# U. S. Senate Speeches and Remarks of Carl Schurz/The Currency — Specie Payments

Speech of January 14, 1874, before the Senate of the United States of America from the Congressional Record, 43rd Congress, 1st Session, pp. 634-645.
THE CURRENCY — SPECIE PAYMENTS.
The Senate resumed the consideration of the resolution reported by Mr. Sherman from the Committee on Finance.
Mr. SCHURZ. Mr. President, I would ask the Secretary to report once more to the Senate the resolution and amendment now under discussion.
The PRESIDENT pro tempore. The Secretary will report the resolution pending before the Senate.
The Chief Clerk. The resolution is as follows:
Resolved, That it is the duty of Congress, during its present session, to adopt definite measures to redeem the pledge made in the act approved March 18, 1869, entitled “An act to strengthen the public credit,” as follows: “And the United States also pledges its faith to make provision at the earliest practicable period for the redemption of the United States notes in coin;” and the Committee on Finance is directed to report to the Senate, at as early a day as practicable, such measures as will not only redeem this pledge of public faith, but will also furnish a currency of uniform value, always redeemable in gold or its equivalent, and so adjusted as to meet the changing wants of trade and commerce.
The Senator from Michigan [Mr. Ferry] proposes to amend the resolution by striking out all after the word “Resolved,” and inserting:
That the Committee on Finance is directed to report to the Senate, at as early a day as practicable, such measures as will restore commercial confidence and give stability and elasticity to the circulating medium through a moderate increase of currency.
Mr. SCHURZ. Mr. President, it is scarcely possible to over-estimate the importance of the subject under discussion. It touches not only our national prosperity, but our political as well as social morals in the broadest sense of the term. I approach it with a painful diffidence in my own ability to do it justice; but the Senators being called upon to express their opinions, I feel it my duty to lay before you the results of such conscientious study as I have been able to devote to it.
The object of the resolution before us is evidently to call out the opinion of the Senate upon the general subject. We are not to discuss a specific method of resumption; but we are to declare whether we are in favor of a resumption of specie payments at as early a day as practicable at all. To this resolution an amendment has been offered by the honorable Senator from Michigan [Mr. Ferry,] looking not toward specie payments, but an expansion of the currency as I understand him, to the amount of at least one hundred millions. Thus the plain issue between resumption and what I call inflation is before us.
Mr. FERRY, of Michigan. I do not wish to interrupt the Senator ---
Mr. SCHURZ. I yield.
Mr. FERRY, of Michigan. The Senator doubtless wishes to place me right. I suggested the increase of the currency $100,000,000, inclusive of the legal-tender reserve of $44,000,000.
Mr. SCHURZ. I understand that, but it does not alter the case. There are two questions involved — one of legal and moral obligation and one of financial policy. As to the first, I had fondly hoped that it would be absolutely unnecessary to say one word to the Senate about it. I had hoped so until I listened to the very remarkable debate which we had on this point on Friday last; a debate in which the startling doctrine was announced, that as to the redemption of its promises to pay the Government of the United States had to consult nothing but its sovereign pleasure and convenience.
The Senate must pardon me if I add a few words to what has been already said on this point by the Senator from New Jersey, [Mr. Frelinghuysen.] He called the emission of legal-tender notes “a forced loan.” This expression, “a forced loan,” has been called a mere empty figure of speech; but in my opinion it is something better than that.
The Government issued legal-tender notes to buy commodities in a great variety of forms, including labor and service. It gave for those commodities not money, but its promises to pay money; and of those who for such promises to pay sold anything of value to the Government, the latter thus borrowed the value of the things so sold to it. This virtually constituted a loan. The seller was obliged to take the legal-tender notes for what he had to sell, because he could not get anything else in payment. He had to sell for what he could get or keep his goods. And thus the issue of legal-tender notes constituted a forced loan; and the Government promise to pay, bearing no interest, it constituted a forced loan without interest. Soon these Government promises to pay, made a legal tender in the payment of debts, went from hand to hand, and became the only current medium of exchange in all business transactions, and the whole American people stepped into the places of the original lenders to the Government. Thus the issue of legal-tender notes became a forced loan, without interest, levied upon the American people. This, I think, is clear. It carries with it, therefore, all the obligations of a forced loan, such obligations being aggravated by the fact that not only the loan did not bear any interest to the creditor, but it imposed further loss on the creditors by the depreciation of the Government promises to pay in the market.
Now, what is that obligation, prima facie? The inscription of the legal-tender note is, “The United States will pay to the bearer one dollar.” We all agree that it means one dollar in the gold coin of the United States. That one dollar in the gold coin of the United States the Government promises to pay; when? It has very well been said, and not denied, that the form of the legal-tender note is the same which in private transactions would be considered that of a due-bill, payable on the demand of the creditor; and that such demand, as between private parties, can be enforced by legal process. It has been argued in reply that such a demand may, indeed, be enforced by process of law as against private parties, but that it cannot be enforced against the Government; and that, therefore, the Government is not under any legal obligation to pay its promise to pay on demand. Now, assuming the Government to be under the moral obligation to pay on demand, the argument will amount to this: that the Government will safely and rightfully repudiate such moral obligation, because nobody has any means to enforce the demand by process of law. I will let the argument stand there in its nakedness. But did the Government morally bind itself to redeem the legal-tender notes in gold at par on demand?
We are told that when the legal-tender notes were issued it was generally understood that the Government would not redeem them on demand at the time. Why was it so understood? Because it was
known that the Government was not able to do so at the time, pressed as it was by the necessities of the war; but I affirm (and I trust nobody will undertake to deny it) that it was also generally understood, and confidently expected, that the legal-tender notes would be redeemed in gold, as promised, as soon as the Government, relieved of the pressing necessities of the war, should become able to do so. The gravity of that general obligation was so well understood and appreciated by Congress, when the first issue of legal-tender notes was resolved upon, that while no immediate redemption on demand at the time could be provided for, the holders were at least authorized by law to convert, at their option, their notes into five-twenty bonds, payable in gold within a stated time, and bearing interest, in gold, it the rate of 6 per cent., which provision was afterward repealed.
But we heard on Friday last, from the Senator from Massachusetts, [Mr. Boutwell,] that the Government is not only not bound to pay its legal-tender due-bills on demand, nor even when it may be able — that is, when by its own action it may enable itself to pay — but that it is bound only by its own pleasure as to when and even as to whether it will discharge its obligations; and all this upon the sole ground that on the legal-tender notes no specific time is expressly stated at which they shall be redeemed in gold. I am not going too far, I think, when I call this an alarming, a dangerous doctrine; a doctrine which if applied to transactions in private life would, according to all standards of honesty, be called dishonorable. If Congress should adopt it, in what attitude would the Government of the United States be placed before the world? In the attitude of a trickster who passes off upon the people a due-bill with the fair inscription, “The United States will pay to bearer one dollar,” and then interprets that promise as meaning that the Government will pay when and if it pleases, or not pay at all if it does not please at all. It would be a notice to this and all other nations that a due-bill given by a private citizen may be taken with confidence; for if the honesty of the debtor should fail, then, at least, every court would enforce the payment of the due-bill at the pleasure of the creditor; but when you deal with this great Government of the United States you must, before accepting a promise to pay from it, look sharply whether the time of payment is expressly and distinctly stated on it, for you may be told that a due-bill of the Government is not to be paid on the demand of the creditor, nor even when the Government is able to pay, but when the Government may please and if the Government please at all; that is, entirely at the pleasure and discretion of the debtor. Now, I would ask Senators whether, proud as they are of their country, that is the attitude in which they want to place the Government of this great Republic in the eyes of the world?
The Senator from Massachusetts said on Friday that he had — and I quote his words — “yet to learn how the public credit is improved, and the character of the country increased by the statement that it is living in constant financial dishonor.” I would tell the Senator from Massachusetts that I have not yet to learn, but that I know that the public credit will certainly not be improved, but most seriously impaired; that the character of the country will certainly not be raised, but most deplorably lowered, when, in contempt of its moral obligation, the Government adopts his doctrine that it is bound to redeem its promises to pay only when and if it pleases to do so. No, sir; the question of redeeming the legal-tender notes is and must be, according to all rules of ethics, not a question of mere pleasure, but simply a question of ability, and nothing else. To say that it is a question of mere pleasure is, calling things by their right name, putting in a plea for contingent repudiation, nay, a plea for the right of repudiation on the part of the Government pure and simple; and in the name of the honor of the country I protest against it.
When the legal-tender notes were issued, and down to the end of the war, everybody thought that the Government ought to, and everybody expected that the Government would, make it its first care to take the redemption of its promises to pay in hand immediately after its utter inability, under the necessities of the war, had ceased. When our inability ceased, there our immediate duty began; and with it, if that duty remained unfulfilled, there began our financial dishonor, and it will remain financial dishonor as long as that duty remains unperformed. It will help the Senator from Massachusetts little to say, as he did say, that a process of development is going on which will ultimately make the legal-tender notes of the value of coin; it will help his moral position especially still less when he adds that “the Government is” — mark his words — “under no obligation to bring that process to an ultimate and favorable result at a particular time.” I confess myself painfully astonished at the looseness of principle underlying that language. It would have been less surprising had it come from some one of those who, a few years ago, advocated the paying off in our depreciated currency of the bonded debt of the United States, which we had solemnly promised to pay off in gold; but I did not expect the Senator from Massachusetts to turn up so late a convert to something akin to that doctrine. I say “something akin to that doctrine,” for the Senator must know, first, that a government under a solemn obligation to pay a gold dollar for a dollar note has no right, without an effort of its own in that direction, to rely on an uncertain contingency that the debt will pay itself, which contingency I will not discuss. But the Senator must know, secondly, that at this very moment the process upon which he depends is being most seriously counteracted, and its ultimate result postponed and jeopardized, by the Government itself, which, during the last few
months, has been adding $25,000,000 to our dishonored promises to pay, thus making their redemption still more difficult.
No, sir; if we mean to uphold the honest name of this Republic we absolutely must recognize the binding force of the duty of the Government to pay a dollar in gold for a dollar in its paper under its solemn promise, not at its arbitrary pleasure, but as soon as it is able to pay — that is, as soon as, by its own action, it may render itself able to pay. Every other doctrine is repudiation in a thin disguise, if disguise at all, and I trust the American people will repel it as it deserves to be repelled.
I shall now approach the question of financial policy. Is there any one among as who, under ordinary circumstances, when we had a metallic currency in the country would have thought of substituting for that metallic currency an irredeemable Government paper money? If there is any one I have not heard of him. We all know that there was a time when the great leaders of public opinion in the United States — a large majority of them at least — considered it unconstitutional to make anything a legal tender save the precious metals. I might quote for hours from the sayings of the great men of the past, whose names are mentioned only with respect. I state this not for the purpose of reviving a discussion on the constitutional point, which would now be too late, as it has been otherwise decided, but to give a specimen of the old-fashioned way of thinking which quite generally prevailed before the war, and which was disturbed only by its extreme necessities. Leaving the constitutional question entirely aside, certainly no consideration of financial policy was then advanced to urge the substitution of irredeemable legal-tender paper currency for gold dollars. Nobody thought of such a thing.
The reasons why the precious metals were considered the most reliable measure of value and the best available tool of exchange were so generally accepted then, and are in fact so little called in question now, in this debate at least, that I do not feel called upon to go into an elaborate defense of a position which is virtually not attacked. Even the opponents of the resolution under debate on this floor seem to recognize them as valid, for they admit that only actual distress has forced as to give up the specie basis, and that at some time we must return to it. I think even the honorable Senator from Indiana on my left, [Mr. Morton,] and the honorable Senator from Michigan on my right, [Mr. Ferry,] want to be considered hard-money men in a certain sense.
I am well aware that in the country all sorts of schemes are broached by which an irredeemable paper currency is to be made a perpetual institution. Every one of us is fairly flooded with pamphlets from all sides, setting forth the wildest conceptions, which pretend to be new discoveries, but in fact, wittingly or unwittingly, are only repetitions of schemes which have always appeared in the same way in every country when an irredeemable currency had entangled a nation in great embarrassments which it was difficult to overcome. Most of them only show that a disturbed condition of things is apt to throw the minds of men out of balance; and that while an irredeemable currency was but recently looked upon as a disease, patients may sometimes become so afraid of a cure that they positively fall in love with their ailment. I will not spend any time in discussing any of these schemes now, but shall take them up when they come before us. I merely mention them to point out to the inflationists on this floor in what direction they are tending.
Now, sir, have we any inflationists on this floor? Those who oppose the resolution repel the name. They do not like it. There is a certain odious flavor about it. They say that they are not opposed to resumption, but want to put it off to a better time. But what do they propose now? There is the Senator from Indiana [Mr. Morton] who proposes an increase of our currency at least to the amount of $44,000,000. There is the Senator from Michigan [Mr. Ferry] proposing an increase of our irredeemable currency to the amount of at least $100,000,000. Now, gentlemen, I call this by its right name — inflation. Whatever circumlocution they may use to disguise the fact, it remains after all what it is.
Thus we have the alternative plainly before us — resumption or inflation. The inflationists all speak of our business embarrassments as the reason why resumption should be put off and inflation resorted to. In discussing their arguments I shall have occasion to expose what I consider their fallacies, and to state what I believe to be the correct principles upon which we should proceed.
We are at the present moment surrounded by the embarrassing circumstances of a crisis in our economic affairs. What was the cause of that crisis? The Senator from Indiana, [Mr. Morton,] in a speech he made at an early stage of this debate, called it a “panic caused by mere accident.” There are, in my opinion, two great errors in that single expression. It was neither a mere panic, nor was it caused by mere accident. Let us for the moment try to be precise. In Patterson's Science of Finance I find the following definition:
A commercial crisis is a partial breakdown of mercantile credit. A financial crisis is a collapse of speculative enterprise. A panic is a partial breakdown of bank credit, producing a run upon the banks for payment of their deposits.
Accepting that definition as correct, a panic will in this sense be in most cases a mere symptom or incident of a commercial or financial crisis, or both combined, as they frequently are, unless it be the sudden giving way of the solvency of an individual bank unconnected with general circumstances. But such crises, of which panics are mere symptoms or incidents, are not caused by were accidents. Let the
Senator from Indiana run down the history of crises from the commercial crisis in Lubeck at the beginning of the seventeenth century and the tulip mania in Holland to the present time, and he will find there is not one of them that was caused by mere accident. You might just as well say that delirium tremens is a mere accident after a period of hard drinking. A candid study of all those events will discover the operation of certain causes common to them all. As a German writer on political economy says:
Crises occur only in nations which enjoy an advanced state of civilization. Where there is no division of labor, where everybody produces what he needs, crises in production and commerce are impossible. Home trade is less subject to them than foreign commerce, and the greater the development of the credit system the greater the danger of crises.
This is substantially true. Crises may spring from a variety of causes. Great wars or civic disturbances attended with extensive destruction of wealth, or failing crops and destructive epidemics, or sudden and far-reaching revolutions in the condition of production and consumption, such as spring from important inventions and discoveries, or great changes in the channels of trade, &c., may produce them; but crises are also produced without the occurrence of such distinctive occurrences by a process which in our day seems to repeat itself almost periodically.
The President in his message says that the present crisis surprises us in a state of extraordinary prosperity. That is true in a certain sense; but it is nothing new. It is a very common, I might say almost natural, occurrence. In times of prosperity capital is rapidly produced, and it accumulates. As capital accumulates it will not find as profitable a field of employment within the same limits within which a smaller amount of capital operated with profit before. In other words, when a certain business has been carried on with a sufficient capital and yielded a certain percentage of profit, a larger capital employed in the same business without an enlargement of the field of operation will yield a smaller percentage of profit. Profits in that case decline in proportion to the increase of capital employed. Capitalists are, of course, dissatisfied with that decline of profits, and seek for other and larger fields of employment. If this is done in harmony with the public want, that is, if the accumulated capital is employed in production to satisfy existing demand, or such demand as may be created by the progress of civilization, without discounting too much the future, all will go well. But when capitalists, carried away by the greed of rapid gain, seek a field of employment for their capital beyond the limits of existing demand, a sort of speculation ensues which works for great profit at the risk of great loss. Enterprises are undertaken which, not being called for by existing demand, can yield no immediate returns, but will create fictitious values, and which therefore cannon be set on foot nor sustained except by an immoderate strain on the system of credit. Credit is a chain of many links running between the producer and the consumer. When that chain is strained beyond a certain point it snaps. Then the true nature of the fictitious values created by the employment of capital beyond the limits of present demand becomes suddenly apparent; confidence is lost; distrust becomes general; speculation breaks down; and the crisis is there.
It turns out, also, that the fictitious values produced by such an employment of capital are no values at all, at least not as far as the present demand is concerned, and that therefore the capital employed in their production, at least for the time being, has been unproductively consumed or wasted. This unproductive consumption or waste of capital may be assigned as the principal cause of most commercial and financial crises in our day. It appears in a variety of forms; and in this respect the history of commercial and financial crises is most instructive. At one time it was speculation in things which had only an imagined value; then again over-trading in foreign commerce beyond possible demand; then again the getting up of Mississippi schemes and South Sea bubbles; then again the overproduction of certain products of industry; then over-speculation in wild lands or in mines; then the premature building of railroads, or public improvements, and the like. And all these things accompanied by a reckless dealing in accommodation paper, by the wildest sort of stock-gambling, and by a general overstraining of the credit system, until the bubbles burst.
The same German economist to whom I have alluded gives the following as among the symptoms of an approaching crisis:
An uncommonly excited spirit of enterprise; an extraordinary boldness of speculation; an epidemic desire to get rich quickly by speculation instead of relying upon the slow and sure profit of honest labor; a remarkable, almost insane, credulity of the public as to the safety and profitableness of enterprises which the least careful consideration would show to be mere bubbles; a prevalence of the spirit of gambling in an endless variety of forms; a rapid and alarming development of luxury and extravagance in private life, &c.
The same writer remarks that,
The very agencies which ultimately produce commercial and financial crises are very apt to develop themselves most strongly when great national or civic dangers have been successfully overcome, and when such success has confirmed the self-reliance, and strengthened the trust in the favors of good fortune, and stimulated the spirit of enterprise of a people.
Now, sir, if the Senator from Indiana will compare this picture with recent events in this country and the circumstances now surrounding us, the striking similarity may induce him to suspect that the present crisis was, after all, caused by something more than mere accident. He will find that this has been a period of mad speculation; that visionary schemes “to develop the resources of the country”
were started and partly executed at enormous expense, without being called for by present demand; that many of our most important banks and institutions of credit, instead of ministering to the wants of legitimate business, became mere tenders to windy schemes, wild speculation, and reckless stock-gambling, especially since the sale of the stock and bonds of American companies abroad was stopped by failing confidence in Europe; that many of our large merchants and manufacturers, instead of confining themselves to their legitimate business, spent their capital and risked their credit in all sorts of heterogeneous enterprises; that the morbid desire to get rich without honest labor pervaded all classes of society to a most alarming extent; that luxury and extravagance in public and private expenditure were carried to a point almost without precedent; that the productive forces of the country were thus largely diverted from the channels of immediate usefulness; and that a considerable portion of our capital has been unproductively consumed or wasted, either absolutely or in such a way that it will yield no return for many a day. The disasters, the embarrassments, which have grown out of such a condition of things cannot, therefore, be dealt with as a mere accident which happened on some day in September last, like the stumbling of a horse over a stone. It is a crisis in our economic affairs, and as such it has to be treated.
Now, sir, what has this crisis to do with the currency, and what has the currency to do with it? The Senators from Indiana and from Michigan assert, first, that it was not caused by any defect in the currency; and secondly, that to cure the difficulty an addition to the currency is necessary and will be effective.
Let us see whether our irredeemable and depreciated currency had nothing to do with the causes of this crisis. I affirm that the influence which is always exercised by an irredeemable and depreciated currency has very seriously aggravated the causes which produced this crisis. I ask you, sir, where was it that the spirit of speculation, of gambling, which has so disastrously swept over this land, held its first orgies? It was in the Gold Room in New York. It was there that in that period of our economic history which commenced with our recovery from the crash of 1857, mad speculation, gambling on a large scale, I might almost say as a national occupation, first began. It was incited by our irredeemable currency. Was it surprising that it should have been so? An irredeemable currency, whose value is uncertain from day to day, will always develop and excite the spirit of gambling. When a man does not know what his money will be worth to-morrow he will naturally be more inclined to risk it on the fortune of a card or any other venturous chance. Thus the very origin of the Gold Room stimulated at once the spirit of speculation in every direction, for that spirit is contagious as soon as it appears.
But men were not only seduced, they were forced to become speculators by the same agency. The fluctuations of our irredeemable currency obliged all our merchants and manufacturers whose business was in any way connected with foreign commerce and depended, therefore, largely upon the relative value of greenbacks and gold — I say forced them to become gold speculators in spite of themselves, whether they would or not; and this is the case to-day, and it will continue to be the case as long as we have an irredeemable and necessarily fluctuating paper currency. It will continue to be the case not only with relation to gold, but with relation to all commodities, for that currency makes all that we possess, all that we buy, and all that we sell, uncertain in value from day to day. Speculation and gambling in one direction are sure to beget and stimulate speculation and gambling in others; and it would not be difficult to go through almost all branches of business showing the demoralizing influence our irredeemable and fluctuating currency has exercised upon all of them; but it is not necessary, for the facts are too patent to require further exposition. Therefore, while I certainly do not pretend that the character of our currency was the sole cause of our present crisis, I do insist that it mischievously stimulated the agencies by which the crisis has been brought forth. Senators will discover the same thing in almost every instance in the history of similar events; and our currency will naturally continue to exercise the same influence as long as its character remains the same.
Now we come to the second question, the remedy to be applied to the difficulties surrounding us. At an early stage in this debate the Senator from Indiana and the Senator from Michigan were ready with their answer. The Senator from Indiana says, not resumption, but suspension of specie payments has always with good effect been used as a cure for panics. When listening to him I wondered how the panic could have occurred at all here at this time, since we were already in a decidedly suspended condition, and since the remedy had been applied for eleven years constantly before the disease broke out. Now, what does the Senator from Indiana want? Does he want to cure this crisis by suspending us still more? He may by his advice suspend us more, but certainly he will not cure the crisis.
To prove the correctness of his assertion the Senator went into a long historical disquisition. In many instances I decidedly disagree with him as to the facts, especially where he seemed to confound the suspension of the bank act of 1844 in England with a suspension of specie payment; but I let that go. What the Senator wanted to say is, that sudden panics were allayed by an addition to the circulating medium to facilitate loans and discounts.
Well, sir, suppose a sudden fright, a run on the banks, can be stopped, and the immediate disasters it might bring on lessened by an
addition to the currency in circulation, is not the Senator from Indiana aware that in our case we passed that stage of the business long ago? The sudden fright, the run on the banks, has been over for months.
The Senator must also be aware that the remedy vaunted by him as a certain cure has been amply applied. It has been applied in a greater measure than it was done in England in most, if not all — yes, I say in all — the instances that he quoted. The Secretary of the Treasury in September bought bonds to the amount of fourteen millions, and threw that amount of currency into the market. Since then the forty-four million reserve has been drawn upon to the amount of twenty-five millions, and those twenty-five millions have again been added to the currency. But not only that, all the other reserves of the Treasury Department have been exhausted, and that currency also is in the hands of the people.
The Senator from Indiana says he only wants a small addition to the currency to relieve the panic. Why, sir, he has had that. He has had more than that. He has had vastly more than was ever used in England for such purposes; and what is the result? The run on the banks, the first scare, was over, before the bulk of the addition was issued. The first scare is, in fact, almost forgotten. There seems to be now an abundance of money in the banks. Discounts and loans are not difficult to obtain on good mercantile paper and good securities; but, in a certain sense and in a very important sense, the crisis is not over. Why is this? Because the liquidations are going on which were made necessary by the unsound transactions of the past. In consequence failures are still occurring here and there, revealing still more unsoundness, and furnishing good reason why confidence should not again degenerate into credulity. Speculation is crippled. Fancy stocks and fictitious values are at a more or less low ebb. Business men are cautious in their operations. Capitalists are circumspect in investments; and the business community is slowly and timidly feeling its way to a new and safe basis upon which to start on a new career of prosperity. In other words, the crisis is working itself out. And under such circumstances, not to head off a sudden panic, for there is no sudden panic now, the Senator from Indiana and the Senator from Michigan urge forthwith an addition to our irredeemable and depreciated currency, the one of at least forty-four millions, and the other of at least one hundred millions.
Let us see, sir, what that means. The matter has two aspects — one of State policy, and the other of financial expediency.
As to the first, I have already shown, and I suppose nobody will question it, that the use of inconvertible legal-tender paper money was resorted to at the beginning of the war under the pressure of extreme danger and necessity. The very life of the Republic was in jeopardy; and, overruling our scruples, that extremity forced us to use what expedients we had at our disposal. That was the only justification we had before our own consciences and before the world for the issue of an inconvertible paper currency. To-day neither a foreign war nor a domestic rebellion is at our gates. We are in profound peace. Nor is there any other necessity of similar import pressing upon us. To be sure our revenues are falling short of our expenditures; but there are several honest means by which such a difficulty can be provided for — rigorous retrenchment, or a new loan in the ordinary way, or taxation. In all these respects there is absolutely not what you could call unavoidable necessity for the issue of an addition to our irredeemable currency; and yet without such necessity we are urged to resort to a measure so extreme that only the direst necessity can justify it — the levying another forced loan, without interest, upon the people.
What are the reasons given in favor of such extraordinary advice? Not even that a sudden and general financial thunderstorm must be neutralized; for, I repeat, that stage of the business, as much as there was of it, lies far behind us in our case. No; the distinct purpose is, as Senators say, to make money easy; to give a new impulse to enterprise; to revive prosperity. Now, I would ask gentlemen, have they considered what that means? It means the inauguration of a system by which the Government of the United States is to exercise the power at its discretion, in order to produce a certain effect upon the business of the country, to issue any amount of irredeemable legal-tender paper money it pleases, which paper money by additional issues may — nay, certainly — will further depreciate, thus changing all current values in the country; in other words, a system which virtually will place all the private fortunes of the country at the sovereign mercy of the Federal Government. Do not say that the Executive alone will not be permitted to exercise such a tremendous and dangerous power. We will suppose Congress reserves it all to itself — is the danger less? Do you think that the American people, calmly considering the matter, ever will or ever safely can intrust any branch of the Federal Government with so awful a discretion? And such a system is inaugurated as soon as we admit that Congress may, without the most overwhelming necessity springing from immediate and extreme public danger, at its discretion, merely to exercise a certain influence upon the business of the country, issue whatever amount of legal-tender currency it pleases. None but despotic governments have ever claimed such a power — virtually the power of debasing the coin of the realm, and even worse. It has never been resorted to without the most sweeping ruin and disaster; and I hope Congress will pause and consider well before raising so monstrous a policy to the dignity of a system.
Now, as to the economic aspect of that matter; let us first clearly determine in our own minds what we are driving at before taking action. Senators say that more irredeemable paper money is to be issued to revive prosperity. I admit that you can, by an increase of our irredeemable currency, produce certain effects. Issue it freely and abundantly, and you can and will, perhaps beyond your own expectations, for a little while give a new impulse to that business which by the crisis has in part come to a stand-still; but you will do more in effect; you will get more than you bargained for. You can and you will by this measure revive and endow with new and greater strength all those pernicious influences which our inconvertible currency has exercised for the last eleven years upon the business of the country. You can and you will put the Gold Room in New York in full blast again. You can and you will make the whole menagerie of bulls and bears jolly once more. You can and you will prop up some of those rotten concerns which the longer they stand the more innocent people they will involve in their downfall. You can and you will reanimate that spirit of reckless speculation, and set up again some of those windy enterprises which have drawn away so much of the capital of the country from productive business, and wasted it. You can and will make our banks and institutions of credit once more the mere tenders of wild speculation and dealers in fictitious values. You can and will seduce our merchants and manufacturers once more to spread their capital and their credit all over creation. You can and will make trade lively for a while by driving up prices to an unnatural height. You can and will stop that economy which has now commenced, and incite reckless extravagance in our social life once more, even beyond any point which it had reached before. You can and will encourage the importation of luxuries even beyond the figures of 1872. You can and will make people believe once more that they can get rich by gambling in its various forms much more easily and much more rapidly than by honest work, and thus deter them from that honest work. In one word, you can and will fill that balloon once more with the gas of a redundant, irredeemable currency, and thus prepare for a near future a crash, a collapse, attended with even more bankruptcy, ruin, and misery than we are now beholding around us.
Why will all the evil influences of an irredeemable currency be even more active than before if in this case you revive them? Because by the very act of issuing additional currency at this time Congress will give the schemers, the speculators, and the gamblers of the country reason to expect that whenever their wild operations produce another crisis, Congress will again step in “to revive the business of the country and give prosperity a new start,” so as to secure to them a double chance of gain, or at least impunity in their operations.
All this can and will most surely be accomplished by inflation. An inflation of $44,000,000 will go very far toward doing it, and an inflation of $100,000,000, as proposed by the Senator from Michigan, will most certainly do it; for you may be sure the more of an addition you give now, the more imperative will soon be a demand for still more. And for exactly the same reasons which move you now to propose an addition to the currency you will have to grant still more. Why will this be so? Let us see.
The Senator from Michigan says that the crisis was caused by the circumstance that the volume of currency was insufficient for the business wants of the country. Now, sir, leaving aside the in my opinion utterly untenable assertion that the crisis was owing to such an insufficiency, I ask is it really true that the volume of the currency was insufficient for the business of the country? Consulting the best authorities that I can command, I find that in 1860 we had a currency circulation, specie and bank notes, of about $14.50 per capita, while to-day we have a per capita circulation of $18.75; that is to say, we had that before the $44,000,000 reserve was drawn upon so largely. With the additions so recently made it will be $19 and over. It appears, then, that according to that circulation the currency of the country has not only been very largely increased in the aggregate, but that even the ratio per head has been increased about 28 per cent. since 1860.
I know it is said that our general business has grown so immensely that not only not the same aggregate amount of currency, but not the same ratio per head, would be sufficient. I ask sir, would an increase of business transactions at the same or even a greater rate render necessary a corresponding increase of the volume of the currency? I answer that it would not. It is a fact very well known to every one who has given the least study to this subject that the amount of currency actually handled in the transactions of business is exceedingly small in proportion to the values passing from hand to hand in the shape of mercantile and banking paper, bills, checks, &c. The Senator from New Jersey [Mr. Frelinghuysen] yesterday called attention to this fact; and in order to illustrate I will make a quotation from one of the standard works. To show approximately the proportion of banking transactions which are settled through the clearing-house in London, Sir John Lubbock, in a paper laid before the Statistical Society in June, 1865, made the following analysis of £23,000,000 sterling which passed through his bank in a few days:
Amount settled through the clearing-house, £16,346,000, or 70 per cent.; checks and bills not passed through the clearinghouse, £5,394,000, or 24 per cent.; bank notes, £1,216,000; coin, £139,000; in all (bank notes and currency) 6 per cent.
From this statement it appears that 70 per cent. of the banking transactions are settled through the clearinghouse, and consequently
without the use of money. Of the remainder, also, 24 per cent. are settled without the use of money, by means of checks and nearly 5 per cent. are settled in bank notes; and little more than 1 per cent. is settled in coin. So it appears that only 6 per cent. of money was used in the transactions here stated. I refer to these matters not as if they were anything new, for I know they are not, but because, after what we have heard on this floor, it is not entirely inappropriate now and then to refer to the elementary text-books.
Mr. MORTON. I should like to ask the Senator a question, if he will yield.
Mr. SCHURZ. Certainly.
Mr. MORTON. I should like to ask the Senator a question in connection with that authority. I ask if he is prepared to state to the Senate what is the actual volume of the currency of England, including paper money and coin?
Mr. SCHURZ. I had not intended to speak of that; but I am prepared to satisfy the Senator.
Mr. MORTON. Any other time will do.
Mr. SCHURZ. I can state it now. I think it will fit in my argument very well here.
A recent and intelligent writer on finance, and banking estimates —
The gold and silver in circulation in Great Britain at £70,000,000, or $339,500,000.
The circulation of the Bank of England, October 16, 1872, was £34,328,708, or $166,500,000.
The notes in circulation in the United Kingdom, other than those of the Bank of England, September, 1872, were as follows:
| England................................................... | £5,057,910 |
| Scotland.................................................. | 5,313,560 |
| Ireland.................................................... | 7,242,081 |
| | 17,613,551 |
| Or $85,425,000. |
That was the state of the case in 1872; the total circulation in England amounted to $591,425,000, but the bank-note circulation at the present moment is less than that. According to a statement that I have seen the aggregate is about £42,000,000 at present. It appears from this statement that our circulation in the United States is vastly larger than that of England.
Mr. MORTON. I did not exactly understand that statement — whether the coin statement applies to England or the United Kingdom.
Mr. SCHURZ. The gold and silver in circulation in Great Britain is estimated at £70,000,000. That includes Scotland and Ireland of course.
The purposes for which this currency is mainly used are daily expenses, are wages, are balances, and so on; and the proportion of business transactions in which the whole value of the commodity passing from one person to another and is settled in currency is very small, as I have shown. It is also a well-known fact that it is the progress of civilization, in its various forms, which gradually diminishes the proportion of currency necessary for the transaction of trade, by the extension of railroads and telegraphs facilitating the rapidity of circulation, by further developments of the clearing-house system, and so on. So that as we progress we may rely upon it that a less volume of currency will be needed as compared with the business transactions going on.
It is of course very difficult, if not impossible, to state exactly in figures how much currency is needed by the business of the country; but there is a test by which the sufficiency or excess of an irredeemable currency for the wants of the country can be estimated. I hold in my hand a very valuable treatise on currency by Bonamy Price, in which this question is treated as follows ---
Mr. MORTON. Would it interrupt my friend if I asked him a question, for I am seeking for information?
Mr. SCHURZ. Not at all.
Mr. MORTON. I ask him this question: whether, according to the showing he has just made, that the aggregate currency of England, coin and paper, is about $550,000,000 ---
Mr. SCHURZ. So it is stated.
Mr. MORTON. I ask him now if that is not a larger currency, all things considered, than ours at this time, for these reasons: In the first place, we have over forty millions of people, and they have about thirty-two millions. In the next place, their territory is comparatively small, and ours is vastly extended. In the next place, they have many more banking facilities than we have; they are close together, and the facility of bank credits is much greater than it is or can be in this country. Therefore, all these things considered, their facilities for bank credits being more than double ours, taking our great area, I ask my friend if the currency of England is not proportionally larger than that of this country?
Mr. SCHURZ. Yankee fashion, I will answer the question of the Senator by another question. Can he tell me whether, in the aggregate, the business transactions and the values involved in the business transactions in England are not much larger than the number of business transactions and the values involved in them here? Can he tell me? He does not answer; and if he cannot, then he confesses his inability to answer his own question.
I said that there was a test by which the sufficiency or excess of an irredeemable currency for the wants of business can be ascertained; and I am going to quote now from the treatise of Bonamy Price:
It remains for me now to speak of inconvertible paper money.
It is very important here to have a clear understanding of the events which occur under such a system of currency. In the first place, how are such notes born into the world!
A government finds itself in want of resources; it seeks the means of buying, of procuring the articles which it wants. To obtain, like a banker, the funds of other people without giving anything in return but a mere acknowledgment of debt, a mere promise to pay, is a temptation to which many states have shown themselves to be accessible. The government pays its debts, and makes purchases with these promises to pay, and then passes two enactments respecting them: first, that these promises to pay shall not be liable to be paid on demand; and, secondly, that they shall be a legal tender in the discharge of all debts and contracts throughout the land. And thus the question instantly arises, what effect does this exemption from immediate payment produce on the value of these inconvertible notes? Will a debt pledged to be repaid at twenty shillings pass from hand to hand when no longer capable of claiming the twenty shillings on demand, or will it and must it suffer depreciation? Experience has proved that it need not of necessity suffer any depreciation of value; that it may still circulate at twenty shillings, in spite of being no longer a warrant which can be immediately converted into coin. For years after the passing of the bank-restriction act the notes of the Bank of England suffered no discount; at a later period a guinea was worth twenty-seven shillings in notes.
How is this difference of effect to be explained? The general principles of currency, if you have fairly grasped them, will soon enable you to understand what occurs. You have seen that the public has a certain definite want for notes to use in the daily operations of buying and selling; there is a specific work to be done, and for that work it needs and will buy tools, precisely as a carpenter procures a basket of tools for the house that he is employed to build. For some portions of this work the public purchases sovereigns; for other portions it uses notes. Up to the full extent of this want, of this demand, of this capacity, to use notes, the public will not send them in for payment, but retain them, although it knows, when they are convertible, that it can at any time obtain sovereigns for them in exchange. This being so, it is plain that the prohibition to pay the notes can make no difference in the extent of the use which exists for the notes; so far as this reaches, it is immaterial whether the notes will or will not be paid on demand. The only fact which could stop their circulation would be their intrinsic worthlessness, for then they would be altogether incapable of doing the work of money; they would be unable to give security to the man who gave his goods for them, that he would be able by their means to buy other articles of equal value with those he had sold. This destructive feeling the law always takes care to guard against by enacting that these inconvertible notes shall be a legal tender and effectual discharge of all debts. They become good and serviceable notes then, in a measure; but in what measure, to what extent? In the first place, they are efficient tools, as good money, as convertible notes, provided that they are not issued in greater numbers than the quantity of convertible notes which would have been used; that is, provided that their numbers are not larger than the public can find employment for and hold. And remember always carefully the meaning of the phrase, that the use and demand for notes are those exchanges, that buying and selling, in which notes are actually handled. In the early years, under the bank-restriction act, the bank did not put more notes into circulation that were required for this specific use. Accordingly the notes suffered no depreciation, for there was no cause at work to depreciate them. It was understood all along that the bank recognized the notes as debts due by her to the public, though not to be paid for a while; and so long as the public really needed them, and would not have sent them in for payment had they been convertible, it did not matter a straw whether the day of payment was the day of their use or a day a hundred years later.
But circumstances were radically altered when the bank transgressed the limits of the real demand for notes, of the quantity which was actually needed for daily use. The difference of action between convertible and inconvertible notes then became instantly manifest. A convertible paper money encounters a most solid and objective obstacle to excess. The test, and a most real one it is, is instantly applied to superfluity; the notes issued beyond the public wants are immediately sent back to the banker for payment. The vessel is full, and every additional note makes it to overflow.
But inconvertible notes once placed with the public cannot be driven back. The issuing valve opens in one way only; the excess remains amongst the public. What are the consequences of this fact, and by what rule are they measured? The notes which surpass the demand become an article, of which the supply exceeds the demand; they fetch a lower price, as every other commodity does under similar circumstances.
In other words, the notes fall to a discount, as when twenty-seven shillings of notes had to be given for a guinea of gold; or, which is the same thing, gold rises to a premium compared with the paper currency, as we now see happening in America. The American premium on gold does not indicate that gold, as such, has acquired a larger purchasing power; it is only another name for the discount attached to the greenbacks.
Mr. FERRY, of Michigan. Will the Senator allow me to put a question to him?
Mr. SCHURZ. Yes, sir.
Mr. FERRY, of Michigan. I am not disposed to interrupt the Senator out of curiosity, but my object is to arrive at the truth, as we all are desirous of arriving at it. The Senator has elaborately read the theory of some writer. I would like to ask him if he can explain the experience of France at this day, where it has seven hundred millions of coin, and but six hundred millions of currency, and is yet under suspension?
Mr. SCHURZ. Whenever we come to discuss the affairs of France I shall take up the facts and figures concerning that country, which I have not now before me; but the Senator will understand that if I permit myself to be led away from my subject into an explanation of all the financial systems and phenomena of Europe, I shall never get through with the discussion now in hand. I suggest to the Senator that we take up extraneous matters at another time. In the meanwhile I shall proceed to show the Senator in the course of my remarks that it will not be easy to controvert the theory laid down in the passage just quoted.
Mr. FERRY, of Michigan. I am not disposed to controvert it any more than to put experience against theory.
Mr. SCHURZ. The principle laid down here that an inconvertible currency may remain at par as long as it does not exceed the amount of money actually required by the business of the country, and that its continued depreciation is a sure indication of excess in issue, is verified by the history of all countries in which an irredeemable
currency has existed. It is a thing in which, so far as I know, all political economists are perfectly agreed. And here again I could multiply quotations for hours to substantiate that assertion.
The Senator from Michigan, when he spoke last, affirmed that the volume of the currency had nothing to do with its depreciation, and he produced a table showing that in our case the premium on gold did not always correspond with the expansion or contraction of the currency,but that it indulged in singular freaks sometimes. This has undoubtedly been so. The amount of depreciation which an inconvertible currency suffers, the extent of its fluctuations in value from time to time, do certainly not depend upon its volume alone. They depend in a great measure upon public opinion, upon the hopes and fears entertained by the people, especially in times of great public danger and political commotion. Unfortunate events, gloomy prospects, will increase the depreciation, and vice versa. Popular confidence or distrust in the Government will do the same. The financial operations of the Government, the combined action of speculators, the temporary currents of business will occasionally affect it; and thus it happens that the amount of the depreciation of the currency is not always an exact measure of the amount of its excess in volume over the natural wants of general business. But such occurrences do not refute the general principle, that the issue of an inconvertible currency, in excess of the natural wants of the business of the country, results at once in its depreciation, and that such depreciation, when it steadily continues in comparatively quiet times, undisturbed by extraordinary events, as it has here during the last four years, is a sure sign of its excess as to the wants of the country. The Senator from Michigan himself, when he considers the matter without prejudice, will, by every process of reasoning and every method of observation, be led to the inevitable conclusion that had the existing volume of the circulating medium been really insufficient for the necessities of the legitimate business of the country, it would have been absolutely impossible for the prices of commodities to maintain themselves at the high inflation point at which they have stood for years; and the unavoidable demand for currency would have undoubtedly raised its current value to a par with gold. Nay more than that, had the vacuum caused by the insufficiency of the circulating medium been so great as seriously to impede the exchange of commodities, the very force of necessity would have driven the gold coin which is still attainable out of its hiding-places, to fill that vacuum and to circulate by the side of the paper currency.
When now, in the face of all these facts and economic laws, the Senator from Michigan still undertakes to assert that the volume of an irredeemable currency has nothing to do with its depreciation, he performs a feat of courage which, down to this time, no political economist has ever been capable of. And I venture to assert that no sooner will Congress, adopting his proposition, declare in favor of inflating the currency instead of making preparation for resumption, than the mere fact will at once increase the depreciation of the currency once more. The issue of these $100,000,000 will probably depreciate it beyond any point at which it has stood since 1869; and possibly then the Senator from Michigan will also recognize the relation between cause and effect.
Mr. FERRY, of Michigan. If I have understood the Senator correctly, he has stated that the gradual decline of the premium on gold has been caused mainly by the peaceful, quiet condition of the financial affairs of the country, and that in no regard, as his argument tends, does the volume of currency affect the premium on coin.
Mr. SCHURZ. Did I say that? No, I beg your pardon. I said that the fluctuation of the depreciation of the currency is not regulated alone by its volume in excess of the wants of business, but that there are other agencies which now and then affect it, and I have mentioned those agencies.
Mr. FERRY, of Michigan. I understood the Senator to say that the nearer we approached par, the greater the prospect of gold taking the place of the deficiency in the volume of currency.
Mr. SCHURZ. No, sir; I did not say anything of the kind. I did not speak of any approach to par at all; but I said that when in comparatively quiet times, when none of the disturbing agencies which I had mentioned as possibly affecting the depreciation of the currency were acting, and when the currency remained steadily depreciated, it was a sure sign that the currency was in excess of the real wants of the business of the country.
Mr. FERRY, of Michigan. Just let me ask one question, and I will not interrupt the Senator further. I ask the Senator how he accounts for the fact that in the midst of the panic coin was at its lowest ebb, or at least the premium was the lowest. I think gold stood 106 in the market then, and that was the lowest point since the war. That was in the midst of the panic, when the whole country was disturbed.
Mr. SCHURZ. What does the Senator mean by that question? What point is he driving at?
Mr. FERRY, of Michigan. As I understand the Senator, he said that the relation between currency and coin was affected very much by the disturbed condition of the financial or business interests of the country.
Mr. SCHURZ. The Senator is undoubtedly aware that during panics there are moral agencies at play which are not active in ordinary times; we notice these extraordinary phenomena. I will not, however, attribute to this general fact the low rate of the discount on our currency during the panic. The immediate cause was the circumstance that very large amounts of the currency were hoarded, and thus withdrawn from circulation — a circumstance which naturally had the same effect that contraction would have had. In what way does this fact discredit the theory I have just been stating? Can the Senator tell me?
Mr. FERRY, of Michigan. All I have to say is, that the Senator has attempted to refute the position I have taken, verified by the table which I submitted to the Senate. I did not state that the volume of currency had not somewhat controlled, but that the volume of currency had not regulated, the price of gold; and in support of that I submitted a statement of the semi-annual relation between currency and coin since the currency was issued up to last fall. In that table is shown the fact that during the panic gold stood the lowest, coming down to a premium of 6 per cent. And now I answer the question put directly by the Senator to me. When he states that the relation between the two is governed largely by the attitude of the country and the attitude of the financial and industrial relations of the country — in other words, that when it is peacefully controlled the gradual decline of the premium is assured, I state to him that in the midst of a panic, when the country was never so disturbed as it was last September, the price of gold was the lowest that it has been since the war.
Mr. SCHURZ. The Senator must be aware that although the premium on gold did go down to about 6 per cent. during the panic, it has been down to almost that premium several times within the last three years. It was down to 107 in 1871; it was down to 107 1/8 in 1872; and then went up again.
Mr. FERRY, of Michigan. That is not so.
Mr. SCHURZ. It is certainly so. The record shows it. I conclude that in this light the fluctuations of the currency do not disprove the theory I have stated; and the decline of the premium on gold during the panic does not alter the case.
Mr. MORRILL, of Vermont. If the Senator will permit me, I think he admits too much. The price of gold did not go down to 6 per cent.; it went down to 9 or a fraction under, and bills were locked up so that 3 per cent. premium was paid for bills; and that made a difference as between bills and specie of 6 per cent.
Mr. SCHURZ. But the particular effect which the Senator from Michigan mentioned during the panic has, as I have stated, and as I now repeat, been in a natural way brought about by the withdrawal of large quantities of currency from circulation, many people hoarding it.
Mr. FERRY, of Michigan. In answer to the Senator from Vermont I will say that my table was made up from the quotations in Wall street; and if the daily quotations there have been wrongfully submitted to the country I am not responsible for it. But the quotations during the panic were 106. If the Senator from Vermont has authority that overrides this, then, certainly, I will surrender the argument; but go long as that was the quotable rate of the premium on coin, being at the lowest ebb in the midst of convulsion, I take it that it refutes the position taken by the Senator from Missouri.
Mr. SCHURZ. I think the Senator will stand alone in that assertion; but he will have an opportunity to explain his theory on that point when I am through. I merely desire to repeat a third time that the main cause of the fall of the premium on gold during the panic was that a large amount of currency was hoarded and thus withdrawn from circulation.
In one sense, however, the assertion of the Senator from Michigan appears more plausible, and it would remain so if we should expand the currency to the amount of ten thousand millions. Even then many people would complain, and have certain reason to complain, of the insufficiency of the currency, just as they are now doing, if not more. Why will this be so? It is a universally known fact, and I believe not doubted by any well-informed person, that an excessive issue of currency at once effects a general rise in the prices of commodities. It has always been so, and naturally must be so. When this is the case with a currency which to the vice of redundancy adds the vice of inconvertibility, as it depreciates its purchasing power becomes less, and the rise in prices continues; and this being so, the efficiency of the currency as a means of exchange has, in spite of its expansion, virtually not increased, but in consequence of this process rather diminished. For this reason a continually progressive increase of the currency is demanded. I may quote here the language of a political economist of note on this point. It is Amasa Walker. He says:
A credit currency —
Meaning an irredeemable currency —
never has been regulated in such a manner as to keep it on a par with specie, and probably never will be. The necessities of government are so pressing that the temptation to increase the amount becomes too great for resistance. As prices rise in consequence, the currency becomes of less and less value — that is, has a decreasing power in exchange, so that the inducement to issue becomes continually stronger as the volume expands. Unless this course can be arrested, final bankruptcy is sure. — Walker's Science of Wealth, page 135.
And in another place, speaking of a redundant currency generally, he says:
The more that is issued of a mixed currency, the more will be wanted. The supply does not satisfy the demand; it excites it. Like an unnatural stimulus taken into the human system, it creates an increasing desire for more; and the more it is gratified the more insatiable are its cravings.
There are two reasons for this: one, that, as the currency is expanded, prices are raised correspondingly, and more currency is demanded to effect the same exchanges; the other, that the speculation inevitably following the rise of prices leads to an enormous extension and repetition of indebtedness, which requires for its discharge a greatly increased amount of the circulating medium. Thus, by the action and interaction of these causes, the demand for the issue of this kind of currency is certain to be greatest when it is already redundant.
The least reflection will convince us that it is so. This is one of the causes of our apparent insufficiency which does not exist in reality, and of a continual demand for more. But there is still another. It is not that there are not enough greenbacks and bank notes as tools of exchange in the hands of the public generally to supply the natural wants of business, but because some people who want to use them in legitimate business have not got them, while others who do not use them in legitimate business contrive to control them. It is a universally recognized fact that a redundant currency, and especially an irredeemable one, always begets and stimulates speculative enterprises, that such speculation diverts capital from legitimate business, that especially when carried on by powerful combinations it presses currency into its service, and that the currency is thus concentrated at the centers of speculation, while it is drawn away from where it is needed by legitimate business. Legitimate business is thus sometimes cramped, while of course the speculators themselves can never get enough for their operations. Hence a continual and insatiable demand for more; and if you want the proof of this assertion examine only the transactions of the New York banks in our days.
Now this cannot be remedied by an expansion of our irredeemable currency. The more the currency is expanded and speculation stimulated, the greater will this evil become and the more strenuous the demand for more. For this reason, also, I do not believe that the remedy suggested by my colleague [Mr. Bogy] the other day will be effective. He proposed that the national banking currency should be so redistributed as to give to the West a greater amount. In many respects, I should see good reasons to approve of this proposition, but I do not think that if in the West new national banks were created or the issues of those that exist already were increased, the money would stay there. It would not remain near its point of issue, and for this reason it is impossible for national banks whose issue has been out for some time to gather up any considerable amount of their circulation. It will go where it is attracted by the business of the country, and especially by speculation. The operation is as if you emptied a vessel of water on the top of a hill; it will not stay there but find its way down.
Thus it becomes certain that as some people complain of the insufficiency of the currency now, they will complain still more loudly after a new inflation of the currency shall have had its effects, and if we should follow the cries for more and more, I candidly ask the Senators from Indiana and Michigan where we shall land? We shall land where the assignats landed France; and where the continental money landed the United States at the commencement of our national career — in overwhelming bankruptcy.
Equal to the remarkable delusion that an expansion of our irredeemable currency will increase its efficiency as a means of exchange is the kindred hallucination that such an expansion will reduce the current rate of interest. Just the reverse is true; and why? Let me read a few words from John Stuart Mill's Principles of Political Economy, which will set this question in the clearest possible light:
Suppose money to be in a process of depreciation by means of an inconvertible currency, issued by a government in payment of its expenses. This fact will in no way diminish the demand for real capital on loan; but it will diminish the real capital loanable, because, this existing only in the form of money, the increase of quantity depreciates it. Estimated in capital the amount offered is less, while the amount required is the same as before. Estimated in currency, the amount offered is only the same as before, while the amount required, owing to the rise of prices, is greater. Either way the rate of interest must rise. So that in this case increase of currency really affects the rate of interest, but in the contrary way to that which is generally supposed, by raising, not by lowering it.
The reverse will happen as the effect of calling in or diminishing in quantity a depreciated currency. The money in the hands of lenders, in common with all other money, will be enhanced in value; that is, there will be a greater amount of real capital seeking borrowers; while the real capital wanted by borrowers will be only the same as before, and the money amount less. The rate of interest, therefore, will tend to fall.
We thus see that depreciation, merely as such, while in process of taking place, tends to raise the rate of interest; and the expectation of further depreciation adds to this effect; because lenders who expect that their interest will paid, and the principal perhaps redeemed in a less valuable currency than they lent, of course require a rate of interest sufficient to cover this contingent loss. — Principles of Political Economy, page 391.
Nothing in the world could be clearer; and it is a spectacle appealing to our pity, as well as exciting our indignation, when we see men who ought to know better go about the country peddling the atrocious nonsense that if we only issue five or six hundred millions more of irredeemable currency the rate of interest will go down to 3 per cent.
Thus the relief sought by an inflation of our currency turns out to be a mere delusion, as anybody who had given any attention to the subject always knew it must. But there are people who seem to be clinging with a childlike faith to the ridiculously absurd notion that by printing and issuing more Government promises to pay we shall increase the wealth of the country. We might call it a ludicrous form of superstition, if not insanity, were it not so serious and sad. Now, suppose for a moment we could, by some sort of witchery, wipe out all existing engagements in which money is involved, such as debts, contracts, and so on, and then multiply all the greenbacks and national-bank notes in the possession of the people by ten, so that, waking up some beautiful morning, every individual in the United States would find ten greenback dollars in his pocket, or safe, where
the day before he had only one. What a jubilee there would be among fools. But what a disappointment as soon as the true state of the case became generally understood. Does any sane man think that by such multiplication the wealth of the country would be increased one farthing? It is evident that it would not. Does any sane man think that any individual in these United States would have become richer by the multiplication? Not a cent's worth; for, going to market the next morning, he would find that he would have to pay just ten dollars for what cost one dollar the day before. Does any sane man think that the currency, so multiplied, would have received an increased power of exchange? Not the least, for every transaction would require the use of ten dollars which the day before had required the use of only one. What would be the effect, then? No benefit at all to anybody; but the Government of the United States, still promising to pay one dollar in gold for one dollar in greenbacks, and being obliged to buy all it needs at ten times the former price, would soon find its debts increased beyond its power to bear it, its Treasury utterly bankrupt, and absolutely forced into repudiation. Then the greenbacks so multiplied would not be worth anything to anybody, and the people would find themselves forced, through universal confusion and ruin, to struggle slowly back to a specie basis in order to be able to do business at all.
You may say that this is supposing an extreme case, but I tell the Senator from Michigan and the Senator from Indiana that every step we take in the direction of inflation is a step in the direction of just that result. I repeat, not only will expansion not bring in any sense the relief sought, but it will grievously aggravate the evils from which we are now suffering; and it will do that in two ways — first, by stimulating anew the evil tendencies which have already brought such disaster upon us, as I have shown; and secondly, by incalculably increasing the difficulties which stand in the way of a return to a sound and safe basis for our monetary system.
It is absolutely in vain for the Senator from Indiana to say that as soon as times grow more prosperous we may retire the greenbacks which we now issue in addition to the present volume. The very same class of reasons which urge him now to advocate an expansion of the currency will then be used against contraction. As in troublous times we are told that the currency must be increased to revive business, so in times of revived business, especially that kind of business which a new inflation of the currency is apt to revive, the cry will be, “Let well enough alone;” or, rather, “For Heaven's sake do not touch the bubble lest it burst at once;” and I shall wonder whether the Senator from Indiana will be the one to touch it. No illusion about that; the more we expand our irredeemable currency the farther we slide down the slope at the bottom of which is, not resumption, but repudiation; and every descending movement makes it more difficult to arrest the dangerous course.
It is equally in vain for the advocates of inflation to indulge in poetic eulogies on the beauties and virtues of our present currency. What do they mean when they tell us that our irredeemable legal-tender notes are the best currency this country ever saw, and that the people are so extremely fond of it? Do they not themselves know better? Can a currency be the best which fluctuates in value from day to day, thus unsettling all exchangeable values in the country?
But I will put the Senator from Indiana and the Senator from Michigan to another test. If I should buy a house of either of them for $10,000, and now step before my honorable friends with $10,000 in gold in one hand and $10,000 in greenbacks in the other, and give them the choice as to which to take in payment, which would they choose? With both hands they would reach for the gold. Why? Because they know that $10,000 in gold are worth to-day at least $11,000 in greenbacks; $10,000 in the old currency worth it least $11,000 in the new. They would prefer 10,000 pieces of substance to 11,000 pieces of promise, would they not? I take it that the people of the United States are just as sharp as my honorable friends from Indiana and Michigan. There is not a person in the land who, if offered the choice, would not make the same. The people may be very fond of the greenback currency, and have great confidence in it; but being willing to pay one dollar and ten cents in greenbacks for one dollar in gold, the people like the gold currency at least 10 per cent. better than the greenbacks. Which is, now, the best currency that this country ever had? In which have the people more confidence? And what kind of an argument is it by which gentlemen try to prove the unbounded confidence of the people in the greenback currency when they say that people were actually so fond of it as to hoard it during the crisis? Of course they did. They had nothing else to hoard; and so, distrusting the banks, they hoarded the only currency they had. If they could have exchanged that currency at par for gold would they not have done it? Or is there anybody foolish enough to think, or bold enough to assert, that if they had had gold they would have made a run on the banks and on the Treasury to exchange that gold for greenbacks? The absurdity is apparent. I hope we may stop talking about “the best currency this country ever had,” and “the popular confidence in irredeemable depreciated paper currency,” since we all know better. It is mere talk to befog the good sense of the people.
But I am confident the people will gradually and surely learn to understand, if they do not understand it already, that, aside from its demoralizing influences, an irredeemable, depreciated, and fluctuating legal-tender currency is the most expensive money that can possibly be invented, for it obliges the Government to pay extravagant
prices for all that it needs, and in consequence of its depreciation and its fluctuations it imposes upon the people a most unequal, unjust, extortionate, and oppressive tax, the more extortionate and oppressive as it is uncertain and irregular. And every addition to the currency causing further fluctuation and depreciation and further uncertainty of values renders that tax but more unjust and oppressive. The laboring man will learn to understand, if he does not understand already, that upon him this tax imposes an especially unjust and oppressive burden, because in the rise of general prices which always accompanies the expansion and depreciation of the currency, the wages of the laborer always rise last when he has already had for a time to pay inflation prices for his necessaries; while as soon as the inflated balloon collapses, he is the first to be plunged into the most grievous misery. And the farmer will learn to understand that while the prices he receives for most of the products of his toil are regulated by the foreign market, untouched by our home inflation, and exposed to the competition of all the world, the price of all he has to buy at home is driven up to an extravagant point by the influence of a depreciated currency, he being thus compelled to buy all he has to buy at prices which are far advanced, and to sell almost all he has to sell at prices which have remained very far behind. The farmer will understand at last that, injurious as is to him the tyranny of transportation monopolies and the operation of the tariff, the oppression he suffers from a fluctuating and depreciated currency is as great, if not greater; and it is to be hoped that the farmers who have risen to protect their interests will in their efforts not forget this most insidious and most burdensome oppression.
Thus, from whatever point of view we may look at it, every consideration of honor, of good faith, of general advantage, and of sound policy urges us to make an end as soon as possible of this iniquitous system.
Now, since all Senators admit that ultimately we must come back to a specie basis, the only question to be discussed in that respect seems to be that of method and opportunity. The difficulties which stand in the way of redemption I see clearly enough. In considering them I have at once to enter my protest against two plans suggested, which, as I believe, involve dangerous delusions. The first is that proposed by the Senator from Michigan, [Mr. Ferry,] that we should first expand the currency in order to revive prosperity, which revived prosperity would then enable us to return to specie payments with greater ease and facility. The second is that proposed by the Senator from Massachusetts, [Mr. Boutwell,] to do nothing, but let things remain as they now are, and to wait until the business of the country will have grown so much that its necessities will bring gold and paper to a par by a natural process of development.
The proposition of the Senator from Michigan appears to me so illogical, so visionary, that I can scarcely understand how he can have been in earnest in advancing it. Had the Senator proposed it for the distinct and avowed purpose of making our irredeemable currency perpetual, at least till the final breakdown shall come, it would have been intelligible and eminently practical; but as a pretended preparation for the resumption of specie payments, with due respect be it said, it looks to me like a huge joke. That the way to the resumption of specie payments, when there is already so much of irredeemable paper money that its very quantity is said to make resumption next to impracticable, should be to issue still more, appears to me, to say the least, somewhat funny. Most of the fallacies involved in this singular scheme I have already exposed. I have shown that an additional issue of greenbacks would at once revive all the dangerous influences which that kind of currency has exercised before, and always exercises wherever it exists, that wild enterprise, speculation, and gambling will spring up again, that a new expansion of credit will take place, that the cry for more and more paper money will appear with imperative and almost irresistible force; and so on until another crash puts an end to it. I need not go over that catalogue again.
It is really amazing that anybody should have to be told that the return to specie payments must be preceded by certain conditions the fulfillment of which will be rendered utterly impossible by the inflation policy proposed by the Senator from Michigan. It must be preceded by severe retrenchment in our public and private expenditures; by the abandonment of windy schemes and enterprises leading to the unproductive consumption and waste of capital; by abstinence from wild speculation and gambling; by moderation and prudence in the conduct of industrial and mercantile business; by a new and practical recognition of the truth that honest, productive labor is the true source of wealth; by the accumulation and judicious employment of savings, instead of an unnatural expansion of credit and an accumulation of debt.
These are the things that are necessary to render specie resumption practicable without leading to serious embarrassment and disaster. But now let the cry of the Senator from Michigan, “Prosperity through currency expansion,” prevail, and what will be the result? Then, sir, good-by retrenchment and economy, whatever may be said or attempted to-day, with the spectacle of an embarrassed Treasury before us. Already we hear prominent inflationists say that a great government like ours should consider it beneath its dignity to be niggardly in its expenses. Let “prosperity through inflation” prevail, and in a short time our expenditures, public and private, will be more extravagant and reckless than ever. Then good-by prudence and moderation
in enterprise and in the conduct of industrial and mercantile business. In a short time wilder schemes than ever will waste our capital. Then good-by to general respect for honest labor, for getting rich through speculation and gambling, without work, will be more popular and seductive than ever. Good-by reduction of indebtedness in the business community, and contraction of credits. The credit balloon will be strained soon to the bursting point again. That is your “return to specie payments by prosperity through inflation.” We had a curious instance the other day how, in such things, cause and effect are mistaken.
The junior Senator from Indiana [Mr. Pratt] gave us the statistics of our extravagant importations of luxuries, to show how difficult the resumption of specie payments would be if we continued to export specie for luxuries at such a rate, and then he exclaimed, “Look at this list, and who shall say that we are not the most extravagant people under the sun, trampling under foot all wise economic laws?” That was very well spoken. The Senator was right. But then he went on advocating an increase of our irredeemable currency; and now what will he answer when I show him that in making that proposition he did some of that trampling underfoot of all wise economic laws himself? He evidently did not consider that an expansion of the currency is always accompanied by an increase of importations. Here I hold in my hand a table showing that in thirty years, with the exception of only two, which exception can be explained upon other grounds, the importation of goods from abroad has continually and most strikingly corresponded with the expansion of our currency, and vice versa. This fact stares us in the face. It is impossible to question it.
This being so, if the Senator from Indiana wants to reduce the extravagance of importations, he should insist upon contraction and not upon expansion. If the Senator is disturbed by our extravagant importations now, what will he have to say when more paper money is issued, and the importations become more extravagant than ever? There is another instance of your return to specie payments by “prosperity through inflation.” It is exactly like the advice to drink brandy in order to get sober.
I approach now the proposition of the Senator from Massachusetts, [Mr. Boutwell,] that we should sit still, do nothing with the currency, waiting patiently and quietly for the development of the resources of the country and the increase of business to bring greenbacks and gold together in value, as he said in his speech a few days ago. When in his opinion that period is likely to arrive the Senator did not tell us, and yet an answer to just that question would be a very valuable piece of information coming from the principal champion of that policy. I will venture to ask the Senator from Massachusetts, in perfect good faith, whether in his opinion the present condition of things is entirely satisfactory? He certainly will say no.
Mr. BOUTWELL. Does the Senator want an answer? I say no; and I say that the suggestion made by the Senator from Missouri promises to bring upon us a more unsatisfactory condition than that which exists now.
Mr. SCHURZ. I ask whether in his opinion what I have said about the evil influences of our irredeemable and depreciated currency is not substantially true; whether that kind of currency has or has not shown a tendency to engender unproductive enterprises, over-speculation, and gambling; the creation of fictitious values, an over-straining of the credit system, a general demoralization of business, not to speak of social life; a continual demand for more and more of such money, and so on; apt to lead finally to great breakdowns and ruinous disaster? He certainly will not deny that; and if he cannot in the face of the facts known to all deny it, I would further ask whether every day that such a system is continued just as it now is, with all these influences an effects, is not a day of danger?
Mr. BOUTWELL. Mr. President, as the Senator from Missouri has appealed to me, I will take this occasion to state very concisely the position which I occupy. In what he has said concerning the evils of an inflated paper currency, barring some exaggerations of rhetoric, I concur with him. In what he seems to propose — immediate, unconditional, forcible contraction of the currency of the country, as a means of remedying the evils which we suffer — my position is, that the consequences of that policy would be infinitely more disastrous to the country than the evils under which we are now suffering.
Mr. SCHURZ. The Senator from Massachusetts has somewhat anticipated my conclusions.
Mr. BOUTWELL. I supposed I should.
Mr. SCHURZ. But he has not anticipated them quite correctly. If he had waited until I had finished my speech I think he could have spoken with much more intelligence of what I was going to propose than now.
Mr. BOUTWELL. If the Senator from Missouri is against contraction, and is disposed to wait for the development of the country, and the increase of the business and power and prosperity of the people by natural causes, and does not propose a remedy by artificial application, then we are together.
Mr. SCHURZ. No, sir; we are not together. When I asked the Senator from Massachusetts whether he does not substantially agree with me in all I have said as to the evil influences of an irredeemable and redundant currency, he declared, as the Senate has heard him, that he did. I was just now asking him, unable and unwilling as he is, in the face of the facts known to all, to deny -these evil influences, whether every day that such a system is continued just as it now is, with all those influences and effects, is not a day of danger. Can it
be continued without serious peril to every interest we hold dear? Certainly it cannot. And if it cannot be continued without such peril, and he still advises us to hold on to the currency just as it now is and thus to continue that peril, may we not at least expect of him to show that he has himself a definite idea whether the period which, by some natural process of development, is to bring us the relief so sorely needed, is near at hand or not? Is it quite enough that he should refer us to some indistinct, nebulous future, the darkness of which he himself does not pretend to have penetrated? Is it enough to say, as he said in his speech the other day, that it will come in time; how long a time it may require he cannot tell, but in time? Has he considered what may intervene; nay, what is most likely to intervene, according to the laws of cause and effect, between this day and that indefinite future? Has he considered that unless we soon take decided steps to change our system, it becomes with every day more probable that by some means further inflation will be forced upon us as it is being enforced upon us now, and the promised period of relief will be removed into a still further and more nebulous future; and that if we want to avoid the most evident danger of sliding backward, it is absolutely necessary that in some way we should go forward.
Mr. BOUTWELL. Will the Senator from Missouri allow me to ask him a question?
Mr. SCHURZ. Yes, sir.
Mr. BOUTWELL. I ask whether he, with his sense of the evils of inflation, will for himself favor inflation if the Congress of the country should not favor contraction, or whether he will then stand upon the good we have rather than to fly to evils because we cannot get a better system?
Mr. SCHURZ. No, sir; I shall never favor inflation; but I hope ---
Mr. BOUTWELL. If there is a majority of members of this body or of the other standing either with the Senator from Missouri or with myself, we are then able to resist the tendency to inflation; and if it be not possible for those who are in favor of contraction, who are by the number of one at least less than those together who occupy the position I occupy and those who occupy the position of the Senator from Missouri, how can he with his associates expect to resist inflation, if through their influence, combined with others, inflation is probable?
Mr. SCHURZ. Why, sir, I have been trying to demonstrate all the time that if we want to resist inflation, we cannot stand still with our arms folded; for the simple reason that then we shall be driven into inflation. Has he not understood me? We are being driven into inflation at this very moment. Already the reserve has been drawn upon to the amount of $25,000,000. Has not the Senator from Massachusetts himself, perhaps unwittingly, in his speech expressed an instinctive apprehension of the possibility of a pressure pushing us in the direction of inflation? When he spoke of his policy of “maintaining steadily the volume of currency at the minimum point,” he then added the very important and significant qualification, “as far as practicable.” Does he not know how elastic such an expression, “as far as practicable,” has already been made by the drafts upon the $44,000,000 reserve which we witnessed, and by which the Government itself started inflation? Does he not know how much more elastic the expression, “as far as practicable,” may be made when, by new embarrassments or a new period of speculation, the minds of men are again thrown out of their balance? Does he not know that inflation “as far as practicable” without legislation is going on to-day? Does he not feel himself, therefore, the truth of what I say, that if we want to resist this current which drives us into inflation, we absolutely must go forward in the opposite direction? And now, in the very face of the disasters surrounding us, and the awful chances and perplexities which threaten us, is a mere passive reliance upon a dim idea, a vague trust, that things which so far have gone badly will henceforth go very well and come all right in time — is that the only foundation upon which a great Government like ours should build its financial policy, when our honor and good name, when the fortunes of the country, and the morality of the people, are at stake?
Let me now apply to the Senator's policy a practical test. In his remarks the other day he declared himself opposed to contraction, which term, to judge from the spirit of his speech, included all legislative measures tending to bring on resumption of specie payments. The reason he gave was this: it would, he said, bring the business of the country to a stand, diminish the revenues, and by diminishing the revenues render taxation inevitable, and impair the credit of the country. Such were his words. Now, I would ask him whether I misrepresent the meaning of those words when I say that the Senator advocates the let-alone policy — and I call his policy so with all respect to him — that he advocates his favorite policy distinctly in order to avoid these disasters and difficulties? Of course I do not misrepresent him, for I quoted his words.
Now, let the Senator look around and examine the events which have recently taken place. What does he behold? He beholds there a crisis which did “bring business to a stand;” which did “diminish the revenues,” which did thus imperil the credit of the country; and thus the identical things which he predicts as the result of legislation tending to specie payments have actually come to pass, and have come to pass under that identical do-nothing policy which he advocates in order to avoid those very disasters, and which he as Secretary of the Treasury, as well as his successor, faithfully adhered to, “as far as practicable.” I venture to say further, that that very do-nothing policy, keeping alive all the evil influences of a redundant, irredeemable currency, and strengthening them by creating a popular belief that according to the settled policy of the Government nothing will be done to counteract them, has very naturally aggravated the causes which brought about such results. I need not go over that whole catalogue again.
Such was the practical upshot of the do-nothing policy. This is a piece of history which cannot be denied, for it is known to all; and we had better try to understand its teachings instead of wasting our time looking through a telescope into the fogbanks of infinite space to watch the condensation of those nebulæ into that benignant star whose advent is to make us all happy and comfortable in spite of ourselves. The teachings of that piece of history, if we are willing to understand them, will convince us that the same economic disturbance which has occurred under the do-nothing policy now may and will come again if the causes and agencies which brought them forth are kept alive, even with a probability of their being strengthened; and that finally, after much more disgrace, much more tribulation, and much more suffering, we shall after all have to do the very things which the Senator from Massachusetts is afraid of doing, but then under far greater difficulties.
The policy of the Senator from Massachusetts is particularly dangerous because it carries a certain plausibility about it. There are a good many persons in this country, as there are in all other countries, who, not seriously occupying their minds with the subject, consider the science of finance one of those mysterious things which, as Lord Dundreary says, “no fellow can find out;” and who, because they do not take pains to investigate its laws, content themselves with saying there are none. When, in difficult circumstances, they do not know what should be done, and are confronted by difficulties and dangers which they cannot clearly comprehend, they easily persuade themselves that doing nothing is as safe as anything else. At any rate it relieves them of the trouble of thinking.
I need not say to the Senator from Massachusetts how highly I respect him; and I believe in the conscientiousness with which he advocates his favorite policy; but it must occur to him, also, that it is that inert state of mind in the country which is so little suited to the exigencies of the country that his policy is best calculated to confirm. I submit to the Senate that it is not a fitting part to be played by the Congress of the United States, when called upon to find remedies for a diseased condition of things, to stand still and let the disease work on for fear of “bringing business to a stand and of diminishing the revenue,” when by the very operation of that disease business did come to a stand and revenues have been diminished. We shall indeed present a sorry spectacle to the world, hiding our heads in the sand, paralyzed with the apprehension that by moving we might break something, while the breakdown has actually occurred and the pieces of the wreck are flying about our ears. If the Senator will consult history he will discover that no country that was to any great extent cursed by an irredeemable legal-tender paper money ever got back to specie payments without bringing them on by decisive governmental action; and, as far as I know, every country that trusted to the dim idea of the general development of things to bring things all right, and thus abstained from governmental action, ran irresistibly into bankruptcy and ruin. So much for the policy of happy expectation.
Now, I repeat I do not underestimate the difficulties that stand in the way of resumption; but I declare as my candid opinion that since the first year after the close of the war, when our irredeemable-currency system had not so deeply eaten its way into the whole economic life of the nation, and when the business of the country had to adapt itself from the ways of war to the ways of peace — a moment which unfortunately we missed — the present time is the most opportune for the inauguration of a resumption policy; and if we lose that opportunity again we shall have to wait for another and perhaps more disastrous revulsion to see it return. And it is just from the present crisis in our economic affairs that the new opportunity springs. The reason is very simple. Many of the difficulties which, it was feared, would accompany and follow resumption have already been anticipated by the crisis. Much of that preparation which must precede resumption in order to avoid disastrous embarrassment has already been performed by the crisis.
What are those difficulties, and what is that necessary work of preparation? It is said that by a policy of resumption the debtor class would be greatly injured, inasmuch as a debt paid in gold would represent a greater value than the same debt did when it was contracted in depreciated paper. That is true; but it will always remain true; and if it is added that the debtor class is not yet ready for specie payments, it is certain that in that sense the debtor class never will be ready for specie payments, and that, therefore, resumption must be given up forever.
I do not underestimate the importance of the argument; but let us look it in the face.
In the first place, speaking of a debtor class and a creditor class, we involve ourselves in a confusion of ideas. There is no fixed debtor class composed of persons who always owe money and never have any money due them; nor is there a fixed creditor class composed of persons who always have money due them and never owe
any. If there were such fixed and well-defined classes, the problem before us would appear very simple. Then we might say that when we suspended specie payments, and the legal-tender currency in which debts were discharged depreciated, the debtor class profited and the creditor class suffered loss to the amount of that depreciation; while, when we return to specie payments and the depreciation of the currency diminishes until greenbacks are on a par with gold, the debtor class would lose again what it had profited, and the creditor class would regain again what it had lost by the former operation. The accounts for the last thirteen years, as between the two classes, would then be about evenly balanced. But the fact is that some persons only occasionally owe money without having any due them, and some only occasionally have money due them without owing any; that those who are debtors to-day frequently become creditors to-morrow, and vice versa; and that a vast number of people owe money on one hand and have money due them on the other, thus being debtors and creditors at the same time; and this applies universally to the class of business men.
The talk about a debtor class and a creditor class in connection with the resumption of specie payments is therefore very mischievous, as it represents the question in the light of a struggle between two permanently distinct social bodies, the one trying to enrich itself by despoiling the other. The misrepresentation is only furnishing a fallacy to demagogues to excite the ignorant.
It is true, there are a great many people who owe more money than is due them, and who, if we should suddenly jump into specie payments, that is, all at once reduce the depreciation of the currency or the premium on gold from such and such per cent. to nothing, would suffer that percentage of loss through the increase in the value of their indebtedness; thus losing more in their character of debtors thean they would gain in their character of creditors. But here two things are to be taken into consideration. In the first place, a wise resumption policy will not force the transition from a depreciated paper to a specie basis all of a sudden, but approach the result to be reached with gradual steps, extending over a sufficient space of time, say two or three years. To this statement I call the attention of the Senator from Massachusetts, who thought he had anticipated me. I do not know a single advocate of specie payments who proposes anything else. Such a gradual reduction of the depreciation of the currency would endanger and injure debtors much less than they have hitherto been endangered and injured by the continual fluctuations of that currency.
The Senator from Indiana [Mr. Morton] told us the other day that the country could not endure a change in the value of our paper money of 10 per cent., which, at that time, was the discount on greenbacks.
Mr. MORTON. I wish the Senator would state the whole proposition. I said, not within a year, or a short time.
Mr. SCHURZ. Exactly. This makes my case only stronger. I might then ask him how it was possible for the country to survive the violent and fitful ups and downs which the currency has passed through during the last eight years. In the year 1866 the difference between the highest and the lowest point of the premium on gold was 42¾ per cent.; in 1867 it was 14 3/8 per cent.; in 1868 it was 17 7/8 per cent.; in 1869 it was 38½ per cent., in 1870 it was 13¼ per cent.; in 1871 it was 7 per cent.; in 1872 it was 7 1/8 per cent., and in 1873 13 per cent.; so that it appears that that difference of 10 percent., which the Senator from Indiana stands in such mortal fear of, has occurred over and over again, and fourfold in one year, within the last eight years. And now the Senator from Indiana wants to perpetuate the present system, nay, seeks to aggravate it by adding to the currency, and keep these fluctuations going on as they have been for the last eight years.
In the second place, this difficulty has been considerably lessened by recent events. The crisis has led to a very extensive liquidation of debts, so that the aggregate amount of private indebtedness is to-day much smaller than it was a year ago; while in consequence of a reduction of business transactions new debt is being contracted at the present moment to a far less degree than it has been for years.
It will naturally go on decreasing if a resumption policy is adopted, and the sure prospect of a return to specie payments gives warning to the business community to beware of extensive engagements. Every sensible man will take care not to run into debt any more than is absolutely necessary when he knows that the money in which he will have to pay that debt will appreciate to a certain amount in a certain time.
Aside from greatly reducing the losses which otherwise resumption might bring with it, these circumstances would naturally prevent a dangerous expansion of credit and give back to the business of the country a healthy tone and a safe and sound basis; and that I suggest is a thing which we stand very much in need of. There is not a business man in the country who could not with a little circumspection, and with the certainty of resumption at a certain period before his eyes, so arrange and manage his affairs as to reduce the possibility of loss through the appreciation of his debs to a minimum that will not very much injure him, especially as in business life debt contracts run only on short time; very short indeed in proportion to the period in which the gradual appreciation of the currency is to take place.
I say, therefore, as far as the debt question is concerned, no better time for the inauguration of the resumption policy can possibly be found than just the present moment. The number of creditors and the aggregate amount of indebtedness will hardly ever be less than
after the liquidations and the business contractions of a crisis, and both will certainly grow again at a rapid rate, unless we enjoin caution upon the business community by the sure prospect of resumption. They will grow to an enormous extent if we expand the currency, and blow up the credit balloon once more.
In this connection I must devote a few words to the confused talk about the West as the debtor section of the country upon which resumption would inflict peculiarly heavy losses. The fallacy involved in the term “debtor section” I have already exposed when speaking of the debtor class. It is true that western business men have to depend in their operations to a very great extent upon their credit in the East, and therefore contract from time to time considerable indebtedness, which, however, is periodically covered by shipments of western products. I have already shown that, in consequence of the crisis private indebtedness all over the land is very considerably reduced, in which respect the West certainly does not form an exception, and how business men by prudent management, as will be forced upon them by the prospect of resumption, can easily protect themselves against serious difficulties.
But there is another aspect of the case. The economic interest of the West is mainly agricultural. The western people are, by overwhelming preponderance, a farming population. Their whole prosperity depends upon the successful and profitable cultivation of the soil. If it is true that the farmer, for all the necessaries he had to buy, had to pay prices blown up by our irredeemable and redundant currency, even far beyond the point to which the tariff alone would have driven them, while the prices of almost all the staples he had to sell were regulated by a foreign market, untouched by home inflation, governed by a specie measure of value, and exposed to the free competition of the, world — if that is true, and I trust nobody will deny it, must it not be equally true that the farming interest, and through it the whole western country, will not only not be injured, but be vastly benefited, by a resumption of specie payments, which will greatly reduce the prices at which the farmer has to buy his necessaries, while not reducing, but greatly increasing, the purchasing power of the crops he produces and has to sell? And will not this immense, advantage in fact vastly overbalance any possible amount of loss which might be suffered in consequence of temporary indebtedness, and which by prudent management may be made very small?
I hear it said that there are a great many farmers whose farms are covered with mortgages, and who would be greatly injured by specie resumption, inasmuch as the money in which they would have to pay off the mortgages would be of higher value than the money in which they contracted the debt. But how can they expect to pay their mortgages unless they derive the necessary profit from their farms? And how can they derive that profit from their farms if they continue to labor under the same disadvantage, having to buy at high prices and to sell at prices that are low? Moreover, what will be the consequence if we inflate the currency still more? Will not, by the operation of the same laws, the farming business be still more depressed? Will not, in consequence of the still aggravated disadvantage of buying at high and selling at low prices, the mortgages accumulate upon their farms in a worse degree than heretofore, and when, then, the day of settlement comes, will not their discharge be more difficult than ever? I insist, therefore, that the agricultural interest, and with it the whole West, and the South, too, which were never benefited, but always injured by inflation, and will be still more grievously injured by further inflation, will not in any way be injured, but in every respect be vastly benefited by a return to specie payments; and if I stood upon this floor not as the advocate of the interests of the whole country, but as a mere advocate of western interests, I would advocate specie payments with no less zeal than I am now doing.
Another difficulty standing in the way of resumption arises from the shrinkage of the prices of commodities accompanying that process. But this difficulty also is far less formidable now than at any time within many years. The crisis has brought down prices already, and it is questionable whether resumption would depress the general average much lower. For several months merchants all over the country have been careful to keep only light stocks of goods on hand in view of a sinking market, and many of those stocks have been laid in at prices already considerably reduced. With the prospect of resumption before their eyes, they will be obliged to persevere in that cautious policy, adapt their purchases to the limits of actual demand, abstain from speculation and excessive importations, and be careful not to engage themselves beyond the bounds of safety. Thus they will be able to approach specie payments without serious difficulty, and their losses in consequence of the shrinkage of prices will be as light as we ever can expect them to be.
Moreover, there are certain kinds of property which will scarcely suffer any depreciation at all, because they did not participate in the inflation of prices. I have already called the attention of the Senate to the fact that all those products of agriculture whose prices are regulated by the foreign market did not keep pace with the rise of home prices caused by currency inflation; and I may add that the price of that class of farming lands which did not happen to become the subject of speculation, or whose value was not enhanced by the building of railroads or other contrivances of communication, but depended for their value upon the value of their products — that is, a large majority of the farming lands — has been left behind in the general rise of prices altogether; and this is especially the case in the West.
I repeat, it must be evident to every candid observer of passing events that a large part of the work of preparation for a return to specie payments, and perhaps the most delicate and painful part, has already been performed by the present crisis in our economic affairs. We have only to respond to the impulse we have thus received and we shall reach the end. At last the popular mind is beginning to measure the iniquities the existing system has brought forth, and to appreciate the necessity of reform — reform in private as well is in public affairs.
The cry of “economy and retrenchment” is resounding all over the land, so that even politicians begin to hear it, some with hope and some with fear.
The lessons taught by the recent disasters have impressed themselves upon the minds of men. The business man has been made to understand that an unnatural expansion of credit is not prosperity; that an accumulation of debt is not an insurance of wealth; and that the fruits of speculative gambling, seductive as they may appear, are apt to turn to ashes when you bring them to your lips. Let us take care to act upon these teachings before they are forgotten again; let that state of mind be confirmed and be taken advantage of before it again passes away.
Look at the forces opposed to us and examine their situation, their temper, and their power. The resumption policy is opposed, and a new inflation of the currency pressed by three classes of persons: first, the men who, with honesty of purpose and patriotic intentions, have arrived at what I consider erroneous conclusions — and on this floor we have heard their voice; secondly, men who, hearing the cry for more paper money, think it a popular cry, and therefore join in it; but behind them, pushing on with all the energy of unscrupulous selfishness, is a third class, consisting of speculators and gamblers, who were caught by the recent revulsion in the midst of their reckless operations, stripped of their spoil, and involved in heavy liabilities, who now want no end of inflation and further depreciation of the currency to settle their old scores cheaply, to recover their losses, and then to set out with full sail again on a new career of speculation and gambling, knowing full well that they are only preparing a new crash, but hoping to reap at least their harvest before it comes, and then “let the devil take the hindmost,” no matter what may become of the country.
The first of these classes we may hope to convince by sound argument. The second may be turned by a new breeze of opinion clearing away the fog and revealing that the cry for more irredeemable paper money is not the cry of the people after all. But the third class consists of men of purpose, selfish, unbending, unscrupulous. Active and cunning as they are, no trick, from falsification of public opinion to downright corruption, will be left untried by them in their effort to control the movements of the business world as well as the legislation of the country. To-day they are still in a somewhat crippled condition, for the crisis has happily curtailed their means and exposed the character of their schemes; but before long they will be as powerful as ever, if the continuance of the present system enables them to recover from the recent shock and to entangle the business community of the country once more in the net of their operations, so that their fate will involve the fortunes of many others. Would it not be well to take advantage of their weakness?
Let me now, in as few words as possible, sum up the points I have stated, and I hope satisfactorily established:
* The Government of the United States is in law and honor bound to pay the debt incurred by the issue of its promises to pay, as soon as by its own action it can render itself able to pay.
* When, under circumstances like ours, an irredeemable paper currency is constantly depreciated, at a discount as to coin, that depreciation proves that its volume is in excess of the real wants of the general business of the country. This being the case with our paper currency, the present crisis cannot have been caused by any insufficiency of that currency as to the real requirements of business.
* While a sudden fright or panic, showing itself in runs upon banks, &c., may under certain circumstances be momentarily checked by an additional issue of currency — a stage of affairs which lies several months behind us — a crisis caused by the unproductive consumption of capital and overspeculation cannot be remedied by an addition to an already redundant paper currency.
* The proposition that the Government may, without the most pressing necessity springing from extreme public danger, issue any additional amounts of irredeemable paper currency at its arbitrary discretion, merely to exercise a certain influence upon the business of the country, tends to create a system which will place all the private fortunes of the citizens at the mercy of the Government.
* A currency which to the vice of inconvertibility adds the vice of redundancy has always had, and must naturally have, the effect of stimulating overspeculation and gambling; of diverting the energies of the people from honest productive labor; of leading to the unproductive consumption of capital and the creation of fictitious values; of unnaturally expanding the system of credit; of demoralizing business as well as social life; and thus of seriously aggravating the causes which produce the general breakdown at once.
* The further expansion of such a currency during or after a crisis can only revive and stimulate anew the influences which have already demoralized business and brought forth crops of disaster.
* An addition to such a currency does not only not add to the wealth of the country, but does not increase the efficiency of the currency itself as a means of exchange, for the reason that it drives up prices, and by stimulating speculation causes its being drawn away from the legitimate business of the country to the centers of speculation. It will not make, permanently, money easy, but rather raise than reduce the current rates of interest.
* For the same reasons every addition to such a currency will not satisfy, but excite the demand for more and more, and thus push the country forward on the road to bankruptcy and repudiation.
* No legitimate economic interest of the country will, therefore, be permanently benefited by such expansion, but all will be injured.
* Least of all is the agricultural interest benefited by our irredeemable and redundant currency. It is, on the contrary, most grievously injured by it, because the farmer must pay extravagant prices for all he has to buy, while the prices of the principal products he has to sell are regulated by a foreign market untouched by our home inflation and controlled by the competition of the world.
* These evils will be increased by every further expansion and consequent depreciation of the currency, and the idea that the agricultural interest and those sections of the country — the West and the South — whose prosperity depends on a profitable cultivation of the soil, can be really benefited by further expansion, is therefore fallacious in the highest degree.
* On the other hand, the agricultural interest will be vastly benefited by a return to specie payments, because resumption will greatly reduce the prices of the commodities the farmer has to buy, while it will not, in proportion, reduce the price of the principal products he has to sell, thus adding greatly to the purchasing power of his income.
* The idea that the return to specie payments can be facilitated by that sort of prosperity which would be brought forth by further inflation involves a mischievous fallacy. Further inflation would only revive and stimulate all the evil influences of a redundant, irredeemable currency upon all economic movements, again excite overspeculation, promote excessive importations, thus turning and keeping the trade balance against us, again expand the credit system to the bursting point, and lead to new and more disastrous revulsions.
* Such expansion would render impossible the fulfillment of the conditions which must precede the resumption of specie payments, retrenchment, and economy in public and private affairs, contraction of the credit system, and of private indebtedness, prudent management of business, &c.
* The idea that the return to specie payments can in the safest way be brought about by doing nothing and waiting until the development of the resources of the country and the growth of business shall have brought our paper money and gold to a par in commercial value is equally fallacious, for the reason that the period of relief thus vaguely pointed out lies in an undefined and undefinable future; that in the mean time all the demoralizing and dangerous influences of our irredeemable and redundant currency remain at work with undiminished vigor and activity; that there will be continued danger of further inflation being forced upon us by agencies beyond our control, as the Government at the present moment is already expanding the currency; that thus the day of promise is put off farther and farther, and that the very difficulties and disasters which the advocates of the do-nothing policy fear will spring from legislative action in the direction of specie payments, will naturally occur, and have in fact occurred under the do-nothing policy itself, as recent events have clearly demonstrated.
* The resumption of specie payments cannot surely be brought on but by legislative action; and no more propitious moment can be found for the inauguration of a resumption policy than the present, for the reason that much of the work of preparation which must precede resumption has already been done by the crisis. Private indebtedness has been greatly reduced; credit in business transactions has been largely contracted; the prices of commodities have already declined to a low point; business men have generally but light stocks on hand, and for months have been circumspect in their operations. The possibility of loss through the appreciation of the current money or the decline of prices will therefore be now as little as we ever can expect it to be.
These are the principal propositions which I have endeavored to substantiate. Now, I beg Senators to notice that I have not dealt in philosophical deductions from abstract principles, nor in vague theory, but in facts visible to all, and in practical observations which it requires only common sense to appreciate. I am very sensible of the incompleteness of my remarks as to several important branches of this great subject; for instance, the effect of an irredeemable and redundant paper currency upon commerce and manufactures, and the benefit these economic interests would derive from a return to specie payments; but it was my principal object to touch the main points which had appeared in this debate, and I am afraid I have already taxed the patience of the Senate too severely. I have also confined myself to a discussion of the general aspects of the question, because the Committee on Finance ask only for general instructions. The consideration of a specific method of resumption in detail would have served only to raise side issues and to confuse the debate. That will be in time when we shall have an elaborate scheme in the shape of a bill before us.
But one word more. I am very far from representing the resumption of specie payments as the absolute remedy for panics or commercial or financial crises; neither do I ignore the fact that such revulsions will sometimes occur where a metallic currency exists. Gold coin is by no means an unfailing medicine for all the ailments of the economic body. I know that well; but I know also that an irredeemable and redundant currency must seriously aggravate all those ailments, and that, issuing from our present troubles, we shall never succeed in laying a sound basis for a new development of prosperity, unless by doing away with our vicious paper money we remove that agency which inevitably would make that basis unsafe and that new development unhealthy. And thus whichever way we may turn our eyes, I cannot impress it too strongly upon the minds of Senators, that if they really desire to rid the American Republic of the disgrace of Government promises to pay, which stand dishonored and a solemn duty unperformed; of a fraudulent measure of values, which is like an elastic yard-stick, long to-day and short tomorrow; of an unjust, unequal, and extortionate tax, which oppresses the people and bankrupts the Government; of an incentive to overspeculation and gambling, which has diverted so much of our capital from useful production, has wasted our energies, has undermined the respect for honest labor, has corrupted our morals, and is an inexhaustible fountain of fraud and disaster — if we really desire to rid the American people of these iniquities and to prevent still greater dishonor, demoralization and ruin, it will be in vain to hope for a more propitious moment than the present.
The very misfortunes that have befallen us have paved the way for our deliverance. We shall never be better prepared for a resolute beginning of the work which, if not undertaken to-day, will become still more necessary, and much more difficult, to-morrow. We have suffered the ills of the crisis; now let as also reap its benefits. If this opportunity be lost — and it will be lost unless we seize it promptly — who knows when, and in what form and measure of disaster, it will return?
As to the resolution now under discussion, I shall vote for the amendment of the Senator from Delaware, [Mr. Bayard,] in which I find the simplest and clearest statement of the object I pursue. If that should fail, the resolution introduced by the honorable chairman of the Committee on Finance will of course have my support. Let me express the hope that at an early day a bill embodying a method of a return to specie payments will be laid before us. It is a matter of experience that in things of such moment there is always danger of losing the general object by wrangling disagreements on details. As for myself, I shall be ready to support any measure which will fulfill two conditions: first, of putting us practically on the road to resumption in such a way that the retreat will be cut off; and secondly, of providing for a method of preparation which will make the transition as easy as possible. Senators scarcely ever fail to protest that they are in favor of a return to specie payments. Let us have a little less of that protestation, and a little more of action, proving at last that those high protestations were something better than mere idle words. Where there is a will there is a way; and I hope we shall not give the world reason to say of the Congress of the United States that for the performance of a great and solemn duty no way was found because the will was wanting.