RESUMPTION OF SPECIE PAYMENTS IN THE UNITED STATES.
IT is not surprising that the leaders of the Republican party in the United States should have resolved to pass, during the present Session of Congress, some kind of measure for the resumption of Specie Payments. Apart altogether from the condemnation on their recent policy passed at the late elec- tions, they have a strong motive for doing so. It was when the early efforts of the North to put down Secession had disastrously failed, when the Federal leaders awoke to a per- ception of the full magnitude of the task they had undertaken, and when the late Mr. Chase was at his wits' end to find the means for carrying on the great operations resolved upon, that the party was compelled to issue an inconvertible paper cur- rency, and to make it legal tender in all transactions except the payment of interest on the public Debt and the payment of Customs duties. As long as that currency remains in circula- tion, the war operations can hardly be said to have been brought to an end. But the late elections have returned a Congress in which the Democrats command a majority in the House of Representatives, and in 1876 it is at least possible that the Republicans may see them- selves altogether driven from power. Now is the time, consequently, to provide for resumption, unless they would leave to their rivals the opportunity to boast that, though the Republicans had governed the Union for a dozen years after the close of the Civil War, they had neither credit nor financial skill enough to return to specie payments, and it had devolved upon those who had vainly striven to preveat the mismanage- ment of the war to redress its evil financial results. But, un- fortunately, an inconvertible paper currency almost always perverts the judgment of a large portion of those who have grown accustomed to it. It was so here in England at the beginning of this century, and it is so in the United States at present. A majority of the existing Congress is more than satisfied with the "greenbacks," as was proved last Session by the passing of an inflation measure ; and the consent of this majority to a Bill for the resumption of specie payments could, of course, be obtained only by agreeing to compromises which go far to render worthless the concessions made. How- ever, concessions were made, in principle, at least. A Bill was prepared by the Senate Finance Committee, and was passed before Christmas by the Senate ; and on the seventh of the present month the same Bill was passed without amendments by the House. And yesterday we learned by telegraph that it had received the President's signature. The measure con- sequently has become law.
The President suggests further legislation to make the Act effectual. It is not difficult to show the necessity for such a course. The Act consists of only three sections, the second of which is entirely unimportant. The first directs the Secretary of the Treasury to coin as quickly as practicable silver ten, twenty- five, and fifty-cent. pieces, and to withdraw the fractional paper currency. It has for some time been a pet theory of the American Treasury that the easiest way to begin resump- tion is by the issue of silver coins. The theory has certain points in its favour. It was the course adopted successfully by the Bank of France last year, and the management of the Bank of France is so admirable that any precedent set by it is deserving of respect. Furthermore, silver is falling in value, as compared with gold, and is, therefore, not so likely to be exported. And lastly, the fractional currency amounts to no more than £10,000,000 sterling, while the integral currency amounts to £72,400,000. It is consequently a more manage- able quantity. But when the Bank of France withdrew its small notes, and issued 5-franc pieces, the notes were at par, and were actually preferred by the public to the cumbersome silver coins. The American notes, on the contrary, are at a very great discount; inevitably, therefore, there will be a ran upon the Treasury. Ex-Secretary Richardson found that to his cost last year. So confident was he in this theory, that he issued a notice that he would redeem in silver coin all frac-
tional notes presented, The result was that the Treasury was drained of its silver in a day or two, the coin was at once melted down or hoarded, and paper remained as before, the only currency. Notwithstanding certain elaborate calculations put out by the Bureau of Statistics to prove that it will not now pay to export silver coin, we hazard little in predicting that the experience of last year will be repeated.
The important section of the Act is, however, the third. It begins by repealing the provision of law fixing a limit to the amount of notes which the National Banks may issue, and also repealing the regulations as to the distribution of bank- notes. With these exceptions, the existing laws relating to National Banks remain in force. In future, therefore, every National Bank may issue as many notes as it can induce the public to accept, and as a security for the conversion of these notes it is required to keep no greater reserve than five per cent. of its circulation,—a shilling to the pound. More- over by the Act of 1864, these bank-notes are as much legal tender as " greenbacks " themselves. The only difference, indeed, between the two is that " greenbacks " can be used to redeem bank-notes, whereas bank-notes cannot redeem " greenbacks." But in all other transactions the bank-note is legal tender where the " greenback " is. Having thus estab- lished what passes in the United States under the name of free-banking, the section proceeds to enact that for every hun- dred dollars of additional bank-notes issued the Secretary of the Treasury is to withdraw eighty dollars of " greenbacks," until the total " greenback" circulation outstanding is reduced to three hundred million dollars, or £60,000,000 sterling. The present " greenback " circulation is £76,400,000. Con- sequently, the possible contraction is £16,400,000. But it will be noted that the withdrawal of " greenbacks " is condi- tional on the issue by the National Banks of additional notes. There will therefore be no contraction of the total paper currency. On the contrary, there will be an inflation, for before the £16,400,000 in "greenbacks" can be withdrawn, there must have been a new issue of £20,500,000 National, Bank notes. And as we stated above, these bank-notes are legal tender. Therefore, an inflation of £4,100,000 is pro- vided for. But this is not all. Attempts to amend the section so as to ensure the cancellation of the "greenbacks" withdrawn were defeated, and so the " greenbacks " will be simply locked up in the Treasury. If it were perfectly certain that resumption would take place, this would matter little. But it is to be remembered that in 1879 the successor of the new Congress that comes into existence in March will be in its last Session, and that, furthermore, the Administration of President will come to an end in 1877. Every branch of the Government will therefore have been renewed in the mean- time, and this Act may consequently have been swept away. Should inflationist views once more gain the ascendant, the withdrawn " greenbacks " might be reissued, as Mr. Richard- son last year reissued a portion, of those withdrawn between 1866 and 1868, and thus the currency would be inflated by the whole amount of additional bank-notes issued. We have been assuming so far that no more than a hundred dollars of bank-notes will be issued for every eighty dollars of "green- banks " withdrawn, but as the limit on the bank-note issue is repealed, this does not necessarily follow. The Banks may issue any quantity of their paper the public will take.
The section proceeds, in the last place, to enact that on and after January 1, 1879, the Secretary of the Treasury shall redeem in coin, on presentation in sums of not less than fifty dollars, the " greenbacks " then outstanding. And to enable him to do so, the Secretary is authorised to use the surplus gold in the Treasury, and should that not prove sufficient, to issue bonds. The reader will note the extraordinary power thus confided to the Minister. He is empowered to borrow an indefinite sum of money to meet liabilities themselves indefi- nite. If no contraction takes place, he may be called upon to redeem, in course of a few weeks, £76,400,000. On the other hand, should the value of the " greenbacks " rise greatly, very few of them may be presented for conversion into coin. And it is left to a Minister not responsible to Con- gress, and not removable by its votes, to decide what pro- portion of the possible enormous liabilities he will borrow. Again, as we have already seen, there is to be no con- traction of the currency. On the contrary, if the Act has any effect this way, there will be an inflation. It is not likely, therefore, that the value of the " greenback " will rise. But at present the " greenback " dollar is at a discount of one- tenth, or 2s. in the pound. If, then, its value does not rise, the Government by redemption in coin will lose 2s. in every
pound it redeems. But if the discount continues, the public will, of course, present for payment all the depreciated paper in its hands. The loss to the Government will then vary between £6,000,000 and £7,640,000, according as there is contraction or not. It has been objected that the certainty of redemption will cause the value of the " greenbacks " to rise rapidly as 1879 approaches. It would do so undoubtedly if the public in whose hands the " greenbacks " are, doubted the solvency or the honesty of the Government. But it does not. The " greenbacks " are depreciated, not from any distrust of the American Government, but because with the notes of the National Banks they constitute a currency larger than is required by the home trade of the United States. But it may be said that trade may increase within the next four years sufficiently to require all the currency, and even to raise it to par. It is possible, but very improbable. Ten years have elapsed since the close of the Civil War, and the growth of trade still leaves the " greenbacks" at a discount of one- tenth. But a more conclusive answer is that the Bill shuts out the possibility of such a rise. For it enables the National Banks to flood the, country with paper quite as efficient as " greenbacks."
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