Of the Evils that would be produced by a sudden dissolution of the System.
If every Bank note in the country were consumed by fire to-morrow, the wealth of the nation would be diminished just as much as it would be by the destruction of so much waste paper.
So, if all the title-deeds of estates were destroyed, the loss of positive wealth would be equivalent to the loss of so many skins of parchment. But very great injustice would be done to individuals by the destruction of these skins of parchment; and not less, probably, by the sudden destruction of Bank notes.
It is an easy thing to establish a Banking system: but it is not very easy to get rid of it after it has been some years in operation. The sudden abolition of it, would produce an entire destruction of private credit, a universal pressure for the payment of debts, and a general disability to comply with engagements. Business of nearly every kind would be suspended, and the laboring part of the community would be deprived of employment.
If all the Bank notes in the country should he destroyed to-morrow, the twenty-two millions of specie which are said to be in the vaults of the Banks, would be put in circulation, which, added to the ten millions of specie supposed to be at present in circulation, would make a total of thirty-two millions. Supposing Bank credits to be destroyed at the same moment, the circulating medium would suddenly be reduced from one hundred and nineteen millions (which is, according to Mr. Gallatin, the present aggregate of specie, notes, and Bank credits) to thirty-two millions. If an end were not put to all transactions except by means of barter, the fall of prices would be at least seventy-five per cent.
If but half of the Bank notes and Bank credits should be suddenly abolished, the fall of prices would be in greater proportion than the reduction of medium, from the immense quantities of land and of merchandise which would be thrown into the market.
If the Bank medium should be suddenly reduced only one-fourth, the fall of prices would be at least twenty-five per cent., and universal embarrassment would be the consequence.
Many of those who have acquired capital by the different operations of Banking, would not, perhaps, desire any thing better than the sudden destruction of the system. Most estates which are now mortgaged for only one-third or fourth of their worth, at the present rate of valuation, would fall into the hands of speculators. The condition of the whole country would be like that of Kentucky when she adopted her "relief laws." The people would clamor for the issue of paper money by the State Governments, and a worse system than the present might be adopted, if a worse be possible.
Public opinion in the United States, when it once takes root, runs so rapidly to maturity, that this caution is not unnecessary. Some who are now living may see the time when the popular feeling against the Banking system will be stronger than the feeling ever was in its favor.
Of the Proper Mode of Proceeding.
As paper drives specie out of circulation, so, the withdrawal of paper brings specie back again. Wherever there is a vacuum it flows in, unless political regulations counteract its tendency to find its own level.
If we gradually withdraw Bank notes from circulation, no evil will ensue, for specie will immediately supply their place.
The proper mode of proceeding would be, to begin with the smallest notes, and proceed gradually to those of the highest denomination.
Mr. White, of New York, in his report to Congress, made in February, 1831, estimates the amount of notes in circulation of a less denomination than five dollars, at not more than seven millions. This does not exceed the amount of gold and silver we sometimes import in one year. But, through the use made of paper, the gold and silver imported in one year are exported in the next. Let small notes fall into disuse, and an equal amount of specie will be retained in the country.
The amount of five dollar notes in circulation is estimated by Mr. White at ten millions. Two years after the act to prohibit the issuing of small notes, it would be perfectly safe to prohibit the issuing of notes of a less denomination than ten dollars.
In two years more, the prohibition might be extended to notes of a less denomination than twenty dollars. Our currency would then be on a par with that of Great Britain.
In two years more the issue of notes of a less denomination than fifty dollars might be forbidden; and in two years after that, the issue of notes of a less denomination than 100 dollars.
In this way, in the short period of ten years, and without producing any commercial convulsion, specie might be made to take the place of paper.
We speak from experience. The principles of the measure have been tried in Virginia, Maryland, and Pennsylvania. In the way in which these States have got rid of small notes, the other States may get rid of them. In the way in which small notes have been driven from circulation, notes of every denomination may be made to give place to specie.
In some parts of Pennsylvania, violent opposition was made to the act to prohibit the circulation of small notes, from an opinion that it would "make money scarce." The grand juries of the counties of Beaver and Erie went so far as to present it as a nuisance. But the Legislature remained firm in its purpose, and many of the former opponents of the law are now among its warmest supporters. The effect of the measure was just such as its friends predicted. An immense quantity of trash disappeared from circulation, and its place was supplied with silver.
The principles of the measure have also been tried in England, where, in 1829, the issue of notes of a less denomination than five pounds sterling was prohibited. The proceeding there was from notes of one pound, or four dollars eighty cents, to notes of five pounds, or twenty-four dollars a greater jump than would be advisable in America.
Some of our most distinguished statesmen appear to be of opinion that, if it were possible to substitute a metallic for a paper medium, it would greatly promote the interests of the country. Nothing hinders, but want of inclination. If either of the great political parties into which our nation is divided, would take a decided stand in favor of sound currency and sound credit, the cause of sound currency and sound credit would be triumphant. The industrious classes of the nation would array themselves with that party, as soon as they could be made to understand the question, and the speculators and their satellites would be vanquished in the contest.
If our national debt was of great amount, and if our taxes were heavy, some difficulties might be experienced in passing from a paper to a metallic medium. But our national debt is now merely nominal, and the taxes payable to the United States may, if necessary, be reduced, without diminishing the efficiency of Government. A country and a people possessed of so much elasticity, could bear greater changes than any here proposed.
Of the perfect feasibility of the measure, we may be convinced in another way. Our exports of domestic produce amount annually to between fifty and sixty millions of dollars. If we should buy from five to ten millions a year of gold and silver, for ten years, we should still have between forty and fifty millions to expend in the purchase of European manufactures, and East and West India products. If, by the withdrawal of paper, a demand for specie, to the amount of twenty millions annually should be created, it could readily be supplied. England, in four years, on the resumption of specie payments, imported twenty millions sterling in gold alone. Our demand could be supplied by both gold and silver.
Supposing the withdrawal of the Bank notes should cause a diminution of Bank discounts of equal amount, the effect, if we proceeded gradually, would be almost imperceptible. If two years were allowed for the withdrawal of small notes, the diminution of Bank discounts would, in this period, and on this supposition, be at the rate of 3,500,000 dollars a year. In the single city of Philadelphia, there have been, in periods of less than a year, reductions of Bank discounts to as great an amount as is here proposed for the whole country.
According to the estimate of Mr. Gallatin, the whole amount of Bank notes in actual circulation, in 1830, was about 54,000,000. Surely it will not be said, that our whole nation cannot pay off an amount of Bank debt, equal to the amount of Bank notes in circulation, in the period of ten years.
But, supposing we should, in the course of ten years, choose to pay off an amount of Bank debt, equal to the whole amount of Bank medium, or of both Bank notes and Bank credits, amounting together to 109,000,000, would it be a work of insuperable difficulty ? In the last seven years, the Government has paid off the public debt at the rate of eight or ten millions a year: can we not, all of us together, pay off between eleven and twelve millions a year of Bank debt ?
In a pamphlet entitled "Remarks on the Annual Treasury Report," published in 1828, and said to be written by two practical economists, distinguished for their talents and information, the whole capital of the country is estimated at 12,000,000,000 dollars, and its productive industry at 600,000,000 annually. Mr. Lee of Boston, seems to suppose the national capital is not more than 10,000,000,000, but he increases the national income to 700, or 800 millions. In the Harrisburgh address, drawn up by Mr. Niles, in 1828, our productive industry is estimated at 1,066,000,000. Mr. E. Everett, in his speech of 1830, rates our national income at 1,000,000,000 dollars.
Take the lowest of these estimates; suppose our national capital to be only 10,000,000,000, and our productive industry only 600,000,000 a year, can we not pay off a Bank debt of 109,000,000 in ten years ?
In every year, the increase of loanable capital in the country, must exceed the amount of Bank debt it would be necessary to pay. Private credit would take the place of Bank credit. If there should be a greater demand for capital on loan than could be supplied out of the savings of our own people, capital would flow in abundantly from Europe.
If the notes should be withdrawn gradually, in the manner here proposed, there is not a solvent Bank, nor a solvent individual, in the country, that could not sustain the operation. Such are the energies and the resources of the American people, that it would seem practicable to accomplish the work in half the time we have mentioned. The sooner it is accomplished, the sooner will we be delivered from the evils of our present condition. If, however, ten years be thought too short a time for the work of reform, let it be extended through twenty years or through thirty years. The longest of these is but a short period in the life time of a nation.
* [Unfortunately for this whishful plan, the people who corrupted politicians, paid for newspapers, by hook and crook got for themselves bank charters, would not sit idly by, while persons of such character are elected into office; would not sit around for ten years, watching their nefarious business legislated out of existence. The closest we could get was the non-renewal of the charter, and that took a brawler, a battle-field general and what forces and what money was marshalled against him ?!! brute force can only be opposed with brute force]
Of a New Coinage of Gold.
The money unit of the United States is the dollar, consisting of 416 grains of standard silver, or 371¼ grains of pure silver and 34¾ grains of alloy. All our contracts are to pay and receive dollars; all our accounts are kept in dollars. The dollar is thus our money of both account and contract, and its legal value is fixed by our having a coin of the same name, containing the quantity of pure silver and alloy which has just been mentioned.
Gold is, in the spirit of our laws, a subsidiary currency, its value being computed in silver dollars. At the United States Mint it is rated as fifteen to one that is to say, one ounce of gold is considered as worth fifteen ounces of silver; or, what is the same thing, as many grains of pure gold as are equal to the number of grains of pure silver contained in a dollar, are coined into an eagle and a half eagle, and estimated at the mint as worth fifteen dollars.
The market rate of gold to silver, as determined by sales of gold bullion and silver bullion, in a series of years past, is about 15.8 to 1. Consequently, if the mint rate corresponded with the market rate, the quantity of pure gold contained in an eagle and a half eagle, ought to be estimated at the mint at about fifteen dollars and eighty cents.
The undervaluation of gold at the mint, is not the reason that it has disappeared from circulation. Eagles have disappeared for the same reason that dollars have disappeared. Whenever Bank notes are used, no more specie is retained in a country than is necessary for transactions of a smaller amount than the least denomination of paper, and is necessary for meeting the few stray notes that may be presented to the Banks for payment. It has been found impossible in England to make sovereigns and one pound notes circulate currently; and we all know that small notes in the United States have not only driven away gold coins, but also such silver coins as are of a higher denomination than a half dollar.
If Bank notes had never been introduced, eagles, half eagles, and quarter-eagles would have continued in circulation, notwithstanding the undervaluation of gold at the mint. The eagle would not have been current at the rate of ten dollars; but at the rate of ten dollars and fifty cents, ten dollars and seventy-five cents or whatever else it would have been worth. The calculation of the fraction would have been productive of some inconvenience; but the utility of gold coins, in large transactions, would have made them current at a rate probably a little above that which they have borne in the bullion market.
A new gold coinage is desirable; but the proposition to coin eagles of a less weight than the eagles of former times, is not entirely free from objection. As all our contracts are to pay dollars, and as there is no gold at present in circulation, an issue of a new coin, called an eagle, which should be of the exact value of ten dollars, would cause no practical injustice. But the issue of a new coin of different weight from the old, and yet bearing the same name, might give countenance to the idea that money is some thing which owes its value to the authority of Government, and lead, perhaps, at some future time, to an alteration in the dollar an alteration in our true standard of value.
The Eagle is the proper name of a coin which contains 247½ grains of pure gold, or 270 grains of standard gold, of twenty-two carats fineness. A coin which would contain but 234.84 grains of pure gold, or 256.20 grains of standard gold, ought to be called by another name, and, to prevent all possibility of mistake, should have a different device. When the English ceased to coin pieces containing 118.58-89 grains of pure gold, and began to coin pieces containing 113 grains of pure gold, they did not call the new pieces by the same name as the old. But if the proposition which was laid before Congress, a year or two since, should be adopted, there will be a greater difference in the weight and value of our new half-eagles and our old half-eagles, than there is in those of English sovereigns and English guineas.
To attempt to fix by law what is not fixed by nature, is preposterous. Gold and silver vary in value when compared with one another, in the same manner as copper and iron vary. The variations in the relative value of the precious metals are, it is true, very small; but in different epochs of our history, 232, 234, 238, 247, 250, and 252 grains of pure gold may be worth ten silver dollars. If we should, through all such changes, pertinaciously insist on coining eagles, adapting the quantity of gold in them to the varying state of the bullion market, we should have a dozen different coins, each of a different weight, and yet all bearing the same name.
As there is little use for a gold coin so small as the quarter-eagle, and as we have imitated the Spaniards in our silver coinage, perhaps it would be judicious to imitate them in our gold coinage also, and issue American doubloons, half-doubloons, and quarter-doubloons, of the respective values of sixteen dollars, eight dollars, and four dollars. But, if pieces containing five and ten dollars' worth of gold be preferred, call the ten dollar piece, "the Republican," "the President," or by any name that may please the fancy, except that of "the Eagle." This is a name affixed, by long usage, to a piece containing neither more nor less than 270 grains of standard gold, and calling a piece containing a fewer number of grains by the same name, will certainly lead to confusion of ideas, and perhaps, at some future period, to practical injustice.
Whatever kind of new coins may be preferred, it will be proper to stamp on them the number of grains of pure gold and alloy that they may contain. Each new gold piece will then be a primer of political economy, and help in dissipating the erroneous ideas entertained respecting money.
It will be quite unnecessary to declare by law, that the new gold coins shall be a tender in payment of private debts. People who receive Bank notes at their nominal value, will not refuse gold at its real value.
To ascertain the quantity of gold it would be proper to put in the new pieces, nothing more is necessary than to strike an average of the price gold bullion has borne as compared with silver bullion, in the principal markets of the world, during the last ten years. The mint regulations of different countries, are of no further account than as they affect the value of gold and silver in the bullion market.
If, from some error in the data made the basis of the calculation, the gold in the new coins should happen to be rated a decimal fraction too low, so small an undervaluation will not cause the coins to be exported. Their utility as a circulating medium will keep them in circulation, the issue of five and ten dollar notes being prohibited.
If the gold should happen to be rated a decimal fraction to high, it will not, as some seem to fear, drive silver out of circulation. The necessity for silver coins in small pay ments will cause them to be retained in the country.
Should there be a greater error than a decimal fraction either too much or too little, in the valuation of gold, the new coin would continue to circulate, but at a small discount or a small premium, thus correcting the error of the mint valuation.
If one metal be made the standard and the legal tender, neither gold nor silver can be driven from circulation, except by paper, and paper cannot obtain currency except through the sanction or the connivance of government.
Gold is undervalued at the French mint, as well as at our own: but, according to Mr. Gallatin, "it is only during short and extraordinary periods, that the fluctuations have been so great, as that the gold coins did either fall to the par of silver coins, or rise to the premium of one per cent. During by far the greater period of forty-five years, the premium has fluctuated from one-fifth to one-half per cent.: so that the variations in the relative price of the two metals have, with the few exceptions above mentioned, been less than one-third per cent." From the result of experience in France, there is every reason to believe, with Mr. Gallatin, that "the fluctuation in the relative market price of gold and silver, issued under proper mint regulations, would be so small a quantity that it might be neglected."
To establish a system of sound currency and sound credit, it is not absolutely necessary to have a new gold coinage. Only let Bank notes be withdrawn, and eagles, half eagles, and quarter-eagles, will come into circulation, and pass at their real value. But as four and eight, or five and ten dollar pieces, would be more convenient than pieces of the worth of five dollars and the indeterminate parts of a dollar, or ten dollars and the indeterminate parts of a dollar, a new gold coinage is desirable. It would be attended with injustice to no individual. No seignorage being charged at our mint, whatever quantity of gold bullion a man sent there, he would receive back the same amount in gold coin: and this coin he would pass in the market for whatever it might be worth.