A HISTORY OF CURRENCY IN THE UNITED STATES
THE MACMILLAN COMPANY
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A -HISTORY OF CURRENCY
IN THE
UNITED STATES
WITH A BRIEF DESCRIPTION OF THE
CURRENCY SYSTEMS OF ALL
COMMERCIAL NATIONS
BY
A. BARTON HEPBURN, LL.D.
it
CHAIRMAN OF THE BOARD OF DIRECTORS OF THE CHASE NATIONAL BANK
FORMERLY COMPTROLLER OF THE CURRENCY, EX-SUPERINTENDENT OF
BANKS OF THE STATE OF NEW YORK, EX-PRESIDENT OF THE
NEW YORK CHAMBER OF COMMERCE, AND EX-PRESIDENT
OF THE NEW YORK CLEARING-HOUSE
" It is only by a sound system of Money and Banking that a Nation can Achieve Real Financial Independence and Power "
THE MACMILLAN COMPANY
1915
All rights reserved
v\C<
5ol
•>
COPYRIGHT, 1903 AND 1915, BY THE MACMILLAN COMPANY.
Set up and electrotyped. Published September, 1903. Rerised and rewritten edition September, 1915.
MAIN LIBRARY
Kotteoott
J. 8. Cmhing Co. — Berwick A Smith 0«. Norwood, MMS., U.S.A.
PREFACE
FOR three centuries this continent has been inhabited by white men. The financial experience that accompanied the development of the territory now comprised within the United States, from an aboriginal wilderness to its present proud posi- tion in the sisterhood of nations, contains much that is crucial and many severe lessons. In the beginning there was a period of barter and trade during which commodity paid for commod- ity. It frequently happened, however, that a man wishing to purchase goods did not have for exchange anything which the vendor desired ; this, and the difficulty of making change, in- spired the colonial governments to provide a currency and to give it a fixed value in trade and taxes. At first articles of real value that would go without a government fiat were selected, such as beaver skins, musket balls, corn, etc. ; later, printed money with government fiat was resorted to, in many cases with unfortunate results. At the very threshold of our existence our forebears, crudely, but nevertheless conclusively, illustrated the superiority of a currency unit which possessed commercial value and would circulate because people wanted it, over a currency which represented the ipse dixit of government.
All of the original thirteen colonies had the same environ- ment and the same experience. Printing money was very easy and seemingly inexpensive, since it avoided taxes at the moment. It was in consequence carried to extremes, depreciated and was largely repudiated when it came to final redemption. This cur- rency suffered the vicissitudes inherent in its nature, precisely as did the French assignats under John Law. The Conti- nental Congress duplicated the experience of the colonies with
vi PREFACE
fiat money, not because they did not realize the danger, but because the Congress had no power to levy taxes and hence no power to borrow money. Apparently no other resources were available, coherent action by the separate colonies, with the imperfect means of communication, being impossible. Again the same issue was raised, following the Civil War ; the green- back party, which favored paying the national debt in legal tender paper money, — compelling the holders of interest-bearing obligations of the United States to accept non-interest-bearing obligations in full payment and satisfaction, — obtained a very general support and threatened the honor of the government. The same principles, or want of principles, were presented in the free-silver campaign that followed the greenback craze ; the purpose was to take silver .and coin it into dollars whose face value was largely in excess of its commercial value, the differ- ence, or seigniorage, so called, representing the fiat of the gov- ernment. This issue was settled by the gold standard act of 1900. Fortunately, all the schemes of dishonest finance have been signally defeated by the people and now we are reaping our reward. We stand forth , preeminently as a nation whose credit firmly based upon the gold standard is unimpaired, whose exchange is at a premium the world over, presaging a period of a world-wide financial growth and development. The story of our financial history, from the early beginnings to the very superior Federal Reserve system upon which we have just en- tered, has all the quality and charm of romance, alike interesting and instructive. This experience should be of great value as a guiding influence in aiding us to fortify our present commer- cial standing and banking power.
This country is governed by public sentiment, which, when properly informed, may be trusted to reach a wise conclusion, as clearly shown in the defeat of greenbackism and the free- coinage-of -silver propaganda. ^ My ^im is to place :. before the public all the essential facts as to currency, coinage, and bank- ing, from the wampumpeage currency of the colonies to the
PREFACE vii
notes of our Federal Reserve Banks, together with the indis- pensable political history connected therewith.
I have, indulged in no attempt at fine writing, but ha^fi en- deavored to recite the facts clearly and succinctly in proper sequence. Few have access to economic libraries covering the period and the subjects treated in this volume, and few could conveniently make use of such libraries even if at hand. This volume is a busy man's library, each subject being fairly treated, while the Bibliography points the way to further and more extended research. In the chapter on Colonial Currency I have made use of the experience of Pennsylvania, because accurate data was easily obtainable/ and ilso because Pennsylvania's experience covered all phases of the subject. I have also made large use of the experience of Massachusetts, and to a lesser extent Virginia, Rhode Island, New Jersey, and the other colo- nies, thereby fairly covering the subject and bringing out its obvious lessons.
The chapter on Continental Currency, from the confederation . until the retirement of this currency in 1793, is very complete.
The basis of this book is " The Contest for Sound Money," published in 1903 ; but that earlier work has been rewritten and supplemented so that as now issued it covers the period from the adoption of the United States Constitution down to the present time. It deals fully and explicitly with our coinage laws and coinage by our mints; it gives the complete history of the national banking system, and contrasts and compares the banking systems of the various states ; it relates the history of the legal tender notes and discusses them as a substitute for taxation, touching upon the political history of the period inas- much as the question of the legality of these notes was inade a political issue; the history of the silver controversy is fully told, especially from the so-called "crime of 1873," when the silver dollar was demonetized, down to the gold standard act of 1900; the various international efforts in favor of the bi- metallic standard are likewise set forth.
viii PREFACE
The panic of 1907 showed the imperative necessity of improv- ing our credit and currency systems. The National Monetary Commission — Aldrich Commission — dealt with the subject ex- haustively and procured, reported to Congress and published to the country full data of the laws and practices of other nations as well as our own, and laid the foundation for action. The last Congress, under President Wilson, acted, and the result is the very satisfactory Federal Reserve Law. Our national experience leading up to this law and the influence which focal- ized in its enactment are fully treated, as well as the abnormal conditions presented by the European cataclysm in 1914, and the problems and opportunities offered to the United States.
There is an introductory chapter describing the Currency Systems of all the principal commercial nations and explaining the emergency measures adopted by European nations to meet the exigencies of the war of 1914. This chapter will enable the reader to contrast or compare the currency and credit facilities of other nations with those of the United States, and for that reason seems to be pertinent and to give added value to this volume.
tr-vi
CONTENTS
CHAPTER I COLONIAL CURRENCY
PAGE
Historic Forms of Currency. Forms of Merchandise as Currency. Wampum. Colonial Paper Issues. Massachusetts Currency. History of Pennsylvania Currency 1
CHAPTER II CONTINENTAL CURRENCY
Early Continental Paper. Finances under the Continental Congress. Depreciation and Repudiation. Currency under the Confederation. States' Debts. Cooperation of France 13
CHAPTER III SOUND MONEY IN NATIONAL POLITICS
Theories of Sovereignty. Slavery and State Rights. Federal Paper Money. Finance and Politics. Changing Views of Currency ... 23
NOMENCLATURE 32
CHAPTER IV THE COINAGE SYSTEM, 1776-1789
Colonial Systems. The Continental System under the Articles of Con- federation. Reports on Coins and the Establishment of a Mint. Robert Morris's Plan. Jefferson's Plan. Adoption of the "Dollar" as the Unit
Mint Act of 1786. The Constitutional Provisions 33
ix
x CONTENTS
CHAPTER V THE COINAGE SYSTEM, 1790-1829
PACK
Hamilton on the Establishment of a Mint. The Coinage Act of 1792. Decimal Coinage. The " Dollar " the Unit. Ratio 15 to 1. Foreign Coins in Use. Their Valuation and Legal Tender. Evident Undervaluation of Gold. Specie Exported. Reports to Congress upon the Subject. John Q. Adams. Crawford. Change of Ratio discussed. Efforts to retain Gold . 41
CHAPTER VI THE COINAGE SYSTEM, 1830-1860
Ingham's Report. Gallatin's Views. Sanford and White Reports. Ben- ton's Fight for Gold. Southern Gold Mines. The Act of 1834. Ratio 16.002 to 1. Resulting in Establishment of Gold as Standard. The Act of 1837, corrective merely. Ratio 15.988 to 1. Great Increase in Gold Production. Export of Small Silver Coins. Steps to Reduce their Value. The Act of 1853, making Fractional Coins Subsidiary. Increase of Specie. Gold Standard contemplated. The Act of 1857, finally abolishing Legal Tender of Foreign Coins. General Review 54
CHAPTER VII PAPER CURRENCY, 1775-1811
Colonial Currency. Continental Currency. Legal Tender. Inflation and Great Depreciation. State Banks established. Bank-notes. The Constitution. Opposition to Paper Money. Hamilton's Report on a Fed- eral Bank. The Constitutional Contest. The Supreme Court on the Con- stitutionality of a United States Bank. The First Bank of the United States. Its Function and History. Recharter defeated. Banks owned by States . 71
CHAPTER VIII PAPER CURRENCY, 1812-1836
Inflation of Bank Currency. War of 1812. Crawford on Currency. Sus- pension of Specie Payments. Treasury Notes. Dallas and Madison favor Central Bank. Long Discussions. The Second Bank of the United States. Provisions of its Charter. Difficulties at Outset. Investigations by Con- gress. Reformation proposed by Cheves. Violent Contraction of Currency. Suffolk Bank System. Safety Fund Bank. United States Bank's Salutary Influence on State Banks. Its Great Usefulness. Jackson's Virulent Antagonism. " The Bank War." Recharter defeated. Removal of Deposits. State Bank Inflation. Distribution of Surplus. Liquidation of the Bank. Massachusetts Banks
CONTENTS xi
CHAPTER IX PAPER CURRENCY, 1837-1849
PACK
State Banks again Supreme. Speculative Era. Panic of 1837. Van Buren's Subtreasury Plan. Treasury Note-issues. Subtreasury Act of 1840. Constitutionality of State Bank-notes. Reaction to Sounder Ideas. Establishment of Bond Deposit System. Free Banking. Typical State Banks. Repeal of Subtreasury Act. Defeat of Plan for Third Bank of United States. Tyler's Plan. The Subtreasury Act of 1846. Mexican War. Treasury Notes again. Banking Power of Sections . . . . 131
CHAPTER X PAPER CURRENCY, 1850-1860
Development of the Reformed Systems. Clearing-houses established. Western Banks not greatly improved. Disreputable Condition of the Cur- rency. Influence of Subtreasury System. Inflation of Securities and Cur- rency. Specie Payments again suspended. Treasury Relief. Buchanan on Banks. More Treasury Notes., Circulation violently contracted. Salu- tary Reaction. Banks and Currency in 1860. General Review. Banking Power by Sections. Several Systems compared. Evils of Subtreasury. Shuffling Policy respecting State Banks. Development of Government Note Plan 161
CHAPTER XI LEGAL TENDER NOTES, 1861-1865
The State of the Treasury in 1861. Chase's Administration. Demand Note-issue. Suspension of Specie Payments. National Bank-note System advocated. First Issue of United States Notes. The Legal Tender Feat- ure. Conversion into Bonds. Temporary Loans. The Second and Third Issues of Notes. Repeal of Convertible Clause. Interest-bearing Notes. The High Premium on Coin. National Bank System established. Chase's Policy reviewed 179
CHAPTER XII LEGAL TENDER NOTES, 1866-1875
McCulloch's Administration. Retirement of Notes after Close of War. Congress approves., Subsequently repents and checks Cancellation. Vol- ume of $356,000,000. Gold Certificates. Rise of " Greenback " Element President Johnson's Position. The Public Credit Act of 1869. National Banks attacked. Grant and BoutwelFs Administration. Refunding the
xii CONTENTS
FACK
Debt Currency Certificates. Panic of 1873. More Notes issued. In- flation and reaction. Resumption decreed, 1875. Gold Reserve provided for. Chronology of the Greenbacks 205
CHAPTER XIII LEGAL TENDER NOTES, 1876-1890
Attempted Repeal of Resumption Act Growth of the "Greenback Party." Silver Certificate Issue. Resumption quietly effected. Sherman's Policy. Crisis of 1884. Gold Reserve threatened, 1885. Attempts to in- crease Note-issues. The Treasury Surplus. Manning and Fairchild in the Treasury. Windom and the Treasury Notes of 1890. Further Inflation . 228
CHAPTER XIV LEGAL TENDER CASES IN THE SUPREME COURT
The Question of Taxing Notes. Historical Statement The First Legal Tender Case. Chase's Opinion as Chief Justice. Dissenting Views. The Decision of 1871, upholding Constitutionality. Chase's Dissenting Views. Comments on the Decision. The Third Decision. National Power over Money Supreme. The Dissenting View. Bancroft's Comments . . 254
CHAPTER XV SILVER QUESTION, 1861-1878
Erroneous Views on Money. Status of Silver during the War. Interna- tional Conference of 1867. Germany demonetizes Silver. Mint Reform Measures discussed. Reports to Congress. History of Act of 1873. Omis- sion of Silver Dollar. The Trade Dollar. Silver Production increases. Fall in Price. Sectional Agitation for Rehabilitation of Silver Dollar. The Silver Commission of 1876. Free Coinage proposed. The Bland- Allison Act of 1878. The Hayes Veto. Silver Certificate Inflation. International Conference of 1878. Propositions considered and rejected .... 268
CHAPTER XVI SILVER QUESTION, 1879-1890
Silver Agitation continues. Hayes Administration against Silver. Con- gress divided. Silver Inflation goes on. International Conference of 1881. The Gold Reserve threatened. Treasury urges Suspension of Coinage. McCulloch and Manning in the Treasury. Small Silver Certificates extend Use of Silver. Gold Reserve grows. Fairchild's Measures. British Silver Commission. Silver Certificates displace Bank-notes. Windom's Silver Note Plan. « Sherman Law " of 1890 . ... 287
CONTENTS xiii
CHAPTER XVII NATIONAL BANKING SYSTEM, 1861-1875
PAGE
Exigencies influencing Change in Bank-note System. Inefficient Act of 1863. Amended Act of 1864. Analysis and Discussion. Act of 1866, taxing State Bank-notes. Growth of the National System. Limitations checking Further Development. Opposition develops. Interest on De- posits. Reform Bills. Crisis of 1873. Act of 1874. Redemption by Treas- ury, eliminating Note Reserve. " Free Banking" under the Act of 1875 . 306
CHAPTER XVIII NATIONAL BANKING SYSTEM, 1876-1882
Increased Circulation. Knox's Reports. Bank Supervision. Green* backers oppose Banks. Interest Rates. Silver Certificate Issues and Con- traction of Bank-notes. "Lawful Money" interpreted. Act extending Bank Charters. Condition of Banks. Banking Power by Sections . . 321
CHAPTER XIX NATIONAL BANKING SYSTEM, 1883-1890
Crisis of 1884. Clearing-house Certificates. Bond Redemptions cause Contraction. Reforms suggested to increase Elasticity. Surplus Revenue in Banks. Stringency of 1890. Statistics of Domestic Exchange. Im- portant Growth of State Banks. Banking Power by Sections . . , 332
CHAPTER XX SILVER CONTEST OF 1896; 1891-18%
Inflation causes Gold Exports. Silver continues to fall. Free Coinage Advocates Active. International Conference of 1892. Movement for State Bank Currency. Treasury Deficits. Gold Reserve impaired. Crisis of 1893. Insufficiency of Revenue. Currency Famine and Auxiliary Currency. Silver Purchases stopped. Sales of Bonds to obtain Gold. " Coining the Seigniorage." Asset Bank Currency advocated. Morgan Bond Syndicate. Efforts to retire Legal Tender Notes. Bryan and Free Coinage. Sound Money League. McKinley's Election 342
CHAPTER XXI GOLD STANDARD ACT OF 1900
Silver Influence still Potent. Further International Negotiations. Gage on Gold Standard and Currency Reform. Indianapolis Monetary Conven-
xiv CONTENTS
PAG*
tion, its Comprehensive Measure of Reform. Activity of Gold Advocates. Spanish War Finances. Era of Prosperity. Gold Standard Law of 1900. McKinley reflected. Gage's Plan for Elastic Currency. Enormous In- dustrial Expansion. Money Stringency and Treasury Relief. Shaw's Policy and Recommendations. Silver Abroad 371
CHAPTER XXII DEFECTS OF THE OLD SYSTEM "AND PROPOSED REFORMS
Nature of Panics. Defects of Financial System. Clearing-house Cer- tificates. Emergency Currency Law. The Aldrich Commission. The Currency Commission Questionnaire. Answers of the American Bankers' Association Commission 387
CHAPTER XXIII
PROPOSED FEDERAL RESERVE ACT. NATIONAL BANK ACT
Federal Reserve Bill. Details of the Plan. Incongruities of the System. United States Bonds under the Bill. Cost of Exchange . . . .411
CHAPTER XXIV GENERAL REVIEW
Problem of Sound Currency. Hamilton's Views. Review of Legislation on Silver. Bank-note Issues. Legal Tender Issues. Legislative Inter- ference with Currency Supply. Politics and a Central Bank. National Banking System. Comparison with Other Nations 419
CHAPTER XXV GENERAL REVIEW AND THE FEDERAL RESERVE LAW
Federal Reserve Act. Gold Movements in 1914. Clearing-house Cer- tificates. Emergency Currency. Effects of European War. Gold Fund Committee. Cotton Loan Committee. Conclusion . . . 437
CHAPTER XXVI CURRENCY SYSTEMS OF OTHER NATIONS
Great Britain. British Colonies. France. Latin Union. Balkan States. Germany. Other European Countries, including Scandinavian" Union. Asia. South America. Central America 450
CONTENTS xv CHAPTER XXVII
PAGE
BIBLIOGRAPHY 479
APPENDIX
Act of July 13, 1866, Sec. 9 497
Act of March 26, 1867, Sec. 2 497
Act of January 14, 1875 497
Act of March 14, 1900 498
Aldrich Plan for Monetary Legislation 500
Federal Reserve Act 511
INDEX . 545
A HISTORY OF CURRENCY IN THE UNITED STATES
CHAPTER I
COLONIAL CURRENCY
AFTER the declaration of independence from Great Britain, the confederated colonies, through the Continental Congress, assumed to control national affairs, the conduct of the resulting war, the equipment and maintenance of the army, and the financ- ing of various national needs.
In order to properly understand and appreciate the history of the coinage and currency of the United States, it is neces- sary to recall the existing conditions in respect to money mat- ters at the birth of our nation, by presenting a brief history and characterization of the experience of the colonies in deal- ing with currency problems.
The original settlers upon this continent obtained a precarious foothold, some failing and some surviving. They were in the main very poor in purse ; the personnel was composed of those who fled from least desirable conditions in the hope of better- ment ; they brought little money, and from the outset the want of a currency to satisfy their meagre demands in trade was one of their great hardships. Barter was, of course, available, but to buy or sell and receive the equivalent in units of generally recognized value, was impossible, in the absence of a standard currency. Like all primitive peoples, they adopted primitive forms of currency.
Hume defines currency — "The instrument which men have
2 k 'tijsTORY OF CURRENCY IN THE UNITED STATES
agreed upon to facilitate the exchange of one commodity for another." It has been aptly said that "coin is to money as species to a genus" ; coin is usually the basis, but only a part of the circulating medium; various commodities at various times have been by law made currency.
The Latins measured the value of property in cattle ; Pliny tells us the first Latin coins were stamped with a cow. The Latin word pecus, meaning flocks or herds, thus came to mean money or property and gave us the derivative pecuniary. Homer tells us that the brazen armor of Diomedes was valued at nine oxen and the golden armor of Glaucus at one hundred oxen. Cur- rency has frequently been made from leather, notably by King John of France, who had each piece marked by a silver nail. Adam Smith in his " Wealth of Nations," tells us that iroiLJiails in a village in Scotland, driexLcod in Newfoundland, sugar in several of the West Indian islands, and hides in other countries, were substitutes for coin.
The present currency systems of all commercial nations are, for purposes of comparison, set forth in some detail in Chapter XXVI.
The early settlers had no mints save the earth that stored the precious metals, and no banks save the soil and the waters. Naturally they made currency of products derived from these sources. Fish, corn and especially peltry, which was abundant and eagerly sought by Europeans, were commonly used as cur- rency. Corn was used as a generic term, including all grain, even peas. Court fines were imposed in commodities. The fol- lowing quotations are taken from the colonial decrees and court records of Massachusetts : "Sir Richard Saltonstall is fined four bushells of malte for his absence from Court." 1 " Chickataubott is fyned a skyn of beaver for shooteinge a swine of Sir Richard Saltonstall." * "It is ordered that come shall passe for
1 Mass., Sept. 28, 1630; Felt, Massachusetts Currency, p. 14. 3 Id., June 14, 1631, p. 15.
COLONIAL CURRENCY 3
payment of all debts at the usuall rate it is solde for, except money or beaver be expressly named." 1 This made it legal tender.
In order to protect their coin and beaver skins, which were almost as valuable, "It is ordered that noe planter within the limits of this jurisdiction, returneing for England, shall carry either money or beaver with him, without leave from the Gov- ernor, under paine of forfeitinge the money and beaver so in- tended to be transported." 2 "It is ordered that hereafter farth- ings shall not passe for currant pay. It is likewise ordered, that muskett bulletts of a full boare shall pass currantly for a farth- ing a peece, provided that noe man be compelled to take above i2d att a tyme of them." 3 We also find this decree : "Whereas two former lawes, the one concerning the wages of workemen, the other concerning the prizes of comodyties, were for dyvers good consideracons repealed this present Court, nowe for a voy de- ing such mischiefes as may follow thereupon by such ill dis- posed persons as may take liberty to oppresse and wronge their neighbours by takeing excessive wages for worke, or unreason- able prizes for such necessary merchandizes or other commody- ties, as shall passe from man to man ; — It is therefore nowe or- dered y* if any man shall offend in any of the said cases against the true intent of this lawe, hee shall be punished by fine or imprisonment according to the quality of the offence, as the Court upon lawful tryall and conviction shall judge." 4
This was not a dead letter. "Joshua Huyes hath forfect V* for knyves, and iiiis VId for scythe, which hee solde for above mr* in the shilling proffitt." 5
Legislation to prevent extortion on the part of labor lends a sharp contrast to the trend of labor legislation at the present time. Governor Winthrop says, "I may report a passage
1 Id., Oct. 18, 1631, p. 16. 2 Id., Mar. 6, 1632, p. 16.
3 Id., Mar. 4, 1635, p. 20. 4 Id., Sept. 2, 1635, p. 20.
B Mass. Colonial Records, Oct. 5, 1635.
4 A HISTORY OF CURRENCY IN THE UNITED STATES
between one of Rowley and his servant. The master being forced to sell a pair of his oxen to pay his servant his wages, told his servant he could keep him no longer, not knowing how to pay him next year. The servant answered him, he could serve him for more cattle. 'But what shall I do,' saith the master, 'when my cattle are all gone?' The servant replied, 'You shall then serve me, and so you may have your cattle again.' " 1 The troubles incident to capital and labor are ever with us.
The Marquis Chastelleux after visiting the colonies, wrote : "The tobacco warehouses, of which there are a number in Vir- ginia, are under the direction of public authority. There are inspectors, nominated to prove the quality of the tobacco brought by the planters, and if found good they give a receipt for the quantity. The tobacco may then be considered as sold, those authenticated receipts circulating as money in the country. For example, suppose I have deposited 20 hogsheads of tobacco in Petersburg, I may go fifty leagues thence to Alexandria or Fred- ericksburg and buy horses, clothes or any other article with those receipts, which circulate through a number of hands before they reach the merchant who purchases the tobacco for exporta- tion." These receipts were not made to circulate as money by law, but having an intrinsic value, they did perform the office of currency from an early date almost to the nineteenth cen- tury.
The Indians along the seacoast used as currency wampum- peage, made from shells in the form of beads, brightly polished and very beautiful; in strings or ropes they were very orna- mental. There were two kinds, black, made from quohaug, and white, made from periwinkles. Both the English and the Dutch made use of this currency and the stress was so great that several times the colonies put a fixed value upon wampum
1 Winthrop, Vol. I, p. 220.
1 Travels in North America, Dublin, 1789, Vcl. II, p. 131.
COLONIAL CURRENCY 5
by law. In 1643 Massachusetts made it a legal tender for any sum not exceeding 40 shillings, fixing the value of the white beads at 8 and the black at 4 to the penny. In 1649 m Rhode Island black peage was fixed at 4 a penny. In 1658 all peage was fixed at 8 a penny, but white peage was receivable for taxes at only 6 a penny. The making of wampumpeage was an industry that appealed to the white man, the quantity was multiplied and the value was so greatly reduced that in May, 1662, Rhode Island forbade its receipt for taxes.
Prior to 1763 France was in possession of Canada, and until its acquisition by the English there was almost continual war between those countries, which of course involved their respec- tive colonies. Massachusetts made the first emission of paper money, in 1690, to pay her soldiers just returned from an expedi- tion to Canada. The issue presently depreciated to 145. to the pound and was called in. From that time forward, Phillips says, Massachusetts " continued to emit such sums as were needed for the Treasury, and once in a while to call in" for cancellation "a parcel by a tax." In 1714, they emitted a bank (as it was called) of £50,000. Massachusetts went beyond__all other colonies in the amount of her issues, perhaps because she surpassed all others in the volume of her business.1 Dr. Douglas estimates that in 1748 the following amounts of paper money emissions were in circulation in the colonies named :
Massachusetts £2,466,612
Connecticut 281,000
Rhode Island 550,000
New Hampshire 450,000
In December, 1748, Massachusetts received from England a large sum to reimburse her for expenses incurred in the war with France and Canada, and made arrangements to retire the
1 Historical Summarization of New England, by Dr. Douglas; see Phillips, Paper Currency, Vol. I, p. 108.
6 A HISTORY OF CURRENCY IN THE UNITED STATES
greater part of her outstanding circulation with these funds, supplemented by taxation. In a very few years thereafter her paper money circulation ceased. The price at which she retired her circulation is not directly stated, but from current quotations and from fair inference it must have been about 20 per cent.
In 1652, Massachusetts erected a mint in Boston, to coin silver of sterling alloy into i2d, 6d and $d pieces, the intrinsic value being less than British pieces by 2 d in the shilling.1 A law forbade other coins than these and British coins to circulate in the colony. ' An attempt was made to prevent the exportation of these coins, but in 1748 they had nearly all disappeared, driven out by the depreciated paper currency.
All the original thirteen colonies made use of paper money issues, called by somewhat differing names, but all possessing the same general characteristics, and all being the direct prom- ise to pay of the colony. This currency was usually made legal tender ; severe penalties were imposed for refusal to sell goods and receive payment in this paper money at par and the penalty for counterfeiting in many instances was made death.
The experience of Pennsylvania is typical of all the colonies. This state is selected, because as she began the issue of paper money at a comparatively late date (1723) the records are more complete, and her experience presents the best and the worst as well.
The fact that nearly all manufactured articles came from abroad and the colonists had nothing but raw material with which to offset such importations, made a strong demand upon the metallic money of the colonies for export in settlement of trade balance. This demand was in itself hard enough to con- tend with, and when the emission of paper money became gen- eral and depreciated so rapidly, it inevitably drove the better money abroad.
1 Phillips, Paper Currency, I, p. 109.
COLONIAL CURRENCY 7
In March, 1723, Pennsylvania passed an act for the emission of £15,000 in bills of credit, the argument being that "the gov- ernment is bound to supply a circulating medium for traffic, for those who are its dependents," and the fact being that the com- munity were suffering for want of a good currency. Previously the Committee on Grievances had referred to the House the question "Whether the raising the cash or striking paper money will be most to the advantage of the Province? But humbly presume if dollars were raised to five shillings a piece, it might be of benefit, and they think it would be impracticable to pre- vent the exportation of specie ; they are of opinion, that if a law was made to make the country produce, at market price, pay for servants, goods imported, and to discharge judgments and exe- cut^ions, it would be of public service." l A law was passed in accordance with this report, in February, 1723.
The £15,000 in bills were to be loaned at 5 per cent, interest on real estate or upon silver plate, at 5 shillings per ounce, to be deposited at the loan office. The notes were payable, one- eighth of the principal annually, together with interest; they were a full legal tender; refusal to receive them as such voided the debt or forfeited the commodity. This issue was very conservative in amount, the notes were well secured and were of great service to the community. The legisla- ture of Pennsylvania had before it the unfortunate experience of other colonies, and was at the time flooded with their de- preciated notes.
In 1726 the amount of currency was £45,000. These notes passed at par and their very excellence attracted counterfeiting ; they were counterfeited to an alarming extent, chiefly in Ireland, and sent hither ; all this was done notwithstanding the act pro- vided that counterfeiting should be punished by the loss of both ears, by a fine of £100 and the payment of double the value of the loss sustained by those who suffered from the counterfeits. 1 Phillips, Paper Currency, I, p. 12.
8 A HISTORY OF CURRENCY IN THE UNITED STATES
In case of inability to pay these sums, the offender was sold into service for seven years.1
The reissue of the amounts paid in in annual instalments had been authorized, and as the expiration of the eighth year ap- proached, May, 1729, another issue of £30,000 was authorized, in order to prevent contraction; these bills were to be loaned upon the same terms as the previous ones, one-sixth of principal and interest payable annually. In 1731, on expiration of the eight-year period, the previous issues were renewed by law and £40,000 of new bills authorized to be exchanged for bills issued prior to August 10, 1728, which bills, if not exchanged by March i, were to be irredeemable.
In 1739 the total issue had grown to £80,000, The penalty for counterfeiting was changed to death and the former penalties were applied to those who raised notes to a larger amount. These notes were intrinsically good, circulated freely at par, and drove the notes of other colonies out of circulation in Pennsyl- vania; they were not, however, good in payment of debts abroad and suffered a depreciation when compared with exchange on London.
In 1746 £5000 were issued to help support the expedition against Canada. A long controversy now ensued between the Assembly and the Governor, who, inspired by the Proprietaries,2 who sought personal immunity from taxation, was opposed to an undue issue of paper money, and also insisted that such acts should be suspended until the King's pleasure should be known.
In 1754 the House adopted the following resolutions : 3
" First: That it is necessary the paper money of this Province should be reemitted for a further time.
* Phillips, I, p. 16.
2 Proprietaries were the financial backers of the Colony and in a certain sense the owners.
3 Phillips, I, p. 21.
COLONIAL CURRENCY g
"Second: That there is a necessity of a further addition to the paper money of this Province.
" Third: That there is a necessity that a sum should be struck to exchange the ragged and torn bills now current by law in this Province."
The Governor insisted upon his contention, and even vetoed an issue of £30,000 for the King's use in support of Braddock's expedition.
This attitude of the Assembly foreshadowed a departure from ,the conservatism that had thus far characterized their note issues, which were secured, drew interest and were sought by other colonies and circulated without discount. The volume of business, both domestic and foreign, had grown and prosperity was general. Capital was urgently needed, as it ever is in new countries, for various purposes, and the easiest way to raise it seemed to be to borrow from the future by emitting bills for the future to pay. The constant disagreements between the Assembly and the Proprietaries, as to taxation, made note issues the easier if not the better way. The idea that the government can create wealth by its fiat had grown with the success that at- tended these earlier issues. Even Benjamin Franklin seemed impressed with this idea.
The Assembly, by persistence, tired out the Governor, who finally consented that the Proprietaries be taxed the same as others. After Braddock's defeat £60,000 was voted for the King's use, £55,000 of which was to be emitted in bills of credit, dated January i, 1756, and to be redeemed by taxation. In August following, £30,000 were issued, to run for ten years. In 1757-8-9, £300,000 were issued, and in June, 1759, £36,650 further were issued "to reimburse the military agent of the colonies at Philadelphia." This act was vetoed by the King, but the money had already been issued ; it was thereupon called in. During the next ten years £175,000 was authorized, and £200,000 called in.1
1 Phillips, I, p. 25.
10 A HISTORY OF CURRENCY IN THE UNITED STATES
The course of events in Pennsylvania duplicates the experience of all other countries, as well as of the other colonies, and shows how inflation tends to grow with leaps and bounds, when once it gains a foothold.
In 1763 Parliament passed a law forbidding any bills of credit to be made legal tender, hoping thereby to stem the tide of infla- tion that had possessed all the colonies.1 Private individuals and firms throughout the colonies had, to some extent, issued promissory notes payable on demand and attempted, with indifferent success, to circulate them as money. In 1766 an association of merchants in Philadelphia sought to meet the alleged demand for circulation by emitting £20,000 in £5 notes, with interest at 5 per cent. This action was not in contraven- tion of any law but was frowned upon generally and presently abandoned. In 1769 the colony authorized two issues amount- ing to £30,000. In 1771, because of fear of an attack by the French, £15,000 was issued for the defense of Philadelphia, most of which was used for municipal purposes, the war not having materialized.
In 1772, £25,000 was emitted for the support of the govern- ment; in 1773 £12,000 for the erection of a lighthouse at Hen- lopen, and another issue of £6000 followed in 1775. A second issue in 1773 was for £150,000 and attempted unsuccessfully to restore the loan system. In this year counterfeiting had increased to such an extent that the government offered a reward of £500 for the detection of the guilty ones.2
In 1775 an issue was authorized to build a jail, known as Wal- nut Street Prison. Here Americans captured by the British were imprisoned while Philadelphia was in their hands; here also was the great financier, Robert Morris, imprisoned when reverses had exhausted his fortune and his credit. Roused by the Battle of Lexington, the Assembly created a Committee
1 Gouge, Paper Money, II, p. 23. 8 Phillips, I, pp. 28, 29.
COLONIAL CURRENCY n
of Safety to look after the interests of the colony and authorized an issue of £35,000 as a defence fund.
The Revolutionary War changed the currency question ma- terially. The provinces advanced to the dignity of States and the currency was issued thereafter in conjunction with and under the direction of the Continental Congress. Thereafter there were three kinds of paper currency : that issued by the States, that issued by the Continental Congress, and that issued by the States and Congress jointly. Of course the colonial currency was continued by refunding and otherwise. The notes of the colony of Pennsylvania suffered comparatively lit tie depreciation. New Jersey issued her last notes as a colony in 1769,* having issued a total of £347,500, of which £190,000 were at the time unredeemed. This amount was not large and depreciation was not very great. Rhode Island had a large amount outstanding, and in February, 1769, 6s. lawful money was ordered to be reck- oned equal to £8 old tenor, in payment of taxes. Virginia first issued notes in aid of Braddock's expedition against Fort Duquesne, but issues thereafter were frequent and for various purposes. They were made legal tender, severe penalties im- posed for refusal to trade or sell goods and take such notes at par; the penalty of death for counterfeiting did not prevent rogues from conducting a thriving industry in that line ; depre- ciation was very great.2
Illustrating intercolonial currency troubles, the Governor of Massachusetts, in February, 1744, said, "of Rhode Island bills, now in circulation, and amounting to £440,000, £350,000 are passing in Massachusetts, and also £50,000 in Connecticut. On these two sums the people here have lost, by the fall of them, £25,000 in the last nine months. . . . This and other such losses equal £180,000. Not only this, but their bills reduce the value of those issued by Massachusetts." 3
In 1749-53, Massachusetts "sunk" its paper money, mainly
1 Phillips, I, p. 75. 2 Ibid., I, pp. 196, 197. 3 Felt, p. 115.
12 A HISTORY OF CURRENCY IN THE UNITED STATES
from reimbursement funds, £180,000, received from Parliament on account of aid rendered by Massachusetts in the Canadian wars. Some funds were raised by taxation. The depreciation is illustrated by the scale of valuation put upon notes for redemp- tion ; those bills issued in 1728 varied in proportion from 16-18 shillings to the ounce of silver ; the depreciation increased with each subsequent issue; in 1738 the proportion of bills was 28- 29 to the ounce and in 1748 37-38-40 to the ounce.1 Each issue was separately valued and the growing depreciation of each subsequent issue was at the time justified by the Province by the fact that the people who took the notes knew of their then depreciation, and hence would suffer no greater loss com- paratively, by having a less value put upon the later issues; at the Town House, Boston, £1,792,236-5-1 was burned, which left about £132,000 outstanding. This action gave Massa- chusetts a good and sound currency, although the depreciated notes of other colonies were plentiful. Realizing the danger from unrestrained inflation, Parliament enacted, in 1763, a law " to pre- vent paper bills of credit, hereafter to be issued in any of His Majesty's colonies or plantations in America, from being declared to be a legal tender in payment of money, and to prevent the legal tender of such bills as are now subsisting from being pro- longed beyond the periods for calling in and sinking the same."2
The effect of this law was to materially reduce the volume of notes. The volume of money in the whole thirteen colonies, at the beginning of the Revolutionary War, was estimated by Peletiah Webster, a very able contemporary writer, "at $12,000,000, or perhaps not more than 10,000,000 hard dollars in value," at least two-fifths of which was specie.3
The characteristics of the colonial currency presented in this chapter reflect the experiences of all the other colonies as well as those chosen for the purpose of typical illustration.
1 Felt, p. 135. 2 Phillips, II, p. 24.
8 Peletiah Webster's Essays, 1790. Gouge, II, p. 24.
CHAPTER II
CONTINENTAL CURRENCY
ON May 10, 1775, the Continental Congress reassembled in Philadelphia, representing thirteen colonies with a population slightly exceeding 3,000,000 people, and with a circulating medium, both coin and paper, carefully estimated to be $12,000,- ooo. It had been the policy of Britain to keep the colonies dependent, and to keep them defenceless was the best way of accomplishing that result. The colonies had no money in their treasuries, no factories which could manufacture arms or muni- tions or clothing, not even the implements of industry. The British navy not only endangered their commerce, but practi- cally closed to them the ports of the world. The colonies had no borrowing credit abroad and the nation was a hope as yet without tangible existence. Never was war against a great nation undertaken under more discouraging circumstances. Notwithstanding the distressing experience of the colonies with their government issues of currency and its sad depreciation, there seemed no other resource left to the Continental Congress, and therefore the issue of Qontjnental currency was authorized at the very inception of this national movement, May 10, I775-1 These notes were made fuUJlegal Render by Congress and even- tually by all the States, following the^Ieactrrf Rhode Island ; in August, 1775, Rhode Island made Continental notes full legal
1 Subsequent issues were made Nov. 29, 1775 ; Feb. 17, May 9 and July 22, 1776 ; Feb. 26 and May 20, 1777; Apr. n, Sept. 26, 1778; Jan. 14, 1779; Mar. 18, 1780. An issue of notes in fractions of a dollar was authorized, but never emitted.
13
14 A HISTORY OF CURRENCY IN THE UNITED STATES
tender and imposed the same penalties for counterfeiting and raising and refusing to take the same at par, that applied to her own notes; she resolved "that any person who refused such money ought to be considered an enemy to the credit, reputation and happiness of the colonies, and wholly destitute of the regard and obligation he was under to his country . . . and should be debarred from all communication with good citizens." 1 On January n, 1776, Congress, following a preamble,
" RESOLVED, Therefore, that any person who shall hereafter be so lost to all virtue and regard for his country, as to refuse to receive said bills in payment, or obstruct or discourage the currency or circulation thereof, and shall be duly convicted by the committee of the city, county or dis- trict, or in case of appeal from their decision, by the assembly, convention, council or committee of safety of the colony where he shall reside, such person shall be deemed, published and treated as an enemy of his country and precluded from all trade or intercourse with the inhabitants of these Colonies."
In other words, persons who refused to take these notes as the equivalent of coin, were made outlaws. Nevertheless de- preciation began, and even on June 4 the Virginia convention appointed a committee to inquire into the cause of the depre- ciation of Continental money.2
The above facts are significant as showing how utterly power- less the fiat of government is when it seeks to reverse economic law. Determined effort was made to enforce the law and com- pel people to take this currency at par. Thomas Fisher, being convicted, pleaded "that from conscientious motives their House could not accept this kind of money, as it is issued for the purposes of war." This was the plea generally made and as the whole community was guilty, it sufficed to evade or miti- gate punishment. Sometimes apologies were accepted, as in the case of William Gilliland, as follows :
1 Am. Archives, Series 4, Vol. II, p. 232, etc. »/Wi,VoLVL
CONTINENTAL CURRENCY 15
"I, the subscriber, have been so very wicked and abandoned as to speak at sundry times disrespectfully of the Honorable the Continental Congress, and have also endeavored to depreciate their currency, for which detest- able conduct I have deservedly been confined in the jail of this county by the committee of said county, but being now fully convinced of the heinous- ness and horrible tendency of such conduct, do hereby and in the fullest manner, most sincerely beg pardon of my justly incensed countrymen, and do promise hereafter never to be guilty of the like, but in all instances to conform to such rules and regulations as may be instituted by that very respectable body, for the preservation of our invaluable but invaded rights and liberties; and do further request that this my acknowledgement be made public, that others may be deterred from following my shameful and wicked practices." l
In January, 1777, depreciation was so great that Congress ap- pealed to all States to make Continental money legal tender for public and private debts and that a refusal to accept such money should extinguish the debt. They asked the States to call in and " sink " their State currency in order to appreciate the currency of Congress ; and as the States were committed to the redemp- tion of Continental currency in proportion to population, the requests of Congress were generally complied with. Counter- feiting was very general among the colonies ; the currency was counterfeited by the British and sent here as one means of destroying the American credit ; a shipload of counterfeit Con- tinental money, coming from Britain, was captured by an American privateer; and persons accompanying flags of truce made use of the occasion to disseminate counterfeit money.
In November, 1776, Congress authorized a lottery as a means of raising money, but it did not succeed, as people would not pay coin for a chance to draw Continental dollars. Congress, in the year 1778, appealed to the States to raise $5,000,000, by taxes, and pay the same into the Continental Treasury, and again asked them to sink their State issues, saying among other things, "no truth being more evident than that where a quantity
1 Force's Am. Archives, Series 4, Vol. IV.
1 6 A HISTORY OF CURRENCY IN THE UNITED STATES
of money of any denomination exceeds what is useful as a medium of commerce, its comparative value must be proportionately reduced." 1
The States complying with the requests of Congress under- took to fix the price of labor, the charges of innkeepers, the price of articles manufactured or imported, indeed of everything except military stores. The winter at Valley Forge was suc- ceeded by a spring of great gloom, until news of the alliance with France arrived ; this put great heart and courage into the Ameri- cans. The volume of Continental currency at this time was $55,500,000 and had depreciated to six for one in April. Upon news of this alliance in May, it appreciated to four for one. More issues and more depreciation followed, and in 1779 the Continental currency totaled $130,052,080. Congress realized that more paper issues would depreciate the existing issue to an amount greater than the proposed issue would realize, but Con- gress could not levy taxes ; it could only apportion these among the States and ask them to raise the amount by taxation, which the States neglected to do.
The tax that the people suffered, by loss from depreciated paper, was far greater than a direct tax of the amount necessary to carry on the war would have been. Public meetings in Philadelphia, Boston and elsewhere, and meetings of different military organizations, violently denounced the constantly soaring prices of the necessaries of life and constantly depre- ciating currency, and charged it all to the extortionate greed of the people who would not sell and take the current paper money at its face value.
The total volume of Continental money, "old tenor," was
There were also so-called "new tenor emissions," in 1780-81 amounting to $2,070,485, put in circulation through the several
1 Phillips, II, 76. J Gouge, II, p. 25.
CONTINENTAL CURRENCY 17
State treasuries.1 These notes were the direct obligation of the State with the guarantee of Congress imprinted on the back.
On the 3ist of May, 1781, by Act of Congress, Continental bills ceased to circulate as money, and provision was made for refunding the same, but they were bought for speculation there- after at from 400 for i up to 1000 for i.2
The appeals of Congress to the States for real money to be raised by taxation are pathetic; they also asked for taxation to be paid in Continental notes, such notes to be cancelled, fully realizing that the public must believe- that the redemption of currency was certain, in order to give it value ; they asked that the States issue a currency called the "new tenor," which should be guaranteed by Congress (.6 going to the State and .4 to Con- gress), hoping that the specific joint obligation would command confidence. The country thus had three kinds of money, — the notes directly issued by Congress, called old tenor, notes directly issued by the States, and notes jointly issued by the several States and Congress, called "new tenor." Every artifice of legis- lation was resorted to in an effort to force the circulation of these notes at par; the States by legislation enthusiastically cooperated with Congress in exercising the full power of govern- ment for this purpose. The notes were made full legal tender and refusal to accept them forfeited the debt and incurred other money penalties, pillory, imprisonment, loss of ears even, and being outlawed as enemies of their country. Their struggle for national existence intensified their efforts to make their fiat money as good as coin money, and all to no avail. Their experi- ence ought to negative for all time the idea that the government can impart intrinsic value by its mere fiat and thus make the fiat paper money of the government the equal of commercially good money, money which the consensus of opinion declares to be good, either because its substance has commercial value or because its redemption is assured in money possessing com-
1 Am. Almanac for 1830. * Gouge, II, p. 26.
c
i8 A HISTORY OF CURRENCY IN THE UNITED STATES
mercial value. The government can tax, and the power to tax means the power to destroy. It was by imposing an extraordi- nary tax upon State bank circulation that our national govern- ment in 1864 destroyed and drove out of circulation State bank- notes. The government can kill by its mandate, but it cannot create value; it cannot breathe into substance of no inherent value, the quality of worth which commercial and economic law gives to another substance. Congress is entitled to leniency of judgment, however, seeking, as they were, to create a demo- cratic government of a kind unprecedented, and at the same time waging war with a great and powerful nation. They learned their lesson and learned from bitter experience that their vigorous attempts to force a depreciated currency upon an unwilling people was bad government, bad economics, bad morals.
Having learned its lesson, Congress boldly repudiated and ignored its former policy to compel the acceptance of these notes by the people as the equivalent of coin, and on July 28, 1780, enacted: 1
"RESOLVED, That the principal of all loans that have been made to these United States, shall finally be discharged by paying the full current value of the bills when loaned ;" (not face value, but market value at time of issue), "which payment shall be made in Spanish milled dollars, or the current exchange thereof in other money, at the time of payment. That the value of the bills when loaned, shall be ascertained for the purpose above mentioned, by computing thereon a progressive rate of depreciation, com- mencing at the first day of September, 1777, and continuing to the i8th day of March, 1780, in geometrical progression and proportion to the time, from period to period, as heretofore stated, assuming the depreciation at the several periods to be as follows: On the first day of March, 1778, one dollar and three-quarters of a dollar of the said bills for one Spanish dollar ; on the first day of September, 1778, as four of the former for one of the latter ; on the first day of March, 1779, as eighteen of the former for one of the latter; and on the eighteenth day of March, 1780, as forty of the former for one of the latter, etc. etc. etc."
1 Tracts 3744, D., Phila. Library.
CONTINENTAL CURRENCY 19
This was done, and to illustrate : $100 in bills on March 18, 1780, were redeemed at $2.50 ; a large percentage of repudiation, and yet the debates characterized the idea of redeeming these notes at any price above their actual value at the time of issue, as " criminal folly."
The currency issued by the various States suffered greater depreciation than that of Congress, and was redeemed at very much less than its face value.
Articles of Confederation were adopted November 15, 1778, and gave Congress coordinate power with the states to emit bills of credit, but no power to levy taxes. Sad experience wrought a rapid revolution in public sentiment, and the new constitution which was adopted and went into effect in ^ry8g, forbade any state to coin money, emit bills of credit or make anything but gold and silver coin a legal tender. This was the beginning of a better condition of finance. State issues soon disappeared, and Continental bills as well. They were called in by fixing a date after which they should be of no value ; in the meantime they could be refunded into various state or national obligations provided for such purpose by laws of the states and of Congress.
No sooner had their independence been acknowledged, than other troubles of a serious character confronted Congress. The national spirit had not been aroused except as to cooperation for mutual defence. That danger removed, local jealousies asserted themselves. Each state had large indebtedness, chiefly contracted for the general good, and which they wished the general government to assume. The apportionment of the national debt to the different states gave rise to much contro- versy and bitterness. It was at this juncture that the genius of Alexander Hamilton came to the rescue. No man in history has shown more creative ability ; confronted with unprecedented problems, without historical precedent to point to their solution, he evolved a plan that satisfied all parties and solved all diffi- culties. He proposed that the general government assume all
20 A HISTORY OF CURRENCY IN THE UNITED STATES
war debts of the states, and proposed a protective tariff upon imports as a means of raising revenue to meet the same. The "infant industries" of the states sorely needed protection to enable them to establish manufactures in competition with the old world. The commerce of the seas being no longer disturbed, increasing revenue from the tariff imposed realized in full meas- ure their hope and expectation. Congress assumed claims of the States to the amount of $2i,5oo,ooo.1
The table on page 22, prepared by the Treasury Department, gives very full information as to the adjustment of these claims.
From January, 1780, until the close of the war, there was a plentiful supply of coin. England spent large sums in supplies for her troops and ships and it is estimated that France spent $3,000,000 here for the support of her soldiers and ships which she, as our ally, had sent to aid us against the British. Con- gress had also effected loans abroad which gave us additional specie.
The Bank of North America was chartered by Congress and went into operation January 7, 1782, at Philadelphia. It also received charters from several States. Congress took stock to the extent of about $254,000 as against about $70,000 taken by citizens.2 The bank was of little aid in the prosecution of the Revolutionary War, having commenced business after CornwalhV surrender (October 9, 1781), but it was effective as an aid to commerce and trade.
The colonies could hardly have achieved their independence, at least not at that time, without the aid of France. France furnished them arms and munitions, at the inception of the war, to the amount of $200,000. France not only recognized and welcomed the United States into the sisterhood of nations, but entered into a treaty of alliance, in 1778, one article of which pledged the colonies not to make peace until England recognized their complete independence; she gave them confidence and 1 Laws of the U. S., Aug. 4, 1790. 2 Gouge, II, p. 34.
CONTINENTAL CURRENCY 21
credit by making them loans; she sent soldiers and sailors to their assistance and spent much good, hard money in the United States, in support of her army and navy, following the treaty of alliance. Washington's army, in 1781, after a hard winter at Morristown, was in no condition for a campaign, and almost in a state of mutiny because they had not been paid in over a year. French money enabled Washington to pay and equip his army and go south in pursuit of Cornwallis. The French fleet, under De Grasse, defeated the British fleet and drove them out of the Chesapeake, thereby depriving Cornwallis of all hope of reinforcements from the British troops stationed in New York, and also cutting off all hope of escape by sea. When Corn- wallis was finally rounded up at Yorktown, gazing toward the bay, he looked into the guns of 36 ships of the line of France. He was confronted on land by 7000 French veterans, well armed and equipped and well officered under Rochambeau and Lafay- ette. Washington had, in addition, 5500 regulars and 3500 militia. A hopeless battle resulted in Cornwallis' surrender. It was the last battle of the war; our independence was won, but, in self-gratulation, let us not forget the magnitude of our obligation to France. Her motives in aiding us may not have been altogether altruistic, may have been inspired by hostility for England as well as love for us ; even so, the service rendered is in no degree diminished. The sustaining influence of this help from France, upon our currency and credit, is plain and was far-reaching. Our nation was born amid the martial airs and chivalric deeds of France, and was consecrated by the blood of her soldiers and sailors. If we love our country and cherish our institutions and our freedom, our hearts should ever and always go out to France in gratitude and love.
22 A BISTORY OF CURRENCY IN THE UNITED STATES
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CHAPTER III
SOUND MONEY IN NATIONAL POLITICS
OUR laws with reference to paper currency have been largely influenced by the distribution of governmental authority pe- culiar to the United States, and entirely separate and distinct interests have thereby been brought into antagonism and have militated against the adoption of the most desirable currency system.
From the Declaration of Independence until the close of the Civil War in 1865, the United States as a nation was in a forma- tive period. The thirteen colonies had organized a confederacy to resist oppression from abroad, but with insufficient and ill- defined powers, and as soon as they had fought to a successful issue and been recognized as an independent nation, they began to be jealous and distrustful of the powers which must necessarily be given to the general government in order to form a permanent nation. Oppressive debt, disorganized business and depreciated currency presented grave economic problems for solution, at a time when the greater and graver problem of creating a govern- ment based upon the consent of the governed, evidenced by popular suffrage, must first be solved, in order that it might in turn bring order, credit and prosperity out of existing chaos. The colonies were held together by the cohesive force of self- preservation in the presence of the arms of a powerful and aggres- sive foe. When this pressure was once removed, the tendency toward separate action and assertion of antagonistic interests on the part of the colonies became pronounced.
Tenacious of their liberties, the people were greatly impressed
23
24 A HISTORY OF CURRENCY IN THE UNITED STATES
with possible danger from an arbitrary exercise of power on the part of a central government, and in framing the Constitution the powers of the several states were subordinated to the national government with halting jealousy and only where deemed indis- pensable. The nation was thus started with a dual sovereignty. The citizens owed allegiance to the states in which they lived, as well as to the nation, and the respects in which each was paramount were as to many questions left in the realm of debate. Seven of the original thirteen states accompanied their ratifica- tion of the Constitution with proposed amendments, and many states seemed to regard its obligations lightly. Withdrawal from the Union was freely discussed as an alternative and by no means impossible remedy for unsatisfactory treatment.
In 1798, Kentucky, roused by its opposition to the alien and sedition laws passed by Congress, adopted resolutions reciting, among other things, that the national government was created by a compact among the states and "was not made the exclusive or final judge of the extent of the powers delegated to itself, but that, as in all other cases of compact among powers having no common judge, each party has an equal right to judge for itself as well of infraction as of the mode and measure of redress." Virginia passed nearly identical resolutions in 1799. In other states similar doctrines were at times proclaimed, notably at a later period by the abolitionists of the North, who advocated withdrawal from the Union to escape the partnership in the toleration of slavery.
If the House of Representatives, the Senate and the President concur as to an act of legislation, it becomes a law. If any ques- tion as to its constitutionality arises, the theory of the Constitu- tion is that such question is to be determined by the Supreme Court, there being thus four separate parties whose concurrence is necessary before a law becomes final and binding beyond ques- tion. The Kentucky resolutions sought to introduce a fifth party and to assert that each state as a party to the compact of
SOUND MONEY IN NATIONAL POLITICS 25
federation might determine for itself the limitation of power which the general government possesses.
This doctrine, in all its refinement, culminated in the nullifica- tion ordinance adopted by South Carolina in November, 1832, which declared the United States tariff law "null and void, and no law, nor binding on this state, its officers or citizens," and no duties were to be paid in that state and no appeal to the Supreme Court of the United States was to be permitted. The energetic determination of President Jackson to enforce the law, coupled with the "Clay Compromise," a modification of some of the law's most objectionable provisions, deferred but did not settle the constitutional issues involved.
The status of slavery in the Constitution was the occasion of prolonged controversy ; and by its terms as finally settled, the importation of slaves could not be prohibited for twenty years, and three-fifths of the slave population was to be counted in determining the basis of representation of the several states in Congress and in the Electoral College. Each state was allotted two senators, and representatives were apportioned according to population. The number of votes to which each state became entitled in the Electoral College, which chooses the President and Vice-president, was and still is equal to its congressional representation, that is, its senators and representatives com- bined. Allowing three-fifths of the slave population, while not enjoying the suffrage, to be counted in determining the repre- sentative population, gave to the white population of the slave- holding states a preponderating influence in national affairs, which was bound to provoke controversy. In laying the founda- tion of the nation, the framers of the Constitution also laid the foundation of an "irrepressible conflict," and the opposition to slavery which found expression in the constitutional debates was continued with growing intensity, although usually as a moral rather than political question. Its abolition in the north- ern states, owing very largely to climatic conditions, as well as for ethical reasons, made the question of slavery a sectional one.
26 A HISTORY OF CURRENCY IN THE UNITED STATES
The first pronounced conflict arose over the admission of Missouri as a state in 1818-1819. It was admitted in 1821 as a slave state, after the " Missouri Compromise" (Act of March 2, 1820) had provided that slavery should forever be excluded from all national territory west of Missouri and north of 36° 30' (the southern boundary of the state). In 1846 the "Wilmot Proviso," an amendment to an act appropriating money with which to purchase territory from the government of Mexico, proposed to exclude slavery and involuntary servitude forever from all territory so acquired. It was adopted by the House, but later reconsidered and defeated. This episode marked the formation of a political party, whose avowed and direct purpose was to prevent the extension of slavery in the territories of the United States. Their propaganda was followed by a powerful and continuous onslaught upon the institution of slavery on moral and religious grounds, and created a strong sentiment in favor of its abolition, which ultimately became effective.
Slavery, involving enormous property interests, depended for protection and championship upon the several state govern- ments, and this fact throughout this period gave to the doctrine of state rights and "state sovereignty" its principal element of strength. Largely inspired by this influence, the power given to the general government under the Constitution was rigidly construed, circumscribed within the narrowest limits, and any attempt at liberal construction or enlargement with reference to any subject was tenaciously fought by the champions of state rights. All efforts by the general government to regulate banking and currency encountered the opposition of the strict con- structionists in all its virulence as well as that of the state bank interests. The power of Congress to appropriate money for na- tional highways was questioned, and no relaxation or liberaliza- tion of constitutional provisions was permitted, lest it should form a precedent that might militate against the slaveholding interests.
SOUND MONEY IN NATIONAL POLITICS 27
The preservation of the Union is traceable to the fact that the National or Federal party controlled the councils of the govern- ment during its earlier years. In this connection too much praise cannot be bestowed upon the genius and statesmanship of Hamilton, the judicial wisdom and statesmanship of Marshall. It will appear in the following history that whenever national sentiment and national influence have moulded legislation and controlled the general government, enhanced prosperity has ensued, as during the periods of the first and second United States banks and that of the national banking system. Whenever the disintegrating influence involved in the doctrine of state sover- eignty has been paramount, adverse conditions have prevailed, as during the period following the expiration of the charter of the first United States Bank (1811) until the second bank was well under way, and the period between the expiration of the charter of the second bank (1836) and the creation of the national banking system (1863).
The right of secession, and the doctrine of state sovereignty as it had been proclaimed, as well as slavery itself, were buried, and the permanency of the Union and the paramountcy of the general government settled, by the verdict of the Civil War (1861-1865).
The government had been in the habit of borrowing money in the form of notes; for instance, under the administration of President Buchanan, December 23, 1857, it authorized the issue of $20,000,000 of notes, running for a period of one year and bear- ing interest at a rate to be fixed by the Secretary of the Treasury, not exceeding 6 per cent. These notes were receivable for "all debts of the United States of any character whatever." Another issue, not exceeding $10,000,000, was authorized December 17, 1860, to run for a period of one year and bear interest. They were sold at auction to the responsible party who would bid par and the lowest rate of interest. The acts of July 17 and August 5, 1861, and February 12, 1862, authorized an issue of $60,000,000
28 A HISTORY OF CURRENCY IN THE UNITED STATES
of demand notes. The act of February 25, 1862, authorized an issue of $150,000,000 in Treasury notes, which were designed to refund or retire all demand notes theretofore authorized. These notes were made "receivable in payment of all taxes, internal duties, excises, debts and demands of every kind due to the United States, except duties on imports, and of all claims and demands against the United States of every kind whatsoever, except for interest upon bonds and notes, which shall be paid in coin, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States, except duties on imports and interest as aforesaid."
The act of July n, 1862, authorized a similar additional issue of $150,000,000. This act also provided for the funding of any notes outstanding, and the 6 per cent, bonds.
On January 17, 1863, by joint resolution of Congress, providing for the immediate payment of the army and navy of the United States, an issue of $100,000,000 was authorized, not to bear interest and not to be in denominations of less than $i. They were legal tender except in payment of duties on imports and in- terest on the public debt. These notes were straight fiat money, not drawing interest, not convertible into bonds drawing interest.1
It thus appears that Congress, spurred by " military necessity/' the necessity of preserving national existence, against its pro- claimed conviction as to its constitutional powers, and despite all its previous experience, went to the limit in creating an ir- redeemable fiat currency with legal tender power. These notes were thus forced into circulation in payment of the current indebtedness of the government and have ever since formed an important part of the circulation of the country, the amount at the present time being $346,000,000.
1 The government at intervals publishes a document containing United States laws relating to loans, money, banking and coinage from 1 790 down to the date of publication. Full particulars of all legislation may be had by reference to this volume.
SOUND MONEY IN NATIONAL POLITICS 29
As soon as the war was over, the constitutionality of the act creating such notes a legal tender was raised in the courts. The matter came before the Supreme Court twice without a decision, but finally, in 1884, nearly a century after our existence as a nation, the Supreme Court decided that Congress had the power to issue full legal tender notes at any and all times, in its dis- cretion, and in effect decided that all sovereign powers pertaining to government were reposed in Congress except where specifi- cally prohibited, or reserved to the states. Salmon P. Chase was Secretary of the Treasury at the time these legal tender issues were authorized by Congress, and approved the same. He was Chief Justice of the United States in 1884, when the question of their constitutionality was finally passed upon, and voted with the minority against the right of Congress to issue paper money and make the same a legal tender in payment of debts.
We have already seen that vigorous measures of taxation would have saved the colonies and Continental Congress from the appalling loss which a badly depreciated currency brought upon all branches of industry and trade. Had Congress possessed the courage to adopt measures of taxation, which would have produced large revenues, they would have saved the country from the evils of inflation, depreciation and subsequent contrac- tion which inevitably ensued.
It seems strange, while all recognized the desirability of having the coinage regulated by the central government, so much so that the power was given exclusively to Congress in the Constitu- tion, thus insuring uniformity throughout the nation, that there should not have been an equal desire to have the paper currency regulated by the same central authority and thus likewise made uniform and good throughout the length and breadth of the land. Such, indeed, was the design of Hamilton and Marshall, but there was a powerful party opposed to the issue of paper currency in any form by the general government. The matter having been
30 A HISTORY OF CURRENCY IN THE UNITED STATES
left in doubt in the organic law, political exigencies controlled the question and the creation and regulation of paper currency were for years left to the different states.
There is always difficulty in changing existing conditions when by so doing you disturb vested interests and interfere with established business. Precedent and habit are important factors in public as well as private affairs. But the failure earlier to appreciate and adopt a national system of paper currency can only be explained by the jealous desire on the part of the states to minimize the powers of the general government.
Whether it be a great university, a great industrial enterprise or a great nation, successful conduct and maximum development depend upon efficient, intelligent central control. The unity of the nation, the paramount sovereign powers of the central government over all questions except as clearly limited by the Constitution, have been settled by force of arms, by public sentiment, by law and judicial interpretation.
Naught but a national currency will now be tolerated. Such a currency we have, and the problem is to improve the system upon lines requisite to give the greatest measure of utility possible and make the currency in fact what it is in theory, the hand- maiden of commerce and the corner-stone of prosperity. The experience of the past yields present wisdom and future guidance. The experience of the colonies and the states presents the money question as affecting individuals and government in every con- ceivable phase. Sound principle and false theory are wrought out in the fierce fires of controversy and proved or disproved by the severe test of experience, and yield their lessons of value for all charged with the duty and responsibility of citizenship.
Sound money means money made of (or unquestionably redeemable in) a commodity which has a stable value in the markets of the world independent of fiat. Sound money as applied to coin means money wherein the commercial value of the bullion equals its coinage value. Sound money as applied to
SOUND MONEY IN NATIONAL POLITICS 31
paper or token money of any kind means that which is redeem- able in money wherein the commercial value of its bullion equals its coinage value.
The term "sound money" doubtless originated from the auricular test commonly applied to coins. The counter or other convenient surface offering an opportunity, the coin is dropped thereon, and its quality depends upon whether the resulting ring possesses the true sound or not.
The test of sound money varies with different periods, and is determined by varying conditions. The term has, however, a general significance easily understood, is concise, cogent and seems to have found a permanent place in our economic literature.
32 A HISTORY OF CURRENCY IN THE UNITED STATES
NOMENCLATURE 1
The coins of various countries take their names, largely, from the weight of the precious metal contained, from the power under which they were issued and also from the devices appearing upon the coins.
Shekel was a weight of the Hebrews — As a Roman weight - Denarius, Roman — Denier, French, and Dime, United States ; all mean tenths of the principal coin. The English Pound was formerly a Troy pound of sterling silver. The ducat (duke), sovereign, crown or krone, the imperial, louis d'or, friedericks d'or, napoleon and others take their names from the authority which issued them.
Other coins take their names from devices which they bear — florin (flower), escudo (shield), eagle (United States $10), condor (South America). Dollar comes from the German thaler, also the rigsdaler of Scandinavia and rixdaler of the Dutch. The United States dollar is based upon the Spanish milled dollar, which long circulated in our country and was for periods a legal tender; milled refers to the corrugated edge, now so common in coins, which was devised to prevent debasement by clipping or otherwise; clipping or sweating was bound to be apparent by removing the milled edges. The Mexican peso consisted of eight reals (rey, king) ; they circulated extensively in this coun- try ; these reals (nominal value 12^) were called shillings in some sections, bits and levies in others. Franc comes from the Francs, who settled or overran France and adjoining countries; under various names, but with identical value, this coin has been copied in many countries.
1 See also Chapter XXVI.
CHAPTER IV
COINAGE SYSTEM 1776-1789
THE American colonies, prior to the Confederation in 1778, had almost as many systems of money as there were distinct colonies. Inasmuch as the majority of the inhabitants were of British birth and traded chiefly with the mother country and with each other, and as pounds, shillings and pence had thus become the money of account, the monetary units were in some measure similar, although, as frequently occurs in colonies, the money of account imposed by the mother country differed from the money in actual use.
The colonies generally reckoned in pounds, shillings and pence, but in actual transactions other coins, chiefly the Spanish dollar and its subdivisions, constituted the medium of exchange. The gold coins in use other than British pieces were the French guinea and pistole, the Portuguese moidore and Johannes or "joe," the Spanish doubloon and pistole. Silver coins in circulation other than British were the French crowns and livres and the Spanish pieces, the latter being, as before stated, most prevalent.1
The people were naturally compelled to find an equivalence between the money of account and that of exchange, and hence the practice of reckoning the dollar at so many shillings obtained. The valuation varied in different colonies. In what is known as New England and in Virginia the dollar was six shillings; in
1 MS. Reports, Committee on Finance, Continental Congress, Vol. 26 ; reprinted in International Monetary Conference, 1878, p. 422. D 33
34 A HISTORY OF CURRENCY IN THE UNITED STATES
New York and in North Carolina it was valued at eight shillings ; in Georgia at five ; in South Carolina at thirty-two and one-half ; and in the remaining four colonies at seven and one-half.1
The shillings here referred to evidently differed in value and were not in fact the English shillings, for it is declared in a law of Massachusetts of 1750, that the value of the English shilling was equal to one and one-third of the Massachusetts shillings. The " shillings " of most of the other colonies must have been worth much less, therefore, in English coin. The established rate of ex- change with London was four shillings and sixpence to the dollar.
Jefferson stated that the tenth part of a Spanish dollar was known as the "bit," yet in states other than Virginia the term was applied to the eighth of a dollar, the same as the "York shilling," and to this day in the western and southwestern sec- tions of the country the quarter-dollar is called "two bits."
The Continental Congress unolertook the task of creating a uniform system out of this apparent chaos at a time when the actual currency in circulation was depreciated paper. It may be said to have fixed upon the unit finally adopted as early as 1775, when it authorized the issue of notes payable in "Spanish milled dollars" 2 but it was not finally and specifically determined upon until several years later.
In April, 1776, the Continental Congress appointed a commit- tee of seven "to examine and ascertain the value of the several* species of Gold and Silver coins, current in these colonies, and ' the proportions they ought to bear to Spanish milled dollars."3
1 Report of Robert Morris, Supt. of Finance, Vol. i, p. 289.
2 Mass. 23d George II, Ch. 5 provides that all payments after March 31, 1750, "shall be understood and are hereby declared to be in silver, at six shillings and eight pence per ounce, and all Spanish milled pieces of eight of full weight shall be accounted, taken and paid at the rate of six shillings, etc." The value of a guinea was fixed at 28 shillings ; crown at 6 shillings, 8 pence ; English shilling at i shilling, 4 pence, Massachusetts currency; a Johannes at 48 shillings; Moidore at 36 shillings; pistole at 22 shillings.
3 Journal Continental Congress ; reprinted in International Monetary Confer- ence, 1878, p. 419.
COINAGE SYSTEM 35
The committee reported, in September following, a resolution fixing such values for the several kinds of coin in circulation, under which the English shilling was rated at two-ninths of a dol- lar, or about 22^ cents, deduction being made for abraded coins. This resolution also fixed the value of gold bullion at $17 and of silver bullion at $i^ per ounce Troy, thus attempting to establish a legal ratio between gold and silver of 15.3 to i.1
The Articles of Confederation were adopted in 1778, became effective in 1781, and continued in force during the remainder of the Revolution and until 1789, when the present Constitution went into operation. Article IX. provided that
"The United States in Congress assembled shall also have the sole and exclusive right and power of regulating the alloy and value of coin struck by their own authority or by that of the respective states."
Thus the states retained the power to coin money coordinately with the Confederation, but the power to regulate its value was 'given to Congress. 1
In August, 1778, after the completion of the Articles of Con- federation, Congress appointed a committee with Robert Morris as chairman, to consider the state of the money and finances of the United States. Morris was subsequently appointed Super- intendent of Finance, but apparently no definite action was taken until January, 1782, when he was instructed to prepare for Congress a table of rates at which the various foreign coins should be received at the Treasury of the United States. On January 15 Morris submitted a comprehensive report2 on a coinage system, in which he pointed out the need not only of a uniform system of coins, but of legal tender provisions as well.
After discussing the ratio of silver to gold and the fluctuations in the market value of the precious metals, he concluded that
1 MS. Reports, Committee on Finance ; reprinted in International Monetary Conference, 1878, p. 422.
2 MS. Reports, Superintendent of Finance, Vol. I ; reprinted in International Monetary Conference, 1878, p. 425.
36 A HISTORY OF CURRENCY IN THE UNITED STATES
the money standard for the United States ought to be affixed to silver. He favored a coinage charge, urged that the money unit should be very small, and that the decimal system be established.
After suggesting that the Spanish dollar had undergone the least change in intrinsic value, he recommended a money unit which would be the i44oth part of a dollar, or a quarter of a grain of pure silver. Such a unit agreed without a fraction with all the differing valuations of the dollar in the several states. Of these units he proposed that 100 constitute the lowest silver coin, to be called the cent, containing, therefore, 25 grains of silver, to which he proposed adding for alloy two grains of copper ; five of these cents to constitute a piece to be called the quint; and ten, or one thousand of the original units, a piece to be called the mark. He favored a ratio between silver and gold of 14^ to i. He recommended the establishment of a mint and the coinage of the pieces suggested. Congress on February 21, 1782, approved this recommendation and directed Morris to report a plan therefor.1 This was the first action toward estab- lishing a federal mint.
In December, 1782, Morris recommended to Congress a resolution fixing a valuation of foreign coins, measured in dollars, in order to prevent their exportation, which was denuding the country of specie. In April, 1783, he submitted to Congress specimens of coins prepared by him, and asked further considera- tion of his mint and coinage proposition. Both these matters were referred to a committee, which did not report for some time.
Meanwhile Jefferson had taken up Morris's plan for a coinage system and submitted a substitute. He recommended the adoption of the Spanish dollar as the unit, as best answering all requirements, and easy of adoption because then practically in
journal Continental Congress; International Monetary Conference, 1878, p. 432.
COINAGE SYSTEM
37
general use. His system comprised a gold coin of ten dollars, the unit or dollar of silver, the tenth of a dollar, also of silver, and the one hundredth of a dollar of copper, and supplemental thereto a half dollar, a double tenth (twenty cents), and a twentieth of a dollar. He criticised Morris's plan as less easy of adoption and more laborious in operation than the purely decimal system.
As to the contents of the dollar, he recommended finding the average weight of pure silver in the dollars then in use and adopt- ing the resulting weight, to be coined at a fineness of eleven- twelfths. He proposed fixing a proportion between gold and silver coinage at the average ratio of the nations trading with the United States, which would probably be 15 to i, and also that the coins provided should be made lawful tender unless dimin- ished in weight. Jefferson's paper was also referred to a com- mittee, which' did not, however, reach a conclusion until May, 1785. Morris had meanwhile retired from the Finance Depart- ment.
The system recommended was as follows : Ratio of the metals, 15 to i ; a gold piece of five dollars ; a silver dollar or unit, con- taining 362 grains of pure silver ; 50, 25, 10, and 5 cent pieces of silver ; all gold and silver coins to be eleven-twelfths fine, with a coinage charge of 2 to 2 J per cent. ; two copper coins of one cent and one-half cent respectively.1
Action upon the report as a whole was postponed, but in July, 1785, the following resolutions, fixing upon three fundamental propositions, were adopted by Congress : —
"That the money unit of the United States of America be one dollar." "That the smallest coin be of copper, of which 200 shall pay for one dollar."
"That the several pieces shall increase in decimal ratio." *
1 MS. Reports, Committee on Finance, Vol. 26 ; International Monetary Con- ference, 1878, p. 445.
1 Journal Continental Congress; International Monetary Conference, p. 448.
38 A HISTORY OF CURRENCY IN THE UNITED STATES
In April, 1786, the Board of Treasury submitted to Congress three alternative propositions concerning the weight and fine- ness of the coinage proposed, as exhibited in the table below.
WEIGHT OF PURE METAL
|
SILVER DOLLAR |
GOLD DOLLAR |
RATIO |
|
|
grains |
grains |
||
|
I. II. ni. |
375.64 350.09 521.73 |
24.6268 23-79 34.782 |
15.253 to I 14.749 to i 15 to i |
Congress on August 8, 1786, passed a resolution fixing the fineness of gold and silver coins at eleven-twelfths, the dollar or unit to contain 375.64 grains of pure silver. It provided for mills, or loooths of a dollar, as the lowest money of account, and coins as follows : half cents and cents of copper ; dimes or tenths of a dollar, double dimes (20 cents), half dollars and dollars, of silver; five dollars and ten dollars, of gold; the latter being coined at 24.6268 grains pure metal to the dollar, thus giving the ratio 15.253 to i as above stated. The copper coinage was to be at the rate of 100 cents for i\ pounds avoirdupois of copper.
Finally, pursuant to a report of the Board of Treasury of September 20, 1786, Congress on October 16 of that year passed the ordinance establishing the mint.
The mint price of standard gold, eleven-twelfths (or .916!) fine, was fixed at $209.77 and of standard silver, of the same fineness, at $13.777, for the pound Troy, with a coinage charge of 2 per cent., giving a ratio of 15.22 to i. Deposits of gold or silver were to be paid for, 95 per cent, in gold or silver and 5 per cent, in copper coin.
The act never became fully operative. Only copper coins were actually struck under this law, and these were made receiv- able for taxes and public dues to the extent of 5 per cent, in any
COINAGE SYSTEM
39
payment, all other copper coins being excluded. After Septem- ber i, 1787, foreign copper coins were to cease to be current, and copper coins struck by the states were rated by weight at the value fixed by the coinage law of August 8, 1786, viz., 100 cents for 2\ pounds.
The financial as well as the general economic condition of the country at this time was so unsettled, that it became obvious to most of the leading men in the colonies that a more stable form of government for the confederation was absolutely neces- sary. A convention of the states was called to meet in Annapolis, Maryland, in 1786. Nothing came of this, and another conven- tion met in Philadelphia in 1787. Although primarily assembled to consider economic questions, the deliberations of the conven- tion ultimately produced a new form of government, the present Constitution (without the amendments).
Respecting the coinage system that instrument provides
"ART. i. SEC. 8. The Congress shall have Power . . . To coin Money, regulate the Value thereof, and of foreign Coin." "SEC. 10. No State shall . . . coin Money; make any Thing but gold and silver Coin a Tender in Payment of Debts."
Thus the states surrendered the right to coin money, the power / over the standard becoming an exclusively federal function.
STATISTICAL RESUME
COMMERCIAL RATIO OF SILVER TO GOLD
Soetbeer's Estimate based on Hamburg Prices
1775 14-72 1779 U.8o 1783 U.48 1787 14-92
1776 14.55 1780 14.72 1784 14-70 1788 14-65
1777 14.54 1781 14.78 1785 14-92 1789 U-75
1778 14.68 1782 14.42 1786 14-96 1790 15-04
40 A HISTORY OF CURRENCY IN THE UNITED STATES
PRODUCTION OF GOLD AND SILVER
The most reliable data respecting the world's production of gold and silver toward the close of the eighteenth century give the following annual averages: —
|
DECADE |
GOLD |
SILVER |
|
1761—1780 .. ...... |
$13 761,000 |
$27,133,000 |
|
1781-1800 |
11,823,000 |
36,540,000 |
No reliable data for annual periods are available, the above estimates being conclusions reached by Soetbeer after the most exhaustive study of the subject ever attempted.
The evidence all tends to verify the general conclusion that the produc- tion of gold diminished and that of silver increased, thus accounting for the fall in the market price of silver as indicated in the table of ratios.
The production of precious metals in the United States prior to\j8oo was insignificant in amount.
CHAPTER V
COINAGE SYSTEM 1790-1829
THE new form of government was nominally put into operation on March 4, 1789. Actually the transition was very deliberate. Washington was not inaugurated as President until April 30, and the Treasury Department was not provided for by law until the following September.
Alexander Hamilton was the first Secretary of the Treasury, and soon after organizing the Department he set himself the task of establishing a comprehensive federal monetary system. He first took up the question of the public debt, then the estab- lishment of a banking system, and on January 21, 1791, pre- sented to Congress his justly celebrated report upon the estab- lishment of a mint and a coinage system for the United States.
He examined this comprehensive subject in all its aspects and ramifications, presenting the facts and arguments bearing upon both sides of each question, and after careful analysis reached the following conclusions : —
i. That the dollar, because it had been in actual use as the measure of values in practically all of the states, was the most suitable unit for the proposed system ; that it was of the utmost importance to define as exactly as possible just what the dollar was, in order that neither debtors nor creditors might be injuri- ously affected. The dollars in existence varied considerably, Spain having degraded or changed the standard at different times. He therefore recommended a dollar containing 371.25 grains
41
42 A HISTORY OF CURRENCY IN THE UNITED STATES
of pure silver, as best expressing the actual average value of the coin in use.
2. That the decimal system was of demonstrated superiority over the duodecimal of Great Britain.
3. That inasmuch as the undervaluation of either metal would cause its exportation, thus shifting the standard to the other, which might result injuriously, and since it was very desirable to have coins of both metals in actual use, the ratio should conform as nearly as possible to the commercial ratio, rather than follow any specific European precedent. He there- fore recommended the ratio of 15 to i.
4. That the silver dollar was the equivalent of 24.75 grains of gold, and therefore a gold dollar containing that quantity of metal be also provided for, in order that there might be a unit coin in each metal.
5. That the fineness of the coins should be eleven- twelfths or .Qi6f , corresponding with the British standard of fineness for gold ; the alloys being for gold corns, silver and copper ; for silver coins, copper only.
6. That no mint charge should be imposed upon the bullion brought for coinage, the cost thereof being properly a general charge rather than one to be imposed upon specific individuals, and to impose a charge might influence prices in international relations, being in effect a reduction of the standard of the coin, as compared with bullion.
7. That foreign coins should be permitted to circulate for one year, that thereafter certain foreign pieces might be tolerated for another year or two ; anticipating that the mint would be prepared to provide all the coin needed, he concluded that after three years the use of foreign coins should be prohibited.
Hamilton's report was reviewed by Jefferson, who, in a short letter, expressed concurrence upon the bimetallic proposition and other features of Hamilton's plan.
Congress gave Hamilton's recommendation attention and
COINAGE SYSTEM
43
passed a resolution for the establishment of a mint on March 3, 1791, but it was not until April 2, 1792, after being spurred by President Washington, that the act establishing a coinage system was finally passed.
The act, after providing for the organization of the mint directed, in Section 9, the coinage of the following pieces : —
|
WEIGHT i |
N GRAINS |
||
|
Gross |
Fine |
||
|
Gold < |
Eagles, $10 Half Eagles, $5 |
270 I7C |
247f 123! |
|
Silver < |
Quarter Eagles, $2$ Dollars or Units Half Dollars Quarter Dollars |
67* 4i6 208 104 |
6x1 37ift x8s« 92ii |
|
Cototoer < |
Dismes Half Dismes Cents |
4if 20| 264 |
37 A *»& 264 |
|
Half Cents |
132 |
132 |
(The act of March 3, 1849, provided for the coinage of gold dollars and double eagles.
The act of February 21, 1853, provided for $3 gold pieces.
The act of September 26, 1890, abolished the coinage of $3 and $i pieces.)
Section 10 provided for devices on coins.
Section n fixed the ratio at 15 to i, the language being: —
"That the proportional value of gold to silver in all coins which shall by law be current as money within the United States, shall be as fifteen to one, according to quantity in weight, of pure gold or pure silver ; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold, and so in proportion as to any greater or less quantities of the respective metals."
Section 12 fixed the standard of fineness for the gold coins at eleven-twelfths, the British standard, equal to -9i6f , the alloy to be silver and copper, not to exceed one-half of the former metal.
44 A HISTORY OF CURRENCY IN THE UNITED STATES
The fineness of the silver coins was by Section 13 fixed at 1485 parts pure metal and 179 parts copper alloy, equal to .89243 -1
No charge was imposed for coining the bullion brought to the mint, unless the depositor preferred to have payment immedi- ately, instead of awaiting the coinage of the bullion, in which case a deduction of one-half of one per cent, was to be made. A strict provision against giving preference to depositors was included in Section 15.
Section 16 declared that the gold and silver coins provided for "shall be a lawful tender in all payments whatsoever," abraded coins being legal tender for the relative weight thereof.
After prescribing directions for the officers and imposing the penalty of death for fraudulently debasing the coinage or em- bezzlement on the part of such officers, the act concluded (Sec. 20) with the provision that "the money of account of the United States shall be expressed in dollars, dismes or tenths, cents or hundred ths, and milles or thousandths," and that the accounts of public officers were to be kept and proceedings of courts to be had accordingly.
When the act first passed the Senate it provided for an impres- sion on the coins of the head of the President for the time being, in imitation of the coinage of most European countries. This proviso was stricken out in the House of Representatives, and after some discussion the Senate concurred.
Much to Hamilton's chagrin the business of the mint was attached to the Department of State, under Jefferson, and not until after Hamilton, when resigning, called attention to this anomaly, was it transferred to the Treasury Department.2
1 It appears that notwithstanding the statute, the first and second directors of the mint coined dollars at the fineness of .900, thus giving them 374.4 grains of pure metal. This appears to have been tacitly sanctioned by both Jefferson and Hamilton. The ratio was thus altered to 15$ to i. See White's Report, No. 496, 22d Congress, ist Sess., p. 17 ; quoted by Watson, Hist, of Amer. Coinage, p. 230.
« Life of Hamilton, Vol. VI., p. 186.
COINAGE SYSTEM
45
This legislation based upon the report of Hamilton was the first attempt in the world to adopt by law a bimetallic standard with all the requisite features of free and unlimited coinage of both metals and giving full legal tender power to both.
Hamilton's conception of the proper ratio was not far out of the way, as is shown by the table giving the commercial ratio for the period. Hamilton was not aware that the relative pro- duction of silver was increasing, so that the commercial ratio would very soon be changed, and naturally when in 1803 France adopted a ratio of 15 \ to i the disappearance of gold from this country resulted. It was thus early in the history of the United States demonstrated that it was impossible for any one country to maintain independently a ratio between the metals differing materially from that fixed by the world's markets.
On May 8, 1792, Congress passed an act providing for the purchase of 150 tons of copper for the coinage of cents and half cents, and that when $50,000 of these pieces had been struck, public notice be given that after six months from that date no other copper pieces were to pass current, or be offered, paid, or received in payment for any debt, etc., under penalty of for- feiture and fine, recoverable by the informer.
The first coins were struck in October, 1792, being a small amount of half dimes, referred to in President Washington's address to Congress at its following session : —
"There has also been a small beginning in the coinage of half-dismes, the want of small coins in circulation calling for the first attention to them."
The weight of the copper coins was reduced by the act of January 14, 1793, to 208 and 104 grains respectively. By the act of March 3, 1796, further reduction in weight by proclama- tion of the President was authorized.
Sundry other acts relating to the mint and coinage were passed prior to the general revision of 1834. It is necessary to note only the following : -
46 A HISTORY OF CURRENCY IN THE UNITED STATES
March 3, 1796, authorizing a charge upon bullion deposited for coinage if below the standard.
April 24, 1800, March 3, 1823, and May 19, 1825, further providing for charges upon bullion deposits not suitable for immediate coinage, whether above or below the standard.
It was not until February 9, 1793, that Congress modified the existing valuations of foreign coins.1 From and after the first of July following the date of the act, British and Portuguese gold pieces were to pass current and be legal tender at the rate of 100 cents for every 27 grains' weight, French and Spanish gold pieces at 100 cents for 27! grains, the difference being due to the greater fineness of the gold coin of the first-mentioned countries. Silver coins were rated as follows : the Spanish dollar if weigh- ing 17 pennyweight 7 grains, at 100 cents, and proportionately for lighter coins; French crowns at no cents, if weighing 18 pennyweight 17 grains, and proportionately for parts of a crown.
It provided further, that after three years from the date of the beginning of the coinage of gold and silver at the mint (to be proclaimed by the President) no foreign coins except the Spanish dollar and parts thereof2 were to be legal tender. Other foreign coins received by the United States thereafter were to be re- coined into coins prescribed by the mint act.
The coinage of the mint was not sufficiently large, however, to provide for the country's needs, and accordingly the above- mentioned act giving legal tender power to foreign gold and silver coins was renewed without change by the acts of February i, 1798, and April 10, 1806.
The act of April 29, 1816, again continued the provision for three years, including the French five-franc piece; this was again continued by the act of March 3, 1819, until November i, 1819, for gold coins (after which date they were no longer legal
1 Fixed by tariff law of July 31, 1789.
» Subsequent legislation did not alter this proviso; thus the Spanish dollar and its subdivisions continued legal tender until 1857.
COINAGE SYSTEM 47
tender) and until April 29, 1821, for the French silver coins. The act of March 3, 1821, continued the same provision as to the French pieces for two years more, and the act of March 3, 1823, for four years from that date. On the same day, foreign gold coins were made receivable in payment for public lands, in order to facilitate their sale to immigrants.
Notwithstanding this action favorable to foreign coin and notwithstanding that a substantial supply of gold came from the Spanish and French traders in the southwest, enabling the mint to coin considerable sums annually, the exports of gold practically drained the country of that metal. During the third decade of the nineteenth century it disappeared from circulation.
This movement was stimulated, not only by the French coinage law of 1803, which fixed a ratio of 15^ to i, but also by the conditions during the War of 1812 and the adoption of the gold standard by England in 1816, with a subsidiary silver coin- age at the ratio of 16 to i.
During a considerable period after the refusal to renew the / charter of the first bank of the United States, depreciated paper was the chief currency, — a condition not remedied until after the second bank was chartered in 1816.
Respecting silver, the country was not much more fortunate, for although the mint was turning out large amounts of the new coinage, the actual specie in use continued to be Spanish piastres (or dollars), and the subdivisions thereof, as a rule much cheap- ened by abrasion. Although somewhat less in weight than the Spanish pieces, the American dollars were accepted by tale throughout the West Indies and were exported for that reason. Spanish and Mexican pieces were imported, and those of full weight, or nearly so, were recoined into dollars at the mint, the depositors reaping the profit.
President Jefferson undertook to check this business in 1806 by directing that the mint suspend the coinage of the dollar
48 A HISTORY OF CURRENCY IN THE UNITED STATES
pieces. This suspension continued until after the legislation of 1834. A similar fate befell the fractional coins, which were equally valuable for export, and the result was that the Ameri- cans were coining for other people while actually using worn for- eign coin.
The evils of the disordered metallic currency grew intolerable, and Congress became impressed with the necessity for action. In consequence, numerous reports were prepared and laid before that body, but, as will appear, no action was taken until 1834.
In 1817 the Senate requested John Quincy Adams, then Secre- tary of State, to prepare a report upon weights and measures, which was not, however, submitted until 1821.
In connection with the general subject Adams discussed the coinage system,1 prefacing it with a criticism of the law fixing the par of exchange for the pound sterling at $4.44, when in fact the value of the pound was $4.56572 in gold and owing to the demonetization and lower rating of silver in England, $4.3489 when reckoning in the white metal. It is not necessary to follow and verify Adams's calculations ; suffice it to say that this very low rating of the pound served to embarrass transactions in- volving international exchange.
Adams also pointed out that the ratings in the acts governing the valuations of foreign coins were inaccurate. He did not discuss the question of the ratio specifically, but provided those who desired to do so with valuable and accurate material rela- tive to the weights of coins. The inevitable deduction from the facts he presented and his reasoning based thereon is that he regarded the ratio very much at fault.
Although not free from errors, Adams's paper shows great labor and research upon a subject concerning which at that time very little material was available to the student.
In the meantime the House of Representatives had referred to a committee the question " whether it be expedient to make 1 See International Monetary Conference, 1878, p. 490.
COINAGE SYSTEM 49
any amendment in the laws which regulate the coin of the United States and foreign coins respectively," which reported, Janu- ary 26, 1819, a bill recommending that the gold coins be reduced in weight from 24.75 grains to 22.798 grains, that a seigniorage of 14.85 grains pure silver to the dollar be charged for coinage, and that the legal tender of silver coin below the dollar be limited to five dollars. This is the first suggestion that fractional silver be made subsidiary.
After discussing the various ratios prevailing, the report con- cludes as follows : —
"As the committee entertain no doubt that gold is estimated below its fair relative value, in comparison to silver, by the present regulations of the Mint ; and as it can scarcely be considered as having formed a material part of our money circulation for the last twenty-six years, they have no hesitation in recommending that its valuation shall be raised, so as to make it bear a juster proportion to its price in the commercial world. But the smallest change which is likely to secure this object (a just proportion of gold coins in our circulation) is that which the committee prefer, and they believe it sufficient to restore gold to its original valuation in this country, of i to iSrV"1
The coinage charge imposed by this bill would have made the ratio of the bullion actually 15 to i. Congress, however, took no action.
On March i, 1819, the House directed Crawford, Secretary of the Treasury, to report, among other matters, "such measures as, in his opinion, may be expedient to procure and retain a suffi- cient quantity of gold and silver coin in the United States." A very able state paper was prepared by Crawford in response to this resolution and presented to the House in February,
I820.2
He argued that the difference of i per cent, between the Spanish and American dollar would have retained the latter in
1 Abridgment of Debates, Vol. 6, p. 273.
* See International Monetary Conference, 1878, p. 502.
50 A HISTORY OF CURRENCY IN THE UNITED STATES
circulation if the former had not been made legal tender. In discussing the ratio he correctly alleged that the derangement was due to the appreciation of gold, and urged that no injustice would result from a change in the ratio which would make it correspond to the market value. He recommended the ratio of 15.75 to i as best calculated to correct the disparity, as it would cause the importation and retention of gold, and would not cause silver to go out unless the state of the foreign trade warranted. Upon the other hand he pointed out that the reten- tion of a metallic currency was dependent upon the volume of paper currency in use (a subject also discussed in his report), that in fact the value of gold and silver had been materially affected by the general use of paper in leading countries, followed by the suspension of specie payments, and subsequently by efforts to resume.
Crawford's report was referred to a select committee which in February, 1821, reported conclusions agreeing with his. It was pointed out that a gold coinage amounting to $6,000,000 had practically disappeared from use, that this was unquestion- ably due to the ratio of 15 to i under which the gold coins were more valuable for export than for home use, the difference being about sixty cents upon every $15 or three half eagles.
Secretary Crawford, in a letter to a committee of the House of Representatives in February, 1823, apparently modified his view as to the ratio somewhat. He said : -
"In terminating this letter I feel it my duty to observe that the rela- tive current value of gold and silver differs materially from that established by the laws of the United States. The consequence has been that the gold coin of the United States has always been exported whenever the rate of exchange between the United States and the commercial nations of Europe has been in favor of the latter. If the gold coins of the United States should be made equal in value to sixteen times the value of silver coins of the same quantity of pure silver, they would be exported only when the rate of exchange should be greatly against the United States." *
1 Abridgment of Debates, Vol. 7, p. 429.
COINAGE SYSTEM 5!
In a report submitted to the House by a committee having under consideration the valuation of foreign coins, in 1823,* it is stated that the coinage of gold and silver at the mint had been in excess of $20,000,000, whereas the amount of specie in the country, inclusive of foreign coin, was estimated at $16,000,000 (less by $1,500,000 than in 1804), and by far the greater part of the coin in the country consisted of French silver pieces, which, it will be recalled, had full legal tender power. It was upon the recommendation of this committee that this power was continued until 1827.
In the Senate at about the same time (January, 1819) the Finance Committee had reported upon a resolution as to the " expediency of prohibiting by law the exportation of gold, silver, and copper coins," concluding that it was not expedient. Three quotations from this report are of interest : -
"Of the inefficiency, if not entire impotence, of legislative provisions to prevent the escape of the precious metals beyond the territorial limits of the Government, the history of all countries in which the power of legis- lation has been thus exercised, bears testimony. . . . Indeed, no error seems more entirely renounced and exploded, if not by the practice of all nations, at least in the disquisitions of political economists, than that which supposed that an accumulation of the precious metals could be produced in the dominions of one sovereign by regulations prohibiting their exporta- tion to those of any other. ... In short, it is the opinion of your com- mittee, that commerce is always destined to flourish most where it is per- mitted to pursue its own paths, marked out by itself, embarrassed as little as possible by legislative regulations or restrictions." *
For more than a decade this question had thus been before Congress without definite progress toward the adoption of a remedy. Meanwhile the opposition to the bank of the United States (described in a later chapter), had begun, and materially interfered with calm, deliberate action.
» ibid., p. 427. f *&*<*•» Vol. 6, p. 190.
A HISTORY OF CURRENCY IN THE UNITED STATES
STATISTICAL RESUME
COMMERCIAL RATIO OF SILVER TO GOLD
Soetbeer's Estimate based on Hamburg Prices
|
1793-.. |
15-00 |
1802 |
15.26 |
1812 |
. . . .16.11 |
1822 |
....15.80 |
|
1794. . . |
15-37 |
1803 |
....15-41 |
1813.... |
. . . .16.25 |
1823.... |
....15.84 |
|
1795... |
15.55 |
1804. . . . |
15.41 |
1814 |
15.04 |
1824 |
....15.82 |
|
1796... |
15-65 |
1805 . . . . |
....15.79 |
1815 |
. . . .15.26 |
1825.... |
....15.70 |
|
1797. . . |
i5-4i |
1806.... |
....15-52 |
1816.... |
15.28 |
1826.... |
....15.76 |
|
1798... |
15-59 |
1807 |
•-..15.43 |
1817 |
....15.11 |
1827 |
....15.74 |
|
1799... |
15-74 |
1808.... |
16.08 |
1818.... |
....I5.35 |
1828.... |
....15.78 |
|
1800. .. |
15.68 |
1809 |
....15.96 |
1819 |
••••15.33 |
1829 |
....15.78 |
|
1801. . . |
15-46 |
1810 |
....15.77 |
1820 |
15.62 |
1830.... |
....15.82 |
1811 15.53 1821
15.95
PRODUCTION OF GOLD AND SILVER
|
DECADE |
WORLD |
UNITED STATES |
||
|
Gold |
Silver |
Gold |
Silver |
|
|
1801-1810 1811-1820 1821-1830 |
$118,152,000 76,063,000 94,479,000 |
$371,677,000 224,786,000 191,444,000 |
$715,000 |
Insignifi- cant |
COINAGE OF THE UNITED STATES
|
YEARS |
TOTAL GOLD |
SILVER DOLLARS |
FRACTIONAL SILVER |
|
1792-1795 - - • |
$71,485.00 |
$204,791.00 |
$165,892.80 |
|
1796-1800 . . . |
942,805.00 |
1,052,667.00 |
17,103.95 |
|
1801-1805 • • • |
1,533,267.50 |
182,059.00 |
287,889.00 |
|
1806-1810 . . . |
1,717,475.00 |
3,099,217.25 |
|
|
1811-1815 • • • |
i,345,925.oo |
2,622,316.50 |
|
|
1816-1820 . . . |
1,820,585.00 |
3,348,494.45 |
|
|
1821-1825 . . . |
600,315.00 |
5,844,178.95 |
|
|
1826-1830 . . . |
I,302,777-5o |
10,936,868.00 |
COINAGE SYSTEM
53
IMPORTS AND EXPORTS OF GOLD AND SILVER, UNITED STATES
Prior to 1821 the commercial movement of precious metals was not separately reported ; nor were the exports and imports of silver correctly given separate from gold, until 1864.
|
YEARS |
IMPORTS |
EXPORTS |
|
1821-1825 .... |
$31,062,367 |
$43,472,833 |
|
1826-1830 |
38,081,413 |
28,065,712 |
CHAPTER VI
COINAGE SYSTEM 1830-1860
THE ratio existing during the period from 1820 to 1830, by consensus of opinion, undervalued gold. The only differences of opinion related to the proper ratio to be adopted and the correlated question whether gold or silver should be the standard.
On May 4, 1830, Secretary Ingham, of the Treasury, in response to a resolution of the Senate of December 20, 1828, requiring him to "ascertain, with as much accuracy as possible, the pro- portional value of gold and silver in relation to each other; and to state such alterations in the gold coins of the United States as may be necessary to conform those coins to the silver coins, in their true relative value," presented a report upon the subject containing the most thorough and exhaustive treat- ment it had received up to that date.
He insisted that the loss of gold by the country was by no means entirely due to the undervaluation in ratio. He adduced the fact that prior to 1821 the market value in the United States had not varied materially from the mint value, and contended that the introduction of bank paper had been the chief cause of the exportation of gold. He argued that the exportation of gold alone did not cause serious trouble, but that actual distress ensued when silver also went abroad, leaving the country inade- quately supplied. He set forth with great force the futility of endeavoring to maintain a bimetallic standard, and urged the
54
COINAGE SYSTEM 55
adoption of a single standard, and that silver. He favored silver because contracts in the country had been for many years based upon the silver dollar, and also because no exact adjust- ment of the relation of the two metals could be maintained with any degree of permanence, and silver could be retained at home by reducing the mint value of gold. The country could not possibly get along without silver, whereas it could without gold by the use of sound bank currency. As to the ratio, he suggested that, since the market ratio appeared to be about 15.8 to i, and it was desirable under his plan to have gold at a slight pre- mium, the coinage ratio should be 15.625 to i.
Secretary Ingham addressed many persons familiar with the subject, for information, and he thus obtained much valuable material which was published with his report.1
Gallatin, who had been Secretary of the Treasury under Jefferson, contributed a lengthy letter and statistical informa- tion. He favored the adoption of the French bimetallic system, ratio 15 J to i, with coins .900 fine. He criticised the English single gold standard, with its "adulterated silver currency/' but not with his usual perspicacity. His general conclusion was that the bimetallic standard should be adopted for the reason that the fluctuations of gold and silver would be less than that of one metal only. If a single standard were selected, silver was preferable to gold because it was then the existing standard metal, was more abundant, requiring a greater premium before it could be exported, and was the only means of suppressing small notes, the worst form of paper currency.
Very valuable statistical and other data relative to exchange, premium on gold, coins, etc., covering many years, were furnished by Samuel Moore, Director of the Mint, and by John White, Cashier of the Bank of the United States.
The views of Alexander Baring, the famous banker of London, upon the single gold standard system of England, in which 1 Printed in full in International Monetary Conference, 1878, p. 558.
56 A HISTORY OF CURRENCY IN THE UNITED STATES
he expressed decided preference for the double standard at 15^ to i and voiced existing dissatisfaction with the new British system, were also reprinted in the report.
Ingham's report unquestionably influenced many of the lead- ing men in Congress. To counteract the tendency toward the single standard Senator Sanford of New York, in December, 1830, reported a bill for the continuation of the double standard at the ratio of 15.9 to i, altering the weight of the gold coins only. The bill was ably supported in the committee's report l which formed the basis of two reports to the House of Repre- sentatives in 1 83 1,2 one on silver and the other on gold, by Repre- sentative C. P. White, also of New York. The latter made two further reports in March and June, i832.3 Together, these five reports constitute an encyclopaedia of the then existing in- formation on the subject. The House Committee opposed the double standard because of "the impossibility of maintaining both metals in concurrent, simultaneous, or promiscuous cir- culation," urged that the single standard was the nearest ap- proach to stability precluding the need of further legislation with each change in relative commercial value, and asserted that if a metallic circulation were desired, notes of ten dollars and under must be prohibited.
White would not admit, as Sanford claimed, that injurious consequences would ensue if one of the metals were rejected. He recommended the adoption of the ratio of 15.625 to i and .900 as the standard of fineness. As to this ratio, he regarded it the utmost limit to which the value of gold could be raised if silver was to be retained, and finally he stated that " the standard ought to be legally and exclusively, as it is practically, regulated by silver."
The influence which the large volume of small notes exer-
1 Senate Reports, aist Congress, 2d Sess., No. 3.
1 House Reports, aist Congress, 2d Sess.
8 Ibid., 22d Congress, ist Sess., Nos. 278, 496.
COINAGE SYSTEM 57
cised in driving out coins was fully appreciated in the House Committee reports.
The discussion proceeded without action for two years longer. In February, 1834, White again reported upon the subject, repeating his former bill and recommendations.1
In May the banks of New York, under the lead of Gallatin, then president of one of them, sent a memorial to Congress asking for the enactment of a law to coin gold at the rate of 23.76 grains of pure and 25.92 grains standard metal to the dollar.2 This would have continued the fineness of the coin at .916! (or eleven-twelfths) and, since the silver dollar remained unchanged, would have resulted in a ratio of 15.625 to i. They also asked that the silver dollars of the Latin-American states and the five-franc pieces of France be made legal tender as well as the Spanish dollars, at their proper mint values. These coins had in fact become the chief elements in the country's specie cir- culation, and some action was necessary to provide a sufficient volume of legal tender money.
Later in the session, when the desire for action became pressing (and only one week before the act of 1834 was actually passed), White completely changed his position and reported a bill which practically favored the gold instead of the silver standard, fixing a ratio of about 16 to i. What the influences were which caused such a radical change does not clearly appear. Many of his followers, for he had become the recognized leader on the sub- ject in the House, severely criticised his course.
From the speeches of Ben ton, the champion of gold in the Senate, it would appear that the policy of adopting a ratio that undervalued silver, according to the judgment of all expert economists, and thus cutting loose practically from both Great Britain and France, was influenced by the desire to place the country in position to draw, in competition with Spain, the
1 Ibid., 23d Congress.
1 International Monetary Conference, 1878, p. 679.
58 A HISTORY OF CURRENCY IN THE UNITED STATES
precious metal product of Mexico, Central and South America. The Spanish ratio had for years been 16 to i, and it was pre- sumed that this caused the flow of gold from the Spanish-Ameri- can countries to the former mother country, even after the separa- tion of those colonies between 1820 and I830.1
There is evidence that the action was in part influenced by the fact that gold had been found in North Carolina and Georgia. The production there had been increasing until the annual out- put was nearly one million dollars, and indeed the people of that section of the country believed that the new Eldorado had been discovered. (In 1835 mints were established at Dahlonega, Ga., and at Charlotte, N.C.) The argument that prosperity, so long absent from the states, would be restored if this gold product could be kept at home, proved very captivating, and in order to make assurance doubly sure the ratio was made sufficiently advantageous to retain that gold beyond peradven- ture.
Ben ton said : —
" Gold goes where it finds its value, and that value is what the laws of great nations give it. In Mexico and South America, the countries which produce gold, and from which the United States must derive their chief supply, the value of gold is 16 to i over silver ; in the island of Cuba it is 17 to i ; in Spain and Portugal it is 16 to i ; in the West Indies, generally, it is the same. It is not to be supposed that gold will come from these coun- tries to the United States, if the importer is to lose one dollar in every sixteen that he brings ; or that our gold will remain with us, when an ex- porter can gain a dollar upon every fifteen that he carries out. Such results would be contrary to the laws of trade, and therefore we must place the same value upon gold that other nations do, if we wish to gain any part of theirs, or to regain any part of our own."
He made his acknowledgments "to the great apostle of Ameri- can liberty" (Jefferson) for the wise, practical idea that the value of gold was a commercial question, to be settled by its value in
1 Benton, Thirty Years' View, p. 436.
COINAGE SYSTEM
59
other countries. He had seen that remark in the works of that great man, and treasured it up as teaching the plain and ready way to accomplish an apparently difficult object ; and he fully concurred with the Senator from South Carolina (Mr. Calhoun) that gold in the United States ought to be the preferred metal ; not that silver should be expelled, but both retained ; the mis- take, if any, to be in favor of gold, instead of being against it.1 Looking to the actual and equal circulation of the two metals in different countries, he noted that this equality and actuality of circulation had existed for above three hundred years in the Spanish dominions of Mexico and South America, where the proportion was 16 to i. White gave up the bill which he had first introduced and adopted the " Spanish ratio." John Quincy Adams said he would vote for it, though he thought gold was overvalued, but if found to be so, the difference could be cor- rected thereafter.2
Speaking of the domestic supply of native gold, Ben ton said that no mines had ever developed more rapidly or promised more abundantly than those in the Southern states. In the year 1824 they were a spot in the state of North Carolina, they are now a region spreading into six states. In the year 1824 the product was $5000, in 1832 he claimed the product in coined gold was $868,000, in uncoined as much more, and the product of 1834 was computed at $2,000,000, with every prospect of continued and permanent increase. The probability was that these mines alone, in the lapse of a few years, would furnish an abundant supply of gold to establish a plentiful circulation of that metal if not expelled from the country by unwise laws.
It was on June 21, 1834, that the White substitute bill was introduced. In one week it became law, only thirty-six repre- sentatives and seven senators voting against it upon final pas- sage. It is apparent that the action was taken from a desire to accomplish something quickly. Political exigency rather 1 Ibid., p. 443. 2 Ibid., p. 469-
60 A HISTORY OF CURRENCY IN THE UNITED STATES
than careful deliberation caused the House to ignore the ratio of 15.625, which was held by White two years before to be the " utmost limit to which the value [of gold] could be raised, " and to favor 16 to i, without regard to the commercial ratio.
The only change made by the act of June 28, 1834, respecting the coinage, was to alter the weight of the gold coins, giving them 23.2 grains of pure gold and 25.8 standard to the dollar. This changed the fineness to nearly .900, instead of .916! . The resulting ratio was 16.002 to i. Another act, passed the same day, provided that foreign gold coins were to be received and pass current at the new ratings which the preceding law es- tablished.
As the Spanish-American colonies were now separate states, their silver coinage was, by another act of June 28, 1834, made receivable the same as the " Spanish dollars" if of full weight. In fact, they superseded the Spanish coins which had been issued from the same mints. Few, if any, of the "Spanish milled dollars" that came to the United States were coined in Spain.
The legislation of 1834 left the silver dollar exactly as the act of 1792 had fixed it. When in 1836 it was found desirable to revise the laws regulating the mint, a bill containing thirty- eight sections was introduced, and several important changes in coins were included. VThis__bill passed January 18, 1837. Section 8 prescribes that the standard of fineness for both gold and silver coins shall be .900, thus avoiding the awkward frac- tion fixed by the law of 1792. The weight of pure silver in the dollar remained the same, 371.25 grains; the gross weight was altered from 416 to 412.5 grains, and fractional pieces were changed in proportion. The legal tender power of all silver pieces remained unchanged. The fineness of the gold coins was slightly increased to make it exactly .900. The eagle thus weighed 258 grains, of which 232.2 grains were pure gold. The ratio became 15.988 to i, the same as it is to-day. The differ- ence is so slight that the custom has become universal to char-
COINAGE SYSTEM 61
acterize the present coinage ratio as "16 to i," thereby ignoring the fractional difference of .012. The coinage of both metals was made free and unlimited, and in fact the coinage of silver dollars was resumed.
The above-mentioned ratio placed a valuation upon gold of 52 cents per ounce higher than that generally prevailing in Europe. It made the silver dollar worth $1.03 measured by the gold dollar. Ere long silver began to depart for Europe, where the ratio of 15 J to i prevailed, and also to India, which had adopted the single silver standard in 1835 at the ratio of 15 to i. The commercial ratio of gold to silver did not equal our coinage ratio until 1874, silver all this time commanding a small pre- mium. Although trade balances were for a number of years adverse, the placing of investments abroad proved more than an offset and the stock of gold in the country increased. Not- withstanding the continual export of United States silver coin, the influx of silver coins from Central and South America, which had been made legal tender, prevented any serious shortage of small coins for some time.
The legal rate of the pound sterling was $4.44^ as fixed by the revenue act of July 31, 1789 (prior to the first coinage law) under which imported wares from British sources were appraised. Adams tells us that this rating was in accord with the valuation of the silver dollar that had been adopted by the Continental Congress by the ordinance of 1786.
The customs rating was $4.44^, the actual rating $4.566, and thus the quotations of exchange at par prior to 1834 were in figures 102.7. No legal change was made after the alteration of the weight of the gold coin in 1834-1837, yet by that altera- tion the 113.001 grains of pure gold in the pound sterling, esti- mated in dollars of 23.22 grains pure gold, gave $4-86f . The difference between this last-mentioned equivalent and the one of 1789 amounts to 9^ per cent.,1 and hence from 1837 onward the 1 Hunt, Merchant's Magazine, Vol. I., p. 536.
62 A HISTORY OF CURRENCY IN THE UNITED STATES
par of exchange was expressed with a nominal premium figure, thus 109!, notwithstanding an act of 1842 which rated sterling at $4.84 in payments by and to the Treasury. This anomaly continued until 1873. 1
The gold fields of the South proved disappointing, but Cali- fornia, recently acquired from Mexico, proved an Eldorado indeed, yielding $10,000,000 in 1848 and $40,000,000 in 1849. In the following decade the annual output continued large, the maximum being $65,000,000 in 1853. This enormous produc- tion dazzled the world at that time, attracted foreigners and foreign capital, and proved of the greatest value to our currency and credit. But the country was denuded of silver, only the abraded foreign coins remaining in circulation. The incon- venience suffered by the public for want of small change became a crying evil, and Congress was impressed with the necessity for action.
Thomas Corwin, Secretary of the Treasury, in an elaborate report early in 1852^ recommended the reduction of the amount of silver in coins as the only remedy, and suggested that the weight of all silver pieces, including the dollar, be reduced so as to give the ratio of 14.88 to i.
Senator Hunter, in the same year, made a comprehensive report 3 in which he referred to the fears existing that the great gold production would unsettle values. This he believed would not result, in view of the great increase of wealth and capital, if natural laws were permitted to operate. But paper currency was interfering with natural laws. He favored a system of sub- sidiary silver coinage in place of bank-notes of smaller denomi- nations than one dollar which had become prevalent. He added, "The great measure of readjusting the legal ratio between gold and silver cannot be safely attempted until some permanent
1 See Chapter XII.
J Special Report, Finance Report, 1852.
8 Senate Reports, sad Congress, ist Sess., No. 104.
COINAGE SYSTEM 63
relations between the market values of the two metals shall be established."
The act of July 3, 1852, established the mint in San Francisco, to provide for the official handling of the large gold product of the Pacific slope.
Corwin, in January, 1853, again called attention to the general conditions, saying that no indication of relief was near, but rather a prospect of reduced supplies of silver. He added : —
"This state of things has banished almost entirely from circulation all silver coins of full weight, and what little remains in the hands of the com- munity consists principally of the worn pieces of Spanish coinage of the fractional parts of a dollar, all of which are of light weight, and many of them ten or twenty per cent, below their nominal value." l
He discussed the objection which had been seriously raised that the proposed silver currency could not, without a violation of contracts, be made a legal tender for the payment of debts, and that the gold thereafter would be the only legal tender. He said : —
"It is true that heretofore the laws of the United States have recognized the coin of either metal as a legal tender, and if it was at the option of the creditor to select what he would receive there would be a very serious objec- tion to changing either the weight or standard fineness of any portion of the coin. But this is not the fact, as it rests with the debtor to say with which description of coin he will pay his debts, and the natural and inevitable consequences of the premium which silver now bears have been to establish, practically, gold as the only legal tender."
These efforts finally resulted in the act of February 21, 1853, which provided that after June i, 1853, the weight of the half dollar or piece of fifty cents should be 192 grains, the quarter dollar, dime, and half dime respectively one-half, one-fifth, and one- tenth of the weight of the half dollar ; that the fineness should continue at .goo ; and that the silver coins thus ordered should
1 Finance Report, 1853.
64 A HISTORY OF CURRENCY IN THE UNITED STATES
be legal tender in payment of debts for all sums not over five dollars. The mint was authorized to purchase silver bullion for coinage, and further deposit for coinage into fractional silver pieces for private account was prohibited, but the deposit of gold and silver for casting into bars or ingots of either pure or standard metal at a charge of one-half of one per cent, was per- mitted. The law also authorized the coinage of $3 gold pieces. The coinage of $20 gold pieces had been previously authorized in 1849.
The weight thus prescribed for the small silver coins, 384 grains of standard silver or 345.6 grains fine to the dollar, gave, as compared with gold, the ratio of 14.882 to i, but as it proved, the question of the ratio of these coins was of no importance so long as it reduced their value below the export point. In a short time the country possessed a fairly adequate supply of small silver.
The act of 1853 did not disturb the coinage of silver dollars. It related solely to the establishment of a subsidiary currency of silver to take the place of fractional bank-notes and to es- tablish a circulation of domestic coin in place of the light-weight foreign coins. Yet speaking on the question in the House, Chairman Dunham of the Ways and Means Committee said : 1 —
"We propose, so far as these coins are concerned, to make silver sub- servient to the gold coin of the country. We intend to do what the best writers on political economy have approved, what experience, where the experiment has been tried, has demonstrated to be the best, and what the Committee believe to be necessary and proper, to make but one standard of currency and to make all others subservient to it. We mean to make gold the standard coin, and to make these new silver coins applicable and convenient, not for large but for small transactions."
Farther on in his speech he said : —
"Another objection urged against this proposed change is that it gives us a standard of currency of gold only. . . . The constant though some-
1 Congressional Globe, XXVI., p. 190.
COINAGE SYSTEM 65
times slow change in the relative value of the two metals has always re- sulted in great inconvenience and frequently in great loss to the people. Wherever the experiment of a standard of a single metal has been tried it has proved eminently successful. Indeed, it is utterly impossible that you should long at a time maintain a double standard. The one or the other will appreciate in value when compared to the other. It will then com- mand a premium when exchanged for that other, when it ceases to be a currency and becomes merchandise. It ceases to circulate as money at its nominal value, but it sells as a commodity at its market price. This was the case with gold before the act of 1834, but it is now the case with silver. Gentlemen talk about a double standard of gold and silver as a thing that exists, and that we propose to change. We have had but a single standard for the last three or four years. That has been and now is, gold. We propose to let it remain so and to adapt silver to it, to regu- late it by it."
Despite this manifest purpose the silver dollar remained in the law, with full legal tender power equally with gold.
The principal opponent of the bill was Andrew Johnson of Tennessee, later Vice-President and President. The following extract from his remarks is of interest : —
"I look upon this bill as the merest quackery — the veriest charlatan- ism — so far as the currency of the country is concerned. The idea of Congress fixing the value of currency is an absurdity, notwithstanding the language of the Constitution — not the meaning of it. ... If we can, by law, make $107 out of Sioo,1 we can, by the same process, make it worth $150. Why, Sir, of all the problems that have come up for solution, from the time of the alchemists down to the present time, none can compare with that solved by this modern Congress. They alone have discovered that they can make money — that they can make $107 out of $100. If they can increase it to that extent they can go on and increase it to the infinity, and thus, by the operation of the mint, can the Government supply its own revenues. The great difficulty of mankind is solved, the idea that so much money is wanted all over the world is at length at an end." 2
1 The act of 1853 altered the value of the silver in the subsidiary coin about 7 per cent.
• Congressional Globe, XXVI., p. 475-
F
66 A HISTORY OF CURRENCY IN THE UNITED STATES
By an act of March 3, 1853, the date fixed for the beginning of the subsidiary coinage was changed from June i to April i, 1853, and the weight of the three-cent silver piece was changed to correspond with the new standard for subsidiary coin. Over $1,000,000 in these pieces had been coined at the lower fineness under the law of March, 1851, showing the great need for small coin, especially for postage, which was then three cents.
Another act of the same date provided for the establishment of an assay office at New York and permitted the deposits therein of gold and silver bullion, dust or foreign coin, for manu- facture into bars or coin at the will of the depositor and the issue of certificates of deposit for the kind of metal deposited, which certificates were made receivable in payment of customs dues at the port of New York, for sixty days from date thereof.
The estimates of specie in the country show an increase of $170,000,000 from 1841 to 1861. Of this increase $130,000,000 occurred subsequent to the year 1849. The principal cause was, of course, the domestic production of gold, which was in large measure retained despite the exports due to adverse trade balances and the inflated condition of the paper currency from 1850 to i860.1
Australia as well as California had become a large producer of gold, and the commercial ratio of silver to gold continued to rise under the influence of this largely increased production. In 1853 the ratio rose above 15^ and did not again recede to that point until 1861. For the year 1859, 15.19 was recorded. The premium on the silver dollar was four to five per cent. No dollars could have circulated under these conditions, and hence but few were coined. The government actually coined less than 2,800,000 of these pieces from 1834 to 1861.
The final act in the series to establish a currency of domestic coin, in place of the depreciated foreign pieces, became law February 21, 1857. It repealed all statutes permitting the cir- 1 Treasury Circular of Information, No. 113, 1900, pp. 61, 62.
COINAGE SYSTEM 67
culation of and giving legal tender power to foreign coins, except- ing only the Spanish-American fractional silver pieces, which were to be received only at government offices at a greatly re- duced rate and at once recoined. Changes were made in the minor coins, nickel being then first used in combination with copper. The coinage of the half cent was discontinued and the weight of the cent was reduced from 168 to 72 grains.
The act also transferred from the Secretary of the Treasury to the Director of the Mint the duty of annually reporting the values of foreign coins, and required the latter officer to make his reports to the Secretary of the Treasury instead of to the President.
A review of the history of the coinage laws prior to 1861 shows that all the leaders in the government of the country were con- vinced of the imperative necessity of uniformity in the standard of value as represented by coin. Hence there was no contest over the provision in the Constitution which deprived the several states of the power to coin money and fix the value of coins. Nor was there a difference of opinion between the chief party leaders at the outset (Hamilton and Jefferson) upon the ques- tion of the advisability of a concurrent use of both gold and silver at the ratio of 15 to i. Being unable to foresee the eventual change in the commercial ratio, no provision was made for an alteration in the legal ratio.
Hesitating to depart from the bimetallic policy adopted under the inspiration of these men, the followers of both in Congress did not venture upon a radical change such as Great Britain had made, but endeavored first by the legislation of 1834 and 1837 to adjust the legal to the commercial ratio, the disparity in which had deprived the country of gold currency ; and later, in l853> by reducing the amount of silver in the fractional coins they sought to retain the same in circulation as the small change of everyday transactions by making the coins worth more as money than they were as bullion for export. For nearly half
68 A HISTORY OF CURRENCY IN THE UNITED STATES
a century prior to 1853 the people had suffered from a dearth of coin and especially fractional parts of a dollar, with all the economic disturbances resulting therefrom.
Notwithstanding the declared purpose in 1853 to establish the single gold standard, the bimetallic law remained, and silver dollars, equally with gold, possessed full legal tender power. The failure of Congress to provide a sound coinage system with a single standard of value materially affected the paper currency system, which is now to be discussed, and left the seed from which was to grow the greatest monetary heresy of modern times, destined to threaten the welfare of the people for a quarter of a century.
STATISTICAL RESUME COMMERCIAL RATIO OF SILVER TO GOLD
|
1832 |
•*;>•/- 11.73 |
1830 |
• * j-^o 11.62 |
»«~VJ • • 1846 |
• *o-v- . H.QO |
1813. |
1C. 27 |
|
1833 1834 |
•15-93 11 73 |
1840 1841 |
.15.62 it? 70 |
1847 1848 |
..15.80 iq 81 |
1854 1811 |
•15-32 11.38 |
|
1831 |
i l.8o |
184.2 . |
1 1.87 |
1840 |
11.78 |
1856. |
.11.38 |
|
1836 1837 . . |
.IS-72 . 1 1.8.3 |
1843 1844... |
• 15-93 .11.81 |
1850 1811.. |
..15.70 . . 1 1.46 |
1857 1818.. |
.15.27 .11.38 |
1859.
15.19 1860 15.29
WORLD'S PRODUCTION OF GOLD AND SILVER (Amounts in millions of dollars)
|
ANNUAL |
AVERAGE |
PER CENT |
BY VALUE |
|
|
Gold |
Silver |
Gold |
Silver |
|
|
1831-1840 |
13.1 |
24.7 |
31.2 |
64.8 |
|
1841—1850 . ... |
364 |
32 4 |
12 O |
47 I |
|
1811-1811 |
132 1 |
368 |
78.3 |
2i 7 |
|
1856-1860 |
134 I |
376 |
78 I |
21 O |
|
O/'" |
The great increase in production of gold, shown in the above table, accounts for the marked rise in the price of silver, as indicated by the fall in the commercial ratio.
COINAGE SYSTEM
EXPORTS AND IMPORTS, UNITED STATES
|
YEARS |
EXP |
ORTS |
Iim |
)RTS |
|
Gold |
Silver |
Gold |
SUver |
|
|
1831-1835 |
$7 063 OOO |
$17 873 6o<? |
$8 3<\i o3"\ |
$42 O74 o6l |
|
1836-1840 |
13 ,<78,43< |
I7,423,Q'C3 |
2S,«:88,2Q6 |
•tQ CCA IO4 |
|
1841-1845 |
IO 724 2^8 |
IO 7O "I 113 |
21 <2<J 334 |
IO 771 321 |
|
1846—1850 |
20,60^,177 |
13,886,373 |
31, 730,4 ^2 |
13 7OO 88 <J |
|
1851-1855 1856-1860 ... |
184,017,429 27O 7QO,<26 |
13,145,180 i8,i«;8,678 |
13,960,026 2^,84<,1Q2 |
H,799,OS7 28,083 6^Q |
GENERAL STATISTICS, PRECIOUS METALS, UNITED STATES (Amounts in millions of dollars)
|
YEAR |
GOLD EXPORTS |
GOLD IM- PORTS |
SILVER EXPORTS |
SILVER IM- PORTS |
DOMES- TIC COIN EX- PORTS |
PRODUC- TION OF GOLD |
GOLD COIN- AGE |
SILVER COIN- AGE |
|
1831 |
O.O |
O O |
6.0 |
6.4 |
2.1 |
OX |
0.7 |
3.2 |
|
1832 1833 . |
0.6 o.c |
0.7 06 |
3-6 1.7 |
5-2 6."> |
1.4 0.4 |
0.7 O.O |
0.8 I.O |
2.6 2.8 |
|
1834 i8«e |
0.3 v 06 |
3-8 2 3 |
1.4 e i g-' |
14.1 10.8 |
0.4 O.7 |
0.9 0.7 |
4.0 ^2.2* |
3-4 3-4 |
|
1836 . |
0.3 |
7.2 |
3.7 |
6.2 |
0.3 |
0.7 |
4.1 |
3.6 |
|
1837 |
I O |
2 4 |
2 8 |
8 i |
1.3 |
O.7 |
.1 |
2.1 |
|
1838 . |
O.7 |
II. 7 |
2.3 |
6.1 |
o.«c |
0.6 |
.8 |
2.3 |
|
1830 |
2 O |
I 2 |
4 O |
4 4 |
I.O |
0.6 |
•4 |
2.2 |
|
1840 . |
I.r |
3.1 |
4.7 |
5.8 |
2.2 |
0.5 |
.7 |
1.7 |
|
1841 |
08 |
I 3 |
3 7 |
2.7 |
0.6 |
.1 |
I.I |
|
|
1842 . |
I.I |
08 |
2.C |
3.3 |
1.2 |
0.7 |
.8 |
2.3 |
|
1843 l8j.A |
o-3 I 2 |
I7.I i 6 |
i.i 4.1 |
5-3 4.2 |
O.I O.2 |
0.8 0.9 |
8.1 5-4 |
3-8 2.2 |
|
i84<; . |
2.2 |
0.8 |
5.6 |
3-3 |
0.8 |
I.O |
3-8 |
1.9 |
|
1846 |
I 6 |
O O |
I.O |
2.O |
0.4 |
i.i |
4.0 |
2.6 |
|
1847 |
I.O |
21.6 |
O.O |
2.5 |
O.I |
0.9 |
20.2 |
2.4 |
|
1848 |
84 |
•7 A |
4.8 |
3-O |
2.7 |
IO.O |
3.8 |
2.0 |
|
iSAQ . |
I.O |
4.1 |
3-4 |
2.6 |
I.O |
40.0 |
9.0 |
2.1 |
Production of silver in the United States for the period, $500,000.
The silver coinage included only 1,017,500 silver dollars.
Domestic coin exports included both gold and silver, but the Mint reports include them with the gold. The figures are presented as the best available, without claim- ing accuracy.
70 A HISTORY OF CURRENCY IN THE UNITED STATES
COINAGE, UNITED STATES
|
YEARS |
TOTAL GOLD |
SELVER DOLLARS |
FRACT. SILVER |
|
1811 i8*c |
$8,631,700 10,146,100 20,214,180 69,001,515 214,142,519.50 130,264,446 |
$15,371,605 11,909,529.60 10,841,782 10,518,680 22,864,243 23,132,280 |
|
|
1836—1840 |
$62,305 567,218 435,450 107,650 1,527,930 |
||
|
184.1— 184. <\ |
|||
|
1846-1850 . . . |
|||
|
1851-1855 1856-1860 |
|||
GENERAL STATISTICS, PRECIOUS METALS, UNITED STATES
|
YEAR |
GOLD EX- PORTS |
GOLD IMPORTS |
SILVER EX- PORTS |
SILVER IM- PORTS |
DOMES- TIC COIN EX- PORTS |
PRO- DUCTION OF GOLD |
GOLD COIN- AGE |
SILVER COIN- AGE |
|
i8<co . |
2 < |
i 8 |
||||||
|
1851 . |
A 8 |
* 6 |
.u 6 6 |
*«v |
18 i |
3^.0 62 6 |
1.9 ft R |
|
|
18^2 |
2 6 |
2 6 |
T 8 |
ii>-u |
cfi 8 |
|||
|
18^ . |
I O |
•/ 2 A. |
i 8 |
37-4 |
||||
|
1854 . |
2 «C |
7 O |
O<7 |
23-5 ?8 T |
39-4 |
9.1 R A |
||
|
i8<?<; . |
I 2 |
•/ 2 fi |
O".l |
•o»v |
||||
|
1856 . |
O O |
54-° |
55-° |
29.4 |
3-5 |
|||
|
1857 |
cr 2 |
6 7 |
u. / |
•* c 8 |
44.1 60 i |
55-° |
36*9 |
-1 |
|
1858 |
7 6 |
ii 6 |
•v 2 6 |
0'° 77 |
oo-u |
J-*-* |
•5 C r |
|
|
1859 .... |
^ 6 |
2 8 |
**«v T/l 8 |
°*5 |
||||
|
1860 |
I e |
2 ? |
8 i |
•O 6 o |
57-5 |
3-3 |
||
|
**3 |
ou-y |
•*o-o |
2-3 |
The production of silver in the United States was only $1,150,000.
The silver coinage included only 1,682,080 silver dollars.
Domestic coin exports included both gold and silver, but the Mint reports include them with the gold. The figures are presented as the best available, without claim- ing accuracy.
CHAPTER VII
PAPER CURRENCY 1775-1811
THE history of our country shows that the people have ex- perimented with every known description of paper currency. The history of the colonial paper issues would form a bulky volume.
Prior to 1775 every one of the colonies had at one time or another made use of note issues, and in some cases issues were made by private banking concerns. The issues were made to obviate raising revenue by taxation and also to supply circulating medium ; owing to the scarcity of coin, notes of denominations as low as threepence were issued during that period and are still in existence. Massachusetts appears to have taken the lead in this as well as in many other matters, and as early as 1690 issued "bills of credit7' to pay soldiers.1 No adequate provision was made for the redemption of the notes issued by the colonies and depreciation followed ; this proved equally true where the currency was given legal tender power.
When an issue had depreciated to such an extent as to be thoroughly discredited it would be redeemed at a percentage, and sometimes a very small percentage, of its par value, in a new issue put forth with solemn pledges for its redemption, which new issue underwent in turn a like depreciation. The losses suffered by New England on account of depreciated paper cur- rency prior to the Revolution were much greater proportionately
1 Knox, United States Notes, i. 71
72 A HISTORY OF CURRENCY IN THE UNITED STATES
than the losses sustained by the other colonies, and this section also was more prolific in schemes with reference to currency. All the bitter experiences which the colonies separately suffered were again to be experienced by the Federation.
The Continental Congress was powerless to impose taxes, and hence unable to make loans ; consequently, burdened with the duty of prosecuting a war, no other recourse than note issuing seemed possible. Accordingly, on June 22, 1775, but not without considerable opposition, a first issue of what was afterwards known as Continental currency was authorized, in denomina- tions from $i to $20, to the amount of $2,000,000.
Issue succeeded issue, as we have seen in Chapter II, until depreciation was so great and the country so flooded with cur- rency that further issues ceased to be an available resource. Legal tender laws did not avail ; we find these words in a protest at that time : —
"If public confidence was wanting tender laws could not replace it. ... If the paper were of full value it would pass current without such aid ; if it were not, then to compel persons to receive it at its nominal value would be an act of dishonesty." 1
Fine, imprisonment, forfeiture of claim, outlawry (any one convicted " shall be deemed, published and treated as an enemy of his country and precluded from all trade or intercourse with the inhabitants," etc.), death, as penalties for refusal to take such notes at their face value, failed to make them pass except at such a price as the public deemed them to be worth in coin. The impo- tence of governmental fiat in the creation of value was painfully and most expensively illustrated. The aggregate issues of Continental currency totaled $357,000,000, which likely included some reissues. After the adoption of the Constitution, Congress in 1790 provided for its redemption, at 100 to i, if notes were presented prior to September 30, 1791 ; 2 the time limit was
1 Phillips, Paper Money, EL » U. S. Statutes, Vol. I.
PAPER CURRENCY
73
subsequently extended until December 31, 1797.* The loaning of real money to the United States by France was the vitalizing force that gave life to our finances, as French arms gave victory to our cause. It was natural that Congress, after its costly experience with government currency, should revert to bank currency as the safer and better expedient.
Congress authorized in 1781 the establishment of the Bank of North America, the first incorporated bank in the country, still in existence in Philadelphia as a national bank.2 The capital was $400,000, of which the government took $250,000, but sold its holdings in 1783, being induced to do so by extreme financial needs. The bank's charter was perpetual, and a number of the states granted it local charters. It rendered the government valu- able assistance and commanded general confidence, its note issues soon finding their way into general use, and circulating at par.
In 1784 the Bank of New York, New York City, and the Massa- chusetts Bank, Boston, were organized and are both now doing a successful business, the former under its original name; the latter, June 27, 1903, acquired control of the First National Bank and absorbed the same, at the same time adopting its name and is now doing business as the First National Bank of Boston. Alexander Hamilton was a controlling influence in the organization of the Bank of New York, and drew its charter, which, however, was not granted by the legislature until 1791. These three institutions were the only ones which preceded the establishment of the Bank of the United States. Their notes gave the people an excellent paper currency which served as an educating influence against "fiat money" schemes, the disas- trous effects of which led to the adoption of sounder principles in framing the Constitution in 1787. That instrument, which went into effect in 1789, provided as follows : -
1 It was in a sense the successor of an informal banking association organized in Pennsylvania a few years earlier, to assist the Continental Congress.
74 A HISTORY OF CURRENCY IN THE UNITED STATES
ART. I. SEC. 8. "The Congress shall have power ... to borrow money on the credit of the United States, ... to coin money, regulate the value thereof, and of foreign coin."
ART. I. SEC. 10. "No state shall . . . coin money, emit bills of credit, make anything but gold and silver coin a tender in payment of debts, pass any . . . law impairing the obligation of contracts."
Fresh from their experiences with continental paper currency, so disastrous to all, it would appear reasonable to assume that the intention of the framers of the Constitution was to prohibit all issues of legal tender paper by Congress. George Bancroft contends, in antagonism to the Supreme Court, that the record of the proceedings of the convention leaves no doubt of such intention.
Upon the question whether the power to "emit bills of credit/' as stated in the draft of the Constitution then under considera- tion, should be given the United States, Gouverneur Morris, in opposition, remarked that "if the United States have credit, such bills will be unnecessary ; if they have not, will be unjust and useless." He was vigorously supported by other delegates. Ellsworth said it was a favorable moment to "shut and bar the door against paper money." Wilson said that the striking out of the provision would "remove the possibility of paper money." Langdon preferred rejecting the whole plan rather than retain the three words "and emit bills." Madison, who hesitated to strike out the words, finally assented after having, as he said, satisfied himself that it would not disable the govern- ment from using its credit, but would cut off the pretext for a paper currency and particularly for making bills a tender either for public or private debts.1
The words were stricken out by a vote of four to one, and unquestionably the convention intended to withhold from the federal government the power to create paper money with legal tender attributes.
1 Bancroft, A Plea for the Constitution, quoting Elliot's Debates.
PAPER CURRENCY 75
The foregoing comments are here briefly introduced in chrono- logical order, but will again be referred to in discussing govern- ment paper currency issues in later years.
The course pursued by the "fathers" respecting bank paper currency under the Constitution will now be con- sidered.
In reply to an order from Congress, to inform that body what further provisions he deemed necessary to establish the public credit, Alexander Hamilton, in December, 1790, submitted his plan for the establishment of a Bank of the United States, similar in its constitution to the Bank of England. He regarded it necessary, owing to the lack of knowledge of the functions of banks, to devote a large portion of the report to that subject. He showed very lucidly how the system of discounts and credits and the use of checks operated to supplement the stock of coin and foster trade and commerce. He demonstrated that the organization of such a bank of issue would enable the country to obtain a manifold use of the volume of coin available, would aid the government in obtaining loans in sudden emergencies by having the capital concentrated, would facilitate the payment of taxes by extending credit and also furnish a convenient medium for remittance from place to place, which latter function would be further facilitated by the system of branches proposed. The bank would serve as the receiver and disburser of public funds, and the money derived from taxes would not be locked up await- ing the government's expenditures, but remain all the while in circulation. He thus anticipated the arguments against the present subtreasury system.
He controverted the current charges that banks "serve to increase usury," that they "tend to prevent other kinds of lend- ing," "furnish temptations to over trading," " afford aid to ignorant adventurers," "give to bankrupt and fraudulent creditors fictitious credit," and "have a tendency to banish gold and silver from the country."
76 A HISTORY OF CURRENCY IN THE UNITED STATES
Upon the last point he remarked : —
"A nation that has no mines of its own must derive the precious metals from others ; generally speaking, in exchange for the products of its labor and industry. The quantity it will possess will, therefore, in the ordinary course of things, be regulated by the favorable or unfavorable balance of its trade ; that is, by the proportion between its abilities to supply foreigners, and its wants of them, between the amount of its exportations and that of its importations. Hence, the state of its agriculture and manufactures, the quantity and quality of its labor and industry, must, in the main, influence and determine the increase or decrease of its gold and silver. If this be true, the inference seems to be that well constituted banks favor the increase of the precious metals. It has been shown that they augment, in different ways, the active capital of a country. This it is which generates employment, which animates and expands labor and industry. Every addition which is made to it, by contributing to put in motion a greater quantity of both, tends to create a greater quantity of the products of both, and, by furnishing more materials for exportation, conduces to a favorable balance of trade, and consequently to the introduction and increase of gold and silver."
These statements of rudimentary banking principles and defence of the character and purpose of banks sound very droll, read in the light of the wonderful development of modern bank- ing, and yet the primitive conditions demanded such an exposi- tion and such defence.
Comparing a government currency with a bank currency, he said : —
"Among other material differences between a paper currency issued by the mere authority of government and one issued by a bank, payable in coin, is this ; that in the first case there is no standard to which an appeal can be made as to the quantity which will only satisfy or which will sur- charge the circulation ; in the last that standard results from the demand. If more should be issued than is necessary it will return upon the bank. Its emissions, as elsewhere intimated, must always be in a compound ratio to the fund and the demand, whence it is evident that there is a limitation in the nature of the thing ; while the discretion of the government is the only measure of the extent of the emissions by its own authority."
PAPER CURRENCY
77
State banks, he showed, could not serve the government as well as a federal corporation, being unable to furnish adequate security for public moneys, and not being amenable to Congress or federal authority. He would have favored the utilization of the Bank of North America under its perpetual charter from the Continental Congress had the bank not been handicapped by the acceptance of charters from several states. Even its original charter from Congress, in Hamilton's opinion, required material amendment to serve the purpose he had in view.
The bank charter bill passed Congress substantially in the form presented by Hamilton, despite the objections of most of the adherents of Jefferson and Madison, who opposed it upon constitutional as well as other grounds.1 The Cabinet of Wash- ington was evenly divided upon the question, but the bill re- ceived Washington's approval on February 25, 1791. Before it was approved, Hamilton prepared a masterful argument upon the subject of its constitutionality, in reply to Jefferson and Edmund Randolph, who advised against approval on the ground that it was not authorized by the Constitution.2
This was practically the first important crossing of swords between the strict constructionists of the organic law and those who believed in broader lines of interpretation. In the final analysis the argument turned upon the question of the expressed and the implied powers of the federal government. While prac- tically admitting that there was no express grant of power to Congress to create corporations, Hamilton urged that implied powers were equally authoritative — that the sole question was whether the end to be served came within the scope of the federal authority and needs — " within the sphere of the specified pow- ers." If this were answered affirmatively, the means necessarily employed to accomplish such end must be constitutional. For example, under the expressed power of regulating commerce,
1 Clarke and Hall, Documentary History of Bank of United States.
78 A HISTORY OF CURRENCY IN THE UNITED STATES
lighthouses, etc., were provided for, and the power thus implied to establish lighthouse service was also a sovereign and unlimited power.
He then proceeded to show how the incorporation of the bank was a means to the end of facilitating the government's fiscal operations, as well as establishing a broader and stronger credit and currency system for the entire country, promoting uni- formity in those important particulars, and hence the general welfare, functions which the state banks could not possibly exercise to advantage.
Replying to Jefferson's contention that while convenient this was not necessary, and that necessity constituted the only valid reason for exercising implied powers, he maintained that to define that word so narrowly would lead to a restriction of the powers of the federal government which would largely defeat the purpose of the Constitution. The following quotation con- tains the gist of his argument : —
"This general principle is inherent in the very definition of government, and essential to every step of the progress to be made by that of the United States ; namely, that every power vested in the government is, in its nature, SOVEREIGN, and includes, by force of the term, a right to employ all the means requisite and fairly applicable to the attainment of the ends of such power and which are not precluded by restrictions and exceptions specified in the Constitution, or not immoral, or not contrary to the essential ends of political society."
The argument of Hamilton was adopted by Chief Justice Marshall in sustaining the United States Bank charter, and later by the Supreme Court in upholding the legal tender power of United States notes. Hamilton's position was endorsed by Washington, and in several instances when amendatory acts were passed by Congress, Jefferson, when he became President, interposed no objection nor did the charter ever come for review before the Supreme Court. The charter of the second bank did, and since many of the points at issue in 1791 were then
PAPER CURRENCY
79
reviewed and determined, and since it was the first comprehen- sive exposition of the scope and principles of the Constitution, I insert here the syllabus and also excerpts from the opinion of Chief Justice Marshall.
The terms of the charter were not in question — the consti- tutional power of Congress to grant any bank charter of any kind was determined ; that was the issue before the courts, raised as to the Second United States Bank.
I/ SYLLABUS
McCulloch vs. Maryland, 4 Wheaton 413
" Congress has power to incorporate a bank.
"The government of the Union is the government of the people; it emanates from them ; its powers are granted by them ; and are to be exer- cised directly on them, and for their benefit.
"The government of the Union, though limited in its powers, is supreme within its sphere of action ; and its laws, when made in pursuance of the Constitution, form the supreme law of the land.
"There is nothing in the Constitution of the United States, similar to the articles of confederation, which exclude incidental or implied powers.
"If the end be legitimate and within the scope of the Constitution, all the means which are appropriate, which are plainly adapted to that end, and which are not prohibited, may constitutionally be employed to carry it into effect.
"The power of establishing a corporation is not a distinct sovereign power or end of government, but only the means of carrying into effect other powers which are sovereign. Whenever it becomes an appropriate means of exercising any of the powers given by the Constitution to the government of the Union, it may be exercised by that government.
"If a certain means to carry into effect any of the powers, expressly given by the Constitution to the government of the Union, be an appro- priate measure, not prohibited by the Constitution, the degree of its neces- sity is a question of legislative discretion, not of judicial cognizance.
"The act of loth April, 1816, c. 44, to 'incorporate the subscribers to the Bank of the United States,' is a law made in pursuance of the Constitu- tion. The Bank of the United States has, constitutionally, a right to estab- lish its branches or offices of discount and deposit within any state.
8o A HISTORY OF CURRENCY IN THE UNITED STATES
"The state within which such branch may be established, cannot, with- out violating the Constitution, tax that branch.
"The state governments have no right to tax any of the constitutional means employed by the government of the Union to execute its constitu- tional powers.
"The states have no power, by taxation, or otherwise, to retard, impede, burden, or in any manner control the operations of the constitutional laws enacted by Congress, to carry into effect the powers vested in the national government.
"This principle does not extend to a tax paid by the real property of the Bank of the United States, in common with the other real property in a particular state, nor to a tax imposed on the proprietary interest which the citizens of that state may hold in this institution, in common with other property of the same description throughout the state."
The Chief Justice said : -
"Although, among the enumerated powers of government, we do not find the word 'bank' or l incorporation/ we find the great powers to lay and collect taxes ; to borrow money, to regulate commerce ; to declare and con- duct a war ; and to raise and support armies and navies. ... A govern- ment, entrusted with such ample powers, on the due execution of which the happiness and prosperity of the nation so vitally depends, must also be entrusted with ample means for their execution. . . .
"The government which has a right to do an act, and has imposed on it the duty of performing that act, must, according to the dictates of reason, be allowed to select the means ; and those who contend that it may not select any appropriate means, that one particular mode of effecting the object is excepted, take upon themselves the burden of establishing that exception. . . .
"But the Constitution of the United States has not left the right of Congress to employ the necessary means, for the execution of the powers conferred on the government, to general reasoning. To its enumeration of powers is added that of making ' all laws which shall be necessary and proper, for carrying into execution the foregoing powers, and all other powers vested by this Constitution, in the government of the United States, or in any department thereof.' . . .
"The word 'necessary' is considered (by counsel for the state) as con- trolling the whole sentence, and as limiting the right to pass laws for the
PAPER CURRENCY 81
execution of the granted powers, to such as are indispensable, and with- out which the power would be nugatory. That it excludes the choice of means, and leaves to Congress, in each case, that only which is most direct and simple. Is it true, that this is the sense in which the word 'necessary' is always used?
"To employ the means necessary to an end, is generally understood as employing any means calculated to produce the end, and not as being con- fined to those single means without which the end would be entirely unattain- able.
**********
"To have declared that the best means shall not be used, but those alone without which the power given would be nugatory, would have been to deprive the legislature of the capacity to avail itself of experience, to exercise its reason, and to accommodate its legislation to circumstances.
"Take, for example, the power 'to establish post offices and post roads.' This power is executed by the single act of making the establishment. But, from this has been inferred the power and duty of carrying the mails along the post road, from one post office to -"mother. And, from this implied power, has again been inferred the right to punish those who steal letters from the post office or rob the mail. It may be said, with some plausibility, that the right to carry the mail, and to punish those who rob it, is not indis- pensably necessary to the establishment of a post office and post road. This right is indeed essential to the beneficial exercise of the power, but not indispensably necessary to its existence.
"Yet all admit the constitutionality of a territorial government, which is a corporate body.
"If a corporation may be employed indiscriminately with other means to carry into execution the powers of the government, no particular reason can be assigned for excluding the use of a bank, if required for its fiscal operations. To use one, must be within the discretion of Congress, if it be an appropriate mode of executing the powers of government. That it is a convenient, a useful and essential instrument in the prosecution of its fiscal operations, is not now a subject of controversy. All those who have been concerned in the administration of our finances, have concurred in rep-
82 A HISTORY OF CURRENCY IN THE UNITED STATES
resenting its importance and necessity ; and so strongly have they been felt, that statesmen of the first class, whose previous opinions against it had been confirmed by every circumstance which can fix the human judg- ment, have yielded those opinions to the exigencies of the nation.
********** "It can scarcely be necessary to say, that the existence of state banks can have no possible influence on the question. No trace is to be found in the Constitution of an intention to create a dependence of the govern- ment of the Union on those of the states, for the execution of the powers assigned to it. Its means are adequate to its ends, and on those means alone was it expected to rely for the accomplishment of its ends. To impose on it the necessity of resorting to means which it cannot control, which another government may furnish or withhold, would render its course pre- carious, the result of its measures uncertain, and create a dependence on other governments, which might disappoint its most important designs, and is incompatible with the language of the Constitution. But were it otherwise, the choice of means implies a right to choose a national bank in preference to state banks, and Congress alone can make the selection."
The charter was an exclusive one for twenty years. The capital was fixed at $10,000,000 divided into shares of $400 each, the government taking one-fifth. Small investors in the shares were protected by being given a relatively greater voting power, and no one was allowed to cast more than thirty votes ; foreign shareholders had no votes. Twenty-five directors were to govern the institution. The government's shares were to be paid for with money borrowed from the bank, repayable in instalments. No specific authority to issue notes was conferred, this being apparently understood to exist without a special proviso, but other parts of the act referred to the notes to be issued, and the notes were to be included in the liabilities. The notes and other debts (exclusive of deposits) were not to exceed the capital of the bank, directors being liable for such excess. Furthermore, the notes while payable on demand in coin were to be "receivable in all payments to the United States." Branches were authorized to be opened at any place in the United States, and the Secretary of the Treasury was empowered to
PAPER CURRENCY 83
require reports and to inspect the general accounts upon which such reports were based. The bank was not allowed to hold real estate beyond that necessary for offices, etc., unless acquired in satisfaction of preexisting debt. It was prohibited from loan- ing more than $100,000 to the United States or more than $50,000 to any state, or making any loans to a foreign prince or state, unless sanctioned by Congress. It was not permitted to deal in stocks and bonds (except to sell those it acquired at the outset), or, generally, in anything but bills of exchange and bullion, nor was it to charge more than 6 per cent, upon loans or discounts. A very important provision was that three-fourths of the stock had to be paid for in 6 per cent, bonds of the United States then being issued. Thus the government was to be ma- terially assisted at the outset in floating its loans.
The stock of the bank was considerably oversubscribed in two hours after the books were opened. Thomas Willing, President of the Bank of North America and a former partner of Robert Morris, was the first President.
The bank began business in Philadelphia, branches being eventually opened in New York, Boston, Baltimore, Washing- ton, Norfolk, Charleston, Savannah and New Orleans. The gov- ernment almost immediately became a borrower from the bank, its loans totaling $6,200,000 at the ~close~of 1795, and ultimately it was compelled to realize upon its shares in the bank to repay in part the debt. In 1802 it ceased to be a shareholder, having, however, realized a net profit of nearly 57 per cent, upon its investment.
No reports of the bank's condition seem to have been required by the Treasury, and only two reports are known to exist, hav- ing been communicated to Congress by Secretary Gallatin in 1809 and iSn.1 The rate of dividend paid (in excess of 8 per cent.) indicates that it was a very successful enterprise, besides being of incalculable benefit to the government in its most trying 1 Gallatin's Reports, Finance Reports, Vol. I.
84 A HISTORY OF CURRENCY IN THE UNITED STATES
days during the period under review. From the reports in question it is gleaned that its circulation was $4,500,000 to $5,000,000, individual deposits $8,500,000 in 1809 and $5,900,000 in 1811, loans about $15,000,000, specie about $5,000,000. The latter of the two reports was for a date within a few months of the expiration of its charter.
Aside from the service to the government which the bank performed admirably, as testified to by Gallatin, Jefferson's Secretary of the Treasury, it exercised a most salutary influence upon the currency. Its own issues were never very large com- pared with its specie reserve, it issued no notes under ten dollars and it checked undue expansion on the part of the state banks, which now were increasing in number annually, by forcing re- demption in specie when occasion warranted.1
The bank issued post notes, that is, post-dated notes, which, as a rule, were payable thirty days after the post date; they ran for various periods and differed from the usual promissory note only in having the bank back of them.
Although the charter was not to expire until 1811, a petition from the bank for its renewal was presented to Congress early in 1808. It was referred to committees, and Gallatin was di- rected to submit his views on the subject. He favored a new charter rather than a renewal, but was unquestionably favorable to the use of such a bank, particularly for the collection, safe keeping, and transmission of public moneys, and as an aid to the government in respect to loans.2 The strongest objection to the renewal was the fact that $7,200,000 of the $10,000,000 capital was owned abroad. He therefore recommended a national bank, capital $30,000,000, two-sixths to go to the share- holders of the existing bank, three-sixths to the United States and the states, and one-sixth to the public, both the federal and the state governments to have a voice in the direction ; the United States to receive interest on its deposits in excess of 1 Gallatin's Reports, Finance Reports, Vol. I. * Ibid.
PAPER CURRENCY 85
$3,000,000, and in emergencies to be accommodated with loans to the extent of $18,000,000 at 6 per cent.
In 1 8 10 a committee reported a bill upon the lines indicated by Gallatin, simply grafting the new features on Hamilton's act of I79I.1 Subsequently another bill was reported to renew the charter for twenty years with some such modifications as recommended by Gallatin, excluding the participation of the states. In January, 1811, Gallatin submitted the second of the reports of the condition of the bank, already referred to. Another bill for renewal was introduced and pressed. An ex- tended debate ensued, in the course of which the entire ques- tion was thoroughly discussed. Much of the opposition was based on constitutional objections. In the House the bill was defeated by the close vote of 65 to 64. In the Senate, Crawford, (afterwards Secretary of the Treasury) favored the renewal, in a strong report, believing, like Gallatin, in the great practical utility of the bank. He obtained from Gallatin a forcible plea for his bill, in which the inability of state banks to serve the desired purpose was conclusively shown. Crawford pointed out that despite the admitted usefulness of the bank and its influence upon the country's prosperity, the legislators were being carried away by the supposed public sentiment against the bank. Henry Clay opposed the bill upon constitutional grounds ; he also appears to have been afraid of foreign control. The vote in the Senate was 17 to 17, and Vice President George Clinton gave the casting vote against the bill. So renewal was defeated. A petition from the bank for a brief extension in order to wind up its affairs was likewise negatived. Clay in the Senate made the committee report against the petition, saying that inasmuch as the original act was unconstitutional, any extension would be equally so. In the House the same reason was given for refusal.2
The Bank was required to report its condition to the Secre- 1 Clarke and Hall, History of the Bank of the United States. 2 Ibid.
86 A HISTORY OF CURRENCY IN THE UNITED STATES
tary of the Treasury as often as required, not exceeding once a week. Such reports were not made public, being considered confidential, but that they were made is sufficiently shown by the writings of Jefferson, Gallatin and others who could not otherwise have obtained the data which they present. The fact that no such records now exist justifies the conclusion that they were burned; it will be remembered that the Treasury Department was burned in August, 1814, when Washington was occupied by the British, and was burned again in March, 1833. Had such reports been preserved, they would have been of great value to economists and publicists.
The assets of the institution were acquired by Stephen Girard, who continued the business in Philadelphia as Girard's Bank, which still flourishes there under a national charter.
In the final liquidation it paid $434 for each of its $400 shares, after having paid dividends averaging 8^ per cent.1
In 1784 there were but three state banks, with a capital of $2,100,000. From the meagre reports available it is gathered that the number increased to 28 in 1800 with $21,300,000 capital ; in 1805 there were 75 with over $40,000,000 of capital ; and in 1811 there were 88 with nearly $43,000,000 of capital. Of these last mentioned 47 with $12,200,000 capital were in New England, where the laws imposed wholesome regulation, particularly in Massachusetts, which required public reports from 1803. Al- though the systems in other states were with rare exceptions very carelessly supervised, or not at all, and charters were granted as spoils of party in some, the circulation issued relative to the specie holdings was not excessive in volume until after i8n.2
In 1806 Vermont had organized a bank, with branches, owned and operated exclusively by the state. Kentucky in the same
1 Knox, History of Banking.
s See Crawford's Report of 1820, also Gallatin, Currency and Banking System, 1831.
PAPER CURRENCY 87
year, Delaware in 1807, and North Carolina in 1810, each char- tered a bank in which the state took a substantial stock interest. Taken all together the period covered by the two decades during which the first United States Bank existed was one of prosperity, perhaps without parallel in any new country after an impoverishing war, and although natural advantages and the energies of the people had much to do with this prosperity, it is but just to give credit to the fathers of the Republic for their foresight in laying its foundations, and especially to the genius of Hamilton, who at the age of 32 took charge of the Treasury Department, and for about six years had the almost exclusive direction of the economic affairs of the new nation. His four reports on the Public Credit, the Establishment of a Coinage System, on the Bank, and on Manufactures and Tariff, constitute a monument to the incomparable ability of this greatest of all our financial ministers.
STATISTICAL RESUME
ESTIMATES OF BANK CAPITAL AND CIRCULATION, AND THE MONEY IN THE COUNTRY FOR VARIOUS DATES TO 1811
Compiled from Crawford's Reports and Elliot's Funding System (In millions except in last column)
|
BANKS (INCLUDING BANK OF UNITED STATES AFTER 1790) |
MONEY VOLUME |
||||||
|
Number |
Capital |
Circulation |
Specie |
Total |
Population |
Per Capita |
|
|
1784 |
3 |
2.1 |
2.0 |
10.0 |
I2.O |
3-0 |
$4.00 |
|
1790 |
4 |
2-5 |
2-5 |
9.0 |
«•$ |
3-8 |
3.00 |
|
1795 |
24 |
2I.O |
16.0 |
19.0 |
3S-o |
4-5 |
7-77 |
|
1800 |
29 |
31-3 |
iS-5 |
I7-S |
33-o |
5-3 |
6.22 |
|
1805 |
76 |
50-5 |
26.0 |
17-5 |
43-S |
6.2 |
7.00 |
|
1811 |
89 |
S2.7 |
28.1 |
30.0 |
58.1 |
7-3 |
8.00 |
It is reported that in 1811 the banks held about $15,000,000 of specie, ments purporting to give specie holdings prior to that date are misleading.
State-
CHAPTER VIH
PAPER CURRENCY 1812-1836
THE currency history of the country for the quarter-century following the expiration of the charter of the First Bank of the United States is divisible into three almost equal periods, — the disorganized condition of the currency during and following the War of 1812, and the struggle for its reformation, which extended to 1820 ; a period of sound currency under regulation by the Second Bank of the United States followed and continued until 1829 ; then began the war upon the Bank resulting in the failure to renew its charter and the downfall and breaking up of the system of which the Bank had been the controlling influ- ence.
Statistics relating to banking and currency from 1812 to 1834 are exceedingly meagre. Subsequent to 1834, pursuant to a resolution of Congress directing the collection and reporting of information, the Treasury reports contain fairly satisfactory data. Secretary Crawford,1 and afterward ex-Secretary Galla- tin,2 undertook to give some comparative figures for certain years. For the period from 1821 to 1828, inclusive, the only available statistics are found in the reports of the Massachusetts banks (required by state law from 1803) and those of the Second Bank of the United States, also required by law.
The second war with Great Britain began in 1812. The government found it necessary to borrow money and, as pre-
1 Report of 1820, in full in International Monetary Conference, 1878, p. 502.
2 Currency and Banking System, 1831.
88
PAPER CURRENCY 89
dieted by Hamilton, Gallatin, and Crawford, the state banks proved unequal to the emergency. Instead of the anticipated contraction of banking facilities after the liquidation of the First Bank, a rapid expansion had taken place, but much of the alleged bank capital was fictitious, a large number of banks having been organized upon capital represented by notes of hand of the sub- scribers.
Crawford estimated that in the four years, 1811-1815, the number of banks increased from 88 to 208, the capital from less than $43,000,000 to over $88,000,000, and the circulation from $23,000,000 to $110,000,000. In 1816 there were 246 banks with $89,400,000 capital. For 1817 the number of banks is not given, but the capital is estimated at $125,700,000. In 1820 there were 307 banks, but the capital was only $102,100,000. Adequate legal restrictions were wanting in most of the states, and notes were issued with ease and without regard to capital or specie holdings. In order to increase the volume as much as possible, since note-issues were their principal means of making loans and discounts, a mass of small denominations, some as low as six cents, were issued. Adding to this the stress of war and the consequent hoarding of specie, suspension of coin payments naturally followed. Most of the banks outside of New England suspended in August, 1814. The depreciation of Southern and Western bank-notes was most severe. At Baltimore, where notes from Southern banks were found in greatest abundance, the discount on some issues reached 23 per cent. In New York and Philadelphia 16 per cent, was the maximum discount. Bos- ton and New England notes alone were quoted on a par with specie. The range of the discounts by years was : 1814, 10 @ 20 per cent. ; 1815, 2 @ 2iJ per cent. ; 1816, if © 23 per cent. ; and 1817, the year of resumption, i\ @ 4^ per cent. Lack of specific information prevented the public from exercising a wise dis- crimination, as between banks, and hence they discriminated against localities. As late as 1823 discounts reaching a maxi-
go A HISTORY OF CURRENCY IN THE UNITED STATES
mum of 75 per cent, upon notes of certain Kentucky banks are recorded.1
The funds of the government were deposited in many of these banks throughout the country, and when suspension took place amounted to $9,000,000. Congress, in 1812, had been compelled to resort to an issue of "Treasury Notes" (the first since 1781) to cover short term loans. Five separate issues were authorized during the war. At first all were interest-bearing, payable in one year and in denominations of $100 only. Later notes of $50, $20, and $5 were authorized; the $5 notes, however, did not bear interest. They were not made legal tenders, the prop- osition to do so having been promptly defeated; but being receivable for all public dues, and payable to public creditors, they circulated freely. In all $60,500,000 were authorized, but less than $37,000,000 were actually issued.2 These notes were all funded into bonds or paid, except a very few which were probably destroyed or lost.
The government did not succeed in disposing of its obliga- tions at par. An official report shows that of the $80,000,000 of bonds and notes placed during the War of 1812, owing to the discounts thereon and the depreciated currency received in pay- ment therefor, the Treasury actually obtained only $34,ooo,ooo.3 In other words, had the Treasury been able to dispose of its notes and bonds at par in coin, and had its balances in the vari- ous state banks been available, a loan of $34,000,000 properly financed would probably have covered the expenses of the war, for which, ultimately, the people paid $80,000,000 and interest. Gallatin, in reviewing the period, expressed the opinion unequivo- cally that, had the Bank of the United States been rechartered, suspension of specie payments would have been avoided and so this loss, enormous for that period, would not have been incurred.4
1 Gouge, History of Paper Money. 2 Bailey, National Loans.
3 McDuffie's Report on Bank of United States, 2ist Congress, ist Sess.
4 Gallatin, Currency and Banking System.
PAPER CURRENCY gi
Many of those in Congress who had aided in defeating the renewal of the federal bank charter began to see the error of that policy. It will be recalled that a change of one vote in each House of Congress would have carried one of the measures proposed. Even Madison, now President, who in 1791 was the leader of the opposition to the First Bank charter, modified his opinions. The " object lesson" had been an instructive one.
Jefferson advised Madison to propose the issue of government currency, $20,000,000 annually so long as needed, and appeal to the states to relinquish the right to establish banks of issue.1 This appears to be the first important suggestion for a govern- ment note-issue.
Early in 1814 New York members in Congress presented a petition for the establishment of a national bank with a capital of $3o,ooo,ooo.2 The House Committee reported adversely, upon constitutional grounds. Calhoun, then a representative from South Carolina, endeavored to have such a bank established in the District of Columbia, which, being under exclusive federal jurisdiction, made the measure constitutional. A bill for this purpose was reported in February, but was soon dropped. In October the Secretary of the Treasury, A. J. Dallas, upon request from the House Committee on Ways and Means to furnish sug- gestions for the maintenance of the public credit, submitted a report 3 strongly favoring a national bank. Jeffersonian though he was, and in the cabinet of Madison, Dallas said that if after twenty years of tacit sanction of the old bank charter the Consti- tution had not been amended upon this question, he considered himself justified in regarding it settled in favor of the consti- tutionality of the charter. He regarded such an institution " the only efficient remedy for the disordered condition of our circulat- ing medium." He recommended a $50,000,000 bank, two-fifths
1 Bolles, Financial History of United States.
1 Clarke and Hall, Documentary History of Bank of United States.
8 Finance Reports, Vol. II. ; also Clarke and Hall's History.
92 A HISTORY OF CURRENCY IN THE UNITED STATES
of the capital to be taken by the United States, $6,000,000 to be paid in specie by outside subscribers, $24,000,000 in the recent issues of public debt, and the $20,000,000 taken by the United States to be also paid for in such obligations ; the bank to loan the government $30,000,000, and the government to have five of the fifteen directors and the right of inspection.
Calhoun proposed a substitute bill providing that all the shares were to be open to public subscription, and omitting the required loan to the government. Another bill, containing a clause permitting the bank to suspend coin payments during the war, was introduced. The suspension clause was rejected by the casting vote of Speaker Langdon Cheves (afterwards president of the Second Bank). Daniel Webster, with his accus- tomed vigor and eloquence, also opposed the suspension clause. Amended in various particulars the bill finally passed, but since the capital was reduced to $30,000,000 and no loan to the govern- ment was provided for, Dallas pronounced the measure inade- quate and President Madison vetoed it on January 30, I8I5.1
Among the objections urged by Madison was that the bank would be compelled to maintain coin payments, thus restricting note circulation and diminishing the bank's usefulness during the war period.2
The war came to an end soon thereafter, but the disordered condition of the currency required attention, and Madison, at the opening of the next Congress, December, 1815, gave special attention to the subject in his message.3 He referred to the absence of specie and the need of a substitute; if state banks could not supply a uniform national currency, a national bank might ; if neither could, it might "become necessary to ascertain the terms upon which the notes of the Government (no longer required as an instrument of credit) shall be issued, upon motives of general policy, as a common medium of circulation." The
1 Clarke and Hall, History of Bank of United States. Messages of Presidents, Vol. I. * Messages of Presidents, Vol. I. 3 Ibid.
PAPER CURRENCY
93
exigency must have been great indeed to produce such a change of views since the days when he sat in the Constitutional Convention.
Dallas in his annual report for 1815 again discussed the sub- ject, concluding that "the establishment of a national bank is regarded as the best, and perhaps the only adequate resource " ; believing that such a bank would aid and lead the state banks in the work of restoring credit, public and private.1 He recom- mended a capital of $35,000,000, three-fourths government bonds, one-fourth specie (the capital to be afterwards aug- mented to $50,000,000 by Congress, the additional $15,000,000 to be taken by the states) ; the United States to take $7,000,000 of the capital and to have one-fifth of the directors ; the bank to pay $1,500,000 for the charter out of its earnings. Suspension of coin payments was not permitted, branches were allowed, and the ordinary government business was to be transacted with- out charge.
Calhoun reported a bill to the House upon the lines suggested by Dallas. Webster desired to reduce the capital. Clay, now in the House, favored the bill, explaining that his former opposi- tion in the Senate to a national bank was due to supposed in- structions from the Kentucky legislature, to the supposed desire of his constituents, and to his conviction that the necessity for using an implied constitutional power did not exist; now the case was different; such a bank was indispensable to remedy existing evils. The bill passed the House March 14, 1816, by a vote of 80 to 71. It received the support of Calhoun, Clay, and Ingham (afterwards Secretary of the Treasury) ; Webster and most of the Whigs voted against it, objecting finally to the participation of the government in the bank. (The Jeffersonians were to have control.) The vote was by no means sectional. The Senate passed the bill in April, and it was approved by Madi- son on the xoth of that month.2
1 Clarke and Hall, History of Bank of United States ; also Finance Reports, VoL II. 2 Clarke and Hall, History of Bank of United States.
94 A HISTORY OF CURRENCY IN THE UNITED STATES
The Second Bank's charter was drawn largely upon the lines devised by Hamilton for that of the First Bank. Numerous provisions repeat his language word for word. The capital was fixed at $35,000,000, three and one-half times that of the First Bank, with shares of $100 (instead of $400) each. The government took one-fifth of the stock, paying for it with its obligations in instalments, the last one being paid in 1831. Of the remaining $28,000,000, one-fourth was to be paid for in specie, the balance in specie or government bonds, in three equal half yearly instalments. No single subscription for more than three thousand shares was to be accepted unless the full amount subscribed for by others had not been taken prior to the date fixed. The restrictions upon voting the shares which the first charter contained, were repeated. There were twenty- five directors, as in the First Bank, but now the government had one-fifth of the board, to be appointed by the President.
In lieu of making a loan to the government, the Bank paid a bonus of $1,500,000, and it was to act as the fiscal agent of the government, including the transfers of funds, without com- pensation. The deposit of public moneys was to be made in the Bank and branches where they existed, unless otherwise directed by the Secretary of the Treasury, and when that officer gave such directions he was to report his reasons therefor to Congress. The Bank was empowered to establish branches anywhere, with a local organization, and it had to have a branch in the District of Columbia and in every state where two thousand shares of its stock were held. Reports were to be made to the Secretary of the Treasury as often as required, and the Bank was subject to his inspection and to that of a committee of Congress.
The note-issuing function was more specifically provided for than in the first charter. Denominations under $5 were pro- hibited and all under $100 were to be payable to bearer on de- mand. The suspension of coin payments of notes and deposits
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was prohibited, subject to a penalty of 12 per cent, per annum. As in the old charter the liabilities, other than for deposits (there- fore including note issues), were not to exceed the amount of the capital, unless authorized by Congress, and directors were personally liable for any excess. The notes of the Bank were to be receivable in all payments to the United States.
The provisions relative to the holding of real estate, dealing in anything but exchange and bullion, and demanding more than 6 per cent, upon loans, were the same as in the old charter. The sale of the government bonds held by the Bank was limited to $2,000,000 a year, and if sold in this country they were first to be offered to the government at current rates. Congress agreed further to incorporate no other banks, except in the Dis- trict of Columbia, during the life of the charter.
The shares were not fully subscribed at once, and Stephen Girard ultimately took the unsubscribed 30,383 shares.
The Bank opened for business on January 17, 1817. The second instalment of subscriptions to shares was then due, but neither this nor the third was paid in promptly and according to the charter. In order to encourage payment the Bank man- agement was unwisely indulgent ; the Bank made loans to stock- holders upon their subscription stock, accepted the notes of specie-paying banks as coin, and made payment in this manner so easy that the Bank received less than $2,000,000 (instead of $7,000,000) in specie, and $15,430,000 in government bonds, instead of $21,000,000 as expected. The Bank was thus weak- ened in its capitalization and had to contend with adverse trade balances, which resulted from large importations from abroad during 1816-1818 ; foreign exchange was at a premium, which means that gold was really at a premium. Consequently the bank was compelled in 1818 to import specie. The officers permitted the transfer of the shares upon the books of the Bank before they were fully paid for. A number of the officers and directors speculated in the stock of the Bank, discounting their
g6 A HISTORY OF CURRENCY IN THE UNITED STATES
loans for the purpose at the Bank or its branches. The first two years* operations showed losses, due largely to this speculation, of more than $3,500,000 ; nevertheless it paid dividends.
On November 30, 1818, the House of Representatives ap- pointed a committee to investigate the Bank's affairs. In its report made by John C. Spencer, afterwards Secretary of the Treasury, in February following, the speculations and other derelictions above referred to were published.1 The Bank was nearly insolvent and had violated its charter ; nevertheless the House refused to declare it forfeited, preferring that the share- holders correct the mismanagement. In March, 1819, Langdon Cheves became president and under his able and conservative administration, covering four years, the evils were corrected and the Bank became very prosperous. From 1823 to the expiration of the charter Nicholas Biddle was president of the institution.
Coin payments were not at once restored. Secretary Dallas had endeavored, but without success, to prepare the way in 1816, by urging the state banks to resume,2 but the existing condi- tions were very profitable to them, and they were not inclined to do so. The greater their note-issues and the longer specie re- sumption was delayed, the larger would be their dividends. In October, 1816, Dallas was succeeded by Crawford, who con- tinued the efforts for resumption and finally succeeded in having July i, 1817, fixed as the date for its beginning. Crawford felt, however, that the Bank's assistance was requisite and ac- cordingly influenced it to negotiate an agreement with the state banks in the principal cities, to resume on February 20 instead of July i.
This proved more easily said than done. The country was un- questionably short of specie. The Bank could not, as has been stated, obtain its required quota without importation and there appears to have been a premium on foreign exchange the greater part of the years 1817 and 1818, so that the imported specie 1 House Reports, isth Congress, 2d Sess. * Finance Reports, Vol. II.
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promptly returned abroad. This served to aid the state banks to continue redundant paper issues. The Spencer committee laid a large portion of the blame for