Monday, December 3, 2012

The Proposed National Currency

In concert with the Secretary of the Treasury the Congressional committee of Ways and Means have prepared three measures for the regulation of the finances of the Government and country, that are already winning approval at home and admiration abroad, as wisely adapted to the emergencies of our condition.  The first of these measures is that already adopted by Congress to authorize one hundred and fifty millions of Treasury notes and five hundred millions of Government bonds to meet the extraordinary expenses of the war.  The second is the tax bill, now under discussion, to raise, with our tariff, one hundred and fifty millions a year, which will meet our ordinary expenses, pay the interest on the dept created by the first measure, and provide a sinking fund for its early repayment.  The third is a measure to provide a national currency, and this will be brought forward as soon as Congress has finished the tax and tariff system.  The best explanation and defense of this third measure we find in the speech of Mr. Hooper, the eminent merchant and financier, who represents Boston in Congress, and has become a prominent member of the Committee of Ways and Means.  His speech elucidates the whole financial scheme of the Government, and has been commended in the English journals for its comprehensive ability and large familiarity with the subjects discussed.  We extract from the part relating to the currency system, with the simple remark that we believe it foreshadows a most grateful and useful revolution in the currency of the country. –

“For nearly thirty years the country has been without a uniform paper currency.  As nearly all the business of the country is done by means of paper, specie being seldom used except in the payment of balances, the inconveniences resulting from this want have been very great.  The traveling public, remitters of small sums by mail, and the laboring classes, who often receive their pay in uncurrent funds, chiefly experience these inconveniences.  In order to relieve this want it is necessary to give to the paper currency three equal qualifications:

“First.  It must be well secured, so that the people may feel that they are sure of obtaining its value when needed.

“Secondly.  It must have a governmental endorsement or guarantee, so that the people everywhere may be able to distinguish it, and the government prove its confidence in it by taking it in payment of taxes, assessments, and other dues.

“Thirdly.  It must be guarded as far as possible, against arbitrary increase.

These requisites have all been provided for in the proposed bill.  The paper currency is to be secured by a deposit, with the government, of the United States stock, the market value which shall be equal to the amount of currency issued.  There can be no higher security known to the government, and its permanent value has heretofore been known.  The government, upon the receipt of such security, is to certify on the face of the notes for currency, that the same are ‘secured by pledge of the United States stocks,’ and is to take them in payment of all taxes, excises, and other dues excepting only for duties upon imports.  Lastly, the government cannot increase the amount of the currency, except upon the application of a bank, and the bank cannot increase it except upon the application to, and depositing security with the government.

“It has been suggested that, as far as the government alone was interested, the objects which it had to gain could be attained in an easier and less expensive manner; that the paper circulation of the country being in reality a loan from the people without interest, it would be equitable and just for the government to take this loan directly into its own hands, and furnish all the paper circulation, instead of allowing the benefit of it to private associations and individuals.  But the committee deemed it more wise to attain their proposed ends, if possible, without disturbing existing institutions, or habits, or doing anything that might injuriously affect private interests.  The currency is therefore left to the banks, they are only required to deposit security for it, and to submit to certain established rules and regulations prescribed in the bill, in order to insure conformity of management for the common benefit of the banks themselves and the public.

To many of the banks these requirements will not be difficult of performance, as they already hold stocks of the United States, which they will be at liberty to pledge.  In exchange for the restrictions imposed upon them, the banks will enjoy the benefit of a fixed and permanent interest upon they hypothecated stocks.  ‘An order of nationality,’ as Mr. Webster called it, is also imparted to their bills, enabling them to circulate wider and further than before; and what would become a constant drain upon their specie is checked by the consent of the government to receive their notes in satisfaction of its dues.

“Thus are secured all the benefits of the old United States bank without many of those objectionable features which arouse opposition.  It was affirmed that, by its favors, the government enabled that bank to monopolize the business of the country.  Here no such system of favoritism exists.  It was affirmed that, while a large portion of the property in the several states, owned by foreign stockholders, was invested in that bank and its branches, yet it was unjustly exempted from taxation.  Here every State is left at perfect liberty, so far as this law is concerned, to tax banks within its limits in whatever manner and to whatever extent it may please.  It was affirmed that frequently great inconvenience and sometimes terrible disaster resulted to the trade and commerce of different localities by the mother bank of the United States arbitrarily interfering with the management of the branches, by reducing suddenly their loans, and sometimes withdrawing large amounts of their specie, for political effect.  Here each bank transacts its own business upon its own capital, and is subject to no demands except those of its own customers and its own business.  It will be as if the Bank of the United States had been divided into many parts, and each part endowed with the life, motion, and similitude of the whole, revolving in its own orbit, managed by its own board of directors, attending to the business interests of its own locality; and yet to the bills of each will be given as wide a circulation and as fixed a value as were ever given to those of the bank of the United States in its palmist days.  It is not to be supposed that variation in the rates of exchange will entirely disappear; specie itself yields to the law of demand and supply, and fluctuates in value with the continual changes of the balance of trade.  But this currency will approach as near uniformity in its value as possible.  These institutions all originate among the people in their own localities, and are not created by the government.  The government simply authorizes the investment of capital in the load, and the use of the bonds representing the loans as a basis of a sound circulation.

“This measure, will, therefore, give to the people that which they most desire, a currency which shall not only purport to be money, but shall actually be money in a broader and more positive sense than are the notes of the Bank of England, high as they are in the estimation of the commercial world, for the reason that the depositors of the Bank of England, equally with the holders of its notes, look to the government stocks, in which its entire capital is invested as their security; while this plan of the committee proposes that stocks of a government, with fewer liabilities and paying a larger rate of interest, shall be specially pledged for the security of the notes alone.”

– Published in The Burlington Weekly Hawk-Eye, Burlington, Iowa, Saturday, April 5, 1862, p. 1

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