8

Fierce as has been the war, so slight has been its effect, that at the date of the crisis in September of last year the circulating notes in use, with gold at 15, were greater in amount than they had been in 1864 with gold at 250, the total having been $759,000,000. Making from this deductions similar to those made by the Comptroller in 1865, the net amount may be taken at 600,000,000, or about $13.00 per head, being but $1.51 in excess of that of 1862, when paralysis reigned throughout the land; when almost all business was transacted on long credits; and when that vast West which has since been occupied remained almost as complete a terra incognita as is now the heart of Africa.

No civilized country of the world exhibits so wide a dispersion of its people, and consequent need of machinery of circulation; none exhibits so small a quantity in use as proportioned to the number of the people or to the exchanges to be performed; and yet in none is there so stupid a war upon the circulating note. In Japan, that barbarous country which we propose to civilize, gold is everywhere at a discount as compared with the note; and so it well deserves to be, the note effecting exchanges much more readily than the silver or the golden coins.

No error has been, or is, more common than that which attributes to banks the power to force upon the people more notes than are needed for their purposes, and hence it was that under the old system bank charters so generally limited the power of issuing notes to twice, and sometimes, as I think, to thrice their capitals, i. e., to quantities thrice greater than it would be possible for bankers to induce their customers to accept them. That it is the public, and not the bankers, that regulate the quantity in use, and that there is no more need for regulating the supply of notes than that of hats, is so well shown in a recent work by an eminent English economist, that I am led, Mr. Secretary, to ask your attention to the following extract, which corresponds in all its parts with what I myself more than thirty years since had urged upon the consideration of our legislators:—

"And now we reach the most important question of all—In what numbers will these bank-notes circulate? It is the crucial question wherewith to test the soundness of every theory of currency. It is a question which every merchant, every banker, every chamber of commerce, every member of Parliament who speaks on currency, ought to push home to his mind, and not be content till he has attained to a clear, precise, and intelligible answer. It is the centre of every theory of currency whether metallic or of paper. Every doctrine which is mistaken on this central principle is worthless as an interpreter of the science of currency. Mr. Tooke discerned the true answer: Mr. Mill, with some little wavering, and a few

one half consisted of notes calculated for use among the poorer members of society, as follows:—

<table><tbody><tr><td>Notes of $1.00</td><td>$5,632,583</td></tr><tr><td>" " $2.00</td><td>4,148,776</td></tr><tr><td>" " $5.00</td><td>128,762,462</td></tr><tr><td>Fractional currency, say</td><td>44,000,000</td></tr><tr><td></td><td>$182,543,821</td></tr></tbody></table>

9

others, have seen the light; but the general literature on money matters through-
out the world profoundly ignores the fact. The answer is the same with that which
has already been given to the parallel question respecting sovereigns. So many
bank-notes as the public wants and can use will circulate, and no more. Neither
the bankers, nor Parliament, nor the law, nor the need of borrowers, nor any other
power, but the wants and convenience of the public, the number and amount of
the specific payments in which bank-notes are used, can determine how many con-
vertible bank-notes will remain in circulation and not be returned upon the hands
of the bankers for payment. This is the truth of truths in currency. The banker
may have the strongest inclination to issue more; eager merchants, in their
anxiety to procure loans, may offer to carry away in notes the whole of their
borrowings; Chancellors of the Exchequer may grant suspensions of Acts of
Parliament to fathers of the City; but the attempt to substitute any other regu-
lator of the quantity of the notes circulating than the inclination of the public to
keep them is absolutely hopeless. An expanded or inflated circulation of bank-
notes is an absurdity, nothing better than pure nonsense. It would be just as
sensible to speak of an expanded or inflated circulation of hats. It is easy enough
for the hatter to make more hats than can be sold; but where is the inflation in
that case? In the number of hats circulating about the town, in each man having
a dozen hats in his house? The very question is puerile. There would be an in-
flation of hats, but it would be found in the shops of the hatters, and not in the
circulation of hats. There may be in the same way an inflation of bank-notes by
too many being made; but the inflation would not be found in the circulation of
notes, but in the banks, which would be stuffed up with their own unusable and
unsalable wares. Ask each of yourselves, how it is possible to inflate your own
use of bank-notes? The question itself excites your ridicule. What is to make
you willing to keep more bank-notes in your desks or your pockets, so long as your
habits of spending remain unchanged and you have enough for your regular
wants? If more should reach you from any source, what would you do with them?
Keep them? No; you would get rid of them; you would place them at a banker's,
as things for which you have no specific use, so long as your habits of life remain
unaltered. I mean by habits of life, not your spending more, but your spending
in a way which creates a new use for notes. A gift of 100l. in notes might send
you on a travel—and then you would want more notes; but your spending them at
Oxford in buying furniture or books would not increase your want of notes. You
would put the notes at a bank, and pay for the furniture and books with cheques.
The same inability to increase the use of notes, and the consequent unwillingness
to retain them which you experience, beset every member of the community.”—
BONAMY PRICE, “Principles of Currency,” pp. 108–110.

Earnestly recommending to your careful consideration the views
here presented, I remain,

PHILADELPHIA, Sept. 14, 1874.

HENRY C. CAREY.

LETTER THIRD.

SIR: Having thus shown, and as it seems to me conclusively, that the circulating note has had no influence whatsoever on the price of gold or other commodities, and that if we would ascertain the causes of "inflation" we must look in a very different direction, I proceed now to place before you facts of recent years in reference to that other portion of the currency which consists of bank debts, and is known by the name of "deposits," as follows:—

that at the
ing notes in
had been in
0. Making
eller in 1865,
$13.00 per
n paralysis
transacted
since been
is now the

version of
none ex-
er of the
is there
varbarous
discount
the note
golden

ibutes
n are
the old
y notes
i. e., to
 to in-
and not
e is no
its, is so
ist, that
wing ex-
more than
r legisla-

umbers will
it the sound-
chant, every
o speaks on
has attained
ery theory of
aken on this
currency. Mr.
ing, and a few

2,583
18,776
32,462
00,000
43,821

10

The individual who has uninvested capital remaining in the form of money, and retains it in his strong box, is certain to meet no competition in the market arising out of its existence. Let him, however, while seeking for investments, lend it to his neighbor to be returned on call, and it will at once become duplicated, the owner and his debtor being both employed in using the same identical money, and perhaps competing with each other for purchase of the same commodities with correspondent tendency towards increase of prices. What is here suggested, as regards individual men, is what is now occurring between banks and men to the amount of hundreds of millions, the property of A being lent by the bank to B, and both endeavoring to profit of its use, thus causing the "inflation" of which so much is at this moment heard.

The tendency toward this inflation is consequently greatest when and where unemployed capital most abounds.

A bank being simply a shop at which money exchanges are made, it is as harmless as the shoe shop, or the grocer's shop, except in cases where, by means of legislative action, more power is placed in the banker's hands than under natural arrangements he could have commanded. It is the most useful of shops, the money trade being the largest of all trades, and equal in amount to that of all other trades combined. Perceiving this, the men of New England allowed to banking greater freedom than could be elsewhere found, bank charters being freely granted, and provision being generally made by means of which their capital might gradually be increased; thus absorbing unemployed capital that would otherwise have remained unproductive to its owners under the name of "deposits." As a consequence, in no part of the world, Scotland excepted, has the local application of capital been so complete; in none have banks traded so much upon their own capital, and so little on that of others; in none has the circulation been so perfect or so economical: in none has so vast an amount of business been transacted with so little loss to the bankers, or to those with whom they dealt; and in none has there been less of that "inflation," which throughout the rest of the Union has led to crises so disgraceful and so severe.

Passing south and west we find more jealousy of bankers; more restrictions and limitations; more liabilities; more monopolies; and, as a necessary consequence, more unemployed capital in the hands of bankers; more over-trading; more frequent vibrations in the supply of money; frequent stoppage of payment by the whole body of banks: the general result being that the trade in money has been thrice, and in very many instances ten times, more costly than has been the case in the New England States.

What was the operation of these widely different systems in the period immediately preceding the crisis of 1857 will now be shown as follows:—

Boston then had thirty-six banks, with capitals amounting to $31,960,000, and with stocks averaging 110 per cent., there having been but one above 120, and but three below 96. The total dividend for the three

11

semi-annual periods preceding the crisis was $1,240,000, $1,245,000, and $1,229,000, giving a little less than 8 per cent. per annum, and showing a profit resulting from circulation and deposits, after payment of expenses, of less than 2 per cent. Judging from this the loans must have exceeded the capital and surplus little more than 50 per cent.*

Turning now to New York, we find for the month of June, 1856, capital amounting to $92,000,000, and deposits $96,000,000, these last having grown to that amount, while contracting large loans abroad, from $36,000,000 in 1847, when, under the protective policy of 1842, we had almost wholly extinguished the debt which had been contracted in the unhappy free trade period of 1836-42. The circulation had grown in all that period but $5,700,000, whereas the interest paying investments had increased $114,000,000, and were then $100,000,000 in excess of capital and surplus; four-fifths of this representing the capital of others thus duplicated and exhibiting precisely the "inflation" needed as preparation for the crisis then so close at hand.†

As usual, "inflation" at the centre produced still greater "inflation" at the west. "There can be no question," says the Merchants' Magazine, April, 1857, "in regard to the expansion everywhere visible throughout the south and west. Speculators in western lands have bought up large tracts, then constructed railways to or through them, and the whole of them upon a system of reckless expenditure and baseless credit, peculiar to rash speculation all the world over:" and thus have we exhibited a state of things precisely similar to those of the last few years, and tending to the same results.

As usual on all such occasions, the money market had been "very close in all parts of the country. The west had been very much crowded, and the state rates had been very high. In the north Atlantic States note brokers' capital had been readily taken at 9 to 12 per cent."

But little later came the crisis, and stoppage of payment throughout the south and west, causing the return of millions upon millions of protested paper upon the manufacturers of the East, and compelling the New England banks to follow in the train of those of New York in a temporary suspension of payment such as could never have been required had they been acting in company with others whose systems more resembled their own.

The facts thus presented are but a reproduction of those of the

* All the figures and facts here given are drawn from the Merchants' Magazine of April, May, and June of 1857.

† The extraordinary stability of the circulation, as above exhibited, is still further confirmed by the following figures, representing, in millions, that of the banks of the State throughout the extraordinary crises of the period between 1855 and 1864:—

<table><tr><td>1855</td><td>41</td><td>1859</td><td>38</td><td>1862</td><td>42</td></tr><tr><td>1856</td><td>41</td><td>1860</td><td>36</td><td>1863</td><td>42</td></tr><tr><td>1857</td><td>41</td><td>1861</td><td>36</td><td>1864</td><td>40</td></tr><tr><td>1858</td><td>36</td><td></td><td></td><td></td><td></td></tr></table>

12

period immediately preceding the great crisis of 1837 as those of the past year are but a reproduction of those of 1857, the rate of interest being always highest when, by means of foreign loans, we are rapidly producing that "inflation" by which the few are enabled to profit at the cost of the many; whereas it is always moderate when our policy looks to release from foreign debt, and increase of domestic commerce. Never had this latter been more active than it was in 1864 when the treasury was drawing from the people, in the form of loans and taxes, $3,000,000 per day; and yet at no period has the current rate of interest throughout the country, north and south, east and west, been so low. Nevertheless, we are constantly called upon to admire the facility with which foreign loans may be contracted, and to rejoice in the fact that all we need for at once resuming the use of coin is a loan of two or three hundred millions, by aid of which we shall be enabled to import the coin.

Mr. Chase was a native of New England, but unhappily he had never studied the history of New England banking, nor admired, as I had done, the wonderful system that had grown so naturally and to so great a size, diffusing benefits greater than those which had ever, in any other country, resulted from arrangements for prosecution of the great money trade. Had he done so he would never have looked to England for a system that had already twice broken down, and must do so on every occasion when there arises need to try its strength. Not satisfied with the restrictions therein provided, he added others so numerous, and of such character, as to cause his banking law to become a curse the equal of which has but rarely come from Pandora's box. Born a democrat, he of course inherited a hatred of the circulating note, and therefore is it that we find him providing—first, that its payment shall be secured by deposits of $10 of bonds for $9 of notes; second, that a fourth shall be retained as security for payment of the rest; and third, that stockholders shall be personally liable to the full amount of their stock. Than this nothing could be more adverse to local investment of capital, such as had grown up in the New England States. To all this was added a taxation so severe as to absorb nearly the whole profit of circulation, thus compelling banks to look almost altogether to profits resulting from the use of deposits, precisely the state of things by means of which "inflation," with all its attendant evils, was to be produced.

The greater the difficulty attendant upon local investment the greater, necessarily, becomes the tendency toward a centralization whose results may now be thus exhibited:—

A farmer in Illinois or Missouri, having sold his crop, finds himself possessor of one, two, three, or ten thousands of dollars, for which he has no immediate use. Had he a solvent bank in his neighborhood, he would place it there to be lent out in aid of others who might wish to build new houses, or cultivate new lands. Nothing of the kind existing, he carries his money to St. Louis or Chicago, to be kept in safety subject to call at any moment that he may need it. The banker, bound to repayment at any instant, lends it to a New York bank,

14

<table><thead><tr><th></th><th>Capital.</th><th>U. S.<br>Bonds.</th><th>Net<br>Circulation.*</th><th>Deposits.</th><th>Loans.</th></tr></thead><tbody><tr><td>1866</td><td>414</td><td>447</td><td>200</td><td>533</td><td>550</td></tr><tr><td>1867</td><td>418</td><td>420</td><td>218</td><td>540</td><td>588</td></tr><tr><td>1868</td><td>420</td><td>410</td><td>220</td><td>575</td><td>655</td></tr><tr><td>1869</td><td>422</td><td>392</td><td>218</td><td>574</td><td>686</td></tr><tr><td>1870</td><td>427</td><td>381</td><td>218</td><td>542</td><td>719</td></tr><tr><td>1871</td><td>458</td><td>409</td><td>230</td><td>602</td><td>780</td></tr><tr><td>1872</td><td>470</td><td>408</td><td>250</td><td>613</td><td>871</td></tr><tr><td>1873</td><td>490</td><td>412</td><td>254</td><td>641</td><td>925</td></tr></tbody></table>

Deducting now the $33,000,000 excess of bonds over capital held in 1866, from the $200,000,000 of circulation, we have $167,000,000 as the amount of loans not based upon deposits. Deducting this from the total loans, we have $383,000,000 as the amount of *duplication* produced by bank action—the owners of that amount being always in the market, ready to use their now unemployed capital, that capital having already been transferred to other parties who are as anxious to make it productive as they themselves by any possibility can be.

Pursuing now the same course with the following years, we obtain the general result here exhibited :—

<table><thead><tr><th></th><th>Loans of deposits.</th><th>Currency created.</th></tr></thead><tbody><tr><td>1866</td><td>$383,000,000</td><td>$766,000,000</td></tr><tr><td>1867</td><td>372,000,000</td><td>744,000,000</td></tr><tr><td>1868</td><td>425,000,000</td><td>850,000,000</td></tr><tr><td>1869</td><td>438,000,000</td><td>876,000,000</td></tr><tr><td>1870</td><td>455,000,000</td><td>910,000,000</td></tr><tr><td>1871</td><td>501,000,000</td><td>1,002,000,000</td></tr><tr><td>1872</td><td>559,000,000</td><td>1,118,000,000</td></tr><tr><td>1873</td><td>594,000,000</td><td>1,188,000,000</td></tr></tbody></table>

We have here, by means of this simple operation, a creation of currency exceeding, in 1873, that of 1866 by no less than $422,000,000; yet do these figures represent but a part of the "inflation" thus produced. No small portion of these deposits is represented by more than two persons, and at times by not less than four. Further, the amount placed in the hands of private bankers, to be subjected to the same manipulation, had become, in September last, so large that it is believed to be quite safe to carry the amount, at that date, up to $1,300,000,000, being an increase of more than $500,000,000 from the date of the publication of Secretary McCulloch's ridiculous and destructive proclamation of contraction as the policy of the Government.

The crisis thus brought about has now endured throughout an entire year, and if the patent processes for obtaining resumption of specie payments could have accomplished anything in that direction, we should certainly be now in possession of some little evidence thereof. Directly the reverse, however, statements now given to the world in the *Public Ledger* show that the loans and discounts of June last had been slightly in excess of those of October, 1873, the deposits meanwhile having fallen but $20,000,000. To what extent the private strong box has been since employed we are not informed, but

* Three-fourths of the gross circulation.

15

it is quite safe to say that it has absorbed more than has disappeared
from banks.

The great fact now presents itself for consideration that after a nine
years' war upon the circulation it remains almost unchanged—the
"inflation" resulting from an use by banks of the unemployed capital
of customers meanwhile having increased fully $500,000,000. Such
having been the case, it becomes, as it seems to me, clearly obvious
that if we would return to the use of the precious metals we must
attack "inflation" where it exists, and not seek to attack it where it
has no existence whatsoever.

The New England system, before the war, tended to facilitate the
local employment of capital, and to compel banks to look for profits
to the employment of their own means, and to a circulation greatly
limited by the competition of numerous institutions desirous of fur-
nishing such machinery of exchange.

The Chase system tended, as it must always tend, to prevent the
local employment of capital, and to compel banks to look for profits
to the employment of the capital of others placed in their hands; the
profits of circulation to be handed over to the Treasury as compensa-
tion for the use of one of the worst monopolies of which we have had
any knowledge whatsoever.

The cause of evil having thus been ascertained, we may now readily
perceive that it is needed to adopt measures which shall have the
effect of undoing all the mischief achieved throughout the past nine
years, thus bringing us slowly and gently to the point at which we
had stood when the Fort Wayne decree was fulminated, and when
faith in the future was so greatly lessened as to have at once dimin-
ished by hundreds of millions of dollars the productive power of the
nation.

To that end we need to adopt the plan suggested some three years
since by Mr. Greeley in the *Tribune*, and since brought forward in
the House of Representatives by my friend Judge Kelley, to wit, the
creation of a 3-65 bond interchangeable with greenbacks, this power
of exchange being accepted by the holder as compensation for the
difference between a gold bond bearing 5 per cent. interest, and a
currency bond at much lower rate.

Mr. Greeley's admirable article is here below given. Had the
policy it advocated been, with slight modification, at once adopted, it
would have saved to the country thousands of millions of dollars'
worth of labor that has since been wasted; and we should long since
have been relieved of the mortification of knowing that Treasury
agents were daily and hourly knocking at the doors of foreign
bankers, seeking the aid that could so readily have been had at home.

## "HOW TO REDUCE THE INTEREST ON THE NATIONAL DEBT."

"Mr. Boutwell's plan of funding the national debt has had a pretty fair trial. True, the times have been adverse, but we have generally found them so when we needed to borrow money.

"I shall emphasize the truth of the last proposition when I reach the end of the article.

Loans.
550
588
655
686
719
780
871
925

ital held
7,000,000
ing this
of dupli-
t being
capital,
who are
/ possi-


obtain

ated.
00
00
00
00
00
00
00
00

of cur-
000 000;
hus pro-
by more
rther, the
ted to the
t that it is
ate, up to
0,000 from
culous and
the Govern-

hout an en-
sumption of
at direction
tle evidence
given to the
unts of June
73, the depo-
at extent the
informed, but

16

"The sum and substance of the Secretary's success is the funding of $200,000,000 at 5 per cent. on the payment of a bonus of 1½ per cent. to the 'syndicate' of foreign bankers who have agreed to take the loan. We would not disparage this achievement, for we regard it as decidedly better than nothing. Add to the interest ($3,000,000) $1,000,000 more for the aggregate cost of printing the new bonds, advertising, explaining and commending the loan, and the entire cost of funding the $200,000,000 at 5 per cent. for ten years is $4,000,000. It seems to us that this does not justify a hope that our $1,500,000,000 of instantly or presently redeemable sixes can be promptly funded even at 5 per cent.

"Having given to the Secretary's efforts a hearty support throughout, we urge that a radically different plan may next have as fair a trial. Before we send another bond abroad to be hawked from banking house to banking house throughout Europe, we ask the Government to try—just earnestly to try—to fund the bulk of our debt at home. We could not have sold our bonds during the dark hours of our civil war to Europe at any price, no matter how ruinous, if we had not first shown our faith in them by taking hundreds of millions of them ourselves. So now, having seen how reluctantly they take our reissues at 5 per cent., with a discount, let us show them that we stand ready to take a larger amount at a lower rate of interest at par. Here is the gist of our proposition.

"Let Congress make our greenbacks fundable, at the pleasure of the holder, in bonds of $100, $1000, and $10,000, drawing interest at the rate of one cent per day on each $100 (or 3.65 per annum), and exchangeable into greenbacks at the pleasure of the holder. Now authorize the Treasury to purchase and extinguish our outstanding bonds so fast as it is supplied with the means of so doing by receipts for customs or otherwise, and to issue new greenbacks whenever larger amounts shall be required, every one being fundable in sums of $100, $1000, or $10,000, as aforesaid, at the pleasure of the holder, in bonds drawing an annual interest of 3.65 in coin* per annum, and these bonds exchangeable into greenbacks whenever a holder shall desire it.

"The benefits of this system would be these:—

"1. Our greenbacks, which are now virtual falsehoods, would be truths. The Government would pay them on demand in bonds as aforesaid, which is in substantial accordance with the plan on which the greenbacks were first authorized.

"2. Every person having greenbacks for which he had no present need would present them at some sub-treasury and exchange them at par for these bonds. Suppose he has $10,000 which he expects to use a month hence, he can make them earn him $30 meantime, without incurring the smallest danger of loss by bank failure or otherwise, and with a positive certainty that the money would be ready for him whenever he chose to take it.

"3. A merchant leaves New York with $1,000,000 which he proposes to invest in wheat at the West or in cotton at the South. He calls at our sub-treasury, exchanges his greenbacks for these bonds, and takes or sends these to Chicago, Saint Paul, New Orleans, or Galveston, to be used when needed. After looking about for a month, he buys half the produce he originally intended, converts half his bonds into greenbacks, receives $50 per day, or $1500 in all, as interest, and makes his payments. After travelling and looking for another month, he invests the remainder of his capital, receives $3000 as interest thereon for the two months he has held the last half million of bonds, and lays his course homeward. His bonds may have lain nearly all the time he owned them in the vaults of some bank; but they were earning money, not for that bank, but for him.

"4. Our greenbacks, no longer false, but convertible at pleasure into bonds bearing a moderate gold interest, and exchangeable as aforesaid, could not fail to appreciate steadily until they nearly reached the level of gold. Indeed, they would, unless issued too profusely, be really better than gold. Drawing a higher rate of interest than British consols, and convertible at pleasure, as these are not, they would in time obtain currency even in the Old World.

"5. The trouble so inveterately borrowed by thousands with respect to 'overissues,' 'redundant currency,' etc., would (or at least should) be hereby dispelled. If there were at any time an excess of currency it would tend to precipitate itself into the bonds aforesaid. If there should ever be a scarcity of currency, bonds would be exchanged at the Treasury for greenbacks till the want was fully supplied. Black

* Mr. G. here overlooked the fact that the real obstacle in the way of resumption was to be found in bank deposits and not in circulating notes.

17

Fridays and the locking up of greenbacks would soon be numbered with lost arts and hobgoblin terrors.

"6. Though the demand for these bonds might for months be moderate, their convenience and manifest utility would soon diffuse their popularity and stimulate an ever widening demand for them. They would be a favorite investment with guardians and trustees who should expect to be required to pay over the funds held by them at an early day, whether fixed or uncertain. They would say, 'Though I might invest or deposit these funds where they would command a higher interest, I choose to place them where I know they will be safe and at hand when called for.'

"7. Ultimately, we believe, they would become so popular that hundreds of millions of them would be absorbed at or very near the par of specie, and that with the proceeds an equal amount of our outstanding sixes might be redeemed and cancelled, without advertising for loans or paying bankers to shin for us throughout Europe. The interest thus saved to our country would be an important item.

"Such are the rude outlines of a plan we did not originate, but which we heartily endorse. Why not give it a trial? We should dearly like to inform Europe that, since she seems not to want any more of our bonds at 5 per cent., we have concluded to take the balance ourselves at 3%."

Why not, Mr. Secretary, give it a trial? Earnestly hoping, that, so far as it may rest with you, such trial may be granted, I remain,
Yours, very respectfully,

HENRY C. CAREY.

PHILADELPHIA, Sept. 16, 1874.

LETTER FIFTH.

SIR: The creation of convertible bonds would at once accomplish the object of anti-inflationists by diminishing deposits and lessening the power of banks over the property of their customers. The money thus transferred to Treasury vaults would, however, be restored to the circulation so soon as the Secretary could be enabled to effect purchases of outstanding gold bonds, the banks assisting in this direction by exchanging gold bonds for currency bonds and adding to the capital at their command, for loans to individuals, the fifty or sixty millions locked up in the premium upon those now held. Meanwhile, every purchaser of the new bonds would find himself in possession of an instrument by means of which he could make purchases as readily as if he held the same amount of greenbacks, but in this—for the simple reason that he was using his own money in Iowa, Illinois, or Virginia, instead of allowing it to be used first in Chicago or St. Louis, then by a New York bank, and finally by a Wall Street broker—there would be found no tendency to "inflation."

With every step in this direction existing banks, desirous of maintaining their business at its present amount, would find it necessary to increase their capitals, thus enlarging the base while lessening the elevation, and giving to the whole edifice that stability which has been so conspicuously exhibited in New England banks. With each such step, the West and South would be gathering together the capitals needed for creating banks at home, thus freeing themselves from the existing necessity for calling on the East and North for aid

2

The $200,000,000 'e' of foreign this achieve-the interest bonds, advertising the $200,000. This does not dole sixes can

be urge that I and another out Europe, our debt at civil war to our faith in seen how show them par. Here

holder, in per day on pleasure of outstanding customs or required, id, at the * per an- all desire

The Gov-ontial
present
pose he
aim $30
erwise,
ever he
invest in
changes
ul, New
month,
o green-
yments.
ouis capi-
last half
n nearly
earning
bearing
preciate
, unless
interest
in time

* over-
spelled.
self into
would be
Black

Amption

18

in "moving the crops." With each, the public debt would become more and more a currency one, incapable of exportation, gradually lessening that gold debt whose manufacture for exportation has constituted the essential portion of the business of our Finance Ministers since the day on which Secretary McCulloch, by means of his urgent application for power to issue bonds whose interest should be payable abroad, proved himself so thorough an ally of foreign bankers. From that disgrace, happily, we thus far have been saved. From the existing disgrace of a national debt held abroad, by means of which we are brought so nearly to a level with Turkey and with Spain, we may soon be extricated, the Treasury, at the close of another decade, finding itself restored to the grand position in which it had stood throughout the war, dependent on our own people, and on them alone, for all the means required for carrying on a war which had made demands for its support greater than any the world had thus far ever known.

Substituting 3.65 currency bonds for 5 per cent. gold bonds, the Treasury could well afford to dispense with the collection of all those bank taxes which so largely tend to limit the banking business throughout the South and West to those miserable shaving shops which so much contribute toward "inflation" by paying large interest on deposits and then doubling that rate in all their dealings with the unfortunates who find themselves compelled to look to them for aid.

What, however, would be the effect of this upon the gold premium? Would it tend to its diminution or to its increase? Before answering this question, I beg of you, Mr. Secretary, to look with me at the fact, that France in her recent need issued thousands of millions of francs of irredeemable paper, which circulated side by side with gold, at first at a discount of 2½ per cent., then at 1½ to 1, and finally at par. Why was this? Because France was a country in whose favor there was always a balance of trade causing a perpetual influx of the precious metals. Had France four years since had a great foreign debt hanging around her neck, she would have proved almost as feeble as Turkey, or as Spain, burthened as are both of these with just such debts as we are asked to create in the hope of being thus enabled to return to specie payments.

Turn next to Great Britain and see her banks so far overtrading as to make dividends of 15, 20, and 30 per cent.—twice or thrice greater than those which ours, under our monopoly system, are enabled to make. The currency they supply is just as irredeemable as the greenback, but none ask for its redemption for the reason that the balance of trade is favorable, causing a perpetual influx of the precious metals. At times, when "inflation" has been carried to an unreasonable extent, the balance of trade has become unfavorable, and then, as in 1847, 1857, and 1866, down have gone banks, bankers, and manufacturers, producing a necessity for violation of its charter on the part of the great bank itself.*

* The *Investor's Monthly Manual*, appendix to *London Economist* of Oct. 26, 1872, gives a table of dividends for 1871 and 1872, of 117 banking companies in the United

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What is true of France and England, is true of these United States. If we would come again to the use of the precious metals—if we would have legal tenders and gold interchangeable at par with each other, as is the case in France at the present moment—we must have the balance of trade in our favor, enabling us to retain the metals that are mined. To that end we need the confidence that would be inspired among all our people by the adoption of Mr. Greeley's measure. To that end we need to understand that "inflation," enriching as it does the few while impoverishing the many to the extent of hundreds of millions, is the real cause of that absenteeism which is now costing the nation more than a million of dollars per week; and of that indulgence in the most expensive products of Europe which is now creating an annual adverse balance of trade that counts almost by hundreds of millions. Until this shall be done it will be wholly useless to talk of resumption as a thing to be accomplished within the present century.

We need that our factories and furnaces be once again set in motion. We need that a larger market on the land be created on the land itself. We need that our half-made roads be completed. We need to understand that the domestic commerce constitutes the base on which the foreign commerce rests, and that every step in the direction of development of the former tends toward increase of the latter. All these things would be accomplished by means of the adoption of the very simple measure above suggested, bringing to a close that ruinous "inflation" which has resulted from the adoption of Mr. Chase's monopoly banking system.

That system, Mr. Secretary, has now been ten years on trial, and with what results? Seeking a reply to this question, let me beg you first to look at closed mills, furnaces, factories, and workshops, whose numbers increase from day to day, and then to the hundreds of thousands of poor men and women who need to work that they may live, but who now can find no demand for the labor they seek to sell. Look next to the fact, that the food which these poor people would otherwise purchase must now be forced on foreign markets, with decline of price, to the great injury of the farming interest. Look then to the great diminution in the domestic consumption of cotton at a time when a large crop is pressing on the market, with steady decline of price, to the loss of the planting interest. Look further to the unemployed shipping everywhere so much abounding at a time when enthusiastic men are dreaming of regaining our old position in the trading world. Look to the fact, that immigration will this year be diminished fully one half; tens of thousands of valuable men of previous importation also returning home to seek

Kingdom of England, Ireland, and Scotland. The rates vary from 3 to 36 per cent. per annum, including bonus. One only of them declares a semi-annual dividend of 18 per cent.; sixteen declare annual dividends of 20 per cent.; six of 18 per cent.; three of 16 per cent.; ten of 14 per cent.; seventeen of 12 per cent.; twenty-one of 10 per cent.; and so on down, without counting fractions. The reserved surplus of these institutions is not stated.

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the employment that is here denied them, the loss to the country in
this direction alone being not less than $250,000,000.* Look where
you may, Mr. Secretary, you will find paralysis at home and discredit
abroad, European markets being filled with dishonored bonds, by far
the larger portion of which would never have seen the light but for
the "inflation" which has resulted from the adoption of a destruc-
tive money monopoly system.

The picture is a sad one—one but little calculated to afford satisfaction to those of your predecessors to whose management of the Treasury its existence has been so greatly due. That the one which shall be presented when you, Mr. Secretary, shall retire from office, may be widely different in each and all of its parts, and may be such as shall call from the entire nation the shout of "Well done thou good and faithful servant!" is the earnest hope of

Yours, very respectfully,

HENRY C. CAREY.

HON. MR. BRISTOW.

PHILADELPHIA, Sept. 16, 1874.

* "For several months the foreign steamship companies having agencies in this city have manifested anxiety at the serious diminution in their business. In regard to steerage traffic, one of the chief sources of profit to the steamship companies, the present year has been one of the worst ever known. There have been, to be sure, more outward bound steerage passengers than before, but they have carried discouraging tidings of the condition of affairs in this country, and have thus prevented large numbers of their countrymen from leaving their own shores. Steamships which a year ago were bringing from 1000 to 1500 in the steerage, this season seldom land more than 500 on the Castle Garden wharf. The diminution in number of passengers is not all. On account of the strong competition between the rival lines rates which a year ago were $30 and upwards have this season been only $15, and sometimes even less. The German lines which held aloof nearly all summer from the controversy, and declined to reduce the prices of their tickets, were at length obliged to succumb almost at the very moment the English companies were once more on advancing rates. The present season has not been notable for its record of cabin passengers. Pleasure seekers and business men have been few, and only the cabins of the best and most popular steamers have been crowded.

"Meanwhile freights have also been diminishing in quantity, and shippers have everywhere manifested a strong desire to economize. Rates have consequently fallen and shipments are smaller than they were a year ago. This condition of affairs has naturally caused alarm among the companies having immense interests at stake. Some which have formerly sent out two steamships weekly throughout the summer have this year dispatched only one, and the frequent extra steamers of other years have this season been almost unknown.

"The effects of this stagnation in business have been felt to greater or less degree by all the companies, but some of the German lines are the greatest sufferers. Both the Hamburg and Bremen lines have withdrawn several of their steamers. The most serious disaster, however, is that which has visited the Baltic Lloyd Steamship Company, whose vessels ply between this port and Stettin, touching at Copenhagen. With this Company business is now wholly at a standstill, and their steamers are lying idle in Stettin."—N. Y. Tribune.