is believed there is no just reason to apprehend necessary to effect its exchanges. In such a couna difficulty of that nature. If, in such a Gov- try, all the objects upon which capital may be emernment, banks existed, deriving their powers from ployed, except those of the most simple kind, are it, the specie in their possession would be gradu- unoccupied. The currency necessary to effect the ally exchanged for the paper currency which would exchanges of its property, moveable and immovebecome the basis of their operations. Not only able, will be entirely insufficient to satisfy the dethe specie which they possessed would be thus mand for capital for those objects. If it should be exchanged, but exertions would, from time to time, multiplied so as to equal that demand, it would be made to acquire the sums necessary to support exceed the demand for the necessary exchanges of their banking operations. Specie would be im- society, and consequently depreciate; such, in fact, ported, even at an expense, for the purpose of being it is believed, would be the consequence of issuing exchanged. Whilst specie formed the basis of the the currency upon individual credit, or upon the operations of banks, its importation could not fail pledge of property, at a rate of interest below to be productive of loss; each importation not only that which previously existed in the State. Any producing the necessity of additional importations, change of the interest of money by law, previous but at an increased expense. But, when importa- to its having taken place in individual transactions shall be made for the purpose of being ex- tions, in consequence of the accumulation of capichanged for the currency, the exportation of the tal, would be unjust, and could not fail to produce specie thus imported will not affect the operations serious inconvenience to the community. Admitof the banks. It is only when the funding of the ting the rate of interest, in a State about to make currency shall commence, that they will be ad- the experiment, to be six per cent., then the curmonished to desist from further importations. In- rency should be issued only in exchange for spedividuals and banks would likewise exchange cie, or six per cent. or other stock, according to public stock at the rates prescribed by the system that ratio. If the currency should, when by any for the paper currency. Whenever the demand means a redundancy existed, be fundable at five for currency should be such as to raise the interest and a half per cent. interest, the utmost depreof money considerably above that produced by the ciation to which it could be subject would be eight public stock, it would, by banks and individuals, and one-third per cent. But it is probable that be given in exchange for the currency. But the the real depression in its value would not, at any facility which the existence of a public debt fur-time, be more than half that amount. Before fundnishes in procuring the paper currency is counter-ing would commence, the public stock receivable balanced by the difficulty of complying with the in exchange for the national currency would be public engagement to discharge such debt in a above the rates at which it was receivable. Its metallic currency. After a paper circulation shall issue upon the exchange of stock would therefore be substituted for gold and silver, they will be have ceased. There are, in every community capifound in the country only in the quantity de- talists who would prefer lending to the Governmanded for manufactures, and for such branches ment at five and a half per cent., than to indiof commerce as are entirely dependent upon them. viduals at six. The funding of the currency would A considerable demand for gold and silver by the therefore begin before the redundancy would offer