23 CONG. 1st SESS ] Condition of the Bank of the United States and State Banks. there is no such redundancy. This occurs whenever the vertible into coin, will increase the quantity of exchangegeneral balance of trade continues for some time unfavorable commodities in the world beyond what would have able to a particular state. The currency then appreci- existed had such an increase of currency not taken place. ates in value, and the price of all other commodities in Under such circumstances, a sudden reduction of the cutsuch state is diminished. As commerce is nothing more rency, by the rejection of the paper which had been em. than the exchange of equivalents, the reduction in the price ployed, could not fail to derange all the relations of soci of the articles of such state, and the increased value of ety, by diminishing the quantity of currency, whilst the the currency, will promptly produce a reaction; and gold articles to be exchanged through its agency would suffer and silver will soon return in the quantities required, to no such diminution. An immediate depression in the reduce their value to that which they maintain in the ad- price of all commodities would be the inevitable conse jacent states. With the return of specie, all other arti- quence of an unqualified return to a metalhe currency, cles will return to the prices which they commanded be. upon the supposition that the quantity of gold and silver fore its exportation. Like fluids, the precious metals, so annually produced should remain undiminished. But, if long as they are employed as the general measure of value, this return to a metallic currency should be attempted at will constantly tend to preserve a common level. Every a period when the annual product of these metals, either variation from it will be promptly corrected, without the from temporary or permanent causes, should have considintervention of human laws. These fluctuations, being erably decreased, all the great interests of society would temporary in their nature, are wholly independent of the be most seriously disordered; property of every description permanent causes which may affect the value of gold and would rapidly fall in value; the relations between creditur silver, when employed as the general standard of value. and debtor would be violently and suddenly changed. They will equally occur, whether the quantity of these This change would be greatly to the injury of the debt fi metals, compared with the exchanges which they are the property which would be necessary to discharge his des ined to effect, be redundant or deficient. The debts would exceed that which he had received from bu limits, however, within which these fluctuations are con- creditor; the one would be ruined without the imputa fined, are so contracted, that the great interests of soci-tion of crime, whilst the other would be enriched with ety cannot be seriously affected by them. But this observation must be understood to apply to a currency purely metallic, or, at least, when the paper which is connected with it does not exceed the demand for the convenient transmission of money. 3d. Gold and silver, when employed by the common consent of nations as the standard of value, are subject to variations in value from permanent causes. When their quantity is increased more rapidly than the articles which are to be exchanged through their agency, their price will fall; or, what amounts to the same thing, the price of all exchangeable articles will rise. It has been dmitted by all intelligent writers upon this subject, that, immediately after the discovery of America, towards the close of the fifteenth century, a sudden and extensive depreciation in the value of these metals occurred; and that, from that time to the close of the eighteenth century, they Continued gradually to depreciate. This depreciation, it is believed, has been accelerated during the last century, as much by the substitution of paper for specie, as by the increase in the quantity of those metals during that period, beyond the demand which would have existed for them, as currency, had that substitution not taken place. The precise effect upon the depreciation of these metals, produced by the partial substitution of paper in various countries for a metallic currency, will not now be inquired into; but it is generally conceded that the depreciation has been more rapid since that substitution than at any former period, except when the accumulated stock of ages in the new world was brought into Christendom, and thence distributed into every other region where gold and silver were in demand. Since the close of the last century, doubts have existed whether those metals, even when employed as currency, have not appreciated in value: and it is contended by the advocates of a paper currency that this appreciation will probably continue through a long succession of years, and seriously affect all the operations of the civilized world. It is maintained by these writers that the demand for currency, at present, throughout the world, is greater than the supply which the existing quantity of the precious metals will afford, without materially depressing the price of all the objects of human industry and human desires. When it is recollected that production is regulated by demand, and that both are directly affected by the quantity of currency compared with the quantity of articles to be exchanged, is is readily perceived that an increase in the currency of the world by the substitution of paper, even when con out the semblance of merit. Until the engagements ex isting at the moment of such a change are discharged, and the price of labor and of commodi ies is reduced to the proportion which it must bear to the quantity of cute rency employed as the medium of their exchange, entert prise of every kind will be repressed, and misery and d tress universally prevail. When this shall be effected the relations of society, founded upon a new basis, will be equitable and just, and tend to promote and secure the general prosperity. Such, it is contended by the advocates of a paper cr rency, are the circumstances under which the principal) states of Europe are endeavoring to return to a metallic currency. For a century past, the currency of theat states has been greatly increased by the employment of piper, founded, it is true, originally upon a metallic be sis. During the last twenty years, this paper has ceased to be convertible into specie; and, as no systematic ef fort has been made to prevent excessive issues, it has be come redundant, and, consequently, depreciated. Not withstanding this depreciation, the productions of these countries, it is believed, have more rapidly increased, than those of countries where a metallic currency has been preserved. The first efforts that are seriously made by those states to return to a metallic currency, will be the repression of enterprise of every description among themselves. It will be foreseen that the currency must appreciate, and that all other articles must depreciate a value. The effects of this appreciation of money will be first manifested in those states, by the fall of the price of all articles which cannot be exported. In the progres of these measures, the price of the exportable articles will also be affected by the reduction in the currency em ployed in effecting their exchange. It is even probable that the quantity of exchangeable articles will be diminishe l Whilst the appreciation of the currency is perceptibly advancing, the manufacturer will not hazard his capital producing articles the price of which is rapidly declining The merchant will abstain from purchasing, under the apprehension of a further reduction of price, and of the difficulty of revending at a profit. It is even probable that the interest of money will fall, whilst the cry of a scarcity of money will be incessant. Under such circum stances, loans will not be required, except to meet deb's of immediate urgency. None will be demanded for the prosecution of enterprises by which the productive ener gies of the community will be increased. As the measures which have been adopted by Eng. Condition of the Bank of the United States and State Bank. land, and several of the continental states of Europe, for returning to a metallic currency, advance, the interests of those states which have adhered to it will be affected. Whilst gold and silver were, in the former states, dispensed with as coin, they were sought for merely as com modities. The quantity necessary for their manufacturers was readily obtained, without deranging, in any serious degree, the currency of other states. [23d CONG. 1st Sess. ciple, that the supply of all articles is regulated by the It has been estimated that from eighty to one hundred It may, however, be urged, that the same improvements will augment, in an equal degree, the product of the mines; and that, therefore, the quantity of the precious metals in the world will continue to bear to other commodities the same relation which they may assume when the return to a metallic currency is effected. This may be true; bat, so far as it depends upon the general prin 23d CONG. 1st SESS] Condition of the Bank of the United States and State Banks. want of sufficient data to elucidate the subject. It is, however, highly improbable that these fluctuations were not sensibly felt by them. Having considered the nature and extent of the variations in value, to which a metallic currency is necessarily subject, it remains to examine whether it is practicable to devise a system by which a paper currency may be employed, as the standard of value, with sufficient secu rity against variations in its value, and with the same certainty of its recovering that value, when, from any cause, such variations shall have been produced. It is distinctly admitted that no such paper currency has ever existed. Where the experiment has been made directly by Gov. ernment, excessive issues have quickly ensued, and depreciation has been the immediate consequence. Where the experiment has been attempted through the agency of banks, it has invariably failed. In both cases, instead of being used as a mean of supplying a cheap and stable currency, invariably regulated by the demand, for effecting the changes required by the wants and convenience of society, it has been employed as a financial resource, or made the instrument of unrestrained cupidity. In no case has any attempt been made to determine the principles upon which such a currency, to be stable, must be founded. Instead of salutary restraints being imposed upon the moneyed institutions which have been employed, the vital principle of whose being is gain, they have not simply been left to the guidance of their own cupidity, but have been stimulated to excessive issues, to supply deficiencies in the public revenue. This is known to have been the case, in an eminent degree, in the experiment which has been attended with most success. The issues of the Bank of England, on account of the Government, were frequently so great as to destroy the demand for discounts by individuals. In consequence of these excessive issues, the interest of money fell below five per cent, the rate at which the bank discounted; the demand for discounts at the bank therefore ceased. It is, indeed, not surprising that no systematic effort has been made to restrain excessive issues. In the case of banks, the experiments which have been made were intended to be temporary; they were the result of great and sudden pressure, which left but little leisure for the examination of a subject so abstruse. The employment of a paper circulation, controvertible into specie, the favorite system of modern states, having, as has been attempted to be shown in a previous part of this report, the inevitable tendency to produce the necessity of resorting, in every national emergency, to paper, not so convertible, imposes upon those who are called to administer the affairs of nations the duty of thoroughly examining the subject, with a view, if practicable, to avoid that necessity. If the examination does not result in the establishment of a paper currency, unconnected with specie, it may lead to the imposition of salutary checks against excessive issues, when the necessity of suspending payment may occur. It has already been said that every attempt which has been made to introduce a paper currency has failed. It may also be said that of all the systems which, during the discussion of this interesting subject, both in Europe and the United States, which have been proposed, none are free from objections. It is possible that no system can be devised, which will be entirely free from objection. To ensure the possibility of employing such a currency withi advantage, it is necessary 1. That the power of the Government over the currency be absolutely sovereign. 2. That its stability be above suspicion. 5. That an equivalent can only be found in the delivery of an equal amount of gold or silver, or of public stock. 6. That whenever from any cause it may become redundant, it may be funded at an interest a fraction below that which was surrendered at its issue. 1. This proposition needs no elucidation. Coinage, and the regulation of money, have, in all nations, been coosidered one of the highest acts of sovereignty. It may well be doubted, however, whether a sovereign power over the coinage necessarily gives the right to establish a paper currency. The power to establish such a currency ought not only to be unquestionable, but unquestioned, Any doubt of the legality of the exercise of such an suthority could not fail to mar any system which human ingenuity could devise. 2. A metallic currency, having an intrinsic value, independent of that which is given to it by the sovereign suthority, does not depend upon the stability of the Govern ment for its value. Revolutions may arise; insurrections may menace the existence of the Government: a metallic currency rises in value under such circumstances; it becomes more valuable, compared with every species of property, whether moveable or immoveable, in proportion to the instability of the Government. Not so with a paper currency; its credit depends, in a great degree, upon the confidence reposed in the stability of the authority by which it was issued. Should that authority be overthrow by foreign force, or intestine commotion, an immediate depreciation, if not an absolute annihilation, of its valu? would ensue. 3. It might, however, be saved from such destruction by a well-grounded confidence in the justice and intelligeres of the Government which should succeed that which had been overthrown. The history of modern times furn sis examples that are calculated to inspire this confidencTM. . In France, during the revolution which has just terma ted, the public debt was reduced to one-third of its amunt. The same rule was applied to the public debt of the Darch republic, when it fell under French domination. Is the successive political changes to which France bas, since that period, been subjected, the public debt and the public engagements have been maintained with the strictest good faith. In Holland, that portion of the public debt which had been abolished by the French Government has been restored. In the opinion of well-informed men, however, the conditions connected with that restoration were so onerous as to render it almost nominal. Indeed, the public debt in that country had become so disproportionate to the means of the nation when deprived of the re sources it enjoyed when the debt was contracted, that the reduction which it underwent while the country was at nexed to the French empire was not generally considered an evil. The reduction of the national debt of France during the revolution, was perhaps equally indispensable. If the intelligence of the age, and the influence of public opinion, even in states where the reign of law was but imperfectly established, have been sufficient to induce the Governments which have alternately succeeded each olbef for the last twenty-five years in France and Holland, to respect the public engagemen's which had been previously contracted, well-grounded expectations may be cherished that the period is rapidly passing away when the public faith of nations can be violated with impunity. If public engagements, under such circumstances, bare been considered obligatory upon those who have successively administered the affairs of those nations, a reas able confilence may be reposed in the fulfilment of the obligations which may be contracted by existing Governmen's, where the reign of law is firmly established. It is not denied that a paper currency furnishes strong temp 4. That the issue of the currency be made not only to de-ations to abuse. Millions may be issued in a few days; a'id pend upon the demand for it, but that an equivalent be the deficiencies in the revenue promptly supplied, if the actually received. condition of receiving an equivalent is abandoned. The 3. That its justice, morality, and intelligence, be unquestionable. Condition of the Bank of the United States and State Banks. [238 CONG. 1st SESS. oment the currency shall be issued as a financial resource, paper currency which may be advanced upon such pledge. preciation will follow, and all the relations of sciety Frauds will be practised by pledging property which is ill be dis urbed. If the Government of the nation in encumbered, which it would be extremely difficult to dehich a paper currency has been established, shall be tect. The Government will be involved in endless litigaceply impressed with this truth, will it not be restrained tion with individuals who are interested in the encumom the apprehended abuse? Currency of every kind is brances by which its rights to the property pledged is able to great abuses. The history of the coinage of every embarrassed. In such contests, the interest of the Gov. tion whose annals are known, is little more than a de- ernment is always endangered, even where right is on its il of the frauds which have been practised by Govern side. It is not qualified to enter into such litigations with ents upon the people. Until the twentieth year of the an equal chance of success. The feelings of the commuign of Edward III of England, a pound troy of silver of nity are always, except in flagrant cases of fraud, upon andard fineness, and a pound sterling, were synonymous the side of an individual, supposed to be struggling with rms: twenty shillings sterling being, in fact, a pound the overwhelming influence of authority. Besides, in all oy of standard silver. Change followed change in rapid contests of this nature, something of the respect for the accession, until, in the reign of Elizabeth, a pound troy Government, which ought to be cherished by the citizens, standard silver was directed to be coined into sixty-two especially of a free state, will be lost. The situation is lings. This immense change in the value of the cur-invidious, and ought not voluntarily to be assumed by a ncy was effected in the space of about two centuries. Government jealous of its dignity and purity of character. other modern states, during the same period, changes | It is, therefore, believed that a national currency cannot ot less important occurred in the coinage. Frequently, be issued with safety, with a reasonable prospect of sucese changes were effected by deteriorating the standard cess, and with sufficient security against redundancy, but eness of the coin. For more than a century past, the in exchange for gold and silver of a definite standard, or image of the civilized world has undergone no material for the public stock at certain fixed rates. When issued ange with a view to the practice of fraud upon the peo-in exchange for them, and for them alone, there is, though Whether this forbearance is to be attributed to an not the same, yet perhaps an equal security against reprovement in the morality of modern Governments, or dundancy, as in the case of a metallic currency. When a more correct understanding of the principles of cur- it is issued in exchange for coin, there is no addition made ncy, and of the consequences that must result from to the currency. When it is issued in exchange for public ery change by which the relations of society are affect stock, commanding, previously to the exchange, its par , it furnishes just ground of expectation that they will value in coin, the party who acquires the currency parts t hereafter be attempted. Nothing more is necessary with that which was equal to specie, and is deprived of secure an unalterable adherence to the maxims upon the annual interest which it produced. Unless the interest ich it is manifestly necessary that a paper currency of the currency resulting from its scarcity should exceed ust be founded in order to preserve a uniformity of that paid upon the stock, it would not be demanded in lur, than the same morality and the same intelligence. exchange for the stock. In either case, the danger of reithout assuming the principle of the perfectibility of dundancy is extremely remote. By the exchange of specie man nature, the hope may be indulged, that the nature for currency, the active capital of the country will be incurrency will continue to command the attention of creased to the amount of the currency; and the capacity itesmen, and that the abuses which have resulted from of the nation to redeem it, whenever it shall, by any cir proper changes in the currency will not again occur in cumstance whatever, become expedient, will be unquese same degree. tionable. e. 4. When the currency is metallic, no addition can be ade to it without giving an equivalent. It is indispenble that this condition should be annexed to the acquison of the paper currency, preliminary to its entering into rculation. If it can be put in circulation, only on payg its nominal amount in that which has a general and sed value, determined by the consent of other nations, will continue to preserve that value during the time it rculates, unless the relation which it bore at the time of Sissue to the quantity of articles, the exchanges of which is destined to perform, shall be varied. But it may be doubted whether, under such conditions, a paper currency ever can be put in circulation. Under a Government firmly established, conducted by upright and enlightened councils, and possessing absolute power over the currency, it is believed there is no just reason to apprehend a difficulty of that nature. If, in such a Government, banks existed, deriving their powers from it, the specie in their possession would be gradually exchanged for the paper currency which would become the basis of their operations. Not only the specie which they possessed would be thus exchanged, but exertions would, 5. As a paper currency is issued upon the national cred- from time to time, be made to acquire the sums necessary , the whole property of the nation is pledged for its re- to support their banking operations. Specie would be emption, whenever, by any circumstance, it may become imported even at an expense, for the purpose of being e interest of the community that it should be redeemed. exchanged. Whilst specie formed the basis of the opera is, therefore, manifest that it should not issue upon the tions of banks, its importation could not fail to be proredit of any individual, or association of individuals. A ductive of loss. Each importation not only produced the art can never be equal to the whole. The credit of any necessity of additional importations, but at an increased dividual, or association of individuals, cannot be equiv. expense. But, when importations shall be made for the lent to that of the nation of which they form a part. purpose of being exchanged for the currency, the exportlut, it may be said that, although the credit of individuals ation of the specie thus imported will not affect the opnot equivalent to the credit of the nation, yet an equiv erations of the banks. It is only when the funding of the lent for a particular portion of that credit may be found currency shall commence, that they will be admonished n the pledge or mortgage of property of equal or greater to desist from further importations. Individuals and banks alue than the currency issued upon it. This may be true; would likewise exchange public stock at the rates preut the value of property has been continually fluctuating: scribed by the system for the paper currency. Whenever I will continue to fluctuate, after giving to the advocates the demand for currency should be such as to raise the of a paper currency full credit for the superior stability interest of money considerably above that produced by which, they suppose, will attend its substitution for gold the public stock, it would by banks and individuals be and silver as the standard of value. But this is not the given in exchange for the currency. But the facility which only objection to the acceptance of property as a pledge the existence of a public debt furnishes in procuring the or the payment, by individuals, of an equivalent for the paper currency, is counterbalanced by the difficulty of 23d CONG. 1st SESS.] Condition of the Bank of the United States and State Banks. complying with the public engagement to discharge such debt in a metallic currency. After a paper circulation shall be substituted for gold and silver, they will be found in the country only in the quantity demanded for manufactures, and for such branches of commerce as are entirely dependent upon them. A considerable demand for gold and silver by the Government, to meet its engagements previously contracted, would raise their price in the market, and render the obligation to discharge those engagements, in the precious metals, not only extremely onerous, but perhaps sometimes impracticable. In such a state, a compromise with the public creditors would seem to be a preliminary measure. This, under any circumstances, would be a measure of great delicacy and difficulty, and, in some cases, would probably be utterly impracticable. 6. Whenever, from any cause, the currency should become redundant, the redundancy may be funded at a rate of interest a fraction below the rate of legal interest. The currency, upon being funded, should be invariably cancelled. Under a system of this kind, if no other pspe: was permitted to circulate, than the national currency, a redundancy which would affect its value could only occur by a temporary diminution of the articles which were to be exchanged through its instrumentality. In that event, the price of the articles would be enhanced, so as to require a greater amount of currency to effect their exchange. Should the price not be enhanced, in proportion to the diminution in the quantity of the articles, that por tion of the currency which would, under such circumstances, be left without employment, would be funded. A just relation between the amount of currency, and the demand for it, would be promptly restored without affect ing, injuriously, the relations between individuals. On the other hand, should a greater quantity of exchangeable articles be produced, the demand for currency would exceed the supply, and lead immediately to additional issues, In determining the rate at which it may be funded, due until the necessary supply should be obtained. regard should be paid to the rate of interest previously But, in a state where banks already existed, which de existing in the state. The rate of interest, it is conceived, rived their charters from the sovereignty that regulated ought not to depend, and, where a metallic currency pre- the currency; where the people were accustomed to bank vails, does not depend, solely upon the amount of curren- notes, and in the habit of receiving them, the agency cy necessary to perform, with facility, the exchanges re- these institutions might be admitted in supplying a per quired by the wants and convenience of society. In a new tion of the currency. They might be permitted to country, where there is but a slight accumulation of cap- their notes, payable on demand, in the national currenty. ital, the interest of money will be high, notwithstanding Their notes would, of course, be issued on personal at there may be even a redundancy of currency beyond what curity. In this case, the currency might become redu is necessary to effect its changes. In such a country, all dant by the issues of the banks. Whenever this should the objects upon which capital may be employed, except happen, the national currency would be demanded those of the mest simple kind, are unoccupied. The cur them for the purpose of being funded; the banks woud rency necessary to effect the exchanges of its property, be compelled to curtail their discounts, to relieve them moveable and immoveable, will be entirely insufficient to selves from the pressure, and the amount of the currency satisfy the demand for capital for those objects. If it should would be promptly reduced to the legitimate deman be multiplied so as to equal that demand, it would exceed Wherever the agency of banks should be employed the demand for the necessary exchanges of society, and, furnishing part of the circulation, a refusal, or omissica consequently, depreciate. Such, in fact, it is believed, to discharge their notes on demand, in the national car would be the consequence of issuing the currency upon rency, should be treated as an act of bankruptcy. The individual credit, or upon a pledge of property, at a rate national currency being a legal tender in the payment of interest below that which previously existed in the debts to individuals and to the Government, would, in res state. Any change of the interest of money by law, pre-lation to the banks, perform the functions of specie, where, vious to its having taken place in individual transactions, bank notes are convertible into coin. But, in order to in consequence of the accumulation of capital, would be impose a salutary check against excessive issues of bark unjust, and could not fail to produce serious inconvenience notes, the national currency should alone be receivable to the community. Admitting the rate of interest, in a in all payments to the Government. state about to make the experiment, to be six per cent, then the currency should be issued only in exchange for specie or six per cent. stock, or other stock according to that ratio. If the currency should, when, by any means, a redundancy existed, be fundable at five and a half per cent. interest, the u'most depreciation to which it could be subject would be eight and one-third per cent. But it is probable that the real depression in its value would no', at any time, be more than half that amount. Before funding would commence, the public stock, receivable in exchange for the national currency, would be above the rates at which it was receivable. Its issue upon the ex. change of stock would, therefore, have ceased. There are, in every community, capitalists who would prefer lending to the Government at five and a half per cent., than to individuals at six. The funding of the currency would, therefore, begin before the redundancy would offering specie to the foreign market. any general inducement to that mode of reducing it. The 2d. When this rise exceeds the expense of such expor variation to which its value would be subject, would there.ation, the price of exportable articles will fall gradually fore be less than eight and one-third per cent. It would below what they ought to command, to the extent of that be the interest of the Government to reserve the right of excess. redeeming the stock created by funding, at its par value; under the condition, however, of redeeming it according to the order of time in which it was created. Connected with this system should be a permission to the banks to purchase public stock, but not to dispose of it, except to the Government, at its par or current value, when under par, unless the Government should decline the purchase. In an attempt to trace the probable results of a piper currency, founded upon the principles which have bees developed in the preceding pages, the influence which i will have upon foreign exchange requires investigatio The want of stability, morality, and intelligence in the Government which may undertake to substitute a paper for a metallic currency, are the objections which have already been considered. To these, according to com mon opinion, is to be added the injurious effect which, is supposed, it will have upon foreign exchange. In a country where the currency is metallic, an unfavorable state of foreign exchange will probably have the following effects: 1st. To raise the price of exportable articles as much above that which they ought to bear, as the premium parl upon foreign bills, until it exceeds the expense of exper 3d. Until this fall in their price shall be effected, speci will be exported; after which, it will cease. 4th. This fall in their price, by increasing their con sumption in the foreign markets, ultimately provides fo. the return of the specie which had been exported. 5th. During the second and third stages of this process the price of all articles not exportable is affected in a |