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not only secure a free and universal circulation, but they will be hoarded; that is, laid by for future use, with as much confidence as the specie itself. This will increase the amount of specie that may be deposited in the banks.


One of the best features of the Bank of England is, that the government is always indebted to it for an amount which, added to the specie in its vaults, at any given time, will be at least equal to its whole circulation. The bank holds £14,000,000 of the government securities as a permanent investment. By the act of 1844, (known as Sir Robert PEEL'S act,) the bank is allowed to issue this amount of its own notes for circulation, without any specie wherewith to redeem them; but for all over that amount it must hold an equal amount of specie or bullion in its vaults.

This is, of course, well known to all, and has the effect of giving the British public, as well as the whole commercial world, great confidence in the Bank of England. Even prior to the act just mentioned, the fact that the government was indebted to the national bank for an amount equal to its whole capital, has been conducive to the high credit which the bank has been able to maintain.

“As good as the Bank of England” is an old adage with which we are all familiar. Now, if we can establish a currency which shall, before the whole world, be upon as safe a basis as the notes of this celebrated bank, we shall have accomplished a most desirable object. The plan of the Secretary will do more than that. It will make the currency of the United States more absolutely secure than that of the British bank, because, in our case, the government stocks, which we assume to be as good as the British national debt, and as likely to be paid, are absolutely pledged for the payment of the notes of our banks, while the public stocks held by the Bank of England are not specifically held for the payment of its notes, but for the discharge of all its liabilities; and its deposits are often, perhaps generally, as large as its circulation. The government stocks of the Bank of England are only a part of its assets, but, by the plan of Secretary CHASE, the stocks of the American government are held in absolute pledge for the redemption of these notes, and no other purpose, and are no part of the assets of the government or the banks. They are the bona fide property of the bill-holders until the notes are paid in full.

As matters now are, the weakest and least solvent banks (as intimated in the Secretary's report) issue the greatest amount of circulating notes. They make it their chief business, in fact, to manufacture and put out as large an amount as they can, by any contrivance, keep in circulation5, 10, 20, 40 dollars for one dollar in specie! The Illinois banks had, for example, on the first January, 1860, a circulation of $8,981,723; specie on hand only $223,812, or forty dollars to one, to say nothing of $697,037 they owed besides for deposits.

Such a currency, whether forty to one or ten to one, is clearly inconvertible, notwithstanding the assumption of its being "redeemable on demand, and therefore as good as specie.” Experience, sad and oftrepeated, has taught us that the notes of such banks are really inconvertible. They may, indeed, be' gradually withdrawn from circulation, if sufficient time is allowed therefor; they may be taken into bank in payment of notes due from individuals, and thus cancelled ; but if they

are returned faster than the bank can thus dispose of them, it must suspend; such has always been the case, and as soon as the suspension takes place the bill-holders are liable to suffer.

Under the proposed system this danger of loss is obviated; for, although the bank may have actually become insolvent, no one need make a sacrifice on its notes, because the government holds collateral security for them, and is, moreover, pledged to receive them at par for all dues, except customs.

These considerations go to show that this "authenticated currency" will be the most reliable of any mixed currency in the world. This will elevate our banking system, not only to a level with the best banks of other countries, but above them.


By the proposed arrangement, solvent and well-conditioned banks will be relieved of a great and vexatious responsibility, which has heretofore been imposed on them by the weak and ill-conducted ones, whose circulation they have felt compelled to sustain, for fear that if it were dishonored a panic would be created, and a general run upon all the banks. The banks of New-York, Boston and other large cities are but too painfully familiar with cases of this sort.

Another advantage will be, that the new system will prevent the creation, in future, of merely fictitious banks. Many banks have heretofore, as already intimated, been got up without any real capital whatever. If required, as a condition of issuing circulating notes, (which is the principal object of such banks, they are obliged to deposit United States stocks to an equal amount, in advance, such banks could not be established, for nothing but real money would purchase the necessary stocks, and thus the easy multiplication of banks without capital would be prevented.

This would make the whole system more profitable and safe ; a result which all sound banking institutions will look upon with much favor.

CIRCULATION LESS FLUCTUATING. Again, by the new policy, the circulation of the banks will be rendered more uniform; that is, less fluctuating.

The Secretary proposes that all the banks that receive the authenticated notes shall keep an adequate provision of specie.”

At present no regulation exists in regard to this matter in most of the States; and in all, except three or four, the banks can issue their notes without any regard whatever to the specie in their vaults. This has ever been the great cause of the frequent and disastrous fluctuations which have inflicted such manifold calamities upon the people. The New-York city banks have become so satisfied of this, that they have entered into a mutual agreement, which compels them to keep at least twenty-five per cent. of specie for all their immediate liabilities. This measure on the part of the metropolitan banks is a wise one, but necessarily too limited in its operation to affect the greatness of the circulating medium of the country; but a suitable regulation made by Congress would, of course, effect the desired object, and place the whole currency of the nation on a comparatively safe and reliable basis. We say comparatively safe and reliable, because we cannot reasonably expect that

our currency will be reformed to such an extent, especially when the nation is making a great struggle for its existence, as to make the circulating medium perfectly sound and unfluctuating. That could only be done by compelling the banks to keep a larger amount of specie, in proportion to all their

immediate liabilities. It is no sufficient objection, that even under the system proposed the banks might extend their operations so far as to be obliged, ultimately, to suspend specie payments. That may be true, but that is no more than they are now liable to do, as we know by oft-experience; besides, as we have before shown, they will be far less likely to run into excesses under the new than the old system.

The condition of all the banks of the Union, on the 1st day of January, 1860, was as follows:* Circulation,

$ 207,102,477 Deposits, ..



$ 460,904,606 Specie held by the banks at same time,

83,594,537 Equal to about twenty cents on the dollar.

Now we do not deny, that although the whole circulation were secured by United States stocks, and those stocks were at par, the banks might be compelled temporarily to suspend, if they had no larger proportion of specie to meet immediate liabilities than indicated above, because it would obviously be impossible to meet the redemption of their notes with specie, to say nothing of a still larger amount of deposits, which, in the view of all business men and bankers, are as truly currency as the circulation, and for which the demand for specie will be more instantaneous and pressing.

It is with banks as with individuals : if they owe five or ten times as much on demand as they have the immediate means of discharging, they may be obliged to suspend payment, though they have the ultimate ability of paying three times as much as they owe. But the liability of suspension will be just in inverse proportion to specie on hand; the greater the specie basis the less the danger.

However desirable it might be, that the amount of specie in banking institutions should be so large as to prevent all possible danger of suspension, the present is certainly not the time to attempt such a reform. În time of war, credit money, in one form or another, must be resorted to. Wars, in modern times, are carried on by credit. They cannot be conducted otherwise. So enormously expensive are they, so rapidly do they consume the wealth of a nation, they would be brought to a speedy close if governments were obliged to pay as they go.

This has been the case ever since the accession of William and MARY to the throne of England. The Revolution of 1688 was a great financial, as well as political revolution. WILLIAM introduced FUNDING PAPER MONEY and INDIRECT TAXATION; and, by these instrumentalities, the wars of Christendom have been mainly supported ever since. The American Revolution was carried on by “continental paper money."

* MERCHANTS' MAGAZINE, vol. 43, p. 336.

The wars of the French Revolution had been impossible, without “ ASSIGNATS, mandates," &c., &c., and, to enable England to cope with NAPOLEON, her national bank went into suspension of specie payments, for inore than twenty years.

The present is not the time, therefore, to dispense with credit money, however great an evil, in its nature, it may be. It is rather the only exigency in which the use of such money is at all defensible.

CREDIT MONEY IS WAR MONEY. It originated in war, and has no utility, except as a temporary necessity of a state of war. We cannot, then, attempt a reform, that could only be successfully carried out in a time of profound peace and by a gradual process. We must use it, and make the best and the most of it, until peace has been restored. If so, is not the plan we have been considering the best above all others that have been proposed; the most eligible and most easily carried into operation ?

The Secretary of the Treasury is certainly not responsible for our present banking system. He does not even indorse it. He says, “If a credit circulation, in any form, is desirable, it is most desirable in this.” That is the point; and we cannot but think that all intelligent men will concur in this opinion. It is certainly possible to improve and strengthen a weak and imperfect system, and that is just what is now proposed.


We will conclude, by briefly noticing certain objections to the plan of the Secretary :

1st." That the present time is inopportune.” We think nothing can be further from the truth. The writer has been familiar with all the phases of the currency and money market for the last thirty years, and has never seen a time more favorable than the present. In 1842 there was a period when the condition of the currency

and the country was such as to make a change like that now proposed quite feasible; but, with that exception, there has been no time which, on all accounts, presented so favorable a concurrence of circumstances as the present.

Our banks have an unusually large amount of specie, and there is also a large amount in the country held outside the banks. Money for all commercial purposes is very plenty, and likely to remain so. Owing to the financial necessities of the government, growing out of the war, it has become expedient that the banks should suspend specie payment, but that circumstance, instead of being an argument against, is, in truth, a valid reason in favor of the measure; because the final payment of all the circulation being guaranteed, a very extensive credit to bank notes will be secured, a thing greatly to be desired, under present circumstances, for the banks need the best of credit, as well as the government.

Besides, if the plan of the Secretary be not adopted, is it not certain that a new crop of fictitious banks will spring up all over the Western States, as unreliable as the last; and the country be exposed to greater disasters than those of 1859-'60 ? Will not the land be flooded with worthless paper money?


Another objection made is, that “the new currency, being based on the government debt, it cannot be permanent, as the debt will be some time or other paid off

, and then the system must be changed.” But this seems an idle objection. If the war closes by next July, an event more to be desired than expected, the country will be left with a debt of over five hundred million dollars.

In addition to that debt will be an immense amount of claims on the government, not included in the Secretary's report, but which will inevitably be made on the treasury at the close of a war so extended as the present.

A large pension list, created by the war, will also be for a long period a heavy charge on the national treasury. And it is as certain as any thing can be, that instead of a standing army of ten to fifteen thousand, as formerly, we shall have one of fifty or a hundred thousand, with naval armaments in proportion.

In addition to all these changes we must meet the ordinary expenses of government, which can hardly fail to be greatly enhanced, and also the annual interest on the national debt.

With this immense aggregate of expenditures, and a revenue contracted by the limited consumption of foreign merchandise, which the impoverished condition of the country must occasion, how soon shall we find ourselves out of debt? In thirty years? If so, we shall be very

fortunate; and until that time arrives we shall not be wanting in national stocks on which to base the security of our circulation.

Besides, if we suppose a much shorter time, could not a provision be made for a change of securities, on a gradual relinquishment of the system, if that was deemed expedient ?

If the “authenticated currency" is not interrupted until the United States is again out of debt, the present generation need give itself little uneasiness in regard to the matter.


Again, it may be objected that this plan takes bank capital out of the hands of the business community and puts it into the public treasury.

Granted; but will that be any disadvantage ! Recollect, the government must have the money, the use of the capital, from some quarter. That is not a matter of choice. Why not take a part of it from the banks?

We think there are many cogent reasons in favor of such a course. A given amount of capital in the banks will increase the general credit of the country more than three times as much as that amount in private hands.

In 1860 we had 1,562 banks, with an aggregate capital of $421,880,095. All these were competing for the bankable paper of the country. What must be the natural consequence of such a state of things ? Evidently just such an insane extension of credit as we have witnessed. These banks had, at the time mentioned, extended their own credits above their available means three hundred and seventy-seven millions of dollars. What could result from this but a reckless extension of all other credits,

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