William Berkey
The Money Question



IN a state of civilization money performs an important part in the production, distribution and accumulation of wealth ;  it is necessary, therefore, that it should be based on sound principles.  A great deal of nonsense has been written about money and its “hidden power,” partly through ignorance and partly through design.  So widely have political economists differed in regard to its nature and functions that it is not surprising that people have been willing to ascribe to it some mysterious power, or that they should have almost despaired of being able to comprehend the principles on which it is founded and by which its movements are governed.  And this delusion has been encouraged in every way possible by the moneyed and governing classes, who are thus enabled to found systems of money on the false theory that money is the master and not the servant of labor and property.

But the age is characterized by a spirit of progress, and old systems are rapidly yielding to new ones.  The signs of the times indicate that the hoary tyranny of the money power, which has exercised despotic sway for ages over the masses of mankind, will, sooner or later, be compelled to succumb to the influences of an enlightened public sentiment.  A distinguished English writer,1 in commenting on the imperfect and rudimentary condition of the science of political economy, says :  “ The steam engine, steam navigation, railways, mechanical inventions, the electric telegraph, modern chemistry, have not appeared for nothing.  A science of political economy will yet dawn that shall perform as well as promise—a science that will rain the riches of nature into the laps of the starving poor.  Men do not yet dream of the prosperity which is in store for all orders of the people.”  A large and increasing number of leading thinkers, statesmen and philanthropists of the day are calling public attention to the unequal and unjust distribution of the products of industry that is constantly going on through the agency of a false and corrupt monetary systems, and their views have already made a profound impression on the public mind.  The ignorant masses of Great Britain may be deluded into believing, as is taught by the dismal school of English political economists, “that it is natural, and if natural, proper—though we may not see the reason—that poverty and want and disease and misery should be next door neighbors of wealth and unbounded prosperity;”  but the intelligent farmers, mechanics and laborers of the United States are not so easily convinced that the surplus wealth, which their labor produces annually, should naturally be owned at the end of the year by the financiering and non-producing classes of the country.  When people find themselves being robbed, they are apt to try to discover the offender and the means by which it is accomplished.  A very moderate amount of investigation, we think, will satisfy any candid mind that the theory, that the money power is the robber, which deprives labor of its just reward, and that a corrupt monetary system is the instrumentality, by means of which the robbery is perpetrated, is based on sound reasons.


Money, in its ordinary signification, is an agency of trade.  Civilization has developed a great variety of wants and industries, and labor has come to be divided into innumerable forms, requiring a constant exchange of commodities.  Individuals are dependent on their fellow men for every thing, except the particular product of their own labor.  One class furnishes food, another the material for clothing, another builds houses, etc., etc., and each class is susceptible of innumerable subdivisions.  When we come to individuals, each one has to give his labor, or the product of his labor, or the product of the labor of others, for that which he needs or desires.  This exchange is effected through the agency of money.  It is necessary, therefore, that money should possess a legal representative value.  It must possess representative value to be the equivalent of the commodity or labor for which it is exchanged, and its representative value must be established by law, otherwise its acceptance by a creditor would be optional.  As the value and power of money depend on law, its institution and regulation are duties which devolve upon the legislature or governing power of a nation.

The adoption of money or a medium of exchange was undoubtedly one of the first steps in civilization.  In a simple state of society, as in newly settled countries now, the exchange of commodities took place by means of barter, but the necessity of a medium of exchange becoming apparent, different representatives of value were adopted, according to the wants, tastes and possessions of the communities or nations concerned.  Thus the Spartans adopted iron, the ancient Romans bars of copper and cattle, the North American Indian beads, and the East Indian and African shells.  At an early age gold and silver came to be regarded as the most suitable materials for the purposes of money for many reasons, among others on account of their possessing large value in a small and compact form.  Coins or tokens made of these metals next appeared, but originally possessed no other power than that which they derived from the intrinsic value of the materials of which they were made, which was determined by weight, as is the case now, when used in commerce between different nations, Governments next assumed the right to make and regulate the value of money, in consequence of the necessity of establishing a common representative of value to be used in the payment of debts and taxes.  As civilization progressed and wealth increased, requiring a more rapid and extensive exchange of commodities, it became necessary that the medium of exchange should be increased in the same proportion.  It was impossible to obtain gold and silver in sufficient quantities to answer the purposes of money, and it would seemingly have been but the part of wisdom to have adopted new systems of money, but history gives but one or two instances where anything of the kind was attempted.  The scarcity of money led to the use of credit, which now plays such an important part in the commerce of the world.  Bills of exchange were invented, it is believed, by the Jews of Lombardy in the, 7th century.  In the 13th, 14th and 15th centuries the greater part of the commerce of Europe was accomplished at periodical markets or fairs.  Merchants and traders, or their brokers, would meet at these fairs with their accounts or bilans (balance) made out, and by transferring debts and credits from one to another, effect a settlement with the use of no more money than was required to settle balances.  In many parts of Europe these fairs are still held, although they have lost most of their former importance.  Various other devices to increase the circulating medium of exchange have been resorted to by different nations, such as reducing the amount of bullion in their coins from time to time, until now they contain but a fraction of the value which their names originally called for.  In the days of William, the Conqueror, the “pound” actually was a pound weight of silver, and a shilling was a twentieth part of a pound, but at the present time a pound of silver is coined into sixty-six shillings.  The legal money of England has been regulated or altered in this way by the English government one hundred and eighty-four times.

The specie basis system of Great Britain, which was adopted nearly two hundred years ago, owes its origin to the same cause—the necessity of increasing the medium of exchange.  The effect of the system is to centralize wealth.  In Great Britain it has enabled the aristocratic and moneyed classes to acquire enormous wealth, and has reduced the industrial classes to a condition of abject poverty.  In the United States it has had the same tendency.

The only people of former times, who seemed to fully understand the stature of money, were the Venetians.  In the 12th century they adopted a system of money, based on the wealth and credit of the people, which lasted over 600 years.  Inscriptions on the books of a bank, established by the State, which were divisible to any desired amount and transferable on the books of the bank from one to another, formed the chief medium of exchange during the period named.  These inscriptions of credit were not redeemable in coin, but, notwithstanding that, they commanded a high premium over gold and silver.  The Venetians were enabled, principally through their enlightened system of money, to attain great prosperity, which they enjoyed for centuries, and commercial crashes and money panics were unknown amongst them.  (See Chap. IV.)

The French people manage their financial affairs with more wisdom than any other nation of the present day.  When specie is scarce an irredeemable legal tender paper money is used in its stead.  Great pains are taken by the French government to keep every section amply supplied with a circulating medium of exchange, in order, to develop the producing forces of the country—a policy that has been crowned with marked success.

The American people have had some experience in regard to the advantages of a legal tender paper money system since 1861, but the notes of the government (greenbacks) were issued in such a mutilated form, and the workings of the system have been so materially interfered with by the money power, by means of corrupt legislation, that as yet they have had no fair opportunity to judge of its real merits.

From an early period, then, money came to derive its power, as an agent to represent, measure and exchange value, from public authority.  Individuals and nations seek to exchange and accumulate property and commodities, and money is desirable only on account of the power, with which it is clothed by public authority, to command property or labor.  It is not useful of itself, for it cannot be used as food, or clothing, or shelter.  It must be parted with before any service or value can be obtained from it.  In an accumulated form, as capital, it can bring no income until it is put to use—parted with.  It is, therefore, the immaterial principle or power to represent value that is the essence of money, and this it can only derive from law.  “Money is then,” in the language of Kellogg, “a legal existence, being constituted a national representative of property ;  consequently it is a public lien on all property for sale in the nation, a public medium for the exchange of products, and a tender in payment of debts.”


As money is a legal public medium of exchange, possessing representative value, it is not necessary that the material of which it is made should possess intrinsic or commercial value.  To use again the language of the author last quoted, “The value of money perpetually depends upon its power to represent value and not upon its material, because money never reaches a point at which it can be used as an article of actual value.”  The value of the material can add nothing to its power as money ;  it can only render its value more certain, as when money is issued by a weak and irresponsible government, or by a nation possessing few or no products for which it can be exchanged.  When issued by a stable and responsible government, whose people possess ample property and valuable products, its value corresponds to the value of the products of the country for which it can be exchanged.  If money made of paper will procure the same property or commodities, as if made of a material possessing intrinsic value, like gold or silver, it possesses the same power in one instance as in the other.  If A. has a ten dollar gold piece and B. has a ten dollar legal tender note, and the gold piece and paper money will each purchase the same article of value, in parting with them A. does not part with anything more than B., although A’s money possesses an intrinsic value and B’s does not.  And as long as the gold piece is used as money, it is not possible for any one to derive any more use or value from it, than that which belongs to it in its representative capacity by virtue of law.  Dr. Walker, a political economist of the bullionist school, in speaking of money as an instrument of exchange, says :  “ Anything which by general consent, or in obedience to law, all receive in exchange will answer the purpose (of money.)  So far as this function is concerned, it is of no consequence whether the article has value or not ;  safety and convenience are the only considerations of importance.  Money in this respect is simply a counter, token or universal equivalent.”

The power of money, then, whether made of a material possessing value or not, depends on its ability to represent value.  How a piece of paper, possessing little or no intrinsic value, can acquire the power to represent value, will be explained further on.  In the meantime it will appear from a slight examination that it is a disadvantage to money to possess an intrinsic value, and that gold and silver, however suitable they may be to adjust balances between nations, are not the proper substances out of which to make the circulating medium of a nation.  If money possesses an intrinsic, as well as a representative value, it is then a commodity, as well as money, and is subject to two different and often antagonistic sets of laws.  As money it seeks to perform the functions of money and to fill the channels of trade, while as a commodity it is compelled to obey the “uncontrollable laws of supply and demand.”  In commerce gold and silver are commodities and are taken in exchange for products, when they are preferable, in a business point of view, to other products or commodities, or in the settlement of balances, after an exchange of products has been made.  They are thus liable to be taken at any time from the channels of circulation by the demands of commerce, and this can be done most readily when they are stored in bank vaults as the basis of bank notes.  In this way the amount of the circulating medium in a country is rendered dependent on the wants and whims of other nations, and is, consequently, uncertain in amount and fluctuating in value.  It may be safely asserted that there was scarcely ever a time in the history of the United States, when the specie basis system was in existence, that the Emperor of China could not have occasioned a commercial crash and money panic, by simply decreeing that the idols and images worshipped by his subjects should be made of gold.

Gold and silver money are objectionable on account of the inconvenience and risk which attend their use, and for many other reasons, but the chief objection to gold is its scarcity, which also renders it expensive.  There is not sufficient gold money in circulation to answer the wants of any one of the leading commercial nations of the world, and for all to seek to use it as an exclusive medium of exchange is simply an absurdity.  It is true the difficulty is remedied in part in some countries by issuing paper notes based on gold, but these notes are not legal representatives of value, but merely representatives of the credit of those who issue them, and constitute, as experience has proved, an unsafe and unreliable medium of exchange, as will hereafter more fully appear.  As compared with the vast amount of money required to pay interest on debts, national, state, municipal and corporate, and the expenses of governments, and to carry on the transactions of hundreds of millions of people, the amount of gold in use as money is as a grain of sand to a mountain.

And when properly considered the intrinsic value of gold and silver is comparatively trifling.  These metals owe their chief value to their use as money.  If that use were discontinued to any considerable extent, their value would depreciate in a corresponding degree.  Only recently Germany demonetized silver, and it depreciated so rapidly in value that it became a matter of importance to the German government to dispose of its supply at the earliest moment possible.  In 1764 the British Board of Trade objected to the use of legal tender paper money in the colonies, doubtless because it rendered the people of the colonies independent of the money power of Great Britain, on the ground that “ every medium of exchange should have an intrinsic value, which paper money has not.”  To this Dr. Franklin replied :

“ However fit a particular thing may be for a particular purpose, whenever that thing is not to be had, or not to be had in sufficient quantity, it becomes necessary to use something else, the fittest that can be got in lieu of it. * * Bank bills and bankers’ notes are daily used here [in England] as a medium of trade, and in large dealings perhaps the greater part is transacted by their means, and yet they have no intrinsic value, but rest on the credit of those that issued them, as paper bills in the colonies do on the credit of the respective settlements there.  These (bank bills) being payable in cash upon sight by the drawers is, indeed, a circumstance that cannot attend the colony bills, for the reason, just above mentioned, their cash (bullion) being drawn from them by the British trade ;  but the legal tender being substituted in its place, is rather a greater advantage to the possessor, since he need not be at the trouble of going to a particular bank or banker to demand the money.”

“ At this very time even the silver money in England is obliged to the legal tender for a part of its value ;  that part which is the difference between its real weight and denomination.  Great part of the shillings and six-pences now current are, by wearing, become five, ten, twenty, and some of the six-pences even fifty, per cent. too light.  For this difference between the real and nominal you have no intrinsic value ;  you have not so much as paper ;  you have nothing.  It is the legal tender, with the knowledge that it can easily be reprised for the same value, that makes three pennyworth of silver pass for six pence.”

“ Gold and silver are not intrinsically of equal value with iron, a metal in itself capable of many more benefits to mankind.  Their value rests chiefly in the estimation they happen to be in among the generality of nations, and the credit given to the opinion that the estimation will continue.  Otherwise a pound of gold would not be a real equivalent for even a bushel of wheat.”  [Franklin’s Works :  Duane’s edition, 1809; volume 4.]

Gold or silver, or both, however, are used for the purposes of money by nearly all nations, and hence it is that these metals have come to be used in the commerce of the world, not as money, but as commodities, under the name of bullion, possessing an established and universally recognized value.  Gold at the present time is a commonly accepted equivalent for all other commodities.  It will be borne in mind, however, that this general recognition of the value of gold depends chiefly upon the fact that gold is a legal tender, when coined into money, in all nations where it is used.  No law exists compelling citizens of different nations to receive from each other gold in payment of debts, but people will always take that in payment of debts which they can in turn apply to the same purpose.  It is incorrect, therefore, to speak of gold as the “money of the world.”  No such money has ever been established, nor can be until all nations adopt a uniform unit of value as well as of money.  Different units of weight, length, value, etc., have grown up in different nations, in the same manner as different languages, manners and customs have grown up, and it would be almost as easy to establish a universal language as to induce the various nations of the world to adopt a common system of money.  A person who takes $100 in gold, coined in the United States, to England, is obliged to sell his coin, just as he would sell a bale of cotton, in order to obtain money which will pass current in that country ;  and if he crosses over to France he is obliged to sell English coin in the same way.  And it may happen, and frequently has happened, that a person may be unable to obtain money for gold or silver.  During the financial crisis in England, in 1847, it was impossible to borrow a 5 note on thousands of dollars worth of silver, because silver was not a legal tender for an amount over forty shillings, and was, therefore, practically useless for the purposes of money ;  and in Calcutta, where silver money is the legal tender of the country, during the stringency of 1864, it was impossible to borrow money on gold.  It is well authenticated that, during that crisis, persons, with as much as $100,000 worth of gold in their possession, were obliged to allow their notes to go protest, because they could not borrow $10 in silver money on a bushel of gold.

Another clap-trap name given to gold and silver, now in common use, is “ honest money.”  Money is honest or not honest according to the uses it performs and the manner in which it performs them.  Gold or silver may perform the uses of money in an honest manner—it is then, “ honest money;”  but it has been, and still is, the misfortune of these naturally honest metals to be made the basis of all the rascally systems of money ever founded.

And it may be well, too, to notice briefly another pet name which is much relied upon by the bullionists to deceive and influence a large and intelligent class of people.  In the memorable fight between the people, under the fearless and patriotic leadership of President Jackson, and the money power, represented by the United States Bank, the term “hard money” became deservedly popular.  Gold and silver coin were then the people’s money—the “honest money” of the country, as the greenback is now ;  and the gist of the controversy was then, precisely as it is in the pending struggle now, whether the people should retain the control of the circulating medium of the nation in their own bands, where it is placed by the Constitution of the United States, or should permit individuals and corporations to usurp the functions of the general government, and, in its stead, make and regulate the medium of exchange of the country.  (See Chapter V.)

If gold and silver were demonetized by the principal nations of the earth, they would owe their value as commodities to the use that could be made of them for other purposes, as for ornaments or in the arts ;  and as they could then be had for such purposes in abundance, their value would doubtless diminish to but a fraction of what it is now.


The uses of money correspond to its powers or properties, viz :  to represent value, to measure value, to accumulate value and to exchange value.2  Actual or real value belongs to property or products, which are necessary or desirable, and money is the legal medium by which it is represented, measured and exchanged.  In all accumulated form, as capital, it represents accumulated property or labor, and is capable of accumulating value in the same manner that the property or labor which it represents could be used for that purpose.  It measures value because it is the legal standard of value established by law, just as weights and measures to determine the weight, length and bulk of articles are established ;  and if based on sound principles, it would prove as unvarying, as a standard of value, as are the standards of measurement of weight and quantity.  The value of property and products would then rise and fall in obedience to the laws of supply and demand, but the standard of value, money, would remain the same as previously determined by the law which instituted it, provided the law emanated from a responsible source.  This may be illustrated in a measure by the greenback now in use, though not with the same degree of force and certainty that it could be done, if the greenback had not been mutilated and depreciated by law.  The value of property and commodities is now measured by the greenback, because the value of the greenback corresponds to the idea of value carried in the minds of the people of the United States.  The unit of value in the United States is the dollar, and this unit of value is fixed in the mind, just as the units of measurement expressed by a pound, a bushel, a yard or a degree, are fixed there, that is by use and custom.  Partial legal tender paper money (the greenback) is now the money or medium of exchange of the country, and corresponds to the idea of value fixed in the minds of the people.  People think in greenbacks when estimating value.  If told that the price of a horse is $100, the amount or value is instantly referred to the greenback standard of measurement.  The price of particular commodities, as well as the price of gold, may change daily without affecting the prices of other commodities, as measured by the greenback standard, which could not be the case if it were the greenback that fluctuated.  Hence it may be inferred, among other things, that editors of newspapers, who quote greenbacks as worth so many cents on the dollar as compared with gold, are either grossly ignorant of the nature of money, or have become entangled in the toils of the money power.

But it is of the uses of money in a less technical sense that we wish to speak.  Money has come to be a vital element in production, in the operations of trade and in the business details of life.  In a simple state of society, as in new countries even now, individuals and families are for the most part self-supporting.  The farm supplies food and the material for clothing, and the spinning wheel and loom are found in every household.  But where the advantages of civilization and a medium of exchange have once become common, a very different condition of affairs exists.  The merchant, the tailor, the carpenter, the shoemaker, the blacksmith, the doctor, etc., etc., have made their appearance, and individuals and families are no longer self-supporting, but wholly dependent upon each other.  Money is then a necessity.  Food, clothing, rent, fuel, light, taxes, insurance, railroad fares, etc., etc., require cash, and a general scarcity of money will occasion want and suffering, even in the midst of plenty.  How dependent individuals are upon each other in a state of civilization, is thus set forth by Kellogg :

“ The necessity for the exchange of commodities is generally acknowledged.  Few, however, even among thinking men, are aware how indispensable these exchanges are to the subsistence and comfort of the human family.  Men are social beings, and mutually dependent.  To appreciate this important truth, we must consider the inability of each man to provide for the numerous wants of his nature ;  and the ignorance and discomfort to which each would be exposed, were he not benefited by the labor of others.  If every man could build his own house, furnish his own food and clothing, and make all the instruments and utensils that he needs to use :  if the materials for all these things were placed upon every acre of land, and every man, woman and child, were endowed with sufficient skill and strength to produce them, there might be no need of an exchange of commodities.

But all men are, in many, in most things, dependent on the labor of their fellow men.  For example, take the farmer, who is acknowledged to be the least dependent of men, and see for how many things even he is indebted to the labor of others.  He must have implements for the cultivation of his farm, a plow, barrow, shovel, hoe, sickle, cradle, scythes, a fan, or fanning mill, and a cart or wagon.  The farmer is dependent on the miner for the iron ore ;  on the collier to dig the coal ;  on the furnace worker to smelt the iron ;  on the forger and the smith to make him his iron and steel instruments.  He is dependent on the wagon maker for his wagon ;  on the machinist for his fanning mill ;  on the carpenter for his house ;  on the nail maker for nails ;  on the glass manufacturer for glass ;  on the stone cutter and the mason for mason work ;  on the brick maker for bricks ;  on the cooper for barrels, tubs and pails ;  on the saw maker for a saw, and on the rolling mill to roll out the iron or steel for it ;  on the tin-plate worker for kitchen utensils ;  on the moulder and caster of iron for iron pots ;  on the miner of copper, and on the copper and brass founder for brass and copper kettles ;  on the pump maker for a pump, etc., etc.  He is dependent on the needle maker, the pin maker, the button maker, the silk grower, the tanner, the shoemaker, the hatter, the saddle and harness maker, the cabinet maker, and the type maker, type setter and printer.  Not one of these artisans, in attending to his particular employment, produces his food and clothing ;  and all would be destitute of them, unless supplied with them by the labor, of others.  The farmer raises all of his food, except salt, tea, coffee, sugar, molasses, spices and the like ;  these, and the ships to transport them, must be furnished by others.  These wants call into employment ship carpenters, sailors, compass makers, surveyors, chart makers, etc.  The farmer must raise wool, cotton, hemp or flax, or else be dependent on others for clothing.  If the farmer, who is the least dependent of men, receives from others so many supplies, how is it with the hatter and shoemaker ?  The former makes an article to cover the head, the latter one to cover the feet ;  and all the additional supplies of both must be furnished by the labor of others.  Artisans, too, depend upon each other for the different parts of their work ;  the cotton manufacturer must be assisted by others to carry forward his manufacture.  Many articles, such as watch springs, are useless unless they are combined with other parts.  It is, then, of paramount importance that no obstacles be thrown in the way of a ready exchange of commodities.

A certain quantity of one kind of produce is worth as much as a certain quantity of another kind ;  and all civilized nations have adopted some medium by means of which all kinds of produce may be more easily exchanged than by direct barter.  We hear it sometimes asserted that there is no need of a medium of exchange.  But the articles of trade could not be divided and distributed to supply the numerous wants of a people without a representative of value through which the distribution could be made.  For example, a man brings to market five hundred bushels of wheat.  The purchaser tenders corn in payment ;  and they agree that seven hundred and fifty bushels of corn are worth as much as five hundred bushels of wheat.  The seller can use but a small portion of the corn, and finds a purchaser, with whom he exchanges the surplus for hams.  He disposes of the hams for hats and shoes.  If he endeavor to divide, the hats and shoes, and exchange them for the articles that he needs, he may spend two years before he can return to his farm to raise a second crop of wheat.  Yet he is fairly dealt with.  All those with whom he exchanges, give him, as nearly as possible, an equivalent of actual value for the actual value that they receive ;  and all the articles are such as all need.  In fact, all trade is simply a barter of one useful thing for another.  A person who produces more of an article than he needs for his own use, exchanges his surplus for the surplus articles of others.  If the farmer had sold the wheat for money, the money would have been a tender for any other article that he wished to purchase.”

In the large operations of trade, as with foreign countries and between different sections of the country, vast sums of money are constantly required.  The foreign trade of the United States in ordinary times amounts to nearly $1,000,000,000 a year, and the trade between the different sections of the country amounts to probably five times that sum.  It is true that, in the trade with foreign nations and between different parts of the nation, the transfer and re-transfer of money from one to the other is rendered unnecessary by the use of checks, drafts and bills of exchange, except to settle balances ;  but in the production, transportation, repeated handling and distribution of the commodities, represented by the vast sums referred to, the amount of money required is enormous.  For example, in the movement of the crops of the Western States alone more cash is required each year than can be had for the purpose ;  and in the days of the specie basis system the Western banks, as is well known, were in the habit at such times of issuing their notes without any regard to legal limitations.  President Grant in his message of December, 1873, after the panic and before he had become debauched by the money power, called the attention of Congress to the fact in the following language :

“ It is patent to the most casual observer that much more currency or money is required to transact the legitimate trade of the country during the fall and winter months, when the vast crops are being removed, than during the balance of the year.  With our present system, the amount in the country remains the same throughout the entire year, resulting in an accumulation of all the surplus capital of the country in a few centers, when not employed in moving crops, tempted there by the offer of interest on call loans.  Interest being paid, this surplus capital must earn the interest paid with a profit.  Being subject to ‘ call,’ it can not be loaned, only in part at best, to the merchant or manufacturer, for a fixed term.  Hence, no matter how much currency there might be in the country, it would be absorbed, prices keeping pace with the volume, and panics, stringency and disasters would ever be recurring with the autumn.  Elasticity in our monetary system, therefore, is the object to be attained first, and next to that, as far as possible, a prevention of the use of other people’s money in stocks and other species of speculation.”

Money is also an important element of production.  When the channels of circulation are supplied with money, the industries of the country are quick and active, and the entire nation becomes engaged in adding to its wealth.  It has been well said that “A nation, whether it consumes its own products, or with them purchases from abroad, can have no more value than it produces.  The supreme policy of every nation, therefore, is to develop the producing forces of its own country.  What are they ?  The workingmen, the land, the mines, the machinery, the water power, etc.”3  The producing forces of a country can be developed only slowly and laboriously without the aid of money.  The productive soil, the iron, the coal, the timber, the water power, the machinery, the labor, etc., may all be at hand, but until touched by the vitalizing current of money, as it circulates in the channels of trade, they can give forth but a feeble spark of the life and power which they possess.

At an early day in the history of the colonies the inhabitants were subjected to great drawbacks for the want of a legal medium of exchange.  Dr. Franklin, in 1764, stated to the British Board of Trade that :

“ In 1723 Pennsylvania was totally stripped of its gold and silver. * * * The difficulties for want of cash were accordingly very great, the chief part of the trade being carried on by the extremely inconvenient method of barter, when, in 1723, paper money was first made there which gave new life to business, promoted greatly the settlement of new lands, whereby the province has so greatly increased in inhabitants that the export from thence thither [to England] is now more than ten fold what it then was.”

In 1755 Virginia was badly in need of money or a medium of exchange.  A paper money bottomed on a specific tax was issued, which afforded abundant relief, and, as we learn from Jefferson, never depreciated a farthing in value.  But a more marked instance of the value of money as an element of production is furnished by the experience of Pennsylvania during the present century.  In 1841 the people of Pennsylvania were on the verge of bankruptcy.  The State was unable to pay interest on the public debt, or even pay the wages of laborers for work done on the public works.  Corporations were bankrupt, and merchants were in nearly as bad a situation.  There was no money, and consequently trade and production were completely paralyzed.  The State of Pennsylvania in this crisis issued $3,100,000 of what were called relief notes, bearing simply a promise that they would be received by the Treasury of the State in payment of all taxes and other obligations due to the State.  “ These notes were taken greedily by the people.  Banks inserted in the front of their books an agreement that the depositor should receive on check the same kind of money he deposited, and then took these notes.  They discounted paper with them.  The wheels of industry were set in motion by these notes, which promised nothing but that they would be received in payment of State taxes.  The State paid her domestic creditors, and these hastened to pay theirs or to supply their wants by purchase.  Crops, for which there had been no market, moved ;  the loom and the spindle were again heard ;  labor, lifted from despair, found work and wages, and with the great resources of Pennsylvania under full and free development, she was soon exporting more than she imported.  Gold and silver flowed in upon her ;  and the broken banks resumed specie payments.  We then did,” says the Hon. William D. Kelley, of Pennsylvania, from whom we quote, “ what France does ;  we were wise enough then to know that it is labor, not coin, that maintains the public credit and gives prosperity to the people.”

But the people of the United States have had ample proof, during the past few years, of the great advantages to be derived from an abundance of money.  The activity in all forms of productive industry during and immediately after the war, which constituted an inexhaustible fountain of strength to the Federal Government, and which, in spite of the ravages of war, enabled the country to double its wealth in ten years, from 1860 to 1870, was attributable entirely to the vast amount of money, or evidences of indebtedness of the government used as such, that then filled the channels of circulation.  The condition of the country then, when money was plenty, and now, under the policy of contraction, which has withdrawn the circulating medium of exchange from the channels of trade, is thus eloquently portrayed by the distinguished statesman quoted above (Kelley), in a recent address to the citizens of Philadelphia :

“ You have seen a strong man, full of life, rise in the morning as a lion shakes the dew from his mane and go forward to the battle of life, full of vigor, full of hope, full of energy, full of enterprise.  His brawny nether limbs bear his stout body ably ;  his muscular arm and his cunning hand go glibly and gladly to their duties, performing their functions.  But an accident happens, an artery is cut ;  the blood does not ooze, but flows from him.  The surgeon comes just in time to save his life.  He staunches the wound and binds it up.  But the man is another being, he lies there pallid and shrunken.  His sturdy limbs will not even bear his wasted body.  His muscles are flaccid, and his fingers have lost their skill.  His energy is gone, and he dreams not of enterprise.  This is our condition to-day as a people.  In 1865 and 1866 every man in America who had the skill and the will to labor could earn wages to support his family and lay something by.  All industries were quick and active.  Production ran on.  The American people waked up each new morning to feel that there were great duties before them ;  that there were mines to be opened, forges and furnaces to be erected to work the iron, the copper, the silver and the gold.  New houses were built.  Skill, energy, science and genius were taxed to quicken and cheapen productive processes.  Our wealth grew as it, or that of any other people, had never grown.  We were moving onward, when one Hugh McCulloch tapped a great artery and let nearly all the blood flow from the body politic.  Diseased, paralyzed, shrinking from day to day, what American has the energy to engage in developing a new mine ?  Pennsylvanians, who of you are ready to construct a new forge or a new furnace ?  Where are factories building to-day ?  Your laborers—moody, sullen, in want—are begging the poor privilege of earning a day’s food by an honest day’s labor.  Their homes are being stripped of everything they cherish.  Go through the suburbs of your city, halt before the houses where of a Sunday afternoon you would, a few years ago, have found the family gathered about the melodeon or the cheap piano, singing the praises of Him who had given them their lines in these pleasant places.  Ah !  the house is silent now ;  the father is out of employment, the sons are in idleness, the daughters have no work ;  the melodeon or piano is gone.  Aye, worse than that, the most cherished mementoes, though of little value measured in dollars and cents—the cheap jewelry—the trinket that the young lover toiled in over hours that he might buy and see it grace the person of his sweetheart, the amulet he hung upon the neck of his bride—the silver cup that marked the birth or christening of their first born—cherished by all, but they have gone to the pawnbroker or jeweler to bring them food.  Courage gone, hope gone, despair crushing him to the earth, and destroying all the pride that made the American mechanic the boast and honor of his country, how many a man to-day, longing for honest work but powerless to obtain it, cregs and crawls from town to town, foot-sore, ragged, dusty, to beg from strangers rather than from those who know him and will remember it to be denounced as a ‘tramp’ and commended to the custody of the police ! ”

As the end and object of money are to exchange commodities and promote production, it should be increased in amount in proportion to the increase of population and trade.  Bullionists assert the contrary, but they can furnish no sound reason or proof upon which to base their theory.  They invariably rest their argument on the fact that nations have increased in wealth and population without adding to their monetary circulation, and most always cite Great Britain as a case in point.  Properly considered the experience of Great Britain does not sustain their theory.  How does Great Britain manage to conduct its large and increasing business without a corresponding increase of money ?  The answer is by means of inflated bank credit.  On account of the want of a sufficient medium of exchange, the British people are compelled to use and pay for the credit of banks to an enormous extent.  This is a heavy tax upon the industrial classes of that kingdom, and explains why the wealth of the people is constantly flowing into the hands of the few.  We find the following statement used by Dr. Walker, a political economist of the bullionist school, to show how nicely the people of Great Britain can get along with but a limited amount of money.  We submit that it shows much more forcibly to what a desperate use of inflated credit that nation has been driven by a false monetary system.  He says :  “As an illustration in point, Sir John Lubbock gave, in a paper read before the Statistical Society, in June, 1865, an analysis of 19,000,000 paid into his banking house in a few days, as follows :

Checks and bills.............. £18,395,000, or 97 per cent.
Bank of England notes........ 408,000
Country notes.......................79,000

From which statement it appears that only three per cent. were paid in the form of money, i. e., notes and coin together, of which a little more than one-half of one per cent. was in coin.”  The bullionists pretend to be very much afraid of the evil consequences of inflation ;  but when the mask is torn off, it is apparent that they are only concerned about retaining the power to inflate in their own hands.


Every nation has its own peculiar system of finance, the difference consisting more in details than in principles.  The financial system of the United States is now composed of the Independent Treasury Bureau for the receipt, custody and disbursement of the revenues ;  of the Treasury proper, which maintains an issue of about $370,000,000 of Treasury notes (greenbacks), constituting the legal tender medium of the country, and about $45,000,000 of fractional currency ;  of the National Banks, over 2,200 in number, with a circulation of over $360,000,000 ;  and a number of State Banks, established under State authority.

The medium of exchange of the United States, it will be observed, is composed of Treasury notes (greenbacks) and bank notes.  It is important to notice the difference between the Treasury note and the bank note, because they belong to two entirely different and distinct systems of money ;  and a clear perception of the difference is essential to a proper understanding of the money question and of the political issues, growing out of it, which now agitate the country.

A bank note is a bill of credit, promising payment in lawful money on demand, issued by and resting on the credit of a private corporation established by law.  Being payable or redeemable in money on demand, it represents money and circulates as such, and performs nearly all of its functions.  Private corporations, therefore, upon whom the privilege or power to issue bank notes is conferred, are practically invested with the authority and power to make and put in circulation a medium of exchange.  If the bank note is secured by a deposit of stock or bonds to insure its payment and maintain its value, as is the case with the National Bank note, which is secured by a deposit of United States bonds in the Treasury of the Federal Government, it will form a perfectly safe, uniform and convenient medium of exchange.  But a bank note possesses two peculiar features, which do not belong to money, (of any kind, whether made of gold, silver, or paper) and which render it a costly medium of exchange.  One peculiarity of a bank note is that it enters into circulation encumbered with interest, and constantly accumulates value, whether it is in use or not.  Its very existence, therefore, is a tax upon production and trade.  The other peculiarity, which grows out of the one just mentioned, is that a bank note is not free to obey the natural laws of trade, but is subject to the will and control of the corporation which puts it in circulation.  This can be made perfectly clear by supposing two notes, a greenback and a National Bank note, to be put into circulation at the same time and observing the course taken by each.  A greenback dollar is paid out by the United States government to A. for its equivalent in labor or value.  A. pays it to B. for a dollar’s worth of commodities.  B. lends it to C. for thirty days at 6 per cent interest.  C. pays it to D. for a debt.  D. retains it in his possession for three months and then puts it in circulation again.  It passes from hand to hand, until finally it reaches Z., who pays it to a collector of internal revenue, when it is returned to the Federal Treasury, to be used over and over again in the same manner.  While performing its use as a medium of exchange, it bore no interest.  When held by D. for three months in a state of idleness, it accumulated no value for any one.  It is true B. lent it to C. for thirty days at 6 per cent. interest, but that was an individual transaction and extended no further than the parties concerned.  As soon as C. put it in circulation again, it went on its way, as free and unencumbered as when it left the Treasury of the United States.  But it is very different with a bank note.  The bank, which issues it, lends it to A. for sixty days at say 6 per cent. interest, and A. puts it in circulation.  At the expiration of sixty days, A., unable to return the identical note which he borrowed, pays the bank with a greenback or another bank note.  This note in turn is immediately lent to B., and the process goes on indefinitely.  The original bank note thus constantly realizes interest and accumulates value for the bank, whether it circulates in the channels of trade, or reposes in the vaults of the bank as a deposit, or lies rotting at the bottom of the ocean.  This interest comes out of the profits of production, and is a tax upon the community at large.  The tax thus imposed upon the public for a medium of exchange is a greater burden than industry can bear, and every few years labor is driven to the wall and production, except of the necessities of life, ceases.  To promote production, or in other words, to “develop the producing forces of a country,” it is, as we have seen, more essential to have a cheap medium of exchange, than it is to have cheap transportation ;  but a bank note is the most expensive medium of exchange that could possibly be devised, because it is accumulating value all the time, whether it is performing the uses of money or not.  The bank note is subject to the will and control of the corporation which issues it, because when the bank ceases to discount paper, as it usually does whenever there is a money stringency, and calls in its circulation, it is obliged to leave the channels of trade, no matter how much its services are needed as a medium of exchange, and return to the bank.  But this is not all.  The tax which banks are thus authorized to impose on the medium of exchange issued by them, enables them to control not only their own notes, but the money of the country, whether coin or legal tender paper money, as will be more fully explained in another chapter, and thus it happens, as at the present time, that the circulating medium of the nation every few years becomes concentrated in the money centers of the country.

A bank note medium of exchange, whether redeemable in coin, as in England, or in greenbacks, as in the United States at the present time, it will, therefore, be observed, constitutes a peculiar and distinct system of money, and one, it may be added, that has proved an infinite source of disaster and weakness in both England and America.

It was for these reasons, in days gone by, that Jefferson insisted that “Bank paper must be suppressed and the circulation restored to the nation to whom it belongs;”  that John Adams denounced bank paper as a vile freak of those who were shapen in Toryism and British idolatry ;  that Jackson waged war on banks of issue ;  that Calhoun labored to establish a legal tender paper money, to be issued by the Federal Government ;  and it is for the same reasons that a host of the foremost statesmen, political economists and philanthropists of the country are to-day urging the people of the United States to assert their rights and prevent the money power from destroying the greenback, in order that they may substitute the National Bank note in its stead, and thus secure the entire control of the medium of exchange of the nation.

A Treasury note issued by the Federal Government represents the property and productions of the country to the amount or value inscribed on its face.  It rests on the credit of the government in the same manner that a bank note rests on the credit of a corporation, and represents the property and productions of the country (including gold and silver) for which it is exchangeable, just as a bank note represents the coin or Treasury note in which it is payable or redeemable.  The foundation of the Treasury note is the same as that of a United States bond, which secures the payment and maintains the value of the bank note, and it, therefore, possesses the highest and best security that a medium of exchange can possibly have.4  A bank note is a promise to pay money, but a Treasury note, being a legal representative of value (property and products), is money.  It is not, therefore, a promise to pay—it would be more accurate to describe it as a promise to receive.  It is true that the present legal tender money of the United States (the greenback) professes to be a promise to pay, which is a misfortune, because it misleads people, even professors of political economy,5 but the promise is an empty phrase, wholly foreign to the nature of the Treasury note and the principles upon which it is based.  It was spread on the face of the greenback at the instance of the money power, which was unwilling to recognize any other kind of money than that based on bullion, and for the purpose of depreciating its value as a medium of exchange.

It is apparent, therefore, that legal tender paper money or Treasury notes and bank notes belong to two separate and distinct systems of money, based on entirely different principles.  In the one case the medium of exchange is furnished by the government and subject only to the natural laws which govern trade.  In the other, it is furnished by private corporations, who tax the public heavily for its use, and is subject, not to the laws of trade, but to the control of the corporations issuing it.  In Great Britain, where the system originated, the legal tender money of the country, in which bank notes are payable, is gold and silver, as was the case in the United States prior to the war, and hence the system is commonly known, and is generally referred to in these pages, as the specie basis system.  When the medium of exchange is limited to gold and silver, or paper money based on gold and silver, the public is compelled, on account of the scarcity of these metals, to use bank credit, which explains why the money power is now striving to force the American people to submit to a return to specie payments, no matter at what sacrifice.


The power to make and regulate money has long been recognized as a governmental function, or, in the language of Tooke, “In every civilized country Supplying and regulating the circulating medium is a function of sovereign prerogative.”  The reason of this is obvious.  Money to be a public medium of exchange must possess legal representative value, and this can be derived only from the sovereign or law making power of a nation.  The bullionists do not concede this, but profess to believe that the government is vested simply with the power to coin gold and silver, because “the State can do the work best, * * as no attestation (of the weight and purity of coin) furnished by private persons can compete in authority with the stamp imposed by the government mint.”6  This view of the matter grows out of the peculiar ideas in regard to the nature of money held by those who advocate the specie basis system.  Bonamy Price, Professor of political economy in the University of Oxford, England, says :  “ Coin, metallic coin, alone is true money and nothing else is, unless it be a commodity, as an ox, a cow, or a piece of salt,”—precisely the same theory of money, it will be observed, as, that held by the ancient Romans, who used bars of copper and cattle, and by the American Indian of the present day.

The Constitution of the United States confers upon Congress the following, among other, powers, viz :  “ To lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States ; * * to borrow money on the credit of the United States ; * * to coin money, regulate the value thereof and of foreign coins ; * * and to make all laws which shall be necessary and proper to carry into effect the foregoing powers, etc.”  It also prohibits the States from coining money, emitting bills of credit, or making anything but gold or silver coin a tender in payment of debts.  The exclusive power to make and regulate the medium of exchange, therefore, devolves upon the Federal Government.  At the time the Federal Constitution was framed the money question was one that had to be handled with great delicacy.  The money power, then as always in fact, was on the alert, and care had to be taken not to incur its hostility, lest it might prevent the ratification of the Constitution by the several States.  When it was proposed to insert a clause in the Constitution empowering the Federal Government “ to emit bills of credit,” it was boldly stated on the floor of the Convention that “the moneyed interest would oppose the plan of government if paper emissions (bills of credit) be not prohibited,” and the clause was rejected by a vote of nine States against to two for.  As “bills of credit” are promises to pay in lawful money and belong to the specie basis system of money, it is fortunate that no such provision was inserted in the Constitution.  In this respect its framers, perhaps, “ builded better than they knew.”  As the Federal Government is clothed with no power “to emit bills of credit,” and States are expressly prohibited from doing so, it is a very pertinent question as to how either the Federal or a State government can delegate that power to a private corporation.  Individuals can issue promises to pay, because they are in the nature of a common contract, but when it comes to corporations issuing promises to pay (bills of credit), under special authority of law, which are clothed with the attributes of money, it is a very different matter.  The well known legal maxim that what one “does through another he does himself,” would seem to fit the case pretty closely.  But the people can not afford to waste time with constitutional quibbles.  They can compel their Representatives in Congress to extinguish banks of issue and “restore the circulation to the nation to whom it belongs,”7 and if it is necessary to amend the Constitution in order to accomplish that purpose, they can also do that.

Put there seems to be no difficulty so far as the Constitution is concerned.  That the framers of the Constitution, when they refused to empower the Federal Government “to emit bills of credit,” did not intend to prohibit paper money or in any way curtail the legitimate functions of government with respect to making and regulating the medium of exchange of the country, is apparent from cotemporaneous history, as well as the subsequent course of the government.  Mr. Madison, who was a member of the Convention which framed the Constitution, in speaking of his vote against empowering the Federal Government “to emit bills of credit,” says :

“ The vote in the affirmative by Virginia was occasioned by the acquiescence of Mr. Madison, who became satisfied that striking out the words [‘to emit bills of credit’] would not disable the government from the use of public notes, as far as they could be safe and proper ;  and would only cut off the pretext for a paper currency, and particularly for making tile bills [of credit currency] a tender either for public or private debts.”  [See “ Madison Papers.”]

Mr. Jefferson repeatedly urged that banks of issue should be suppressed and that public notes issued by the Federal Government should be substituted for bank notes as a medium of exchange.  In a letter dated June 24, 1813, to his son-in-law Eppes, who was a member of the committee of ways and means of the national House of Representatives, urging this point, he said :

“ In the war of 1755, our State availed itself of this fund, by issuing a paper currency, bottomed on a specific tax for its redemption, and to insure the credit, bearing an interest of five per cent.  Within a very short time, not a bill of this emission was found in circulation.  It was locked up in the chests of executors, guardians, widows, farmers,” etc.

“ We then issued bills bottomed on a redeeming tax, but bearing no interest.  These were received, and never depreciated a single farthing.”

“ In the revolutionary war, the old Congress, and the States, issued bills, without interest and without tax.  They occupied the channels of circulation very freely, until those channels were overflowed by an excess beyond the calls of circulation.  But although we have so improvidently suffered the field of circulating medium to be filched from us by private individuals, yet I think we may recover it, in part, and even in the whole, if the States will co-operate with us.”

“ If Treasury bills are emitted, on a tax appropriated for their redemption in fifteen years, and (to insure preference in the first moments of competition) bearing an interest of six per, cent., there is no one who would not take them in preference to bank paper now afloat, on a principle of patriotism, as well as interest, and they would be withdrawn from circulation into private hoards to a considerable amount.  Their credit once established, others might be emitted, bottomed also on a tax, but not bearing interest ;  and if ever their credit faltered, open public loans, on which these bills alone should be received as specie.  These operating as a sinking fund, would reduce the quantity in circulation, so as to maintain them in an equilibrium with specie.  It is not easy to estimate the obstacles which, in the beginning, we should encounter in ousting the banks from the possession of circulation.”

Mr. Jefferson’s plan, it will be observed, is identical in principle with the much derided 3.65 inter-convertible bond plan, so ably advocated by Pliny Freeman, Judge Kelley, Horace Greeley8 and a host of able and earnest friends of the American masses.

The issue of Treasury notes under the Constitution accordingly began at an early day, though not without meeting with fierce opposition from the money power, and their legality has been sanctioned from the first by all departments of the government.  The first issue of Treasury notes was made in pursuance of an act of Congress of June 30, 1812.  Further issues were authorized by the acts of Congress of February 25, 1813 ;  March 4, and December 26, 1814 ;  October 12, 1837 ;  January 31, and August 31, 1842 ;  July 22, 1846 ;  and January 28, 1857.

The validity and constitutionality of these acts were tested and affirmed in the Supreme Court of the United States, in the case of Thorndike against the United States.  Judge Story, in delivering the opinion of the court, said :

“ By the statutes of the United States, under which the Treasury notes have been issued, it is enacted that such notes shall be receivable in payment to the United States for duties, taxes, and sales of public lands, to the full amount of the principle and interest accruing, due on such notes.  It follows, of course, that they are a legal tender in payment of debts of this nature, due to the United States ;  and, by the very terms of the acts, public officers are bound to receive them.”

When the act of Congress of October 12, 1837, authorizing an issue of Treasury notes, was pending, Mr. Calhoun advocated the measure in strong terms.  The following extracts from a speech delivered by him September 18th, prior to the passage of the bill, confirm the distinction which we have made between public notes and bills of credit, and explain what was meant when we stated that it would be more accurate to describe a greenback as a promise to receive than a promise to pay.  He said :

“ It is, then, my impression, that in the present condition of the world, a paper currency, in some form, * * is almost indispensable in financial and commercial operations of civilized and extensive communities.  In many respects it has a vast superiority over a metallic currency, especially in great and extended transactions, by its greater cheapness, lightness, and the facility of determining the amount.”

“ It may throw some light on this subject to state, that North Carolina, just after the revolution, issued a large amount of paper, which was made receivable in dues to her ;  it was also made a legal tender, but which, of course, was not obligatory after the adoption of the Federal Constitution.  A large amount, say between four and five hundred thousand dollars, remained in circulation after that period, and continued to circulate, for more than twenty years, at par, with gold and silver during the whole time, with no other advantage than being received in the revenue of the State, which was much less than one hundred thousand dollars per annum.”

“ No one can doubt but that the government credit is better than that of any bank ;  more reliable—more safe.  Why, then, should it mix it up with the less perfect credit of those institutions ?  Why not use its own credit to the amount of its own transactions ?  Why should it not be safe in its own hands, while it shall be considered safe in the hands of eight hundred private institutions, scattered all over the country, and which have no other object but their own private profit ;  to increase which they extend their business to the most dangerous extremes.  And why should the community be compelled to give six per cent. discount for the government credit, blended with that of the bank, when the superior credit of the government could be furnished separate, without discount, to the mutual advantage of the government and the community ? ” * * * *

“ Believing that there might be a sound and safe paper currency, founded on the credit of the government exclusively, I was desirous that those who are responsible, and have the power, should have availed themselves of the opportunity.” * *

“ We are told the form I suggested is but a repetition of the old Continental money ;  a ghost that is ever conjured up by all who wish to give the banks an exclusive monopoly of government credit.  The assertion is not true ;  there is not the least analogy between them.  The one was a promise to pay, when there was no revenue ;  and the other a promise to receive in the dues of government when there is abundant revenue.”

“ We are told that there is no instance of a government paper that did not depreciate.  In reply, I affirm, that there is none, assuming the form I propose, that ever did depreciate.  Whenever a paper, receivable in dues of government, had anything like a fair trial, it has succeeded.  Instance the case of North Carolina, referred to in my opening remarks.  The drafts of the Treasury, at this moment, with all their encumbrance, are nearly at par with gold and silver.* * * * The case of Russia might also be mentioned.  In 1827 she had a fixed paper circulation in the form of bank notes, but which were inconvertible, of upward of one hundred and twenty millions of dollars, estimated in the metallic rouble, and which had for years remained without fluctuation, having nothing to sustain it, but that it was received in the dues of the government, and that too with a revenue of only about ninety millions of dollars annually.  I speak on the authority of a respectable traveller.  Other instances, no doubt, might be added, but it needs no such support.”

“ It has another striking advantage over bank circulation, in its superior cheapness, as well as greater stability and safety.  Bank paper is cheap to those who make it ;  but dear, very dear, to those who use it, fully as much as gold and silver.  It is the little cost of its manufacture, and the dear rates at which it is furnished to the community, which gives the great profit to those who have a monopoly of the article.  Some idea may be formed of the extent of the profit, by the splendid palaces which we see under the name of banking houses, and the vast fortunes which have been accumulated in this branch of business ;  all of which must ultimately be derived from the productive powers of the community, and of course adds so much to the cost of production.  On the other hand, the credit of government, while it would greatly facilitate its financial operations, would cost nothing, or next to nothing, both to it and to the people, and of course would add nothing to the cost of production ;  which would give to every branch of industry, agriculture, commerce and manufactures, as far as circulation might extend, great advantages, both at home and abroad.”

Subsequently, March, 1838, Mr. Calhoun, in his speech on the Independent Treasury bill, said :

“ I now undertake to affirm positively, and without the least fear that I can be answered—what heretofore I have but suggested—that a paper issued by government, with the simple promise to receive it in all dues, leaving its creditors to take it, or gold and silver, at its option, would, to the extent to which it would circulate, form a perfect paper circulation, which could not be abused by the government ;  that would be as steady and uniform in value as the metals themselves.  I shall not go into the discussion now, but on a suitable occasion I shall be able to make good every word I have uttered.  I will be able to do more—to prove that it is within the constitutional power of Congress to use such a paper, in the management of its finances, according to the most rigid rule of construing the Constitution ;  and that those at least who think that Congress can authorize the notes of private corporations to be received in the public dues are estopped from denying its right to receive its own paper.”

The United States Treasury notes, issued prior to the war of 1861, had never been made a tender in payment of private debts, nor had they been issued in a suitable form to use as a circulating medium of exchange.  But when the Rebellion broke out in 1861, the necessity for an increased amount of money became imperative, and it became necessary to issue public notes better adapted to the wants of the times.  The banks of New York, Boston, and Philadelphia, soon after the war began, agreed to lend the Federal Government $150,000,000.  After the loan had been negotiated, the Secretary of the Treasury, unexpectedly to the banks, required it to be paid in specie instead of bank notes, and the result was that the banks throughout the country were obliged to suspend specie payments.

The government stood in need of soldiers, ships, gunboats, cannon, guns, ammunition, commissary stores, quarter-master stores, transportation, etc.  The people at large were obliged to supply the wants of the government, and fortunately possessed both the ability and willingness to do so, but it was impracticable to accomplish the ends desired except through the instrumentality of a medium of exchange—money.  Congress, by virtue of the sovereign prerogative inherent in the people, and as their representative duly authorized by the Constitution, enacted a law authorizing and directing the Treasury Department of the Federal Government to issue public notes which should be a legal tender for debts, both public and private.  As they were issued by the people in their collective capacity, and represented the property and products of the nation, it was eminently just and proper that they should declare that what they did in their collective capacity should be binding upon them individually.  In fact, in no other way could the people all have been put upon the same platform with respect to the wants of the government, in the exigency which then existed, than by declaring their public notes a legal tender in payment of debts.  These notes, as we have said, represented the property and products of the nation, and by virtue of their legal tender property they naturally and necessarily conformed to the unit and standard of value of the country.  They therefore possessed the power to measure and exchange, as well as to represent value, and consequently possessed all the attributes of money—in a word were money, in every sense of the term ;  and the American people found themselves, unexpectedly, it is true, in the enjoyment (to use the language of President Grant) “of the best currency that was ever devised.”

When public notes were issued, the people in a collective capacity in effect said to those who were able to supply the wants of the government :  “ Give the government all the guns, ships, food, transportation, etc., that is required, and the rest of the people will make good to you whatever amount you may contribute over and above your share out of any other property or products which they may possess that you need or desire.”  As it was a matter of compulsion on the part of the people to supply the wants of the government, it was an act of supreme folly in them to encumber their circulating medium with interest directly or indirectly, as was done, which can only be compared to a man paying somebody else interest for the privilege of using his own money.  It simply made it the prey of speculators and money dealers, greatly to the disadvantage of the nation.  That it was unnecessary appears from the fact that greenbacks to the amount of hundreds of millions of dollars circulated in the channels of trade and performed all the uses of money, as effectively as gold or silver could have done, for more than a year before the United States bonds, bearing six per cent. interest in gold, with which they were interchangeable, were issued, and continued to do so after their interchangeability was taken away by act of Congress.  Mr. Spaulding, chairman of the sub-committee of Ways and Means of the House of Representatives, in a speech on January 12, 1863, said :  “ The Secretary has paid out nearly $250,000,000 legal tender notes, being all that he was authorized to issue ;  and notwithstanding he has had authority for the last ten months to sell $500,000,000 of five-twenty six per cent. bonds at the market price, he has only disposed of about $25,000,000, and has still authority to sell $475,000,000 at the market price, and take his pay for them in legal tender notes.  One of the reasons why more of these bonds have not been disposed of is, that there has been no redundancy of currency, and it has been difficult for the Secretary of the Treasury to get legal tender notes on a sale of the bonds and seven-three-tenths notes that he has already negotiated.”  In other words, the people needed greenbacks far worse than anything else, and could not spare them to invest in five-twenty bonds, which have since been paid both principal and interest in gold.  At this time gold ranged from 134 to 160.

Had Congress not yielded to the demands of the money power, but passed the legal tender act as originally framed and offered in the House of Representatives, that is to say, had made the greenback a full legal tender (receivable for duties on imports as well as other public dues), and not made the interest on the bonds, with which it was intended to be interchangeable, payable in gold ;  and resorted to a judicious system of taxation, using the bonds only to sustain the greenback in case its credit ever faltered, by receiving it alone as specie for bonds, there is every reason to believe, from the experience of the country at that time and since, that the war could have been carried through successfully without incurring but a fraction of the debt now owed by the Federal Government, and that the debt, whatever it might be, would be held mostly at home instead of abroad.  But no sooner had the legal tender act made its appearance in Congress than the money power was up in arms against its passage.  Delegations of bankers from New York, Boston and Philadelphia hurried to Washington ;  and formally organizing, by selecting one of their number chairman, they summoned the Finance Committee of the Senate, the Committee of Ways and Means of the House, and the Secretary of the Treasury into their presence.  In the end the money power, although it did not succeed in preventing the passage of a legal tender act, secured a complete triumph.  The interest of the bonds was made payable in gold in order to create a demand for gold, and then duties on imports were made payable in gold in order to get the gold to pay the interest on bonds.  A premium on gold was thus established, and the public notes of the government were dishonored by the government itself ;  and, as we have seen, the premium on gold was run up to 160 before ever the gold interest bearing bonds of the government were issued.  A National Banking law was also enacted to enable the money power to regain control of the monetary affairs of the nation.  This was the beginning of the most stupendous robbery, boldly and openly planned and remorselessly executed, to be found in the annals of any nation, of either ancient or modern times, the details of which will be accurately set forth in a coming chapter (Chapter VI.), and the end is not yet.

The legal tender acts passed during the war not only received the sanction of every department of the government, but met with the universal approbation of the wealth producing classes of the nation.  Their validity and onstitutionality, which were of course contested by the money power, have been affirmed by the Supreme Court of the United States, and by the Supreme Court of fifteen States, and only in one instance has a State Court failed to endorse their constitutionality.  The Constitution of the United States does not in express terms confer upon Congress the authority to make anything a tender in payment of debts, the word tender being no where mentioned in that instrument, except in the clause prohibiting States from making anything but gold and silver a tender, but the right to do so is so clearly an incident of the general powers of Congress over the currency of the country, that it has never hesitated to enact such laws upon the subject as the interests of the nation required.  The right to declare by law what shall be a tender in payment of debts has thus been exercised by Congress in twenty-four statutes passed during the administrations of Washington, Jefferson, Madison, Monroe, Jackson, Tyler, Polk, Fillmore, Pierce, Lincoln and Johnson.

But driven out of the Supreme Court, the money power is now busy striving to inculcate the doctrine that Congress could only make public notes a tender in payment of private debts in time of war.  A distinguished lawyer,9 who has made himself conspicuous of late in his efforts to mislead the public upon this subject, says :  “ That the only currency known to the Constitution is gold and silver, or paper convertible into it on demand,” and gives it as his opinion that, the Supreme Court did not intend to go so far, in the legal tender cases decided at the December term, 1870, as to decide that such an act would be constitutional if passed in time of peace.  As the framers of the Constitution, as has already been explained, refused to authorize Congress “to emit bills of credit,” (paper convertible into gold or silver on demand) it is evident that this distinguished advocate of banks of issue, in asserting that such a currency is “known to the Constitution,” has allowed his zeal to outrun his judgment, and he is no less in error in regard to the opinion of the Supreme Court.  Mr. Justice Bradley, one of the Judges of the Supreme Court, who read an opinion in the cases referred to, says :

“ Another ground of the power to issue Treasury notes or bills is the necessity of providing a proper currency for the country, and especially of providing for the failure or disappearance of the ordinary currency in times of financial pressure and threatened collapse of commercial credit.  Currency is a national necessity.  The operations of the government, as well as private transactions, are wholly dependent upon it.  The State governments are prohibited from making money or issuing bills.  Uniformity of money was one of the objects of the Constitution.  The coinage of honey and regulation of its value is conferred upon the General Government exclusively.  That government has also the power to issue bills.  It follows as a matter of necessity, as a consequence of these various provisions, that it is specially the duty of the General Government to provide a national currency.  The States cannot do it, except by the charter of local banks, and that remedy, if strictly legitimate and constitutional, is inadequate, fluctuating, uncertain and insecure, and operates with all the partiality to local interests, which it was the very object of the Constitution to avoid.  But regarded as a duty of the General Government, it is strictly in accordance with the spirit of the Constitution, as well as in line with national necessities.”  (12 Wallace’s Reports, 562.)

The necessities of peace may be as great, though of a different character, as those of war, as the American people are experiencing at the present time.  For several years the nation has been suffering a daily loss of millions of dollars, by reason of its inability to develop the producing forces of the country, as they might be developed under wiser laws.  Nor need any one indulge the hope that “ times will change,” because there can be no change, except from bad to worse, until the cause which bas produced the present prostration of all forms of productive industry is removed.  The repeal of the act decreeing specie resumption January 1, 1879, which rests as an incubus upon the industries of the country, might afford temporary relief, and would certainly avert the general bankruptcy, which is inevitable if its provisions are carried out, but to place the affairs of the nation on a sure foundation something more is required, viz., the extinction of banks or issue and the adoption of a monetary system based on sound principles.  Specie circulation would then come naturally as soon as the nation produced a sufficient surplus of products to cause its return.  This was witnessed in France after the late war with Germany.  Stimulated by an abundance of irredeemable legal tender paper money, the French people bent every energy towards producing wealth, and in less than three years astonished the world by paying off the German indemnity of $1,000.000,000 ;  and specie now circulates there side by side at par with irredeemable paper money.  The immense sum paid by France to Germany was not paid in actual gold, but in bills of exchange, etc., which represented the proceeds of French industry.  It is a common error in the United States to suppose that interest on the public debt is paid in gold, and that therefore it is necessary to require duties on imports to be paid in gold.  It is a mere fiction.  The interest of American securities held abroad are paid in products, and products do not sell for a farthing more or less in foreign markets, on account of being measured and exchanged in the United States by greenbacks instead of gold.  The premium, however, on gold, which exists by reason of the law requiring duties on imports to be paid in gold, is a disadvantage to all classes, except the bondholder and money dealer, which should be remedied.  If the greenback were made a full legal tender, and sustained by an interest-bearing bond with which it was interchangeable, there is every reason to believe that the premium on gold would almost totally disappear.  In 1861, by the acts of July 17 and August 5, the Treasury Department was authorized to issue $50,000,000 in what were commonly known then as demand notes.  An additional issue of $10,000,000 was authorized Feb. 10, 1862.  These notes were receivable for all public dues, duties on imports included, and were subsequently made a legal tender for private debts, and the result was that they commanded the same premium over the ordinary greenback that gold did, and event up with gold, step by step, to the enormous premium of 285.  Could any better evidence than this be required to prove that a greenback made a full legal tender would circulate at par, or nearly so, with gold ?  These “demand notes” were of course very obnoxious to the bullionists, because they gave the lie to all their theories about paper money, and accordingly they were got out of the way at the earliest moment possible—all except about $75,000, which are probably lost and, if such is the case, constitute a gain of that amount to the people at large.


The nature of money has been so constantly and generally misrepresented that, as we have already suggested, it is not surprising that people find it difficult to understand how a piece of paper issued by the government represents value.  This can be fully understood by considering briefly the attitude of the individual with respect to his duties and obligations to the government.  In all organized state of society the controlling power, or sovereignty, is exercised for the common good through the agency of a government.  As the sovereignty in the United States resides in the people at large, the duties of the individual may be said to be self imposed.  The powers with which the government, whether Federal, State, or local, is vested, imply a corresponding duty on the part of the individual.  It is the duty of the Federal Government to provide for the common defense and general welfare.  In time of peace it imposes taxes to defray the expenses of government and discharge its obligations ;  and in time of war it can demand the personal services of the individual.  Thus the entire wealth of the nation is held subject to the needs of the State.  Private property is taken daily, no matter how much it may be endeared to the individual by association, for public uses, as in the case of roads, streets, etc., and the tax warrant takes precedence over all other liens, without respect to priority.

The expenses of the government are paid out of the earnings of the people at large.  When the government needs money it has to look to the people for it ;  taxes are laid and the people are obliged to respond.  But if there is no money in the country, people are unable, not only to carry on private transactions, but to supply the necessities of the government.  They may possess property and products in abundance, but they can not be made available for the uses of the government, except through the instrumentality of a medium of exchange, and it is necessary, therefore, that a medium of exchange be devised.  The government might borrow gold or silver, or the credit of corporations in the shape of bank notes, by paying interest ;  but why should the people be compelled to pay interest for the use of a commodity like gold, when they have abundance of other commodities at the service of the government, which only require a medium of exchange to be made available, or for the credit of corporations, when their own credit is much better than that of any corporation ?  Through the agency of the Federal Government, upon whom, under the Constitution, that duty devolves exclusively, the people in a collective capacity can issue their own notes, which cover the entire property and wealth of the nation, including gold, silver—everything, in a word, that can be reached by a tax warrant.  These notes represent property to the amount inscribed on their face, which the government was entitled to demand in the way of taxes at the time the notes were issued.  It was in this sense that Calhoun declared that they were in reality “promises to receive,” and bore no analogy to notes promising payment in money.  As between citizen and government they are the same as money, and, if the individual in turn is not obliged to receive them as the representative of property to the amount inscribed on their face, it is tantamount to the people repudiating individually what they have done collectively.  It is, therefore, but a matter of simple justice and equity that Congress should declare the public notes of the government a legal tender.  It is also a matter of great advantage to the people, for when a public note is made a legal tender it acquires all the functions and serves all the purposes of money.  The public note is not, then, one thing to the government and another to the people, but its value becomes fixed and certain, as determined by law.  A dollar legal tender note of the government then represents a dollar’s worth of property—neither more nor less.  It consequently corresponds to the unit of value fixed in the minds of the people by usage and education, and is a measure of value.  It has, therefore, representative value and the power to measure and exchange property ;  in other words, all the attributes or functions of money.  As it represents a dollar’s worth of property, it cannot vary as a standard or measure of value, except as the unit of value may vary in the minds of the people.  This is not the case with money possessing intrinsic value, because its powwer as money then depends chiefly upon the of which it is made, and as that will fluctuate according to the laws of supply and demand, it cannot be used as a fixed measure of value.  Thus gold fluctuates in value, and is itself, whether in coin or bullion, a thing to be measured.  That a measure of value must possess intrinsic value is a dogma of the schools, which men of science, out of a desire to be consistent perhaps, adhere to—notwithstanding the fact that they are furnished with abundant proof to the contrary in almost every transaction of daily life—with as much pertinacity, as the men of science and the churchmen of the 17th century adhered to the opinion that it was the sun that revolved around the earth and not the earth around the sun.

When the Federal Government pays out a dollar legal tender note for value received, it will be asked how, when and where is the holder to obtain the property or value which it represents ?  The Federal Government could say, this note represents property, which the government is now entitled to receive, and a tax warrant can produce the property any moment, if it takes the last dollar’s worth in the country ;  but the government is constantly receiving property, or its equivalent, in the shape of revenue, and there is no necessity to make a special levy of taxes to pay this particular dollar ;  nor is there any necessity to fix a time for its redemption in property.  Being a legal tender, every individual in the nation will take it at the value inscribed on its face, and in the natural course of events it will redeem itself, in one sense, by returning to the Federal Treasury in the form of taxes or revenue.  It was for this reason that, in the case of North Carolina, mentioned by Mr. Calhoun, several hundred thousand dollars of legal tender paper money, issued by the government of that State, circulated for years at par with gold and silver, with no other advantage than being received in the revenue of the State, which was less than one hundred thousand dollars per annum.

The wealth of the United States is estimated at over $40,000,000,000.  The annual expenditures of the Federal Government amount to about $300,000,000, requiring a corresponding revenue.  The amount of public notes, based on sound principles, which the Federal Government, backed by $40,000,000,000 of property, with a revenue of $300,000,000 a year, could safely issue, is a matter of opinion, arrived at in much the same way that the credit of an individual is measured.  The amount of money required by a nation is just what can be used safely and profitably in carrying on its affairs, public and private.  It will vary in different years and at different seasons of the same year, through the operation of causes existing in various parts of the world.  Hence the necessity of sustaining the legal tender note of the government with a bond, with which it may be interchangeable in times of redundancy ;  and it might be possible, if the government were out of debt, to accomplish the same end by increasing or diminishing the rates of taxation as occasion required.

NOTE.—On page 52 we stated that “ the foundation of the Treasury note (greenback) is the same as that of a United States bond, which secures the payment and sustains the value of the bank note, and it, therefore, possesses the highest and best security that a medium of exchange can possibly have.”  Professor Bonamy Price, although he seems to think that notes issued by a government are not as good as bank notes, because “ there are no means for compelling a government to pay money, if it chooses to say that it has none,” (Currency and Banking, page 45) nevertheless, is of the opinion that no guarantee for the solvency of the notes of a bank is so natural and safe as a deposit of government securities.  He says :  “ Bank notes circulate largely among the poor and uneducated, and when the bank breaks, the loss is severe and distressing.  These facts supply ample warrant to the State to require of issuing bankers, not only that they should pay their debts to the utmost extent of their fortunes, as any other person, but further that they shall lodge such security as shall always provide for the payment of the debt acknowledged on the note.  A guarantee for the solvency of the notes may be obtained in various ways, but none seems so natural and so simple as a deposit of government securities with some officer of the State.  It combines two advantages—safety, and a natural and fitting profit for the banker from the interest accruing on the bonds or stock.  The old Exchequer bill of the English government was an excellent specimen of this kind of security.  It could always be paid in for taxes, bore a daily interest, and was thoroughly trusted, and with reason, by the whole community.”  (Currency and Banking, page 53.)  It is a bad cause that obliges a professor of political economy to blow hot and cold in this manner.

1 Sir John Barnard Byles.

2 See Kellogg, page 46.

3 Sir John Barnard Byles.

5 See Professor Newcomb’s silly comments on this point in Appendix.

6 Currency and Banking, by Bonamy Price, page 17.

7 Thomas Jefferson.

8 Horace Greeley’s famous editorial on the 3.65 Bond plan will be found in the Appendix.

9 Hon. Reverdy Johnson.