as they choose, gradually pass from one system into the other without disturbing or deranging any of their relations. They need not collect their loans, they need not change their discounts; their ordinary operations may go on.

I again appeal to the Senate to show me a better system before this is destroyed. I endeavored to prove yesterday that there is no power to limit the issue of the paper money of the Government unless by the sale of bonds and furnishing a market for them; and you cannot convert them into money rapidly enough to carry on the Government without the benefit of some such agencies as are provided by this bill. The advantage of this whole system is that if it fails no harm is done. If it succeeds it cannot succeed except by securing the purchase of United States bonds, and that is just the very thing we wish now to accomplish. I therefore do regard this measure as of the highest importance to maintain the national credit, furnish a market for our bonds, furnish our people with a national currency; and I see in it none of the dangers to which the honorable Senator adverts.

This bill became a law February 25, 1863.

NATIONAL BANK CURRENCY.

IN THE SENATE OF THE UNITED STATES, FEBRUARY 10, 1863. THE special order of the day being the bill to provide a national currency, secured by a pledge of United States stocks, and to provide for the circulation and redemption thereof, Mr. Sherman said:

MR. PRESIDENT: The importance of the subject under consideration demands a fuller statement than has yet been made of the principles and objects of this bill. I wished to avoid the labor of discussing the subject; but its discussion seems to be necessary. I shall endeavor to condense what I have to say, for I know the time of the Senate is precious, and I desire to get a vote on this bill, if practicable, to-day.

It is the misfortune of war that we are compelled to act upon measures of grave importance without that mature deliberation secured in peaceful times. We are now to act upon a measure that will affect the property of every citizen of the United States, and yet our action. for good or evil must be concluded within the few days or weeks of this session. We are about to choose between a permanent system, designed to establish a uniform national currency based upon. the public credit, limited in amount, and guarded by all the restraints which the experience of men has proved necessary, and a system of paper money without limit as to amount, except for the growing necessities of war. In the consideration of such a question we surely should sacrifice all local interests, all pride of opinion; and, while acting promptly under the pressure of events, we should bring to our aid all the wisdom of united counsels, and all the light which the experience of former generations of men can give us.

It is fortunate that the scheme presented is not novel either in its principles or details; nor is it presented to us at this session for the first time. In December, 1861, the Secretary of the Treasury briefly but clearly stated the outlines of the system proposed, and a bill similar in its main provisions to the one under consideration was introduced in the House of Representatives at the last session. It was not then much discussed, because of the greater demand for military and naval measures, and the necessity of an extensive and novel law of internal taxation.

But while we were thus engaged, this system was discussed among those whose business made them conversant with finance and currency; and, sir, I may safely say that, though it ran counter to the local interests of those engaged in the business of banking, it has steadily gained in favor with all classes of our citizens.

The subject was again presented to us at greater length and with more urgency by the Secretary of the Treasury in his recent annual report, in which the arguments for and against the system are ably discussed. The bill has been published in various forms and extensively circulated, so that opinions on the subject have been canvassed and weighed by all those who take an interest in it. It only remains for Congress to determine whether it shall become a law.

It must be remembered that this bill is taken up when our financial condition is not the most favorable. Gold is at a premium of between fifty and sixty per cent., and is substantially banished from circulation. We are in the midst of war, when the necessities of the Government require us to have large sums of money. We cannot choose as to the mode in which we shall get that money. If we pursue the ordinary course, the course that has been sufficient in times of peace to raise money, of putting our bonds into market and selling them for what they will bring, it would be at a great sacrifice. We know this from the history of other nations and from our own experience. We, therefore, must look to some system of finance that will give us all the aid possible either in the form of paper money or by the agencies of associated banks. We know very well that after this war is over, the Government will still be largely in need of money; that when the rebellion is subdued, the condition of society in the Southern States will be disturbed; that it will be necessary to maintain for some time considerable armies in order to preserve peace; and that in any aspect of affairs this Government must undertake responsibilities and incur debts and liabilities of which we have had no example in our previous history.

The financial measures heretofore adopted are necessary to be considered before I proceed to examine the features of this bill. After the war broke out we were able to borrow money upon the credit of the United States until December, 1861. The amount of demand notes previously issued was comparatively small. In December, 1861, by the suspension of specie payments gold was withdrawn from circulation, and there was nothing left but the paper of local banks, which by the laws of the United States could not be used in Government transactions. We were then in the peculiar condition of a nation involved in war without any currency whatever which by law could be used in

the ordinary transactions of the public business. Gold was withdrawn by the suspension of specie payments; the money of the banks could not be used because the laws of the United States forbade it; and we were without any currency whatever.

Under these circumstances Congress wisely authorized the issue of a considerable sum of United States notes. That this measure was wise but few will controvert. We were compelled by a necessity as urgent as could be imposed upon any legislature to issue these notes. To the extent to which they were issued they were useful. They were eagerly sought by our people. They were taken by our enemies in the South, by our friends in the North. They were taken in the East and in the West. They furnished the best substitute for gold and silver that could then be devised; and if we would limit the United States notes to the amount now authorized by law, they would form a stable and valuable currency.

But, sir, we know, not only by our own experience, but by the experience of other nations, that when a government issues paper money in very large amounts, and without connecting it in any way with the private operations of the people, it inevitably depreciates, and, if carried to excess, deranges the values of all property. Still necessity presses us for money, and most of the great nations of modern times have during war been compelled by necessity to resort to some form of paper money. It has always been the most difficult problem of war to maintain the Government's credit and yet to procure the very large sums indispensable for its prosecution. We have but four expedients from which to choose: first, to repeal the Sub-Treasury act, and use the paper of local banks as a currency; secondly, to increase largely the issue of United States notes; thirdly, to organize a system of national banking; or, fourthly, to sell the bonds of the United States in the open market.

Some three or four weeks ago I discussed at some length the propriety of a repeal of the Sub-Treasury clause, as it is called, and endeavored to show that local banks cannot be made to furnish a national currency. The losses in various ways from the use of their money, its deterioration in value, the want of security, the want of uniformity, and many other objections to that paper money, make it inexpedient to resort to it. United States notes are in every respect a better form of currency than bank paper; but we have to examine now the objections that may be made to the further use of Government paper money. These objections are briefly but very plainly stated by the Secretary of the Treasury. I will read them :

The principal objections to such a circulation as a permanent system are: 1, the facility of excessive expansion when expenditures exceed revenue; 2, the danger of lavish and corrupt expenditure, stimulated by facility of expansion; 3, the danger of fraud in management and supervision; 4, the impossibility of providing it in sufficient amounts for the wants of the people whenever expenditures are reduced to equality with revenue or below it.

The danger of over-issue is constantly pressing upon us. It is shown by the experience of other nations, and its effect in inflating values is felt by every one. The mere introduction of a bill in the

House to authorize the issue of $300,000,000 additional United States notes operated like magic. I have here a statement showing the effect of this proposition. On the day that bill was introduced gold commanded a premium of thirty-six and a half per cent. The next day it rose to thirty-eight; within three days it rose to forty-one; on the 15th of January, six days afterward, it rose to forty-eight and a half; and from that time to this it has been continually rising. It did not suffer a decline until there was a disposition evinced in the Senate to check the over-issue of this kind of paper money. We have here a striking illustration of the effect of even a proposed over-issue of this paper money. In one week it changed values over ten per cent., and in three or four weeks it changed them nearly thirty per cent. The proposition of the Senate to check this over-issue at once reduced it some four or five per cent. I have no doubt the passage of the bill reported from the Committee on Finance will still further reduce the relative value of gold.

Another effect of an over-issue of paper money is to increase the compensation of employees. The expense of living is now considerably greater than before the war. We have had more propositions within the last month to increase the salaries of officers than we had within the two years preceding. It is now said by nearly every clerk in the Departments, by nearly every officer in Washington, by nearly every officer of the Government, that his salary is inadequate to pay his expenses. We find our expenses are largely increased by the deterioration of paper money. This deterioration will go on as it has gone on in the history of other nations, unless Congress check it by stopping further issues. Over-issue increases the expenses of the Government in various ways. The price of provisions and clothing is increased; and all the money that we now borrow to defray the expenses of the Government, and all the increased expense occasioned by this inflation of prices, must be paid eventually by the people of the United States with compound interest in gold.

Another practical objection to these United States notes is, that there is no mode of redemption. They are safe, they are of uniform value; but there is no mode pointed out by which they are to be redeemed. No one is bound to redeem them. They are receivable, but not convertible. They are debts of the United States, but they cannot be presented anywhere for redemption. No man can present them, except for the purpose of funding them into the bonds of the United States. They are not convertible; they lack that essential element of any currency.

Another objection is, that they can only be used during the war. The very moment that peace comes, all this circulation that now fills the channels of commercial operations will be at once banished. They will be converted into bonds; and then the contraction of prices will be as rapid as the inflation has been. The issue of Government notes can only be a temporary measure, and is only intended as a temporary measure to provide for a national exigency.

Another serious objection to these notes is, that they are made the basis of bank issues. Under the operation of the act declaring them.

to be a legal tender, the bank circulation has increased from $120,000,000 to $167,000,000. The banks have sold their gold at a large premium, and placed in their vaults United States notes with which to redeem their own notes. That cannot be avoided. As we have made them a legal tender, banks are bound to take them in payment of debts due to them, and they therefore have the right to hold them to pay their debts with. The consequence has been that, while the Government has been issuing its paper money, some of the banks have also been inflating the currency by issuing paper money on the basis of United States money. This inflation may be illustrated by the statement of a bank in Pennsylvania, sent to me with a view to show how much tax it would have to pay under the bill reported from the Committee on Finance. It has a capital stock of $200,000, and a circulation of $589,600; there was due to depositors $55,125; profit and loss, $36,294; and to other banks, $23,959. The circulation is $589,600. Now, what have they got to pay it with? Gold and silver coin, $18,326, not one thirtieth part of the circulation; bills and checks, $27,128; banking house and lot, $4,000; due from other banks, $146,879. The assets on hand would but little more than pay depositors and current debts to banks, leaving the whole circulation secured by loans and discounts. The whole of that circulation has no other basis except loans and discounts, and the circulation is three times the amount of the capital stock.

It is very easy to prove that such a system of banking is a bad one, and would destroy and demoralize any country. There is no basis for it except loans and discounts; and we know by experience that they cannot be drawn in rapidly enough to redeem a circulation. I have no doubt that the statement sent me of this bank is only an illustration of many more. Indeed, I have looked at the published statements of some of the banks of New York, Pennsylvania, and other States, and many of them show the same inflation—a bank circulation without any basis whatever except loans outstanding, which cannot be called in rapidly enough to liquidate it.

The practical difficulty is, how to check inflation by banks. The attempt to do so by taxation has given rise to nearly all the objections to this banking system. How can over-issues by banks be checked? If Senators can point out any way in which this can be done, I should be very glad to adopt it. But there is no way. It has been proposed to tax them two per cent., or one third of their profits on the circulation; and we know what an opposition this has created, although I believe that the tax is entirely defensible. There is no tax in this bill on local banks; local banks are not mentioned in it, except that they are required to make certain reports, which they can readily do without any trouble.

There is but one other mode proposed to check this increase, but I would not assent to it because it is too harsh. Under the provisions of our laws, United States notes are made a legal tender in the payment of debts. We might, if we choose, except banks from the operation of that provision; but I believe that would be harsh and unjust, because, as we require them to receive these notes in payment of debts due to