uncle sam: here we are again and all present. not a single man has been sick or even reported as indisposed or indifferent since we began these discussions. you must all be thinking that we are engaged in a religious duty, a patriotic service, or you are mightily interested in the subject.

before we begin, let me recall what was so fully presented last wednesday night so that we can keep the mile posts constantly before us.

we then learned that during a hundred years, from 1690 to 1790, every one of the thirteen colonies experimented with "bills of credit," "legal tender" "paper money," or "greenbacks," as we call them, and that they issued fiat or "legal tender money" in almost every conceivable shape, form and way. they issued money against their own credit; they issued it against real estate mortgages, that is, in the form of loans secured by mortgages; they issued it against the personal credit of men in the form of ordinary loans; they issued it under the authority of the continental congress when the colonies were all united. but in no case did any one of them, or all of them combined, escape the certain and universal fate of all such efforts. the order of events was always the same: (1) emission of paper money; (2) depreciation of the issue; (3) disappearance of coin; (4) emission of more paper money to make up for the depreciation of that already issued; (5) defrauding of creditors; (6) repudiation; (7) cancelation; (8) reappearance of gold and silver; (9) resumption of species or coin payment; (10) a return of that degree of prosperity that the times and the conditions of the country justified.

[pg 174]

then came that review of the opinions of the framers of the constitution and the vote in the constitutional convention to strike out the power to issue "bills of credit" by the general government by the decisive vote of 9 to 4, backed up subsequently by the opinions of thomas jefferson and daniel webster.

as a result of the night's discussion, mr. lawyer was forced to admit the unwisdom of any such issue of legal tender money, and that in the light of the evidence, such an issue was without authority of law and unconstitutional.

mr. banker: uncle sam, i think it should be stated right here that every president of the united states and every successive congress of the united states down to 1862 recognized the fact that it was the intention of the members of the constitutional convention "to shut and bar the door against any such issue." here is what horace white says: "during the war of 1812, the government of the united states issued treasury notes to the amount of $36,680,794. all except $3,392,994 were payable to order and payable at a definite time and bore interest at the rate of five and two-fifths per cent. about two-thirds of them were of denominations of $100 or more. they did not become a part of the circulating medium and were not intended to. they were paid to such creditors of the government as were willing to receive them, and they were generally at par until specie payments were suspended in september, 1814. on november 12, 1814, mr. hall, a member of congress from georgia, introduced a bill into the house for an issue of treasury notes to be legal tender. the house, by vote of 42 to 95, and without debate, refused to consider this bill. no other attempt was made to pass a legal tender bill until 1862.

"in the panic and crisis of 1837-43, during a portion of which time specie payments were suspended, the government issued treasury notes to the amount of $47,000,000 to meet deficiencies of revenue. all of these notes[pg 175] bore interest, and were payable at a fixed time. they did not become a part of the circulating medium. a few were issued by the secretary of the treasury in 1842, bearing only a nominal rate of interest (one mill per $100 per annum). such notes had not been contemplated by congress. the committee of ways and means of the house, to whom the subject was referred, reported that the secretary had exceeded his authority, but congress took no action on the report. it was the opinion of the committee that these notes were 'bills of credit' within the meaning of the constitution, and that congress had no power to issue 'bills of credit.' in 1847, during the war with mexico, treasury notes to the amount of $26,122,100 were issued. they bore interest at the rate of five and two-fifths and six per cent. they did not enter into the circulation, and were not intended to. the foregoing issues of interest bearing treasury notes were merely government loans, of which the securities were in small denominations and had only short periods to run.

"when specie payments were suspended in 1814, and again in 1837, silver and small change disappeared because it was worth more per dollar than the bank notes in circulation. on both occasions private notes and tickets or less denomination that $1.00, and copper coins were issued and put in circulation by bridge, ferry, and turnpike companies and by tradesmen and manufacturers. one hundred and sixty-four varieties of private copper coin of the period of 1837 have been preserved in numismatic collections. most of them bore the names of the issuers who promised to redeem them.

"prior to the civil war, the fiscal operations of the government were transacted exclusively with coin, by its own officers, without the intervention of banks."

mr. merchant: now it seems to me an interesting question why after maintaining this policy for more than seventy years from 1789 to 1862, a fundamentally different view was taken in 1862.

[pg 176]

mr. lawyer: i think i can answer that question, if you will allow me. you see, i have been looking this matter up since our last discussion, when you fellows knocked me out, and i am now loaded for bear myself.

salmon p. chase, secretary of the treasury, probably knew as little about finance as any man of his great ability could. he did not seem to be able to think in the terms of economics at all. when the war broke out he happened to do the natural thing by first going to the bankers of new york, philadelphia and boston, and making loans amounting to one hundred and fifty million dollars. though prior to that time the secretary of the treasury had had no authority to deposit the government money in the banks, congress then authorized him to do so, and he was enabled to leave it in the banks until he wanted it; but he did not know enough to do that even. he required the banks to pay the gold into the treasury at new york at the rate of $5,000,000 per week. fortunately, the public creditors knew more about this question than he did, or had more confidence in the country than he seemed to have; and so when they received the gold they immediately returned it to the banks. chase's utter incapacity to deal with the question in his report as secretary of the treasury in the fall of 1861, and a threatened war with great britain, growing out of the trent affair, so shocked public confidence that by january 1, 1862, our national finances were in a state of complete and utter collapse, and the consequence was that specie payments were suspended. i do not see how anyone can fail to conclude, after a careful study of the situation, that had chase allowed the bankers to finance the war, we should have fared very much better than we did. we should probably have saved thirty-three per cent of the cost of the war, or approximately one billion dollars ($1,000,000,000), the total cost of the war being three billion two hundred million ($3,200,000,000).

mr. banker: i agree with you absolutely, mr. lawyer, chase seemed to be as unfit to run the treasury[pg 177] department, as a fish is to run a foot race. if he had allowed james gallatin, moses taylor and george s. coe, three great new york bankers, who arranged the first loan to formulate a financial policy for him, the war could undoubtedly have been carried on without issuing greenbacks, or any "legal tender money." but after specie payments had been suspended, the situation was certainly critical, and became more difficult to manage. however, there were those who thought, and i agree with them, that it was never necessary at any time, even then to resort to "legal tender money," or greenbacks.

mr. farmer: how do you think it could have been avoided? how do you think james gallatin, moses taylor and george s. coe would have provided the money for carrying on the war?

mr. banker: by selling the bonds of the government upon the best terms possible, as to rates and interest and time, and by such a system of taxation, as would help produce the necessary means for prosecuting the war. these bankers had already furnished one hundred and fifty million dollars ($150,000,000), and stood ready to go on and finance the war as they certainly could have done, if they had been permitted to do so.

when they, in august, 1861, arranged to furnish the first $150,000,000, the banks of new york, philadelphia and boston held gold amounting to $63,200,000, and on december 7th, they held practically the same amount, or $58,100,000, although they had already furnished $100,000,000 of the $150,000,000 they had loaned. however, chase was both ignorant and obstinate and the result was a crisis in our national affairs.

mr. lawyer: that is the fact, and as you said a moment ago even then there were those, and they were among the greatest of our public men, who were convinced that it was unwise, dangerous, unconstitutional and unnecessary to issue "legal tender money," or greenbacks, as they are called. just hear what some of them[pg 178] said. justin s. morrell used this language in the house of representatives: "if this paper money is a war measure, it is not waged against the enemy, but one that may well make him grin with delight. i would as soon provide chinese wooden guns for the army, as paper money alone for the treasury.

"what is it that we most need? clearly we lack money, and wish to inspire our own people with that confidence that will induce them to lend the requisite amount. but the very first step we propose is one to destroy whatever of confidence yet remains among those who have a dollar to lend. we proclaim by an engraved advertisement—to be forced into the pockets of every man by the fiat of the government—that we will hereafter liquidate all of our debts with paper only....

"i object to this bill on the ground of its utter impolicy. i admit that from the contracts entered into—many of which are now due—i regret have not been paid as promptly as they deserve to be, and from the heavy monthly disbursements to our armies, that the government can flood the country with even $150,000,000 of paper dollars. but from that amount, you would vastly increase the cost of carrying on the war; prices would go up and the addition we should pile upon our national debt would prove that it might have been even wiser to have burned our paper dollars before they were issued; the inflation of the currency would be inevitable....

"it will be conceded that the power is no where contained in the letter of the constitution, and that, in all our history since the adoption of the constitution, it has never been exercised.... by making paper a legal tender, no more specie will be seen, except through offers of rewards to draw it from its hiding places, until we emerge from our present difficulties, and not for an indefinite period perhaps, thereafter. the $300,000,000 of specie said to be in the country, though i think there is not quite so much, will be hoarded and remain useless and[pg 179] idle for the rest of the war. i am for keeping this, the vital fluid of commerce, in healthy, active circulation."

charles sumner used this language in the united states senate: "is there not bad faith toward creditors who are compelled to receive what is due to them in a depreciated currency? is there not bad faith toward all abroad who, putting trust in our integrity, national and personal, have sent their money to this country, in gold or its equivalent? and, surely, just in proportion as this is so, you cannot doubt that we shall suffer alike in character and resources; for what resource is greater to a nation, or to an individual, than a character for integrity?... is it necessary to incur all the unquestionable evils of inconvertible paper, forced into circulation by an act of congress—to suffer the stain upon our national faith—to bear the stigma of a seeming repudiation—to lose for the present that credit which in itself is a treasury—and to teach debtors everywhere that contracts may be varied at the will of the stronger? surely there is much in these inquiries which may make us pause. if our country were poor or feeble, without population, and without resources, if it were already drained by a long war, if the enemy had succeeded in depriving us of the means of livelihood, then we should not even pause. but our country is rich and powerful, with a numerous population, busy, honest and determined, and with unparalleled resources of all kinds, agricultural, mineral, industrial and commercial; it is yet undrained by the war in which we are engaged; nor has the enemy succeeded in depriving us of any of the means of livelihood. it is hard—very hard—to think that such a country, so powerful, so rich and so beloved, should be compelled to adopt the policy of even questionable propriety."

james a. bayard, of delaware, used this language: "the thing is to my mind so palpable a violation of the federal constitution, that i doubt whether in any court of justice in this country, having a decent regard for its respectability, you can possibly except that this bill, which[pg 180] you now pass, will not, whenever the question is presented judicially, receive its condemnation as unconstitutional, and void in this clause."

roscoe conklin used this language in the house: "i propose to assign my reasons briefly for voting against the attempt by legislation to make paper a legal tender. the proposition is a new one, no precedent can be found in its favor; no suggestion of the existence of such a power can be found in the legislative history of the country; and i submit to my colleague as a lawyer, the proposition that this amounts to affirmative authority of the highest kind against it. had such a power lurked in the constitution as construed by those who ordained and administered it, we should find it so recorded. the occasion for resorting to it, or at least referring to it, has, we know, repeatedly arisen, and had such a power existed, it would have been recognized and acted on. it is hardly too much to say, therefore, that the uniform and universal judgment of statesmen, jurists and lawyers has denied the constitutional right of congress to make paper a legal tender for debts to any extent whatever....

"it will, of course, proclaim throughout the country a saturnalia of fraud, a carnival for rogues. every agent, attorney, treasurer, trustee, guardian, executor, administrator, consignee, commission merchant, and every debtor of a fiduciary character, who has received for others money, hard money, worth 100 cents on the dollar, will forever release himself from liability by buying up for that knavish purpose, at its depreciated value, the spurious which we shall have put afloat. everybody will do it, except those who are more honest than the american congress advises them to be. think of savings banks, entrusted with enormous aggregates of the pittances of the poor, the hungry and the homeless, the stranger, the needle woman, the widow and the orphan; and we are arranging for a robbery of 10 per cent, if not of 50 per cent, of the entire amount, and that by a con[pg 181]trivance so new, as never to have been discovered under the administrations of monroe, adams or james buchanan....

"such a step, if it should ever be taken by a government, should be taken when everything else has failed, and the last extremity has been reached. it is the last expedient to which kings and nations can resort."

william pitt fessenden, of maine, used this language:

"with regard to the particular bill now before the senate, we all know that it was resorted to as a temporary measure, not in the beginning, but in consequence of the necessities of the treasury, arising from a greater expenditure than the secretary could have imagined, and arising from the necessary delay with reference to other measures. can it be said that a measure like the one now pending before the senate and the country is a measure of a day or an hour? why, what does it propose? it proposes something utterly unknown in this government from its foundation; a resort to a measure of doubtful constitutionality, to say the least of it, which has always been denounced as ruinous to the credit of any government, which has recourse to it; a measure, too, about which opinions in the community, as perhaps they never have been divided upon any other subject; a measure which, when it has been tried by other countries, as it often has been, has always proved a disastrous failure....

"everybody who has spoken on this question, i believe without an exception—there may have been one or two—but all the opinions i have heard expressed, agree in this: that only with extreme reluctance, only with fear and trembling as to the consequences, can we have recourse to a measure like this of making our paper a legal tender in the payment of debt....

"a measure of this kind certainly cannot increase confidence in the ability, or the integrity of the country. it can make us no better than we are today, so far as the foundation of all public credit is concerned.

[pg 182]

"next, in my judgment it is a confession of bankruptcy. we begin and go out to the country with the declaration that we are unable to pay or borrow, at the present time, and such a confession is not calculated to increase our credit.

"again, say what you will, nobody can deny that it is bad faith. if it be necessary for the salvation of the government, all considerations of this kind must yield; but to make the best of it it is bad faith, and encourages bad morality both in public and in private. going to the extent that it does to say that notes thus issued shall be receivable in payment of all private obligations, however contracted, is in its very essence a wrong, for it compels one man to take from his neighbor in payment of a debt that which he would not otherwise receive, or be obliged to receive, and what is probably not full payment....

"again, in my judgment it must inflict a stain upon national honor. we owe debts abroad. money has been loaned to this country, and to the people of this country, in good faith....

"again, it necessarily changes the values of all property. it is very well known that all over the world gold and silver are recognized as money, as currency; they are the measure of value. we change it here, what is the result? inflation, subsequent depression, all the evils which follow from an inflated currency....

"again, a stronger objection than all that i have said to this proposition—i am stating the objections which everybody must entertain, because i suppose these facts are palpable—is that the loss is to fall most heavily upon the poor. i believe it never was disputed, it cannot be in the light of experience, that those who are injured most by an inflated currency are the laboringmen, the poor.... the poor laborer suffers in the first place more than all; then small capitalists, if i may so call them; and the rich capitalist, last of all. such is the necessary result and consequence always of this system."

[pg 183]

thaddeus stevens used this language in the house:

"this bill is a measure of necessity, not of choice. no one would willingly issue paper currency, not redeemable on demand and make it a legal tender. it is never desirable to part from that circulating medium which by the common consent of civilized nations forms the standard of value. but it is not a fearful measure, and when rendered necessary by exigencies, it ought to produce no alarm."

john sherman used this language:

"i agree that this measure can only be justified on the ground of necessity. i do believe there is a pressing necessity that these demand notes should be made a legal tender, if we want to avoid the evils of a depreciated, dishonored paper currency."

e.g. spalding, the reputed father of the legal tender act, used these words:

"these are extraordinary times, and extraordinary measures must be resorted to, in order to save our government, and preserve our nationality....

"this being accomplished i will be among the first to agitate a speedy return to specie payment, and all measures that are calculated to preserve the honor and dignity of the government in time of peace."

mr. merchant: from what transpired there was undoubtedly an overwhelming opinion that there was a necessity, and therefore the issue of united states notes was justified. no one will deny this power, if placed upon that ground, that the issuance of the notes was essential to the preservation of the life of the nation. but certainly that reason no longer exists, and therefore we should now act as we would then have acted, if we had not believed that it was a national necessity.

the measure for the first issue of $150,000,000 of united states notes was passed and signed by the president february 25, 1862. the second issue of $150,000,000 came very soon, on july 11, 1862. the third issue of $150,000,000 followed on march 3, 1863, making a to[pg 184]tal issue in about a year of $450,000,000. if the result of the war had been doubtful and long continued, god only knows what the results would have been, as these united states notes came very near reaching the zero point, as it was. the astounding fact, as the result of having practiced the law of making something out of nothing, followed in 1868 when one of the great political parties in the hot pursuit of political success declared in its platform that it was in favor of paying off the national debt with the i.o.u.'s of the government or united states notes. of course, this action would have been the natural and necessary prelude to national repudiation.

mr. farmer: what i want to know is how much those greenbacks actually depreciated.

mr. banker: i have a sheet here furnished by the government showing precisely what they were worth from february, 1862, to january 1, 1879, when we resumed specie payment, and began their current redemption in gold coin. it shows that they were worth 97 cents on the dollar in february, 1862, when the president signed the bill; in one year, or february 15, 1863, they were worth 60 cents on the dollar; and in a little more than a year afterwards, in july, 1864, they were worth only 35 cents on the dollar. that is, if you had bought a horse for $100 in january, 1862, and given a note due in july, 1864, you could have paid for the horse with $35.

you will perceive that every creditor was defrauded going down hill until you struck the bottom on that july day in 1864, when it took $2.85 of united states notes to buy $1.00 of gold coin, and you defrauded every debtor climbing up that long hill from that july day in 1864, when the united states notes were worth 35 cents, until january 1, 1879, when they became worth 100 cents. it took us just two years to go down the hill, and fifteen years to reach the top of the same hill, only to find the crater of a sleeping financial volcano beneath our feet; for if war clouds should now encompass us, or we should take one single step in the wrong direction, our national[pg 185] credit would again be shattered, and must fall into utter ruin.

mr. farmer: well, it then came out just as those men said it would, didn't it?

mr. banker: certainly, and i want to call your attention to another thing, and that is that the additional cost of the war, because of issuing united states notes, was greatly increased precisely as they predicted it would be.

mr. farmer: oh, yes, we must find out about that. you remember we investigated the cost of the greenbacks since the war, and that mr. banker then demonstrated to our entire satisfaction that the united states government would have been better off by $339,984,222, if at the close of the war we had issued bonds, bearing 4 per cent, and taken up these united states notes and paid them off. now, it would be mighty interesting to know just how much the war cost because we issued these united states notes, and went off the gold standard.

mr. lawyer: i have something here right on that point. let me read it: in his work on public debts, prof. h.c. adams computes the extra cost of the war to the tax payers in consequence of the depreciated currency at $850,000,000. and mr. wesley hill, in the "journal of political economy," march, 1897, computes the net cost of the war, due to this cause at $528,000,000. now to be fair and take the average of these two estimates or $689,000,000, and add the cost of meeting greenback redemption since the war, or $339,984,222, we have $1,028,984,222, or about one-third of the cost of the war which, as i told you a while ago, was three billion two hundred million dollars, proving everything that was said by those who were opposed to issuing the greenbacks.

mr. manufacturer: i beg your pardon, sir, except one thing, mr. lawyer. according to the decisions of the supreme court, up-to-date, and that is, that they are constitutional. you remember, of course, that the question of the constitutionality of the legal tender quality[pg 186] of the united states notes has been before the united states supreme court three different times.

this question came up in the case of hepburn vs. griswold, december, 1869, and was held by five judges against three, the court then consisting of eight judges, the opinion of the court being delivered by salmon p. chase, himself, who was then chief justice, "that the making of the notes, or bills of credit, a legal tender in payment of pre-existing debts, is not a means appropriate, plainly adapted, or really calculated to carry into effect any power vested in congress; is inconsistent with the spirit of the constitution, and is prohibited by the constitution."

mr. farmer: well, this man chase, who was then chief justice, was secretary of the treasury, and favored the issuance of these same united states notes, didn't he?

mr. lawyer: yes, he is the same person. but you must remember that he was a politician in the one case, and a chief justice in the other. possibly, i should have said a statesman in the first place, but thomas b. reed said that a statesman was a dead politician, and probably, you might say, according to his theory, that chase is a statesman now.

chase also held that the clause in the acts of 1862 and 1863, which makes united states notes legal tender in payment of all debts, public and private, so far as it applies to debts contracted before the passage of these acts, is unwarranted by the constitution: "the legal tender quality," chase said, "was valuable only for the purpose of dishonesty, every honest purpose was answered as well without it."

just one year afterward, in december, 1870, the question of the legal tender of the united states notes was again before the united states supreme court, which now consisted of nine members. in a decision of five against four, the above decision was reversed; one judge had died, and a new judge had been created, and these two joined the three formerly in favor of the act.

[pg 187]

mr. manufacturer: that looks a little as though general grant wanted that kind of a decision, and had picked out the right kind of men to get it. possibly it was more this decision than pressure of business that called for the creation of an additional member of the court—was it not?

mr. lawyer: a great many have thought so, and that makes it look as though the supreme court does some legislating occasionally on its own account. however, the same question came up again in the case of juillard vs. greenman, and was decided the same way in march, 1884. it was then held that congress has the constitutional power to make treasury notes of the united states a legal tender in payment of private debts in time of peace, as well as in time of war.

justice gray uses this language: "the power is 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." it appears that he based his decision upon this fact, but george bancroft, the historian, reviewed this opinion in both its legal and historical aspects. and referring to the statement quoted above, this great historian declared it to be a stupendous error, and further affirmed that no such power was understood to belong to sovereignty in europe at the time of the adoption of the constitution, that is, in 1788.

mr. manufacturer: well, i assume that we have another guess coming yet, haven't we? you know this same court has guessed four times already on the sherman anti-trust law. in the knight case, they declared that manufacturing was not and could not be considered as united states commerce. then came the trans-missouri case, then the northern security co. case,[pg 188] and last the tobacco and standard oil cases, wherein this august body ran amuck the word "reasonable," although that very word was not in the act at all, and although it had been impossible to get congress to put it into the act. but after all, is it not the very soul of the whole question? and is it not a fact that the supreme court of the united states ought to be constantly interpreting the constitution of the united states in the light of changed conditions, and ever advancing public opinion?

mr. lawyer: it looks as though it might be well to give the supreme court one more chance to guess; they might possibly guess right next time. it is certainly "reasonable" to hope so, both in accordance with the constitution, and in accordance with economic law, and in accordance with the experience of the whole world.

mr. merchant: well, what would happen if, when the supreme court guesses again, it should guess right? would the fact that the court declared that congress had no power to make paper money a legal tender render the greenbacks unfit for reserves, or illegal, as reserves?

mr. banker: congress cannot, by law, make anything fit for reserves, which by economic law is unfit for reserves; but congress may make anything, however unfit for reserves from an economic point of view, a legal reserve; they might make potatoes, wheat, corn, a bale of cotton, or a bundle of hay reserves. therefore, although the supreme court should declare the legal tender act unconstitutional, as it ought to, the united states notes might still be held as reserves. the silver certificates and the gold certificates are both legal reserves, but neither of them are made legal tender by law, nor should they be, as nothing but gold, which is our standard of value, should be made legal tender. however, all of these barbarous forms of currency, united states notes, silver certificates, bond-secured national bank notes should, and must be maintained upon a parity with gold, if possible, as they now are; because the faith and honor[pg 189] of the government is at stake. it is this very fact that is the source of our weakness from a national point of view, for the united states has no assets with which to meet these enormous liabilities. the united states has no resources, such as a bank has. it has nothing to sell in the way of grain, meat, cotton, or manufactured goods, or personal property of any kind. it has no capital, and no deposits, as our banks have, whose resources today exceed twenty-five billion dollars ($25,000,000,000). the individual deposits of the united states today exceed seventeen billion dollars ($17,000,000,000). every month about three billion dollars' worth of notes come due. compare this situation with the condition of the united states treasury, and its ability to meet obligations. the treasury does not control a single dollar's worth of assets, except the incoming taxes, which are more than pledged every year to meet the current demands arising from the expenses of the government.

mr. lawyer: that is correct, as we learned upon a former evening. the united states is bound for more than one billion seven hundred million of demand liabilities, directly and indirectly, and has only one hundred and fifty million of gold with which to meet them. all the government has is the power to tax the property of the people. of course it can anticipate this taxing power by selling bonds to meet an emergency; but let us imagine for a moment what may happen. this very night we may be looking out upon a perfectly clear and peaceful sky, and even so soon as tomorrow morning war clouds may curtain the rising sun, and before nightfall blacken the zenith of the heavens, and hang low and lowering the whole horizon round, presaging the most titanic and wicked struggle in blood that has ever stained the history of the human race. what do you think the effect would be upon our credit, with all these demand obligations outstanding? would not that fact, coupled with a great war on our hands, impair our credit to a very great degree, compelling us to sell our bonds at[pg 190] much lower prices, and at rates of interest far higher than could be possibly necessary, if there was no question whatever about our remaining steadfastly upon the gold standard instead of resorting to fiat paper money, as we did the very last time we had to meet a similar difficulty, or crisis?

mr. banker: there is no doubt whatever about the imperative necessity of our relieving the united states treasury from the load it is now carrying, and placing the united states government in the same position precisely that every state and municipality is in, so far as its credit is concerned; for the treasury of the government, when filling its normal and proper functions, is no more fit to carry on the banking business than a man who may be wealthy in land, but has no cash assets; or a township, city, county or state is. and until the united states government divests itself of these unnatural burdens, which it is unfitted to carry, we shall continue to suffer immeasurably whenever called upon to use our national credit to any great extent.

let me explain this principle a little more fully so that we will all get it so thoroughly fixed in our minds that we shall not forget, or overlook it, as we go on. a farmer, however wealthy in lands and prosperous he may be, even though he may be worth half a million, or a million dollars, should not have demand obligations outstanding for any considerable amount because his resources are in lands or fixed investments. if he borrows to enable him to produce his crops, he should make his notes come due when he can meet them with the money he receives from the sale of his crops, and the balance, or his profits, will go to pay the interest on the mortgage, and possibly reduce it. so a township, a city, county, or state has no personal property worth considering to meet demand obligations. it has no liquid property of any kind, in fact, nor any resources whatever, except its power to tax the property within its jurisdiction; and therefore, if it needs money, it may borrow to meet ex[pg 191]penses; but it will make its notes come due when the taxes come in, precisely as the farmer times his notes' maturity with the sale of his crops. if a municipality has no demand obligations, and its bonded debt is low, it can borrow on its bonds at a low rate of interest. but if its demand obligations are enormous in proportion to its ready cash, high rates of interest, and possibly even bankruptcy, will always be staring it in the face. granting or assuming that the united states government has no power to issue legal tender, or fiat money, which is the greatest peril and most unmitigated curse that ever hung over any country, the united states treasury is in precisely the same position, or situation, that the farmer is, whose property is in land; that the township, the city, the county and the state is in, and should always keep itself in a position where, in case of war, or any other great emergency, it could use its credit to the best possible advantage to itself; that is, to us, the people who must pay the taxes to liquidate whatever debt it may incur.

mr. farmer: i for one want to thank you for this explanation, for i have always had a sneaking idea that the united states government owned everything, and was, as we say, the richest government on earth, when it could not possibly mean anything except that the people who constitute the nation are the richest people on earth. of course the government doesn't own anything worth speaking of, and cannot take any property, without due process of law, that is, either through the process of taxation or through condemnation proceedings, for public uses. it is perfectly plain to me now that the united states government is no more fitted to carry on the banking business than lorrain township, where i live, nor this city, this county, nor this state, except that it operates on a bigger scale, that's all. do you know that's as clear as a pike staff to me now.

mr. manufacturer: now, gentlemen, i want you to correct me if i don't state this credit question right, from[pg 192] beginning to end; for i'm not sure that i have followed all that has been said with sufficient care to understand it perfectly. i appreciate the fact that we must grasp this question of credit, and comprehend it very clearly, if we are going to prepare a banking bill in which credit must play a most important part.

first: we have credit, which is the result of confidence and trust and gives us the right to demand payment.

second: if credit is granted for the purpose of producing and distributing consumable commodities, it should be for a short period, proportioned to the time involved to complete the transaction.

third: if credit is granted upon real estate, it should be for a long period, because the security is not readily convertible into cash.

fourth: credit granted to a government, by purchasing its bonds, should be for a long period, unless for some temporary purpose.

fifth: neither real estate nor government credit are a fit basis for currency, because neither is a fit security for a demand debt, nor cash credit, such as consumable commodities are.

sixth: government credit should never be used in the form of legal tender money, because it must itself be redeemed in coin. it never has been, and never can be its own redeemer, and is always subject to unlimited abuse which must necessarily result sooner or later in repudiation.

mr. banker: mr. manufacturer, you have summarized the discussion upon credit remarkably well, i think.

mr. merchant: so do i, and i am sure that we all understand what constitutes the difference between the right and wrong basis of demand obligation—convertibility or non-convertibility—quick assets or slow assets—the commercial fund and the investment fund. if we keep this thought steadily in view it will help us amazingly when[pg 193] we come to draw a banking bill demanding the recognition of this fundamental distinction.

mr. lawyer: gentlemen, don't you see that the very nature of things forces the recognition of this fundamental distinction, because you can keep your currency, if of the right kind, and all your credit used in the production and distribution of consumable commodities convertible into gold coin. but you cannot keep all the railroad bonds, all the municipal bonds and all the real estate of the country convertible into coin, practically on demand. that is impossible, and has been proved times without number, as we have already seen.

mr. laboringman: mr. lawyer, i have been sitting here with a very hazy kind of an idea about this credit matter, until this moment, but that last point you made seems to me to clinch things, for i saw in the "evening journal" last night that there was about one hundred and twenty-five billion dollars' worth of property in the united states. of course you can't cash that all in tomorrow, nor next week, nor next month, nor next year even, and the fortunate thing about it is that the owners don't want to. when you come to think of it, there is a mighty small part of it that the people want to turn into cash each day.

mr. banker: mr. laboringman, that is the point exactly, and our problem is to make it absolutely sure that those who have a right, and want to demand cash, can always get it. this can only be accomplished by two things, adequate gold reserves to protect all current demands, and such assets or commercial credits as can be converted into gold, at once to meet any extraordinary demands—yes, even satisfy the panic-stricken mob, and carry the country through such crises as 1893 and 1907 without unnecessary loss, indeed, prevent the recurrence of any such experiences again.

mr. laboringman: do you really think that that can be done? what a blessing that would be to labor.

mr. banker: i certainly do believe it can be done;[pg 194] indeed, i know it. but every banker must be compelled to do his part; that is, be ready at all times to carry his proper share of reserves against his deposits. one half of the bankers of this country cannot ride the other half, that is certain.

mr. merchant: mr. banker, what amount, or percentage of reserves do you think a banker should carry?

mr. farmer: now, hold on, just a minute. you can't get into that subject, because i want to hear it, and i've got to go home right now.

mr. banker: very well, gentlemen, we will put it off, if you say so, until next wednesday night.

uncle sam: this is the second time you men have said that you would take up reserves. indeed, it has been so long since you talked about taking it up before, that i was afraid that it would be overlooked entirely, and yet nothing but the standard of value itself is more important. now, mark this, we want the right kind of reserves, and plenty of them.

good night.