Part 17

Assuming the constitutionality of this proposition, or rather declining to admit the satisfactory force of the constitutional arguments against it, I am brought to a question which has, for me, more of difficulty and doubt: I mean the policy of exercising the power at this moment. It is not too much to say that this question concerns the national character, as well as the national welfare, while intelligent and patriotic men differ earnestly with regard to it. Decide it as we may, we cannot escape anxiety on the subject. Take which way we will, we cannot escape the just sense of responsibility. Seeking the truth only, and jealous of that good name which is to a Government one of its best possessions, I shall consider the question frankly; nor shall I disguise any of the difficulties which it presents, whether from principle or from experience. This is not the time for concealment, and I insist, that, if the power is exercised, its true character shall be understood. I invoke, also, the examples of history, to make us pause; but it will be my duty to show that there are other examples calculated to sustain the Government in the policy it now so urgently recommends.

If the Treasury notes of the United States were at this moment convertible into coin, there would be no occasion to declare them a tender; for they would be everywhere, at least in our own country, as good as coin. But the suspension of the banks was followed by suspension of the Treasury, and its notes are now inconvertible paper, which it is proposed to sustain artificially by declaring them a tender. If this proposition be adopted, the Treasury will be enabled to substitute bits of engraved paper for money. Of course, such a proposition, on its face, is obnoxious to objections that make upon me an impression not to be disguised.

Looking at the history of paper money, especially in our own country, we find no encouragement. Its evils were vividly portrayed by the “Federalist,”[179] and have been powerfully presented in this debate by the Senator from Vermont [Mr. COLLAMER]. Congress, during the Revolution, began, as early as 1775, with bills to the amount of $3,000,000, on their face declaring the bearer entitled to receive the sum specified in “Spanish milled dollars, or the value thereof in gold or silver,” according to a certain resolution of Congress. The bills were receivable for taxes, and the thirteen colonies were pledged for their redemption. Other emissions followed, and, as their credit began to fail, Congress went so far as to declare that whoever refused to receive this paper in payment should “be deemed, published, and treated as an enemy of his country.”[180] As the paper continued to depreciate, Congress became more violent in its support, and even ventured to recommend it as of peculiar value. “Let it be remembered,” said Congress, “that paper money is the only kind of money which cannot ‘make unto itself wings and fly away.’”[181] The sum-total of these bills at last reached upwards of three hundred millions, which in 1780 became so utterly worthless in the hands of their possessors that they ceased to circulate, and have ever since been treated only as curiosities, without positive value. No serious proposition for their redemption has ever been made.

The French _assignats_, amounting to the enormous sum-total of _nine thousand million dollars_,[182] issued during the fiery excitements of the Great Revolution, shared the fortunes of American Continental money, passing into the limbo of “things transitory and vain.” Perhaps there is not a country on the European continent, which, during the fearful wars that followed, did not encounter the same experience. I have heard it said that old soldiers in Denmark lighted their pipes with paper money, which had become to them only the record of a broken promise.

Power of all kinds is liable to abuse, and experience shows that the power to issue inconvertible paper is no exception to this prevailing law. The issue may be moderate at first, and sustained by plausible reasons, but it breaks soon into excess. Of course, actual value, or its equivalent, is the life of money, giving to it a circulating quality; and when money begins to be suspected, it loses its circulating quality. But inconvertible paper, even when made a tender, has no actual value, and circulates only because Government commands its circulation. It has no present worth beyond the engraving; therefore all ordinary checks to undue issue of money are wanting. Nothing exists to prevent excess and consequent depreciation; and this danger is verified by history. I refer to it now that I may not seem indifferent to any of the perplexities which surround us.

In some countries a legal tender is gold and silver; in others it is gold alone. In England, since 1816, gold, and not silver, has been the tender for sums of forty shillings and upwards; and since 1833 the notes of the Bank have been a tender for sums over five pounds, everywhere except at the Bank itself and its branches. But it is to be borne in mind that both these metals have positive value in the market equivalent to that of coin; so that coin is value itself. But convertible paper is not value itself; it is only the representative of value; while it is doubtful if inconvertible paper can be called the representative of anything in particular. These considerations are not decisive of the policy now proposed, but they justly incline us to a prudent hesitation.

If we are not deterred by the bad examples of history, or by the acknowledged danger of excess and consequent depreciation,--if we are willing to take the chance of seeing Treasury notes in the same list with Continental money and French _assignats_, and of having returned soldiers in old age light their pipes with the worthless paper,--if these suggestions are put aside as exaggerated or irrelevant, I ask you not to forget that a constant aim of good government is to secure the immediate convertibility of paper into coin. But, instead of securing such immediate convertibility, or taking any steps towards it, you will for the present renounce it.

Pardon my frankness, Sir, if I declare that the present proposition, when examined carefully, seems too much like bad faith. I say it _seems_: I would not speak too strongly. Is there not bad faith towards creditors, who are compelled to receive what is due in a depreciated currency? Is there not bad faith towards all abroad, who, putting trust in our integrity, national and personal, have sent their money to this country in gold or its equivalent? And just in proportion as this is so, you cannot doubt that we shall suffer alike in character and resources too; for what resource is greater to a nation or to an individual than a character for integrity? The present proposition must be followed soon by others,--even to the extent of $1,000,000,000. But where shall this vast amount be obtained, and at what cost, when it is seen that we have already undertaken to authorize inconvertible paper as a tender? Credit is volatile and sensitive, and will not yield to force. Do you propose the right way to win the delicate possession? It will not come to you from abroad, where money usually abounds. Will it salute you here at home? And is it good economy to obtain the amount you seek by a policy which will create a disturbing impediment to all your efforts for the larger amounts soon to be required? I put these questions without answering them. It is sufficient for me that I open the difficulties before us; and here I follow the Senator from Maine [Mr. FESSENDEN], Chairman of the Committee on Finance, who commenced this debate.

In courts of law, experts are summoned to testify on questions of science or art within their special knowledge. If, on this occasion, experts in finance or currency were summoned, I do not know that we should be much enlightened; for, according to my observation, there are such differences among them, and, as the Senator from Maine [Mr. FESSENDEN] has pleasantly told us, such differences even in the same person, one day and the day after, that it is difficult to place reliance in their counsels. Some tell us that making Treasury notes a tender will be most beneficent; others insist that it will be dishonorable and pernicious. On each side strong words are employed. Which shall we follow?

Crossing the sea, we find similar differences, not, of course, with regard to the present proposition, which is not yet known there, but with regard to the principles entering into this debate. In England the general subject has occupied much attention. As late as 1857 it was brought before a distinguished Parliamentary Committee, and their Report is remarkable for the testimony of numerous witnesses whose experience and knowledge give authority to their opinions. The Report is a financial monument. But among these witnesses are some who were little disturbed by an inconvertible currency, although the weight of testimony was the other way.

Nobody was more positive than Nathaniel Alexander, Esq., head of the firm of Alexander & Co., India merchants. His attention being called to the proper means against the effects of panic on the Bank of England, he proposed, as an assistance to the Bank, another currency, inconvertible, and a tender for Government dues, under Act of Parliament. From its inconvertible character, such a currency, he said, would not be reached by panic, and would therefore contribute to the security of the Bank.[183] This testimony seems to maintain the principle of the present proposition; and I quote it, as showing that the proposition is not entirely without practical authority.

John Twells, Esq., a London banker for upwards of fifty years, also testified in favor of an inconvertible note under sanction of Government, and a legal tender. Here are his answers to two questions.

“What do you conceive to be the advantage of an inconvertible note of that kind over a convertible note payable to bearer on demand?--It would prevent a drain of bullion, when it is required for foreign trade; and it would give us, what is so very essential, a domestic currency which is not influenced by any foreign transactions whatever. If France or America wants a quantity of gold, it ought not to interfere with our domestic currency. Our merchants and all our trade surely should not suffer because America wants gold.

“Do you think that that currency would run the risk of ever being depreciated in value,--that is to say, that inconvertible five pound notes would not exchange for five sovereigns?--I do not know, as compared with sovereigns; that, I think, is of no consequence in the world. We want it for our internal commerce, and we want it to pay Government their taxes.”[184]

Two other questions and answers may be given.

“You have been asked about the French assignats. Is not the difference between the currency which you recommend and the assignats just this, that the Government are bound to take back whatever they issue?--Precisely; and that makes all the difference.

“And, with the French assignats, they refused to take back what they had issued?--Yes. A corrupt Government may commit such an excess as they did in France, where the amount of their assignats was, if I remember right, about £300,000,000 sterling. They could not receive them back; they could not get their taxation, on account of the revolution which was going on; therefore the assignats fell to nothing.”[185]

Another witness was Mr. Edward Capps, who described himself as engaged in the surveying and building trade for thirty years, so that his attention had been directed to the influence of credit on the manner in which buildings are erected in London. He, too, testified in favor of inconvertible paper. Here are some of his answers.

“Would you recommend the issue of an inconvertible paper currency, with the view of remedying the evils which you describe?--I was present and heard the examination of Mr. Twells, and he was mentioning a project, by which he thought, that, instead of the £14,000,000 of paper which the Bank issues upon securities, you might go to the extent of £20,000,000 of an inconvertible paper. I think I understood the proposition rightly, as being to that effect. Though it is not exactly the proposition which I should make, yet I cannot see any objection to that proposition myself.”[186]

“Do you believe that the paper which you recommend would be, on the average, of the same value as the present bank-note, which is convertible into gold?--I think that very shortly it would be of a higher value than our present standard. If any person had to be paid £10,000 fifteen years hence, and had the option whether it should be paid in that way or in the standard of gold, I think he would exercise a wise discretion in choosing the paper.”[187]

“You are not in favor of what is called inconvertible paper, in the sense of worthless paper, are you?--Not at all.

“How do you distinguish between your paper and the rags which have in other cases been issued?--Unless I know the principle, I cannot say.

“Take the French assignats.--The French assignats were issued upon no principle at all, because no provision was made for their redemption.”[188]

Against these witnesses was the testimony of a person perhaps the highest living authority on this question. I refer to Lord Overstone, known before his elevation to the peerage as Mr. Jones Loyd, the eminent banker, whose life makes him practically acquainted with this subject, while his liberal studies and various experience add to the solidity of his judgment. His testimony on this occasion, extending over almost three days, occupies nearly one hundred folio pages. Writers on finance have quoted it ever since, and practical men have accepted it as a guide. In reply to questions by the Committee, he declared himself strongly opposed to the issue of Government notes not payable in specie on demand. In his opinion “they would generate a state of utter confusion which could not be tolerated for three months.”[189] Then again:--

“It is quite clear that there would be a discount upon these notes in the first place; they would not answer the purpose of a circulating medium; it would throw everything into confusion in the very first stage of the process: that would be the first difficulty.”[190]

Here are his answers to other questions.

“Your Lordship was asked, on the last day, whether it would not be possible in a great degree to mitigate such difficulties as I have endeavored to portray, by having two sorts of notes, one of them payable in bullion, but the other, if I may use the expression, a sort of I O U note between the Government and the public; whether, inasmuch as the Government owes £6,000,000 or £7,000,000 every quarter, in the shape of dividends or expenses, and the country owes £6,000,000 or £7,000,000 of taxes, it would not be possible to arrange that there should be two sorts of currency afloat,--one the common banking note, payable in bullion, and applicable for all general purposes, and the other a note applicable in the more limited sense?--Our affairs would then go on very much in the way that a man would walk with one of his legs six inches shorter than the other. One set of notes would circulate at a depreciation, compared with the other set of notes; hence great inconvenience and confusion would arise.”[191]

“Do you believe, that, if any person had notes which insured to him the payment of all the Government demands upon himself, though he had no demands upon him directly, he would not find numbers of persons who would exchange those notes for him at a premium or a discount?--Then you would have a certain proportion of the monetary system of the country circulating at a discount. I cannot conceive a greater state of monetary disorganization than that.”[192]

But the testimony of Lord Overstone, strong as it was, against an inconvertible currency, still admitted a possible occasion for departure from it; and here his testimony bears directly on the pending proposition. Alluding to the well-known suspension of specie payments by the Bank of England in 1797, he says:--

“I am bound to say that with regard to that period of 1797 there are circumstances which may make it doubtful whether the Suspension Act was not a justifiable measure. The pressure in 1797 was undoubtedly, to a considerable extent, _connected with political alarm, with the fear of foreign invasion_, causing an internal demand for the exchange of notes into coin. _Under such circumstances, there is no measure founded upon principle which can pretend to afford an adequate protection. If, for instance, at this moment, this country were suddenly exposed to the calamity of a very large foreign force occupying its soil, or if it were exposed to the calamity of a very formidable and serious civil insurrection_, no doubt a state of panic alarm with regard to the paper money might arise, against which no provisions of the Act of 1844, nor any provisions founded upon principle, could possibly afford an adequate protection. But from that view of the subject, again, there is an inference to be drawn of a very instructive and warning character, namely,--to make this Committee very cautious how they extend the issues upon securities. The only protection against such contingencies is the existence of a large amount of coin, or of bullion, in the country; and therefore, when we are looking to contingencies of that nature, we may very properly pause at the questionable recommendation of increasing our issues upon securities, which is, in other words, diminishing our issues upon bullion.”[193]

If this authoritative testimony be accepted in favor of a constant specie currency, it is unquestionably important as recognizing grounds of exception,--as, according to the language of the witness, if the country were “suddenly exposed to the calamity of a very large foreign force occupying its soil, or to the calamity of a very formidable and serious civil insurrection.” In these exceptions there is matter for much reflection. Strong as we may be against any questionable currency, we must not be insensible to a possible limitation even of this just principle. In short, we must be content with the best we can command. And here history affords valuable illustrations in conformity with this testimony.

In 1745, the alarm occasioned by the advance of the Highlanders, under the Pretender, as far as Derby, led to a run upon the Bank of England; and in order to gain time, the directors, while continuing to pay in specie, adopted the device of paying in shillings and sixpences. But, next to the retreat of the enemy, their best relief was found in a resolution by the merchants and traders of the city, declaring their willingness to receive bank-notes in payment of any sum due, and pledging their utmost endeavors to make all payments in these bank-notes. This proceeding, it is perceived, was prompted by the pressure of civil disturbance. But the most authentic case is that of 1797, when the Bank, under pressure of political events, was prohibited, by Order in Council, _issued on Sunday_, the 26th of February, from paying their notes in cash, until the sense of Parliament should be taken on the subject. At the meeting of Parliament, after much discussion, it was agreed to continue the suspension till six months after the signature of a definitive treaty of peace, _thus positively recognizing the existence of war as a reason for this departure from principle_. A recent English writer vindicates this act as follows.

“Much difference of opinion has existed with respect to the policy of the restriction in 1797; but, considering the peculiar circumstances under which it took place, its expediency seems abundantly obvious. The run did not originate in any over-issue of bank paper, _but grew entirely out of political causes. So long as the alarms of invasion continued, it was clear that no bank paper immediately convertible into gold would remain in circulation._ And as the Bank, though possessed of ample funds, was without the means of instantly retiring her notes, she might, but for the interference of Government, have been obliged to stop payments,--an event, which, had it occurred, might have produced consequences fatal to the public interests. The error of the Government did not consist in their coming to the assistance of the Bank, _but in continuing the restriction after the alarm of invasion had ceased_, and there was nothing to hinder the Bank from safely reverting to specie payments.”[194]

Unhappily, the definitive treaty of peace, on which the restoration of specie payments depended, was not consummated till 1815, so that throughout this long period there was an inconvertible currency, which even the sanction of Parliament did not save, in 1814, from a discount of twenty-five per cent. But peace did not bring specie at once. The routine of paper had become too strongly fixed, and it was only through the remarkable efforts of Sir Robert Peel, in 1819, that an Act of Parliament was passed requiring the payment of specie at the Bank in 1823. Such is the practical testimony of British experience.

The experience of France is similar. I do not now refer to the old _assignats_, but to a modern instance. Beyond question, the Bank of France is conducted with caution and skill; but no caution and skill are adequate to counteract the influence of a sudden revolution, especially like that of 1848, when the Republic was declared. The Bank made large advances to the Provisional Government. This obligation, combined with distrust universally prevalent, occasioned so severe a drain of gold, that, to prevent the total exhaustion of its vaults, the Bank was authorized by Government decree of 16th March, 1848,--just three weeks after the Revolution,--to suspend specie payments, while its notes were at the same time made a legal tender. To prevent abuse, possible in such a condition of things, a maximum of issues was fixed at three hundred and fifty million francs. Such precautions were proper; but the fact of the authorized suspension remains an example of history. The prompt return to the true system is not without encouragement.

* * * * *

If these instances are entitled to consideration, they seem to show, that, according to the experience of other countries, Government may be compelled at times to relax the rigor of its requirements with regard to convertible paper. But they do not fix the limitation to the exercise of this extraordinary discretion. That the discretion exists is important in the present debate.

It is a discretion kindred to that under which the _Habeas Corpus_ is suspended, so that citizens are arrested without the forms of law,--kindred to that under which an extensive territory is declared to be in a condition of insurrection, so that all business with its inhabitants is suspended,--kindred to that which unquestionably exists, to obtain soldiers, if necessary, by draft or conscription instead of the free offering of volunteers,--kindred to that under which private property is taken for public uses,--and kindred, also, to that undoubted discretion which sanctions the completest exercise of the transcendent right of self-defence.