Mr. Roscoe Conkling. Now, sir, this banking scheme which the present bill is intended by some to usher in, and render necessary, I hope gentlemen will mark it; this forthcoming mammoth, this elephantine machine, will be a great lion when it comes here. It will be as much of a lion as the Great Eastern, or Japanese embassy, and we adjourned to see the Japanese come ashore with their trunks, didn't we ? Well, sir, we ought to do something for this expected visitor undoubtedly, something handsome. The fatted calf ought to be killed; but it seems to me that $100,000,000 of paper money, as a legal tender, to pave the way, is, considering our moderate circumstances, rather ostentatious hospitality. I do not wish to say anything disrespectful of this great banking invention; but with him of old "I fear the Greeks," and when this Trojan horse is trotted out, I hope some doubter with a spear will investigate his bowels and see what he is likely to emit, whether armed men or something else; and if armed men, we'll add them to that army which my colleague from the Onondaga district [Mr. Sedgwick] said the other day goes into winter quarters in summer weather.
"Sec. 41. And be it further enacted, That every such association shall at all times have on hand, in lawful money of the United States, an amount equal to at least twenty-five per centum of the aggregate amount of its outstanding notes of circulation and its deposits; and whenever the amount of its outstanding notes of circulation and its deposits shall exceed the above-named proportion for the space of twelve days, or whenever such lawful money of the United States shall at any time fall below the amount of twenty-five per centum of its circulation and deposits, such association shall not increase its liabilities by making any new loans or discounts otherwise than by discounting or purchasing bills of exchange, payable at sight, nor make any dividend of its profits, until the required proportion between the aggregate amount of its outstanding notes of circulation and its deposits and lawful money of the United States shall be restored: Provided, however, That clearing-house certificates, representing specie or lawful money specially deposited for the purpose of any clearing-house association, shall be deemed to be lawful money in the possession of any association belonging to such clearing-house holding and owning such certificates, and considered to be a part of the lawful money which such association is required to have, under the foregoing provisions of this section: Provided, further, That any balance due to any association organized under this act in other places from any association in the cities of Boston, Providence, New York, Philadelphia, Baltimore, Cincinnati, Chicago, St. Louis, or New Orleans, in good credit, subject to be drawn for at sight, and available to redeem their circulating notes and deposits, may be deemed to be a part of the lawful money which such association in other places than the cities of Boston, Providence, New York, Philadelphia, Baltimore, Cincinnati, Chicago, St. Louis, and New Orleans, are required to have by the foregoing provisions of this section, to the extent of three fifths of the said amount of twenty-five per centum required. And it shall be competent for the comptroller of the currency to notify any such association whose lawful money reserve, as aforesaid, shall fall below said proportion of twenty-five per centum, to make good such reserve; and if such association shall fail for thirty days thereafter so to make good its reserve of lawful money of the United States, the comptroller may, with the concurrence of the Secretary of the Treasury, appoint a receiver to wind up the business of such association, as provided in this act."
Senator John Sherman, January 16th 1873:
"United States notes were issued under the authority of the acts of Congress passed February 25, 1862, July 11, 1862, and March 3, 1863. ... They are made the basis of the entire system of national banks, whose notes are payable in United States notes."
Mr. Powell. I offer this amendment as an additional section:
And be it further enacted, That each and every banking association organized under this act shall be, and is hereby, required to keep in its vaults gold and silver coin, at all times, an amount equal to at least one fourth of the amount of the notes it is authorized to issue.
This is to me a most singular bank bill. I have read it over hastily twice, and I have not observed the words "gold and silver coin" mentioned anywhere. I am clearly of the opinion that any bank note issued upon any other than a specie basis will be injurious to the country in which it is issued. Bank notes, in my judgment, to be a benefit to the community, should be redeemable at the counter at which they are issued, in coin. Any other issues in my judgment are destructive to the best interests of the country. The amendment I propose requires each one of these banks to keep in its vaults in coin at all times an amount equal to one fourth of its issues. That is a very limited amount; but when you take one fourth of the value in coin, and take the United States bonds at their present value, it would not be more than sufficient to protect the note-holder against loss in case the institution I should wind up.
Mr. Powell. It is singular to me that the Senator [Mr. Sherman] cannot discuss a legitimate matter of finance without lugging in "Jeff Davis" here as a kind of bugbear to somebody. I do not know what Mr. Jefferson Davis has to do with this matter. The Senator says that I have announced that I believe the legal tender clause of your note bill to be unconstitutional. I so announced when the bill to issue them was passed, and I voted against it; and I really thought when the first bill was passed that the learned Senator from Vermont [Mr. Collamer] made an argument which ought to have satisfied every Senator here that it was unconstitutional. I do believe that the legal tender clause is unconstitutional. I do not believe that, if a man has contracted to pay me $1,000, which meant $1,000 in gold or silver coin, this Congress can pass a law saying that I shall receive it in paper money, and paper money that is at as heavy a discount as this is.
The Senator says you cannot go on with the war without the issue of greenbacks, as I understand. I think, and I have always thought, that it was an unwise policy to issue one of them. I know very well that in these times it would be impossible to get along with the sub-Treasury law requiring all the receipts and disbursements of the public Treasury to be coined. I would have repealed that much of the sub-Treasury law, and I would have allowed the notes of solvent banks to be received and paid for the public dues; and then I would have gone into the market and borrowed money. Your bonds were selling at a premium, in gold and silver coin too, before you commenced grinding out this paper money. You have ground out paper money until now your bonds are at a discount, payable in paper money that is itself at a very heavy discount, a discount of some forty per cent. and upwards; forty-seven I believe to-day. This policy has already ruined the credit of the nation, or at least very much weakened it; destroyed it to a very great extent. In my judgment this has been caused by the unwise financial policy of the Government. I desire to keep up the credit of the Government, and I believe it cannot be kept up by the excessive issue of irredeemable paper money. That is my firm conviction. I wish to put, if I can do it, a little stiffening into the Senator's bill, and I intend at the proper time to move to strike out the clauses which require these notes to be redeemed by what he calls "lawful money," and to insert "gold and silver coin," believing as I do that no bank issue will ever be of use to any country that is not convertible into gold and silver.
I shall move further to amend the bill, if this money is to be thrown on the people, by striking out that provision which prevents it from being received for your customs. If we compel the people to take it in every direction, the Government itself should receive it. I think it is disreputable to a Government to issue and force on its people paper money that it will not take itself. I think that of itself is a clear indication that those who issue it have no confidence in it. If this money is issued and forced on the people, the Government should take it for all its public dues. It should treat the people as it does itself. It should not compel them to use a depreciated currency, while itself, for a large portion of its public dues, demands coin.
These are amendments that I shall propose. Whether they will be adopted or not I am unable to say, but I think they would vastly improve the bill. In moving these amendments, I have no reference to the war, but desire to improve the bill, and enable Congress, if they do force this bill through the two Houses, to have a prospect at least of giving the people a sounder currency than they will have without the amendments that I suggest.
Mr. Sumner. it is evident that there cannot be a vote on the question propounded by the Senator to-night, and as there is important business to be transacted in executive session, I move that the Senate proceed to the consideration of executive business.
Mr. Sherman. Before that motion is put, I desire to state that as the business of the session is very much crowded I shall hope to get a vote on this bill to-morrow.
The motion was agreed to; and the Senate proceeded to the consideration of executive business, and after some time spent therein, the doors were reopened, and the Senate adjourned.
National Currency Banks
The Vice President. The special order of the day is the unfinished business of yesterday, which is the bill (S. No. 486) to provide a national currency, secured by a pledge of United States stocks, and to provide for the circulation and redemption thereof. That bill is now before the Senate as in Committee of the Whole, the pending question being on the amendment of the Senator from Kentucky, [Mr. Powell].
---[Just about the most disgusting "lawyerly vindication of his own course of policy"; in itself is enough to show that very nasty persons brought you greenbacks, for nefarious purposes. This exact same John Sherman a year ago spoke for an hour in favour of the legal-tender clause; and 8 months ago in favour of eliminating State bank notes and establishing Treasury notes alone as national currency, which at that time he declared to be the best that can ever be.]
Mr. President, the importance of the subject under consideration demands a fuller statement than has yet been made of the principles and objects of this bill. I wished to avoid the labor of discussing this subject; but it seems to be necessary. I shall endeavor to condense what I have to say, for I know the time of the Senate is precious, and I desire to get a vote on this bill, if practicable, to-day.
It is the misfortune of war that we are compelled to act upon measures of grave importance without that mature deliberation secured in peaceful times. We are now to act upon a measure that will affect the property of every citizen of the United States, and yet our action for good or evil must be concluded within the few days or weeks of this session. We are about to choose between a permanent system, designed to establish a uniform national currency based upon the public credit, limited in amount, and guarded by all the restraints which the experience of men has proved necessary, and a system of paper money, without limit as to amount, except for the growing necessities of war. In the consideration of such a question we surely should sacrifice all local interests, all pride of opinion; and, while acting promptly under the pressure of events, we should bring to our aid all the wisdom of united counsels, and all the light which the experience of former generations of men can give us.
It is fortunate that the scheme presented is not novel either in its principles or details; nor is it presented to us for the first time at this session. In December, 1861, the Secretary of the Treasury briefly but clearly stated the outlines of the system proposed, and a bill similar in its main provisions to the one under consideration was introduced in the House of Representatives at the last session. It was not then much discussed, because of the greater demand for military and naval measures, and the necessity of an extensive and novel law of internal taxation.
But while we were thus engaged, this system was discussed among those whose business made them conversant with finance and currency; and, sir, I may safely say that though it ran counter to the local interests of those engaged in the business of banking, it has steadily gained in favor with all classes of our citizens.
The subject was again presented to us at greater length and with more urgency by the Secretary of the Treasury in his recent annual report, in which the arguments for and against the system are ably discussed. The bill has been published in various forms and extensively circulated, so that opinions on the subject have been canvassed and weighed by all those who take an interest in it. It only remains for Congress to determine whether it shall become a law.
It must be remembered that this bill is taken up when our financial condition is not the most favorable. Gold is at a premium of between fifty and sixty per cent., and is substantially banished from circulation. We are in the midst of war, when the necessities of the Government require us to have large sums of money. We cannot choose as to the mode in which we shall get that money. If we pursue the ordinary course, the course that has been sufficient in times of peace to raise money, of putting our bonds into market and selling them for what they will bring, it would be at a great sacrifice. We know this from the history of other nations and from our own experience. We, therefore, must look to some system of finance that will give us all the aid possible either in the form of paper money or by the agencies of associated banks. We know very well that after this war is over, this Government will still be largely in need of money; that when the rebellion is subdued, the condition of society in the southern States will be disturbed; that it will be necessary to maintain for some time considerable armies in order to preserve peace; and that in any aspect of affairs this Government must undertake responsibilities and incur debts and liabilities of which we have had no example in our previous history.
The financial measures heretofore adopted are necessary to be considered before I proceed to examine the features of this bill. After the war broke out we were able to borrow money upon the credit of the United States until December, 1861. The amount of demand notes previously issued was comparatively small. In December, 1861, by the suspension of specie payments the whole of the gold was withdrawn from circulation, and there was nothing then in circulation but the paper of local banks, which by the laws of the United States could not be used in Government transactions. We were then in the peculiar condition of a nation involved in war without any currency whatever which by law could be used in the ordinary transactions of the public business. Gold was withdrawn by the suspension of specie payments; the money of the banks could not be used because the laws of the United States forbade it; and we were without any currency whatever.
Under these circumstances Congress wisely authorized the issue of a considerable sum of United States notes. That this measure was wise but few will controvert. We were compelled by a necessity as urgent as could be imposed upon any legislature to issue these notes. To the extent to which they were issued they were useful. They were eagerly sought by our people. They were taken by our enemies in the South, by our friends in the North. They were taken in the East and in the West. They furnished the best substitute for gold and silver that could then be devised; and if we would limit the United States notes to the amount now authorized by law they would form a stable and valuable currency.---[If so, then why not just leave things alone? why these new-fanigled banks and their notes?]
But, sir, we know, not only by our own experience, but by the experience of other nations, that when a Government issues paper money in very large amounts, and without connecting it in any way with the private operations of the people, it inevitably depreciates, and, if carried to excess, deranges the values of all property. Still necessity presses us for money, and most of the great nations of modern times have during war been compelled by necessity to resort to some form of paper money. It has always been the most difficult problem of war to maintain the Government credit and yet to procure the very large sums indispensable for its prosecution. We have but four expedients from which to choose: first, to repeal the sub-Treasury act, and use the paper of local banks as a currency; secondly, to increase largely the issue of United States notes; thirdly, to organize a system of national banking; or, fourthly, to sell the bonds of the United States in the open market.---[Liaring, again; the original $150million greenbacks would have been enough had the original version of the bill been accepted. Four years from now you will admit that the greenback issues were purposely increased: "the bonds could not be negotiated, and it became necessary to depreciate the notes in order to create a market for the bonds. The limit of notes was trebled and the right to convert them taken away." And you purposely left out the solutions offered by Vallandigham and Roscoe, to issue non-legal-tender Treasury notes.]
Some three or four weeks ago I discussed at some length the propriety of a repeal of the sub-Treasury clause, as it is called, and endeavored to show that local banks cannot be made to furnish a national currency. The losses in various ways from the use of their money, its detarioration in value, the want of security, the want of uniformity, and many other objections to that paper money, made it expedient to resort to it. The United States notes are in every respect a better form of currency than bank paper; but we have to examine now the objections that may be made to the further use of Government paper money. These objections are briefly but very plainly stated by the Secretary of the Treasury. I will read them:
"The principal objections to such a circulation as a permanent system are: (1) the facility of excessive expansion when expenditures exceed revenue; (2) the danger of lavish and corrupt expenditure, stimulated by facility of expansion; (3) the danger of fraud in management and supervision; (4) the impossibility of providing it in sufficient amounts for the wants of the people whenever expenditures are reduced to equality with revenue or below it."
The danger of over-issue is constantly pressing upon us. It is shown by the experience of other nations, and its effect in inflating values is felt by every one. The mere introduction of a bill in the House to authorize the issue of $300,000,000 additional United States notes operated like magic. I have here a statement showing the effect of this proposition. On the day that bill was introduced gold commanded a premium of thirty-six and a half per cent. The next day it rose to thirty-eight; within three days it rose to forty-one; on the 15th of January, six days afterwards, it rose to forty-eight and a half; and from that time to this it has been continually rising. It did not suffer a decline until there was a disposition evinced in the Senate to check the over-issue of this kind of paper money. We have here a striking illustration of the effect of even a proposed over-issue of this paper money. In one week it changed values over ten per cent., and in three or four weeks it changed them nearly thirty per cent. The proposition of the Senate to check this over-issue at once reduced it some four or five per cent. I have no doubt the passage of the bill reported from the Committee on Finance will still further reduce the relative value of gold.
Another effect of an over issue of paper money is to increase the compensation of employes. The expense of living is now considerably greater than before the war. We have had more propositions within the last month to increase the salaries of officers than we had within the two years preceding. It is now said by nearly every clerk in the Departments, by nearly every officer in Washington, by nearly every officer of the Government, that his salary is inadequate to pay his expenses. We find our expenses are largely increased by the deterioration of paper money. This deterioration will go on as it has gone on in the history of other nations, unless Congress check it by stopping its further issue. It increases the expenses of the Government in various ways. The price of provisions and clothing is increased; and all the money that we now borrow to defray the expenses of the Government, and all the increased expense occasioned by this inflation of prices, must be paid eventually by the people of the United States with compound interest in gold.---[And your bright idea and solution to this inflation of currency is to establish a nation-wide banking system that issues currency based on national indebtedness: bonds and United States notes !!?]
Another practical objection to these United States notes is, that there is no mode of redemption. They are safe; they are of uniform value; but there is no mode pointed out by which they are to be redeemed. No one is bound to redeem them. They are receivable, but not convertible. They are debts of the United States, but they cannot be presented anywhere for redemption. No man can present then, except for the purpose of funding them into the bonds of the United States. They are not convertible; they lack that essential element of any currency.---[Nor will the National Currency Bank notes be; you are lying: the U.S. notes are promises to pay, and the Secretary of the Treasury may redeem them in coin, any time he wants to.]
Another objection is, that they can only be used during the war. The very moment that peace comes, all this circulation that now fills the channels of commercial operations will be at once banished. They will be converted into bonds; and then the contraction of prices will be as rapid as the inflation has been. The issue of Government notes can only be a temporary measure, and is only intended as a temporary measure to provide for a national exigency.
Another serious objection to these notes is, that they are made the basis of bank issues. Under the operation of the act declaring them to be a legal tender, the bank circulation has increased from $120,000,000 to $167,000,000. The banks have sold their gold at a large premium, and placed in their vaults United States notes with which to redeem their own notes. That cannot be avoided. As we have made them a legal tender, banks are bound to take them in payment of debts due to them, and they therefore have the right to hold them to pay their debts with. The consequence has been that, while the Government has been issuing its paper money, some of the banks have also been inflating the currency by issuing paper money on the basis of United States money. This inflation may be illustrated by the statement of a bank in Pennsylvania, sent to me with a view to show how much tax it would have to pay under the bill reported from the Committee on Finance. It has a capital stock of $200,000, and a circulation of $589,600; there was due to depositors $55,125; profit and loss, $36,294; and to other banks, $23,959. The circulation is $589,600. Now, what have they got to pay it with ? Gold and silver coin, $18,326, not one thirtieth part of the circulation; bills and checks, $27,128; banking house and lot, $4,000; due from other banks, $146,879. The assets on hand would but little more than pay depositors and current debts to banks, leaving the whole circulation secured by loans and discounts. The whole of that circulation has no other basis except loans and discounts, and the circulation is three times the amount of the capital stock.
It is very easy to prove that such a system of banking is a bad one, and would destroy and demoralize any country. There is no basis for it except loans and discounts; and we know by experience that the loans and discounts cannot be drawn in rapidly enough to redeem a circulation. I have no doubt that the statement sent to me of this bank is only an illustration of many more. Indeed, I have looked at the published statements of some of the banks of New York, Pennsylvania, and other States, and many of them show the same inflation -- a bank circulation without any basis whatever except loans outstanding, and which cannot be called in rapidly enough to liquidate it.---[And you, and everyone else around you, are so stupid that ye don't know how to deal with bank over-issue other than to establish more banks issuing notes based on bonds and U.S. notes !!? You could recommend and pass a law to limit banks to paying out greenbacks and coin only.]
The practical difficulty is, how to check inflation by banks. The attempt to do so by taxation has given rise to nearly all the objections to this banking system. Can my honorable friend from Vermont, [Mr. Collamer] who, I believe, is the most opposed to the system of taxing banks, show me how to check the over issue by banks ? If Senators can point out any way in which this can be done, I should be very glad to adopt it. But there is no way. It has been proposed to tax them two per cent., or one third of their profits on the circulation; and we know what an opposition this has created, although I believe that the tax is entirely defensible. It is but proper for me to say that this tax is not in this bill; the subject comes up in another bill. Whether the Senate will agree to it or not, I do not know; but I believe the tax of two per cent. can be maintained and defended. There is no tax in this bill on local banks. There is no connection between this bill and local banks; local banks are not mentioned in it, except that they are required to make certain reports which they can readily do without any trouble.
There is but one other mode proposed to check this increase, but I would not assent to it because it is too harsh. Under the provisions of our laws, United States notes are made a legal tender in the payment of debts. We might, if we chose, except banks from the operation of that provision; but I believe that would be harsh and unjust, because, as we require them to receive these notes in payment of debts due to them, it would be very unjust for us to require them to pay out anything else but United States notes for their own notes, so that the issue of United States notes by the Government and making them a legal tender, both of which measures were clearly necessary, have been the encouragement and basis of an inflated bank circulation in the country, and there is no way to check this except by uniting the interest of the Government and the banks and the people together by one uniform, common system.
It would be very easy for me to prove that during war local banks are the natural enemies of a national currency. They were in the war of 1812. Whenever specie payments are suspended, the power to issue a bank note is the same as the power to coin money. If you give to an individual or a corporation the power to issue his note as money at a time when he is not restrained by the necessity of paying it in gold and silver, you give him practically the power to coin money. This power Napoleon, in the midst of his campaign of Austerlitz, complained existed in the Bank of France, and insisted that it should be restrained. I may say that there is not a single difficulty we are now encountering in the finances of this Government that has not been discussed and encountered in France and England during the long wars of the French Revolution. Napoleon, in a letter which I find in the fifth volume of Bignon, in speaking of the power granted to the Bank of France to issue paper money when specie payments were suspended, says:
"The evil originates in the bank having transgressed the law. What has the law done ? It has given the privilege of coining money in the form of paper to a particular company; but what did it intend by so doing ? Assuredly that the circulation thus created should be based on solid credit. The bank appears to have adopted a most erroneous principle, which is to discount to individuals, not in proportion to their real capital, but to the number of shares of its capital stock which they possess. That, however, is no real test of solvency. How many persons may be possessed of fifty or a hundred such shares and yet be so embarrassed that no one would lend them a single farthing ? The paper of the bank is thus issued in many, perhaps a majority of cases, not on real credit, but on a delusive supposition of wealth. In one word, in discounting after this manner the bank is coining false money. So clearly do I see the dangers of such a course, that if necessary, I would stop the pay of my soldiers rather than persevere in it. I am distressed beyond measure at the necessities of my situation, which, by compelling me to live in camps and engaging me in distant expeditions, withdraw my attention from what would otherwise be the chief object of my anxiety, the first wish of my heart --a good and solid organization of all that concerns the interest of banks, manufactures, and commerce."
Surely, when Napoleon was so jealous of the power of the Bank of France, as William Pitt was of the Bank of England, institutions of a national character, under the control of the national Legislature, and carefully watched by executive power, to coin money, or which is the same thing when specie payments are suspended, to issue paper money, we should be jealous of the power exercised by a multitude of local banks chartered by twenty-eight States, and whose issues are not secured by any uniform standard and are not restrained by the obligation to redeem in coin.---["people of certain professions can make as good an argument on one side of any question as the other" said Senator Simmons to John Sherman in the Senate on February 13th. Mr. Sherman is lying, and is making a Daniel Webster argument. Mr. Sherman really does not care about over-issue, notes issued against non-existent reserves; these National Currency Banks he is proposing will be no better, in fact worse, than the old State banks. He is showing his true colours that the plan is to get rid of these old State banks.]
This idea expressed by Napoleon Bonaparte embodies the real objection to bank paper money issued in time of war when specie payments are suspended. It is a power that ought never to be exercised by any but the Government. It is the power to coin money; because when a bank issues its bill without the restraint of specie payments, it substantially coins money, and false money. Sir, this is a privilege that no nation can safely surrender to individuals or banks. It is a privilege that ought only to be exercised by the highest power in the Government. It ought only to be exercised by the State itself, and that only when the State is in danger.
Mr. Burke says that the revenue of the State is the State, and the currency affects and controls the revenue. Now, sir, under our present system we cannot receive the revenue in the currency common among the people. Local banks beyond our power regulate the currency established by the Government. We cannot have a good currency until these banks are reduced to a common system. Upon this point, I venture to refer to an authority which I do not like to quote, because it is not friendly to our country; yet it is a paper conducted with eminent ability -- the London Times. In a recent article on the subject of this bill, it says:
"By the want of a paper currency that would be taken in every State of the Union at its nominal value the Americans have suffered severely. The different States were, as to their bank notes, so many foreign nations, each refusing the paper of the other, except, at continually varying rates of discount. Frequently there was a greater loss on paper taken or sent from an eastern to a western State than on English bank notes converted into Austrian money in Vienna. Only adepts and regular money-changers could tell whether a note was current or not, the paper of broken or suspended banks remaining in circulation long after their value had departed. The Federal Government avoided loss by refusing all paper of every kind. Its import duties were taken only in gold, and inland revenue it had none. The first appearance of a department for collecting that kind of taxation is in the present bill proposed by Mr. Chase. But the difficulties of the Government have compelled it to issue a paper that will pass current in any part of the territory. Through the evil of war the people will at least gain that deliverance from the previous confusion of their currency which to Europeans appeared a barbarism. If the social storm sweeps away the 'wild cat' and 'bogus' banks of the Union, it will have left some small compensation for the wreck of better things. The best part of Mr. Chase's plan is the suggestion that will probably excite the least attention."
Sir, while I believe that no system of paper money should depend alone upon banks, I am far from objecting to their agencies. They are useful and necessary mediums of exchange, indispensable in all commercial countries. The only power they derive from incorporation not granted to all citizens is the power to issue notes as money, and this power is not necessary for their business or essential to their profit. Their business connects them with the currency; and whether it be gold or paper, they are deeply interested in its credit and value. Is it not then possible to preserve to the Government the exclusive right to issue paper money, and yet not injuriously affect the interests of the local banks ?
This is the object of this bill. But it is asked, why look at all to the interests of the banks; why not directly issue the notes of the Government, and thus save to the people the interest in the debt represented by the notes in circulation ?
The only answer to this question is that history teaches us that the public faith of a nation alone is not sufficient to maintain a paper currency. There must be a combination between the interests of private individuals and the Government. As this is an important principle, I venture to refer more fully to examples of depreciated Government paper money.---[You are venturing to lie, again; there must not be a combination of Government and private interest; these banks of yours have no credit of their own, whatsoever, and they are solelyy dependent on the government's credit function; The Government has its own credit, and does not need these banks. And before you start talking about the continental money, you should talk about the bank money between 1800 and 1860; how many times bank botes became completely worthless ?]
Our revolutionary currency, continental money, depreciated until it became worthless. I have here a table showing its gradual depreciation. When it was first emitted, June 23, 1775, it was par with gold. The last issue of $10,000,000 on the 29th of November, 1779, sold for $259,743, or as one to thirty-eight and a half, and afterwards it went down in the hands of the people. Over $380,000,000 of continental scrip was issued. The first issue was good. If our revolutionary fathers had been able to confine the limit to something like ten or twelve millions, which would have been about the same proportion as $500,000,000 to our present condition, it would have maintained its credit, and would have been redeemed by the United States. So it was with the assignats of France. They were issued at first based upon the national domain amply secured, but they declined at a fearful ratio as the issue increased. I will read a short extract to show the precise history of those Government assignats, to warn Senators against treading the same downward course:---[Before you go on with your charade; is there any Senator, or any Representative, who wants to issue more Greenbacks ? Is there any bill pending, or being drafted, that proposes to issue more U.S. notes ? Had it not been for you, yourself, and the people acting with you, only 150million greenbacks would have been issued.]
"In April, 1790, when the assignats were first circulated, their amount was stipulated at 400,000,000 francs, (between fifteen and sixteen millions sterling;) in September following their issue was extended to 1,200,000,000; in January, 1793, they amounted to 3,626,000,000; in September, 1794, to 8,817,500,000; in 1795, 9,699,500,000; and lastly, in September, 1796, to 45,579,000,000 francs, a sum far too enormous to be expressed even in British money, were not all degrees of comparision lost in the extent of the amount. At the period of their ceasing to constitute part of the currency of France, an assignor of 100 francs (about £4) was exchanged for three and a half sous (about 1¾d. sterling) in specie."
The issue of assignats was sustained by the same arguments that we hear now in favor of a continuous and unlimited issue of this kind of paper money. Precisely the same kind of arguments were enforced with all the power and eloquence of Mirabeau; and yet these assignats depreciated from the very date of his speech, day after day; and on every fresh issue they went still further downward and downward. The very moment you reach the amount necessary for a circulating medium, at that very moment the depreciation will commence, until it destroys all the standard of values, and all the rights to property.
In Austria the same effect was produced. The wiener wahrung of that country passed through the same history of depreciation as the assignats of France, showing an invariable law which cannot be disregarded by any nation. This country can maintain an issue of about four hundred million dollars of United States demand notes, and no more; and when you go beyond that limit --a limit fixed by the laws of finance, which are irrepealable-- that moment you endanger your whole system. As a matter of course, you must during a time of war issue a certain amount of paper money as the basis of circulation or banking; but that amount must be limited by the demand for a circulating medium.---[So why are you now proposing banks to issue $270million notes in addition to the $400million greenbacks ? Are you too stupid to understand what you have just said ? or, are you lying ? The asset value of the United States was estimated a year ago to be $16,000million; what is the asset value of these proposed 2,200 national banks ?]
Mr. President, I have thus endeavored to show that Government paper money, unsupported by private capital, cannot be maintained as a currency in time of war. I have also endeavored to show, and did show on a former occasion, that the issuing of notes by a diversity of private banks under State authority, and unchecked by specie payments, is inexpedient, destructive, and, in my opinion, unconstitutional. The two systems cannot exist together. They will inevitably induce inflation and ultimate bankruptcy. A good national currency as a substitute for gold and silver can only exist by combining the two systems; so that the Government may issue notes of uniform tenure properly secured, and the banks shall redeem and maintain their credit.
I have a very curious diagram here that can only be instructive by being seen. It purports to be a diagram showing the progress of bank capital, bank circulation, bank deposits, and bank loans in different periods of our national history. It shows very clearly that the very moment the circulating medium of the country passes beyond the true boundary line, that very moment everything else is inflated in proportion -- loans, discounts, and deposits; and this inflation goes on rapidly until some sudden unforeseen even checks the whole system, and it falls like a bubble to the ground. We were instructed in our boyish days by diagrams showing the height of mountains and the length of rivers; but this diagram is more instructive than any of that class. It shows that in 1837, the first period of inflation in this country since 1815, the loans and discounts rose to the enormous sum of $540,000,000; the bank circulation rose to something like three hundred and forty millions. This was after the Bank of the United States had ceased to exist. Everything else became inflated; and within one year from that time there was a general collapse and disaster all over the whole country; the price of everything fell; and the great body of this currency fell dead on the hands of the people and was lost. Much of the deposits of individuals in the hands of the banks was also lost; and more than one half of all the paper money then in circulation was substantially worthless to the community. The rapid change from a high period of inflation to a serious depression was almost as rapid as the rise of prices. In 1857, the same rise occurred, but to a limited extent. The loans and stocks had then risen to $740,000,000, mostly on railroad securities. The collapse of a bank in the State of New York, the Ohio Life Insurance and Trust Company, at once created a derangement in all financial matters, and there was then a term of great depression; so that within a single year the loans of the banks were reduced from $740,000,000 down to about $620,000,000, and the circulation and everything else accordingly.
Mr. President, we are already in a period of great inflation. The Government of the United States has either in circulation or has authorized now nearly four hundred million dollars of United States notes. We have a bank circulation of from one hundred and sixty to one hundred and seventy millions. If we adopt the proposition which is sent to us from the House of Representatives to go on increasing our circulation by the issue of $300,000,000 more it will create an inflation that will inevitably lead to the derangement of all the business affairs of the country. We must check it; we must put a stop to it. Whatever may be the hazards, we must check this over-expansion and over-issue. If you authorize that issue of United States notes it will be at once followed by an issue of more bank paper, and then we shall have the wildest speculation. Hitherto the inflation has not extended to many articles. Clothing is somewhat higher; but most articles of provisions still maintain their equilibrium. Real estate has not yet been much affected by the inflation; but if you go on adding to your currency, depreciating the standard of values, you will have our people within one year from this time embarked in a wild series of speculations. The wild lands of the West, which in 1837 were worth from fifteen to twenty dollars an acre, were one year afterwards reduced to Government prices. They will again become inflated, and every kind of business will be damaged and disorganized. I say it is a danger before which a lost battle sinks into insignificance; and if we permit this inflation to go on we shall do our country a greater harm than the confederates can possibly do by defeating any one of our armies.
The question then occurs --the only one, indeed, which is at all practical to this discussion-- whether the bank bill proposed by the Secretary of the Treasury, and introduced by me in the Senate, will tend to secure us a national currency beyond the danger of inflation. Its general provisions are no doubt known to Senators. The amount of circulation limited by the terms of this bill is $300,000,000. Is that currency safe ? I think any one who will read this bill with candor will find that beyond all contingency the currency proposed to be issued under it is safe. It is first secured by the bonds of the United States; a margin of ten per cent. is left for depreciation; and then in case of further depreciation the Secretary is authorized to call for the deposit of a greater amount of bonds. While the depreciation under par exists no interest can be paid upon these bonds, but it is held in the hands of the Secretary of the Treasury for redemption. Besides that, the banks have to keep on hand twenty-five per cent. in lawful money. The Senator from Kentucky [Mr. Powell] proposes to make that gold and silver; but that is perfectly futile and impossible now. The bank bill requires that twenty-five per cent. of all the deposits and all the circulation shall be kept on hand, so that the note-holder will first have the security of the bonds of the Government and a margin for depreciation; he will have twenty-five per cent. of the amount of circulation always on hand in the bank; and then, in addition to that, he will have the first lien on all property of the bank.
Mr. Collamer. The Government.
Mr. Sherman. Yes, sir, either the Governmentor the note-holder. The Government would have a lien for all the deficiency upon all the property of the bank; and in addition to that, it would have the additional responsibility of the banker himself to the amount of twice the capital stock. There is not, in this country, any scheme of banking which secures the note-holder more perfectly than this. First, he has the credit of the United States by its bonds and by its guarantees; to guard against deficiency he has the deposit of one fourth the amount in bank; he has the individual liability of the stockholders to a limited extent; and he has the first lien on all the property of the bank, including the deposits. It is impossible, therefore, to make a system more safe than this will be.
Will this money be convertible ? The United States notes are not convertible; that is, there is no one to pay them on demand. These bank bills are convertible. When they are presented at the counter it is the duty of the banker at once to pay them promptly in lawful money of the United States; and that money is to be restricted to the amount of the present issues or to the $50,000,000 additional authorized in this bill. They are convertible at any time.
This currency will be uniform. It will be printed by the United States. It will be of uniform size, shape, and form; so that a bank bill issued in the State of Maine will be current in California; a bank bill issued in Ohio will be current wherever our Government currency goes at all; and a bank bill issued in the State of Connecticut will be freely taken in Iowa or anywhere else. There is no limit to its convertibility. It will be of uniform value throughout the United States. I have no doubt these United States notes will, in the end, be taken as the Bank of England note now is all over the world, as a medium, and a standard medium of exchange; not, it is true, during the war, but after peace shall again bless us. These notes will then be the very best currency that can be issued. They will be safe; they will be uniform; they will be convertible. Those are all the requisites that are necessary for any system of currency or exchange.
Now, Mr. President, let us see and examine a little more accurately the advantages the Government of the United States will derive from this system; because, unless the Government is to derive some benefit the system ought not to be pressed. I take it as an axiom that the United States should not issue United States notes to an amount greater than sufficient to fill the vacuum created by the withdrawal of gold, the amount of present issues. What benefit, then, does the United States obtain from this system ? The first benefit is, there is a market furnished for the bonds of the United States. These banks must furnish ten per cent. more of the bonds of the United States than they receive in paper money. This at once, if the full amount is issued, which do not antici-