# The Writings of Carl Schurz/Currency and National Banks

New York City: G. P. Putnam's Sons, pages 473–534
CURRENCY AND NATIONAL BANKS
Mr. President:—It will be observed from the statement of the question as it has come from the Chair that the demand made at present by those who desire an expansion of the currency falls far short of what it originally was. It may fairly be assumed that, if we adopt the present proposition, it will serve merely as an entering wedge to prepare the way for greater exaction.
I should not undertake to address the Senate at length on the bill before us but for the last votes on the instructions to be given to the committee, which we took on Friday. I had hoped that from the confused jumble of propositions and counter-propositions, with which this bill had been incumbered nothing would issue that might be seriously detrimental to the best interests of the country. That hope has been turned into something like apprehension, and I feel it my duty now to submit some observations to the Senate.
The Senate has been during these weeks of debate presenting a most extraordinary spectacle. In the second half of the nineteenth century, with the uniform experience of ages before us, in a period of profound peace, with no public dangers pressing upon us the necessity of exceptional measures, with ample resources to defray the expenses of the Government and to develop the resources of the country, the highest legislative body of this Republic, ​which is proud of calling itself the most progressive state of the world, is seriously debating the question whether new issues of irredeemable paper money shall not be resorted to in order to promote the prosperity of the Nation; and such an almost incredible proposition is supported by arguments which will make the civilized world stare if they ever become widely known beyond these precincts.
It has actually been asserted in this body that the precious metals can no longer remain the standard of value in any country. Why? Because the aggregate quantity and value of the precious metals in existence do not equal in value the aggregate amount of all the products of industry and agriculture; an idea just as original and as luminous as it would be to say that a yard-stick cannot remain a standard measure of length because a yard-stick is not as long as a roll of cloth or of carpet whose length is to be ascertained, or because all the existing yard-sticks in the world put together would not have the same length as all the objects whose length is to be measured.
We have been gravely told that conclusive proof of the insufficiency of the amount of currency in this country is furnished by the fact that England and France have a larger volume of currency than we have, and that there are many people in the country who cannot get all the loans and all the discounts which they desire. We have heard it asserted that an irredeemable currency must be a good thing after all, because there are three countries in Europe—Austria, Russia and Italy—whose economic development has been somewhat rapid of late, while those countries have an irredeemable paper currency. Nobody who knows anything about those countries can be ignorant of the fact that the sudden development referred to has been brought about by great and beneficent ​changes in their political and social organization, setting free and putting to work all the productive forces of society, and that the leading statesmen of those countries are day and night racking their brains to find means by which to get rid of that curse of an irredeemable paper money, which is here represented as the very source of prosperity. And I would say to the Senator from Indiana, [Mr. Morton,] who advanced that proposition here, that if he should hold up to those leading statesmen their irredeemable currency as an element of progress, they would receive the assertion with a melancholy smile of derision.
We have been assured here that a sufficient issue of irredeemable paper money will make money as easy in Georgia as it is in England; and that the rates of interest will go down as the quantity of irredeemable currency increases. It has been asserted, in an endless variation of forms, that currency and capital are materially the same thing. But the very climax is reached when we are told that such doctrines, a hundred times exploded as hollow fallacies by the experience of centuries, are in reality the most progressive ideas of this age; that this is the age of railroads and of telegraphs; that society is transformed; and that the notion of the precious metals remaining the standard of value and a medium of exchange is one of those obsolete doctrines which only old fogies will adhere to.
Sir, let us examine a little into the progressive character of these ideas. Here in my hand I hold an edition of Marco Polo's Travels, showing that this progressive idea prevailed in China many centuries ago; and I think it will be instructive to the Senate to learn how much of this progress of ideas lies already behind us.
Marco Polo tells the following story:
Now that I have told you in detail of the splendor of this city of the Emperor's, I shall proceed to tell you of the mint ​which he hath in the same city, in the which he hath his money coined and struck, as I shall relate to you. And in doing so I shall make manifest to you how it is that the Great Lord may well be able to accomplish even much more than I have told you or am going to tell you in this book. For, tell it how I might, you never would be satisfied that I was keeping within truth and reason!
The Emperor's mint, then, is in this same city of Cambaluc, and the way it is wrought is such, that you might say he hath the secret of alchemy in perfection, and you would be right! For he makes his money after this fashion:
He makes them take off the bark of a certain tree, in fact of the mulberry tree, the leaves of which are the food of the silkworms; these trees being so numerous that whole districts are full of them. What they take is a certain fine white bast, or skin, which lies between the wood of the tree and the thick outer bark, and this they make into something resembling sheets of paper, but black. When these sheets have been prepared, they are cut up into pieces of different sizes. The smallest of these sizes is worth a half tornesel, the next, a little larger, one tornesel; one, a little larger still, is worth half a silver groat of Venice; another, a whole groat; others yet, two groats, five groats and ten groats. There is also a kind worth one bezant of gold, and others of three bezants and so up to ten. All of these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece a variety of officials, whose duty it is, have to write their names and to put their seals. And when all is prepared duly, the chief officer deputed by the Kaan smears the seal intrusted to him with vermillion, and impresses it on the paper, so that the form of the seal remains stamped upon it in red; the money is then authentic. Any one forging it would be punished with death. And the Kaan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure in the world.
With these pieces of paper, made as I have described, he causes all payments on his own account to be made; and he ​makes them to pass current universally over all his kingdoms and provinces and territories, and whithersoever his power and sovereignty extends. And nobody, however important he may think himself, dares to refuse them on pain of death.
So you see they understood then the art of making paper money a legal tender!
And, indeed, everybody takes them readily; for wheresoever a person may go throughout the Great Kaan's dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold. And all the while they are so light, that ten bezants worth does not weigh one golden bezant.
Now he goes on to show how the Kaan is able with this money to buy all precious things, and how his treasury is gradually being filled, and then concludes:
Now you have heard the ways and means whereby the Great Kaan may have, and in fact has, more treasure than all the kings in the world; and you know all about it and the reason why.—Travels of Marco Polo, vol. i., pp. 378, 379.
Yes, we do know the reason why; and know something of it from our own experience. Now, sir, the first issues of paper money, as they are traced in the history of China by the learned editor of this work, are as old as the beginning of the ninth century of this era; something over a thousand years. When the system had prevailed a certain period, it was found that the paper money became more and more worthless; then new issues were made to take up the old ones, and one piece of the new issue was exchanged for five of the old ones; thus making a settlement on the basis of 20 per cent., the people losing 80 per cent. We are informed that such a proceeding was ​twice repeated, and probably a number of such settlements were made of which no knowledge has reached us; so that while the Great Kaan grew rich, the people grew poorer and poorer.
Then under the Ming dynasty the Government found still another method of more efficiently turning the system to the advantage of the ruler; for the Government paid in paper, but took only its dues in the precious metals; and he who would not obey its behests was put to death. The paper money depreciated to almost nothing; and the whole “progressive” system finally broke down. As Marco Polo would say, “You know the reason why.”
In 1294 a Persian monarch initiated a similar system, which produced severe distress, greatly impoverishing the people, and he was murdered in a popular revulsion.
I need not go through the whole history of paper money in Asia to show that the progressive idea of superseding the precious metals with paper money, and especially with an irredeemable paper money, was discovered and tried there; and that the progressive gentlemen who reiterate the same idea as a new discovery are just as progressive as the Chinese were over a thousand years ago.
But, sir, the same progressive idea which was tried and exploded there was discovered by the great Scotch financier, Law. Once more, at the beginning of the eighteenth century, with the same success Law carried it to the full extent of its progressiveness, and had to flee for his life after the bubble had collapsed. Tried and exploded again!
Then we had the French assignats. The country was made immensely rich; there were pieces of paper money enough to cover all the land, and to wrap up all the articles bought and sold. Then the collapse came; and at present you find them as wall-paper covering the cottages of French peasants, to serve as warning examples. Tried and exploded once more!
​We had our own Continental money, the history of which is familiar to you. Tried and exploded again!
The theory of the progressive system was discussed with more than ordinary thoroughness in the British Parliament in the debates on the report of the bullion committee. Tried and exploded again!
And now, after all these teachings of history, the same progressive ideas appear as something new in the Senate of the United States. But, sir, when these same fallacies, so hoary with age and so overshadowed with the condemnation of experience, are still repeated again and again in the Senate of the United States, in spite of overwhelming refutation on the spot; when they still seem to be believed in by some; and when, finally, the venerable Senator from Pennsylvania [Mr. Cameron] rises and tells us that the very fact of the abundance of money in the great centers at the present moment is conclusive proof that there is not enough of it in the country, and when the same Senator tries to make us believe that by voting for inflation we shall, with him, make war upon the monopolists and the wicked speculators and money-changers, then, sir, I may be pardoned if at this late stage of the debate I come forward once more to speak of first principles.
I want it distinctly understood that the object of the remarks I am going to make will be distinctly this: I desire to show, first, that the gentlemen who favor an expansion of the currency labor under an essentially erroneous conception of the nature of the difficulties for which they want to provide; and, secondly, that the remedies which they propose will not effect a cure at all, but will rather aggravate the evil.
An inflation of our paper money is demanded of us in any form, the form of greenbacks, the form of national-bank currency or both combined, but an inflation in any event upon one single ground—that there is at present an ​insufficient supply of currency in this land to fill the legitimate requirements of the business of the country. No other reason is given; and upon that ground the American people are to be put through the same experience which has cost ourselves and other nations who have tried it, so dearly, and a gratuitous repetition of which will be justly looked upon by every sensible man in the world as little short of an act of madness.
The assumption that the volume of our currency falls short of the actual requirements of the legitimate business of the country forms the basis and the only basis of all the arguments that are made here in favor of expansion. Is that assumption correct? I deny its correctness. In the first speech I made on this subject I stated a principle which furnishes a test. I said, assuming that the people have confidence in the Government, issuing an irredeemable currency, that currency will not necessarily depreciate or stand at a discount as to gold, as long as it simply supersedes and does not exceed in volume the gold and silver, and the bank currency based upon gold and silver, which would suffice to transact the business of that country; but, the condition of confidence remaining the same, the irredeemable currency will depreciate, will be at a discount as to gold, as soon as its volume exceeds that quantity. When such depreciation steadily continues under the same conditions of confidence, it is a sure sign that the volume of currency is in excess of the real requirements of the legitimate business of the country. I asked this question: if our currency were insufficient, would it have been possible for the general prices of commodities to remain so long at the high inflation point at which they have stood for years? If really the amount of currency were so insufficient as to impede the necessary transactions of the business of the country, is it not certain that the gold in the country, which is now hiding itself, ​would have been driven out of its hiding-places to fill the vacuum occasioned by the insufficiency?
The proposition has remained absolutely unanswered. Indeed, very ingenious efforts have been made to obscure the question. Senators have tried very hard to shed a brilliant flood of darkness upon this subject, and in a measure they have succeeded.
We have been told that in France and in England the volume of currency is much larger than here, although neither the population nor the extent of the country equals ours. That may be true; but I ask what are the circumstances determining the volume of currency necessary for the real requirements of the business of a country?
Is it area? Is it extent of territory? Is it the number of square miles? Why, sir, look at all the new territories of the United States, and there is not a man in this body who will assert that, large as they are, they all together combined would require for their business as much currency as the city of Boston. Therefore it cannot be area; it cannot be extent of territory alone.
Is it population? Look at the whole interior of Africa, with its teeming millions of population, and I am sure the business of the whole interior of Africa does not require half as much currency as the single State of Rhode Island. Therefore it cannot be population alone.
I ask then, is it the amount of productions, the number of exchanges and of values involved? But the same amount of production, the same number of exchanges, the same values involved will require far less currency where there are superior facilities of rapid communication, of banking and clearing-house systems, than where they do not exist.
No one of these elements alone, therefore, will determine the amount of currency which is necessary for the business of a country, but all of them combined will.
​Of course I use the word “currency” here in the most restricted sense of the term, not including deposits, bills and checks, as some political economists justly do. Where banks and clearing-houses exist, and the use of bills and checks in the transaction of business is common, currency is mainly used for daily running expenses, for the payment of wages and salaries, and for the settlement of balances. Business transactions in which the whole amount of the value of a commodity passes from hand to hand in the shape of money are exceedingly rare.
Let us in this light compare England with the United States. In England, as well as in all European countries, the number of persons receiving salaries and wages is far greater in proportion than in the United States, and every one who is acquainted with those countries knows it. There are large armies there, large navies, which we have not. The number of private servants is much larger than here. The number of operatives and daily laborers is still greater. Now, although the population of the United Kingdom is only thirty-two million, while ours is forty million, yet the number of persons receiving salaries and wages is not only in proportion, but absolutely greater, much greater in England than here; and although wages rule higher here than they do there, yet I think I do not venture much when I say that the aggregate amount paid in wages and salaries in England is much larger than it is in the United States.
But there is another point of great importance. The number of exchanges and the values involved in them are, I might say, infinitely greater there than in the United States. When you compare the exports and imports of Great Britain with those of the United States, you will find that the former are about three times as great as the latter. But that does not cover the case. As everybody knows, England is, so to speak, the clearing-house of the ​world, and there are probably more balances settled in England than in the rest of Europe put together. In all respects, therefore, where the actual handling of money is required, that use is much more extensive in England than it is in the United States; and if there is a larger volume of currency there, it is because the very nature of the case demands a much larger volume; and yet, as we know, the volume of banking currency has, within the last thirty years, not only not materially increased, but it has, I think, even diminished.
Now go over to France. There the army is still far greater than in England; the navy about the same; the number of persons receiving salaries and wages still larger than in England, and of course far greater than in the United States. As to the amount of business transacted, if you compare the aggregate of imports and exports with ours, you will find that aggregate about one-third larger. But then, sir, there is still another circumstance to be taken into consideration. In no country in Western Europe, I think, is there a smaller proportion of banking facilities than in France. The clearing-house system is unknown there, and the transactions carried on through bills and checks are more limited than in any other country in Western Europe. But, what is still more important, there are no more inveterate hoarders of money in the world than the French. In no country will you find so large a number of people who will put gold or silver in old boxes or earthen pots under their beds as in France. In some parts of France you can scarcely make a peasant take a bank-note, because he still remembers the assignats; and, to repeat what I said before, a great many cottages in France are papered with the old assignats, to serve to all coming generations as a warning example.
Thus it seems to me that the comparison between these three countries completely fails, because the conditions ​of business on which they are based are wholly different. The true test, as I stated it, stands therefore absolutely unimpeached by it.
But I am met with the assertion that in some sections of the country a scarcity of money is sometimes actually felt by legitimate business. That has undoubtedly been so at certain periods. I showed the other day by numerous and impartial market reports that in the business centers of the country money is at present in abundance, if not in superabundance. There has been much excited squirming about this fact on the part of the advocates of inflation, and attempts were made to deny it, but the evidence was so overwhelming that at last gentlemen took refuge in the assumption that this abundance of money in the business centers of the country was owing to the expansion of the currency by the drafts that have been made upon the $44,000,000 reserve, and that assertion was put forward in a somewhat triumphant manner.
A single statement will suffice to show the falsity of that assertion. On the 15th of February, 1873, the outstanding greenbacks amounted to $356,000,000, of which the banks in the three cities of New York, Boston and Philadelphia held $63,797,982. On the 16th of February, 1874, the outstanding greenbacks amounted to $381,327,327, of which the same banks in Philadelphia, New York and Boston held $87,228,654. The currency had been inflated to the amount of $25,327,327, and three cities—New York, Boston and Philadelphia—had absorbed the whole of the increase with the exception of $1,896,645. This shows that almost the whole increase remained in three cities in the East, and the States of Rhode Island and Connecticut, with their great banking establishments, are not even taken into account. A large portion of the balance undoubtedly remained there, so that probably something far short of a million has gone ​West and South of the $25,000,000 that were put out by the Treasury in addition to the existing volume of currency. It serves to indicate also what will become of further issues, and how they will be distributed. Senators may figure it out for themselves how much would go to each State at that rate, if one hundred millions were put out, and these three cities are to retain so large a proportion.
No, sir; the cause of the abundance in the money market, especially in the Western business centers, is a different one. First, the crops have been very large, and found a very good and ready market. This resulted in a positive increase of the real wealth of the agricultural States. Secondly, the crisis broke down speculation and gambling, and released large amounts employed in floating that speculation and gambling, and those large amounts are now in the loan market. That is the reason why money is abundant in the Western business centers.
But I am willing to admit that the present abundance of money in the loan market is of a precarious nature. As an irredeemable and redundant currency always begets speculation and gambling, it will do so again in spite of the check that was put upon it by the recent crisis. It is already reviving, although carried on, as I am informed, to a certain extent by a different set of persons and in different ways; but its revival will undoubtedly be quickened, as is always the case, by every addition to our irredeemable currency. It may revive more rapidly even than legitimate business does; and as it grows to greater dimensions, it will draw away from legitimate business and press into the service of speculation as large an amount of currency as it can lay hold of. The expansion of speculation, therefore, is likely, nay, it is certain, to reduce the present abundance of money in the loan market, and again to bring forth here and there a feeling of scarcity. This I think will only be a question of time.
​But now, sir, I maintain, first, that although there is an excess of currency in the country over and above the real requirements of legitimate business, a feeling of scarcity may, nay, I say, it will, ensue as speculation expands; and, secondly, that this evil will not be remedied, but will be aggravated by inflation.
And here I will call the attention of Senators on the opposite side to the fundamental error which lies at the bottom of all their arguments. From the fact that a scarcity of currency is sometimes felt by legitimate business, they draw the conclusion that the aggregate volume of currency in the country is insufficient for the real requirements of that business. This conclusion is utterly and glaringly fallacious. Gentlemen confound two things which are essentially different from one another. One is an insufficiency of the aggregate amount of currency in the country, and the other is a vicious diffusion of that currency really sufficient and more than sufficient for all legitimate purposes. The difficulty is not that there is not enough currency on the whole; but, first, that one part of the country is not as rich as the other; and, secondly, that legitimate business is apt not to control enough of currency, because illegitimate business, speculation and gambling control too much. This is one of the evils inherent to an irredeemable and fluctuating paper money; and, I repeat, that evil not only cannot be remedied by an inflation of the same paper money, but it will be seriously aggravated by it, for the simple reason that inflation always stimulates speculation and gambling.
The Senator from North Carolina [Mr. Merrimon] having been quite prominent in this debate, I take his State as an illustration. He complains that in North Carolina the people are impoverished, that business is cramped, that banking capital is scarce, that rates of ​interest are high, and so on. All this is true. I sincerely sympathize with the Senator and his people, and he can scarcely be more anxious to do something to aid them than I am. We are entirely agreed as to the object; but now let us scrutinize the means. The Senator wants more paper money for his people, and therefore he advocates an expansion of the currency. At first he advocated an expansion of the legal-tender currency, and I admit that would certainly be the most efficient means. Now suppose it were made; suppose we issue one hundred or two hundred millions of our irredeemable legal-tenders, how will it operate? Gentlemen speak as if the Government of the United States, issuing an additional amount of paper money, were at the same time issuing a proclamation to the country running somewhat in this way: “All ye who are weary and heavily laden, come to me that I may put money into your pockets. You, good farmer, have a mortgage on your farm and cannot pay it, here is the $2000 you want; pay it back when you can. You, enterprising manufacturer, want to extend your business and employ more workmen; you want, say, $200,000 or $300,000; you can have it immediately; here it is. You, good merchant, want to carry on a larger trade and you are cramped by a want of means; there is nothing in the world easier than to help you.” Gentlemen, this sounds extremely preposterous, and yet I assert there have been arguments made in the Senate of the United States which would apply only to such a condition of things, and there are thousands and thousands of people in the country who have been made to believe that an issue of additional currency would work in just that way.
But let us see how it will operate in reality. There are only two methods of putting an additional amount of currency afloat. One is by defraying the running expenses of the Government. That will not apply ​here, because we shall raise revenue enough for that purpose. The other is by the purchase of bonds of the United States in the market. That will necessarily have to be resorted to. What, then, will the Treasury do? The Treasury goes to buy bonds where bonds are sold; that is to say, the Treasury goes to Wall street. It carries this additional issue of currency there, and there with it buys its bonds. What is the consequence? The additional amount of currency is thrown at once into the very hot-bed of speculation. What will be the first effect? As soon as speculation is revived, to float speculative enterprise such as concentrates there; and if you want to have a proof of the fact that currency so issued will stay in the East, that proof is furnished by the figures which I read to the Senate only a few minutes ago, showing that the banks of only three cities—New York, Boston and Philadelphia—had absorbed the whole of the new issue, of $25,000,000, with the exception of less than two millions.
Now, sir, how will North Carolina, how will any other Southern State, be benefited by an operation like this? North Carolina will not get any share of the additional currency for nothing. North Carolina will have to buy that additional currency by offering her products in the market where that currency is distributed, just as North Carolina has to do now. She will have to buy that currency, just as she would have to buy it if it were not paper but gold. If the products of North Carolina are in demand, they will be bought, and currency will go to North Carolina in payment thereof as it does now, and only to that extent; no more. But the additional amount issued by the Government being right in the hot-bed of speculation, and having greatly stimulated that speculation, the rule governing the diffusion of currency will be just the reverse of what ​it would be under a healthy condition of business. Instead of so much currency being used to float speculation as can be spared from legitimate business, only so much currency will be apt to go into legitimate business as can be spared from floating speculative ventures. Upon the extent of that speculation, therefore, it will depend how large a proportion of currency will go from that center of speculation to North Carolina and other points; and the more extensive that speculation is, the greater the quantity of currency it will strive to press into its service and it will succeed in controlling, and the smaller the proportion, therefore, that will go into the channels of legitimate business. It follows, as a natural consequence, that everything which tends to excite, to stimulate, to increase speculation and gambling, will not remedy, but will aggravate that evil. Now it is a notorious, undoubted fact, a fact not questioned by any sane man, that an irredeemable paper currency will incite speculation and gambling to a fearful degree; nay, that by its fluctuations it will force people into speculation and gambling. The greater the inflation, therefore, the more speculation will control the currency, and the less a proportion will be left for legitimate business. Far from giving greater facilities to the transactions of legitimate business, increased inflation will only tend to increase the want far in excess of the supply. Inflation will increase the want, for it will run up the premium on gold, and have the effect of raising general prices, rendering thereby a greater volume of currency necessary to effect the same exchanges. Inflation will not in proportion increase the supply, for it will drive a larger proportion of the currency into the channels of speculation and divert it from the channels of legitimate business. One hundred millions will not help you, and if you put out two hundred millions it will help you still less, for the ​appetite will not be satisfied; it will only be stimulated by the supply.
Now issue more currency, and it will go just as little where you want it to go as it does now. You can issue it; but, mark my words, you cannot force it into the channels of legitimate business, and you cannot force it out of the channels of speculation. The currency you issue will fall under the control of exactly the same class of men who control it now, only in a larger and more oppressive form. With every addition you make, a larger proportion will go into the hands of those who have too much already and use it for bad purposes; and it will increase their power to keep it out of the hands of those who have not enough, and who would use it for good purposes. You are indulging in a dangerous, I might say a childish, delusion if you think that you have any power to prevent new issues from flowing exactly the same way the old issues have gone. Increase the volume of the stream, and you will make it flow only the faster, but not in a different direction. Quibble about it as you may, draw what fancy pictures you will, you cannot deny the stern fact which stares you in the face: an inflated irredeemable currency is not the people's money; it is the speculator's money. It will only be a more powerful weapon in the hands of the speculator to cripple legitimate business and to oppress the people the more there is of it. It always has been so, and it always will be so; and the sooner the American people make up their minds to this fact and honestly act upon it, the better it will be for their virtue as well as for their prosperity.
Now, sir, sincerely and profoundly do I sympathize with the people of the Senator from North Carolina, as I do with the people of all the States who are suffering; and I should be most happy to aid them in their distress. But, I repeat, I am profoundly convinced that inflation ​will not only not help them, but aggravate the evils of which they are complaining. I would not consent to give them poison, even if they asked me for it.
Senators from the South say their people need more currency. No, sir; there is another thing they need. There is another and far greater difficulty. They need more capital; and they indulge in a most fatal delusion if they think that the trick of watering their currency can supply them with that capital. There are some most obvious causes at the bottom of their difficulties. The people of the South have gone through a wasteful war, which has consumed and destroyed a very large proportion of their wealth, and thus their capital has dwindled away. The waste has been increased in some of the Southern States since the war by very bad government; and finally our tariff and the influences of an irredeemable currency have produced upon them the same depressing effect produced by the same influences everywhere upon the agricultural interest. Thus the people of the South have to make up for a very large deficit, and that deficit cannot be covered by paper promises to pay. If they want to regain their former wealth they must adopt the same methods by which wealth is created elsewhere; they must produce more, much more than they spend, and they must carefully husband and gradually accumulate their surplus earnings. That is the way to create wealth and capital available for future production. It is a somewhat slow and painful process, but it is the only process that will be really effective. This applies more or less to the people of the whole country. It is a hard fact. But sincerely as I deplore the misfortunes and embarrassments of the Southern people, I cannot refrain from saying that they lose very precious time, and waste their energies and their ingenuity if they look to any artificial contrivance for their salvation. They seem to ​have made themselves believe that an inflation of the currency will aid them in getting upon their feet again and accelerate their recuperation. I am strongly convinced that it will not, and I have already given some of my reasons. First, I have shown that an inflation of currency will stimulate general speculation, and that this speculation will so divert the currency from legitimate business that the latter, after the expansion, will not only not have a greater but a less proportion of it for its purposes than before; and secondly, inflation will still more depress the agricultural interest, which is the principal source of prosperity in the South as well as the West, than it is depressed now.
I made that argument before when I first had the honor to address the Senate on this subject. That argument has been attacked by several Senators; and I shall therefore restate it, and try to demonstrate its correctness still more clearly.
A considerable portion of some of the most important products of agriculture is exported, and the home price of the whole crop of those specific articles is regulated by the foreign market. That is a universally known and recognized fact. The prices ruling in the foreign market are, first, depressed by the free competition of the whole world; and, secondly, a specie standard prevailing there, they are not driven up by the inflation that has enhanced the prices of all other articles in this country. The farmer or the planter has, therefore, to sell these staple crops at the low prices regulated by the foreign market, while for all the necessaries he has to buy he pays the prices grown up to an exorbitant height, far beyond the premium on gold, by our home inflation. This was my original statement. The correctness of that statement, I say, has been questioned.
The Senator from Massachusetts on my left [Mr. ​Boutwell] said that the influence of a depreciated currency does not raise general prices by more than the amount of gold premium, if the depreciation of the currency remains steady at the same point. But the difficulty is that the depreciation of the currency does not remain steady at the same point. You might just as well say that when we have a heavy fall of snow late in the winter or early in the spring, there will be no freshets in the rivers, for if the snow does not melt it will not increase the volume of the water. That is perfectly correct; but the difficulty is that the snow will melt, just as an irredeemable and inflated currency will fluctuate and will depreciate. Our experience shows us that the premium on gold in this country has not remained at the same point for a single week, scarcely for a single day.
The Senator from Illinois [Mr. Logan] said that he thought the same law was governing the price of an imported article that was governing the price of an exported article in the case of a depreciated and fluctuating currency. Now, sir, I am going to show that the same law does not govern these two things. Let us see how it works. The importer or the wholesale merchant in New York, when putting up his goods for sale, will first add to the gold price the premium on gold. That is universally conceded. But he knows that the premium on gold or the discount on the currency fluctuates, and that if the latter be inflated it will certainly depreciate. If he sells on credit, however short that credit may be, he runs this risk: that the sum he receives in paper money for his goods will not represent the same gold value which the same sum represented at the time when the sale was made; and here an important element comes into the calculation of prices, which has been left out by all the Senators who, taking the opposite view, have discussed this subject. It is the element of risk. The importer, ​or the manufacturer, or the wholesale dealer must protect himself against the contingency of fluctuation; and thus he puts upon the price of his goods a certain percentage to cover that contingency. In other words, he makes his customers pay for the gambling risk which he himself has to run. The jobber who buys from the importer or the manufacturer has to put his gambling risk upon the price again, for he runs the same chance. The Western or Southern wholesale dealer who buys from the jobber has to do the same thing once more, for he again runs the same chance. Then the Western or Southern retailer, into whose hands the goods finally pass, has to do the same thing again, if he sells on credit, for he again runs the same chance. Thus two, three or four gambling risks are put upon the price of an article before the commodity, as it issues from the hands of the original seller, passes into the hands of the consumer; and thus the rise in the price of commodities goes far beyond the premium on gold, especially when the fluctuations of the currency, as inflation will always make them, are tending in the way of depreciation.
Now go to New York and every candid merchant will tell you the same story. I know of merchants in New York who actually changed the prices of their commodities during violent fluctuations of the currency six times in one week; and one told me himself that he had done so several times in one day, always lowering or raising the gambling risk he had put upon the price of his commodities as circumstances changed. And experience teaches us that merchants are apt to be very quick in putting up prices and very slow in putting them down.
Hence it is clear that while the farmer or planter gets for his product only the gold price, with the gold premium added at the place of sale, he must pay for all he has to buy the gold price, with the premium added, and an ​additional amount covering the gambling risks of three or four dealers through whose hands the purchased articles pass before they reach him; and that additional amount covering the gambling risk will naturally grow very much higher when the currency is inflated and in process of depreciation. The conclusion is inevitable that in this point of view, the correctness of which can not be questioned, an irredeemable fluctuating currency cannot be anything else but a curse to the agricultural interest, a curse the more oppressive as inflation goes on; and the more inflation there is the more the farmer will lose in buying in proportion to the prices at which he has to sell.
The other day I had a very interesting conversation with a Southern planter as to the effect which an inflation of the currency would have upon his interests; and I would ask those gentlemen who have the interests of the farmers so dearly at heart to give me their attention. The planter said to me: “I am in favor of inflating the currency; but as to whether the currency should be inflated just at this present moment, I am a little doubtful.” I asked why. “Well,” said he, “I have sold my cotton crop already and received the money therefor. There is only a very small quantity left in my hands. I sold my crop, and received the money when gold was down to 10 per cent. If we inflate the currency now, and gold runs up to 15 or 20, I shall have to lay in my supplies and buy my necessaries when the currency is depreciated, and prices have risen accordingly. Thus I have sold at cheap rates and shall have to buy at high rates. This would be for me a losing business. I should prefer, therefore, that the currency be not inflated just now, but that the effect of inflation take place when I have to sell my next crop.” That planter was very sensible. That the currency should be inflated after ​you have sold your crops, and when you have to buy your supplies, that is not what you bargained for. If the farmer or planter could inflate the currency and run up the premium on gold when he sells his crops, and then so manipulate the currency as to raise the value of paper money and depress the premium on gold when he buys his supplies, of course that would be a winning trick. But those who buy from and who sell to him would try to play the same game; and in this tricky game the honest farmer would be sure to come to grief, as he has come to grief already.
No; if the farmer or planter wants to prosper he will, above all things, use every effort within his power to rid the country of a system of currency which obliges him to sell at low and to buy at high prices. He may for a moment think that inflation will aid him in paying off his debts, if he has any; but upon consideration he will discover that debts are paid out of surplus earnings, and that his earnings will be depressed when the price of what he buys is high in proportion to the price of what he sells; that his surplus earnings will grow larger as soon as the price of what he sells is put upon an equal footing with the price of what he buys. He will discover that the trick of depreciating the legal-tender by inflation, in order to pay what he owes in a currency less valuable, will not redound to his advantage in the end, and that in this, as in all other things, honesty is, after all, the best policy. He will discover that an honest currency, which permits him to buy and sell on the same basis of value, is for him the safest basis of prosperity, and I trust the time is not far distant when the farmers, whatever artifices of demagogism may be used at present upon them, will, as one man, stand up honestly and intelligently for the earliest possible return to specie payments.
Another scheme by which more currency is to be ​introduced into the West and South, and a larger amount of circulating medium is to be made available for legitimate business, is the establishment of a greater number of national banks of issue. The complaint is that the Eastern States have an undue amount of national-bank circulation, and therefore enjoy in a measure a monopoly. I admit this to be true. I will not discuss here the system of banking in all its aspects, but I will inquire how far the establishment of more national banks of issue in the West and South will remedy the real evil complained of—which evil consists in a lack of loanable capital there. If the remedy proposed is to serve any good purpose at all, then the establishment of new national banks of issue must increase the available amount of loanable money. If it does not do that, it renders scarcely a service worth mentioning. Now, will it do that? The Senator from Indiana, who is always ready with his answers, says yes; that it will increase the amount of loanable money by the amount of bank-currency put out; for, he argues, the currency issued will be given out in loans and discounts which every thirty, sixty or ninety days will return to the banks. The currency will, therefore, stay where it is issued, and not flow East. Is this sound? I assert that it is fallacious in the highest degree. The Senator simply forgets to tell us how those new banks are to get their issues.
Let us look at the provisions of the national banking act. It provides that, in order to establish a national bank, United States bonds must be deposited in the Treasury of the United States, and that 90 per cent. of the nominal amount of those bonds may be issued by the national bank as currency.
Now, in the first place, those who want to establish a national bank will have to deposit the bonds. It is a notorious fact that in the West the amount of United ​States bonds held is rather small, and in the South still smaller, and the bonds which are there are mostly held as fixed investments. The persons who want to establish national banks must therefore buy their bonds. They must buy them where bonds are sold, that is in the Eastern markets; and they must buy their bonds with money. Where do they get that money? They take that money out of their home circulation, and the money so taken out of their home circulation they carry to New York. Now see how this operates. For a $1000 bond they have to buy they pay, as 5 per cent. bonds now stand, about $1120 in currency. That sum of $1120 is withdrawn from their home circulation and is added to that of New York. Then they take the $1000 bond so purchased to Washington, and for that $1000 bond they get $900 in bank currency, and the $900 they carry home. Then they lock up 15 or 25 per cent. on the $900, as the reserve prescribed by law, in their bank vaults, as they may be country or city banks. For the $1120 carried to New York the country bank then puts out $865 and the city bank $675 to accommodate their customers with loans and discounts. These loans and discounts may indeed come back to the bank every thirty or sixty or ninety days. But does not the Senator from Indiana see, is there anybody so blind as not to see, that a much greater amount had gone East before the Western or Southern bank could make any loans and discounts to its customers with its national-bank circulation? Is it not as clear as sunlight that for every $865 issued by a country bank, or every $675 issued by a city bank, $1120 had gone to New York before? Is it not clear that the amount of loanable money, instead of being increased, has been diminished 30 or 40 per cent. by the operation? It is true that by the establishment of national banks here and there some greater banking facilities may be offered. ​They take deposits, and they make discounts; but the value of all the facilities thus offered will not make up for the diminution which the home circulation, the amount of loanable money, has actually suffered in that locality by the process. Where, then, is the increased accommodation of the business public? Nowhere; but the result is just the reverse.
But, sir, in the establishment of a great many Western and Southern banks things have been done which show the effect upon the home circulation still more clearly. Banks have been established, not upon money taken out of their home circulation, but upon credit. New York bankers (and I have this from one of them) were applied to by parties from the West to advance the money for purchasing the bonds necessary for the establishment of a national bank in the West. The New York banker bought the bonds and charged a commission and interest. Then he deposited the bonds in the Treasury at Washington, and the national-bank currency was issued thereon. But that currency did not go West at all. The New York banker kept it as part payment for his advances and commission in purchasing the bonds for the Western parties, and the latter had to cover the balance by drawing what money they could from the West. Can anybody tell me how the amount of loanable money was increased by this operation in that Western locality where the bank was established? Not even the currency went there, but the amount covering the difference between the currency and the bonds was drawn from there, being thus a clear deduction from the home circulation. Everybody acquainted with these things knows that this has been the case in a great many instances.
But the Senator from Indiana tells us that many applications are made for permission to establish national banks in the West and South. That is probably true. ​Why are they made? The persons making them know well what they are doing. The bankers themselves may do a profitable business, drawing interest on their bonds and on the circulation at the same time. But the difficulty is that their profits are their own and do not benefit the business community; for the amount of loanable money which is to accommodate business men and help along enterprise is not only not increased but is seriously curtailed by the operation, and the result is not that the West or the South gets more, but that the East gets more and the West and South less available funds after it than they had before.
The Senator from Rhode Island [Mr. Anthony] was perfectly candid when he said, in opposing the bill now before us, that he did not do it because the transfer of twenty-five or fifty millions of national-bank currency from New England to the West would decrease the capital of New England one single farthing, for everybody can see that it would not, but he was pleading merely for the interest of the banking institutions, which do not want to have their business disturbed.
Now, sir, carry out this system on the largest scale, by a free-banking act, and what will be the result? It will be exactly the same, only much extended and intensified. And it is very probable, nay almost certain, that what may be called the banking monopoly of New York and New England will, by a free-banking act, not be weakened, but it will become stronger and more firmly established than ever before. And why? Simply because in the East, in New York and New England, they have the capital to invest in banking establishments; they have the bonds themselves, and can establish national banks without sending money away. They will, therefore, then as now have and keep a vast majority of the banks, and a preponderance of the national banking currency. They ​will of course enjoy the lion's share of the business. If gentlemen complain now of the grasp the monetary power of the East has on the West and South, we shall see that grasp not weakened but very much strengthened by what is here proposed.
Mr. Cameron. Will the Senator allow me to interrupt him?
Mr. Schurz. Certainly.
Mr. Cameron. I think, in the last remark he made, the Senator has forgotten that national banks cannot have more than a certain amount of circulation, so that I do not see how it is possible all the money should get into the city of New York. People have a right to establish banks with as much circulation as possible, but, no matter what the capital may be they can have only so much circulation.
Mr. Schurz. The Senator will admit that, although they have at present more than by the spirit of the law they are entitled to, if we pass a free-banking act, they can, in New York and New England, establish a great many more banks than now; nothing is to hinder them; and inasmuch as they have the capital and the bonds, they have greater facility in establishing these banks than the West and South.
Mr. Cameron. The Senator is right in part, but not altogether. They may establish more banks, but these banks cannot have as much circulation as they had originally. Besides that, I hope if we pass a general banking law there will be such restrictions as will prevent capital in New York from controlling the system.
Mr. Schurz. Unless those restrictions amount to this, that the people of certain States shall be prohibited from establishing new banks of issue while the people of other States shall be permitted to establish them, the restrictions will not be worth a farthing. The banks will ​be established where the capital is with greater facility than where it is not.
Mr. Cameron. Once more I will say capital will go where it can be most profitably exercised; and therefore I do not think it will go to New York or the East, but to the West, where it is most wanted.
Mr. Schurz. Have not New York banks and the moneyed men of the East every facility now to establish banks in the West as much as they please? Why do not they do it? What prevents a New York banker to-day from establishing a branch of his establishments in Chicago or St. Louis or at Saint Joseph? Nothing in the world.
Mr. Cameron. Because he can do better in New York now.
Mr. Schurz. Precisely; because he can do better with his bank where there is the most business, and there he remains; and for the same reason more banks will be established where there is the most business. If we complain now, I say, of the grasp of the monetary power of the East over the West and South, we shall see that grasp not weakened, but rather strengthened, by what is here proposed.
I have made these remarks in order to explode that most extraordinary notion of the Senator from Indiana, that if we only permit the establishment of more national banks in the West and South, more currency will go and stay there, because the loans and discounts of the banks will return every thirty, sixty or ninety days; and to dispel that general and almost incomprehensible delusion, that by the establishment of such banks, under such laws as we have, the amount of loanable capital in the West or South will be increased and not diminished. Whatever results free banking under the national-bank act may have, it will certainly not produce those effects which the ​advocates of free banking in the Senate pretend to be working for.
But the free-banking scheme, as proposed here, must also be looked at from another point of view. It has been argued that free banking, even without any effectual system of redemption, but carried on to any extent under our national-bank act as it now stands, will not lead to inflation, but rather operate in the direction of a return to specie payments. This view has been expressed on this floor; and it is supported by one of the staunchest and ablest advocates of specie payments in the journalistic world, a journal whose opinions on such questions are always entitled to the highest respect; I mean the Chicago Tribune. I shall request the Secretary to read the article I send to him, and I call upon the Senators who advocate free banking to listen to the reading, because the argument runs in their way.
The Chief Clerk read as follows:
Free banking does not necessarily involve currency inflation. If everybody who can deposit $100,000 in bonds at Washington is allowed to issue $90,000 in national-bank notes, this will not depreciate the currency. A paper currency is worth precisely as much as the money in which it is redeemable. The national-bank currency is redeemable in greenbacks. It is worth, then, just what greenbacks are. Now, if no more legal-tenders are set afloat, their value will remain just about what it is now. But if their value is unchanged, the national-bank notes redeemable in them will also have an unchanged value. So long, therefore, as the currency is increased by the issue of national-bank notes, and not of greenbacks, there can be no depreciation, and consequently, no inflation—for inflation, as the term is used nowadays, signifies an increase in the volume of the currency that causes depreciation, or, as its friends put it, “makes money cheaper.” Free banking would work in this way: If the banks set afloat more currency than the country could ​use, its value would begin to sink below that of greenbacks. As soon as this happened, the banks would be called upon to redeem in greenbacks until the superfluous part of their issue was again in their vaults. In this way depreciation below the greenback standard would be avoided, and the volume of currency would regulate itself. This is substantially the English plan. The greenbacks correspond to the Bank of England notes, and the national-bank notes to those of the English country banks. Our readers will find in the first volume of Tooke's History of Prices copious extracts from the testimony of English country bankers on the working of the system there, under a suspension of specie payments. This testimony shows that the amount of currency they could keep afloat varied regularly with the season of the year. During the spring and fall trade they discounted freely, but soon after, their notes were presented for redemption, until the surplus issue was again stored away in their vaults. When the Bank of England contracted its issues, theirs increased; when it increased its issues, theirs contracted. In other words, the currency issued by banks, which could legally circulate any amount whatever, contracted and expanded in precise proportion to the needs of the country. It was thoroughly elastic. Free banking would indirectly aid the resumption of specie payments in two ways. It would make it possible to contract the greenback currency without paralyzing business, because as the greenbacks were withdrawn fresh bank-notes would be issued to take their place. And, again, it would help contradiction, because the new banks formed under it would have to keep their reserves in legal-tenders, and thus a good deal of the greenback currency would be withdrawn from circulation. The Congressmen who are opposing the bills for free banking on anti-inflation grounds are making a great mistake. The measure is not a compromise with the other side. It is a straightforward step towards specie payments.
Mr. Schurz. When I read that article I must confess that it staggered me a little at first sight; but great as ​my respect is for the source from which it comes, I am not able to accept that view of the case. It seems to me that the parallel run here between the issues of the Bank of England and of the country banks during the suspension of specie payments in England, on the one hand, and the legal-tender notes and the national-bank notes in this country, on the other, fails in one very essential point. The Bank of England notes at that period were virtually a legal-tender. I know very well that they were not made so by the express language of the law, but to all intents and purposes they were practically so, and virtually recognized as such by the courts, while the country-bank notes were not. The value as currency of the latter, the country-bank notes, depended entirely on their redeemability in Bank of England notes, and on the credit of the issuing bank. The circulation of the country-bank notes was, therefore, essentially local. But our national-bank notes are virtually to all intents and purposes a legal-tender, just as much as the Treasury note is. By section 23 of the national-bank act of June 3, 1864, they are made receivable in all parts of the United States in payment of taxes, and all other dues to the United States, except duties on imports, and also for all salaries and other debts and demands owing by the United States, except interest on the National debt, and in redemption of the National currency. Now, sir, although they are not literally made a legal-tender in the discharge of private debt, yet being received by the Government for what is due it, and being paid out by the Government for what it owes, they are practically made a legal-tender for all purposes, like the greenback. They are, moreover, founded on the secure basis of Government bonds, payable principal and interest, in gold. Their circulation is therefore not local, but national in the widest sense of the term, just like that of greenbacks. They are just ​as safe, and in one sense they are even more so, for they have behind them the solid foundation of a United States bond, payable in gold, and at the same time the ability to pay of the bank that issues them. It is, indeed, provided that they shall be redeemable on demand in Government legal-tender notes, but there is really, as far as I can see, no inducement for the holder of a national-bank note to convert it into a Government legal-tender, for the bank-note does just the same business, and is just as safe as the other. The breaking of the bank that issued it does not injure its value in the least.
I know very well there was a premium on Government legal-tenders as to national-bank notes during the panic. What was the cause of that premium? It was an uncalled-for, unreasonable fear of the country banks that there would be a run on them for the conversion of national-bank notes into greenbacks. But looking at it calmly, undisturbed by the wild influences of a panic, there would not be the least inducement in the world to run to a national bank in order to convert the national-bank note into a greenback. Such things may indeed take place in panics, but panics never can furnish a general rule to control the ordinary run of business.
While in England, during the suspension of specie payments, the conversion of a country-bank note into a Bank of England note meant the conversion of inferior currency into a superior, a safer, and in so far a more valuable one, the conversion here of a national-bank note into a greenback means virtually the conversion of one piece of currency into another which is just as good and no better.
In England the relation of redeemability between country-bank notes and Bank of England notes acted, therefore, somewhat like the relation of redeemability between a bank-note and specie in specie-paying times. ​But in this country the relation of redeemability does not act in the same way, because the two kinds of currency are in all essential particulars virtually the same. The only thing that makes them different is the provision of the national-bank act that the national bank is to lock up in its vaults a reserve in greenbacks amounting to 15 per cent., if a country bank, and 25 per cent., if a city bank, of its bank circulation.
Free banking, authorizing the issue of any amount of national-bank notes, only limited by the supply of United States bonds, would virtually permit an unrestricted issue of bank-notes without any system of practical redeemability, for the bank-notes would be only nominally redeemable in Government legal-tenders; while the two kinds of currency, being equally safe, performing the same office, and furnishing for that reason no inducement to prefer one to the other, are both equally irredeemable in fact, and form virtually one and the same system of paper money.
Suppose now that the enactment of such a free banking law results in a large increase of national-bank circulation, what will be the effect? The Senator from Indiana says it will only make things lovely, and not disturb values at all. Let us see.
What are the causes which produce the disturbance of values through an irredeemable currency? There are two. First, lack of popular confidence in the issuer of that currency; and, secondly, the relation the quantity of the currency bears to the actual requirements of the business of the country.
The first of these causes, the lack of confidence in the issuer, operated during the war, while the stability of our Government was still in question, and hence the fact that the fluctuations of the currency went far beyond the fluctuations that would have been caused by the relation ​of the quantity of the currency to the actual requirements of the business of the country. That cause, lack of confidence in the issuer, has not operated since the Government showed that it could maintain itself, and also demonstrated its ability to work in the direction of a redemption of its liabilities. But, sir—and I wish the Senator to mark this—that cause will commence to operate again as soon as the quantity of the currency has increased to such an extent as to render doubtful in public opinion the ability or willingness of the Government, or of the banks, ultimately to redeem their promises.
The second cause, that is to say, the relation the quantity of currency bears to the actual requirements of the business of the country, will operate as soon as the quantity of currency in circulation is in excess of the actual requirements of business, and that effect will grow more extensive as the volume of currency is increased. And here, it seems to me, it matters very little whether the inflation of the currency be that of the legal-tender notes or the national-bank notes, only with this difference, that, as I admit, an inflation of the national-bank notes will be 25 or 15 per cent., respectively, less effective, owing to the amount of greenbacks to be locked up as bank reserves; but either kind of inflation, in my opinion, will run up the general prices of commodities, of gold among others; will stimulate speculation, and speculation will have the same effect that it had before. It will draw the currency away from the channels of legitimate business and concentrate it at the great centers under its own control, thus preparing the way for new collapses and disastrous crises. These breakdowns will be the more disastrous the greater the inflation of the currency has been.
Now, sir, I do not wish to be understood as being absolutely opposed to free banking under any circumstances. ​I should be inclined to vote for it if it be coupled with an effectual system of redemption. Of course redemption in specie would be the most satisfactory to me. At present redemption means practically nothing. It accomplishes only the locking up of a certain percentage of the greenbacks for a purpose which is only apparent, and which might practically be accomplished by locking up the same amount of bank-notes. Redeemability, as it now is, might become of importance only in the extreme case of violent and extensive fluctuations in the market value of our bonds, such as might be caused by the very improbable contingency of a foreign war and the consequent increase of our National debt. But now, in the ordinary run of business, redemption under our present law has no restraining influence upon the workings of our currency, except locking up a certain amount of greenbacks.
A restraining influence, however, might be imparted to it even while we are under suspension of specie payments by establishing between the Government legal-tender and the national-bank note the same relation which in suspension times existed in England between the Bank of England note and the country-bank note there; that is to say, if we give the Government legal-tender note a sphere of action superior to that of the national-bank note. This might be done by repealing that part of the national-bank act which provides that the national-bank currency shall be a legal-tender in payment of taxes and other dues to the Government; and the system of redemption might be made effectually by establishing assorting-houses at the different business centers of the country. That, I think, would increase the demand for greenbacks in contradistinction to national-bank notes. It would make the conversion of national-bank notes into greenbacks an object of desire in the ordinary run of business, ​and it would oblige the issue of national-bank notes, if they are to remain at par with greenbacks, to stay within the limits prescribed by the possibility of actual redemption, made effectual by the establishment of assorting-houses. I throw this out as a suggestion to be considered by Senators.
In that way I think free banking might be kept from running into inflation, and I should be inclined to vote for it. But without such a provision free banking, in my opinion, will result in inflation; and I have shown that an inflation of virtually irredeemable national-bank currency will, first, not remedy the evils which are complained of in the West and South, but rather aggravate them; will not give them a larger amount of loanable money, but seriously reduce that amount; will not destroy what has been called the banking monopoly of New England and New York, but rather confirm and strengthen that monopoly; and, secondly, if a free-banking act such as is proposed, with an effectual system of redemption, leads to the establishment of many new banks of issue as desired, it will have its effect of inflating the currency just at the centers of speculation. All the evils of inflation will inevitably follow; that is to say, violent fluctuations of values, over-speculation and gambling on a larger scale than ever, until a new crash comes, which new crash will be the more disastrous the greater the inflation has been.
Now I desire to address a word to the Senate concerning the effect such a policy will have on the rates of interest. I said in my first speech on this subject that the inflation of an irredeemable currency will not reduce but will raise the current rates of interest; and that proposition has been questioned. The Senator from Illinois [Mr. Logan] went into a disquisition on the laws of demand and supply, and the Senator from Indiana [Mr. Morton] ​disposed of the subject by the somewhat jocular remark that if more money were put into the market it would become cheap, just as if more horses and hogs were put into the market horses and hogs would become cheap. I suggest to the Senator from Indiana that the horse and hog argument is not quite sufficient in this case. He has only shown in this instance, as in many others, that he does not appreciate the difference between capital and currency, especially between capital and an irredeemable paper currency. I shall try to make myself clear.
Why will the inflation of an irredeemable paper currency not lower but raise the rates of interest?
In the first place, in depreciating the currency it will make a larger amount of currency necessary to perform the same transactions in business, and the aggregate amount of interest which you would have to pay for the sum you want for the same transactions would necessarily be larger. That, I think, is obvious.
In the second place, when the currency is inflated it incites speculation and gambling. This fact is so notorious that nobody questions it. Speculation and gambling dealing in large ventures and working for very large profits induce, and in most cases force, those engaged in them to pay high rates of interest in order to obtain the money with which to float their speculative enterprises from which they expect such large profits. As soon as speculation rules the money market, the rates of interest will therefore necessarily rise, and legitimate business, from which money is diverted by speculation, must conform itself to those high rates in order to obtain the money which it needs; and hence a general rise of rates.
But still another element comes in here to produce the same effect, and that is the element of risk. When an irredeemable currency is inflated, it depreciates in value. The capitalist who lends out money must take that ​contingency into consideration. He has to run what I have already called the gambling risk. Now, suppose the Senator from Indiana had $100,000 to lend out. If he were asked to lend it out, say on three months, he would have to consider whether at the time when the loan will be returned to him his $100,000 will be worth as much as it was when he lent it out. The currency being inflated and depreciation being the consequence, he will ask himself whether the paper dollar, which is, say, at 10 per cent. discount to-day, will not be at 16 per cent. discount when he gets his money back. Under ordinary circumstances, with a currency of stable value, he may be willing to lend out money say at 6 per cent. a year; but when he is exposed to the chance of losing in three months 6 per cent., or in one month 2 per cent. in the value of the money invested in the loan, then he will certainly not be willing to lend out that money at one-half of 1 per cent. a month, for the simple reason that it would be a losing business to the amount of 1½ per cent. a month. What will he do, therefore? He will in all probability not be disposed to lend out his $100,000 on three months time at all. He will prefer to lend it out on call, in the first place, so as to be able to put his hand upon it as soon as the chances so turn that he may lose by leaving it out longer where he has put it; but even then he will want to cover his risk, and he will do that by demanding a higher rate of interest, sufficient to cover that risk. Hence it is that loans on call are preferred, and a higher rate of interest is demanded by lenders to cover the gambling risk, under the influence exercised by an irredeemable currency, which, by its fluctuations, renders the value of the money invested in a loan insecure.
Gentlemen complain that money cannot be had except on call. There is nothing surprising in this. There are, under such circumstances, two good reasons for the ​unwillingness of lenders to put out money otherwise than on call; they are the following: a lack of confidence in the stability of business; and, secondly, the growing depreciation of our paper money increasing the gambling risk. But if we inflate the currency still more, the premium on gold will rise still higher; and the evil complained of as to loans will not only not be remedied, but will be vastly aggravated.
The fact that at the present moment loans are comparatively easy in the money market has been referred to as contradicting this view. It does not contradict it at all. The crisis has crippled enterprise generally, and especially speculative enterprise. Speculation has had no time to recover and to produce its effects. Money is plenty in proportion to the present limited requirements of business, and although we have had an addition to the currency of twenty-five or twenty-six million dollars, yet much of the money that makes up that addition, and more besides, is at the present moment lying idle. The addition has not exercised its influence yet, but it will without doubt exercise that influence and produce its effect soon. Speculation is already reviving; we observe it in the very Western markets in the grain trade. It is reviving in New York, as everybody sees. It is reviving rapidly. If we inflate the currency we shall have much more speculation than we had before; and with it, and with a further depreciation of our paper money, all the effects upon the rate of interest which I have stated will rapidly appear with all their oppressive consequences; and then those who clamor for inflation in order to give cheap money at low rates of interest to the people of the West and South will learn to their sorrow that an irredeemable currency is indeed not the people's money but the speculator's money, and that by extending and strengthening that pernicious system they have ​brought a curse and not a blessing upon those whose interests they pretend to serve.
A few days ago I received from a friend in Europe a most significant letter, to which an answer was requested. The writer is a merchant who desires to retire from business. He writes me to this effect:
I can realize out of my business several hundred thousand dollars, and should like to invest my money at a good rate of interest. I have thought of investing it in the United States on mortgage security, which, as I am informed, bears from 8 to 10 per cent.; but I learn also that you are likely to inflate the currency in the United States, which, of course, will result in depreciation. I would now ask whether it would be safe for me to make such an investment in mortgage loans in the United States while there is a chance that your legal-tender money may depreciate so that I would lose more by the depreciation of capital invested than I would gain by the interest I might get.
I ask the Senator from Indiana what answer would he give, at this moment, to that gentleman who wants to send several hundred thousand dollars to the United States in order to invest them here?
Mr. Morton. I will answer it after awhile, I think to your satisfaction.
Mr. Schurz. Will not the Senator answer it now?
Mr. Morton. No; not now.
Mr. Schurz. He will probably give the same answer that the Senator from Illinois [Mr. Logan] has just given in an undertone, “Write him to send it on.” Let me tell Senators that we cannot very well expect foreigners to send along their money when the chances are that they will suffer loss in consequence of our own financial policy. Senators ought not to conceal from themselves that the credit of this country has most seriously suffered by the ​sale of stocks in Europe which have turned out to be worth far less than they were represented to be.
I consider it my first duty as a citizen of the United States, as an American, to deal fairly and honestly with the foreigner as well as with the countryman; and as an American who has the honor of the country at heart I cannot afford to induce a foreigner to invest money in a venture concerning which I have such good reason to fear that it will be a losing business. I shall tell that gentleman, “Send your money here and tell all your friends to send theirs as soon as we enter upon a policy that will be directed toward specie payments,” for then I shall know that the value of the capital so invested will be safe; but I should not consider it honest advice, did I tell him to convert his gold into our paper money, as long as there is danger that the paper money might be depreciated by inflation.
Mr. Cameron. I trust the Senator will allow me to interrupt him for a moment.
Mr. Schurz. Certainly, with great pleasure.
Mr. Cameron. Does he believe he would be swindling his German friends by advising them to send their money here and invest it in mortgages upon good lands, and good houses and good buildings here? Does he believe that all the people of this country are scoundrels, and that they want to get the money of Europe here upon dishonest and fraudulent representations?
Mr. Schurz. No, sir.
Mr. Cameron. Does he not know that there is no part of the world in which money upon first mortgage upon real estate is so safe, so secure, as it is in the United States, and in every part of the United States?
Mr. Schurz. Yes, sir; I know all that. I know that for myself I would ask for no better security than a mortgage on real estate in the United States; but I know ​also, as every other Senator knows, that if I had to invest $100,000 to-day, with the prospect of an inflation of our currency, that $100,000 to be paid back to me in two or three years, when the premium on gold may not be 10 per cent. but 50 per cent., I would be likely to lose nearly one-half of my capital, however good the security might have been on which that capital was invested.
I would never hesitate to tell Europeans, “Send as much money as you can raise to aid us in developing our resources and to profit by it yourselves,” as soon as our monetary system is such as to give them reasonable security that when the loans fall due they will get the same value back which they invested.
Now let me tell the Senator from Pennsylvania I was in Europe last year, and the people there have begun to understand this thing as well as we do. We must not indulge in the delusion that foreign capitalists will be eager to run the risks which a fluctuating currency imposes upon them; and nothing is more natural than that, while we have that currency, many investments of European money are withheld which otherwise we might expect. In this respect the character of our currency must necessarily inflict a very serious injury upon us.
Mr. Cameron. Will the Senator allow me to interrupt him again?
Mr. Schurz. Certainly.
Mr. Cameron. The Senator from Missouri stated a special case of a German friend of his who said he had two or three hundred thousand dollars which he desired to send here to invest in mortgages. Mortgages mean the security of real estate, on which he was told he could get 8 or 10 per cent. Now I want to confine the Senator to that special case. I do not believe any security in the world can be better than that, and no citizen of the United States, no subject of Great Britain, or of any other ​country in the world that sends his money here and invests it upon an honest mortgage, has ever lost a cent; and if he can get 8 or 10 per cent., it is twice as much as he could get in Germany or in any other country of the old world. I want the Senator to confine himself to that case, because I do not want the credit of my country destroyed by representations coming from a Senator so distinguished as the Senator from Missouri is, and so ably and so largely connected as he is in Europe.
Mr. Schurz. The Senator wants me to confine myself to that one case, and I should desire nothing better. Here is a man who asks me, “Can I, at the present moment, send over several hundred thousand dollars to be invested in mortgage securities in the United States, with safety as to the value of my capital, while you have a fluctuating, irredeemable paper money?” That gentleman wants to profit by the rates of interest here prevailing; but above all things he wants to have the value of his capital secured. He will not distrust the mortgage, but he wants to know whether, when the debt falls due, the same number of paper dollars returned to him will be worth in gold as much as they were when he made the loan or mortgage.
Mr. Cameron. The increase of real estate is always equal to any depreciation of the currency.
Mr. Schurz. But, sir, the increase of real estate in value does not increase the amount of the mortgage, as the Senator knows, just as well as every child in the country knows it. [Manifestations of applause in the galleries.]
The Presiding Officer (Mr. Ferry, of Michigan, in the chair). Order!
Mr. Schurz And, therefore, I say so long as the foreign investor cannot be sure that he will have returned to him the same amount of capital, he will not invest. It is useless for gentlemen to close their eyes to this fact. ​It is one of the results springing from our irredeemable paper money. It is so, and it cannot be otherwise. If the Senator is answered, and I think he is——
Mr. Cameron. I do not think I am answered at all; but I shall not interfere for the present with the Senator.
Mr. Schurz. If the Senator wants to put another question to me I shall be very glad to answer it.
Mr. Cameron. I am ready to say that the Senator has not answered my question at all. The special proposition was that these people expected to put their money in mortgages on real estate. I say that no one who has ever invested upon a first mortgage on property at current rates in this country has ever lost by the investment.
Mr. Schurz. The Senator cannot have so completely misunderstood me as to think that I expressed the least doubt of the safety of mortgages in the United States. If I were worth $10,000,000 and had it all to invest in loans, I would ask for no better security than mortgages on real estate in the United States. The question is this: Whether a man investing a certain sum in mortgages, when he retires his capital two or three years hence, will not by the depreciation of the currency lose 20 or 30 or 40 per cent. of the value of his capital; whether the dollar that he invests now will be worth just as much when that dollar will be returned to him? That is the question.
Mr. Cameron. I say yes; and I ask the Senator this question: Does he believe that any man who invested $300,000 in St. Louis for three years could have lost by it, or has lost by it, under any circumstances?
Mr. Schurz. The Senator from Pennsylvania is an old financier and a very successful one. He certainly knows that when an irredeemable currency is inflated, the effect will be its depreciation; that when he to-day can buy a dollar in gold for $1.12 in currency, if we expand ​the currency at the rate of $100,000,000 or $200,000,000 more, he will have to pay $1.25 or $1.30 in currency for a dollar in gold. In other words, while a dollar in currency may be worth eighty-eight cents in gold, if we inflate the currency it may be worth then seventy-five or seventy or sixty cents; and, old and successful financier as the Senator is, he is too world-wise not to understand that when I invest eighty cents and get only sixty cents back, I shall be a loser by twenty cents. [Manifestations of applause in the galleries.]
The Presiding Officer. If there is any more disorder in the galleries the Chair will order them to be cleared.
Mr. Cameron. Mr. President, I am too old and too wise to allow the Senator from Missouri to get me off the subject I started upon. I shall not contend in words with him. He can beat me there a thousand to one. But I bring him down to his assertion that he could not afford to allow his foreign friends to come here and invest money upon mortgage. I say he was wrong in that; he was depreciating the credit of the country and doing a wrong to the country which has adopted him and honored him.
Mr. Schurz. There are other persons, I fear, who are depreciating the credit of the country. They are those who want to continue a money system which introduces into all transactions of business the element of chance and deception; a money system which by that deception injures not only the foreigner who may invest his funds here, but our own people; a system of irredeemable paper money which has time and again fallen under the contempt of civilized mankind. Those, I say, are depreciating the credit of the country who in the very midst of the nineteenth century, with all the lights of universal experience around them, still strive to maintain, to confirm and to perpetuate a disgrace like that. I tell the Senator from Pennsylvania I can think of nothing that would be better ​calculated to elevate the American character and to raise the credit of the country in the eyes of the world than a speedy deliverance from that system. Why is it, I would ask him, that the National bonds of ours, than which there is no better security in the world, do not rise higher than they have done? Why is it that they do not keep pace, in proportion to the respective rates of interest, with the best of European securities? Simply because as long as we have this false system of irredeemable money, there is still lurking in the minds of men a secret suspicion that, by some trick or other, the National debt may still be paid off with depreciated greenbacks; and when I say that, I know whereof I speak, for I heard it a hundred times, to my own shame and to that of my country. I know that suspicion is wrong, absolutely groundless; but I consider it my duty, as a candid man, to tell you that such a suspicion exists.
I have now indicated how the credit of the country can be raised and how it is depreciated.
Mr. Cameron. If the Senator will allow me, he is again wrong, in my estimation. It is not because of the doubt of our credit, or our honesty, but it is because of that natural feeling in the human mind that men trust those securities that are near to them. The small money lender in Germany will lend to a man in his own ward for less interest than he will to a man living a mile off from him in the same city. So the people of France lend their money, and so do the people of England lend it at home first. It is the surplus, which they cannot invest securely, that they send here. Besides, if he wants to make his mortgage secure, it is very easy to make the interest payable in gold.
Mr. Schurz. Ah! there we come to it. Let us make it all payable in gold; that is what we are contending for.
Mr. Cameron. The difference between the Senator ​and me is, that he distrusts the integrity of the American people. I believe that the people of the United States are just as honest as any other people in the world, and I know that they have paid their debts as honestly as any other people in the world ever paid theirs.
Mr. Schurz. When the Senator from Pennsylvania says that I have said anything to their discredit or reflected upon the honesty of the American people, he says that which he ought to know is not correct. I have said nothing of the kind.
Mr. Cameron. I only take your words.
Mr. Schurz. I have not used such words. I have said that an irredeemable currency is a dishonest money system. It has been stigmatized as such by the history of the world.
Mr. Cameron. But you talked about trickery in its payment.
Mr. Schurz. I said this: that if we inflate the currency, the value of money will be depreciated. Is the Senator from Pennsylvania the man to deny it? Does he not know it just as well as I do? Is he not too well versed in addition and subtraction not to know that?
But there was one remark which fell from the Senator from Pennsylvania which really surprised me. He said that the people of Europe took hold of only such loans as were made in their immediate neighborhood. Has he forgotten that during our war hundreds of millions of our bonds went into Germany and were readily taken there while the destinies of the United States were still trembling in the scale of battle? Has he forgotten that? Does he not know that the European countries have been fairly flooded with our railroad securities? Can he count the millions of capital that came from Europe, with which so many of our enterprises were floated, that could not find ready and sufficient capital at home?
​Mr. Cameron. The Senator will not represent me fairly. I said that the people of Europe sent their money here after they had invested all they could profitably at home. They send it for profit. I say that the people in the immediate neighborhood in a single city would lend their money more readily to their neighbors than they would to others at a distance; and he knows that a man living in St. Louis to-day would rather lend money at a less interest to people in St. Louis than he would to a man in Pennsylvania of whom he knew nothing. But the Senator beats me in words, and I give up.
Mr. Schurz. I think it is indeed useless to quarrel about trifles.
Mr. Cameron. I have too much respect for you to quarrel with you.
Mr. Sherman. I wish to recall to my friend's mind a fact that is known to me, and no doubt known to him, that on account of the uncertainty of the value of our paper money, its constant appreciation and depreciation, nine-tenths, perhaps ninety-nine one-hundredths, of all the loans now made in Europe to this country, both principal and interest, are required to be paid in gold.
Mr. Schurz. It is a fact as notorious as sunlight; and therefore I express my surprise that so old a financier as the Senator from Pennsylvania should question it in the least.
But now, sir, to return from this digression; and I hope no Senator can have so grossly misconstrued me as to believe that I ever thought of questioning the honesty of the American character, for I have it more at heart than those who advocate the inflation of the currency. I will now say a word about the general law governing the rate of interest.
The rate of interest—and I desire to impress this especially on those of my Southern friends who the other ​day asserted that if we could only furnish currency enough the rate of interest would become as low, I think it was in Georgia, as it is in London—the rate of interest at any given point is regulated by the proportion of the amount of loanable capital existing or attainable to the demand for the use of that capital. Loanable capital is that which persons possess beyond the amount used by them selves in production. Where the amount of loanable capital is large, there the rate of interest will be low; and where the amount of loanable capital is small, there the rate of interest will be high. But loanable capital is the accumulation of surplus earnings. It is therefore the growth of time. Hence in communities where production, labor and the accumulation of surplus earnings have gone on but a short time, or where such accumulation has been destroyed, as by war, the rates of interest are high, and will remain so until the necessary accumulation to lower them is effected.
The other day I received a letter from Omaha, in Nebraska, complaining very much that interest ranges there at 12 to 24 per cent., while in Boston and New York, as the letter stated, it ranged only from 6 to 8. That is undoubtedly true. In New York and Boston we can hear exactly the same complaint, that interest ranges there from 6 to 8 per cent., while in London and Amsterdam it ranges from 2 to 3; and the reason of the difference between Omaha and Boston, and between Boston and Amsterdam is exactly the same. In London and Amsterdam there are large accumulations of loanable capital; centuries have been spent in piling it up; larger accumulations of loanable capital than in New York and Boston. And in New York and Boston there are larger accumulations of loanable capital, also the growth of centuries, than in Omaha in Nebraska, or in Hannibal in Missouri. Now, if we could transport the accumulation of wealth ​existing in Amsterdam and London bodily to New York and Boston, and give it the same field of action, then the rate of interest at the latter places would be no longer 6 and 8 per cent., but it would be 2 to 3 per cent., and if we could transport all the accumulated wealth of New York and Boston to Omaha and Hannibal, then, in all probability, the rate of interest there would cease to be 12 to 24 per cent., and it would range at 6 to 8.
But the same effect cannot be produced in any other way than by the gradual creation and accumulation of wealth. The accumulation of capital and consequent low rates of interest are the result of the work of generations. It cannot be created by the establishment of banks, or by the issues of paper money; and the idea that it can be done by the printing of irredeemable paper money is so absurd, that every baby can see it. Still more preposterous is the fabulous notion that we can issue paper money enough to secure to everybody who wants it a loan, or to discount every man's note at as low a rate of interest as he desires. It is indeed incredible that such propositions should be seriously advanced and advocated on the floor of the Senate of the United States. Why, we might as well in the shortest way solve the problem by saying: Let every man issue his note for all his debts, past, present and prospective; and then let us enact a law making that note legal-tender.
And now, sir, when I have demonstrated by fact and reason, so that every child might understand them, propositions like these, that capital and currency are two very different things; that the wealth of a country is not augmented by printing more paper money; that when popular confidence in the issuer of irredeemable paper money is unimpaired, the constant depreciation of that paper money demonstrates its excess in quantity over and above the real requirements of legitimate business; that such a ​currency may in the aggregate be superabundant and yet an insufficiency may be felt in certain localities and certain branches of business in consequence of a vicious diffusion; that this vicious diffusion, springing in part from the natural effects of an irredeemable and redundant currency, cannot be cured but will only be aggravated by inflation; that the gambling risk inseparable from an irredeemable and fluctuating currency will drive up prices as well as the rates of interest; that the rate of interest depends on the existing amount of real capital in a loanable form and its proportion to the demand for the use of that capital, and can therefore not be lowered by an inflation of an irredeemable currency, but will be raised by the increased element of risk; that for such reasons the remedies for existing evils proposed by gentlemen who favor inflation are not only no real remedies at all, but mere quack medicines, which will only aggravate the ailment; when all this is demonstrated, gentlemen on the opposite side mount the high horse and say: “Why, all this is mere theory; you are mere abstractionists. We are practical men, which you are not; you look into books, but we look into the living, active business of the country; we trust the evidences of our senses; we open our eyes, and we see what is going on, and from what we see we draw our conclusions, and upon what we see we build our ideas as to remedies.” Well, sir, the contempt of these practical statesmen for theories is of the very loftiest nature. I have heard it said on this floor that the great lights of political economy, such as Adam Smith, John Stuart Mill, Ricardo and all those who recognized the precious metals as the standard of value, and who thought they would remain so, were in fact nothing but old fogies, rather behind their times; moral cowards, who had not courage enough to confront an old popular prejudice. Away, then, with all those great thinkers upon whom the ​world has so long looked with pride; away with Adam Smith and John Stuart Mill and Ricardo and Bonamy Price. Away, also, with our own Thomas Jefferson and Hamilton and Gallatin and Crawford. We have now among us a new school of political economists who know better. With the Senator from Indiana, they exclaim, “Throw theory to the dogs,” as he said the other day; and it must be admitted they have thrown theory to the dogs most effectually. They rely upon nothing but the evidence of their senses, and how can that lead them astray? Well, sir, in this respect they are, however, not quite original.
Some ten or eleven years ago, during the war, I met in the South an old farmer who was called by his neighbors “Old Tatum.” He was a practical philosopher of the same kind, who relied upon nothing but the evidence of his senses; and inasmuch as he could but with difficulty spell out a word or two in large print, he had a lofty contempt for book-learning. I liked to talk with the old man, and once in conversation I happened to say something about the earth moving around the sun. “Hold on,” said old Tatum; “what did you say there? The earth moving around the sun! Where did you get that?” “Well,” I said, “I got it from the books.”
“There again,” cried old Tatum, and he would fairly roll over with laughter—“there again, from the books. The earth moving around the sun! And don't I see every day with these, my own eyes, the sun moving around the earth? Don't I see it rise there in the morning, and don't I see it go down yonder every evening? Ah,” said he, “you book-men can't fool old Tatum.”
What a shining light old Tatum would have been among the new school of political economists here! Would he not have thrown theory to the dogs like the very best of them? “Here I see a difficulty,” old Tatum would say; ​“there are many persons in the United States who want money; the difficulty is, of course, there is not money enough to go around. What is to be done? Inasmuch as we make money by printing it, let us print more until it will go around.” But you may say: “Mr. Tatum——
Mr. Cameron. Was not Tatum a hard-money man?
Mr. Schurz. No; unfortunately he was not. I will show the Senator what he was; and, in fact, the Senator himself has heard him quite frequently.
You might say: “Mr. Tatum, these bits of money are not proper money at all; they are promises to pay money; and the more you print of them the less they will be worth, and the less they are worth the less you can do with them in business; you cannot make the country rich in that way.” Such talk would not trouble old Tatum at all. He would laugh right in your face. “Do we not call these paper notes dollars?” old Tatum would say. “Are they not dollars? Cannot I read it with my spectacles in big print upon them, one dollar, ten dollars, one hundred dollars? and is not the country better off when it has fifteen hundred millions of these dollars than when it has only seven hundred and fifty millions of them? Ah, you can't fool old Tatum, I tell you.”
Neither would the question of interest give old Tatum the least trouble in the world. He would settle it with the same ease with which the Senator from Indiana settled it the other day. He would say: “Money is capital; do you not call it so? And these paper dollars are money; do we not call them so? therefore these paper dollars are capital. Must not everybody see that?” You see old Tatum is a logician. “Now,” old Tatum would continue, “when these paper dollars are plenty, then capital is cheap, and you can hire it at a low rate of interest; when these paper dollars are scarce, then of course” he would say, “capital is dear and you would have to pay much more ​for it.” So you cannot fool old Tatum. “Do I not know that when you put more hogs and horses in the market, horses and hogs get cheaper?” Thus you see old Tatum would be as good at the horse and hog argument as anybody. Old Tatum is eminently a practical statesman.
But I suspect after all, sir, that there is something in that theory that the earth moves around the sun, although old Tatum has never been able to see it. And I suspect there is after all something in the principles of political economy, in that science of finance, which is the accumulated wisdom and experience of many centuries, although the practical statesmen of the old Tatum school cannot see it and are ready to throw it to the dogs. Throw it to the dogs, Senators, and I fear the honor as well as the prosperity of the country will soon go the same way.
When all other resources fail, when even a contemptuous sneer at book-learning and theory will no longer answer, the advocates of inflation grow fearfully pathetic in calling the opponents of their fallacious doctrines enemies of the poor, supporters of the rich, friends of the oppressors, of the money-changer, of the wicked speculator and so on. Ah, sir, the Lord may forgive those who know not what they are doing.
Is, then, the inflation of irredeemable paper money really a help to the poor? Can it be? Can any sensible man pretend for a moment that it can be? It has been well said here that the rich man is always able to take care of his interests; and so he is. He can provide for his own welfare, whatever the vicissitudes of trade and the fluctuations of values may be, for he has the means to take advantage of every change. Is the currency inflated and does it depreciate? He speculates upon a rise of prices. Is the movement in the opposite direction? He speculates upon their fall. He stands upon that eminence where he can see the storm coming and discern in what direction ​it will blow. He can bend before it and rise up when it is over. He can watch his chances, and he has the means to turn them to his advantage. He commands the situation, and can take care not to become its victim; and he covers his risks by making the poor man pay their cost; for the poor man, living from hand to mouth on his daily earnings, is the slave of his necessities. The vicissitudes of the great business world overtake him unawares, for he has not the opportunity to watch the workings of hidden forces; and even if he had that opportunity, what means would he have to avail himself of this knowledge? what means to provide for the changes of fortune? He cannot, amid the fluctuations of values, speculate on a rise or on a fall, for what he receives for his labor he has to use at once just as he receives it, for bread to feed his family, or for clothing to cover them, or if he saves any thing, his savings may depreciate in his own hand while that hand holds them, small as they are; and what means has he to make up for the loss? His savings are too small for speculative operation.
The great steamer of five thousand tons may defy the storm and break her course through the angriest sea with scarcely impeded strength, but the poor fisherman's boat is helpless against the gale, and without resistance dashed upon the rocks by overpowering waves. The poor man is the helpless victim, and nothing but the victim, of that tricky game which a fluctuating paper money enables the rich to play with the poor man's fortunes.
You speak of the distress of those who this day are without work and without bread. What has caused that distress? It was caused by a crisis, a collapse of speculation, grown up under the auspices of that same paper-money system which you now strive to confirm and strengthen in all its iniquitous influences, to bring on ​other crashes and collapses; and who will be the man to be ground to powder by them? The poor man, not the rich. What is it that rises last when your paper system drives up prices? The laboring man's wages. What is it that drops first when your bubbles of paper speculation burst? The poor man's earnings. You speak of reviving confidence, and, with confidence, enterprise, by new issues of paper money, and yet that very confidence has been destroyed by the very agency of that paper money; and confidence does not revive to-day for fear of new fluctuations and new uncertainties.
You talk of debtors and creditors, debtors being benefited by inflation, and creditors by the resumption of specie payments. Let me ask you, who are the debtors, and who are the creditors of this country? Let every Senator look into his own household; who are the creditors and who are the debtors there? There is but one man in that household who is able to be a debtor, and that is the Senator himself. Not his servants; for they have not credit enough to contract debts. If they are anything they are creditors, however small the amount may be. Look at the savings-banks of this country, and what do you see there? Seven hundred and sixty million dollars of deposits. Who are the depositors? Not the rich, but the poor man, who earns his bread by the sweat of his brow; the man of small means, who puts there for safe-keeping his small surplus earnings. The same class have in National and State banks, and in trust companies, as has been estimated by good authority, two hundred millions more; and another two hundred and fifty millions are owing to the same class in the shape of unpaid wages and other debts. There are twelve hundred millions, then—twelve hundred millions of debt—owing to the laboring men and the men of small means. And now, I ask you who are advocating the inflation of the currency, ​what are you doing to those poor people; what are you doing with their twelve hundred millions of money? Inflate the currency, and by inflation depreciate it, and you will diminish the value of these twelve hundred millions 10, 20, 30 per cent. And now boast of being the friends of the poor while you advocate a policy that will rob the poor in the land of so large a proportion of their hard-earned property.
When looking at the scheme advocated here to relieve distress and to revive prosperity, one might almost believe that gentlemen with the most serious faces were carrying on a game of cruel mockery with those who look up to us for guidance and aid. If they ask for bread, I entreat Senators do not give them a stone! If you do not know how to aid them, at least do not deceive them; do not impose upon their credulity by offering to them as a remedy for their ills the continuance and extension of a money system which, wherever it has been tried, has always turned all social and economic movements into a game of chance and overreaching, in which always those lose most who have least to lose.
But we are told again and again that the people are demanding inflation, and the Senator from Indiana never grows tired of saying that he thinks his people think they understand this business, and they want inflation and nothing else.
But when you tell me that the American people want inflation, I boldly deny it. The American people are an enlightened and an honest people, and if for a little while they may be led astray by a taking catchword, they will soon recover their sound senses and show that they know what is honest as well as what is prudent. I have seen and heard this kind of thing before.
About seven or eight years ago some politicians thought it would be a very popular idea to repudiate our duty to ​pay the National bonds in gold; they proposed to issue the necessary amount of greenbacks to pay off the National debt in a depreciated paper, in the cheapest possible money. They thought the people would jump at the chance of thus getting rid of a very onerous burden. Well, sir, what was the result? At first the proposition seemed to become quite popular in some quarters, and politicians of both parties—who are always ready to run after a popular cry, right or wrong, and always think what they think the people think—saw there a chance of a profitable game for themselves. They advocated the scheme, or at least did nothing against it. They thought they could not afford to oppose it. Well, sir, here is a piece of my personal experience. In the Presidential campaign of 1868 I was invited to make speeches in the State of Indiana. When I came into that State I was met by some politicians who told me: “Now we want you not to say anything in your speeches against that greenback scheme; the people of Indiana are almost universally in favor of it; they want to get rid of this heavy debt; they do not want to pay the bloated bond holder in gold”; and so on. I replied: “If I cannot say about the greenback scheme what I please in this canvass, I will not speak in Indiana at all.” After some hesitation those politicians consented that I should proceed; but they watched me with great trepidation. Well, I did speak my mind, and in every speech I denounced the greenback scheme as a most rascally conception, and I insisted that it was the sacred duty of the Government to pay to the National creditor every farthing according to the letter and spirit of the law. And there were the people of Indiana before me, who had been represented to me as being fairly wild on the subject of the greenback scheme. What was the result? No declaration in my speeches was more heartily applauded than just this, and ​that applause came from the same people whom weak-kneed politicians had represented to me as all on fire for repudiation. And the same politicians have to thank their fate if their people have consented to forget the abandonment of honest principles they were guilty of.
Ah, sir, those miscalculate their chances who think they can safely speculate upon the rascally instincts of the American people.
The inflation cry will go the same way the repudiation cry has gone. I am convinced the inflation cry will be one of the most short-lived cries this country ever heard; and I am not much mistaken when I say that those who advocate inflation in this body must make hot haste to commit the Senate to that iniquitous doctrine, or the last semblance of popular support will drop away before the decision is reached. No, sir, it is not the people, it is the speculators and their deluded victims, who are continually dinning the cry of inflation into our ears, and so it will become manifest to every one who has eyes to see and ears to hear.
It has frequently been asserted that every native-born American citizen is apt to think of becoming at some time or other a candidate for the Presidency. Permit me to say that if any possible Presidential candidate indulges in the delusion that he can ride into the White House on the inflation cry, he will meet with the same disappointment that overtook those who seven or eight years ago thought the repudiation cry a good thing for the same purpose. If public men who advocate the inflation policy should, unfortunately for themselves and for the country, prevail in this Congress, they will live to curse the day when they achieved that fatal success. Let them not indulge in the delusion that they will secure the favor of the people by a short spell of deceptive prosperity, for I tell them the bubble may just have time to burst before the year 1876. ​For their own as well as their country's good, I entreat Senators on the opposite side to stop and consider well before they irrevocably associate their names with a policy which stands already condemned by the universal experience of civilized mankind, and a new trial of which in this country would not only bring disaster and ruin upon us, but cast shame upon the American name. Yes sir; I say it would cast shame upon the American name, for the American people will in the eyes of the world most seriously impair their credit for intelligence, to speak of nothing else, if, with open eyes, with all the warnings of history before them, they repeat a blunder which, as often as it has been made, has always resulted in private misfortune and in National disgrace.
Now, Mr. President, I am done. I said at the outset that the object of my remarks would be to show that those who advocate inflation seriously mistake the nature of the difficulties they want to provide against, and that the remedies they propose will not only not cure but will aggravate the evil. That is what I have attempted to do; nothing more. Let me hope that my remarks will not be entirely without influence upon the vote of the Senate touching the proposition before us. The other branches of this great subject—and I know there are many which I have not even alluded to—I will leave for further discussion when we shall have a matured bill before us embracing our whole financial system.