Year: 1874




| One Of the most plausible of current finan-
cial falacies is the project for fixing the
rate of interest. and raising our green
backs to gold vaue, by making legal
tenders convertible into bonds bearing five
per cent interest in gold, the bonds them
selves to be convertible back into greenbacks
at the will of the holder. A brief examination
of this scheme will show that it is in the
highest degree dangerous and impracticable.
The principal objects to be aimed at i'll any
plan for the improvement of our currency
are, in the first place, to make our paper dol
! lars equal in value to gold dollars; III the
second place, to keep them so. The latter is
by far the more important of the two. We
shall endeavOr to show that the intercOn-
yertibility plan will never secure the perma-
nent equality in value of paper dollars and
gold dollars.


We admit that at the present time United
States five per cent bonds are worth par in
gold, and also that if they were offered with
out limit for par in grcenbacks a sufficient
quantity of our paper money would be
absorbed in the purchase of the bonds to
bring gold and paper dollars very close to
each other. If the operation stopped there
if the greenbacks were destroyed. and if the
bonds were made payable only at maturity,
the ne. result would be salutary contraction
of the currency. But it is not contraction that
is wanted. To take the most common sense
form of the project, the greenbacks are to
constitute reserve in the Treasury for the
redemption of the convertible fves on pre-
sentatiOn. If, indeed they were to be paid
out and again put into circulation, we should
have the most dangerous kind of in
fatiOn, the exact counterpart, in fact, of
the Mississippi scheme, in which Laws
paper money was made intercOnvertible
with the shares of his colossal India Company,
which, among other endowments, had the
right to collect the National taxes. We might
then have, perhaps, thousand millions of five
per cent bonds outstanding for which the
Government would be obliged to deliver
legal tender notes on presentation. But we
shall suppose all the greenbacks which have
been received in exchange for the convertible
fives, as we may call them, to be sacredly
kept as reserve for the redemption of the
bonds and to be used for no other purpose,
and, consequently, the sum total of the legal
tender notes and convertible fves to be limited
to 1856, ,OOO, ,OOO or $4OO,OOOOOO, or some finite
sum-


Now observe what the Government has un
dertaken to do. When bankers, brokers, mer-
chants, and capitalists generally are unable
to invest their money securely at five per cent
gold interest, Government is to take it and
pay them more than it is worth. When
the market rate of interest is more than five
Der cent the Government is to manu-
facture and lend money for less than il Ia
worth. 1t is well known that in England,
where they have no usury laws, the rate of
interest ranges from two to twelve per cent,
and that in the United States, where interest
is regulated by law, it varies from five to fifty
per cent per annum for discount of the best
commercial paper, and from two to two
hundred per cent on call. For long periods
the minimum discount rate of the Bank of
England has remained fixed at two per cent,
and for other long periods it has averaged as
high rs seven or eight per cent. Let lis now
suppose protracted strIngency in the London
money market, with the minimum discount
rate at the Bank of England, say, eight
per cent. The value of our securities would
fall, specie would be in demand here for cx-
port to London, money would be scarce,
the convertible fves would be presented for
redemption, the premium on gold would be
re6stablshed, and the credulity of those who
believed in the possibility of an elastic cur
rency and unvarying rate of interest would be
made manifest.


During the calendar year 1864, the average
rate of discount at the Bank of England was
seven and one-half Der cont. During that year