cided against paper issues. Government bonds, however, did not sell, and the attempt of the banks toward the end of 1861 to carry $150,000,000 of bonds brought on a suspension of specie payments, December 31, 1861. Without any taxation policy, the country drifted along, until in a spasm of dread at seeing an empty Treasury, Congress passed the legal-tender act (February 25, 1862), issuing $150,000,000 of paper in the form of promises to pay. A committee of bankers showed that the issue could have been avoided by selling bonds at their market price; but Congress would not sell them below par. No necessity for the issues of paper need have arrived. four months another issue of $150,000,000 was authorized (July 11, 1862); and a third issue of a like amount (March 3, 1863), in all $450,000,000. The depreciation took place (see Chart No. XII), for, as Secretary Chase anticipated, no provision was made for redemption. They were made legal tender, but this "essential idea" did not preserve their value; nor did the provision that they be received for taxes (except customs), avail for this purpose.

In

The effects of the depreciation were as evil as can well be imagined. (1) The expenses of the Government were increased by the rise in prices, so that (2) our national debt became hundreds of millions larger than it need have been; (3) a vicious speculation in gold began, leading to the unsettling of legitimate trade and to greater variations in prices; (4) the existence of depreciated paper later gave rise to all the dishonest schemes for paying the coin obligations of the United States, in cheap issues, to the ruin of its credit and honor; and (5) it has practically become a settled part of our circulation, and a possible source of danger.

Of the whole $450,000,000, $50,000,000 were set aside as a reserve for temporary deposits; but in July, 1864, $431,000,000 were in circulation. At this time (June 30, 1864) Congress, retaining distinctly the feeling that the issue of paper was but a temporary measure, forbade any further issues. Secretary McCulloch, immediately on the close of the war, began to contract, and, by a resolution of the lower branch in Congress (December 18, 1865), a cordial concurrence in the measures for contraction was manifested. Of course, the return from the path of inflated credit and high prices was painful, and Congress began to feel the pressure of its constituents. Had they not yielded, much of the severity of the crisis of 1873 might have been avoided; but (April 12, 1866) they forbade any greater contraction than $4,000,000 a month. Here was a lack of courage not foreseen by Secretary Chase. This was again shown (February 4, 1868) by a law which absolutely forbade the Secretary to further reduce the currency, which now stood

at $356,000,000. This marks an important change in the attitude of the Government, as compared with 1862. After the panic of 1873, the paper evil produced its usual effect in the cry for more money, and, as in the Province of Massachusetts in 1712, parties divided on the question of inflation or contraction. A bill to expand the Government issues to $400,000,000 (and the national-bank notes also to $400,000,000) actually passed both Houses of Congress, and we were fortunately saved from it only by the veto of President Grant (April 22, 1874). This was another landmark in the history of our paper money. Secretary Richardson, however, had already, without authority, reissued $26,000,000 of the $44,000,000 withdrawn by Secretary McCulloch, and the amount outstanding was thus $382,000,000. A compromise measure was passed (June 20, 1874), which retained this amount in the circulation.

When the resumption act was passed (January 14, 1875), the provision that, for every $100 of new national-bank notes issued, $80 of United States notes should be retired, resulted in a contraction of the latter from $382,000,000 to $346,000,000. The reason of this was, that there was no provision for the increase of United States notes when national banks withdrew their own issues; and after the crisis many banks naturally did

So.

The culmination of the policy of Congress came in a law (May 31, 1878) which absolutely forbade all further retirement of United States notes, and we are now left at the present time with an inelastic limit of $346,000,000. Finally, in 1877 and 1878, Secretary Sherman, aided by a most fortunate state of foreign trade, began to accumulate gold in order to carry out the provisions of the resumption act, which required him to resume specie payments on January 1, 1879. He successfully collected $133,000,000 of gold, and on December 17, 1878, the premium on gold disappeared, and resumption was accomplished quietly on the day appointed, without a jar to business.

But it is a significant fact that even after all the evils inflicted on our country by over-issues, in spite of the temptation to misuse paper money if it is in any way permitted, in spite of all the warnings of history, there seems to be a dangerous acquiescence in the presence of government paper money in our currency. It is an open pitfall, tempting to evils whenever sudden emergencies arise. It ought not to be allowed to remain any longer.

§ 5. Another of the fallacies from which the advocates of an inconvertible currency derive support is the notion that an increase of the currency quickens industry. Mr. Attwood maintained that a rise of prices produced by an in

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crease of paper currency stimulates every producer to his utmost exertions, and brings all the capital and labor of the country into complete employment; and that this has invariably happened in all periods of rising prices, when the rise was on a sufficiently great scale. I presume, however, that the inducement which, according to Mr. Attwood, excited this unusual ardor in all persons engaged in production must have been the expectation of getting more of commodities generally, more real wealth, in exchange for the produce of their labor, and not merely more pieces of paper. This expectation, however, must have been, by the very terms of the supposition, disappointed, since, all prices being supposed to rise equally, no one was really better paid for his goods. than before. It calculates on finding the whole world persisting forever in the belief that more pieces of paper are more riches, and never discovering that, with all their paper, they can not buy more of anything than they could before. At the periods which Mr. Attwood mistook for times of prosperity, and which were simply (as all periods of high prices, under a convertible currency, must be) times of speculation, the speculators did not think they were growing rich because the high prices would last, but because they would not last, and because whoever contrived to realize while they did last would find himself, after the recoil, in possession of a greater number of [dollars], without their having become of less value.

Hume's version of the doctrine differed in a slight degree from Mr. Attwood's. He thought that all commodities would not rise in price simultaneously, and that some persons therefore would obtain a real gain, by getting more money for what they had to sell, while the things which they wished to buy might not yet have risen. And those who would reap this gain would always be (he seems to think) the first comers. It seems obvious, however, that, for every person who thus gains more than usual, there is necessarily some other person who gains less. The loser, if things took place as Hume supposes, would be the seller of the commodities

which are slowest to rise; who, by the supposition, parts with his goods at the old prices, to purchasers who have already benefited by the new. This seller has obtained for his commodity only the accustomed quantity of money, while there are already some things of which that money will no longer purchase as much as before. If, therefore, he knows what is going on, he will raise his price, and then the buyer will not have the gain, which is supposed to stimulate his industry. But if, on the contrary, the seller does not know the state of the case, and only discovers it when he finds, in laying his money out, that it does not go so far, he then obtains less than the ordinary remuneration for his labor and capital; and, if the other dealer's industry is encouraged, it should seem that his must, from the opposite cause, be impaired.

An issue of notes is a manifest gain to the issuers, who, until the notes are returned for payment, obtain the use of them as if they were a real capital; and, so long as the notes are no permanent addition to the currency, but merely supersede gold or silver to the same amount, the gain of the issuer is a loss to no one; it is obtained by saving to the community the expense of the more costly material. But, if there is no gold or silver to be superseded-if the notes are added to the currency, instead of being substituted for the metallic part of it-all holders of currency lose, by the depreciation of its value, the exact equivalent of what the issuer gains. A tax is virtually levied on them for his benefit.

But besides the benefit reaped by the issuers, or by others through them, at the expense of the public generally, there is another unjust gain obtained by a larger class—namely, by those who are under fixed pecuniary obligations. All such persons are freed, by a depreciation of the currency, from a portion of the burden of their debts or other engagements; in other words, part of the property of their creditors is gratuitously transferred to them. On a superficial view it may be imagined that this is an advantage to industry; since the productive classes are great borrowers, and generally owe