S.M. Brice

Financial Catechism

Chapter V.


Question.  Was no attempt made by Congress to protect the interests of the people against such flagrant abuse ?

Answer.  There was at all times a party in Congress which done all within its power to procure just legislation, but unfortunately, that party was in the minority, and was powerless.  This party was not confined to any particular political organization, but consisted of those members who recognized the fact that they were servants, bound by their oaths and their duty to protect the interests of the whole people.  But all they were able to do was to use their voices and their votes in solemn protest against the system of laws being enacted to foster and protect the most iniquitous scheme of robbery and spoliation ever known in the history of civilization.  It sometimes occurred that the better judgment of the majority prevailed, and they would enact a law throwing some restraints around those who were gambling upon the misfortunes of the government, but some new revelations soon throwed such light on the subject that such laws were repealed.

On the 17th of June, 1864, a law was passed prohibiting the sale of gold and sterling exchange for future delivery.  This law was intended to prevent the system of gambling then prevalent in Wall street and elsewhere among the money-changers, by which they were able to maintain the premium on their gold, and rob the people day by day.  As soon as this law was passed the bankers, brokers, and money lords assembled at Washington in force ;  add such was their influence on Congress that that body, on July 2, 1864, repealed the law, just fifteen days after its passage.  This repealing act provides for free gambling by the brokers, provided they would pay a tax of 1 per cent., which they agreed to do; but this tax was never collected.  The overshadowing influence of this host of freebooters was such that the two houses of Congress was as putty in their hands, and ready to be molded into any shape required for their use.

On July 1, 1865, the tables prepared at the Treasury Department shows that there was then outstanding in legal-tender notes $432,687,966.  A large portion of these had been bought by the money dealers at forty cents on the dollar, since the passage of the law of March 3, 1863, limiting the time in which they could purchase bonds to the 1st of July, 1863.  The period had now arrived when they desired to exchange those legal-tenders for bonds.  If the restriction clause was simply repealed it might enhance the value of bonds in the market.  In order to prevent such a contingency, the act of March 3, 1865, was passed.  (See Statutes 13, page 468).  This act provided for the issue of $600,000,000 of bonds or treasury notes to run four years, and, payable in forty years, and bear 6 per cent.  usury ;  none of which should be of a less denomination than fifty dollars.  Authority was given by this act to sell these bonds for coin, or for treasury notes, or legal-tender notes, or any obligation of the government, bearing or not bearing usury, excepting bonds of the United States.  Hugh McCulloch was then Secretary bf the Treasury.  He had given notice in his report that it was his intention to retire all the legal-tender notes and denounced them as “disreputable, dishonorable money.”  He appealed to Congress for power to redeem all the money of the government ;  whether bearing usury or not.  It will he remembered that at this time there was nearly $2,000,000,000 in legal-tender notes, treasury notes, certificates and bonds, that were used as a circulating medium, all of which Mr. McCulloch proposed to withdraw from circulation and fund into bonds bearing usury which would not be available for the purpose ;  thus carrying out the proposition of Senator Sherman that “as soon as peace came, the legal-tenders must be withdrawn, so as to throw the whole amount of the paper circulation of the country into the hands of the National banks.”  It was in answer to this appeal that the act of March 3, 1865, was passed.

Q.  Are you not mistaken about so large an amount of bonds and treasury notes being used as currency ?  It is generally contended by those who claim to know, that our circulating medium of all kinds never exceeded $1,000,000,000.

A.  According to the Treasury statistics, there was in June, 1866 (one year after the passage of this act), outstanding treasury notes which had been paid to the army and for supplies, as follows :

Demand notes.....................................................272,162
Temporary loan............................................120,176,196
One and two years’ treasury notes..................3,454,230
Certificates of indebtedness..........................26,391,000
Postal currency................................................7,030,700
Compound interest treasury notes..............159,012,140
Fractional currency.......................................20,040,176
7-30 treasury notes, August and September, 1864...139,301,700
7-30 treasury notes, 1864 and 1865..............806,251,550

At the same period, as shown by the Secretary’s report, there was outstanding :
State bank circulation................$ 19,996,168
National bank notes....................281,479,608
        Making........$ 301,475,771
which gives the sum of all kinds of paper money then in circulation at $1,984,024,831, exclusive of gold and silver.

Q.  Admitting that these treasury notes were made legal-tender to the same extent as greenbacks, did they really enter into the circulation of the country and perform the functions of money ?

A.  For an answer to this question, we will appeal to Mr. S.A. Stevens, of New York, who was President of the Chamber of Commerce of that city in 1873.  In a letter written by him to the New York Times in that year, he says, when speaking of the effects of contraction :

“ The country at large has felt the pressure of the screw, but they have not been able to discover precisely from what quartet the pinch comes, because the currency contraction being mostly confined to those treasury notes which, though not currency in the strict sense of the term, they were used as such in the large transactions of trade and financial exchange.”

To whatever extent these treasury notes took the place of the legal-tender notes in the large transactions in the great business centers, they relieved them from that service and allowed them to flow through the country and supply the channels of trade with a circulating medium, and in the proportion that those treasury notes were withdrawn from circulation the business of the country was crippled.  Under the act of March 3, 1865, Secretary McCulloch reduced the circulation of the legal-tender notes to the amount of $14,000,000.  This act contained one good feature.  After the state and individual banks suspended in 1861, they increased their circulation and used all the means within their reach to discredit the legal-tender notes.  Their war was as directly against the government as was that of the rebellion.  It was a struggle for life or death with them.  If the legal-tenders lived they must die.  In order to end this struggle for supremacy, this act placed a tax of 1-0 per cent, on their circulation, to take effect after July 1, 1866, which drove there out of existence, but not until a more powerful adversary had been provided to take their place.

The act of Sept. 12, 1865 (Statutes 14, page 31), provided that the legal-tenders might be received by the Secretary for bonds at the rate of $10,000,000 for the first six months, and $4,000,000 per month after that time.  This act was intended to convert all the legal-tenders into bonds bearing usury, and was entitled, “ An Act to Retire the Legal-tender Notes.”  The act of April 12, 1866, still further authorized, the Secretary of the Treasury to receive for bonds $4,000,000 per month, which law he executed promptly until he had retired $94,000,000, when the people peremptorily demanded that the conversion of their money into usury-bearing bonds should be stopped.  Congress did not dare to turn a deaf ear to this demand, and on the 3rd day of February, 1868 (Statutes 15, page 34), passed an act prohibiting their farther retirement and destruction.  Mr. McCulloch and the bondholders complained of being hindered by Congress in their policy of contraction, but $94,000,000 of legal-tenders had now been withdrawn, besides a large amount of the treasury notes.  The people felt the pressure so severely that they demanded a halt in this policy with a voice that was not to be misunderstood, and Congress dared not disobey.  In the first part of 1864, gold had accumulated in the Treasury to the amount of more than $150,000,000.  In order to utilize this, Congress, on March 17, 1864, passed an act authorizing the Secretary of the Treasury to sell gold for legal-tender notes.  This act was of great benefit while it was faithfully executed, which was done for a time by Secretary McCulloch and Secretary Fessenden.  They both sold gold without previous notice of the time or amount of such sales.  This prevented the gold gamblers from holding gold at their own price, and thus controlling the market.  This course was pursued by the secretaries until 1869.  This act was in the interest of the people and must be modified.  It interfered with Wall street, and, as has ever been the case, Wall street succeeded in convincing Congress that the law must be changed.  Accordingly, in 1869, it passed an act authorizing the Secretary of the Treasury to give notice of the time and place when gold would be sold and bonds purchased by the government.  As soon as this plan was adopted the gold and bond dealers formed a combination, and on the day set for the sale of gold it always ruled low in the market, and on the day set for the purchase of bonds they always ruled high ;  so that the notice of sales and purchases, instead of increasing the receipts of the Treasury, robbed it of a part of the profits on every sale and gave it to the brokers.  So well was this matter arranged and understood, that in the period between the publication and sale, gold would decline from day to day until the Secretary sold gold at the lowest figure.  The next day after the sale gold would advance, and those who bought of the Secretary could realize large profits on their purchase.  The same policy was adopted on the sale of bonds.  When notice was given that on a certain day the Secretary would purchase a certain amount of bonds, the price of bonds would steadily advance, so that bonds were bought at the highest figure to which they could be forced.

This change of policy occurred after General Grant was elected President, and Mr. Boutwell was appointed Secretary of the Treasury, and was followed out by all the succeeding secretaries, until the latter part of 1878, when Secretary Sherman ordered that legal-tender notes be received for customs dues, which at once took the premium off of gold, and no further sales were necessary.  Had Congress, at any time during all that period, passed an act repealing the exception clause in the legal-tender act, the same result would have followed, and many hundreds of millions would have been saved to the people, which has been ruthlessly wrested from them through this criminal neglect.

Q.  Could Congress at any time, or can it now, repeal the exception clause in the legal-tender act without being guilty of acting in bad faith with the creditors of the nation, and subjecting itself to the charge of repudiation by the violation of its sacred obligations ?  The persons who invested their money in the bonds of the government did so under a specific contract and declaration stipulated in the face of the bond, that the interest should be paid in coin and the act which created the legal-tender notes as positively declares that customs dues shall be paid in coin.  Would not the repeal of the exception clause, while any of those bonds remain unpaid, be a gross violation of national honor and justly stamp the act as rank bald repudiation ?

A.  These questions can be answered best by a review of the history of the case.  There was two parties with which the government was dealing ;  the parties to whom it paid its legal-tender notes on the one side and those to whom it sold its bonds on the other.  The legal-tender notes were all issued before any of the bonds were sold.  They carried upon their face a stipulation that they should be receivable at their face value for the bonds of the United States.  The people purchased them with service and material to support the government, and after they had been so purchased, and while in the hands of the people, the Congress of the United States, on the 3d of March, 1863, passed an act declaring that they should not be receivable for such bonds after July 1, 1863.  On April 12, 1866, it passed an act that this money which it had authorized to be issued, and had been issued and sold to the people for a good and valid consideration, should be withdrawn from circulation and destroyed at the rate of not-more than ten millions for the first six months and four millions for each succeeding month until it was all destroyed.  More than $1,500,000,000 of the bonds that had been issued and sold by the government previous to 1869 was payable in lawful money of the United States, which the act of Congress creating the legal-tender notes declared them to be ;  but on March 18, 1869, Congress passed an act pledging the faith of the nation that they should be paid in coin.  And on July 14, 1870, passed an act authorizing the Secretary of the Treasury to refund those bonds into bonds specifying on their face, that they should be paid in coin of the United State at its then standard value.  The full legal-tender coin at that time was gold coin and silver dollars.  On the 12th of February, 1873, Congress passed an act dropping the silver dollar from the coinage of the United States which made those bonds payable in gold alone, and on the 24th of January 1875, passed an act declaring that the government of the United States would resume specie payments on January 1, 1879.

Here is six instances in which Congress has passed laws changing the contracts made with the people, without consulting them with regard to such changes, every one of them are open and flagrant violations of faith, and against the interests of the people whom they were elected to represent.  If the violation of contracts stamps a nation with the brand of repudiation, the record of the legislation of the last eighteen years on the finance question, as it stands recorded on our United States Statutes ;  makes one of the blackest records of repudiation that ever stained the statutes of any nation, or party.  But it would not be repudiation to repeal the exceptions to the legal-tender act, for the legal-tender notes are at par with coin, and are preferred to coin by those who are entitled to receive interest on bonds.  The repeal of these exceptions is demanded in justice to the people, and cannot do injustice to the bondholders.  The cry of repudiation, therefore, falls to the ground, because it is without foundation to stand upon.  There was a notable incident connected with this gold speculating mania, which should never be forgotten.  Senator Boutwell had been selling gold about once a month until September, 1869.  By some means, incomprehensible to the uninitiated, it become known to the money dealers that the government would sell no gold that month.  The premium on gold for three years had ranged from 25 to 30 per cent.  The brokers saw their opportunity, and run the premium up day by day until on the memorable “ Black Friday ” of that month, when it reached, at the gold room in New York, 60 per cent.  The next day the Secretary sold $5,000,000, and the premium dropped at once to 30 per cent.  Whether there was, or was not, a conspiracy between the brokers and any of the government officials to bring about this scheme of robbery, the sequel shows that it might have been prevented by the Secretary if he had desired to-do so.  He had the gold in the Treasury, and could at any time command the market by the sale of a few million dollars.  The neglect to do so was both cowardly and criminal.

On March 2, 1867 (Statutes 14, page 558), Congress passed an act providing for the issue of $50,000,000 3 per cent. interest certificates to pay compound interest notes.  The act provided that these certificates should be held as reserves by the National Bankers instead of legal-tender notes.  This liberated that amount of the notes for circulation ;  but so completely was Congress under the control of the bondholders that it did not dare to issue $50,000,000 legal-tenders, and save to the people the payment of $1,500,000 usury per annum, or, even to use the $44,000,000 that was then lying idle in the Treasury.

Q.  Was not the contraction of the currency a wise policy, and an actual necessity, in order to secure our finances on a firm and reliable specie basis, so as to prevent the wild speculation and extravagant indebtedness always incident to an inflation of the currency of a country above what can be supported by prompt coin payment ?

A.  No.  The contraction policy was not wise or necessary.  We have previously shown that the pretense of basing the circulating medium of a country upon coin payment has always proved to be a fraud and a swindle ;  that it only lasts so long as the public confidence is such that the coin is not demanded, but as soon as danger presents itself, and coin is demanded, the bottom falls out of the system and reveals its rottenness.  The coin is not there.  It was not necessary to contract the currency to prevent wild speculation and extravagant indebtedness ;  for, before contraction commenced, when we had about two thousand millions of dollars as a circulating medium, there was less wild speculation and extravagant indebtedness than after the currency had been contracted nearly two-thirds.

Before contraction was commenced, there was money enough in circulation to fill the channels of commerce, and the great mass of business was transacted on a cash basis.  Every productive industry was stimulated and received a fair consideration for its products ;  labor was fully employed and well remunerated, not in extravagant promises, but in the lawful money of the United States—which was theirs, and Congress had no more right to withdraw any portion of that money from circulation than it had to rob the farmers of the country of two thirds of their wagons, plows and horses—and in the end it did do this very thing.  The loss sustained by the industrial interests of the people, amounted to fully two-thirds of their wealth.  In order to show more clearly the fallacy of the proposition, that a redundant currency produces wild speculation and extravagant indebtedness, we need only refer to the period from 1863, to 1866, at which time the volume of our currency was the largest.  During these years, there were failures of business firms as follows :

In 1863, failures 485 ;  amount.......$ 6,864,700
In 1864, failures 520 ;  amount..........8,579,000
In 1865, failures 530 ;  amount.........17,625,000
In 1866, failures 532 ;  amount........47,333,000

These were years of intense commercial activity, and immense business transactions, as shown by the reports of the Secretary of the Treasury.  The revenue collected,

For the year 1863, was...........$112,697,290.95
For the year 1864, was.............264,626,771.60
For the year 1865, was.............333,714,605.08
For the year 1866, was.............558,032,620 06

In these years there were only two thousand and sixty-seven business failures, with an aggregate of $80,401,700.  At the end of this period the money of the country had been reduced more than one-half in volume.  Business was arranged and contracts made on the full volume.  In order to meet such engagements, business men were compelled to substitute their own obligations for money, and here is where the so-called extravagant indebtedness commenced on a contracted, and not on an inflated currency.  Still hoping to tide over the pressure, they continued to increase their obligations ;  but in this struggle the weaker were driven to the wall, and only those who were possessed of immense resources survived the wreck that followed, as the statistics of the next four years show.

In these years the business failures amounted,

In 1867 to 2,386, amount..........$86,208,000
In 1868 to 2,008, amount............63,774,000
In 1869 to 2,799, amount............75,945,009
In 1870 to 3,551, amount............88,242,000

This exhibit shows that the business failures in the latter four years on a contracted currency, was more than five times the number that occurred in the former four years on a redundant currency ;  and that the amount of loss involved was more than fifteen times as great in the latter as in the former period.

The revenue for these four years shows a constant decline until the last year, 1870, when there was a spasmodic effort to sustain business on the amount of money then in circulation ;  but it was like the last flickering of the burning wick in the oiless lamp, only a flash which preceded the darkness and ruin of the crash of 1873.

The revenue of these four years, as shown by the Secretary’s report, is :

For 1867...........$490,634,010.27
For 1868........... 405,638,083.32
For 1869............370,943,747.21
For 1870............411,225,477.63

In the former four years under an inflated currency the revenue increased from $112,697,290.95 in 1863, to $558,032,620.06 in 1866 ;  in the latter four years of contracted currency it decreased from $558,032,620.06 in 1866, to $370,943,747.21 in 1869 ;  or, to state it differently, under a redundant currency the revenues of the government increased $445,265,325.11 ;  and in four years immediately succeeding, under the contraction policy, it decreased $187,088,872.85.

It is evident then that it was the contraction of the currency that produced the wild speculation and extravagant indebtedness that existed from 1866 to 1870, and thereafter, instead of a redundancy of money.  But we are not without lessons of history to strengthen our conclusions that wild speculation and extravagant credit are not prevented by having the currency of a country based upon coin.

About the year 1720 over two hundred speculating companies were organized in England.  The people became so infatuated with the idea of the vast wealth to be realized by these schemes, that many of them paid large premiums for the privilege of subscribing for the stock of the companies.  Speculation ran wild over the prospect of immense gains to the lucky holders of these shares.  The money that set this speculative machinery in operation was the notes of the Bank of England, which professed to pay coin for all liabilities.

The ruinous speculations which were engaged in both in England and the United States, from 1833 to their culmination in the terrible panic of 1837, were set on foot and fostered by eight hundred banks in the United States, and all the banks of England, which banks all professed to be specie paying banks, and did pay specie when demanded, while they were increasing their circulation, and loaning their promises to pay to the wild dreamers who were thoughtless enough to suppose that those promises would be redeemed in coin when there was not a dollar in coin for ten dollars of their specie basis currency in circulation.  But the day of reckoning came in 1837, when all the banks of both England and the United States suspended specie payment except the Bank of England, and it would have been compelled to suspend if it had not been assisted by the Bank of France.  All the loss and bankruptcy of that distressing period was caused by reckless speculation with a currency furnished by banks established on a coin basis.  Thirty years later, in 1866 ;  the English people became wild in their speculations on railroad and other stocks, with money furnished by the Bank of England, and other banks of the kingdom, all professing to pay coin.  They, by their extensive loans, stimulated and increased these speculations until they had arrived at such gigantic dimensions that when the bubble burst it prostrated every legitimate interest of the island.  Twenty-seven banks in the city of London failed in one day.  Many hundreds of old, well established business firms were compelled to succumb to the pressure, and the Bank of England only saved itself from a like fate by availing itself of the provision of the law of 1844, permitting it to raise the rate of usury on loans that was equal to suspension.

The most gigantic scheme of speculation in the world’s history, up to that time, was inaugurated in France just previous to 1720.

The Royal Bank of France furnished money for these wild enterprises.  The plan contemplated controlling the business of the world.  Money was furnished by the bank to buy out the Senegal Company, and the company of the Indias ;  thus securing the business of the Eastern and Western hemispheres.  Their ambition was as boundless as their anticipations were extravagant, and the scheme collapsed in 1720, producing wide-spread bankruptcy, misery and destitution in its train.  The Royal Bank was compelled to suspend, but the money advanced to these wild adventurers was not.  After suspension, but while the bank was actually paying coin for its liabilities.  When it could no longer do this the whole speculative fabric which it had reared fell to the ground.

The speculations in the United States in 1812 and 1813, succeeded by the panic of 1814, was organized and supported by banks based upon coin.  When these banks had succeeded in placing in circulation enough of their specie basis notes to make it more profitable for them to fail than to bank, they hoarded their coin, suspended specie payment, left their promises to pay in the hands of their deluded victims, and retired to private life with their ill-gotten spoils.  Upon the suspension of the banks, the speculations collapsed as an inevitable consequence.

Another period of speculation occurred in the United States, running from 1833 to 1836, which culminated in the panic of 1837.

The speculations of this period was principally confined to Canal Stock, roads, and property in general, but most extensively in wild lands in the west.  The United States Bank bill had been vetoed in 1832, and the state and individual banks, anticipating a clear field for future operations, increased their circulation and extended their loans for the purpose of fostering this extravagance, until the country was completely flooded with their notes, all promising to pay specie on demand.  But this proved, as it always has, to be a seductive snare, and a base fraud upon the people.  In 1837 the banks all suspended, and the speculations were exploded ;  the banks contained no coin in their vaults with which to redeem their worthless notes.  From 1837 to 1848, the government issued a large amount of Treasury notes which were used as currency, yet no extravagant indebtedness or wild speculations was entered into during that period.

During the period from 1837 to 1848, the banks in the United States had all resumed specie payment.  They had so managed as to again obtain the confidence of the people, and as soon as this occurred, another period of wild speculation set in ;  the banks furnishing the money to carry it on.  The speculations at this time were not in stocks or roads, but in American produce, such as beef, pork, corn, wheat, oats, rye, flour, in short, every kind of produce furnished by American industry.  Extensive purchases were made for the English market, but before the cargoes arrived at their destination prices fell, the bottom went out of the market, and many of those engaged in the enterprise were left penniless and so deeply involved that nothing but bankruptcy could set them on their feet again.

Ten years later, in 1857, there was another suspension of specie payments by all the banks in the country, but this, unlike the former suspensions, was not brought about by over trading, wild speculation, or extravagant indebtedness ;  but was a legitimate result of the policy of attempting to furnish a stable currency by banks pretending to pay coin for their circulating notes.  This they never do, only to a limited extent.  When the people do not want coin, they are ready to pay ;  but when coin is demanded to any extent they always refuse to produce it.

The legislation of 1853 and 1857, on the metallic currency of the United States, probably aided in producing this suspension at an earlier day than it would otherwise have occurred.  In 1853, Congress passed an act which demonetized all silver half dollars, quarters, and dimes, for any sum above five dollars.  As the reserves of the banks were then held in coin, a large part of such reserves was in the fractional currency, which, until that time, had been full legal-tender for any amount.  The silver dollars of Spain, Mexico and South America, then being at a premium over gold, had been bought up on speculation and shipped out of the country.  This reduced the amount of coin in the United States ;  the fractional currency was not available for reserves, or for the payment of circulating notes, as it was not money for any sum above five dollars.  A large share of such reserves consisted of the gold coins of other nations, which were full legal-tender at the values fixed on them by the United Mates.

As gold had been over-valued in this country since 1834, a very large amount of the gold coins of other nations had been sent here and constituted a part of our money—and consequently was held by the banks as a part of their reserves.  On the 21st of February, 1857, Congress passed an act demonetizing all foreign coins, both gold and silver.  This destroyed the legal-tender property of them, and they were no longer available for reserves or the payment of debts.

The bankers were therefore compelled to sell them for what they were worth in the countries in which they were coined, and they were sent back home to stay.  The effect of these two laws, was to very largely reduce the amount of the full legal-tender coin in the United States, and also in the bank reserves, and made the banks less able to respond to a demand for any considerable amount of coin.

By the law of 1846 ;  all bank notes were excluded from the Treasury.  Nothing was received for debts due the government but gold, silver, and treasury notes.  The tendency of this law was to destroy confidence in the banks, and it had its effect.  With confidence thus weakened, a catastrophe was imminent, whenever any disturbing cause presented itself.  This occurred in the fall of 1857, in the failure of the Ohio Life Insurance and Trust company, with a capital of $2,000,000, and a credit, the solvency of which had never been doubted.  So popular had it become, that the western banks kept very large deposits with the New York agency of this institution.  Its failure was the tocsin of alarm, and a run was at once made on the banks for coin, and the old story was simply repeated :  they were not able to respond.  The eastern banks suspended first, and then the south and the west followed in close succession.  Four years later, in 1861, another panic occurred, but it was not produced by wild speculation, or extravagant indebtedness.

An attempt was made by the Southern States to dissolve the union.  Hostilities had commenced and war was declared.  The hour of danger had arrived, when the country needed every dollar that could be obtained to pay the expense of a war to save the life of the nation.  When it called upon the banks for assistance, they did what they always do in an emergency :  suspended specie payments and had nothing to offer the government but their suspended bank promises to pay, and demanded that it should accept these and use them to pay the expense of the war, and give them in return 6 per cent. bonds of the government at eighty cents on the dollar.

This was virtually the end of the banking system, based on coin payment, by individuals or corporations.  This class of banks never resumed until they were taxed out of existence in 1866.  This bank crisis was the inevitable sequence of attempting to furnish a money to meet every contingency, established upon a coin basis.  The fraud in this case was made apparent without the shadow of excuse on account of over speculation, and presents a wall of impregnable evidence around the fact, that gold and silver cannot be relied upon in a nation’s emergency, and that bank paper established upon such a basis is equally unreliable.  The government refused to accede to the proposition of the banks, and from that time forward to the close of the war, issued its own money in the character of demand notes, legal-tender notes, Treasury notes, certificates of indebtedness, coin certificates and bonds ;  to all of which it attached the same legal-tender property which it had given the greenback.  This money, it was, which armed, fed, clothed and paid the army in its struggles for four years, to save the life of the nation.  This money, it was, that filled all the channels of trade when peace was established ;  and gave us more prosperity and less indebtedness per capita than at any other period of our history.

Q.  If your statement is true, that under the influence of this large amount of money created and put in circulation by the government, the country was really in a prosperous condition, how do you account for the panic which occurred in 1867 ?

A.  This panic was produced by the reduction of the amount of currency.  In September, 1865, after the close of the war, our money consisted of government notes, national bank notes, and state bank notes to more than $2,000,000,000.  This money was needed to repair the wastes of war, and was actually at work, giving employment to the returned soldiery, who had now taken their places in society as producers of wealth.  The vast expense incurred during the war demanded that our production should be increased, and additional facilities for transportation furnished, to the end that we might be able to throw a large amount of our products into foreign markets, and thereby furnish sufficient revenue to meet the expenses of the government, and liquidate our indebtedness at the earliest possible moment.  The whole volume of the currency was thus employed.  The people had paid the government a full and valid consideration for all that it had issued, and it injustice belonged to them.  Believing that they would be permitted to use that which they had paid for, they formed their plans for the future, and based their contracts, as they had a right to do, on the amount of money then in circulation, which would have resulted, had it not been arrested by the act of the government, in the grandest development of national wealth which has ever occurred in the history of the world.

There was no over-production, for every description of the products of American enterprise found a ready and remunerative market.  There was no wild speculation, for legitimate business was sufficiently remunerative to satisfy the aspirations of business men, and prevent them from entering into any schemes of speculation not established on a safe basis.  There was no extravagant indebtedness, for there was money enough to fill all the channels of trade, so that there was no need of substituting individual obligations, for money.

It was in this period of prosperity that Hugh McCulloch was appointed Secretary of the Treasury.  He at once commenced contracting the currency and continued the process until, by 1867 he had withdrawn $1,300,000,000 of the currency of the government from the people and converted it into bonds bearing usury.  This left only a little more than $700,000,000 to carry on a business based upon a circulation of more than $2,000,000,000.  The panic was inevitable, and was the result of the government permitting its financial agent to rob the people of this amount of money, in order to make what he was pleased to term a specie basis.

By this ruinous policy, every branch of productive industry was crippled to the same extent that the currency was contracted.  The only class that flourished was the bankers and the money dealers.  Fortunately for the national banks, they were not established on a specie basis.  If they had been, they too would have been compelled to follow “in the footsteps of their illustrious predecessors,” and suspend, as such banks always do.  But while all other interests were suffering, these banks flourished ;  and in the period from July 1, 1865 to July 1, 1867, they increased their circulation from $146,137,860 in 1865, to $298,625,379 in 1867.

Under these adverse circumstances the people struggled on from year to year, only to find themselves less able to meet their obligations than they were the previous year.  Each year the number of business failures increased, and the possibility of recovering from the shock produced by this stab at their most vital interests, grew less until the great panic of 1873, when the number of business failures reported mounted to 5,183, involving a loss of $228,499,000.

Q.  Was there any material change in the business of the country to which this panic can be attributed, or was it the legitimate result of the contraction of the currency ?

A.  This panic and suspension was of a different character from any of those which pretended it.  It was a suspension of currency payment, instead of specie payment by the banks, for none of them had pretended to pay specie since 1861.  The crisis was not brought about by any material change in the ordinary business of commerce.  The bankers, the gold gamblers and the stock jobbers were the parties responsible for the crash which occurred at that time.  The foundation of it was in the law of Congress, authorizing banks in the interior to keep a large part of their reserves in banks in certain large cities, termed redemption cities, and permitted such banks to pay usury on the money so deposited with them.  In order to justify them in paying this usury, they must make some disposition of it.  As it was deposited subject to draft on sight, they could not loan it to engage in ordinary business.  It therefore was loaned to gold and stock gamblers to be paid on call.

In the early part of the fall of 1873, while this kind of speculation was at flood-tide, Jay Cook & Co., which had been one of the largest operating firms in railroad stocks failed.  Confidence was immediately destroyed, and a run was made upon the banks.  They could not convert their stocks which they held as collateral, and were compelled to suspend, and many of them failed entirely.  This suspension continued for three months.  The sales at the gold room were suspended and the banks issued $30,000,000, clearing house certificates, to use as money among themselves, in order to make their weekly settlements.  They also appealed to the Secretary of the Treasury for relief, and in response to their appeal he paid out $26,000,000, which had been retired and laying idle in the Treasury since 1868.  One peculiar characteristic of this panic was, that instead of the premium on gold increasing it declined.  Before the failure of Jay Cook & Co., it was quoted at 14 per cent., and immediately after it dropped to 7 per cent. premium.  The largest share of the distress created by this panic is attributable to the fact that the law providing for redemption banks in the large cities caused the money to be drawn from among the people, when it was needed for legitimate business, and concentrated in the cities in order to be used in these gambling operations.  There was another peculiarity about it in which it differed from all those which had occurred during the specie basis system of banking.  In all cases under that system, when the banks suspended, the people lost confidence and invested their money in property at almost any price, so that the money was kept in circulation until it became entirely worthless.  In this case the people lost confidence in the banks, but they had full faith in the government, and instead of investing their greenbacks in property, or depositing them in bank, they hoarded them ;  thereby contracting the currency to a still greater extent.

Once more.  One of the most disastrous speculations which the country has witnessed, took place on the Pacific coast in 1875, the result of which transferred the greater part of the wealth of California into the hands of a few individuals, who have ever since borne down on the people of that state with such relentless oppression, that revolution has been imminent, and was only prevented by the partial success of the people at the ballot box in thwarting the designs of their oppressors and staying them in their unbridled career of robbery.

These speculations, be it remembered, were not based on paper money of any kind, nor on silver.  Neither were they based on a redundancy of money of any kind ;  for the total amount of currency of all kinds in circulation, and held as reserves (as shown by the report of the Secretary of the Treasury) only amounted to $773,646,728.69.

These speculations, wild as they were, were based upon gold banks and gold bank credits, and a currency contracted to a specie basis.  The remedy for the prevention of wild speculation, and extravagant indebtedness must be sought in some other direction than contraction to the specie basis or gold standard.

Q.  Have we any instances in the history of modern times where the people of any nation have prospered for any considerable period of time without panics, when the circulation was irredeemable or inflated above a specie basis ?

A.  The history of England presents one remarkable instance.  The nation was at war with France, and the expenditures had taxed her resources until she found herself unable to meet her demands in coin.  The Bank of England had exhausted its resources until it was unable to further advance coin on government securities.  In 1797, the government took charge of the bank, ordered it to suspend specie payments, and made its notes legal-tender, so that the notes of the bank were virtually the notes of the government.  At this period the whole volume of the currency in England, both coin and paper, amounted to $45,000,000 ;  but the paper currency was inflated during the period of suspension until it reached $127,000,000.  This suspension existed for twenty-six years, during which period she carried on her war with France and her late war with the United States, and enjoyed a state of domestic prosperity such as she never had enjoyed before, nor ever has since.  Such was the state of her progress, that, whereas her revenue in 1797, when inflation commenced, was only $115,000,000, in 1815, eighteen years after, it had rose to $360,000.000.  During the whole period of twenty-six years, from 1797 to 1823, while the suspension of specie payments and inflated currency continued, there was no wild speculations, no extravagant indebtedness ;  and, consequently, no panics.  In less than ten years after the bank had resumed specie payments the kingdom was involved in the wild speculations which resulted so disastrously from 1833 to 1837.

Another notable instance is to be found in France.  In 1848 she changed her form of government from an empire to a republic.  Being surrounded by monarchical governments, all hostile to republican institutions, every means was used by them to prevent the success of the experiment.

Her credit was attacked, and her securities depreciated in the market.  This produced a panic, and a run was made on the Bank of France for coin which it found itself unable to withstand.  It was about to go into liquidation, when the government interfered and compelled it to suspend specie payments, made its notes a legal-tender, and increased its circulation to $604,000,000, a much larger amount than it had ever reached before.

Previous to this act of the government, business was stagnated ;  every industry was crippled ;  the people were idle for want of means to prosecute the industries of the nation.  But as soon as the government took this step confidence was restored ;  business revived as this irredeemable paper money entered into and swelled the amount of the circulating medium, until every laborer found ample employment at remunerative wages ;  every industry was stimulated and built up to its normal proportions, and its products found a profitable market.

This money, being virtually the money of the government would buy anything in the market, or pay any debt ;  consequently, it went out among the people and entered into all their business.  It was not hoarded, nor did it produce any wild speculation, but it so increased the wealth of the nation that coin flowed into the Treasury until it amounted to $1,200,000,000—more than was held by any other nation in the world.

For twenty-two years France enjoyed a prosperity with this redundant currency which was only checked by the war with Germany in 1870-71.  After confidence and prosperity had been restored the bank again paid specie when demanded ;  but the people had become so accustomed to look upon its notes as superior to coin that they kept it in circulation the same as when it was the money of the government.

The expenses of the war with Germany had impoverished the nation and crippled the bank.  In addition to the expense and destruction produced by the war, the conditions of peace imposed the necessity of paying to Germany $1,100,000,000.

Their experience since 1848 taught the French people a lesson which they were not slow to improve.  The government at once took charge of the bank and caused it to suspend specie payments, and increased its circulation $200,000,000, making its notes legal-tender as before.  This at once set the industries into active operation.  Every farmer, manufacturer and laborer found ample demand for his efforts and received a generous reward for his toil.  So active and successful was this industrial movement of the French people that within three years after the close of the war, which left them demoralized, despoiled and impoverished, they sold to Germany enough of the surplus goods manufactured through their energy, stimulated by a redundant currency, to pay more than two-thirds of the $1,100,000,000 assessed upon them as indemnity for the war.

Ten years have elapsed and the same financial policy is adhered to.  The currency has not been contracted to a pretended specie basis, notwithstanding the Bank of France holds more coin than any other bank in the world.  It does not pretend to pay specie, but its notes are at par with coin for any and every purpose.  This money is the choice of the people, because they know it will be sustained by the government.  During all this period—from 1848 to 1881—there has been no panics in France produced by speculation, while the currency has been inflated and not redeemable in coin.

The foregoing historical facts compel us to adopt the following conclusions :

1st.  That it is the scarcity and not the abundance of money that creates extravagant indebtedness.

2nd.  That wild speculation is set on foot and encouraged by bankers, who furnish the money to carry them on for the purpose of realizing large profits out of the failures which must inevitably follow.

3rd.  That the adoption of the specie basis is first intended to deceive the people and inspire confidence in the banks, in order to get their notes into circulation until they have flooded the country, and then to be used as a pretext for failing because they cannot redeem them.

4th.  That when they do not fail, after furnishing the money and getting business established on a redundant currency, they invariably call in their loans and contract the currency, thereby compelling the substitution of individual indebtedness, and then in turn take advantage of that indebtedness to rob and ruin their deluded victims.

5th.  That the only sure method of preventing wild speculation, extravagant indebtedness and ruinous panics is to discard the specie basis and prohibit the issuing of currency by individuals or corporations.  Let all the money be issued by the government, based upon the faith and credit of the whole nation and all its wealth, and such money made a full legal-tender and furnished in sufficient amount to meet all the legitimate demands of commerce, and regulated by Congress so that there could be no sudden expansion of its volume unless in case of emergency, and no contraction so as to cripple business and produce panics.