“I have not been ambitious to add another to the many financial plans proposed to this Congress, much less have I sought to introduce a new and untried scheme. On the contrary, I regard it a strong commendation of this measure, that it is substantially the same as that by which Great Britain resumed specie payments, after a suspension of nearly a quarter of a century.
“The situation of England at that time was strikingly similar to our present situation. She had just emerged from a great war in which her resources had been taxed to the utmost. Business had been expanded, and high prices prevailed. Paper money had been issued in unusual volume, was virtually a legal-tender, and had depreciated to the extentof twenty-five per cent. Every financial evil from which we now suffer prevailed there, and was aggravated by having been longer in operation. Plans and theories without end were proposed to meet the many difficulties of the case. For ten years the Bank of England and the majority in Parliament vehemently denied that paper money had depreciated, notwithstanding the unanswerable report of the Bullion Committee of 1810, and the undeniable fact that it took twenty-five per cent. more of notes than of coin to buy an ounce of gold.
“Many insisted that paper was a better standard of value than coin. Some denounced the attempt to return to specie as unwise, others as impossible. William Cobbett, the famous pamphleteer, announced that he would give himself up to be broiled on a gridiron whenever the bank should resume cash payments; and for many years kept the picture of a gridiron at the head of hisPolitical Register, to remind his readers of his prophecy. Every phase of the question was discussed by the best minds of the kingdom, in and out of Parliament, for more than ten years; and in May, 1819, under the lead of Robert Peel, a law was passed fixing the time and mode of resumption.
“It provided that on the 1st of February, 1820, the bank should give, in exchange for its notes, gold bullion in quantities not less than sixty ounces, at the rate of 81s. per ounce; that, from the 1st of October, 1820, the rates should be 79s. 6d.; from the 1st of May, 1822, 79s. 10½d.; and on the 1st of May, 1823, the bank should redeem all its notes in coin, whatever the amount presented. The passage of the act gave once more a fixed and certain value to money; and business so soon adjusted itself to the measure in anticipation, that specie payments were fully resumed on the 1st of May, 1821, two years before the time fixed by the law. Forty-seven years have elapsed since then, and the verdict of history has approved the wisdom of the act, notwithstanding the clamor and outcry which at first assailed it. So plainly does this lesson apply to us, that in the preface to one of the best histories of England, recently published, the author, who is an earnest friend of the United States, says:
“‘It seems to me that no thoughtful citizen of any nation can read the story of the years before and after Peel’s bill of 1819, extending over the crash of 1825–’26, without the strongest desire that such risks and calamities may be avoided in his own country at any sacrifice. There are several countries under the doom of retribution for the license of an inconvertible paper currency, and of these the United States are unhappilyone. This passage of English history may possibly help to check the levity with which the inevitable ‘crash’ is spoken of by some, who little dream what the horrors and griefs of such a convulsion are. It may do more if it should show any considerable number of observers that the affairs of the economic world are as truly and certainly under the control of natural laws as the world of matter without and that of mind within.’”
This speech is remarkable. It is wonderful. Had that resumption bill become a law, it is possible and probable that the panic of 1873, and the long years of distress might have been, if not avoided, at least greatly shortened and alleviated. The argument never was and never could be improved upon by any one. In the light of history that speech was a prophecy. Congress procrastinated a return to specie payment. Finally the crash came, as he had foretold. Garfield once said, “After the battle of arms comes the battle of history.” In writing a historical estimate of the leaders of the epoch which closed with the consummation of specie payments, the critical historian would rightly claim that this speech of General Garfield, in the spring of 1868,five and a-half years before the panic, must take rank as a triumph of statesmanship above every argument, no matter how able or eloquent,made after the panic. In this speech Garfield showed his conservatism again in favoring the continuation of greenbacks in circulation, the very thing which was done over the bitter opposition of resumptionists seven years before.
In the earlier part of the speech he showed the necessity of an adjustable volume of currency. With specie this was easy. With paper currency the volume could be made adjustable through banks. They were the institutions to ease us through the straits to resumption. Their mission was more fully elaborated in a speech of June 7, 1870. The West and South having an insufficient number of banks, and, consequently, lacking the currency of checks, drafts, etc., were suffering. To meet this, he presented a bill redistributing the banks. His views are what most concern us.
CURRENCY AND THE BANKS.
“I wish first to state a few general propositions touching the subjects of trade and its instruments. A few simple principles form the foundation on which rests the whole superstructure of money, currency, and trade. They may be thus briefly stated:
“First.Money, which is a universal measure of value and a medium of exchange, must not be confounded with credit currency in any of its forms. Nothing is really money which does not of itself possess the full amount of the value which it professes on its face to possess. Length can only be measured by a standard which in itself possesses length. Weight can only be measured by a standard, defined and recognized, which in itself possesses weight. So, also, value can only be measured by that which in itself possesses a definite and known value. The precious metals, coined and stamped, form the money of the world, because when thrown into the melting-pot and cast into bars they will sell in the market as metal for the same amount that they will pass for in the market as coined money. The coining and stamping are but a certification by the government of the quantity and fineness of the metal stamped. The coining certifies to the value, but neither creates it nor adds to it.
“Second.Paper currency, when convertible at the will of the holder into coin, though not in itself money, is a title to the amount of money promised on its face; and so long as there is perfect confidence that it is a good title for its whole amount, it can be used as money in the payment of debts. Being lighter and more easily carried, it is for many purposes more convenient than money, and has become an indispensable substitute for money throughout all civilized countries. One quality which it must possess, and without which it loses its title to be called money, is that the promise written on its face must be good and be kept good. The declaration on its face must be the truth, the whole truth, and nothing but the truth. If the promise has no value, the note itself is worthless. If the promise affords any opportunity for doubt, uncertainty, or delay, the note represents a vague uncertainty, and is measured only by remaining faith in the final redemption of the promise.
“Third.Certificates of credit under whatever form, are among the most efficient instruments of trade. The most common form of these certificates is that of a check or draft. The bank is the institution through which the check becomes so powerful an instrument of exchange. Thecheck is comparatively a modern invention, whose functions and importance are not yet fully recognized. It may represent a deposit of coin or of paper currency, convertible or inconvertible; or may, as is more frequently the case, represent merely a credit, secured by property in some form, but not by money. The check is not money; yet, for the time being, it performs all the functions of money in the payment of debts. No greater mistake can be made than to suppose that the effective value of currency is not directly increased by the whole amount of checks in circulation.
“I would not for a moment lose sight of the great first necessity of all exchanges, that they be measured by real money, the recognized money of the world; nor of that other necessity next in importance, that bank notes or treasury notes should represent real money; should be of uniform value throughout the country, and should be sufficient in amount to effect all those exchanges in which paper money is actually used. I would keep constantly in view both these important factors. But that is a superficial and incomplete plan of legislation which does not include, in its provisions for the safe and prompt transaction of business, those facilities which modern civilization has devised, and which have so largely superseded the use of both coin and paper money.
“The bank has become the indispensable agent and instrument of trade throughout the civilized world, and not less in specie paying countries than in countries cursed by an inconvertible paper currency. Besides its function of issuing circulating notes, it serves as a clearing-house for the transactions of its customers. It brings the buyer and seller together, and enables them to complete their exchanges. It brings debtors and creditors together, and enables them to adjust their accounts. It collects the thousand little hoards of unemployed money, and through loans and discounts converts them into active capital. It is a reservoir which collects in amounts available for use, the rain-drops which would otherwise be lost by dispersion.
“I find there are still those who deny the doctrine that bank deposits form an effective addition to the circulation. But let us see. A bank is established at a point thirty or forty miles distant from any other bank. Every man within that circle has been accustomed is keep in his pocket or safe a considerable sum of money during the year. That average amount is virtually withdrawn from circulation, and for the time being is canceled, is dead. After a new bank is established, a large portionof that average amount is deposited with the bank, and a smaller amount is carried in their safes and pockets. These accumulated deposits placed in the bank, at once constitute a fund which can be loaned to those who need credit. At least four-fifths of the average amount of deposits can be loaned out, thus converting dead capital into active circulation.
“But the word deposits covers far more than the sums of actual money placed in the bank by depositors. McLeod, in his great work on banking, says: ‘Credits standing in bankers’ books, from whatever source, are called deposits. Hence a deposit in banking language always means a credit in a banker’s books in exchange for money or securities for money,’—Vol. ii, p. 267.
“Much the largest proportion of all bank deposits are of this class—mere credits on the books of the bank. Outside the bank, these deposits are represented by checks and drafts. Inside the bank, they effect settlements, and make thousands of payments by mere transfer from one man’s account to that of another. This checking and counter-checking and transferring of credit, amounts to a sum vastly greater than all the deposits. No stronger illustration of the practical use of deposits can be found than in the curious fact, that all the heavy payments made by the merchants and dealers in the city of Amsterdam for half a century, were made through a supposed deposit which had entirely disappeared some fifty years before its removal was detected. Who does not know that the six hundred millions of dollars of deposits reported every quarter as a part of the liabilities of the national banks, are mainly credits which the banks have given to business men?
“No currency can meet the wants of this country unless it is founded directly upon the demands of business, and not upon the caprice, the ignorance, the political selfishness, of any party in power.
“What regulates now the loans and discounts and credits of our National banks? The business of the country. The amount increases or decreases, or remains stationary, as business is fluctuating or steady. This is a natural form of exchange, based upon the business of the country and regarded by its changes. And when that happy day arrives, when the whole volume of our currency is redeemable in gold at the will of the holder, and recognized by all nations as equal to money, then the whole business of banking, the whole volume of currency, the whole amount of credits, whether in the form of checks, drafts, or bills, will be regulated by the same general law—the business of the country.”
At last, Congress came up to the position taken by Garfield in 1868. In 1875, the Resumption Act was passed, providing that, after January 1, 1879, the United States Treasury would offer one dollar in gold for every dollar in greenbacks presented for redemption. That this law was ten years too late can not be doubted. The delay prolonged the agony. But it was all that popular opinion would allow. In the interim between 1875 and 1879, every effort was made by the paper-money men to repeal the act. Of General Garfield’s speeches in its defense, we select that of November 16, 1877, as the type. The reader shall see whether he had changed his views, whether the panic and hard times had disconcerted his calculations? Let James A. Garfield speak for himself: