States are careful to exempt household furniture to a certain value. Thus the constitution of Texas provides that two hundred and fifty dollars' worth of household and kitchen furniture shall be exempt from taxation.

A most important topic of public finance is public debt. The necessity of incurring debt in the conduct of public affairs is perhaps stronger than it is in the management of private business. Governments cannot accumulate money; they must confine taxation to such amounts as are necessary to meet expenses for the current year. At the end of the fiscal year the treasury is supposed to be virtually empty. This is unquestionably the correct policy. A government is sorely tempted to be extravagant when it has more money on hand than it needs. It has been said with some truth that the way to keep governments pure is to keep them poor.

Since it cannot save for a rainy day, when the rainy day comes, and large sums of money must be had at once, government must borrow. Increased taxation cannot be relied upon to supply the necessary revenue. In 1863 the federal government used its taxing power to the utmost to raise the money for the support of its war operations, yet it could not collect by taxation one-sixth of what it spent during the year. More than five-sixths of its expenses had to be met by borrowing.

When a government wishes to raise money by borrowing, it usually sells its bonds to voluntary buyers.

A government bond resembles a promissory note given by an individual who borrows money. In the bond are stated the amount owed by the government, the date of payment, and the rate of interest.

CHAPTER XVII

MONEY

THE currency of the United States consists of gold coin, certificates representing gold, silver dollars, certificates representing silver, subsidiary coins of silver, bronze and nickel, United States notes (greenbacks), national bank notes and federal reserve notes.

The precious metals-gold and silver-are coined under the authority of Congress. In 1792 Congress provided that all gold or silver brought to the government mint should be coined free of expense to the person bringing the metal. The relation that was to exist between the value of gold and that of silver was stated in these words: "Every fifteen pounds weight of pure silver shall be equal value in all payments with one pound of pure gold." The law of 1792 thus provided for the free coinage of gold and silver at the ratio of 15 to 1. In 1834 Congress changed the ratio-placing it at 16 to 1. The free coinage of the two metals at this ratio continued until 1873 when Congress demonetized silver, that is, discontinued its coinage entirely.

The demonetization of silver proved to be a very unpopular measure. Accordingly Congress in 1878 passed the "Bland-Allison Act." This provided

"that the government should buy not less than two million dollars' worth, and not more than four million dollars' worth of silver bullion each month, and coin it into silver dollars, these to be full legal tender." This law remained in force for twelve years, during which $378,166,793 in silver was coined, $57,000,000 entering circulation and the remainder being deposited in the vaults of the Treasury and silver certificates being issued against it.

In 1890 the Bland-Allison act was repealed and the Sherman Act was passed, requiring the Secretary of the Treasury to purchase at its market value 4,500,000 ounces of silver each month and pay for it with treasury notes. A further decrease in the value of silver led to a demand from the holders of treasury notes for redemption in gold. The Treasury faithfully redeemed in gold, but the fear that the reserve would be exhausted and that silver, a dollar of which was worth only sixty-seven cents, would be the only money available for redemption purposes, caused a panic in the financial world. This led to the repeal (in 1893) of the purchasing clause of the Sherman Act and thus the issue of treasury notes ceased.

Since 1893 coinage has been on a gold basis. No silver bullion has been purchased at the mints for purposes of regular coinage since that date, although a considerable portion of that which was bought under the Sherman Act has been coined as Congress has from time to time directed. Under a law of 1900 gold was made the standard unit of value and no provision was made for the coinage

of silver other than that which was already in stock. Silver dollars and silver certificates, however, are still legal tender, and it is the declared policy of the government to keep them on a parity with gold; that is to say, when silver certificates are presented to the treasury for redemption it is the policy of the government to redeem them in gold at their face value, and if silver dollars are presented for exchange they will be exchanged for gold, dollar for dollar. The coinage of gold is free.

In addition to the metallic currency we have in circulation a large volume of paper currency. This consists of bank notes and United States notes. A bank note is a promissory note, payable on demand, made and issued by a bank and intended to circulate as money. Whether a bank note will circulate as money or not ordinarily depends upon the reputation of the bank and upon its ability to pay the note when presented for payment. If those persons to whom the note is offered have no faith in the bank's promise they will not receive the note, and its circulation is thereby made impossible. A United States note (greenback) is a form of paper money issued by the federal government and based upon the credit and good faith of the country. It is a legal tender for all debts public and private.

Paper money, called United States notes or greenbacks, was issued by the government during the Civil War. When the war was over the government began to destroy the notes when they came into the treasury, just as one destroys a promissory note when it