Year: 1876




have bonds which bring $116,OOO to S122,Ooo
in currency, and thus have more money 10
loan than before Loans shrink because con-
fidence is lacking, not because currency II
scarce. AS long rs men lack the confidence
necessary to sustain more active Dusiliess
larger loans and higher rates OF interest," SO
long three things will occur simultaneously :;
surrender of bank circulation. contraction or
loans, and failure of weak debtors. The gen
eral condition of the business world Is the
cause There is a storm. The consequences
are that some people protect themselves, ana
some Others get wet TO the skin, while the
weaker are swept away by the flood, and get
financially drowned.


Yet no idea is more widely prevalent than that
contraction of currency causes sshrnkage OF loans.
The error is not entirely unnatural. The sun
appears to revolve around the earth, and 1t
took men long while to find out that eyes,
used without reason, arc apt TO tell lies.
Shrnkage OF loans and contraction of currency
often occur together. Men who have only eye
sight, and not sense, fancy that contraction OF
currency is contraction of loanable capital.
Yet it ought to be obvious that whoever sur
renders tho token of value, whether coin OF
paper, gets in place Of it value in somo form
the loanable capital can IN no way be dlmln-
ished by the surrender and retirement OF mere
tokens representing it. The quantity OF
wheat in the market is not lessened
if the holder of elevator or warehouse
receipts surrenders tho receipts and carts Oh
the wheat. Men who want loans do not want
currency or coin they want capital. certi-
fled check, coin or currency certificate, or
even mere line of credit on the books OF
sound bank, not only satisfies every want, but
is at once safer and moro convenient than the
currency, or the coin. Loanable capital may
and often does increase when the currency in
use decreases, but dull persons who can sec
the currency, and clamor because of its de-
parture, are incapable of seeing the super
abundant capital, or of comprehendng the low
rate of interest


The people are getting education in that
severe school in which alone the majority OF
men can learn anything of finance. Ii Is ex-
ceedingly fortunate for their education that all
restrictions upon increase or decrease of crcn-
lation have been removed. If the same con-
traction, which has been effected within one
year by voluntary surrender of circulation,
had been caused by arbitrary act OF the Gov
ernment, it would have been stopped by
well-nigh unanimous vote in Congress; people
all over the land would have ascribed to that
contraction all their woes; and even
the bankers and business men, who
have been led to SEQ a little more
clearly than they did after the panic of 1873,
vould be sending angry delegations to Wash
ington TO demand the repeal. But men who
have their senses find it hard to believe that
the country is suffering for lack Of currency,
and yet is voluntarily surrendering its cur
rency. Because we have free banking, the
results are peculiarly instructive. The country
cannot use, and will not keep in circulation,
the currency that it has. Consequently bank
circulation is surrendered by the millions Yet
capital L. abundant. Idle money begs for safe
employment. The rate of interest sinks, and
all solid securities rise in price. And it is at
this very time, when unemployed money is
more abundant than ever, that failures be-
come more numerous than ever, and we are
told that they are caused by tho voluntary
surrender and contraction of the currency!