Currency circulation

“ The paper money, according to the universal law, that an inferior currency always crowds out the superior one, will circulate alone. Suppose, then, it appears that the paper circulation alone is in excess of the real requirements of the business of the country, what then? Then something like the amount of that excess will go to the Treasury for redemption, and the coin paid out in that redemption being over and above the volume of the circulation required by the business of the country, will again either be hoarded or go into our foreign commerce and flow out. ”

“ If the currency is redundant, prices rise, exports are diminished; and the reverse follows with a contracted circulation. But banks inflate or restrict the currency at their pleasure, and thus control prices, commerce, exports, imports, and revenue. But they also destroy or depreciate the money of the Government, and deprive it of a vital power. Thus, the nation issues treasury notes, and makes them a legal tender: the banks immediately make such notes the basis of bank issues, in the ratio of three to one, and the whole currency necessarily becomes redundant and depreciated ”

“ Under the most favorable state of trade between the east and west an exchange of one per cent. was demanded from drafts and bills of exchange. With a national currency, uniform and equal throughout the country, this cost for exchange would not exist or would be greatly reduced. I called attention to the then increasing volume of local currency in the United States. When the United States had issued $250,000,000 of notes, the banks had largely increased their circulation. ”

“ The contraction of the currency is secured by selling foreign bills of exchange and locking up the currency received therefor, while the expansion of the currency is secured by releasing this currency to circulation, or, if necessary, by coining more currency. ”

“ It is also a well-known fact that it is the progress of civilization, in its various forms, which gradually diminishes the proportion of currency necessary for the transaction of trade, by the extension of railroads and telegraphs facilitating the rapidity of circulation, by further developments of the clearing-house system, and so on. So that as we progress we may rely upon it that a less volume of currency will be needed as compared with the business transactions going on. ”

“ You all will agree that we do not want more currency than the requirements of business demand. For every greenback dollar withdrawn and held back by the Treasury a coin dollar will unfailingly appear in circulation, if that dollar is demanded for circulation by the requirements of business. It will either come out of the Treasury, and stay in circulation, or, in obedience to the same law which makes water flow down hill, it will come from some part of the world where it has less profitable employment, or its place will be supplied by bank emissions always ready to fill a gap. ”

“ It is not disputed that the value, the purchasing power of an irredeemable paper currency is affected by the quantity in circulation, and that other circumstances, such as the confidence of the people and solvency of the Government, remaining the same, an appreciable expansion of the currency will result in its depreciation, and vice versa. ”

“ The circulating medium will ever irresistibly flow to those points where it is in greatest demand. The law of demand and supply is as unerring as that which regulates the tides of the ocean; and, indeed, currency, like the tides, has its ebbs and flows throughout the commercial world.
At the beginning of the rebellion the bank-note circulation of the country amounted to not much more than $200,000,000; now the circulation of national-bank notes and those known as "legal-tenders" is nearly seven hundred millions. ”

“ The willingness of the government to sell foreign exchange at a fixed price, and to lock up the silver it receives thereby, takes that much currency out of circulation just as effectively as though the equivalent of gold had been exported. ”

“ These are important facts, and show how completely the inferior currency will supersede the better, forcing it from circulation among the masses and causing it to be exported as a mere article of trade, to add to the money capital of foreign lands. They show the necessity of retiring our paper money, that the return of gold and silver to the avenues of trade may be invited and a demand created which will cause the retention at home of at least so much of the productions of our rich and inexhaustible gold-bearing fields as may be sufficient for purposes of circulation. ”

“ Yet the pressure toward a popular currency for universal use grew stronger and stronger. The finance committee of the Assembly reported that "the people demand a new circulating medium"; that "the circulation of paper money is the best of operations"; that "it is the most free because it reposes on the will of the people" ”

“ That we need a more elastic currency is indisputable, and also such changes in our custom of borrowing and lending 817money on collaterals on the Stock Exchange as will secure stability in rates of interest there, even in times of stringency. The time will come when the circulation of the National banks will be based on gold, instead of United States bonds, and in that way our monetary system will more closely approach that of the principal European nations. ”

“ The cause of this inferiority of the country bankers was the avarice of the Bank of England, which prevented the formation of joint stock companies, who might act as competitors; and, as the period was one of great industrial and commercial expansion, when the adventurous and producing classes controlled society, enough currency of some kind was kept in circulation to prevent the prices of commodities from depreciating relatively to coin. The purchasing power of a currency is, other things being equal, in proportion to its quantity. ”

“ If a branch mint be established at the great commercial point upon that coast, a vast amount of bullion and specie would flow thither to be recoined, and pass thence to New Orleans, New York, and other Atlantic cities. The amount of our constitutional currency at home would be greatly increased, while its circulation abroad would be promoted. It is well known to our merchants trading to China and the west coast of America that great inconvenience and loss are experienced from the fact that our coins are not current at their par value in those countries. ”

“ In this emergency the British merchants showed the resource which has always been their characteristic, and, in default of an adequate supply of specie, relieved the strain upon their currency by issuing paper. Mediæval banking had gone no further than the establishment of reserves of coin, to serve as a medium for clearing bills of exchange; the English took the great step of accelerating the circulation of their money, by using this reserve as a basis for a paper currency which might be largely expanded. ”

“ It appears, then, that according to that circulation the currency of the country has not only been very largely increased in the aggregate, but that even the ratio per head has been increased about 28 per cent. ”

“ There is here no question of an arbitrary debasement. It was simply an attempt to preserve the currency from the action of a changing market ratio, which led to the withdrawal now of the one, now of the other coins, and to the circulation meanwhile of foreign coins at a rate apparently disproportioned to the metallic content. [7] In 1361 evidence was given before the Mint authorities that "in payments the people do by abuse give foreign monies at a higher rate than they are worth, viz. ”

“ The truth is that safe and desirable as is our currency system in many respects, it is not properly related. The supply of currency is but remotely, if at all, influenced by the ever changing requirements of trade and industry. It is related most largely, if not entirely, to the price of Government bonds in the market. ”

“ Now is the time to separate the government from all banks—receive and disburse the revenue in nothing but gold and silver coin, and the circulation of our coin through all public disbursements will regulate the currency forever hereafter—keep the government free from all embarrassment, whilst it leaves the commercial community to trade upon its own capital, and the banks to accommodate it with such exchange and credit as best suits their own interests—both being money making concerns, devoid of patriotism, looking alone to their own interests—regardless of all others. ”

“ There still remains to be considered the effect of depreciated currency on our trade with other nations. By raising prices at home higher than they are abroad, imports are largely increased beyond the exports; our coin must go abroad; or, what is far worse for us, our bonds, which have also suffered depreciation, and are purchased by foreigners at seventy cents on the dollar. ”

“ A depreciation of money is not an accumulation of national wealth, and therefore a nation may both abound in currency, and also become poor and wretched. This is, invariably, effected by the system for increasing currency, combined with regulations by which its occupation of exchanging property is contracted, and that of transferring it, is extended. The supreme law of commerce governs currencies both local and universal. ”

“ They might, strictly speaking, rather exceed that quantity, because as the Bank would add to the currency of the world, England would retain its share of the increase. If they attempted to exceed this amount, the excess would be immediately returned to them for specie, because our currency being superfluous, there could be no better employment for the superfluity, than the sending it to a better market abroad. ”

“ It thus appears, that a depreciation of the currency does not affect the foreign trade of the country: this is carried on precisely as if the currency maintained its value. But though the trade is not affected, the exchanges are. When the imports and exports are in equilibrium, the exchange, in a metallic currency, would be at par; a bill on France for the equivalent of five sovereigns, would be worth five sovereigns. But five sovereigns, or the quantity of gold contained in them, having come to be worth in England 6l., it follows that a bill on France for 5l. ”

“ The seigniorage could never be reduced to less than zero. Money can never be materially cheaper than the metal composing it, since the slightest tendency in this direction will result in coin being exported or melted into bullion. In a period of rising prices, regulation would be easy; in a period of falling prices, regulation might be quite impossible.*41
XIII.24 Another plan is a convertible paper currency, the paper to be redeemable on demand,—not in any required weight or coin of gold, but in a required purchasing power thereof. ”

“ Can there be a more convincing proof that the currency of the country has been unduly drained away, and that the present monetary system, which forbids any extension of it in paper when the specie is abstracted, is based on a wrong foundation? Nor is it surprising that the currency should be straitened when it is notorious that every packet which goes out to America takes out vast sums to that continent to pay for the immense quantities of grain which are brought in. ”

“ For it must be remembered that the exported treasure will, in its turn, produce an excess of currency in the countries which receive it; and that that excess will necessarily lead to a rise in prices and a fall in the rate of interest, precisely commensurate with the amount received. It will not be necessary, therefore, that prices should fall much below the average at home, in order to stimulate an increased export of commodities to those countries in which prices have risen ”

“ The ultimate effects are on prices, and not on quantity of money or volume of trade. But a change in the velocity of circulation of money in any country, connected by international trade with other countries, will cause an opposite change in the quantity of money in circulation in that country. There will be a redistribution of money among the countries of the world and of money metal as between money and the arts. ”

“ Permitting the exportation of coin where you have a mint, for paper to supply its place, and a favourable balance on your trade to bring it back, is like establishing two shops for the course of exchange. If the exchanger will not serve trade at the price of transportation and insurance, the coin will do it for him.
In such a country, a bank, properly established, will find great profit upon the interest of their notes, notwithstanding of the obligation to provide, at all times, the quantity of coin necessary for circulation. All the great objects of trade will then be fulfilled ”

“ But it means not only inflation by a single act and to a fixed amount—it means inflation continuous and indefinite.
The volume of the currency is to be “made and kept equal to the wants of trade.” Is not the volume of the currency equal to the wants of trade now? It is a fact as notorious as daylight that the banks of the country, especially in the centers of trade, are full of money that lies idle for want of employment. No intelligent man questions this fact. ”

“ Now it happens that among the new political issues that have arisen, the question of the currency has assumed a most prominent place. There can be no doubt of the intensity of the feeling that has developed against the national banks, which have supplied a large proportion of the circulating medium since the war, and the demand for a currency issued directly by the government, without the intervention of the banks, is growing both in volume and in force. ”