The Currecy — Specie Payments.

Mr. Buckingham.  I move that the Senate bill No. 1313 be referred to the Committee on Finance, and on that motion I propose to make some remarks.

January 7, 1873.

Mr. Buckingham asked and, by unanimous consent, obtained leave to bring in the following bill [Senate bill 1313];  which was read twice and ordered to be printed.

Supplementary to an act entitled "An act to provide a national currency secured by a pledge of the United States bonds, and to provide for the circulation and redemption thereof," approved June 3, 1864, and to secure an elastic currency, to appreciate national obligations, and to reach specie payments without commercial embarrassments.

Be it enacted by the Senate and the House of representatives of the United States of America in Congress assembled,
That the act entitled "An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof," approved June third, eighteen hundred and sixty-four, be, and the same is hereby declared to be, open and free for banking, and any and all persons are at liberty to organize banking associations at such places as they shall judge proper in accordance with the provisions of said act, and of other acts relating to national banking associations.

Sec. 2.  That all banking associations are prohibited from paying interest, directly or indirectly, on any and every description of deposits.  The reserve which banking associations are required to hold, under the provisions and conditions of the act to which this is supplementary, may include such United States bonds as bear interest payable in coin, as well as lawful money of the United States.  All banking associations shall redeem their circulating notes at such localities as are now, or may be hereafter, designated by law, either in coin, or in United States legal-tender notes, or in United States interest-bearing bonds, at par, with accrued interest, at the option of the associations.

Sec. 3.  That United States legal-tender notes, in sums of one thousand dollars and its multiple, shall, on demand by the holder thereof, be redeemed by the Treasurer of the United States, either with coin or with United States bonds, the principal of which shall be payable on demand in legal tender notes, and the interest on which shall be payable semi-annually, in coin, at the rate of three and sixty-five one hundredths per centum per annum, at the option of the Treasurer;  and the principal of any United States bonds bearing interest payable in coin shall, on demand by the holder thereof, be paid by the Treasurer of the United States in legal-tender notes, and the interest in coin.  All bonds issued under the provisions of this act shall be free from State and municipal taxation.

Sec. 4.  That it shall be the duty of the Secretary of the Treasury to issue bonds, as herein described, of denominations not less than one hundred dollars, and legal-tender notes in denominations not less than five dollars, and to make all rules and regulations necessary to furnish proof of the lawful issue of such bonds and notes, and all that may be necessary to execute the provisions of this act.

The Vice President.  That cannot be done until the Indian appropriation bill shall be passed over, formally or informally.

Mr. Buckingham.  I suggest that it be passed over informally.

The Vice President.  The Senator from Connecticut asks that the Indian appropriation bill be passed over informally, so that the bill indicated by him in regard to specie payments may be taken up, he desiring to move to refer it and to speak on that motion.

Mr. Windom.  I will yield informally for the purpose of allowing the Senator to make his speech;  but I desire to say that I shall insist on taking up the Indian appropriation bill as soon as the Senator concludes his remarks.

The Vice President.  If there be no objection on the part of any Senator, the Indian appropriation bill will be passed over informally.

The Senate proceeded, by unanimous consent, to consider the bill (S. No. 1313) supplementary to an act entitled "An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof," approved June 3, 1864, and to secure an elastic currency, to appreciate national obligations, and to reach specie payments without commercial embarrassment.

Mr. Buckingham.  Mr. President, my object in introducing the bill, which I now move to have referred to the Committee on Finance, is to provide an elastic currency to appreciate national obligations and to secure specie redemption or its equivalent.

If I fail in convincing the Senate that such will be the effect of this bill if it becomes a law, I shall hope to provoke the wisdom of this honorable body to adopt some other measures that will secure the objects named.

The industrial interests of the country require and demand a currency elastic, secure, and convertible into that which is of more value than the currency itself.  A circulating medium that shall combine these three qualities would stimulate our energies, increase our commerce, and facilitate exchanges both foreign and domestic.  It would also mitigate, if it did not wholly prevent, the pecuniary distress felt on every "black Friday" and in all departments of business during those periods of embarrassment when relief has been sought and heretofore secured by substituting the lesser evil of suspension of specie payments.

In order to cure a disease it is important to understand its character, to know what remedies have been tried, and how far they have proved a failure or a success.  To remedy our financial evils let us first inquire as briefly as possible into measures which have heretofore been adopted, and determine the effect which they have produced.

The United States Bank, under the authority of Congress, furnished the country with a part of the circulating medium for a limited period.  With that exception, bank notes have been issued by banks organized under State authority, but they have not maintained either one of the qualities named for any considerable length of time.

Under the delusion that banks could enrich a community the States have been prolific in granting charters.  But the powers granted, the securities required, and the restraints imposed have been as varied as the judgment of the Legislatures of the several States.  Commissioners have been appointed to exercise a guardianship over their action.  Penal statutes have been enacted to prevent the exercise of powers not granted.  Pledges of real estate and of State and other stocks have been made to secure the payment of circulation, but the fraudulent and erroneous representations of the value of the real estate and the depreciation of stocks have often been so great that the holders of the notes have been large losers.  The years 1857 and 1858 furnish abundant proof of such loss.  They show that neither the stringent provisions of bank charters, nor the watchfulness of commissioners, nor the penalties imposed, nor the securities required by the States, have proved a sufficient guarantee against loss to the bill-holder.  Nor have State banks furnished an elastic currency.  Expansion has often been regarded as evidence of insecurity and contraction as cowardly conservatism.  Currency has been abundant when business was dull and unattainable in seasons of activity.  Restraints upon the issuing of currency have been as rigid as ribs of iron, which would yield to no pressing emergency, however good the security offered.  Severe commercial embarrassment has been the legitimate consequence.

But the directors of some of our State banks, desirous of preventing undue expansion and of maintaining rigid redemption, made arrangements to secure bank-note redemption in the business centers of Boston and New York.  This plan is known as the Suffolk and the Metropolitan bank systems of redemption.  They were not the result of State legislation, but of the combined wisdom of financial men, whose views were broad enough to comprehend the fact that the interests of commerce required a sound currency, and that it could not be secured by State legislation.  The systems were highly beneficial in checking the issues of unsound banks and in diminishing the cost of exchange, but the banks failed to maintain continued specie payments.  They were by agreement under obligations to keep a reserve at the places of redemption sufficient to meet any demand that should be made.  But no amount of deposits was a full guarantee for redemption unless they should equal the amount of circulation.  Such a reserve would not be profitable to the banks, and was never designed.  The theory was that when bank notes were issued it would take a certain length of time for them to reach the place of redemption, during which the banks would gain some interest, and all they were required to do was to watch their circulation, and just before it should be presented for redemption slip in a proper deposit to meet the demand.

But when there was a money panic or distrust, or when business pressed for quick exchanges, circulation returned with great rapidity, and the banks in order to meet these demands were under the necessity, not only of denying their customers accommodations which had usually been extended in the way of discounts, but of pressing them to pay such notes as the banks held against them.  The pressure was sometimes so great as to hazard the solvency of the debtor, the effect of which was to diminish his ability to meet his obligations to the bank, and this in turn weakened the bank.  Thus the credit both of the banks and their customers became impaired, and their solvency endangered.  The banks, fearing inability to redeem, dared not expend their circulation, and men in business, being unable to obtain money, could not meet their obligations.  It became a contest between the borrower and the lender.  Each party was powerless to relieve the other.  They contended against each other, a merchant failing here and a bank stopping payment there, until the business public triumphed over the banks by compelling them to suspend specie payments.  The banks violated their obligations to redeem to-day that they might fulfill other obligations to-morrow.  They were dishonest that they might be honest.

This was the case in 1837, in 1857, and again early in the rebellion.  The failure of the banks to redeem diminished the value of currency and was an injury to business, but that injury was partially compensated by expansion which followed.  A depreciated currency was better in such emergency than none.  But the theory that banks, under such a system, or under any that can be devised and put in operation by the Legislatures of thirty-seven States, can expand and have ability to redeem their circulation at all times in coin, has proved and ever will prove a fallacy.

In view of the embarrassments in 1857, President Buchanan, in his message to Congress, expressed similar views when he said:

"These revolutions must continue to occur at successive intervals so long as the amount of bank loans and discounts of the country shall be left to the discretion of fourteen hundred irresponsible banking institutions, which from the very law of their nature will consult the interests of stockholders rather than the public welfare."

The Constitution of the United States gives Congress power to coin money and regulate the value thereof.  It prohibits the States from coining money, and from making anything but gold and silver legal tender in payment of debts."  It has been generally understood that the power to coin money gives authority to form and stamp metals and to fix upon them a value at which they shall be received in liquidation of all debts which may be incurred in our own country.  The metal has an intrinsic value, but the stamp and the law give it a commercial value above its intrinsic value.  This is the power which Congress exercises and has ever exercised under the clause of the Constitution to which I have referred.  But while the Constitution gives Congress power to coin or stamp money and to regulate the value thereof, it does not declare that the stamp and value shall be placed upon metals only.  So far as I am able to discover, that instrument gives Congress as clear a right to stamp paper, and to determine that the commercial value thereof shall be ninety-nine per cent. above its intrinsic value, as it does to stamp pieces of metal and declare their commercial value to be one per cent. above their intrinsic value.  I have not legal acumen sufficient to put any other construction upon that instrument;  and if it is correct, then the clause which prohibits the States from coining metals and putting them in circulation as money must also prohibit the States from stamping paper and putting that in circulation as money.  I have for years entertained the opinion that banks of issue under the authority of the several States were never contemplated by those who framed our national Constitution, nor authorized by that instrument.  The right to issue money is one of the highest privileges which belongs to the sovereign, and should never have been exercised except under authority of the national Government.

Mr. Buchanan, in his message to which I have referred, says:

"The framers of the Constitution, when they gave to Congress the power "to coin money and to regulate the value thereof" and prohibited the States from coining money, emitting bills of credit, or making anything but gold and silver coin a tender in payment of debts, supposed they had protected the people against the evils of an excessive and irredeemable paper currency.  They are not responsible for the existing anomaly that a Government endowed with the sovereign attribute of coining money and regulating the value thereof should have no power to prevent others from driving this coin out of the country and filling up the channels of circulation with paper which does not represent gold and silver.

"It is one of the highest and most responsible duties of Government to insure to the people a sound circulating medium, the amount of which ought to be adapted with the utmost possible wisdom and skill to the wants of internal trade and foreign exchanges.  If this be either greatly above or greatly below the proper standard, the marketable value of every man's property is increased or diminished in the same proportion, and injustice to individuals as well as incalculable evils to the community are the consequence.

"Unfortunately, under the construction of the Federal Constitution which has now prevailed too long to be changed this important and delicate duty has been dissevered from the coining power and virtually transferred to more than 1,400 State banks acting independently of each other and regulating their paper issues almost exclusively by a regard to the present interest of their stockholders.

Here that distinguished statesman clearly expressed his judgment that the power to issue a circulating medium is attached to the power to coin money, and should never have been separated from it, and that the exercise of this power by the several States is such a separation, and a violation of our national Constitution.  But, fortunately for the future pecuniary interests of the people, the necessities of the Government forced Congress to assume its rightful power, in the exercise of which a banking system has been established, regulated and controlled by national authority, which has dried up and driven from circulation the notes of State banks of undetermined value, and given us a currency perfectly secure.  This security cannot be obtained by the legislation of the several States.

The bill proposes free banking.  It will open the business of banking to any and all persons who will organize associations in accordance with the provisions of law.  It will be as free as agriculture, or manufacturing, or commerce, and like those interests will be prosecuted in every section of the country where banking shall be needed and can be made profitable, but will be discontinued when ever the business shall fail of producing benefits.  The bill does not limit bank-note circulation, nor require positive redemption in specie, but requires redemption either in United States bonds bearing interest, or in legal-tender notes which can be converted into interest-bearing bonds or in coin at the option of the banking association, either one of which is at times better than bank notes.  Enforce such redemption and you will prevent undue expansion.

Much has been said and written about the necessity of redeeming bank and legal-tender notes in coin.  Whether it can be done so as to benefit the public is a practical question.  The honorable Secretary of the Treasury says:

"There are two effectual and certain ways of placing the country in a condition when specie and paper will possess the same commercial value.  By diminishing the amount of paper in circulation the difference between the commercial value of paper and coin will diminish, and by pursuing this policy the difference will disappear altogether.  All legislation limited in its operation to the paper issues of the banks and of the Government, whether bearing interest or not, and which in its effects shall tend to diminish the market value of coin, will be found, upon analysis, to contain a plan for contracting the volume of paper currency;  and all legislation so limited which does not contain such a plan will prove ineffectual.  Accepting this proposition, and believing that the country is not prepared to sustain the policy of contraction, it only remains for me to consider the means by which the value of our currency may be improved.  The basis of a policy of improvement must be found in a sturdy refusal to add to the paper in circulation until it is of the same value substantially as coin."

Which means, that we must wait until an increase of business shall bring about the result, or that we must contract the present volume of currency.  Accepting the proposition of the honorable Secretary as calculated to bring about specie resumption, I would not adopt either measure as a remedy for our financial embarrassments.  The idea that the business of the country will increase so that with the present limit of circulating notes they will appreciate so as to be equal in value to coin cannot, in my judgment, be realized until this generation of business men shall become crippled and pass away to give place for another.

But an increase of business will require an increase of currency or of coin, especially in the producing sections of our country, and the policy that will increase our productions and sustain our business may postpone the day of specie resumption.  The experience of more than three quarters of a century furnishes evidence that we have often exerted our energies until they have been nearly exhausted in order to maintain a system of specie payments which as yet has been only intermittent.  Who is so credulous as to believe that our currency will be restricted even to its present volume against the clamor for an increase every time speculators lock up money, or so long as men embarrassed by such operations can influence the Government to exercise s doubtful power for their relief ?

I do not claim that the proposed bill will be a specific for all evils connected with banking and business.  Embarrassments are as incidental to commerce as is friction to machinery, and while they cannot be wholly removed they may be diminished.  The bill will not create capital.  It will not prevent banks from becoming insolvent, for it will have no power to make bank directors honest or to endow them with common sense.  It will not furnish a redeemable currency of equal value in all parts of the country.  No banking system can.

The value of currency will diminish in proportion to the cost of transmitting it to the place of redemption.  The business of exchange becomes involved, and exchange cannot be made without transportation and cost.  If a traffic in grain takes place between two sections of the country and on in adjustment of accounts it is found that one section owes the other a thousand bushels of wheat, that balance must be paid by the transportation and delivery of the wheat.  That will cost something.  That cost will be the cost or value of exchange.  It will make no difference with the principle whether you pay the balance in wheat or in that which represents its value;  but it will cost less to transmit a bill of exchange drawn against some other commodity than it will to transport the wheat.  If a banknote is redeemable in that which is of more value to the holder than the note itself, then such a note is not worth as much at a distance from the place of redemption as that with which it is to be redeemed by the cost of returning it.  Express charges for returning notes are proof of the statement.

The internal commerce of the nation does not absolutely require specie resumption.  That is desirable, but we can prosper without it.  In looking over the country I notice its marvelous progress, and when I see that industry has been richly rewarded and that nearly every branch of business has been productive of profit during the past five years, I am not so ready as I have been to curtail the currency by an arbitrary statute for the sake of deceiving the people with the old idea that banks can always maintain specie payments.  They have not done it heretofore, for when the pressure came they were no more held by their obligations to redeem than was Samson held by the green withes of Delilah.  Nor am I willing to wait in a state of inactivity for business to increase until it shall make coin and paper of equal value.  I would lay aside a theory which in times of great commercial embarrassment has furnished no relief, and try the more excellent and practical measure of redeeming circulation in United States bonds as well as in coin.  There is now no redemption until a bank becomes insolvent.  The holder of a bank-note wants something better than the note.  He presents it to the bank for redemption, and is paid with a United States legal-tender note.  He presents that to the United States Treasurer for payment, and is paid in another legal-tender note of the same value.  He has secured an exchange of promises but has gained nothing, and unless he can get something better than his note he will keep that and make the best use he can of a depreciated currency.  He is entitled to coin, and if in consequence of difficulties arising from the recent rebellion or from any other cause the Government and its institutions are unable to meet such obligations, the Government should adopt measures which will come nearest and which will lead most rapidly to their fulfillment.  If they cannot redeem their promises in coin, the standard of value, they should redeem in that which is of more value than the old promise, and which in value comes nearest the standard.  The bill proposes to do this.  It provides that if the Government and banking associations cannot redeem in coin they shall redeem in United States interest-bearing bonds, which are better than bank or legal-tender notes, and which, under the operations of this bill, will approximate nearer to the value of coin than any other securities.

The bill prohibits banking associations from paying interest on deposits.  Banks are organized mainly to loan and not to hire capital.  Deposits accumulate in banks located in business centers at a time when trade is inactive, and if interest is paid on them they must be loaned.  In a dull season loans must be pressed in order to save from loss.  The deposits are subject to draft at sight, and in order to meet such demand the loans are made on call.  When a call is made unexpectedly, as in times of financial excitement, it obstructs the channels of regular business and often proves a public injury.  I know of no two practices by banks which are so injurious to enterprising men whose chief capital consists in their talents and their character as making loans on call and paying interest on deposits.

But these deposits are usually to the credit of banks in the interior, and are available both for discounts and for the redemption of their circulation.  To deprive them of interest would deprive them of a profit, unless they can derive a corresponding benefit in some other way.  That benefit can be secured by investing their deposits in United States interest-bearing bonds, which will also be available for discounts and for the redemption of their notes.

Although the bill permits free banking, yet it insists upon and provides undoubted security, for the holder of every bank note.  The securities will be the same as are now required, but their market value will undoubtedly be enhanced by the provisions of this bill.  Every bank note will be secured by a bond of the United States.  The holder of the note has an interest both in the note and in the bond.  The bond is a mortgage on the resources of the people.  The holder of the note is one of the people, consequently the bond is a debt against him.  His relation to the bond makes him a mortgageor, and his ownership of the note makes him a mortgagee.  As a mortgageor he can cancel his obligations by using his note to pay big proportion of taxes levied for the payment of the bond.  As a mortgagee he is secure from loss and undue burdens by having the whole people as co-partners and with him pledged to pay the bond.  It would seem difficult to provide more perfect security than this, for it includes the integrity of the people and the entire revenues of the nation.

The bill requires the Treasurer of the United States to redeem legal-tender notes in bonds bearing interest at the low rate of three and sixty five hundredths per cent. per annum.  An objection is at once raised that the banks will exchange the United States notes which they hold as a reserve for bonds, the interest on which will increase the expenses of the Government.  I have a reasonable degree of confidence that such increase will be more than compensated by the enhanced value of Government bonds, and by the lower rate of interest at which future loans may be wade.  But whether it will prove so or not, the position is not in harmony with the claims of justice.

During the recent rebellion the Government made a forced loan.  As a measure necessary to save the life of the nation the act was justifiable;  but after the war has ceased, and we have had eight years of peace, it is time that that loan was equitably adjusted.  It has ever been regarded as an act of oppression to force a loan from the people in time of peace.  This Government is to-day guilty of this wrong.  This bill proposes a check to this injustice and oppression.  If the Government does not meet its obligations at maturity, it is reasonable and right that it should pay its creditors for forbearance.  The Government in this and in every respect should be governed by as high a standard of equity and justice as the citizen.

The Government will also be required to pay such bonds on demand in legal-tender notes.  It may be said and urged as an objection that no one will demand notes of the Treasurer for bonds, because the holder could obtain more notes in the open market than of that officer.  That is true to-day, and while no demand is made no injury will be sustained.  The bill at first will cause a demand for bonds in exchange for legal-tender notes, but when the time shall come that an increase of currency will be demanded for business purposes the tide will change, and notes will be in demand for bonds.  Bonds will be exchanged for notes, and notes for bonds.  This interchangeability, taken in connection with free banking and central redemption, makes provision for an elastic currency ---a necessity long felt but never secured.

The business of the country is never stationary, but is always contracting or expanding.  When it contracts, bonds will be in demand;  when it expands, currency will be in demand.  Whenever it shall contract, a man may have a surplus of capital in his business for which he will seek a temporary investment.  The bill offers him United States bonds bearing interest, and gives him the privilege of taking back his capital whenever he shall require it.  The certainty of receiving it whenever demanded will make it for his interest to take and hold the bonds until his necessities for currency are greater than his necessities for interest.
---[every other tool of business is allowed to sit idle when not used;  no one renting out his tools;  so why should cash on hand not rest ?  only money sharks want the unit of account in constant spinning]
On the other hand, the business of the American people will vibrate toward the other extreme.  Agricultural products must be moved, labor on unsold manufactures must be paid for, stocks of merchandise must be carried over a dull season, and cornering speculations must be prevented without depending upon adventitious aid from the Treasury Department, which, if rendered, will in the end prove to be unnatural, impolitic, and inadequate.  This will require more currency.  If the demand shall be so pressing that notes will be of more value than bonds, then men can obtain them according to their ability.

Money is the power that moves the commerce of the nation.  No Senate can determine the amount that will be required until it can determine the nature and the amount of business to be transacted.  This bill does not propose to limit either the power or the business, but to adjust the amount of the one to the necessities of the other upon automatic principles so as to make use of all that shall be necessary and no more.  It will act like the regulator of the throttle-valve attached to a steam-engine.  When the load which the engine is to move is heavy, the valve opens and the steam presses upon the piston with sufficient force to carry it;  when the load is lessened, the valve closes and the power is not wasted.  So when business increases it will open the channels through which currency will flow so long as it shall be required, and as business contracts it will return to the vaults of your banks.  The exchange of bonds for notes or of notes for bonds will cause no excitement and produce no panic or alarm, but will meet the ever-changing conditions and demands of business, whether they affect internal trade or foreign exchanges.  There will be no conflicting interests, but the Government and the banks and the people will work in harmony to promote general prosperity.

Under the operations of this bill United States bonds will be in demand as a basis for bank-note circulation, for bank reserves, for bank-note redemption, and for both temporary and permanent investments.  This demand will of necessity increase their value, and coin will fall by its own weight.  The commercial value of bonds and of coin will lie in lines contiguous to each other, or so near and so nearly parallel, from season to season and from year to year, that the bill-holder will be able to convert his notes into bonds and his bonds into coin with the least possible loss.  Bonds and notes and coin will soon crystalize into a shape that will determine how low the interest can be reduced on bonds that will command par in coin, and prove that notes which can be converted into interest-bearing bonds will at times be worth more than coin.  Again, this increased demand for bonds will be for the home market and save a large annual drainage of coin, which would otherwise go to pay interest abroad.

The bill, if its provisions shall be carried out, will also establish our system of banking so firmly upon national obligations as to render the payment of the principal unnecessary, and relieve the present generation of those heavy burdens of taxation which it has borne for years past.

Mr. President, I am not an advocate for an inflated, irredeemable currency.  It would overwhelm every industrial interest, and bury them in ruin.  There should be no expansion without provision for positive redemption.  I plead for an elastic currency, and as there is no reasonable prospect of obtaining such a currency convertible into coin within the senatorial life of any number of this body, I have introduced this bill, which in my judgment contains provisions that will bring the currency nearer to a specie basis than any measures which have yet been proposed.  They are practicable measures, which, if incorporated into a public act, will increase the value of national securities, reduce the rate of interest thereon, and give us an elastic currency redeemable in that which will approximate the value of coin more closely and maintain that value more uniformly than any other securities.  Try them.  They will produce no disturbance and cause no alarm in financial and business circles, but their influence will be as imperceptible and yet as real as the morning light which ushers in the perfect day.

The Presiding Officer, (Mr. Sherman, in the chair.) The question is on the motion of the Senator from Connecticut to refer the bill to the Committee on Finance.

The motion was agreed to.