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the direction of the Treasury. At the close of business on Monday, the second day of January, 1879, this message came to the Secretary from the office of the Sub-Treasurer in New York : “$135,000 of notes presented for coin and $400,000 of gold for notes.” By 1887 our Treasury was richer in gold than any other in the world. Down to 1892 the gold movement was toward this country. The influx was so constant and so well assured that a depleted reserve was a thing undreamed of. It was realized, however, when conditions supervened which would have caused it under any possible currency system, and neither our greenbacks nor our banking system had any more agency in bringing it about than had the Turkish massacre of Armenian Christians.

Under conditions of commercial freedom and while the normal operation of the laws of exchange are uninterrupted, the distribution of gold among the gold standard countries is effected chiefly through the agency of price. If there is a dearth of gold in one country, the contraction of the money volume causes a fall in prices and a rise in interest which stimulates exports and attracts gold to replenish the stock and restore the equilibrium. This is the simple theory time out of mind, promulgated by political econoinists.

This automatic method of securing to each country its share of money may in practice undergo modifications due to modern extension of credit, the collection of customs duties, and the difference in the situation of debtor and creditor nations; but these considerations may be omitted for the present.

Under the modern régime of banks and credit currency, most nations find it convenient to regulate their gold reserve to some extent by artificial means, and their banking systems have been modelled with that end in view.

The Bank of England may stand for the European type, as far at least as its mode of guarding its reserves is concerned. Under that system this is the sequence of events : First, unfavorable exchange; second, outflow of gold and depleted reserves ; third, raising of discount rates ; fourth, contraction of currency; fifth, fall of prices; sixth, favorable exchange and return of gold.

Those who support the proposal to relegate the issue of paper money and the control of redemption to the banks exclusively

point to the Bank of England as an example of the better way of protecting the gold reserve. But it is obvious enough that such a method would be wholly abortive in this country under our free banking system, because unsuitable to our conditions. To put it in practice would require that banks exercise unrestricted liberty in fixing discount rates, as the Bank of England does. This might result in as many different rates of interest as there are banks and, moreover, would abrogate all State laws governing interest rates, subject to which all discounting is done in our national and State banks.

But suppose we pass these obstacles, how could the banks meet a situation such as we experienced in the recent panic which depleted our reserves ? That was a situation not amenable to the normal operation of the laws of trade under which onfavorable exchange tends to work its own cure. In the midst of our trouble the trade balance was largely in our favor, but our securities held abroad came home for payment and turned exchange heavily against us. This unprecedented result was due to an unprecedented condition. Confidence at home and abroad was impaired in the stability of our standard and our ability to redeem our obligations in the money in which they were contracted. How such a condition came about I need not stop to inquire. In diagnosing a gunshot wound the surgeon does not care whether the gun was discharged by accident or design. That inquiry is for the prosecuting attorney. The condition existed, and we realized for the first time that the economic law which regulates the distribution of money under normal conditions is suspended under the pressure of shattered credit and confidence, and that in such case the rate of discount does not control the flow of gold. No rate of interest will attract capital when there is a doubt whether the principal will

be paid.

Being a debtor nation, it was in accordance with every reasonable expectation that under such circumstances our securities held abroad should be presented for payment; and when similar conditions recur similar results will ensue, and we will be again subjected to the alternative of borrowing gold or suspending gold payments. No scheme of banking, no form of currency, and no mode of redemption can avert it.

Our annual foreign liability outside of our trade account and

unregistered in custom-houses amounts, it is believed, to $300,000,000, made up of the following items : Interest on American securities

$200,000,000 Expenditures of American travellers abroad..

75,000,000 Freights and insurance.

36,000,000

$311,000,000 Does any one in a lucid interval believe that we could continue any length of time to pay such a balance in gold ? Under normal conditions a large proportion of it would be reinvested or paid in exports, bat when the balance is increased by large amounts of securities returned, we have absolutely no recourse except to borrow the gold, or refuse to pay, or contract our currency until prices fall low enough to make our foreign creditors prefer nur goods to our gold. It is estimated by well-informed persons that Europe holds $5,000,000,000 of American securities. If we should again yield to the solicitation of the wild and weird money vagaries which afflict a portion of our people, and confidence abroad is again shaken, we cannot expect to escape another inundation of securities which will expose us to the peril of a suspension of gold payments. When that event occurs, which we devoutly pray the good sense of our people may avert, and the question is exigent whether we shall borrow gold, or refuse payment, or lower the price of our goods and ship them off to liquidate our pressing obligations, by whom shall a question of such transcendent moment be decided, by the government or by the private banking corporations ? I think the united acclaim of the American people will answer : " Let the government assume the duty, and hold on to the means of deciding a matter affecting the interests of all the people and the honor of the nation.”

But it is saggested that the banks are better adapted to the regulation of our finances than the government, and that they have facilities for obtaining gold that the government does not enjoy. Is that true? In a crisis such as we have passed through, when gold had to be borrowed or bought, how could the banks have obtained it and distributed it in the requisite parcels to supply all banks that needed re-enforcement? Their credit is inferior to that of the government. They, taken singly (and they are independent of each other), are weak in influence and limited in means. They can issue no bonds that will command the world's gold. They have nothing to give but

commercial assets which cannot be exchanged for gold at a time when people are keeping their yellow metal in safe deposit vaults. I recall an instance cited before the Banking and Currency Committee, in which one man had a deposit of $240,000 in gold in a safe deposit vault, and others as large amounts as $10,000, and $50,000. Banks have no means of obtaining gold under such circumstances. But the government in an exigency can command gold from safe deposit vaults, or from the four corners of the globe, as long as the credit of the nation is good. With the reserve parcelled among 4,000 or 10,000 banks, as the case may be, with an export demand falling not ratably upon each, but unequally, the bank that could not meet the draft would suspend ; that would cause others to refuse payment. When the strain was on one section the banks in another would be reluctant to afford relief lest the stress should reach them the next day. The result would be that one at a time, and most likely in rapid succession, they would refuse gold payment. Our history is not without instances of specie suspension, more or less general throughout the country, when the banks were conducting our finances, and when conditions were much more favorable than have existed in the last four years. It is worthy of mention and a striking encomium on our currency system that the United States is the only debtor nation which is able to maintain the parity of all its money. I do not doubt that, but for the government's control of the agencies of redemption through the greenbacks, in the last four years we would have witnessed a most impressive if not distressing demonstration of the feebleness of banks in such a crisis, for while we cannot say it is demonstrably clear, yet the antecedent probabilities strongly favor the assumption, that they could not have maintained gold payments under the pressure of conditions then existing.

Assuming for the purpose of the argument that the banks without government aid could maintain gold redemption under normal conditions by the regulation of discounts, what would the operation be in practice? They would raise the rate of discount, curtail loans, contract the currency and lower prices so as to stimulate exports and produce favorable exchange. No other mode of inviting the return of gold has been advanced by the friends of an exclusive bank currency. We would certainly deplore the necessity of obtaining gold by that process, for it in

volves the reduction of American wages excepting as they are protected by defensive duties. But if the currency must be contracted and prices lowered in order to secure the requisite amount of gold, would it not be preferable for that operation to be conducted under government supervision through the agency of the greenbacks? It would be more uniform in effect and less incident to shocks and local disturbances.

It is, moreover, easy of accomplishment without contravening any law or policy of the government as long as we have an adequate revenue; for the Treasury could retain the green backs in its vault temporarily, using them when conditions admitted of it to exchange for gold or to reduce the debt. In short, the greenbacks in connection with an adequate revenue are an agency in the hands of the government for the control within limits of the conditions which effect the movement of gold. So that whether we obtain our gold by borrowing, or by the slower process of contracting our currency and lowering prices so as to invite it from abroad, the government enjoys superior facilities for either operation.

From another point of view, the case leans strongly in favor of the green backs. A demand for gold to liquidate foreign balances must be met, whether the metal is in the vaults of the Treasury or those of the banks. Our debts must be paid in gold or goods. It is desirable from a business point of view to hold our reserve in such form as to make it most effective in meeting proper demands. It is consonant with reason and every man's observation that a consolidated reserve is more effective than a distributed one.

John Stuart Mill argues with great force that there ought to be a central establishment which is alone required to pay gold, the others being at liberty to pay their notes with those of the central establishment, the object being that there may be one body responsible for maintaining a reserve of the precious metal to meet any demand that could reasonably be expected to be made. This is the system of the United States, though it was not in existence when Mill wrote his great work on the Principles of Political Economy. It is also the English system. Our greenbacks sustain the same relation to our bank notes that the Bank of England notes do to the notes of the other English banks. This indirect or circuitous method of gold redemption has its

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