thanks to M.B. who took the time and trouble to darken the door of Stanford library, and looked up and photocopied the text.
Congressional Record — Senate
1908 March 9

The VICE-PRESIDENT.  The hour of 2 o'clock having arrived, the Chair lays before the Senate the unfinished business, which is Senate bill 3023.

The Senate, as in Committee of the Whole, resumed the consideration of the bill (S. 3023) to amend the national banking laws.

Mr. Bailey. [ Joseph Weldon Bailey (1862-1929), Senator, Democrat, Texas]  Mr. President—

There is no contract, public or private;  no engagement, national or individual, which is unaffected by it.  The enterprises of commerce, the profits of trade, the arrangements made in all the domestic relations of society, the wages of labor, pecuniary transactions of the highest amount and the lowest, the payment of the national debt, the provision for the national expenditure, the command which the coin of the lowest denomination has over the necessaries of life, are all affected by the decision to which we may come.

These are the words in which Sir Robert Peel began his great speech on the bill to recharter the Bank of England in 1844;  and they do not exaggerate the importance of currency legislation.  It is, however, a happy circumstance for mankind that the difficulty of the subject is not so great as the importance of it.  Indeed, sir, it is, perhaps, the simplest of all the great problems which governments must solve;  and unlike many other important questions there is an universal agreement upon what we may call, with a fair degree of accuracy, its first principles.  Every man believes that the currency ought to be sufficient in volume to meet the requirements of agriculture, commerce, manufacture, transportation, and all other legitimate pursuits;  nor is there any dissent from the proposition that every note in circulation should be above any reasonable suspicion against its value.  It is true, sir, that men of the widest experience and of the ripest wisdom will disagree as to what constitutes a sufficient volume of currency, and even when they can reconcile their conflicting opinions on that point, they will still differ over the best means of assuring its value;  but these are differences over matters of detail, and they can be reduced by mutual and safe concessions to an agreement among men who understand the general question and who sincerely desire to do what is best for our country.

A practical test will always demonstrate whether the currency is deficient or redundant, because either error will manifest itself in the most unmistakable way.  On the one hand, if the volume is not sufficient, we will witness a general fall of prices, a curtailment of production, and a restriction of business in all lines.  On the other hand, an excessive issue will be followed by artificially high prices, stimulating an unhealthy development, and culminating at last in an era of injurious speculation.  But, sir, while it is thus easy to detect the over-issue or the under-issue of currency, it is not so easy to correct the mistake after it has been discovered.  No matter how well the cause of the derangement may be understood, or how plain the proper remedy may be, it will not always happen that those who are charged with the duty of making our laws will have the wisdom and the courage to act promptly and with firmness.  It there be a deficiency, and therefore an increase is demanded, creditors will resist that increase and denounce it as an effort to partially repudiate all debts.  If there be a redundancy, and it is therefore necessary to withdraw a part, debtors will resist that withdrawal and denounce it as tantamount to a confiscation of their property.  Both contentions are perfectly sound, and, looking at the matter purely from their personal point of view, each class is fully justified in its position.  It is undoubtedly true that a considerable addition to the currency will raise prices and enable all debtors to discharge their obligations with less property;  nor is there the slightest doubt that a considerable subtraction from the currency will lower prices and thus compel every debtor to part with more of his property in order to pay his debts.

The Government's Duty.

I do not ignore this phase of the question, nor am I indifferent to the injustice which may be wrought;  but I hold that it is the duty of the Government to provide, and to maintain, at all times and under all circumstances, an adequate volume of currency;  and it must not fail in the performance of that duty, because it may do an injustice to one or to another class.  We must not leave the country to endure the continuous fall of prices and the stagnation of business which inevitably result from an insufficient volume of money;  nor must we wait until a speculative mania, which always follows an inflation, has debauched the conscience and prostrated the energies of the Republic.  A resolute and a sensible Congress will not permit our people to suffer under either evil because its correction would be unjust to some men, or even to many men.  Of course, this Government ought never to do anybody an injustice where it is possible to avoid it;  but as between the injustice of a day and to a particular class, and the injustice of years and to many classes, no wise legislator can hesitate.  It is infinitely better to inflict an injury upon a single class that will suffer and recover from it in due season than it is to perpetuate a wrong through all time and against all other classes.

I am not unmindful that prices will adjust themselves to any volume of money, and if the relation between the supply of and the demand for money could remain the same, neither debtor nor creditor would be injuriously affected by any change in its volume;  because the same amount of labor or commodities, other things being equal, would command precisely the same amount of money;  and the same amount of money, other things being equal would command precisely the same amount of labor or commodities.  This rule, as stated with the qualification of "other things being equal," leaves the wages of labor to rise with an increase in labor's skill ;  and leaves all other commodities subject to those influences which relate only to them.  This, Mr. President, would, in that aspect at least, be an ideal financial system.  It would be one under which a man who borrows money to-day promising to repay it in twenty years would return to his creditor a dollar of precisely the same purchasing power as the one which he borrowed;  but while it would be ideal, it is unattainable, and all that the wisest statesmen can hope is to approach it as nearly as possible.


But, Mr. President, under a financial system as perfect as I have just described, it will frequently happen in a new and rapidly developing country like ours that extraordinary situations will arise and extraordinary provision must be made to meet them.  No matter how we may differ as to the causes of our panics, it is enough to know that they come upon us from time to time ;  and it is too much to hope that we will ever reach a period when we will be altogether free from such disturbances.  Knowing that emergencies will come, we should equip ourselves to deal with them, for nothing could be plainer than that a volume of currency which is entirely adequate for normal times and under normal conditions is entirely inadequate for abnormal times and under abnormal conditions.

Not only is the necessity for an emergency provision in our financial system fully established by our own experience, but we also have the experience of other countries to instruct us to the same effect.  I think it will be conceded by all that the greatest commercial nations of the Old World are Great Britain, Germany, and France;  and a study of their financial history will lead us irresistibly to the conclusion that panics can be rendered less frequent and less severe by a wise anticipation of them.  The financial systems of Germany and France provide for such emergencies as that through which we have recently passed, and have reduced the evil consequences of them to a minimum.  The law of Great Britain distinctly forbids the relief which these extraordinary occasions demand;  but their law in that respect has been repeatedly disregarded with the express sanction of the King's ministers.  Within three years after the law of 1844 was enacted the English people were confronted with a serious financial condition, and a panic was only averted by the announcement that the Bank of England would issue notes and continue to discount acceptable paper without regard to the limitation which permitted it to issue additional notes only upon the deposit of an equal amount of gold.  The law was explicit;  and the author of it, when advocating it before the British Parliament, had avowed his intention to confine the issue of bank notes within the strictest limits;  but when it became apparent to every sagacious business man and to the public authorities that the inability of the bank to accommodate its customers would involve the British people in great losses and in a widespread disaster, the chancellor of the exchequer advised the governor and the directors of the bank to disregard the limitation on their right to issue notes, and pledged himself to ask Parliament for an act indemnifying them for their violation of the law.  Almost immediately after that announcement was made public the unrest disappeared, confidence was restored, and the danger of a panic passed without the bank having to issue a single note in excess of its legal right.

Again, in 1857, the hard-and-fast limitation on the volume of currency threatened a commercial and an industrial collapse;  and again the chancellor of the exchequer advised the bank to pursue the same course to which it had resorted with such gratifying results ten years before.  In this second instance the strain was so great that the bank was compelled to issue notes beyond what the act of 1844 allowed, but the overissue was not very great and continued for less than three weeks.  The great failure of Overend & Co., in 1866, once more exemplified that a financial system admirably adapted to usual conditions could not be successfully applied to unusual conditions;  and for a third time in twenty-two years those responsible for the administration of the Government were compelled to sanction a violation of their laws and to promise the bank indemnity for an overissue of its notes.  It happened in 1866, as it had in 1847, that the determination of the bank to meet the extraordinary requirements by an overissue of its notes restored public confidence and prevented a panic without the issue of a dollar beyond the limit prescribed by the law.  These several instances have become precedents in English finance;  and the English people now proceed upon the theory that the limitation of the bank act will be suspended whenever the public good requires it.  Thus it may well be said that while the bank act itself is rigid to the utmost degree, it is so administered as to provide for emergencies when they occur.  I can not, however, approve a policy which requires bank officers to disregard the law, even under a promise of indemnify from public officials.  I believe that the law ought to be administered by all executive officers exactly as it has been written by the legislative department, and I do not cite the example of England as one deserving our imitation, but only to show that, while the law itself in that country has not provided for emergencies, the officers of the Government have met each emergency outside of and contrary to the law.

What was authorized by the ministers in England has been permitted by the Treasury officials here in an effort to extricate ourselves from financial difficulties.  The refusal of the banks to pay the checks of their depositors in cash, and the use of more than $250,000,000 of clearing-house certificates and other devices without the payment of the tax which the statute imposes, was in plain contravention of our law;  and yet our most law-abiding citizens have tacitly approved those illegal measures as necessary to prevent a great catastrophe.  These extra-legal or unlawful processes will not be tolerated in this country as they have been in England, and can not save us as they have saved the British people;  but even if they could, it would still be infinitely better, Mr. President, for us to provide a lawful way in which these financial distresses can be prevented or mitigated than it is to continue a system which makes no provision for them, and then condone by our silence a palpable violation of the law.  But, sir, I do not need to consume the time of the Senate in an argument to prove that we ought to erect barriers against which these financial storms must spend their greatest force.  The Committee on Finance was practically unanimous in favor of some suitable provision on that behalf, and I take it for granted that an overwhelming majority of the Senate concur in their opinion.

Both the bill of the majority and the substitute of the minority provide for an issue of $500,000,000;  and they have been assailed from opposite directions and with opposite arguments.  Some critics denounce them as a dangerous inflation;  and others declare that they will fail to give any relief, because they are too exacting in the security which they require.  I might repeat those criticisms in detail, and thus make each answer the other;  but I believe I can employ the time of the Senate better in exposing the fallacy of both.

Opposed to Inflation.

Mr. President, I am as much opposed to inflation as any living man;  and I am opposed to it both as a matter of principle and as a matter of duty to my constituents.  The intelligent and industrious men in Texas who are engaged in the cultivation of cotton would suffer much by an inflation of the currency, which would increase the price of almost every article which they buy;  and they would not benefit by the general rise of prices thus produced, because the price of their cotton is fixed in the great markets of the world where the currency of the United States exerts no influence over prices.  It is universally accepted as an axiom that the currency of a country can only affect the prices of those commodities whose prices are fixed in the local markets of that country;  and no amount of currency issued in this country can affect the price of commodities in other countries, except so far, and only so far, as the use of that currency may diminish our demand for gold.  This is only another way of stating the obvious economic truth that currency can only act upon prices when and where it is available for making purchases.  Perhaps I can better explain and enforce my meaning by an illustration of the manner in which even the use of personal credit may affect prices.

If the magnificent building at the corner of Fourteenth and G streets should be offered at public auction to-morrow under an order of sale that called for the payment of the entire purchase price in cash, there would not be three men in Washington able to bid on that property, and it would he sold at a great sacrifice.  If, however, the order of sale provided that one-fourth of the purchase price could be paid in cash, and a liberal credit extended on the other three-fourths, there would probably be ten men ready to bid on it;  and under the competition of ten bidders the property would unquestionably fetch a higher price.  But the fact that a credit was extended on that property would not directly affect the price of another property which was to be sold entirely for cash.  There might be an indirect effect brought about in this way :  The purchaser of the property at Fourteenth and G streets by using his credit on that purchase might be left with cash enough to buy the other property.  That effect, however, instead of militating against my argument, supports it by showing that the price of any given property can only be affected by something available for its purchase at the very place where the price is fixed.

I do not need, Mr. President, to tell the Senate or the country that the currency of the United States does not circulate in Liverpool, Hamburg, and the other great markets, where the price of cotton is determined.  That being true, no addition to our currency, so long as it is kept at par with coin, can add anything to the value of our cotton crop;  and the American cotton grower is compelled to accept for his cotton sold in a Texas town the price, minus certain charges, at which the purchaser can sell it in the great markets of the world.  Not so, however, with the manufactured and other articles of local production and local consumption which he must buy.  Almost every article with which the American farmer feeds and clothes his family, through the agency of the tariff or a combination of manufacturers or some other obstruction to the natural laws of trade, is reduced to a local commodity whose price is fixed in our own markets;  and, of course, the volume of currency in circulation here exercises a powerful influence over the price of such commodities.  Thus, Mr. President, it would happen that the American cotton planter would be the first and the greatest victim of inflation ;  and as one having the honor to represent so many of them, I would resist a policy which would sacrifice their interest to that speculative spirit which is never satisfied long with any volume of currency, but which, like the daughter of the horse-leech, is always crying for more.

It does not necessarily follow that because I am opposed to inflation my substitute might not produce it;  for the best of us sometimes aim at one result and accomplish an entirely opposite one.  But a careful consideration of the measure will show any sensible man that such a fear is wholly unfounded.  Its terms and conditions will render it impossible for the $500,000,000, which it authorizes, to become a permanent part of our money supply.  I have charged interest at the rate of 6 per cent per annum for the first six months, and at the rate of 9 per cent per annum thereafter.  The lower rate of 6 per cent would deter any bank from using that money, except under a stress, and the higher rate of 9 per cent would certainly compel its retirement within a reasonable time.  It could hardly happen that an emergency, such as is contemplated in this substitute, would exist for longer than six months, and it is practically certain that the banks would return the money to the Treasury before the higher rate of interest became operative.

The entire $500,000,000 which the Aldrich bill allows the banks to issue, and which my substitute requires the Government to deposit, is less than the several sums which the banks themselves improvised during our recent financial crisis.  We know that as much as $190,000,000 in clearing-house certificates were used;  we know that something like $75,000,000 in checks and notes were issued by the banks, clearing houses, and others;  we know that something more than $30,000,000 of national-bank notes were taken out;  we know that more than $100,000,000 of gold was imported, and we know that the Government of the United States scraped the bottom of its Treasury for the additional $70,000,000 which it deposited with the banks;  and yet, sir, in spite of all this, all of the banks in New York City, as well as many of them in other parts of the country, refused to pay out money over their counters, and limited the right of their depositors to check for cash against the money which belonged to them, and which they had a perfect legal and moral right to demand.

So far from regarding this bill or the substitute as apt to produce an inflation of the currency, I feel that if any mistake has been made at all, that mistake has been made limiting the amount to $500,000,000 instead of making it $1,000,000,000.  No matter how much we might authorize, the rate of interest charged for it would prevent the use of any part of it except under a pressing necessity, and the amount used would be only such as would be absolutely necessary to relieve the money market.  I am clearly of the opinion that the larger the amount which could be put in circulation the less apt we would be to need any of it;  and that belief is born of and justified by the knowledge that in every impending financial crisis there are many men who deliberately seek to aggravate the trouble.  In every community there are Shylocks who are always striving to drive hard bargains with some embarrassed debtor, and they rejoice in a condition which appalls better men.  They traffic upon the misfortunes of their neighbors, and they realize their greatest profits out of the general distress.  Whenever a monetary convulsion is imminent and other men are seeking to avert it, these Shylocks strive to bring it on.  Instead of putting more money into circulation, they withdraw every dollar which they can lay their hands on, and put it aside for the double purpose of creating a panic and then taking advantage of it.  They sit like personified greed upon their locked and guarded chests of gold waiting for their victims, and they pray for the hour of the sacrifice to come when they can buy three dollars' worth of their neighbors' property with one dollar of their hoarded money.

I think it perfectly safe to say that as much money was withdrawn from circulation by these men and for this purpose during the last autumn as was withdrawn through the fear of losing it.  But, sir, if the American Congress will say to all such men that whenever they lock up their money for the purpose of producing a panic the Government of the United States stands ready to supply its place, we will remove the temptation which now controls them, because we will render impossible the profits which they anticipate under our present system.  Of course there is no way of ascertaining how much money these Shylocks withdrew from circulation last year, but when we remember that in every community there are men of this hind, and that each of them can command from several hundred to several thousand dollars, the withdrawals reached a stupendous aggregate;  and I doubt very much if the $500,000,000 proposed in this legislation is equal to the money withdrawn by those selfish men and for that sordid purpose.


The second objection to both the bill and the substitute is that neither will afford any substantial relief, because both exact a security which the banks do not now carry, and which they can not be fairly expected to procure.  The banks themselves are particularly insistent upon this objection, and many of them are actuated by a purely selfish motive.  They are not satisfied with the extremely profitable dividends which they have been able to pay to their stockholders, and they want the Government to establish a currency system under which they can expect to pay still larger ones.  The truth is—and it might as well be stated here and now—that the national banks of this country favor a system of asset currency;  and they will labor to defeat any measure which compels them to secure their circulation.  They want the privilege of issuing their notes without interest and without security, and lending them to the people for interest and upon security.  For my part, I will never support a bill which legalizes such an arrangement;  and I shall always insist that the safety of our currency is of infinitely more importance to the country than the size of bank dividends.  If the banks must be permitted to issue our currency, they ought to be compelled to secure it so absolutely that no business man, farmer, or wage-earner would ever think it necessary to inquire about the solvency of a bank in order to ascertain the value of its note.  The wise men admonish us, Mr. President, that it is never safe to make a prediction which must be falsified or fulfilled within the time of those who hear it;  but I will venture to disregard this admonition so far as to record it as my opinion that if my substitute is rejected, and this bill is defeated, Congress will either establish a great central bank of issue within the next ten years or authorize the national banks as now constituted to issue an asset currency ;  and the men who are now declaiming against a bond-secured currency are promoting, consciously or unconsciously, the scheme of a non-secured currency.

I have been more than astonished by the attitude of some of my Republican friends on this question.  I have heard them talk so much about sound money that I had come to suppose that soundness would always be the first consideration with them;  and yet, sir, I now find them advocating a system of currency which, if adopted, would be certain to produce some confusion and doubt about the value of what is intended to be used as money.  Senators now occupying seats on that side of the Chamber, and less conspicuous Republicans in every part of the country, have bitterly reproached the Democratic party because we advocated the free coinage of silver;  but many of those who once shuddered at the free coinage of silver are now advocating the free issuance of paper.  We required the bullion owner to expend some labor or to invest some capital in obtaining the metal into which we proposed to coin the silver dollar, but our opponents are now proposing to let the bankers take a cheap quality of paper and make it into money at their own sweet will.  I do not mean to impeach the integrity or the intelligence of the men who support that proposition, but I warn the party in power that if they make it the law of this land they will bring upon our children the miseries which our fathers once suffered through the issuance of unsecured bank notes.  It has been a long time, Mr. President, since we have seen any form of our money worth less than its face value;  but we must not suppose that such a condition can not come again.  If you authorize banks to issue their notes upon such security only as their general assets will afford you will introduce an element of disquieting uncertainty;  and in a time when banks are failing you will make it necessary for every citizen to examine a bank note before he receives it to see whether or not it has been issued by one of the insolvent banks.  With bank currency made absolutely secure, no man looks to see what bank issued the note which is offered to him, and he accepts the note of one bank as readily as the note of any other bank;  because he knows that all of them are safe beyond any reasonable doubt.  But we are now advised by many gentlemen who have so loudly proclaimed themselves the especial friends and champions of a safe currency to adopt a system under which the failure of a single bank will taint every bank note in circulation.

Mr. ALDRICH.  Mr. President, will the Senator permit me to ask him a question ?

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from Rhode Island ?

Mr. BAILEY.  Very cheerfully.

Mr. ALDRICH.  I suppose the Senator from Texas is willing to admit that there has not yet been any advocacy in this Chamber of a system such as he is now criticising.

Mr. BAILEY.  I know, Mr. President, that up to this time no Republican Senator has spoken in favor of an asset currency;  but I also know, and I assume that the Senator from Rhode Island knows it, because he generally knows what is transpiring on that side of the Chamber, that there are Republican Senators who favor it, and I warn him now that he may be compelled to reckon with some of those who hold that view before he passes his bill.

I did not, however, have in my mind the situation in the Senate so much as the situation outside of this body.  Of course, the rules of parliamentary decorum do not permit me to comment upon a measure pending in the other branch of Congress, and I have no inclination to do so;  but I will be permitted to say to my political adversaries that if they finally yield to the solicitation of the bankers and give them the power to issue their notes with only their general assets as security, they will have forfeited before the world the right to appear hereafter as the friends and the defenders of a sound monetary system.  If you tell me that you intend to make every bank's note secure by giving them a prior lien upon the assets of the bank, I answer that such an arrangement will still not make them absolutely secure, because it will sometimes happen that rascals or fools will so completely wreck a bank that its assets will not discharge its notes.  A prior lien upon the assets of such a bank would not under all circumstances secure its note holders against loss;  and an occasional failure of that kind will generate a feeling under which the notes of even the most solvent banks would circulate less freely.

But, Mr. President, if we admit that you can remove all doubt as to the value of the notes by giving their holders a prior lien upon the assets of the bank, you only avoid one danger by falling into another.  Even if you could allay the distrust of the note holder by such a law you would inevitably intensify the distrust of the depositor, and in the end you would do an immeasurable harm.  Let us consider for a moment what would happen under such a law when suspicion had once been aroused;  when men began to look each other in the face and to ask what of the morrow;  when depositors began to wonder if the hank which held their money was solvent, and the most timid of them began quietly to withdraw their deposits.  Under such a condition the banks would begin to issue their notes to meet these demands upon them;  but do you suppose, sir, that they could thus allay the fear of their depositors ?  Precisely the contrary would happen, because the depositors would understand that every note issued immediately became a lien superior to their claims against the bank, and they would protect themselves against being reduced to the position of second-lien holders by withdrawing their deposits.  Put the case to your own common sense and conscience, and what would you do ?  If you were the guardian of an orphan, or the attorney for a widow, or an executor under a will, you would hesitate to leave such trust funds with a bank whose solvency was under a suspicion, even though you held, in common with all depositors, a first lien upon its assets;  and how much more hastily would you withdraw them when you saw the bank issuing obligations which must be paid before you could recover a dollar, and which might absorb the very money you had deposited.  Could you expect the daily wage-earner to leave the little he had been able to save above his living expenses with a bank that was creating a prior lien upon it ?  To give the bank notes a prior lien would not help us in a time of financial perturbation.  Whatever tendency it might have to steady our confidence in bank notes would be more than offset by the lack of confidence which it would create as to the safety of deposits.  The American people, whatever else may be said about them, are upon the whole blessed with an uncommon degree of common sense, and they believe, as I do, that the only way for a bank whose solvency is under suspicion to restore confidence in the minds of those who patronize it is to reduce its obligations;  but this asset currency proceeds upon the opposite and the absurd theory that a bank can relieve itself from the distrust of those whom it already owes by multiplying the number and the amount of its debts.

Speaking only for myself, I would not vote for any bill that committed to the banks of this country the issuance of money ;  but as between a bill like that of the Senator from Rhode Island, which compels, the banks to secure the notes which it permits them to issue, and another bill which would permit the banks to issue notes without securing them, I have no hesitation in declaring that the bill of the Senator from Rhode Island is incomparably the better.  The worst that his bill can do—and God knows that is bad enough—is to let the banks control the volume of our currency in their own interest, but they will at least be compelled to pay every note which they have issued, while under the asset-currency system the banks are given a still larger control over our currency and a more unrestricted power to use it for their own advantage, and then may not be able to pay the notes which they have issued.

The majority bill and the minority substitute both reject the doctrine of an asset currency, the one requiring a special security for the notes to be issued by the banks and the other authorizing the issue of United States notes, but requiring bonds to secure those notes when deposited in the banks by the Government.  There is, however, a very important difference between the two in respect to certain bonds which may be received for either purpose.  Both accept the bonds of States, counties, municipalities, and districts under certain proper safeguards;  but the substitute rejects the railroad bonds which the bill accepts.  I am not willing to say that the railway bonds as described in the bill would not be an ample security for the notes issued against them, nor will I contend that there are not other bonds which would wake the notes issued against them perfectly secure;  but I have chosen the bonds specified in the substitute for two good and sufficient reasons.

In the first place, it has seemed to me peculiarly fit and proper that public money should be protected by a deposit of public securities;  and in the second place, I desire to compel the banks of the South, at least, to invest a part of their capital and surplus in the bonds which our States, counties, districts, and municipalities issue and sell from time to time.  As matters now stand, practically all of our bonds are sold to investors in the Northern and Eastern States, and large sums are every year sent from our section to pay the interest on those bonds.  Under the operation of this law our southern banks will find it to their interest to buy those bonds, and hold them for emergencies, thus making it certain that much of the interest which would otherwise be paid to men in other sections will be kept at home.  This will be a distinct gain to our people;  and it will be no hardship on the banks.  A prudent bank manager will be more than willing to invest a reasonable per cent of his capital and surplus in these bonds, even though they return a lower rate of interest than he could realize on commercial loans, because he will feel that the security which they provide against an evil day is worth more than the difference in the rate of interest;  and he will tell his more grasping stockholders who complain that the bank, is thus made to sacrifice a profit, that with bank stock paying better than almost any other permanent and legitimate investment they can well afford to abate a small part of their profits in order to make their principal more secure.  The banks now keep large sums with their reserve agents upon a rate of interest which seldom exceeds 2 per cent;  and they can keep less in that way and invest more in these excellent securities.  These bonds will not only bring a higher rate of interest than reserve deposits, but they can be readily converted into cash when an emergency requires it, and the knowledge that the bank has a part of its capital invested in them will contribute much toward maintaining public confidence in its solvency.  The most that call be said against it is that it will involve some reduction in the bank's profits;  but that is more than compensated by the additional security which it furnishes to both stockholders and depositors.

Again, Mr. President, we can not ignore the fact that it will add something to the value of every bond which is accorded the privilege of this law; because they will at once become clothed with a new and a valuable faculty.  I have therefore believed that it was our duty to limit this increase in value to such securities as represent the public credit, and thus insure the benefit of this increase in value, as to future issues at least, to the great body of the people.  If we only include public securities the people will reap the advantage either in the way of the higher price which they will receive for their bonds or else in the lower rate of interest which they must pay on them.  This saving in the long flight of years will not be an inconsiderable one;  but whether it may be great or small, it fairly belongs to the taxpayers, and it ought in justice to be reserved to them.

Government Money Against Bank Money.

Mr. President, the divergence of views between the majority and the minority of the committee began with respect to railroad bonds.  That, however, may be considered a matter of mere policy, not involving any governmental principle;  and if it were the only difference between us, I might be willing to support their bill, notwithstanding I would seriously object to that particular provision of it.  But, sir, there is another difference between the majority and the minority, which is incomparably more important than any question of security, and which, to my mind, involves a fundamental principle of this Republic.  I allude, of course, to the question as to whether these emergency notes shall be issued by the banks or by the Government.  The majority will not agree for the Government to issue them, and the minority can not agree for the banks to issue them.  This is a question which has been debated many times in our history, but it has not always been correctly decided after each debate.  We have amongst us a large number of very influential men who believe that the banks, and not the Government, should issue and control our currency.  Indeed, sir, we sometimes hear them say in the Senate, and we frequently hear of them saying elsewhere, that the Government ought to go out of the banking business;  and they mean by this that Congress ought to retire all United States notes and turn our entire paper circulation over to the banks.  That the Government of the United States ought not to engage in the banking business I am more than ready to admit;  but I utterly deny that the issuance of notes, impressed with the legal tender quality, made receivable for public dues, and intended to circulate as money, is any proper function of a bank.  It is as much the duty of the Government to issue the notes which are to be received and treated as money as it is to coin the money which is made out of the precious metals;  and even the men who favor a bank currency will not tend for a corporation-issued coin.  They concede that it is the proper duty of the Government to own and to operate the mints at which our metallic money is coined;  but they are under the strange delusion that a wholly different rule should apply to our paper money.

They seem to forget, Mr. President, that the right of the Government to issue currency is, according to some of the highest authorities, derived from the power conferred by the Constitution on Congress to coin money and regulate the value thereof.  That was the opinion of Mr. Webster, as stated by him on the floor of the Senate in a speech which he delivered the 25th of May, 1832.  In discussing the right of banks chartered by a State to issue paper money Mr. Webster declared :

The exclusive power of regulating the metallic currency of the country would seem necessarily to imply or more properly to include as a part of itself a power to decide how far that currency should be exclusive, how far any substitute should interfere with it, and what that substitute should be.

Again in his speech on May 28, still discussing the same question, Mr. Webster said :

I observed, the other day, that, in my opinion, it was very difficult to maintain on the face of the Constitution itself, and independent of long-continued practice, the doctrine that the States could authorize the circulation of bank paper at all.  They can not coin money;  can they then that which becomes the actual and almost the universal substitute for money ?  Is not the right of issuing paper, intended for circulation, in the place and as the representative of metallic currency, derived merely from the power of coining and regulating that metallic currency ?  As bringing this matter to a just test, let me ask whether Congress, if it had not the power of coining money, and of regulating the value of foreign coins, could create a bank, with the power to circulate bills ?

If it be true, as declared by Mr. Webster, that Congress derives its power to issue paper money from its power to coin metallic money, then the Senator from Massachusetts [Mr. LODGE] must doubt the correctness of his very emphatic declaration that the issuing of paper money is a banking and not a governmental function.  If the Senator requires any more than Mr. Webster's opinion to convince him of his error, he will find that Mr. Justice Story, next to Webster the most distinguished lawyer Massachusetts has ever given to the bench and bar of this country, has quoted this last statement of Mr. Webster with approval in his Commentaries on the Constitution.  Not only does Mr. Webster make the power to issue currency depend on the power to coin money, but he distinctly negatives the view that the issue of currency is a necessary function of a bank.  In this same debate he declared :

The power of issuing notes for circulation is not an indispensable ingredient in the constitution of a bank, merely as a bank.  The earlier banks did not possess it, and many good ones have existed without it.

If Mr. Webster were speaking to-day he could add to what he then said the statement that more than one-half of our banks do not now issue notes, and are disabled from doing so by a law of Congress.

Mr. ALDRICH.  Mr. President——

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from Rhode Island ?

Mr. BAILEY.  Certainly.

Mr. ALDRICH.  I find myself in general agreement with the Senator from Texas on the power of Congress to regulate currency, and I have two citations from Mr. Webster which he has not read, which I should be glad to have read, because I think they cover the case a little more clearly than those he has cited.

Mr. BAILEY.  They may cover it a little differently, but not more clearly.  However, I shall be glad to hear them.

The VICE-PRESIDENT.  Without objection, the Secretary will read as requested.

The Secretary read as follows :

" In the next place, I hold that the regulation of the currency, whether metallic or paper—that a just and safe supervision over that which virtually performs the office of money, and constitutes the medium of exchange, whatever it may be—necessarily pertains to government ;  that it is one of the necessary and indispensable prerogatives of government."  (Daniel Webster, speech in Wall street, September 28, 1840.)

Mr. BAILEY.  It is a great pity that that doctrine is not popular in Wall street now.

The Secretary read as follows :

" Hence it is true that, in the absence of all Government control and supervision, the wisdom and discretion regulating the amount of money afloat at any time in the community are but the aggregate of the wisdom and discretion of all the banks collectively considered ;  each individual bank acting from the promptings of its own interest, without concert with others, and not from any sense of public duty.  In my judgment, such a regulator, or such a mode of regulating the currency, and of deciding what shall be the amount of money at any time existing in the community, is unsafe and untrustworthy, and is one to which we never can look to guard us against those excessive expansions and contractions which have produced such injurious consequences.  Hence arises my view of the duty of the Government to take the care and control of the issues of these local institutions, and thereby to guard the community against the evils of an excessive circulation."  (Daniel Webster, speech in Wall street, September 28, 1840.)

Mr. BAILEY.  Much more can be found in Mr. Webster's speeches to the same effect, and instead of being at war with what I have been saying it really confirms my views;  and I now see the purpose of the Senator from Rhode Island.  He is making a side argument against an asset currency.

But, Mr. President, we are not left to political speeches in Congress, even though they have been approved by commentators on the Constitution, for light on this subject.  It has been discussed by the Supreme Court of the United States on more than one occasion, and in almost every case the right to issue paper money has been referred, more or less directly, by that great tribunal to the power to coin money and regulate the value thereof.  In the case of the Veazie Bank v. Fenno the court employs this language :

It can not be doubted that under the Constitution the power to provide a circulation of coin is given to Congress.  And it is settled by the uniform practice of the Government and by repeated decisions, that Congress may constitutionally authorize the emission of bills of credit.  It is not important here to decide whether the quality of legal tender, in payment of debts, can be constitutionally imparted to these bills;  it is enough to say, that there can be no question of the power of the Government to emit them ;  to make them receivable in payment of debts to itself;  to fit them for use by those who see fit to use them in all the transactions of commerce ;  to provide for their redemption ;  to make them a currency, uniform in value and description, and convenient and useful for circulation.

It is, of course, not necessary to remind those who are familiar with our history that this case was decided before the constitutionality of the legal-tender act had been passed upon by the court.

In the case of Hepburn v. Griswold, which is the first of the legal-tender decisions, and which declared the legal-tender law unconstitutional and void, in so far as it authorized the payment in United States notes of debts previously contracted, the opinion pronouncing that judgment declared :

It is not doubted that the power to establish a standard of value by which all other values may be measured, or, in other words, to determine what shall be lawful money and a legal tender, is in its nature, and of necessity, a governmental power.  It is in all countries exercised by the government.

It is very true that the court then denied that Congress could make any note a legal tender in payment of previously contracted debts under its power to coin money and regulate its value.  But their reasoning in that case sustains my argument in this debate.  They said that the power to coin money and regulate the value thereof confers only a power to make coin a legal tender, and that only what can be made a legal tender is embraced within the power conferred by the Constitution.  I grant you this;  but you must then grant me that when that court afterwards overruled its decision in the case of Hepburn v. Griswold and decided that Congress can make the notes of the United States a legal tender in the payment of debts, the reasoning of the court in the former case runs exactly parallel with my reasoning now.  In other words, the court then said that the power to coin and issue money embraced only such as could be made a legal tender;  and I now say that it having been decided that the United States notes can be made a legal tender, the power to issue them must be referred, under the reasoning in Hepburn v. Griswold, to the coinage clause of the Constitution.

Again, sir, in the legal-tender cases, which are reported in Twelfth Wallace, the court, speaking of this same power to coin money and regulate the value thereof, declares :

It was for this reason the power to coin money and regulate its value was conferred upon the Federal Government, while the same power as well as the power to emit bills of credit, was withdrawn from the States.  The States can no longer declare what shall be money, or regulate its value.  Whatever power there is over the currency is vested in Congress.

It would be a curious and imperfect logic that would lead us to conclude that it is the function of a Government to declare what shall be money and then deny the right of the Government to issue it.

The most superficial knowledge of the nature and office of currency will make it plain that the issue of it is a function of the Government rather than the function of a bank.  The whole reason and justification for the issue of any currency is that the supply of coin is not sufficient for the business of the country, and currency is issued to supplement it, thus in effect increasing the quantity of coin.  If all of our currency were retired, and our people were compelled to conduct all transactions with coin as their only money, a most destructive revulsion would immediately ensue and a hopeless bankruptcy would overtake our most prosperous enterprises.  Of course after a period of liquidation the volume of business would be readjusted to the volume of money, but our commercial, agricultural, and industrial progress would be painful and slow;  and it is a knowledge of this fact which compels all men of all parties to favor the issuance of currency to supplement our supply of coin.  In theory, of course, currency is not money, but is only a promise to pay money.  In practice, however, it is money, and performs, when impressed with the legal-tender quality, every function of money within our own country.  Not only is it spoken of as money, received as money, and treated as money in every respect by the people generally, but our law has long since adopted this common understanding, and our statutes now speak of it as money.  We have gone so far as to distinguish between the currency which is "lawful money" and that which is not.  We describe that which is a legal tender as "lawful money," thus asserting, at least by implication, that the present bank note, which is only a limited legal tender, is money, though not "lawful money."  I am quite willing for individuals and corporations to issue their promissory notes, but I am not willing that either individuals or corporations shall issue "money," for only the Government ought to exercise that power;  and gentlemen who talk so freely about taking the Government out of the banking business ought to be just as willing to take the banks out of the Government's business.  I will cheerfully join them in doing the one, if they will join me in doing the other.  My rule in this and in all other matters is that we shall not permit the Government to engage in the business of individuals or corporations nor permit individuals and corporations to engage in the business of the Government.


I can not account for the general but unfounded notion that the issue of currency is the function of a bank except upon the theory that so many governments have abdicated that sovereign power and have permitted banks to exercise it so long that men have come to believe that it is, and has always been, a banking privilege.  Nothing, sir, could be further from the truth than this.  The right to coin metallic and to issue paper money has been considered a sovereign right since the beginning of time, and the highest court in this republic has sustained the constitutionality of the law under which our United States notes were issued, upon the ground that the right to issue them is a sovereign power.  Perhaps, Mr. President, it would be well to recall to the Senate and to the country the language of the court in one of the Legal-Tender cases.

It appears to us to follow, as a logical and necessary consequence, that Congress has the power to issue the obligations of the United States in such form and to impress upon them such qualities as currency for the purchase of merchandise and the payment of debts as accord with the usage of sovereign governments.  The power, as incident to the power of borrowing money and issuing bills or notes of the Government for money borrowed, of impressing upon those bills or notes the quality of being a legal tender for the payment of private debts was a power universally understood to belong to sovereignty, in Europe and America, at the time of the framing and adoption of the Constitution of the United States.  The governments of Europe, acting through the monarch or the legislature, according to the distribution of powers under their respective constitutions, had and have as sovereign a power of issuing paper money as of stamping coin.  This power has been distinctly recognized in an important modern case, ably argued and fully considered, in which the Emperor of Austria, as King of Hungary, obtained from the English court of chancery an injunction against the issue in England, without his license, of notes purporting to be public paper money of Hungary.  (Austria v. Day, 2 Giff., 628. and 3 D.F. & J., 217.)  The power of issuing bills of credit and making them, at the discretion of the legislature, a tender in payment of private debts had long been exercised in this country by the several colonies and States;  and during the Revolutionary war the States, upon the recommendation of the Congress of the Confederation, had made the bills issued by Congress a legal tender.  (See Craig v. Missouri, 4 Pet., 435, 453;  Briscoe v. Bank of Kentucky, 11 Pet., 257, 313, 334-336;  Legal Tender cases, 12 Wall., 557, 558, 622;  Phillips on American Paper Currency, passim.)  The exercise of this power not being prohibited to Congress by the Constitution, it is included in the power expressly granted to borrow money on the credit of the United States.

This position is fortified by the fact that Congress is vested with the exclusive exercise of the analogous power of coining money and regulating the value of domestic and foreign coin, and also with the paramount power of regulating foreign and interstate commerce.  Under the power to borrow money on the credit of the United States, and to issue circulating notes for the money borrowed, its power to define the quality and force of those notes as currency is as broad as the like power over a metallic currency under the power to coin money and to regulate the value thereof.  Under the two powers, taken together, Congress is authorized to establish a national currency, either in coin or in paper, and to make that currency lawful money for all purposes, as regards the National Government or private individual. (U.S. Rep., vol. 110, p. 447.)

The controverted question in that case was, as every Senator knows, whether the Government had the power to make its own notes a legal tender in the payment of debts;  but there was absolutely no division in the court or throughout the country as to the power of the Government to issue its notes without imparting to them the legal-tender quality.  Even the first question has disappeared from our political discussions, as well as from our judicial tribunals, and it is now universally accepted as the settled law of the land that Congress can make the notes of the United States a legal tender in the payment of all debts.  But, sir, I have not read this extract for the purpose of raising or deciding that question, because it is not necessary to the purpose which I have in hand, and I have read it only to show that the right to issue notes intended to circulate as money has from time out of mind, both in this country and in the Old World, been recognized as a sovereign power.

If there ever was a time in our history when the issuance of currency might have been considered the proper function of a bank, it was when bank notes did not possess the legal-tender quality in any degree and when they were mere promises to pay, whose value depended upon the solvency of the promisor.  We have, however, passed beyond that time, and under legislation enacted by the Republican party the bank notes of to-day are treated as money in almost every respect, and are made a legal tender in the payment of many debts.  It is true that the law has not yet gone to the extent of making them a legal tender as between man and man, but it has made them a legal tender to the Government for all dues except import duties, and from the Government for every obligation "except interest on the public debt and in redemption of the national currency."  The Government of the United States can to-day condemn the homestead of any citizen and discharge the judgment rendered in the condemnation suit with the notes of a national bank.  I repudiate the doctrine that any man in this Republic should be compelled to accept the promissory note of any corporation in satisfaction of his personal or his property rights.

These gentlemen who talk so freely about the issuance of currency being a function of banks and not of the Government are afflicted with short memories.  They have forgotten that Congress passed a law levying a tax of 10 per cent upon the notes of State banks, and no Senator of the majority would now vote to repeal that law.  Its wisdom was questioned when it was passed, and its constitutionality was afterwards assailed in the courts;  but in the case of the Veazie Bank v. Fenno, the Supreme Court of the United States sustained its validity and placed its decision expressly upon the ground that Congress had a constitutional right to supply the country with its currency.  Surely, even the most liberal construction of the Constitution would not give to the Government of the United States the power to destroy the notes of State banks because they might interfere with or compete against the notes of national banks, if the issuance of notes is purely a function of the banks and not of the Government.  If it is the right of these banks and not of the Government to issue currency, then, sir, the notes of State banks and the notes of national banks should have been left to their own struggle for supremacy, and it was only because it was the right of the General Government itself to provide our currency that the 10 per cent tax on the issue of State banks was ever sustained by the courts.  I grant you that the Federal Government, having the right to provide a currency and resting under a duty which corresponds to the right, may employ any instrumentality which seems to it an appropriate means to that end, and it may use the national banks for that purpose;  but it still remains true that to provide our currency is the right and duty of the Government, and not the right or the duty of the banks.  I do not doubt that Congress could lease our mints to mining corporations and authorize them to coin our metallic money, but such a law would confer upon those corporations a right which even the Senator from Massachusetts (Mr. LODGE) will not deny belongs to the Government, and ought to be exercised by it.

Not only, Mr. President, does the power to coin and issue money belong to the Government, but it is wise that such should be the case.  Considering the tremendous consequences to all the people, and remembering that its effect reaches into every home and determines the profits of every business, the currency of a free country ought forever to be kept under the absolute control of the Government.  Those who advocate bank money and those who advocate Government money both agree that the price of almost every product and the prosperity of all classes are sensibly affected by the currency ;  and it is, to my mind, an amazing proposition that this power, second only to the power of taxation, shall be committed to men whose private interest might be wholly at war with the public welfare.  It will not do to tell me that the bankers are high-minded and patriotic men and that they will not abuse this mighty power.  Even, sir, if I knew they would not abuse it, I would still contend that they ought not to possess it.  The history of the country, however, clearly establishes that they have abused that power in the past, and I am, therefore, constrained to fear that they will abuse it in the future.  Until the Senator from Georgia [Mr. Clay] declared in his speech a few days ago that several national banks had bought and deposited bonds with the Comptroller of the Currency without having taken out a dollar of circulation I had supposed that the whole cause of complaint against national banks, with reference to their issue, was that they had not taken out the full circulation which the law permitted;  and I was surprised to find that some of them were so much opposed to an increase in the currency that they had deposited their bonds, but had refused to take out the notes which under the law they were entitled to receive.  Without intending to impute bad faith or malfeasance in office to the Comptroller of the Currency, I venture to say that under the law no national bank has a right to begin its business until it has first taken out a circulation equal at least to 25 per cent of its capital stock.

It may be true that in the beginning the object of the national-bank act was to enlarge the market for our bonds, and that the requirement on every association to invest a part of its capital in those bonds was prompted by a desire to sustain their price.  It may be that the right to issue circulating notes at that time was looked upon more in the light of a privilege than of an obligation, but through all the subsequent amendments to that law it is absolutely certain that nobody has supposed it necessary to require the banks to purchase our bonds in order to enhance their value;  and the present purpose is to require them to provide a circulation rather than to furnish the Government a market for its bonds.  But, Mr. President, whether, as a matter of law, these banks are required to take out a circulation and thus add to the volume of our currency is not material for me to inquire in this connection and I cite their refusal to issue any circulation at all as a conclusive proof that we can not depend upon them to supply the country with an adequate currency.  Banks deal in money, and bankers are subject to the same infirmities of human nature as other men.  It is as natural as the law of gravitation that every man who deals in a commodity prefers to see that commodity scarce and therefore high.  The bankers know that it is with money as it is with everything else in this world—the less of it there is, the demand remaining the same, the more it will be worth;  and they but obey a natural impulse when they seek to increase the value of that in which they deal by limiting its supply.

If any evidence were needed to show us the danger of committing the control over our volume of currency to banks, recent events will furnish it.  Last autumn, when the country was in the very throes of a money famine, the national banks did not come to the rescue with cheerful and patriotic alacrity, but on the contrary, sir, the Secretary of the Treasury was compelled to beg them, almost upon bended knees, to take out additional notes.  If the newspaper reports can be credited, he made a most frantic appeal to the national banks to come to the country's relief by increasing their issue of notes.  He did not wait the tedious course of the mails;  he did not even trust the swift and electric current of the telegraph, but it is said that he called the bankers over the telephone and implored them to help him relieve the pressure by increasing their circulation.  There was but a tardy and a grudging response to his entreaties, for the reports of the Secretary of the Treasury show that even under his persuasion and the threat of a great financial disaster bank notes were increased less than $100,000,000, while the banks themselves were illegally using more than $250,000,000 of currency substitutes.  They preferred the clearing-house certificates, because it was less expensive to obtain them and easier to retire them.  As an American citizen I suffered a sense of deep humiliation to see the officers of this great Government begging the officers of national banking corporations to perform a duty which the Government itself ought never to have surrendered—the duty of providing the people of this country with an adequate supply of currency.

I entertain no prejudice against banks, and I know their immense value to our people in every business relation.  As places where men who have money which they do not want to use can deposit it so that men who want to use money which they do not have can borrow it, they are as essential to our progress and prosperity as stores and factories.  If banks were abolished, and we were compelled again to borrow the money which we need from individuals, we would not only be subjected to a great inconvenience, but we would be forced to pay a much higher rate of interest.  They furnish us our exchange at a very moderate charge, and they greatly facilitate every business transaction.  But, Mr. President, allowing the banks the full credit to which they are entitled, it does not follow that because they have been our useful servants in some things we should make them our masters in the most important of all things.  As places of discount and of deposit I would encourage them by just and equal laws, but I would not clothe them with the power which only the Government itself can be trusted to wisely exercise.

Occasionally we hear some man assert that the bankers alone understand and are competent to regulate the finances of the country.  That our bankers are prudent and sagacious citizens, is generally true, and their advice is sought and followed in the private affairs of nearly all men who patronize their banks;  but if they can safely keep the money which their stock-holders invest with them and which their customers deposit with them, they will have done their full duty and will have earned the respect of all fair-minded men.  If they do these things well, they should be free from the labor and the anxiety of regulating our financial system;  and they will fully acquit themselves if they take honest care of the money after Congress has issued it.  If we should yield to this false claim that the issue of currency is not a function of the Government and commit to the banks the regulation of the whole subject, the smaller bankers, although they might possess the larger intellect, would have little or no voice in the matter.  A few great bankers, more through the power of their capital than by virtue of their intellect or knowledge, would soon acquire such an ascendency as would make any system their system rather than the system of all the banks.

Mr. President, it is rather a singular fact in the history of the world that many of the men who have accomplished most for the finances of nations have accomplished nothing for themselves in a financial way.  Alexander Hamilton was our first, and it is claimed by many our greatest, Secretary of the Treasury.  His genius and his skill in argument established our first national bank, and yet he died insolvent.  Webster said of him that "he smote the rock of the national resources, and abundant streams of revenue gushed forth.  He touched the dead corpse of public credit, and it sprung upon its feet;"  but he did not lay aside even a modest competence for his old age.  Robert Morris, who, more than any other man, may be said to have financed the American Revolution, lost his fortune in reckless speculation, and died a bankrupt.  The Scotchman who drew the plan according to which the Bank of England was established passed the latter part of his life in poverty, and died neglected alike by his country and by his countrymen.  His career is one of the romances of financial history.  Macaulay says he was "gifted by nature with fertile invention, an ardent temperament, and great powers of persuasion."  He traveled much, and there is no little dispute as to the errands upon which he traveled.  Some say that he went to the West Indies as a missionary, while others declare that he went there as a buccaneer.  But whether we accept the charitable or the uncharitable view of his character, nobody denies that his brain evolved the plan upon which the Bank of England was founded;  and yet, sir, his name disappeared from the directory of that institution at the close of its first year's business.  It will not do, Mr. President, to conclude that a good banker is necessarily a great financier;  or that a great financier is necessarily a good banker.  Accumulating money is one thing, and making laws under which all men shall have a fair and equal chance to accumulate money is quite a different thing.  It would be just as wise for us to authorize our manufacturers to draw our tariff bills as it would be to authorize our bankers to formulate our banking laws.  They may be honest, and in most cases they are men of the highest probity;  but they see things from their point of view, and it is so natural for the most patriotic of us to think that whatever is best for us must be best for all the people.


Mr. President, I must not leave this branch of the subject without some reply to those who have criticized my substitute as the reproduce of greenbackism.  If they mean by this to describe the notes which I have proposed to issue, then the criticism is just;  but it is not important.  I have made the notes to be issued under it uniform in all respects with the United States notes now outstanding, and the are commonly called greenbacks;  but I can not comprehend the hostility which some men seem to cherish against those notes.  If my mind were narrow enough to be influenced by an ungenerous sentiment, I might, as a son of a Confederate soldier, object to them because they were one of the instrumentalities with which the Union sustained itself during that unhappy war between the States.  But, sir, I have no feeling of that kind left in my heart, and I do not consider it a valid objection to those notes now that they helped to preserve the Union in its most trying hour.  If I can look upon them without disfavor, how much less should men of the North despise them ?  They equipped the mightiest army that any nation ever sent afield;  and they served a purpose which ought to forever consecrate them in the eyes of those who fought and prayed for the success of the Union arms.

I desire to lay before the Senate a statement of the conditions which existed when those notes were issued and of the incalculable service which they rendered to the Government.  This, sir, is not the wild declamation of some shallow demagogue seeking to win some public office by appealing to popular prejudice;  nor is it the outburst of some impassioned orator whose imagination had been inflamed by a contemplation of the struggles, the sacrifices, and the triumphs of that time.  It is the statement of a grave and learned justice, speaking for the highest judicial tribunal in the world;  and this is what he said :

We do not propose to dilate at length upon the circumstances in which the country was placed, when Congress attempted to make Treasury notes a legal tender.  They are of too recent occurrence to justify enlarged description.  Suffice it to say that a civil war was then raging which seriously threatened the overthrow of the the Government and the destruction of the Constitution itself.  It demanded the equipment and support of large armies and navies, and the employment of money to an extent beyond the capacity of all ordinary sources of supply.  Meanwhile the Public Treasury was nearly empty, and the credit of the Government, if not stretched to its utmost tension, had become nearly exhausted.  Moneyed institutions had advanced largely of their means, and more could not be expected of them.  They had been compelled to suspend specie payments.  Taxation was inadequate to pay even the interest on the debt already incurred, and it was impossible to await the income of additional taxes.  The necessity was immediate and pressing.  The Army was unpaid.  There was then due to the soldiers in the field nearly a score of millions of dollars.  The requisitions from the War and Navy Department for supplies exceeded fifty millions, and the current expenditure was over one million per day.  The entire amount of coin in the country, including that in private hands, as well as that in banking institutions, was insufficient to supply the needs of the Government three months, had it all been poured into the Treasury.  Foreign credit we had none.  We say nothing of the overhanging paralysis of trade, and of business generally, which threatened loss of confidence in the ability of the Government to maintain its continued existence, and therewith the complete destruction of all remaining national credit.

It was at such time and in such circumstances that Congress was called upon to devise means for maintaining the Army and Navy, for securing the large supplies of money needed and, indeed, for the preservation of the Government created by the Constitution.  It was at such time and in such an emergency that the legal-tender acts were passed.  Now, if it were certain that nothing else would have supplied the absolute necessities of the Treasury, that nothing else would have enabled the Government to maintain its and Navy, that nothing else would have saved the Government and the Constitution from destruction, while the legal-tender acts would, could anyone be bold enough to assert that Congress transgressed its powers ?  Or if the enactments did work these results, can it be maintained now that they were not for a legitimate end, or "appropriate and adopted to that end," in the language of Chief Justice Marshall ?  That they did work such results is not to be doubted.  (12 Wallace, 540 and 541)

But our friends who seek to retire and cancel those notes tell us that they depreciated at one time until they were worth less than 40 cents on the dollar.  That is true;  but it does not tend to prove they would depreciate now, or that they did depreciate then, except as any other evidence of the Government's indebtedness would have depreciated.  In the first place, Mr. President, those notes were not receivable in payment of import duties, and many gentlemen contend that this fact was responsible for their depreciation.  I can not subscribe entirely to that opinion, because they were receivable in payment of all other dues to the Government;  and those other dues largely exceeded our import duties.  I can not bring myself to believe that their non-receivability for the smaller amount of custom dues would have reduced their current value to less than 40 per cent of their par value, while they were still receivable in the payment of other dues which were equal to more than twice the sum collected through custom-houses.  I do not mean to say that their exclusion from customs receipts did not reduce their value, because I am perfectly sure that it did;  but I am equally sure that this single exception was not responsible for their entire depreciation.  There was another and a better reason, and it is found in the fact that while they were promises to pay, there was no time when, or place where, or substance in which, the Government had bound itself specifically to redeem them.  They were such indefinite promises that something was necessarily subtracted from their value.

It does not require any deep study to convince us that the value of a promise depends much upon the time, place, and manner of its redemption.  We all recognize that fact in the case of an individual promise.  If the Senator from Rhode Island, who has charge of this bill, were to execute his note promising that on demand he would pay to the bearer of it $1,000 in gold coin at the Riggs National Bank, of his city, it would be accepted by anybody who knows his financial standing at 100 cents on the dollar;  but if he were to issue his note promising that whenever he pleased and wherever he would pay to the bearer of that note $1,000, nobody would take it, even at the most liberal discount.  While the note of the Government did not read upon its face as I have described the note of the Senator from Rhode Island, it was still true and within the knowledge of all men that no time or place had been fixed for its redemption, and as its legal-tender quality was a new departure in our governmental policy, many men were uncertain whether it would ever be redeemed in coin.  But notwithstanding these disadvantages, Mr. President, this note of the United States, which is now so much decried, was received everywhere as equal in value to the Government's other promises.

How different is the note which we now propose to issue from the note which was issued during the war.  The present not is one that will be received in payment of all dues to the Government;  the present note is one that contains a definite promise that upon the presentation of it to the proper officers of the Government it will be redeemed in coin, and, of course,under the existing law that means gold coin, because gold is now our only money of ultimate redemption.  Thus, Mr. President, this promise is definite as to time, place, and substance.  Not only so, but the Government of the United States is not now struggling for its very existence.  Its future is not shadowed by the lowering clouds of war, and its credit is high in every market of the world.  Its noninterest-bearing promise is worth one hundred cents on the dollar in every community under our jurisdiction, and no intelligent citizen fears that it will soon be worth any less.  It is, therefore, the sheerest nonsense for men to say that our promise issued under these circumstances will depreciate, because a promise issued under a very different circumstances did depreciate.  Do not, sir, understand me to mean that the Government can issue notes without limit and still maintain their value.  I know better than that;  and I know that with the Government, as with the citizen, its promises to pay can only be kept at par when issued with due regard to its ability to redeem them.  I do not, however, hesitate one moment to declare that this Government could easily carry a paper circulation at this time of $2,500,000,000 without the slightest strain upon its credit and without the slightest danger of its depreciation.


But, Mr. President, if the men who assail my substitute as an effort to revive greenbackism mean that it is drawn in accordance with the doctrine of the old Greenback party, they either have not read it or else they are grossly ignorant of the history and teaching of the Greenback leaders.  The contention of these men was that the Government should stamp upon a piece of worthless paper the declaration that it was a dollar and that every man subject to our authority should be compelled to receive it as such.  The best brain and courage of the Democratic party combated that pernicious fallacy until it was finally abandoned by many of its most earnest and intelligent advocates;  but during that campaign thoughtful Democrats everywhere recognized the imperative need of a currency to supplement our coin, and we pledged ourselves to provide that supplemental currency precisely as I have done in this substitute.  We promised then, and we propose now, that every note issued by the Government shall contain its promise to pay, and that every promise shall be redeemed on demand and in the coin of the country.  It is not greenbackism for the United States to issue its notes containing its solemn promise to pay.  That, sir, is Democracy, and it is the Democracy of the elder and the better days.

The greatest of all Democrats was an advocate of a Government currency and opposed to bank notes.  He demanded that bank paper should be suppressed and the circulation restored to the nation to which it belongs;  and Mr. Jefferson was not more insistent upon this policy than his greatest disciples and successors have been.  The struggle between Andrew Jackson and the old national bank is too well known to need any recital here, nor do I need to relate that another, and intellectually a greater Democrat than Jackson, was earnest in his advocacy of a Government currency, and in his opposition to bank notes.  Without intending any invidious comparison I can safely say that no man of his generation—and I do not forget that he lived in the days of Daniel Webster and Henry Clay—ever studied and understood the currency question more thoroughly than John C. Calhoun.  He devised the best system ever proposed up to his time, and some profound students think that a better one has never since then been suggested.  He proposed a perfectly automatic arrangement, and it would have worked out in practical operation just as he calculated.  Mr. Calhoun understood that currency could and might be overissued, and he therefore incorporated into his plan an absolutely certain corrective of that abuse.  His proposition was for the Government to issue a paper not redeemable in coin, but receivable in public dues.  He did not contemplate that such paper be made a legal tender, and, indeed, it was not then supposed that the Government could make any note a legal tender in the payment of debts;  but he believed that the United States could easily maintain such a circulation as he proposed equal to twice its annual revenue.  He fully explained, however, that if such a currency was ever overissued it would immediately depreciate, and that when depreciated nobody would accept it from the Government;  but everybody would use it in making their payments to the Government because they could purchase it at a discount.  Under that condition this paper would flow back into the Treasury, and none of it would flow out until the entire excess was drawn from the channels of trade, and the equilibrium completely restored.

I could add to these names of Jefferson, Jackson, and Calhoun the names of many other illustrious Democrats, but it would be a waste of time to do so.  The position of the Democratic party to-day is precisely the same as it has always been upon this question.  It is standing now as it has stood so many times in our history, between two great and dangerous extremes.  On the one side stands a party—the true successor of the old greenback organization—demanding an unlimited issue of irredeemable paper money;  and on the other side stands the Republican party demanding that the banks shall issue our currency and that the Government shall guarantee its redemption.  Between these two, the Democratic party stands, resolutely demanding that the Government shall exercise the sovereign right of issuing our currency, but solemnly promising that every note which is issued shall be redeemed in coin upon the demand of its holder.

The men who cry out so vociferously against the issue of notes by the Government are the very ones who are always advocating the issuance of notes by the banks.  Independently of any question as to whether it is the duty of the Government to issue these notes directly or the right of the Government to devolve their issue upon the banks, the class of men to whom I am now referring seem to think that the Government notes are an unsafe currency, and that bank notes are the very perfection of a safe and a conservative circulation.  I am not disposed to distrust the sincerity of my opponents, and I believe that men are generally honest with themselves and with their countrymen in forming and expressing their political opinions;  but it taxes my charity to the utmost to believe in the sincerity of men who insist that a bank note is safer than the note of this Government.  Do they not know that behind bank notes are merely the securities which they pledge and the assets which they may hold, while behind the note of the Government stands all which supports the credit of bank notes and also the other uncounted resources of the country ?  In other words, a Government note has behind it all that stands behind the bank notes with billions of property besides;  and it is the merest drivel for men to talk about a bank circulation being safer than a Government currency.

The argument as to the safety of the two currencies is wholly apart from the other argument that a bank-note circulation can respond more readily to the public needs.  I grant you that under the law as it now stands the banks can issue currency when the Government could not;  but under the law as we are proposing to amend it the Government could put additional notes in circulation as rapidly, or even more rapidly, than the banks.  Nor must it be forgotten, Mr. President, by those who prefer a bank circulation as more elastic that it is just as true that the banks can contract the currency more readily than the Government as it is that they can expand it more readily than the Government.  There has been an infinite deal of nonsense spoken and written upon this currency question;  but the worst of it all is this constant iteration in favor of an elastic currency.  If by an elastic currency is meant some provision for these periodical disturbances, that is desirable and wise;  but no greater curse could fall upon the land than the expansion and contraction of its currency with every season or every year.  An elastic currency is one that expands to let the unwary in, and then contracts to squeeze them out.  It is a currency under which speculation would flourish and industry would languish.


The real objection on the part of all intelligent men to a Government currency grows out of their fear that under the pressure of political considerations it will be overissued.  That was the argument which Hamilton employed with great effect in his famous report to Washington urging the establishment of a national bank.  Addressing himself to this very proposition that the United States should issue its own notes, he said :

The emitting of paper money by the authority of Government is wisely prohibited to the individual States by the national Constitution ;  and the spirit of that prohibition ought not to be disregarded by the Government of the United States.  Though paper emissions, under a general authority, might have some advantages not applicable, and be free from some disadvantages which are applicable to the like emissions by the States separately, yet they are of a nature so liable to abuse, and, it may even be affirmed, so certain of being abused, that the wisdom of the Government will be shown in never trusting itself with the use of so seducing and dangerous an expedient.

It must be remembered that Alexander Hamilton had no confidence in the capacity of the people to govern themselves.  He honestly believed that the further the Government could be removed from the people the more wisely and the more safely it would be administered;  and it is not singular that a man who entertained such a view should distrust a Congress partly elected by a direct vote of the people.  Hamilton not only believed that the banks should control the currency, but he also believed that the rich and powerful should control the Government.  He seemed to think that the turbulence of the one would be more harmful than the selfishness of the other;  but time and experience have shown his opinion upon both questions to be erroneous.  None of his political descendants can now be found to repeat his argument in favor of a Senate for life or a government modeled after that of Great Britain;  but they do not hesitate to repeat his argument upon this currency question, because it is not so generally understood.  Whatever may have been the reason or the excuse for Mr. Hamilton's assertion that Congress would be certain to abuse the power of issuing notes, we now know that it was without any justification.  Congress has always possessed the power to issue the notes of the Government and has exercised it on more than one occasion without ever abusing it.  Currency disorders have heretofore resulted from an overissue by the banks, but never from an overissue by the Government.  It will not do to say that those overissues were made by irresponsible State banks, because that does not meet the question.  I am not discussing the merits of the bank notes of to-day as against the bank notes of another day.  I am simply asserting what every well-informed man knows to be the truth—that notes have repeatedly been overissued by the banks but never by the Government.  Not only had Congress authorized an issue of treasury notes prior to 1862, leaving them to circulate as mere promises to pay, but since 1862 it has assumed and exercised the power to impress upon the notes of the United States the quality of a legal tender, and since 1872, when that power was vindicated and sustained by a decision of the Supreme Court, it has been unchallenged.  And yet, sir, in all this more than thirty-six years the legislation of Congress has been to unduly contract rather than to expand the currency.

With this history before us, he is indeed a rash man who says that Congress can not be trusted to exercise this great power.  Moreover, sir, it is not now proposed that Congress shall be deprived of this power, because no act of ours could accomplish that.  It is simply proposed that Congress shall abdicate the exercise of it while still retaining the full possession of it.  If the fears of the Hamiltonian school of statesmanship are well founded, the country could not be saved from Congressional inflation simply by authorizing the banks to exercise this function of the Government; because Congress could at any time resume that power and exercise it, leaving the banks to continue their circulation or retiring it, as it might choose.  If, therefore, the power is a dangerous one, it would be all the more dangerous if left to sleep instead of being exercised, because its disuse would engender an ignorance of the subject and prevent that caution in the exercise of this power which a knowledge of the question would always cultivate.  But, Mr. President, even if we concede that there is some danger of an overissue, I do not believe that we ought to surrender a sovereign power of the Government because of an apprehension that it might be abused.  If Congress can be trusted with the power of taxation which reaches into every home and can take from the mouth of labor the bread which it has earned;  if Congress can be trusted to levy taxes which collect from every man his share in the Government's support;  if Congress can be trusted to enact our coinage laws and to regulate the value of our metallic money;  if Congress can be trusted to adopt a criminal code affecting the lives and the liberties of our people, surely, sir, there can be no good reason for fearing that it will not act wisely in regulating the currency of the country.


Mr. President, no doubt exists in my mind as to the wisdom of providing for an emergency;  nor do I doubt that such a provision ought to be made by the issuance of United States notes.  That far there is, and there can be, no serious difference of opinion on this side of the Chamber;  but it has not been so easy to agree upon a method of putting this currency into circulation.  I am convinced, however, that upon a full consideration of the subject it will be found impossible to devise a better plan than the one proposed in our substitute.  Some gentlemen think that the Government ought to issue this money and lend it to anybody who can offer the security required;  but with the most respectful deference to those who entertain it, I venture to say that such a view originates in a misconception of the duty which the Government owes to the people in this matter.  The demand that the Government shall give every individual or corporation who offers the specified security the same right to receive these notes as is given to the banks, proceeds upon the theory that the Government is under some obligation to provide individuals or banks with the money which their business may require.  The Government rests under no such obligation.  Its duty—and its whole duty—is to supply the country at large with a currency sufficient in volume to transact its business;  and it is for each individual and corporation to get, in his or in its own way, so much of that currency as they need and can honestly obtain.

It has been urged with some vehemence that to confine the deposit of this money to banks is class legislation;  and the men who say this seem to think that the only way to exempt ourselves from this imputation is to allow every person, natural or corporate, who offers the security to obtain the money.  But those who press that argument overlook the fact that it subjects them equally to the charge of class legislation;  because under their proposition only those who have bonds could borrow the money;  and it is practically certain that the men with these bonds to offer as security would have a less urgent need for the money than the other men who have no bonds.  Instead of incorporating such a provision in my substitute, I have, after great deliberation, confined the deposit of this money to the banks, and I believe that the reasons which have influenced me to that course will satisfy any thoughtful man.  If we issue these notes to everybody who offers the security, we not only confine the privilege to a class, but we confine its benefits to the same class;  while if we deposit them in the banks, then every citizen who has good security, though not such as this substitute requires the banks to give, or whose good standing entitles him to a credit without security, can obtain them from the banks.  If you say that I am thus compelling the people to borrow the Government's money from the banks, I answer that I am requiring the Government to deposit its money in the banks so that it will be available for general use.  When a citizen deposits his money with the bank he does so for his own convenience and not for the benefit of the bank.  So in this case I would deposit the public money in the bank for the public's convenience, and not for the benefit of the bank.  If the Government needed to use a horse and vehicle it would send its agent to a livery stable to hire one, and it would not consider that it had discriminated against its other citizens by going to the place established for the accommodation of travelers.  Many men in that community might be willing to hire their horses and vehicles, but the Government would deal with the man who had equipped himself for the business of supplying conveyances to those who travel.  So, Mr. President, it seems to me that when the Government is to deposit money it ought to use the same agencies and instrumentalities which are generally used in every community, and through which the business of every man is transacted and facilitated.

If anybody supposes that this substitute is drawn in the interest of the banks, they have only to consider that practically every banker in the country is opposed to it.  In the first place, the rate of interest is so high as to preclude the possibility of much profit on it;  and the method of securing the notes will absorb what might otherwise be made.  The banks realize this, and they have bitterly complained that the rate of interest and the security required will offer them no sufficient inducement to use this money.  They are right in their statement;  but they are wrong in complaining about it.  They ought to be willing to render a service to the country in a great emergency without demanding a profit;  and as a matter appealing to their own selfish interest, they must not forget that they are the chief sufferers in every panic.  In such a time many of them fail, and the long list of suicides committed by their officers bears ample witness to the tremendous strain under which they labor.  If, therefore, it be true—and undoubtedly it is true—that the banks will make little money out of this transaction, it is still true that they will render a valuable public service, and save all of them from great anxiety and many of them from ruinous losses.

Some worthy people believe that the security for these deposits ought to be enlarged so as to include our great staple products, and insist that this money shall be loaned directly to the farmers on their cotton when once stored in a warehouse and insured in favor of the Government.  I do not dispute that cotton is as good a security as a bond, nor do I agree with those who think it is not easily convertible into money.  States, counties, and municipalities sometimes default in their interest, and even the Federal Government itself once found its credit so impaired that its promises sold for less than 50 cents on the dollar;  but, sir, no folly of men and no misfortune of war can seriously abate the world's demand for cotton.  Men and women must buy and wear the beautiful and useful fabrics woven from it;  and when accepted at a fair margin, I do not question that cotton would make the Government perfectly secure for its loan.

But, sir, suppose we admit that cotton is an ample security, and that the planter shall have the right to obtain a loan from the Treasury by depositing it in a warehouse to be designated by the Government.  Will not the farmer of the West then have a right to demand the same accommodation upon his wheat as the planter of the South has obtained upon his cotton ?  Can not the wheat farmer say that he feeds us, and is therefore as much entitled to our consideration as the cotton planter who clothes us ?  After you have extended your loans to the cotton planter of the South and the wheat farmer of the West what will you say to the tobacco grower when he applies for a loan ?  You may tell him that his article is not a necessity;  but he will answer that it is one of almost universal use, and therefore a perfectly good security.  If you still deny him, he will tell you that he is engaged in a hand-to-hand combat with the tobacco trust, and he will appeal for a loan that will enable him to carry the product of his land and labor until he can sell it at a living price.  When you have yielded, as you would, to the appeal of the tobacco grower, his neighbor who is engaged in raising hemp will come next, and he will tell you that nothing can save him from the greed of the cordage trust unless the Government will allow him to store his hemp and make him an advance against it.

Then, Mr. President, when you have accommodated the cotton planter, the wheat farmer, the tobacco grower, and the hemp raiser, you will next encounter the landowner, who will tell you that without his laud neither cotton, nor wheat, nor tobacco, nor hemp could be grown.  He will tell you—and he will speak the truth—that it is as true in the economic as it is in the physical world that everything rests upon the earth.  He will tell you that the security which he offers is not subject, as cotton, wheat, tobacco, and hemp are, to a deterioration in quality or to a fluctuation in price;  and he will demand his right to share with his fellow-citizens in the loans which the Government is making.  Then the stockman comes with his horses, and he will tell you that without his horses to cultivate it, the laud itself would yield neither cotton, nor wheat, nor tobacco, nor hemp.  He will tell you that his horses not only produce the wealth of the American farm but help to exchange it after it has been produced.  He will tell you that except for their patient strength, which draws these products from the farm to the market place, our crops would aggregate but a fraction of their present value and our commerce would relapse into a primitive system of barter between neighbors;  and he will demand to know if this Government has a right, after extending these accommodations to the landowner and to those who cultivate the soil, to deny an equal privilege to the man who raises the animal with which the soil is made productive.  After you have settled with the stockman who raises horses, you must next answer the stockman who raises cattle and hogs, and he will insist that the strength and health which his meat gives to those who toil in field, workshop, and factory entitles him to the same privilege which has been accorded to his brothers.  Then comes the ironmaster who will recite the development of his industry, and he will tell you how he and those whom he employs have taken from the bosom of the earth, where God's hand had planted it, this most marvelous agent of modern civilization.  He will tell you how he has forged it into rails, so that every product of farm and factory may find a market in the remotest quarters of the globe.  He will tell you how it has reduced all distances, tunneled the mountains, and spanned the rivers;  and he will demand the same accommodation upon his iron are that you have extended to other men upon their agricultural products and their live stock.  Thus, Mr. President, man after man, and class after class will follow each other to Congress for a law, and afterwards to the Treasury for a loan until we have issued currency beyond all sensible proportion to our business, and have brought upon our beloved country a suffering infinitely worse than that which we are seeking to prevent.


There are other and very great practical difficulties in the way of such legislation.  To begin with, this is an emergency currency, and consequently it ought to be put into circulation with as little delay as possible.  The average citizen is only apprised of a stringency in the money market when he finds himself able to obtain his usual accommodation at the bank;  and it only becomes serious with him when he next finds himself unable to realize the money which he needs through a sale of his property.  If the people were compelled to wait before dealing with the situation until men had tried to borrow at the bank, and having failed to sell their property, would apply to the Government for a loan, much of the mischief which this bill is intended to avoid would be done before it would be possible for the money to reach the channels of circulation.  Even if you were to provide in this bill that anybody who applied and who offered the security should receive this money, it would still happen that those who knew first about the coming trouble would make the first application, and the supply of currency within a reasonable limit would be exhausted before the farmers and merchants could reach the Treasury.

But, Mr. President, even if the merchant and the farmer could reach the Treasury before the banker, and obtain this money, it would not help those who would stand in the greatest need of it.  Nearly all merchants keep their entire capital actively employed in their mercantile business, and very few of them are able to invest any of their money in bonds bearing a low rate of interest.  Therefore the only merchants who could avail themselves of such a provision in the law would be the richest and most prosperous ones, who would have the least need for it.  Nor is the case different with the farmers.  A large majority of our cotton planters, at least, require the full price of their crop to cover their expenses, and but few of them could afford to mortgage their cotton and lose the use of the difference between the price of it and the loan they could obtain on it.  But even if that were not true, and if the farmers generally could afford to leave their equity for future use, it would be an exceedingly dangerous proceeding for them to pledge their cotton to the Government under any sensible law which could be framed;  because if the price of cotton should fall, the Government would he compelled to call on them to either increase their security by bringing more cotton to the warehouse, or else make the margin good by paying a part of the debt.  Only the more prosperous could comply with this demand;  and the less prosperous ones would see their cotton sold to protect the Government on a declining market, and thus their equity would disappear.  The Government could not indulge its debtors as the banks and local creditors do.  If the note of a good man matures at the bank, and he is called on for its payment, he simply makes an explanation of his inability to pay at that time, and the greater his embarrassment, if he is honest and solvent, the more certain he is to secure an extension.  It would not be so with the Government.  When it calls for money due it, no excuses nor explanations will be accepted, and the amount must be paid without default or delay.  Only institutions with ample security and with an ability to promptly meet every demand can afford to accept money from the Government under any law that a sane Congress could be induced to pass.


Mr. President, there are two other, and, as I believe, important differences between the bill and the substitute.  One difference consists of a provision found in the bill and not in the substitute, while the other difference consists of a provision found in the substitute and not in the bill.  A peculiar and, as I believe, a wholly indefensible provision of the bill is the section which repeals all limitation on the right of national banks to retire their ordinary circulation and leaves them free to work out a damaging contraction of the currency.

This bill, instead of repealing all limitation on the right of national banks to retire their ordinary circulation, ought to contain a provision still further limiting that right.  The argument heretofore made in favor of permitting the banks to retire their notes was that they would thus be induced to provide a larger issue when the necessities of the country required more currency.  It was contended—and there was much force in that contention—that if the banks were compelled to keep out, during an ordinary time, the currency which they had issued in an extraordinary time, they would be less inclined to take out additional notes when more currency was needed;  and that argument prevailed upon Congress to permit the limited retirement of their notes.  But, sir, if this bill becomes a law, national banks will not take out ordinary circulation to meet emergencies, and the argument which has heretofore been advanced in support of their right to retire their ordinary notes is irrelevant.  In other words, the banks will hereafter meet emergencies by issuing notes under this bill and not under their general authority.  Therefore their circulation under the general law not being an emergency circulation ought not to be retired at all;  and certainly the banks ought not to be clothed with a power to retire them to an extent that might result in a sudden and disastrous contraction.  Had the bill repealed the present law which permits the retirement of $9,000,000 per month and restored the old law, which only permitted the retirement of $3,000,000 per month, it would have been more in harmony with its general provisions.

The section which I have incorporated in the substitute, and which is not in the bill, amends the present law in relation to reserves.  I am aware that some gentlemen with a thorough practical knowledge of the banking business do not think this a wise provision, and consider it entirely safe to let the law stand as it now exists.  Upon the mere question of safety I would readily defer to their judgment, based, as it is, upon their personal experience;  but looking at the question from a broader view I believe that the amendment which I have proposed is wise, and would be beneficial to the country.  Many thoughtful men insist that the entire reserve ought to be held by the banks in their own vaults;  but such a requirement would unnecessarily reduce the ability of the banks to accommodate their customers, because it would compel them to hold, in addition to their reserves, a further sum with their New York correspondents to serve the convenience of their patrons.

I recognize that the country banks must keep a certain amount of money in New York against which they can draw their bills of exchange;  and I am perfectly willing that what is reasonably required for that purpose shall be counted as a part of their reserve.  I think it will be found upon examination that no country bank has ever failed by reason of its inability to obtain the cash which it had with its New York correspondent, and I do not contend that under ordinary circumstances the solvency of our country banks is imperiled through their custom of depositing a large part of their reserves in the banks of New York.  My objection to that practice goes beyond its effect upon particular banks, and comprehends its wider effect in stimulating the overuse of bank credits there.  To prevent this, and still leave enough of the reserve to answer the purposes of exchange, my substitute requires that hereafter the banks shall keep two-thirds of their reserve in their own vaults, and can only keep one-third with their reserve agents.  In my opinion this reduces, as far as possible, the accumulation of loanable funds in New York without depriving the interior bank of the right to use a part of their reserve to answer their exchange business.


I have my own opinion, and it is a very definite one, as to what produced the recent financial stringency and brought us to the very verge of a disastrous panic;  but I do not know that it would interest the Senate or the country for me to state the reasons upon which that opinion is based.  I will, however, without entering upon an elaborate discussion of it, venture to say that it was due immediately, to the overuse of bank credits in the city of New York.  It came when the country had the least reason to expect it.  Our crops had been abundant, and the price of almost every farm product was more than satisfactory.  A recent statement made by the Secretary of Agriculture shows that the products of American farms last year exceeded in value any previous year in our history.  There had been neither war nor pestilence, the balance of trade was largely in our favor, and there was absolutely no question as to the value of our money.  There had been no change of parties, threatening a revision of the tariff, which our Republican friends so often claim breeds distrust and produces industrial depression.

I do not, of course, overlook the fact that it has been charged in many quarters that the trouble was due to the persistent demand of the President of the United States [Theo. Roosevelt 1901-1909, Rep] for the enactment of new laws and the enforcement of old laws to regulate and control our railroads;  but that charge has been made by men whose minds are heated with resentment, and it will not bear a close analysis.  The President has demanded only that the railroads of this country should be required to deal justly with the people;  and he has evinced no disposition to harass or to oppress them.  I am no apologist for the President;  and I have no patience with the adulation of him in which some Democrats indulge.  It is true that upon this question of railroad regulation he has embraced the doctrine of our party, and for that I applaud him;  but he has done more to change the character and the structure of this Government than all of his predecessors combined.  He has frequently exhibited a supreme indifference to the Constitution of his country, and has pursued what has seemed to me a systematic and a deliberate purpose to impair the rights of the States, and to concentrate all power in the Federal Government.  It was the boast of Augustus Cæsar that he found Rome of brick and left it of marble.  President Roosevelt can hereafter say that he found this a union of sovereign States, and left it one vast nation.  The good he has done in arousing public attention to certain evils of corporate management will give him an enviable place in the history of his time;  but the harm he has done in dwarfing the States and exalting the General Government can not be measured, and unless the tendency which he has set in motion is arrested and reversed our splendid Federal system will ultimately be destroyed.  We have never before witnessed such a mixture of good and evil in any public man.  Before we have finished praising him for some wise recommendation he makes another so foolish that our praise must turn to censure.  They tell me that he is brave, and I answer that he is just as rash as he is brave.  They tell me that he is honest, and I answer that he is just as arbitrary as he is honest He is—

Too bad for a blessing,
Too good for a curse,
I wish in my heart
He were better or worse.

If he were much better, he would be a Democrat;  and if he were a little worse, he would not obscure and confuse the great issues between us and our adversaries.

But, sir, conceding that the President's attitude toward the corporations has affected the value of their securities, that would only embarrass the holders of those securities who had I borrowed on them beyond a safe margin, and it would not disprove my assertion that the real cause of the trouble was the overuse of bank credits in the city of New York.  I am not only confident that the trouble was attributable to the overuse of bank credits in New York;  but I am equally confident that the overuse of bank credits there was largely due to the bad habit of the country banks in keeping so much money on deposit with New York banks.  The inevitable effect of that practice is to create a plethora of loanable funds in that city, and this plethoric condition of the money market there invites improvident loans and leads to worse than improvident speculation.  When money is sent to New York by the country banks, the New York banks pay interest on it at the rate of 2 per cent per annum, and they will not keep that money idle in their vaults, but will very naturally endeavor to make a profit on it by using it.  They are thereby induced to lend it for what can not by any stretch of the imagination be called legitimate commercial purposes, thus increasing their loans until almost any kind of a financial shock produces a serious consequence to them and, through them, to the country at large.

Let me illustrate what I mean.  Against every million dollars that the country banks have on deposit they must hold a reserve of $150,000.  Of this $150,000 they must keep two-fifths, or $60,000, at home, and they may keep three-fifths, or $90,000, with their reserve agents.  When this $90,000 is placed in New York the banks with which it is placed are only required to hold 25 per cent of it, or $22,500, as a reserve against it, and may lend the other $67,500.  Thus three-fourths of that $90,000 is not kept as a reserve at all;  but is loaned in the usual course of New York business.  The sum of all this is that instead of having $150,000 as a reserve against every million dollars of their deposits the country banks really have 6 per cent at home and 2¼ per cent in New York, making an actual reserve of only 8¼ per cent.  No man can believe that this is a safe or a conservative system of banking;  and the practice of requiring a reserve of 15 per cent and then permitting three-fifths of that reserve to be loaned to other banks, which, in turn, lend three-fourths of it to their customers, is a patent and a dangerous subterfuge.  It is plainly extending bank loans beyond the point of safety, and it is not surprising that a catastrophe overtakes this country whenever there is a demand for money which compels an extensive call of bank loans in New York.

In candor, Mr. President, it must be admitted that while the overuse of bank credits was greatest in New York, that was not the only place in which the same trouble existed.  An examination of the incomplete bank statements will show that while New York was the chief it was not the only offender against conservative banking.  In the speech which he delivered several days ago my colleague [Mr. CULBERSON] contended that the recent panic was not produced by depositors taking their money out of the banks, and he supported that contention by showing that the bank deposits in June, 1907, were $880,000,000 greater than in June, 1906.  These figures abundantly prove what he intended them to prove;  but they also prove much more than that, and their gravest import to me is the irrefragable evidence which they furnish of excessive bank loans.  The money in the United States on the 30th day of June, 1906, amounted to $3,069,000,000, and on June 30, 1907, $3,114,000,000, or an increase of $45,000,000.  The amount of money held by all banks which reported their holdings in June, 1906, amounted to $1,010,000,000, while in June, 1907, these same banks held $1,106,000,000, making an increase of $96,000,000.  Thus, while the stock of money in the country had increased only $45,000,000, the cash held by the reporting banks had increased $96,000,000, or more than double as much as the total increase in the stock of money.  This would indicate a healthy condition and tend to dissipate any apprehension as to the business situation.  But, sir, when we prosecute our inquiry a little further we find ample cause for just alarm.

The reports of these same banks show that while their cash on hand had increased only $36,000,000, their deposits had increased $880,000,000, and this increase in deposits represented almost entirely an increase of bank credits rather than the deposit of cash.  It was brought about in this way:  A customer would ask for a loan of $10,000;  the bank would take his note for that amount, pass it into the bills receivable account, and place $10,000 to his credit.  That $10,000 would then become a deposit and would be so counted in that bank's reports;  but the dullest man can easily perceive that the bank was really increasing the amount of its deposits without receiving a dollar in cash;  and what appeared as in increase in the banks deposits was really nothing more than an increase in its credits.  Nothing is more dangerous to the commercial peace of a country than the overuse of credit;  and nothing more clearly establishes the overuse of bank credits than the increase of bank deposits unless they represent at least a safe proportion of actual cash.  While the increase of bank deposits undoubtedly shows that there was no excuse for the panic so far as the conduct of depositors was concerned, it also shows that there was no escape from it whenever a contraction of bank credits became necessary.  It will be found, Mr. President, by anybody who will examine the distribution of this $880,000,000 increase in deposits that banks in every part of the country were swelling their deposits by extending credits rather than by receiving cash.

Mr. NEWLANDS.  Mr. President——

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from Nevada ?

Mr. BAILEY.  Certainly.

Mr. NEWLANDS.  I would like to make an inquiry of the Senator from Texas regarding that portion of his substitute which provides for an increase in the amount of bank reserves held by the banks in their vaults.  I am absolutely in sympathy with the Senator's view upon that question;  but I find myself met by this difficulty:  The reports show that, outside of the savings banks and the trust companies, the bank loans of the country amounted to about $10,000,000,000 last year.  Of that amount about one-half, or a little over one-half, was made by the State banks and a little less than one-half by the national banks.  As against those bank loans and the corresponding amount, of course, of bank deposits the national banks had an actual reserve, on an average, of about 18 per cent whilst the State banks had an average of less than 8 per cent.  The difficulty I meet with there is that if we increase the restrictions upon the national banks and can not in any way affect the State banks, whose reserves on the average, are, of course, absolutely inadequate, we will simply increase the disposition of the national banks to abandon the national organization and take up the State organization.

I would like to ask the Senator whether he thinks it within the power of Congress, under the interstate-commerce clause of the Constitution and regarding State banks which are engaged in interstate commerce in the same light that we do State railroads engaged in interstate commerce—whether we would have the right, in the interest of the public safety, just as we apply safety appliances to the State railroads, to require of the State banks the maintenance of the same reserve that is required of the national banks as a condition of their engaging in interstate commerce, or whether there is any other legislation that we could enact, either persuasive or compulsory, that would bring about a harmonious system upon the part of all the banks of the country as to the question of reserves that are so essential to the public safety ?

Mr. BAILEY.  Mr. President, the State banks of discount and deposit are beyond the reach of Congressional legislation, and are no more subject to the jurisdiction of the General Government than are the farms or the factories in our States.

I will say further, Mr. President, that, as for my part, I am not one of those who cry out always for uniformity.  God Himself did not make all things alike, and I do not think wise legislators should attempt what the All-Wise Being did not think it worth His while to do.  There is sometimes strength in diversity, and there is sometimes weakness in uniformity.  I would prefer that the States of this Union should have a bad system, if it were their system;  than to have a good system imposed upon them by the people of another State.  So long as they do relates to them and to their people only, it is for them and for their legislatures to decide.  When they engage to a business that affects other States and other people, as would the issuance of currency, then they subject themselves to the jurisdiction of Congress;  but so long as they conduct merely the business of receiving deposits and making loans, we have, and ought to have, no power over them.

It may be true that the best we can do will leave something still to be done until the States have each made theirs a perfect system;  but if we do our duty here, we stand acquitted to our conscience and our country, and we will leave State legislatures to answer to their constituents.

Mr. NEWLANDS.  Mr. President——

The Vice-President.  Does the Senator from Texas yield to the Senator from Nevada ?

Mr. BAILEY.  Certainly.

Mr. NEWLANDS.  I should like to call the attention of the Senator from Texas to the fact that if it be true—and it is true—that over one-half of the business of the country, interstate as well as State is done by the State banks, then if their system is defective, it lies in their power to involve in ruin interstate commerce throughout the entire country and to involve in destruction the national-bank system itself, for the Senator well knows that the weakness of a bad bank and the consequent run upon it may create a panic that will involve the strong banks of the country, for panics are absolutely irrational.

I do not wish to debate the matter with the Senator now because I do not wish to interrupt his splendid argument, but I should like the Senator to consider the question as to whether there is not some persuasive process, such as that pointed out by the Senator from Georgia [Mr. BACON], by which, by giving the State banks the benefit of the use of this emergency currency, we can attach conditions that would bring them in uniformity regarding these reserves.

I quite agree with the Senator regarding the fact that uniformity is not essential in all things;  but it is, it seems to me, essential in some things.  The Senator requires uniformity as to every national bank in the country as to reserves.  If that be true, why does he sanction a diversity as to the reserves of State banks ?  Five thousand national banks are to be brought under regulations absolutely uniform regarding their reserves.  If that be a wise regulation, why could not it be extended to the 6000 other State banks, if we have powers either of persuasion or of compulsion over the matter ?  For my part I have no doubt about our powers of compulsion in the exercise of the national power to regulate interstate commerce, for all banks are, of course, engaged in interstate commerce, but I would gladly yield to the suggestion as to the power of persuasion.

Mr. BAILEY.  A good example is always persuasive, and if Congress will deal wisely with the national banks under its jurisdiction it will go a long way toward inducing the State legislatures to deal wisely with the banks under their jurisdiction.

The Senator from Nevada, however, overestimates the harm of this dissimilarity.  He forgets that side by side with marvelous strides both this system of national and that system of State banks have been growing for forty years.  They have had their shocks and their reverses, but where in all the world can you point to a prosperity matching the prosperity of either of them ?  As for my part, I would rather destroy all banks and go back to barter than to destroy this dual system of government, and I shall never agree to unify our finances when to do so involves the obliteration of State lines.  There are greater misfortunes in this world than poverty, and the greatest of all would be the loss of that liberty which can only be perpetuated through the preservation of State rights.

But, Mr. President, if it be true, as I believe it is, that the immediate cause of our financial disturbance was the overuse of bank credits, this is not a full or a final explanation of our troubles.  We must go deeper and satisfy ourselves as to the influences which induced conservative bankers to extend their loans beyond what they ought to have known was a safe limit.  Gambling in stocks and bonds and in agricultural products on the New York Exchanges will account for much, but it will not account for all that we have suffered.  High living and overtrading have done their part in this bitter business, and extravagance, joined with a mad desire to get rich quick, has deflected our people in every part of the country from their personal habit of economy and their business habit of prudence.  Congress itself has led in this wild revel of lavish expenditure, and from $248,000,000 twenty-two years ago we have increased the cost of administering this Government until we are now spending more than $1,000,000,000 each year.  We appropriate the public money as if it were a creation of the law instead of labor, and we tax the American people as if taxation were a blessing instead of a burden.  The infection of the Government's bad example has communicated itself to all classes, and men who once thought themselves fortunate if they could build a brick mansion are not satisfied now unless they can build a marble palace.  What we once considered great luxuries are now regarded as mere comforts, and men of moderate means live at a rate which only the rich can afford to indulge.  Under such circumstances it will always happen that speculation will be employed to win what honest industry could never hope to earn.

We must retrace our steps, sir, and recognize again the duty we owe ourselves, our families, and our country to live within our incomes.  Then, and not until then, can we hope, as a nation or as individuals, to escape the penalty of spending more than we have made.  I do not intend, Mr. President, to suggest that Congress can by law eradicate or regulate the evil practice of overtrading or high living, and we must trust to the common sense, to the self-respect, and to the patriotism of our people to correct those vices.  I am not one of those who would invoke the law to restrain the conduct of men upon a slight occasion.  I have always believed that it were better to endure the ills which spring from the right of individual judgment than to invite the greater ills which come from an undue abridgment of the citizen's liberty of action.  I do not mean by this to say that men shall be left to injure others or to publicly debase themselves and answer the State by saying that they have merely exercised their individual right.  There is a vast difference, sir, between liberty and license.  The one is a goddess fair, all wreathed in light and smiles and beauty, bestowing with a generous hand her countless blessings on the human race;  the other is a sorceress vile, a woman to the waist and fair, but ending in a serpent, armed with mortal coil, seducing godlike men to gross excesses and infinite despair.  I would no more embrace the one than I would drive the other from me, and I thank the God of nations that in this enlightened age we have learned to carefully distinguish between the two.

I would prohibit and I would punish the offenses which reckless bankers have committed against the law, and by which they have wrecked the great institutions which it was their duty to strengthen and conserve;  but, sir, I would not deny all men the right to manage their own affairs, within safe lines because some men have abused that freeman's privilege.  I would make convicts out of the criminals;  but I would not make children out of honest bankers and deprive them of the right to conduct their business under a law which, if duly executed and enforced, is none too liberal now.  I understand, of course, that we can prevent bad men from doing wrong by putting all men in Straitjackets;  but I also know that we will thus prevent good men from doing what would be to their own and to their country's great advantage.  If we permit ourselves to look only at the misdeeds of the few and forget the good deeds of the many, we may fall into a misanthropic frame of mind and make the mistake of legislating upon the theory that as some men abuse their freedom it shall be taken from us all.  If this should come to pass, the men of this great Republic would lose the power of intellect and the self-control through which we fondly hope to complete a peaceful conquest of the world.  Sir, I believe men are growing better instead of worse, and I would rather encourage that growth by giving greater freedom still than to discourage it by leaving them less to do according to their own untrammeled judgment and compelling them to do more according to the directions of a statute.

I am an optimist.  I believe in the patriotism and the intelligence of my countrymen, and I believe they will vindicate before the world the experiment of self-government which our fathers inaugurated.  I believe that they will teach the advocates of kingly government and the apostles of socialism as well that mankind can achieve its highest development and attain its greatest happiness under institutions which leave every man as free as is consistent with the peace and the good order of society.  And even, Mr. President, when my countrymen disappoint my hope and when the spirit of faction seems stronger than a love of country, I do not despair.  Through the darkness, as in the light, I cling to a persevering faith, and I remember that there is One above us who overrules kings and parliaments and who orders the destiny of republics better than presidents and congresses.  I confide in Him, and I do not fear that He, under whose providence the sparrow falls and whose mercy stills the clamorous raven's nest, will permit this Government of the people and for the people and by the people to perish from the earth;  but I believe that at His own good time and in His own good way He will inspire His children here with the wisdom to know and with the courage to do whatever may be for the best.  From the iridescent dream of socialism and from the debasing avarice of monopoly which assail us in this day, I turn to the coming of that better day when our greatest intellects and our bravest hearts shall be called again to those high seats from which the mighty dead once governed us;  and when that time comes, as come it shall, they will make our laws so just and equal and will administer them so firmly and so impartially that they will perpetuate forever and forever more this, the greatest, the freest, and therefore “the best Government that ever rose to animate the hopes or to bless the sacrifices of mankind.”  [Applause in the galleries.]