The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1874-02-02


Legal Tenders and Bank Notes.
Secretary Boutwell, used the following
language in his report of December, 1872,
namely:-"As the circulation of bank is q
source of profit and as the managers are
usually disposed to oblige their patrons by
loans and accommodations, it can never be
wise to allow banks and parties who have
pecuniary interest at stake to increase or
diminish the volume of currency in the coun-
try at their pleasure; nor do l find in the
condition of things law or rule on which we
can safely rely. Upon these views I form the
conclusion that the circulation of the banks
should be fixed and limited, and that the
power to change the volume of paper in cir
culatiOn within limits established by law
should remain in the Treasury Department"
BY what right the Secretary made use of the
word ''remain" in the above connection is
question that has been discussed in the fnan-
cial column of the HERALD, and it is to be
hoped that it will be determined by Congress
at an early day.
The ideas of Mr. Boutwell, with reference
to "money" and currency appear to have
been as much muddled as are some of the
wiseacres of the present Congress, who pro-
pose to substitute legal tenders for the entire
volume of national bank notes, and seem to
think the exchange would involve no imitation.
But it would, and for the following reason:-
The only "money' known in the United
States is the legal tender note of the govern
ant Thof 10 tbo
is compelled to accept in the payment of
debt. A national bank note is not 'money"
any more than would be the check of Richard
Roe or John Doe, drawn on national bank.
1t is simply promise to pay by national
bank, on demand, in legal money, and, being
secured by deposit of government bonds,
circulates more generally as the representa-
tive Of 'tmoney'' than do individual checks,
which are equally its representative, though
more localized, yet still perform the duties of
money in the system of commercial exchanges
at the rate of at least ten thousand to one of
both legal tenders and bank notes combined.
In other words, the legal tender is made by
statute our gold and silver, and the national
bank notes bear to them the same relation
that the old State bank notes bore to gold.
1t follows, therefore, that an increase in the
amount Of legal tenders is quite different
affair from a similar increase of national bank
notes. The one is an actual addition to the
amount of 'money" in the country, and per-
mits an expansion by the banks in the proper
ton of four to one. The other is an expan-
sion Of mere bank credit, which the banks
must keep within safe bounds or else suffer
the penalty of misfortune.
No one will deny the proposition that if the
country were receiving twenty-five millions of
dollars every three months in gold in payment
of our products it would be not merely sign
Of prosperity, but a basis for expansion and
the creation Of new enterprises; but will any
one pretend that similar amount of ''money,"
such as has recently gone out, which is SIM
ply the production Of press and an evidence
of debt, is either a sign of prosperity or a
warrant for fresh undertakings? If SO, let
him find congenial company in Washington.
The Secretary said in his report and the
Senator has repeated it, that ''the power
should remain in the department" &C.. that
''the department should make money elastic
for the purpose of moving the crops. Let us
see for moment what fearful thing an
elastic currency may be when left to those who
are disposed to oblige their patrons )"
or, rather what it would be under free bank
ing law, hedged around with provisions for
strict redemption. At certain seasons of the
year the cotton, wool, pork, grain and other
merchants require large amount of currency
to send South and West for the purchase of
their respective productions. 1t may be at
time when money is stringent in the great
centres. The merchant offers to his bank his
ninety day note, secured by collateral and duly
approved for which he receives the notes or
bills Of the institution, agreeing to distribute
them in the South and West. The bank is, of
course, happy to make the accommodation on
these terms, and the merchant accordingly
scatters its bills. By the time they have passed
returned to the issuing bank for redemption
the very product purchased is also at hand
and the proceeds Of the same are ready to re-
tire the notes. They have performed their
function, and, being no longer required by the
uses of commerce, come back to the fountain,
head to remain in vault until again demanded.
There has been no undue or dangerous ex-
pansion-no unsettling of values. The yard
stick was thirty-six inches long before, and it
SO remained during the issue and after it had
been retired. Not-even dollar of money
was used-nothing but its representative.
Such an issue cannot become excessive, for
the moment that it does so it will be pressed
for payment Can the Treasury Department
devise any plan by which it can do the same
work-even admitting the propriety of govern
mental interference with the laws of trade
and do no damage?
Has the ex-Secretary ever heard that de-
posts are source of profit to bank, and
that when q bank is in the hands of bad or
dishonest managers these deposits are source
of dancer IN a commupitv ca oro mo r.,