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Monetary Commission

MSCEUJUN




1 QM — MONO.
RED.

THE BANKING SYSTEM OF JAPAN.
43
*

w

.si

BY

MARQUIS KATSURA.
Premier and Finance Minister of Japa n.
The following brief historic and comprehensive state­
ment of the past and present banking systems of Japan
is furnished exclusively for the purposes of this article by
the courtesy of His Excellency Marquis Katsura, the
Premier and Finance Minister of Japan. It brings the
history up to the present year and will be found a valuable
addition to the records and information hitherto pub­
lished.
Marquis Katsura writes:
With the introduction of the new regime, following
the restoration of the Throne to actual rulership of Japan,
in 1868, extensive developments occurred and advances
were made in various branches of industry. National
finance formed no exception; in fact it showed remark­
able progress. But to place the entire system of national
finance on a perfect basis involved difficulties of very
great magnitude, and could only be achieved by gradual
progress, allowing each phase its full time to develop.
During the early portion of the Meiji era (dating from
A. D. 1868) the financial system of Japan was primitive,
and such as then existed was local and limited. The
amount of capital was insufficient, and the rate of inter­
est always upward. Private loans were handicapped,
and the balance of trade was always unfavorable. After
the establishment of the national banks and of the
Specie Bank some improvement was made in the finan­
cial system of the country, but this was only a beginning
when judged by the national standard. The improve­
ments and developments were only collateral, and with
the growth of the branches the necessity of a trunk pow­
erful and strong enough to support them came to be felt.
In other words, an urgent necessity arose, it was thought,
for the establishment of a great central banking institu­
tion. What follows gives more fully the reasons for the
establishment of the Central Bank in Japan.
The banking business in Japan dates from the eleventh
month Of the fifth year of Meiji (1872). (The Gregorian
calendar came into use the following year.) The bjmk
regulation? were promulgated at that time, aVv* in August
Stfh*. i .'nt*.'lytmr
amendment? were imVodueodAothose regulations and the number of
banks increased
to over 150. But the actual'state of the financial system
during the first ten years, when over 150 banks existed,
showed that united operations were wanted and that the
banks with small capital stood apart and alone without
cooperative facilities.
As a remedy for some of the existing evils, the public
favor strongly increased in favor of a central bank which
might bring about smoother cooperation among the
financial institutions by having in its hand the essential
«•

—

* 1-

* 4-t-*.

*• •




i t s increased
to over 150. But the actual'state of the financial system
during the first ten years, when over 150 banks existed,
showed that united operations were wanted and that the
18

banks with small capital stood apart and alone without
cooperative facilities.
As a remedy for some of the existing evils, the public
favor strongly increased in favor of a central bank which
might bring about smoother cooperation among the
financial institutions by having in its hand the essential
machinery of the finance of this nation. B y establishing
a central bank, it was expected that the evils of the finan­
cial system in vogue, and which might be termed the
feudal system, would be removed, and it was also expected
that by converting the national banks into agencies or
branches of the Central Banking Institution, having a
complete system of communication, a smooth operation
would be attained, and the working of the entire machinery
facilitated throughout the whole Empire. It was further
believed that the small banks would come to rely upon
the Central Bank and realize the advantage of cooperation
with it.
The capital of most of the banks in those days was very
limited, and they were totally unable to cope with any
sudden demand for any large amount of money, and when,
on the occasion of a flurry in the money market, the de­
mand for the discounting of bills assumed unusual pro­
portions, or when deposits were withdrawn to a large
extent, suspension of payment was not infrequent.
Credit consequently was lowered, or at least was uncer­
tain, the result being an individual custody of cash. As
a consequence, it was impossible to expect any financial
system to work smoothly. As long as this condition of
things prevailed it was impossible to inspire confidence
or to draw out into circulation the volume of money
individually hoarded.
It was expected that with the establishment of a Cen­
tral Bank, with power to make adequate advances, the
danger of a serious crisis or panic following financial stress
would be averted, and the development and advance­
ment of commercial interests, which would call increased
capital, would be amply provided for. It was believed
that as a result of the aid extended by the Central Bank
to the smaller banks the suspension of industrial or com­
mercial development on account of lack of necessary
capital would be avoided.




RED

2 Q M— MONO.

...

In early days in Japan the issue and volume of cur­
rency, when compared with the standard of living and
the state of commerce and industry, was rather excessive,
but the circulation of that currency was far from being
even and ample. The rate of interest was ever on the
increase, due to the withdrawal of capital from circula­
tion and the fact that the banks were advancing large
sums on long-term loans.
A Central Bank, being exclusively engaged in discount­
ing bills and in making advances for short periods on the
best bills, capital would be active and interest low. The
Central Bank would, in fact, regulate the rate of discount
and largely that of interest.
In European countries the Government extends pro­
tection and assistance to a Central Bank, and Government
money is deposited in that bank, which devotes the sur­
plus to the Government’s credit to the purchasing of
foreign drafts or bullion. No effort is spared looking to
the importation of specie.
In Japan also it was seen that should a Central Bank
be firmly established the monetary transactions of the
Treasury and the redemption of Government bonds
would be transferred to such a bank, and in case of a
surplus it would be devoted to the purchase of national
and foreign coins and bullion, which would be ultimately
employed in converting the Government notes. This ac­
complished, a way would surely be opened for concen­
trating specie, and in years to come the system of placing
notes on convertible basis would be- realized. The money
paid in local districts in the form of taxes being mostlv
brought to the Central Government, leaving only such a
portion of it as is required for local governmental expenses
and other small items, a deficiency in currency in, circu­
lation was felt severely each year at the tax* paying
period, and the interest on money always rose. But it
was felt that if the monetary transaction of the Treasury
should be intrusted to a Central Bank the volufcie of cur­
rency temporarily in the one bank \yould be more speedily
reduced by the discounting of bills and other processes,
and the money market would be relieved promptly.
Thus it was expected that the bank s operations would
be adjusted to the actual needs of the market.
Financial troubles in those days were generally attribu­
table to the overflow of gold abroad, caused by the un­
favorable state of the balance of foreign trade. But the
experience of excess of imports over exports is not limited
to Japan. There are times when European co untr*es have
a like experience, and the reason why, in th|^se countries,
the deficiency of specie is not severely felt, d v en under an
unfavorable balance, m ay be found in the f a f t that there
exists a financial institution for im p o rtin g specie from
abroad. Japan, in those days, had no s u jf1 institution.
There was an exit for specie, but] no inlet f c f it; in other
words, foreign goods were paid for in JaiPanese sPecie
alone, and no other means were available fo(r makinR the
payment. It was realized that the estabHfshment of a
Central Bank would open the way for bringilng in foreign
money. In Europe the banks, by holding c J^ P o n d e n c e




uuittv oraDK uaiance, m a y be found an tne

exists a financial institution for importin'
abroad. Japan, in those days, had no suil
There was an exit for specie, but" no inlet fc f
.
f
words, foreign goods were paid for in Ja r
alone, and no other means were available fdr

that there
ipecie from
institution.
*
it; in other
making the

payment. It was realized that the estab*shment of a
Central Bank would open the way for brin J ng in foreign
money. In Europe the banks, by holding ^rrespondence
with other banks, are in close touch as t<|ihe volume of
specie in different countries and are constantly adjusting
the balance by rate of discount. Such woik can only be
undertaken by a central banking institution, and such a
bank once established, a financial organ would be brought
into existence which could keep continual surveillance of
the financial and commercial conditions of the world and
would be able on the one hand to help smaller banks, and
on the other hand open a gate for the incoming of foreign
specie, so that even in case of import exceeding export,
causing the outflow of the specie, no apprehension need
be entertained.
II.
WHY THE BELGIAN SYSTEM WAS ADOPTED IN JAPAN.

After careful study and comparison of the central
banking systems of Europe we found that, although in
extent of business, power, and influence in the financial
world, the Bank of France and the Bank of England were
unrivaled institutions, yet in point of perfection in the
organization of the system the Bank of Belgium was peer­
less. With the exception of the Imperial Bank of Ger­
many, the Bank of Belgium is the most modern creation.
It was organized after careful comparison of the banking
systems of England, France, Austria, America, and other
countries, and the best in all those systems was adopted,
while the weak points were carefully avoided; conse­
quently it was decided by Japan to adopt the Belgian
system.
The Imperial Bank of Germany, being an institution
adapted to the needs of a federation of States, it was
found unsuitable for Japanese purposes, while the Bank
of England and the Bank of France had all the charac­
teristics born of long usages and history, and consequently
it was not possible to adopt their system in a country like
Japan where no similar conditions exist.
Though adopting the Belgian system, yet in note­
issuing capacity and the rate of reserve a system resem­
bling the German one was adopted.




3 Q M— MONO.
RED
THE BANKING SYSTEM IN GENERAL AND WHY THE SYSTEM
WAS ADOPTED.

With the establishment of the Meiji Government, one of
the policies followed was to perfect as far as possible the
financial system of the country and to promote and
encourage production throughout the Empire.
As early as the first year of Meiji (1868) a commercial
office was established with the object of encouraging com­
mercial and industrial development. The organization
of the office was afterwards placed on a more efficient
basis. Under the jurisdiction of that office were placed
the mercantile companies and the exchanges, which were
the banks in those days.
The Kawase or exchanges were the first real bankers in
this country. The capital was supplied by wealthy mer­
chants by subscription, while the Government also
advanced funds. The exchange received deposits, ad­
vanced loans, and issued drafts. It was also authorized
to issue notes against the reserves.
The object sought in the establishment of these ex­
changes was good, but the organization and the regulations
being very deficient, and moreover it being a combination
of the Government and private interests, the system was
soon found to be unsuitable at a time when the country
was undergoing a rapid transformation on account of the
new regime. After several failures among the exchanges,
hope of success was abandoned, and the Government saw
the necessity for establishing a more perfect system. This

mm

was about 1870.
In the fifth year of Meiji (1872) the regulations for
national banks were promulgated. The American system
had been adopted, and in March of the following year
the regulations for national bonds convertible into gold
were promulgated. With the establishment of the na­
tional bank system the exchanges were dissolved, except
one in Yokohama, which was allowed to continue business
after having been converted into a national bank; thus
was the Second National Bank established. This bank,
besides the privilege of issuing ordinary notes, was
clothed with authority to issue foreign silver notes, which,
however, was forfeited when the Bank of Japan was estab­
lished and issued convertible notes.
Four banks were established at the time of the promul­
gation of the banking regulations of 1872, the First Na­
tional Bank being one. The amount of capital was 3,450,­
000 yen, with right to issue notes to the extent of 2,070,000
yen.
The volume of inconvertible government notes steadily
increased, specie began to command a premium, and
showed a tendency to leave the country. In those days
bank notes were immediately brought to the issuing bank
for conversion, and there was no prospect of a smooth or
general circulation of the notes issued by the banks.
Consequently the note-issuing privilege granted to the
banks proved useless; on the contrary it was a detriment
to the business of banking. Thus the first object of the




showed a tendency to leave the country.

In those days

bank notes were immediately brought to the issuing bank
for conversion, and there was no prospect of a smooth or
general circulation of the notes issued by the banks.
Consequently the note-issuing privilege granted to the
banks proved useless; on the contrary it was a detriment
to the business of banking. Thus the first object of the
Government in promulgating the banking regulations in
order to effect adjustment of the inconvertible notes was
completely frustrated.
In 1876 the Government introduced important amend­
ments in the banking regulations, and instead of requiring
the conversion of the bank notes into gold, made it possible
to convert them with currency. In other words, the banks
could convert their notes with those of the Government,
and the result was the introduction of inconvertible notes.
The banks were also authorized to deposit eight-tenths of
their capital in the form of government bonds valued at the
market price and to issue notes equal to the amount of their
deposits, while the remaining two-tenths of the capital was
to be reserved in the form of currency to meet the demand
for conversion. These amendments proved to be of great
advantage, and the number of banks suddenly increased to
152, representing capital of 42,110,000 yen, and the note
issuing reached the sum of 34,390,000 yen.
The Satsuma rebellion of 1877 caused the Government
to increase the issue of its inconvertible notes, and the new
notes thus issued amounted to over 27,000,000 yen.
Besides the Government also issued reserve notes to the
amount of over 20,000,000 yen. The bank notes, as
already stated, also increased, and reached the amount of
over 34,000,000 yen. The total of inconvertible notes
came up to 160,000,000 yen. Specie began to command
a premium, and with the depreciation of the value of
the notes, uneasiness spread on every side. It was im­
mediately and forcefully apparent that there was an
urgent necessity for changing this state of affairs by re­
forming the note-issuing system. This brought about the
introduction of further fundamental reforms in the banking
system of Japan.
With the increase in the volume of the bank notes the
Government became apprehensive and saw the necessity
for limiting the right of establishing banks. In 1877 the
1
..
,
.
bank regulations underwent fresh amendment. The
Minister of Finance was invested with authority to place
restrictions on the establishment of banks, to limit the
amount of capital, and to lower the note-issuing capacity.
This was followed by the policy of redeeming the incon­
vertible notes, which was carried out with great determi­
nation, nor were the bank notes left unredeemed.




4 Q M— MONO.
In 1883 the bank regulations were again amended, and
a clause was introduced whereby it was made impossible
for a bank to continue existence as a national bank after
the term of its charter expired, and it was also provided
that no bank should have power to issue notes. Simulta­
neously measures were taken whereby the bank notes
should be redeemed gradually. With the expiration of
the terms of charter of the national banks an attempt was
made to have the charters made renewable, but, this
proving futile, the national banks very smoothly changed
into private banks, so that by February, 1899, the national
banks completely went out of existence. The disappear­
ance of the national banks, however, did not mean com­
plete withdrawal from circulation of the notes issued by
the national banks, but by placing a limit for the period
of their circulation they were completely withdrawn by
December, 1904, after which the government and bank
notes totally ceased to circulate, and the unification of
the paper currency was thus effected.
THE YOKOHAMA SPECIE BANK.

The Yokohama Specie Bank was established in 1880,
and the Bank of Japan came into existence in 1882. The
former was organized on the joint-stock principle for the
purpose of fascilitating foreign trade and also for the
purpose of issuing convertible notes as the circulation of
specie increased. But as there were signs of the deprecia­
tion of the notes the note-issuing license was not granted
to the Specie Bank. From the time of its establishment
the Specie Bank was exclusively engaged in foreign ex­
change and issuing drafts on commercial commodities,
lh e history of the bank has not been a smooth one, but
with foresight as to developments it increased its capital
in 1887 to 6,000,000 yen. The Government extended
special protection to the bank under its Yokohama Specie
Bank regulations, and since that time the bank made
steady progress and developed without a hitch until by
1896 its capital was doubled and made 12,000,000 yen.
With this increase of its capital, necessity was felt for
extending the sphere of its operations, and this called for
further increase of its capital by 2,000,000 yen, making
a total of 14,000,000 yen. The business of the bank is
now in a thriving condition.
The present regulations for the Yokohama Specie Bank
limit the kinds of its business as follows:
(1) Foreign exchange and issuing of drafts on commercial
commodities.
(2) Inland exchange and issuing of drafts on commercial
commodities.
(3) Advancing loans.
(4) Deposits of money and custody of articles of value.
(5) Discount and collection of bills of exchange, promis­
sory notes, and other securities.
(6) Exchange of coins.
THE BANK OF JAPAN.

The Bank of Japan is organized and modeled after the
Central Bank of Belgium. The purpose of the bank was
to withdraw from circulation inconvertible notes, thereby
unifying the paper currency of the country, to facilitate




sory notes, and other securities.

(6) Exchange of coins.
THE BANK OF JAPAN.

The Bank of Japan is organized and modeled after the
Central Bank of Belgium. The purpose of the bank was
to withdraw from circulation inconvertible notes, thereby
unifying the paper currency of the country, to facilitate
the handling and disposition of money belonging to the
treasury and of the National Bonds, to adjust the mone­
tary conditions prevailing at home and abroad, and regu­
late the rate of interest. The bank was established in
1882 by virtue of Imperial Ordinance No. 32. Its author­
ized capital now stands at 30,000,000 yen and the bank
is privileged to issue convertible bank notes. The maxi/
mum of the notes to be issued against the reserve was at
first 70,000,000 yen, which was afterwards increased to
85,000,000 yen, and now further increased to 120,000,000.
The governor and vice-governor of the bank are appointed
by the Government. The bank is placed under several
restrictions. The Government reserves the right to attach
supervising officials to the bank, thus bringing the insti­
tution under the strictest governmental supervision.
As already stated, the first Exchange Company ended
in failure, while the national banks did not achieve what
had been expected of them. The amendments to the
bank regulations resulted in the increase of inconvertible
notes, and this called for further amendments of the regu­
lations. The Yokohama Specie Bank was confronted
with difficulties almost immediately after its establish­
ment, and when the financial condition of the country was
in such a state the establishment of the Bank of Japan
Was epoch making: It not only placed the fiscal policy of
the Government on an entirely new footing, but it also
exercised a wholesome and beneficial influence on the
economics and finance of the entire country.
The business now transacted by the Bank of Japan is as
follows:
<
(1) To discount or purchase government bills, bills of
exchange, and commercial bills.
(2) To buy or sell gold or silver bullion.
(3) To make loans on security of gold and silver coins and
bullion.
(4) To collect bills for banks, companies, and merchants
who are its regular customers.
(5) To receive deposits in current account and to accept
the custody of articles of value, such as gold, silver,
and precious metals, and documents.
(6) To make advances in current accounts or loans for
fixed period on security of. government bonds,
treasury bills, and other bonds and shares guaran­
teed by the Government. The amount of such
loans and the rate of interest are to be decided from
j
time to time by the conference of governors, vice­
governors, directors, and supervisors, subject to the
u .... approval of the Minister of Finance.




5 DM— MONO.
RED
The Bank of Japan, besides engaging in the above­
stated business, is disqualified from engaging in the fol­
lowing transactions:
(1) To make loans on the security of real estate or shares
of banks or corporations.
(2) To make loans on the security of shares of the Bank
of Japan, or to purchase the same.
(3) To become a shareholder of industrial corporations,
or to engage, either directly or indirectly, in indus­
trial enterprises of any kind.
(4) To become the owner of real estate, except so far as
is necessary for establishing the head office and
branches of the bank.
In 1890 ordinary bank regulations were promulgated
by law No. 72, which was followed by savings banks regu­
lations law No. 73. The promulgation of these regula­
tions opened a new epoch in the history of banking busi­
ness in Japan. B y the new regulations the banking
business was clearly defined, and all those engaged in that
and similar business were brought under special contract
by those regulations. . . . Before the law came into
force there existed no instrument for the control of private
banks. Only special institutions, such as the Bank of
Japan, the Yokohama Specie Bank, and national banks
were under the control of the Government. When the
national banks became private banks, after the expiration
of their charters, they went out of the control of the Gov­
ernment. The new regulations promulgated put a stop
to this.
The necessity of creating a banking center in order to
facilitate the manipulation of national finance, and the
importance of government control and supervision and
insuring a wholesome development, was what prompted
the Government to put the new regulations into force, for
it was feared that the national banks which were formerly
under government control and supervision would, when
they passed beyond that supervision, prove blocks to a
wholesome development.
THE SAVINGS BANKS.

The savings bank, above all other banks, is the one that
requires most careful supervision by the Government.
In Japan the Government has a Postal Savings depart­
ment and also a deposit section in the Department of
Finance. But the amount of the deposit being found too
small when compared with the population and the stand­
ard of economics in general, the Government followed the
policy of increasing the amount of the deposit by initiating
a method for supervising, controlling, and improving the
business of the private savings banks, and the new regu­
lations for savings banks were promulgated. According to
these regulations, banks that receive deposits on the
principle of compound interest are classed as savings banks,
and their organization must be on the joint-stock principle.
It is also made obligatory on those banks to keep a reserve
as security for repayment amounting to not less than one-




policy of increasing the amount of the deposit by initiating
a method for supervising, controlling, and improving the
business of the private savings banks, and the new regu­
lations for savings banks were promulgated. According to
these regulations, banks that receive deposits on the
principle of compound interest are classed as savings banks,
and their organization must be on the joint-stock principle.
It is also made obligatory on those banks to keep a reserve
as security for repayment amounting to not less than onequarter of the whole amount of the deposit in the form of
interest-bearing national or local bonds, and to have them
deposited in the place authorized to receive them. In
other respects the provisions of the ordinary Bank Regu­
lations apply to the savings banks.
In 1896 the Hypothec Bank of Japan was created by
Law No. 82, and in the same year the Agricultural and
Industrial Bank was also established under the Law No.
83. These laws opened another epoch in the Banking
Administration. The banks so far were engaged in making
loans and receiving deposits for short terms, and also in
discounting commercial bills, so that they were principally
organs for commercial transactions. But the credit
system not being fully developed in the country, strong
necessity was felt for an institution where long-term loans
could be obtained on security of movable and immovable
property. Such a loan being incompatible with the
practical working of ordinary banks, there were instances
where some difficulties were experienced by some of the
banks.
Of recent years, however, the commercial credit system
having considerably developed and the necessity of es­
tablishing a special institution for making long-term loans
for the benefit of agricultural and industrial interests being
felt, the Government made the necessary investigations
to meet this requirement. Then the war with China broke
out, with the result that a very large sum of money was
scattered among the people. On the other hand, the postbellum measures called for a large amount of capital to
be devoted to unproductive works, and it was thought
most timely and necessary to open a way for absorbing
small funds widely scattered throughout the country, and
devote them to developing agricultural and industrial in­
terests. It was on that account the Hypothec Bank and
the Agricultural and Industrial Bank were organized and
established by the law issued in 1895.

P




6 QM — MONO.\
RED.
The Hypothec Bank of Japan, created by the law relatmg thereto, has for its object the advancing of funds ,
for the purpose of improving and developing agricultural
and industrial enterprises, and the Bank is organized on
joint-stock principles, with the president and vice-presi­
dent appointed by the Government. Its principal busi­
ness is to advance loans on mortgage of immovable prop­
erty which shall be redeemable by annual installments, and
ini other businesses the Bank is placed under severe re- _
strictions. The Bank is authorized to issue mortgage
debentures-bearing premiums to an amount not exceeding
ten times its paid-up capital, provided the amount of such
debentures does not exceed the total amount of outstand­
ing loans redeemable by annual installments. The Bank
hais the privilege of the government subsidy to the exten t.
ofcguaranteeing 5 per cent dividend for ten years after its
establishment, in case the Bank’s profits fail to realize
that standard of dividend.
The Agricultural and Industrial Bank is a joint stock
company established in every prefecture. These banks
have for their object the advancing of loans for the pur­
pose of improving and developing agricultural and indus­
trial interests. Their business is similar to that of| the.
Hypothec Bank, only on a small scale. The banks are also
placed under the same restrictions and government super-:
vision as the Hypothec Bank. The banks are authorized to
issue agricultural and industrial debentures to an amount
not exceeding five times the paid-up capital. The Govern- _
ment delivered a sum of about 10,000,000 yen to the pre->
fectural authorities for taking up the shares of the agri­
cultural and industrial banks of their localities, and on
this amount the bank is exempted from paying a diyidend.
The two banks above described being exclusively en- _
gaged in making long-term loans on the security of im -..
movable property, the need arose for a financial organ
which could advance long-term loans pn the security of ^
government bonds, shares, and movable property. It wa^
also deemed advisable to combine in that financial organ
the business of a trust company. The institution b o fn ,
of these requirements is the Industrial Bank of Japan,
organized under the law relating thereto and issued • in ,
March, 1900, as Law No. 70.
The Industrial Bank is a joint stock company, and t h e .
governor and deputy governor of the Bank are appointed y
by the Governments The capital of the bank;is 17,500,000
yen, and foreigners own no small portion of ..the shares of ;
the Bank. It is acting as a medium for the introduction
of foreign capital, and thus is engaged in adjusting and
facilitating circulation of capital at home and abroad..
The Bank is authorized to issue debentures to an amount
not exceeding ten times its paid-up capital, prqyidfjl the
amount of such debentures does not exceed the total
amount of outstanding loans and negotiable instruments.
B ^ n k 'h i a government subsidy to the extent of
guaranteeing , per cent dividend for five y e ^ - ^ -




facilitating circulation of capital at home and abroad.
The Bank is authorized to issue debentures to an amount
not exceeding ten times its paid-up capital, provided the
amount of such debentures does not exceed the total
amount of outstanding loans and negotiable instruments
actually in hand.
The Bank has a government subsidy to the extent of
guaranteeing 5 per cent dividend for five years. after its
establishment in case the bank’s profit, fails to come up
to that dividend.

THE-BANK O FO O
F RM SA.
The Bank of. Taiwan (or Formosa) was established!
under the law relating thereto and promulgated in 1900.
as the law No. 38. The bank is a private stock qompany
With a capital of 5,000,000 yen, and its president is ap-,
pointed b y the Government. The Bank is placed under
several restrictions, and the Government exercises strict
supervision over the management. The privileges granted,
to the Bank consist in the Government taking up i,,000,000,
yen of its capital, for which no dividend is claimed for
five years; the authorization to issue notes against the.
guaranteed reserve to the amount of 5,000,000 yen free
of tax, and in the loan from the Government o f 2,000,090,
yen without interest for five years, to be used as a reserve,
against the issuing of notes. The purpose of the estab­
lishment of. the Bank was to reform the currency system
of Formosa, to facilitate the receipts and disbursements,
of the treasury, to develop the working of the process of
exchange, and to facilitate the investment and subscrip­
tion for the Formosa public-works bonds.
In the colonial policy of Japan the adjustment of finance
is of prime importance, and it was at first thought that it
could be carried out by intrusting the work to the Bank of
Japan or to the Yokohama Specie Bank, but Formosa
being a new territory, where special conditions prevail, it
was thought better to establish a special institution. The
result was the establishment of the Bank of Taiwan.
The Hokkaido Colonial Bank was established as a jointstock company, with a capital of 5,000,000 yen, in 1899.
The Government has an official attached to the bank, and
exercises strict supervision. The object of the bank is tq
supply the capital necessary for colonizing and develop­
ing the Hokkaido, by making long-term loans on the
Security of immovable property, payable in anpual instal?




7 '

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7 Q M— MONO.
RED.

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ments. The bank can also make other loans and issue
drafts on commercial commodities. The Hokkaido being
still undeveloped in agriculture and other industries, and
being placed under conditions different from other parts
of the Empire, it had been deemed necessary to establish
this bank in place of the Agricultural and Industrial Bank,
in order to meet the special requirements of the island.
The system and^working of different kinds of banks in
Japan, and reasons for adopting the systems, are as
briefly stated above. The appended table shows the
number, the amount of capital, etc., of those banks. It
is based on actual conditions prevailing in December, 1907:

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RED.

i

8 Q M— MONO.

BARON SAKATANI,
Ex-Minister of Finance,
on

THE

BAN KING SYSTEM OF JA PA N .
F Baron Sakatani, who was for years Vice-Minister and
*
Minister of Finance in Japan, and who possibly knows
more of the detail of Japanese high finance than any other
man in the country, regards the Central Banking System
of Japan as at least approaching perfection. He admits,
however, that there are some faults that might be eradi­
cated and is anxious to see the result of the consideration
of the question by the Monetary Commission in America.
Baron Sakatani during his recent visit to America, Eng­
land, and Europe went closely into this question of central
banking systems. He believes that such a system is ab­
solutely essential to America, and has been watching with
deep interest the various phases of the controversy within
the last six or seven years.
One of the faults found by Baron Sakatani in the pres­
ent system of Japan is that of the method of taxation of
the bank. Of course the Bank of Japan is essentially a
bank of issue, and at times is called upon to issue large
sums of money in paper. The present system of taxation
calls for a payment upon the entire amount of issue. This,
Baron Sakatani thinks, is a serious drawback and is not a
fair treatment of the bank itself. He points out that the
Government being as a matter of fact a partner in the
bank it is only entitled to a tax upon the profits made by
the bank and not to impose a tax upon the bulk issue.
Baron Sakatani says that this being in vogue in Germany
And generally on the Continent, it is the first change that
ought to be made in the present system of the Bank of
Japan.
There are, he says, a number of other amendments to
be made, but in a general way he believes the present
System of central banking in Japan is above all things
excellent, and he is not advocating any immediate changes
except that of taxation.
In discussing the Yokohama Specie Bank, Baron*
Sakatani points out that this bank, while being a tremen­
dously useful organization, is now getting away from its
original object and is becoming somewhat an object of
wrath on the part of other bankers, who claim that the
Yokohama Specie Bank, originally established for the
purpose of dealing only with foreign business, is now doing
business in the interior, and so interfering (with the gov­
ernment support) with the legitimate business of other
banks. On the other hand, foreign banks in Japan charge
that it is not equal opportunity for the banking business if
the Government enters into oartnershir»jjracHcn11v with a
♦

c




Yokohama Specie Bank, originally established for the
purpose of dealing only with foreign business, is now doing
business in the interior, and so interfering (with the gov­
ernment support) with the legitimate business of other
banks. On the other hand, foreign banks in Japan charge
that it is not equal opportunity for the banking business if
the Government enters into partnership practically with a
bank of enormous power, doing business among foreigners
as well as among Japanese. Baron Sakatani believes that
the time has come when the Yokohama Specie Bank and
the Bank of Japan should become one and the same bank,
although he believes that there will be great difficulty in
bringing such a thing about in view of the tradition sur­
rounding the Yokohama Specie Bank, which is, as it were,
a landmark in the history of Japan, standing at the point
where Japan opened her doors to foreign business when
the necessity for a bank to handle those interests arose.
Baron Sakatani submits the following paper on the
general subject of banking in Japan:

BARON SAKATANI’S VIEW
S.
The'banking system in Japan was at first modeled after
the national - bank system of the United States. The
banking regulations promulgated in 1872 very faithfully
followed the American system, so that the regulations
were almost a translation into Japanese of the American
regulations. As it was found, however, that the above
system did not work well on account of its being unsuit­
able to national conditions, the regulations were amended
in 1876 and in 1882, when the central-bank system was
adopted. The Bank of Japan was then established, and
the national banks, at the expiration of their charter of
twenty years, were not allowed to exist as national banks,
but such as wished to carry on a banking business became
ordinary banks.
In 1890 the regulations for ordinary banks and the
savings banks were promulgated, but the Bank of Japan,
the Yokohama Specie Bank, the Hypothec Bank, the
Agricultural and Industrial Banks, the Industrial Bank of
Japan , the Bank of Formosa, and the Hokkaido Colonial
Bank are placed under special laws, promulgated in ac­
cordance with their respective characters.
The Bank of Japan is modeled after the Central Bank
of Belgium, and the regulations concerning the issue of
convertible notes were copied from the German system
in order to create sufficient elasticity in its practical
Operation.

y




9 Q M— MONO
RED
RELATION O THE BANK O JAPAN TO OTHER BANKS.
F
F
The relations of the Government to the ordinary banks
are very simple. The Government for the purpose of pro­
tecting the interests of the creditors exercises supervision
over the business of those banks. The Minister of Finance
is invested with the authority to give official recognition
to their establishment and to inspect at any time the
actual state of the Banks’ business. The banks are also
obliged to publish periodical balance sheets.
The relations between the Government and the Bank
of Japan are of a very close character. When the Bank
was first established, the Government was a very large
shareholder, but the shares were afterwards completely
transferred to the Imperial Household Department. The
Bank of Japan is responsible for the custody of the Govern­
ment’s cash and negotiable instruments. It is intrusted
with the management of the treasury receipts and dis­
bursements; the investment of the treasury funds and the
management of national bonds are also intrusted to the
Bank of Japan. In this respect the Bank is almost a por­
tion of the Department of Finance, and consequently the
work of this department is considerably simplified and
facilitated. In consideration of the privilege of being in­
trusted with the receipts and disbursements of the treas­
ury the Bank is obliged to transact that business without
remuneration, except in special instances. The business
of the Bank of Japan is placed under very strict limita­
tions by law, in order to insure the stability of its business
and alsofto prevent the misuse of its influence. The Gov­
ernment exercises strict supervision over this bank.
The governor and the deputy governor of the Bank are
appointed by the Government; the directors are also
appointed by the Government from among candidates
elected by the shareholders; the Government appoints
official inspectors from among the officials of the Depart­
ment of Finance;, these official inspectors have a voice in
the directors’ meetings and also in the meetings of the
shareholders, but they have no vote in either of those
meetings.
The Bank of Japan has the privilege of issuing con­
vertible notes. This is considered the most important
function of the Bank. The mode of issuing such notes
and the duty to be paid thereon-are governed by very

Strict laws.
U

a J , i& iS iiU si-

THE 'YOKOHAM SPECIE BANK:
A

_

J

,

The Yokohama Specie Bank, was established. Count
Okuma, then Minister- of Finance, advocated the estab­
lishment of the Bank.- Jap a n ’s national finances were at
that time in a very bad shape.- The inconvertible govern­
ment notes had depreciated,, and specie was withdrawn
from the market. In- order- to remedy this state of the
money market a bank for transacting business in specie
was established, so as to absorb the specie of the country.
But this attemnt being fundamentally erroneous and its
♦




' Okuma, then Minister of Finance, advocated the estab­

lishment of the Bank.- Ja p a n ’s national finances were at
that time in a very bad shape.- The inconvertible govern­
ment notes had depreciated,, and specie was withdrawn
from the market. In- order- to remedy this state of the
money market a bank for transacting business in specie
was established, so as to absorb the specie of the country.
B u t this attempt being fundamentally erroneous, and its
method of operation being faulty, the Specie Bank
suffered a great loss and was reduced to very great
straits. Afterwards, however, great improvements were
introduced in the B an k ’s business methods by the efforts
of Count Matsukata, when Minister of Finance, and since
that time the Bank has recovered from the losses then
sustained and is at present in a prosperous state.
The directors of the Yokohama Specie Bank are
elected by the shareholders and are subject to approval
by the Government. The Government appoints official
inspectors for the Ban k’s business.
The Government was at first a large shareholder of the
Bank, but the shares have since been transferred to the
Imperial Household Department.
The Yokohama Specie Bank has very close relations
with the Bank of Japan. The latter therefore exercises
Very strict supervision over the business of the former.
The law directs the Government to make the deputy
governor of the Bank of Japan act as governor of the
Yokohama Specie Bank and to make the latter act as
director of the Bank of Japan. A t present the deputy
governor of the Bank of Japan is also the governor of the
Yokohama Specie Bank.
The Yokohama Specie Bank is exclusively engaged in
foreign exchange for the purpose of facilitating foreign
trade and for absorbing specie from abroad. For that
purpose the Bank of Japan advances funds to the Yoko­
hama Specie Bank at a specially low rate, and also redis­
counts bills at the request of the Specie Bank. The
Bank of Japan never engages directly in foreign exchange
or in sending money abroad. Government bonds abroad
and receipts and disbursements of the treasury funds
abroad are managed by the Yokohama Specie Bank un­
der the supervision of the Bank of Japan. Such funds of
the latter as are kept abroad are placed under the man­
agement of the Specie Bank.




I

10 Q M— MONO.
RED
The Yokohama Specie Bank has not the privilege of
issuing notes at home, but its agencies in China and Man­
churia are authorized by the Japanese Government to
issue silver notes payable on demand.
The entire banking system of Japan has the Bank of
Japan for its center, with ordinary banks and savings
banks, as well as the Yokohama Specie Bank, for foreign
exchange. For mortgaging immovable property, and es­
pecially for the benefit of agricultural interests, the Indus­
trial Bank of Japan and the Banks for Agriculture and
Industry were established. For the issue of shares and
debentures and for trust business, and especially for in­
troducing foreign capital into this country, the Hypothec
Bank is established. Besides those banks, there are the
Bank of Formosa and Hokkaido Bank, which act as finan­
cial organs for the colonies. Financial negotiations be­
tween Japan and Korea will be transacted by the newly
established Central Bank of Korea. Another system, de­
veloped to a very high degree of perfection, is that of
Postal Savings, distributed throughout the country, for
transacting small exchanges, and also for receiving small
deposits.
The banking system of Japan may be considered perfect
at present and adequate to meet the prevailing condition
of the country, and the efficiency of the Bank of Japan
as the center of the banks of the whole country is very
conspicuous.
As a matter of fact, however, in spite of the power and
authority absolutely vested in the Government to in­
spect the banks’ business the system for exercising that
authority is still imperfect and leaves much to be desired
in the way of enforcing that power vested in the authorities.
There is another point which calls for improvement,
namely, the imperfect and undeveloped condition of the
stock exchange of this country. The system is liable to
abuse, and consequently a considerable degree of incon­
venience is felt in mercantile transactions of negotiable
instruments, which are so closely rated to financial busi­
ness in general.
Am e n d m e n t s

A

M . J| 4JJ l i d d d &M d 4
p r o p o sed

b y

b a r o n

s a k a t a n i.

Regarding the present system of the Bank of Japan as
the central bank, I propose the following three amend­
ments :
i1. The augmentation of its capital. The present capital of
the b an k is 30 ,0 0 0 ,0 0 0 yen. This capital was de­
cided on fourteen years ago. Japan's commerce
and industry have since developed very rapidly,
dnd the financial expansion has been correspond­
ingly great. Government bonds and treasury
funds have increased several times over. More­
over, by the alteration of the currency system the
original r yen now corresponds to 2 yen, so that
this fact necessitates at least the doubling of the
amount of the capital of the bank.
2 . The extension of the limit placed on the note-issuing
%

ft

1




£
SI

„j

2.
|fl.

and industry have since developed very rapidly,
and the financial expansion has been correspond­
ingly great. Government bonds and treasury
funds have increased several times over. More­
over, by the alteration of the currency system the
original i yen now corresponds to 2 yen, so that
this fact necessitates at least the doubling of the
amount of the capital of the bank.
The extension of the limit placed on the note-issuing
capacity of the bank against the security reserve.
According to the present law, the amount of notes
to be issued by the Bank of Japan without specie
reserve, but against commercial bills and national
bonds (which are classed as security reserve), is
' limited to 120,000,000 yen. This regulation is ten
years old, and the present condition calls for an
extension on the same grounds as stated in the
preceding paragraph. It would be proper to in­
crease the sum to 150,000,000 yen.
Alteration of the amount of the tax to be paid by the
bank for the notes issued.

According to the present law, the bank has^to pay a
tax corresponding to 12/1,000 per annum of the average
amount of the notes issued every month against the secur­
ity reserve, and in the case of being permitted by the Gov*ernment to issue notes beyond the maximum amount, the
bank has to pay a tax at the rate of not less than 5 per cent
per annum. Of the above two kinds of taxes to be paid by
the bank that one which is levied on account of the issue of
notes beyond the maximum amount requires no alteration,
for this provision induces the bank to withdraw the issue as
soon as possible, but with respect to the other the obliga­
tion o f paying the tax is apt to more or less obstruct the
efficiency of the bank’s operations. It would be better to
rescind this regulation and replace it with an arrangement
whereby the bank on realizing an excess of profit over a
certain fixed rate should be made to pay a certain amount
to the Government. Such a method would be quite a
proper one in taxing a privileged juridical person like the
Bank of Japan.

s*




RED

IT QM — MONO.
CERTAIN COM
PARISONS M
ADE.

The system followed in the Bank of Japan having been
modeled after the system in vogue on the European
continent, as already stated, there is no very great differ­
ence from the European system in its operation concerning
the issue of convertible notes, the maintenance of specie
reserve, the method of absorbing bullion and the adjust­
ment of the rate of interest. There are, however, minor
differences, according to the peculiar conditions prevalent
in each of the countries where a similar system is followed.
The Yokohama Specie Bank is an institution peculiar
to Japan. When the country was, after a long exclusion,
suddenly opened to foreign intercourse fifty years ago,
there existed no financial organ for the newly opened
foreign trade, and it was for the purpose of creating the
necessary medium that the bank was established. Con­
sequently there is no bank in any other country that
could be compared with it.
In conclusion, I venture to say that without a central
bank I do not see a n y > a y whereby national finances and
the economic system can be smoothly developed. I
have studied American finance for some years, and have
come to the conclusion that the last solution of the prob­
lem can best be sought in the unification of the system
by the issue of convertible notes and the establishment of
a central bank.




RED.

12 Q M— MONO.

A GENERAL SUM M ARY

PREPARED ON A CONSENSUS OF OPINION AM
ONG PRO­
GRESSIVE BANKERS.
A summary of the history of banking in Japan, coupled
with what might be considered a consensus of opinion of
the most progressive and best informed bankers of Japan ,
has been prepared especially for this paper by Mr. S.
Naruse, who may be classed as among the best financiers
of this country. In preparing this paper he brought to
his aid the very best practical talent available. The paper
he so carefully prepared and so courteously submits is a
valuable contribution. It is absolutely free from all
possible taint of officialdom, and follows the lines suggested
by myself in a number of prepared questions calculated to
bring out the points most useful in a study of the efficiency
of the existing banking system of Japan.
Mr. Naruse wrote as follows:
In giving an explanation of our present banking system
in Japan, we will begin with the origin and history of the
banking business in this country, and elucidate the original
laws forming the bases for the present system.
There were in operation in feudal days some organs
resembling banks, under the names of “ Kwase-Gumi ”
(Exchange Company), “ Kwase G oyotashi” (Exchange
Contractors), “ K ak e-ya” (Credit House), etc., conducting
business connected with the receipts and disbursements
©f the Feudal Government, or acting as financial agents for
feudal lords, as well as giving pecuniary assistance to
business men. But the advent of real banking business
in Japan is with the promulgation of the national-bank
regulation in November, the 5th year of Meiji (1872).
The National Bank Regulations were based mainly
ujkffi the National Bank Act of the United States of
America. The regulations, in their original form, pro­
vided that the national banks should deposit with the
Government paper equal to 60 per cent of their capital,
for which amount the Government gave the Kinsatsu
(paper money, or, literally, gold notes) exchange bonds,
bn the security of which bank notes to the same amount
were to be issued. A specie reserve equal in amount to
40 per cent of their capital was to be, on the other hand,
provided for the conversion of these bank notes. B y this
means the Government aimed at a speedy withdrawal of
inconvertible notes and at giving satisfaction to the
Monetary world. In those days there was no difference
in value between paper and specie, and the system worked
well and smoothly,
. The conditions, however, became changed, when with
the 7th year of Meiji (1874) the evil effects of the over­
issue of government paper money began to be noticeable,
and as a natural result of the increase of the imports of
the country there began to take place a greatly increased
export of specie. In consequence of this the price of




inconvertible notes and at giving satisfaction to the
monetary world. In those days there was no difference
in value between paper and specie, and the system worked
well and smoothly.
. The conditions, however, became changed, when with
the 7th year of Meiji (1874) the evil effects of the over­
issue of government paper money began to be noticeable,
and as a natural result of the increase of the imports of
the country there began to take place a greatly increased
export of specie. In consequence of this the price of
gold coins daily rose, and the depreciation of paper money
rapidly set in.
,
^
Govfemffient paper money, in June of the 8th year of
M« ji (1875), showed an exchange rate of yen 1,0 17 -1,0 18
for gold yen 1,000. The national banks, having specie re­
serve for the conversion of paper money according to Regu­
lations, the demand made upon them for the conversion of
notes became exceedingly great. The notes issued were
directly returned for conversion, having no time for circu­
lation, and the banks sustained considerable losses because
6f the necessity for continuing a supply of specie on hand
for the purposes of exchange. They were obliged to use­
lessly heap up in their vaults the notes that were to be
issued for circulation, and one of the four banks then ex­
isting had not been able to issue a note since its opening
bf business. Such being the case, the specie reserves in
the banks almost disappeared and paper money was
gradually decreasing in circulation and losing its utility.
The business of the banks became difficult, and no one
dared to apply for the establishment of a national bank.
What the Government at first hoped for was not realized,
and it was apparent to everybody that the system of bank
notes, convertible with specie, could not permanently be
maintained.
1. * j {
• • .
A t this time the Government determined to apply the
Hereditary Pension Bonds (by way of reforming the Han
(Clan) system as a result of the restoration) to the Kwa2oku (Noble) and the Shizoku (Gentry or Samurai) for
their hereditary pensions or their pensions for merit. In
consequence, the issue of government loan bonds amountmt to yen 174,000,000 was necessitated. In order, there­
fore, to create a demand for these bonds, and also to
stimulate the establishment of the national banks, the
National Bank Regulations were revised in August, the
9th year of Meiji (1876), chiefly to the effect that bank
notes should be issued by the banks to the same amount




13 Q M— MONO.
RED.

'

-/

\*.
*

of and on the security of government loan bonds of over
4 per cent interest, deposited to an amount equal to 80
per cent of their capital, and that a currency reserve for
the conversion should be provided to the extent of 20
per cent of the capital, or a quarter of the actual amount
of issue. But this currency reserve meant in reality the
government paper money, to which the bank notes be­
came convertible. By this revision the convertibility of
the bank notes with gold was changed to their converti­
bility with currency. The bank notes thus becoming
inconvertible notes, and the conditions of things being
thus changed, the establishment of the national banks
was greatly encouraged, and in a few years their number
increased to 150. There was still a tendency to a further
increase of the number, but the Government, seeing that
if further establishments were granted the inevitable
result would be the expansion of inconvertible notes and
the evils thereanent would be disastrous, issued ’special
Regulations, by which the Government was enabled to
refuse the establishment of or restrict the number of
national banks, and when they numbered in all 153 no
more establishments were granted.
On the other hand, there remained in circulation gov­
ernment paper money to the amount of over 100,000,000
yen, besides the national-bank notes of inconvertible
character issued recently owing to the revision of the
national-bank regulations. The difference between paper
and specie became greater and greater. Prices rose
and bonds depreciated in consequence of the depre­
ciation of paper. Both the Government and the people
began to criticise the circulation of the inconvertible
notes, as well as the bank notes. The Government now
realized that there was nothing of greater importance in
the country’s financial policy than the adjustment of
paper currency, and felt the necessity of establishing a
central bank, which should have the sole privilege of
issuing convertible bank notes for the unification of the
currency system. Consequently the Bank of Japan was
created.
Central banks in other countries vary one from another
in their organization, but they are all alike in the point
of serving as supreme organs for the regulation of the
monetary circulation of the countries in which they are
established. In introducing into this country the cen­
tral-bank system the Government studied the systems in
Europe and America, and finally decided to adopt the
system of the Central Bank of Belgium. It is needless
to say that at the same time the Government fully con­
sidered the particular conditions prevailing in this coun­
try in framing the new central bank system in Japan after
the system prevailing in western lands. Thus in June,
the 15th year of Meiji (1882), the regulations concerning
the Bank of Japan were issued, and the foundation of
the Bank of Japan followed immediately. In May, the
17th year of Meiji (1884), the convertible bank-note regu­
lations were also issued.
The circulation of the Bank of Japan convertible notes
gradually increased, and the withdrawal of the govern­
ment paper money and the national-bank notes was
simultaneously carried out. Although in July, the 21st




try in framing the new central hank system in Japan after
the system prevailing in western lands. Thus in June,
the 15th year of Meiji (1882), the regulations concerning
the Bank of Japan were issued, and the foundation of
the Bank of Japan followed immediately. In May, the
17th year of Meiji (1884), the convertible bank-note regu­
lations were also issued.
The circulation of the Bank of Japan convertible notes
gradually increased, and the withdrawal of the govern­
ment paper money and the national-bank notes was
simultaneously carried out. Although in Ju ly, the 21st
year of Meiji (1888), some amendments were introduced
into the convertible bank-note regulations, and other re­
visions followed several times afterwards, it must be
noted that at this time the foundation of the present cur­
rency system of Japan was fixed.
The following is a gist of the present Bank of Japan
convertible note regulations:
.
The Bank of Japan shall keep gold or silver coins, or
bullion of those metals, as a conversion reserve, equal in
amount to the convertible bank notes issued. The
amount of silver coin and silver bullion shall not exceed
one-quarter of the whole amount of conversion reserve.
The Bank of Japan may, outside the provisions of the
preceding paragraph, further issue convertible bank notes,
on the security of government bonds or treasury bills, or
other bonds and commercial bills of a reliable nature,
within the limit of 120,000,000 yen; of this amount, how­
ever, 27,000,000 yen shall be set apart to be issued after
the first day of January, the 22d year of Meiji (1889),in in­
stallments, from time to time, in proportion to the amount
of the national bank-notes redeemed.
The Bank of Japan may, outside the provisions of the
two preceding paragraphs, make still further an increase
of convertible bank notes, in order to meet special emer­
gencies of the market, and with the special permission of
the Minister of Finance, on the security of government
bonds or treasury bills, or other bonds or commercial
bills of a reliable nature. The notes shall be subject to a
special tax of not less than 5 per cent per annum, the rate
of interest to be fixed in each case by the Minister of
Finance.

i

%

J9




14 Q M— MONO.
RED
The Bank of Japan shall supply by way of loan not more
than 22,000,000 yen to the Government, without interest,
for the purpose of redeeming the government paper
money. The period of time within which this loan shall
be repaid by the Government and the rate of annual in­
stallment shall be fixed by the Minister of Finance.
Now that the business organization of the Bank of Japan
was complete, the national-bank regulations were revised
to the effect that their term of business should expire at
the end of twenty years, and that if they desired to con­
tinue their business thereafter they might only do so by
becoming private banks. At the same time the rules for
redeeming the national-bank notes were laid down and put
into operation. At the expiration of their term of busi­
ness most of the national banks were reorganized and
have continued their business till this day purely as pri­
vate commercial banks, acting as organs of general trade,
in accordance with the bank regulations promulgated in
August, the 23d year of Meiji (1890).
The revision of the National Bank Regulations in the
ninth year of Meiji (1876), side by side with the issue of
the hereditary pension bonds, gave an impetus to the
establishment of banks, and in about the twelfth year
of Meiji (1879) the financial organs of the country for
domestic purposes were nearly complete, but for foreign
trade purposes there existed only two or three branches
or agencies of foreign banks. At this time the paper
money increased in circulation, the difference in value
between paper and silver became considerable, and it
resulted in the outflow of specie abroad, which brought
about a scarcity of gold and silver coins and a consequent
distress in commercial and financial circles.
In order, therefore, to lay the foundations of the financial
welfare of the country, the establishment of an organ for
facilitating the monetary market was of paramount impor­
tance at this time, and in November, the twelfth year
of Meiji (1879) the Yokohama Specie Bank was established.
It was after the promulgation of the National Bank
Regulations that this bank was created, and it was for
the time being-controlled by the same Regulations. But,
with the gradual expansion of its business, and in order
to distinguish it in connection with foreign commercial
intercourse from the ordinary banks, the Government
issued the Yokohama Specie Bank Regulations in the
twentieth year of Meiji (1887), and made the Bank assume
a special position of its own. The Bank has since come
under government control under the new regulations! and
its chief object is to act as a financial organ for foreign
tsade. It is now one of the most important figures in the
financial world of the country.
Seeing that the Central Bank was already founded,
with numerous ordinary banks under it scattered all
over the country, and that a foreign trade organ, the
Yokohama Specie Bank, was also established, it seemed
likely that the mechanism for commercial purposes was
nearly complete. These provisions, however, viewed
from the point of scarcity of capital, were found to be
still insufficient, as similar organs were lacking in respect
of agriculture and industry. The Government, then set
»




trade. It is now one of the most important figures in the
financial world of the country.
Seeing that the Central Bank was already founded,
with numerous ordinary banks under it scattered all
over the country, and that a foreign trade organ, the
Yokohama Specie Bank, was also established, it seemed
likely that the mechanism for commercial purposes was
nearly complete. These provisions, however, viewed
from the point of scarcity of capital, were found to be
still insufficient, as similar organs were lacking in respect
of agriculture and industry. The Government then set
about establishing the Hypothec Bank of Japan and the
Agricultural and Industrial Banks as monetary organs
for agriculture, and of the Industrial Bank of Japan as a
monetary organ for industry. These institutions were
finally created.
The Hypothec Bank of Japan mainly acts as financial
medium for agriculture, and was founded after the system
of the Credit Foncier de France. Its principal business
consists in making long-period loans at low rates of interest
on the security of real estate for the purpose of the im­
provement and development of agriculture and industry.
It has as its local organs the Agricultural and Industrial
Banks established for the same purpose, and they co­
operate to provide financial facilities for agriculture and
industry, and by this means to enhance the national
wealth. To get the funds for loans, these banks are
authorized to issue debentures and conduct business
under the Government’s special supervision.
The Industrial Bank of Japan was founded (its organi­
zation being chiefly based on that of the Credit Mobilier
of France) as a financial organ for industry just as the
Hypothec Bank is for agriculture. According to law
the limits of its principal business are to make loans on
the security of national loan bonds, local loan bonds, or
shares of companies, to receive deposits of money and
keep custody of goods intrusted for safe-keeping, to
undertake a trust business in relation to local loan bonds
or the debentures and shares of companies, and to make
loans to public bodies organized by law. The bank is
thus unable to a certain extent to carry on business
similar to that of ordinary banks, but it is endowed with
the privilege of issuing debentures to an amount of ten
times its capital. The business management of this bank
is also under the direct control of the Government.

if
y




15 QM— MONO.
RED

4

Besides the above-named banks there are the Colonial
Bank of Hokkaido and the Bank of Taiwan (Formosa),
but as these are special organs of colonial nature having
little relation to the general economic situation we have
omitted to deal with them.
To explain first the relation of the Government with
the Bank of Japan, we would say that its difference from
that of ordinary banks lies in the bank having the privi­
lege of issuing currency notes, and it is by this privilege
that the bank has various dealings with the Government.
As already stated, the Bank of Japan was originally created
for the purpose of withdrawing government paper money
and national-bank notes, changing and unifying these into
paper notes having specie reserve. The bank is therefore
legally bound to make loans without interest to the Gov­
ernment to a limit of 22,000,000 yen for the purpose of
redeeming the government paper money. It manages
without any charge the receipts and the expenditures of
the national treasury and transacts all business concerning
the national loans. Formerly the receiving of moneys of
the national treasury and their disbursement were intrusted
to the so-called exchange dealers. These exchange
dealers, however, were a group of private individuals,
private banks, and national banks, and were considered
doubtful as to their capabilities and credit. As the
volume of cash receipts and disbursements increased the
control of these exchange dealers became objectionable,
and in the Bank of Japan act it was specified, in article 13,
that the Government might intrust to the Bank of Japan
the function of receiving and disbursing state funds.
According to the government treasury regulations there
are the central, the main, and the branch treasuries.
The central treasury is located in Tokyo, the main
treasury in each of the municipalities and prefectures and
in .Sapporo, Hakodate, and Nemuro, and the branch
treasury in various places where the minister of finance
deems its location necessary. The branch treasuries are
supervised by the main treasuries; the minister of finance
exercises superintendence over all the treasuries, and as
occasion may require he dispatches officials to any treasury
office for the inspection of treasury books. Now this
treasury business is managed by the Bank of Japan, and
the bank is solely responsible for the custody, receipts,
and disbursements of cash. The affairs of the main and
branch treasuries in various places are dealt with at the
branches or agencies of the Bank of Japan in the respective
places. The governor of the Bank of Japan is the cashier
of the government treasury, and the heads of the bank’s
branches or agencies are his proxies.
G n the convertible notes issued by the Bank of Japan
on security reserve the Government imposed a tax at the
annual rate of 1.25 per cent for the total issue, less the
amounts lent to the Government or others without interest
or at any annual rate of interest not exceeding 1 per cent.
As for the issues in excess of the limits specified by law, a
tax is levied at a rate of not less than 5 per cent per annum,
fixed by the Minister of Finance at each time of such issue.




of the government treasury, and the heads of the bank’s
branches or agencies are his proxies.
!0 n the convertible notes issued by the Bank of Japan
on security reserve the Government imposed a tax at the
annual rate of 1.25 per cent for the total issue, less the
amounts lent to the Government or others without interest
or at any annual rate of interest not exceeding 1 per cent.
As for the issues in excess of the limits specified by law, a
tax is levied at a rate of not less than 5 per cent per annum,
fixed by the Minister of Finance at each time of such issue.
Among the relations of the Government with the Bank
of Japan, those specified by the Bank’s act are as follows:
(1) Any person desiring to become a shareholder of the
Bank of Japan shall obtain the permission of the
Minister of Finance. (Art. 6 of the act.)
(2) For the purpose of buying or selling government bonds
the Bank shall obtain the permission of the Minister
of Finance. (Art. 16 of the act.)
(3) The governor and vice-governor of the Bank of Japan
shall be appointed by the Government. The
directors of the Bank shall be selected by the share­
holders of the Bank at their general meeting and
shall be approved and appointed by the Minister of
Finance.
(Arts. 18 and 19 of the act.)
(4) In making advances in current accounts or loans for
a fixed period the Bank of Japan shall obtain the
sanction of the Minister of Finance as to the amount
of such advances and loans and the rates of interest
to be charged. (Item C of Art. II of the act.)
(5) The Government superintends all the business of the
Bank of Japan and restricts or forbids the acts of
the Bank not conforming to the Bank’s act or arti­
cles of association or contrary to the interests of
the Government. (Art. 24 of the act.)
The Yokohama Specie Bank is not directly endowed
with any privilege by the Government, but has the con­
cession of getting a loan of 20,000,000 yen at the low inter­
est of 2 per cent from the Bank of Japan and utilizing the
same for the foreign exchange funds. Although this is a
connection of the Bank with the Bank of Japan, it should
properly be noted that this special arrangement was
brought about by the Government’s aid only. The Bank
is charged, on the other hand, with the duty of handling,
by the Government’s order, matters concerning the gov­
ernment loans and moneys in connection with foreign

s




9

16 Q M— MONO.
RED.
countries. Thus the Yokohama Specie Bank’s connection
with the Government is less than that of the Bank of
Japan, but it is under the control of the Minister of Finance,
whose approval or supervision is necessary in all the busi­
ness matters of the Bank, as well as in the appointment of
its directors.
Let us now dwell upon the relations between the Bank of
Japan and the ordinary banks. It goes without saying
that the business of ordinary banks consists principally
in handling their own capital and the deposits of the
public, but in case of further need of capital they approach
the Bank of Japan for the discounting of commercial bills
or loans on security. The Bank of Japan has made it a
principle since its establishment to aid the ordinary banks,
and there exists a considerable gulf between the rate of
interest of the Bank and that of ordinary banks—that is,
the discount rate of the Bank of Japan is, as a rule, much
lower than that of the ordinary banks. The unavoidable
result of it was that some banks, taking advantage of this
difference, made it their chief business to earn the amount
of difference for themselves by becoming intermediaries
between private individuals and the Bank of Japan. We
must here observe that the relations between ohr Central
Bank and our ordinary banks differ greatly from those in
foreign countries, especially from those in England, Ger­
many, or France. This difference lies in the special cir­
cumstances under which the Bank of Japan was first
established, and this state of things has influenced the
general banking system of this country not a little. The
business methods of the Bank of Japan always tend to
affect those of the ordinary banks. For instance, if, under
Government’s financial condition, the capital of the Bank
of Japan becomes tight, the money market will soon be
affected thereby. Thanks, however, to the steady growth
of this country’s economic conditions, the system adopted
at the earlier stages by ordinary banks of making profit
by the difference of interest is gradually disappearing.
In considering the advantages and disadvantages of the
banking system in this country, we shall study the two
following questions:
(1) Whether there should be special banks respectively
fpr agriculture, industry, and commerce, or whether
one bank should act for all three lines.
(2) Whether the banks should be separately and inde­
pendently established, or whether the branch sys­
tem should be adopted.
In England and America one bank performs the finan­
cial functions for agriculture, industry, and commerce, but
on the Continent of Europe there are special monetary
organs for each of the three branches. To arrive at a con­
clusion as to which of the two systems is superior to the
other, we shall discuss the different ways in which the
capital is utilized in the three cases. The following are
the three points in which the nature of the capital varies




in .England and America one bank perform* ute tinan*
pial functions for agriculture, industry, and commerce, but
on the Continent of Europe there are special monetary
organs for each of the three branches. To arrive at a conplusion as to which of the two systems is superior to the
other, we shall discuss the different ways in which the
capital is utilized in the three cases. The following are
the three points in which the nature of the capital varies
in the three lines:
(1) In the period of redemption, capital has the quickest
return in commerce. The money invested is
brought back immediately by the disposal of the
merchandise, and again used for other goods, the
term of credit not being in consequence neces­
sarily long. In industry the capital becomes
fixed in machineries, factories, etc., but the money
invested in raw materials is restored as soon as
the materials are manufactured and sold. On the
other hand, the capital for agricultural purposes
is all spent on land, implements, etc., and becomes
fixed, except a small portion spent on fertilizers,
seeds, labor, etc. The return of capital is slowest
in agriculture, it being effected only little by little
annually.
(2) Regarding the certainty of redemption, the capital
invested in commerce is only influenced by arti­
ficial market fluctuations, which govern the busi­
ness profits, while agricultural pursuits are af­
fected by natural causes, uncontrollable by human
energies, and the return of capital in agriculture
can not be insured.
(3) As regards the renewal of capital, agricultural pur­
suits, unlike the other two lines, require little, the
period in which the capital becomes fixed being
long, unless the land purchased meets with some
catastrophe. In industry, renewal is necessary to
J
a certain extent on account of the wearing out of
plants and buildings and of the sale of the articles
of manufacture. In commerce the capital fixing
term is shortest, and with the sale of goods the
renewal will be necessitated.
As the operations of capital thus vary in the three
pursuits, there should accordingly be various kinds of
banks for supplying the capital.
In Japan we have as mercantile banks the ordinary
banks with the Bank of Japan as their center; as industrial
bank, the Industrial Bank of Japan; as agricultural bank,
the Hypothec Bank of Japan. We believe in this respect
that our system of monetary organs is perfect.
^




17 Q M— MONO.
With regard to the single and branch systent of banks
there are different circumstances in different countries
under which the banks have grown. In some countries
there are numerous independent banks, and in others a
few large banks have branches under them. For instance,
the United States of America belong to the former and
Scotland to the latter. The advantages and disadvantages
of both systems can not be easily ascertained, but, endeav*
oring to reach an unbiased judgment, we may say that
in the branch system the advantages are more numerous
than the disadvantages.
Let us try to enumerate the advantages of the branch
system :
(1) By the branch system the efficiency of capital may
be augmented; the kinds of capital may be aug«
mented and also may be easily altered, Hasty
change in the rate of interest may consequently
be avoided and elasticity in business management
may be secured.
(2) The utility of the banking system may be extended
to remote parts of the country.
(3) Rash competition among banks does not take place,
(4) Reliable and timely reports on economic conditions
are obtainable from various districts.
(5) Economization of business expenses is made possible.
The above are the advantageous points of the branch
system, and the following may be stated as the disad­
vantages in adopting the same system:
(1) The controlling of the] branches is a matter of great
difficulty.
(2) The failure of one branch may work a change on the
main bank as well as in the other branches.
The advantages of the branch system as above pointed
out are mainly those that are positively beneficial to the
public interests, and the disadvantages are rather evils
that may be avoided if proper care is exercised.
In the banking system of this country, independent
banks of small means are spread over the country, owing
to circumstances special to the country, many of them
being bequeathed by the old national-bank system. Men
of experience in the country early urged the necessity of
amalgamating banks, and a special law known as the
Law for the Amalgamation of Banks has been issued.
The number of the branches of banks has recently in­
creased, but we are not yet at the stage of the perfect
branch system.
We have so far gone over the general features in our
banking system, and we shall now go on to treat of our
central bank system.
Our Central Bank, the Bank of Japan, is the only organ
in the country for issuing paper notes, and is based on
so-called centralization system of issue.
« **
In the note-issuing bank system there are two systems—
centralization and separation. To see which is superior to
the other, we will here enumerate the different points in
the former that are positively beneficial to the interests of
the financial as well as to the political world.
Viewed from the financial point, the centralization
system is superior in the following respects:
(1) A country has at times to make large payments in
soecie to foreign ''o u n tries in
with tr**^0
/i




in the country for issuing paper notes, and is based on the
so-called centralization system of issue.
>
In the note-issuing bank system there are two systems—
centralization and separation. To see which is superior to
the other, we will here enumerate the different points in
the former that are positively beneficial to the interests of
the financial as well as to the political world.
Viewed from the financial point, the centralization
system is superior in the following respects:
(1) A country has at times to make large payments in
specie to foreign countries in connection with trade
or loans raised. In such cases, if the separation
system is adopted, the specie reserves in different
banks are collected, thereby affecting the money
market in the same way as an outflow of specie
would affect it. If the Central Bank system is
adopted, and the specie reserve remains concen­
trated from time to time to provide for such
emergencies, the effects will be minimized,
(2) In the centralization system, the Central Bank has the
power of influencing the other banks, and can
readily accumulate the specie reserve by means of
discounts, the elasticity of currencies being thus
amply secured.
(3) As the Central Bank handles immense capital, it has
real power to supply capital, and its responsibility
for the money market is unique, as it clearly stands
as a public organ. If a panic sets in, the Central
Bank will be able to restore order much more
easily and more firmly than in the case where
banks with little credit abound.
Viewed from political and economic points, the central­
ization system is also superior in the following respects;
(4) If the Central Bank carries on its business as the
central organ in the market and continues to re­
ceive the public credit, the Government will be
enabled in time of serious emergencies to meet its
own requirements by borrowing the funds the
Central Bank collects on its own credit.
(5) As a country’s finances expand the receipts and dis­
bursements of the national treasury will surely
have a most important effect on the monetary
circle of the country, and if the Government makes
the national treasury the custodian of taxes col­
lected and all the other revenue and continues to
do so without moving them till their due dates of
disbursements, it will, as a matter of course,
greatly hinder the circulation of capital. In the
separation system of banks, the above course of
things may become unavoidable, but under the
centralization system there is the reliable Central
Bank, to whom the Government intrusts the
national treasury receipts and disbursements, and
the bank may utilize in the market the receipts till
their due dates of disbursements, and the bad
effects on the markets of the accumulation of receipt§ in the national treasury will be thereby
minimized.




18 Q M— MONO.
RED.
The above are the general advantages attending the
hank centralization system, and as our Bank of Japan is
endowed under this system with the privilege of issuing
paper notes, it may be said that our authorities have also
left no stone unturned in this direction.
As the Central Bank is the only bank privileged to issue
notes, it is but natural that the Government should inter­
vene in the business management and the appointment
of the governor, directors, etc., of the bank.
Loans and discounts are the two lines to which the Cen­
tral Bank attaches special importance, as ordinary banks
do. These form the chief source of profit for the Bank, and
although if the Government interferes with the Bank’s
business it may inconvenience the bank, still it must be
noted that it is only proper for the Government to do so,
as the bills, bonds, etc., received by the Bank in making
loans and discounts constitute a part of the reserve fund
for convertible notes. As the credit of convertible notes
is secured and established by the regulations for issuing
bank notes, the Government must control the selection
of bills, bonds, etc., to be received, and direct the business
of the bank and control the nomination of its staff.
We shall now further touch upon our methods of issuing
convertible bank notes. In the convertible note regula­
tions of our Central Bank the principle followed is to pro­
vide the full amount of specie reserve, a fixed amount of
issue being also allowed against securities, and in case of
further necessity of issue, an excess issue is allowed on the
condition of paying a tax at a rate of not less than 5 per
cent per annum. This is what is called the elastic limita­
tion mode of issuing, and much resembles the German
mode, on which it was originally modeled. But the point
in which our mode excels over all others is that the per­
centage of the tax imposed for excess issue is on each oc­
casion fixed by the Minister of Finance according to the
circumstances then prevailing. The object of taxing ex­
cess issue is to check the over-issue in meeting the urgent
requirements of the time when the money market becomes
tight and the rate of interest tends to rise. If, therefore,
a fixed rate is levied, and if the rate is too low, the excess
issue will even be made at ordinary times, and if the rate is
too high the excess issue will only be made after the ab­
normal rise of interest, and the proper time of making ex­
cess issue will be missed. The rate of the tax should not
therefore be a fixed one, but should be, as in our own case,
buoyant and changeable according to the needs of the
time.
In the German system commercial bills only are avail­
able for the reserve, but in our system the government
bonds, treasury bonds, or other bonds of reliable nature
are used for the purpose, besides commercial bills. E x ­
perience having shown the uncertainty of refunding public
loans in critical moments, the exclusive adoption of com­
mercial bills may be the proper measure to be taken; but
here in this country, where commercial transactions are not
yet fully developed and the supply of bills is insufficient,
the use of public bonds as reserves can not for the time
^

_____




’ T .- '

In the German system commercial bills only are avail­
able for the reserve, but in our system the government
bonds, treasury bonds, or other bonds of reliable nature
are used for the purpose, besides commercial bills. E x­
perience having shown the uncertainty of refunding public
loans in critical moments, the exclusive adoption of com­
mercial bills may be the proper measure to be taken; but
here in this country, where commercial transactions are not
yet fully developed and the supply of bills is insufficient,
the use of public bonds as reserves can not for the time
being be totally excluded.
Considering all points here explained, our banking sys­
tem may be said to be nearly perfect in the main, though
in its details there is room for revision. However, we are
still backward in our banking achievements as compared
with those of Europe and America. This is to be attrib­
uted to the fact that our banking system is only a little
over thirty years old, and the time is not ripe yet for its
development, and that our commerce and industry in
general, though they have made gigantic strides, can not
yet vie with those in western, lands.
We shall now recapitulate the system, administration,
and business of our Central Bank, comparing them with
those of the central banks in foreign countries, especially
in England, France, and Germany.
In issuing notes the Bank of Japan may do so on the
security of government bonds, treasury bills, commercial
bills, etc., to a limited amount, besides issuing convertible
notes with specie reserve; further, if the market wants
more currency for circulation,, the Bank is also enabled to
issue notes with securities, provided the Government per­
mits it, and a tax of 5 per cent or over per annum is paid.
In the case of the Bank of England the issue with specie
reserve and the limited issue with security reserve only are
permissible, and the excess issue as in our system is not
allowed. It is customary in the Bank of England for its
issuing department to have always the security reserve to
its full amount, and the notes are issued to their full
amount, which always remains without any increase or
decrease, and the elasticity of notes is maintained by virtue
of the deposit reserve in its business department. If a large
amount of specie is required owing to a special market con­
dition, the influx of specie is invited by means of a move­
ment in the interest rates.




19 Q M— MONO.
RED
The system of our Central Bank is very much like that
of the Imperial Bank of Germany. While in our system
the providing of full amount specie reserve is the principle,
the proportional reserve system of providing specie to
the minimum amount of one-third of the amount of con­
vertible notes issued is to a certain extent adopted in the
case of the German bank; and whereas the minimum
rate of tax on excess issue is 5 per cent in ours, the rate
being fixed by our Minister of Finance on each occasion,
the same is fixed at 5 per cent per annum all around in the
German bank.
The Bank of France differs totally in principle from
the Central Bank of Japan, Germany, or England. In
France the maximum emission system of notes is followed,
and the maximum amount of notes to be emitted is fixed.
The kinds and amounts of conversion reserve are left
entirely to the discretion of the note-emitting bank, there
being no legal restrictions on same.
As. to the administration of central banks, they are in
every country under the strict and careful supervision of
the respective governments. In the scheme of electing
and appointing the principal officials, the Bank of Japan
closely resembles the Bank of France. In both cases the
nomination of the governor and vice-governor is made by
the Government, the directors and officials under them
being elected by the shareholders, and the discount com­
mittee for examining the bills to be discounted is elected
from among the stockholders. The points of detail in
which they differ from each other are that where there
are one governor and two vice-governors in the Bank of
France, the former being elected from among the stock­
holders holding 100 shares or over, and the latter from
among those holding 50 shares or over, there are in our
Bank one governor and one vice-governor, nominated
exclusively by the Government, and only the directors and
the officials under them are chosen from among the share­
holders and appointed by the Government. In our sys­
tem there is also a special provision for making the mem­
bers of the discount committee discharge the duties of
the comptrollers. In the Imperial Bank of Germany the
organization is like that of a government office, the or­
ganization being very rigorously drawn up. Its business
management is supervised by the inspection board, the
chairman of which is the state premier, and has four coun­
cillors, one of which is appointed by Imperial nomination,
the other three being nominated by the Bundesrat, or
Federal Council. The administrative board, under the
control of the state premier, manages the business of the
Bank, the state premier directing the] business, and the
Bank in dealing with the public is represented by this
board, consisting of a president and a few directors, whose
decisions, made by a majority and approved by the state
premier, are carried into practice. The president and
directors of the administrative board are chosen by the
Bundesrat and appointed by Imperial nomination. In
the Imperial Bank of Germany the shareholders have
only to elect a committee consisting of fifteen share­
holders, who express the opinions of the shareholders




X' C U C I cil

UAAWAA.

A i*v

control of the state premier, manages the business of the
Bank, the state premier directing thej business, and the
Bank in dealing with the public is represented by this
board, consisting of a president and a few directors, whose
decisions, made by a majority and approved by the state
premier, are carried into practice. The president and
directors of the administrative board are chosen by the
Bundesrat and appointed by Imperial nomination. In
the Imperial Bank of Germany the shareholders have
only to elect a committee consisting of fifteen share­
holders, who express the opinions of the shareholders
regarding the Bank’s business for the administrators’ ref­
erence. In the Bank of England a court of directors con­
sists of the governor, deputy governor, and twenty-four
directors, all being elected from among the stockholders,
but the governors from among the directors. According
to the custom of the Bank of England, the governor
consults with the cashiers of the bank regarding the
management of the affairs of the bank. The cashiers
are appointed and organized by one who was formerly
the governor or deputy governor, or who is in position
to succeed to either of the two positions.
As regards the particulars of the management of the
affairs of the central bank in this country and that in
foreign countries, we can not here make detailed compari­
sons; still in all countries the central bank serves as the
supreme organ in the money market and the center of
the financial operations of the country, also as a medium
for developing the country’s commerce and industry, and
thus the principal object of a central bank is the same in
every country. The kinds of business transacted by the
central banks in different countries are as follows:
THE BANK OF JAPAN.

Discounting or purchasing of bills; buying and selling
of gold and silver bullion; receiving deposits of all kinds;
accepting the custody of coins and documents; making
advances in current account or loans for a fixed period on
the security of government bonds, treasury bills, or other
bonds guaranteed by the Government. The bills dis­
counted by the Bank of Japan shall be such as are in­
dorsed by two or more persons and payable within one
hundred days; provided that goods or warehouse certifi­
cates for the goods have been surrendered as security, the
bank may discount bills carrying only one indorsement.




20 QM— MONO.
THE BANK OF ENGLAND.

Buying and selling of specie, bullion, and bills of ex­
change; discounting of bills; receiving deposits; and mak­
ing loans on securities.
THE BANK OF FRANCE.

Discounting of bills payable within three months; re­
ceiving deposits; accepting the custody of coins, precious
metals, and documents; making loans on the security of
government bonds and company debentures; issuing of
short-term bills.
THE IMPERIAL BANK OF GERMANY.

Buying and selling of gold and silver bullion and coins;
discounting, buying, and selling of bills payable within
three months and carrying two or more reliable indorse­
ments, and of the debentures issued by juridical persons
in the realm or states of Germany and redeemable for
face value within three months; making loans with interest
for not more than three months and on the security of
movables; receiving of deposits.
Besides the above, the receipts and disbursements of
the national treasury funds and the handling of principal
and interest of the national loans are the affairs intrusted
to the Central Bank in every country. The kinds of
business transacted by the Bank of Japan are as already
mentioned, but twenty years ago, when the money market
was under straitened circumstances, the discounting of
bills with security of company shares was opened in
order to facilitate the supply of capital for the company
shares; and as the shares of companies of reliable standing
are now accepted as securities for bills discounted, the
restriction of rejecting the company shares as securities
has been practically done away with.
With reference to the discount tariff, the Central
Banks in England, France, and Germany generally put
the official rate at a higher point than the rate of ordinary
banks, and if the market becomes tight and the rate of
ordinary banks rises above that of the Central Bank
owing to the scarcity of funds in the market, then the
Central Banks, in these countries, come to the rescue of
ordinary banks; but on the contrary, the Bank of Japan
keeps the rate at a low point even in ordinary days, and
makes it her constant object to prop up the ordinary
bank. In regulating the influx and outflow of specie
consequent upon international relations the Bank of
Japan, the Bank of England, and the Imperial Bank of
Germany all take the same steps in fluctuating the dis­
count rate— a measure which is evidently effectual. The
Bank of France alone does not follow the same course and
strives to keep a fixed rate. To control the outflow of
specie, therefore, the Bank of France charges a certain
rate of commission on the conversion of notes to gold.
Although this conversion premium seldom exceeds seven
or eight thousandths of the amount of conversion, it has




J

f W*W
4

**

“
“

“*0

-'

A

Germany all take the same steps in fluctuating the dis­
count rate— a measure which is evidently effectual. The
Bank of France alone does not follow the same course and
strives to keep a fixed rate. To control the outflow of
specie, therefore, the Bank of France charges a certain
rate of commission on the conversion of notes to gold.
Although this conversion premium seldom exceeds seven
or eight thousandths of the amount of conversion, it has
effectually controlled the specie outflow and protected
the specie reserve of the Bank of France, lh e measure
seems to be one that is necessitated in France owing to
the coinage system of that country.
The Yokohama Specie Bank is a special bank in this
country carrying on business under regulations differing
from those for ordinary banks. But the business done by
the bank is similar to that of an ordinary bank, except
that the bank has as its main object to aid foreign trade.
The reason of its being under the Government control
under special regulations is only because the bank is privi­
leged to borrow funds from the Bank of Japan at a low
rate of interest for the purpose of facilitating foreign trade,
and also because it deals with the government moneys
abroad. The Yokohama Specie Bank is not the only bank
in Japan engaged in foreign transactions. It transacts
business as an ordinary bank as well, and we can not here
see our way to specially compare this bank with the large
financial organs in foreign countries. It may be sufficient,
therefore, to give the essential points of the regulations and
tlje articles of association of the Yokohama Specie Bank,
as follows:
“ The Yokohama Specie Bank shall be a limited asso­
ciation. The capital of the bank shall be 24,000,000 yen.
The shareholders of the bank shall be Japanese subjects
only.
“ The number of directors shall not be less than five,
the number of inspectors shall not be more than three, and
they shall be elected at an ordinary general meeting of
shareholders from among the shareholders. The election
of the directors shall be sanctioned by the Minister of
Finance.
“ The president and vice-president shall be chosen by
the directors from among themselves. Their election
shall be sanctioned by the Minister of Finance.”
The business of the bank is: The purchase and sale of
foreign bills of exchange, credits and documentary; the
purchase and sale of inland bills of exchange, credits and
documentary; loans; deposits of all kinds, and custodies;
discounting and collecting bills of exchange, promissory
notes, and other negotiable paper; exchange of coins or
moneys; purchase and sale of public bonds, gold and sil­
ver bullion, and foreign coin. The bank shall, when so
ordered by the Government, act in all matters connected
with public loans or government moneys in foreign
countries, j j j u i . j ™ :

. -




■

CITY, YP-'

z m s w * •
,■
’

I -i

l - ’l i .

‘•.on.

. H. V reai& no, V i c — C h ^ im a n N a t i o n a l Monetary Commit:3i o n .
Dr. A. P. And roar, Ao a i a h in ^ S a cr a * a r y o f th e T r e a s u r y .
Mr. a . ? . Duvinori, o f Haw York C i t y .
Mr, L u t h e r Drak , F h r c h ^ n t s N a t i o n a l ra n k , Qmah&# Fob.
Dr. Jrxrcoa B. Morgan, Plrot.
t o n a l bank, Chicago* 1 1 1 .
; r . A. B a r to n H^pbu^n, Cliaoo F&tl. Bank, New York C ity •
:' r . C l i f f o r d H u b b ^ ll , B u f f a l o * •’* ■ York.
.>
Mr. 0 . H. K n t t l g * Third Hat. j.om*JL Biiauet S t . Louis* Mo.
?-r. Stod dard J o s s , t?irat M o tio n a l B*nk* Lua A n g e l a s , C a l .
xudge J.
. Jax 7k t d , 1 on ~j (ferni • < Am r i c >•r; a n k f 3 r.. PanXt
o
<
in n u e o ta *
*:,r . Joaeph A, McCord* T hird -Lux. B&m:* A t l a n t a , d a.
•T. C. S tjlteiri
t*er*j,>n* P h i l a d e l p h i a , Punna.
Dr. P. v . P r i n c e , F i r s t H a t l . lLur * . I n n o a y o l i a , F i n n .
Mr# ’ X i i n or* ' , o f •e-v York C i t y ,
Di
r.
■ rge : .
o
n o l d o , Con i n \ 1 no C o r a e r c U u
. io n x
\v,nk, Chic.vo* Xlx.

r.

, fi ril Vatlon 1

Hr# JT f«
.

■ | ' , P] r ■

■| . I

1

nk9 8 I n c in i 1, 8»
■, .

■:: ’ . ’; ,

.

r . r r a o o l o 1# l i a f i i W a tlo a a l f i a m t ^ank, B o sto n * Maas.
Mr. "..rv . * in S t i on :* .‘fr. * ’•lc*t: .
n■ r
•• ' " . ,
York C i t y .
Mr.
. P. 8 ’inney * ^insfc N a t i o n a l B^nk* Kan»a..= f i t ; , F l a a o u r i .

Mr. V« '. ' a ii r li P i President National City Dank, :

Y <
< •';

C ity.
- .

P

t w

r.

Paul F.

r.
r.

\
.

.
t

-7 *

»

r c

'

J

'

. 1 1■n
.

J

» ;■

,

- .
r

I •;■•

:

,

V .

e;oburg, New York C i t y .

tt r , ’jrat Natl
:r ,
;■n
C 5

..• ,
voh-viJ.,,.’ , ' n: .
.. Motional Bankt Few Orloanaf La.

i?

T T WI3T0PY A TI TtfR Pro POSKT) VPTIPP’FNT OF WF. u w m i STATE'S NDTKS.
TR
N

At t h e V'Op^ir^ing o f th e c i v i l

war, a l l t h e h o l l a r s

in t h e l o y a l

S t a t e s c o n s i s t e d o f a b o u t $ 2 5 0 , 0 0 0 , 0 0 0 o f g o l d , and about $ 1 2 0 , 0 0 0 , 0 0 0
o f S t a +o hank n o t e s ; and more th a n h a l f o f t h a t g o l d was th e p r o p e r t y
o f t h e ban V s, and was in t h e i r p o s s e s s i o n .

At i t s o x i r a s e s s i o n o f

J u l y , 1 8 6 1 , C o n g ress p a s s e d laws which a u t h o r i z e d t h e S e c r e t a r y o f th e
T rea su ry xo borrow $ 2 ^ 0 , 0 ^ 0 , non, m e n
to issu e

i n t e r e s t - b e a r i n g b o n d s ; and a l s o

$ 5 0 , ^ 0 0 , 0 0 0 in t r e a s u r y n o t e s ,

o f l e s s d e n o m i n a t i o n s th a n $50.

and not. l e s s than $ 1 0 , p a y a b l e on demand, without, i n t e r e s t ,
leg a l tend er.

and n o t

In p u r s u a n c e o f t h o s e l a w s , and p r i o r t 0 F e b r u a r y , 1 8 6 2 ,

t h e S e c r e t a r y o f th e T r e a s u r y i s s u e d a l l t h o s e t r e a s u r y n o t e s ;

and he

a l s o borrowed $ 1 0 0 , 0 0 0 , 0 0 0 in g o l d f*rom th e banks in. i be p r i n c i p a l
c i t i e s upon t h a t amount o f b o n d s , b e a r i n g s e v e n and t h r e e - t e ^ t hs p e r
cent

in terest;

and be a*i s o t r i e d t o b orrow $ 5 o , 0 0 0 , 0 0 0 i n g o l d ,

bonds b e a r i n g s i x p e r c e n t
ed b o n d s , at a d i s c o u n t

in terest,

on

ue d i d n e g o t i a t e th e l a s t iirm ti™

of* o v e r -fen p e r c e n t ; but th e banks which

a g r e e d t o ta k e 4hem, d i d net have g o l d e n o u g h ,

in a d d i t i o n t o the

$ 1 0 0 , 0 0 0 , 0 0 0 which t h e y had g iv e n f o r th e f i r s t , b o n d s , t o pay th e
$ 4 4 ,6 6 } , 230,

i rh 4h e y a g r e e d t o g i v e f o r th e s ec o n d h e r d s ; and t h e r e ­

f o r e t h o s e banks had t o m»ve up 4he d e f i c i e n c y w i t h t r e a s u r y n o t e s ,
^whlch had come i n t o t h e i r p o s s e s s i o n

in th e c o u r s e o f t h e i r b u s i n e s s ,

a f t e r b e i n g i s s u e d by th e S e c r e t a r y o f -he T r e a s u r y ,
government o'! i 1g^4 1 o r s .
$44,0'.

,

i r j ayment o f

But as soon a s th e banks had th u s made up th e

h e y ^ e f u s e d t o r e c e i v e any more t r e a s u r y n o t e s on d e p o s i t

or in payments o f d e b t s du« 4 a +b^ni.
The S e c r e t a r y o f th e T rea su ry a l s o t r i e d , p r i o r 4 c February,1 8 6 2 ,
t o borrow a n o t h e r $ 5 o , no,0 , 0 0 0 o* i n t e r e s t - h e a r i n g b o n d s ; but he f a i l e d
t o g e t a r y o f t h o s e bonds t a k e n , b e c a u s e n e i t h e r t h e banks n o r th e
p e o p l e in th e l o y a l S t a t e s , had any su ch amount o f g o l d or t r e a s u r y




2

rc+or; l o f t t o l o r d .

w a i f o f +h**

in *bo c o u r t r y had a l r e a d y ‘
boor

lo a n e d t o 4 be S e c r e t a r y o f th e T r e a s u r y , by th e b*nbs wl i c h had owned
it:

er r th a t g o ld had been ^ c a t ^ r e d th r o u g h o u t t h e l o y a l

payments f o r s e r v i c e s a re s u y y l i o s ;
t h o s e who cv/r.ed
f

4p

States,

in

and t h o s e who had r e c e i v e d i t ,

lik e

o t h e r halt* o f ’ the r.old in t h e TTrjted S t a t e s , n ee d e d

4Ve-*v ai.i.s t r e s s ,
,

or 4 c

\

a v t*or t h o - r l i v i n g ,

and t h e r e f o r e c r u l d

? f,,'rrr' +c ''oar if. t o 4he S e c r e t r r y o f the T r e a s u r y .

The t r e a s u r y

r e f ns had a l s o been d i s p e r s e d through 1he c o u n t r y ; and though sour o f
*hom had p a s s e d t.c 4he p o s s e s s i o n
h eor l o a n e d

+c

o f th e b a r b s , most, o f them had a l r e a d y

4
-he S e c r e t a r y o f th e T rea su ry toward making uj

th e

# 4 4 , f i S l , S 3 0 , ard had n e a r l y a l l b een s c a 44e r o d a g a i n , b e f o r e F eb ru a ry 1
i P>&2, i r payv.:en t f o r suy y l i e s
statu te

an d ^ ervices •

o f lo n g s t a r d i n g , which p r o h i b i t e d <h^ S e c r e t a r y o f th e T r e a s ­

u ry r,r c n r e c e i v i n p ; S +a to barb n o t e s
etio r

v-ay.

y

in payment f o r b o n d s ,

And even i f t h a t e+r-tnte bad b e e r r n y o a l e d ,

ta le r n early h a lf o f m i
1

At t h i s t. inio, t h e r e was a

t i e s t a t e barb r o t e s

'f>cr ' 5 n »s o o , 000 in b o n d s; ard n e a r l y a l l

or in any
it would have

in th e l e v e l S t a t e s ,

to

i h o s o S t a t e barb r o t e s

were much b m cw p a r , b e c a u s e n e a r l y a l l th e b a r b s i s s u i n g them, bad
^us-fended s p e c i e p a y m en ts,
/.f O p heg<i-v
Secrc-t a r y o

in

or

in i i e r e n h o r , i « s i .

February,

IftfiSl, f h e * l 4 4 , f i 6 J ,a.Vi, w h ich th e

t h e T rea su ry h*>d harrowed or i n t e r e s t - h e a r i n g h e r d s , t 0-

wi+h ‘ ho $*'% don,ooo i r t r e a s u r y n o t e s , w hich th e 1 w o f J u l y ,
1 , rn a u 4 ; o n zed him 4 c i s s u e ,

Fed r e a r l y e l l h ear u s e d in p a y i n g t h e

e x p e n s e s o f th e war ard o f th e government Uj t o t h a t t i m e ; and
e e e . e o o o f a c c r u e d e x p a n s e s were s t m
war exr e n . e s 1
each day.

$18 0 , -

u n p a id ; ard th e government and

p c o c 4 iTn1rg 4 o a c c r u e , at th e r a t e o f n e a r l y £ 2 , 00 ,0 , 0 0 0
>

I t was w e l l u n d e r s t o o d at t h a t t i m e , t h a t ro l a r g e amount

money c o u ld he o b t a i n e d in l e s s

a l x months by in c r e a s e d , t a x e s ;

and

tha* no g o l d c o u l d be horowed in F u r o p e , by th e U n i t e d S t a t e s , w i t h
w hich <c p r o s e c u t e th e war f o r



♦

s u p p r e s s i o n o f th e r e b e l l i o n .

The

" c s r i n g j ewer o f th e l o y a l S t a t e s h a v in g a l r e a d y b e e n e x h a u s t e d ,
’

i t was

Fl^ir. t h a t th e s u r p r o s s i c n o f *be r e b e l l i o n w ou ld have t o s t o p , w i t h o u t
1 a vine; mr'.ce a r y m a t e r i a l j r e g r e s s ; u n l e s s a lari-.e amount o f new p a p e r
money c o u l d be j . r o v i d e d , t o be p a i d by t h e government t o t h e p e o p l e f o r
s e r v i c e s and s u p p l i e s , and t o be p a i d b a ch by th e p e o p l e t o th e g o v e r n ­
ment

fo r ' a x e s a m f o r l o r d s .

The e x i s t i n g S t a t e bark n o t e s c o u ld not

answer t h i s p u r p o s e ; b e c a u s e ' h e r e were not enough o f them t o do t h i s
’ •crk,

in a d ~ i + i o n t o a c ‘ in g as i n s t r u m e n t s o f ex c h a n g e among th e p e o p l e

t h e m s e l v e s ; and b e c a u s e t h e y were n o t l e g a l t e n d e r , and d i d n o t p o s s e s s
- o r much d e s e r v e ,

th e c o n f i d e n c e o f t h e p e o p l e .

And th e p r o s e c u t i o n o f

t h e war c o u l d ro+ w a i t t h e y e a r or more, which i t would have taker, t o
e s t a b l i s h new or a d d i t i o n a l bank c u r r e n c y , t o an amount s u f f i c i e n t t o
do th e n e c e s s a r y e x c h a n g i n g b e t w e e n the government, and th e p e o p l e , a t
+he or,ormons r M o o f
ces,

w m

’ I t o , O n e . , 000 a d a y .

Under t h o s e c i r c u m s t a n ­

♦here was e v i d e n t l y r o way t o s a v e th e u n i o n o f t h e S t a t e s , a t t h e

h e g i ' T i n g o f F e b r u a r y , 1 8 6 2 , w i t h o u t t h e i s s u a n c e o f a l a r g e amount o f
new p m e r money by 'h o U n i t e d S t a t e s g o v e r n m e n t .
nnesM or

The o n l y d e b a t a b l e

was w h e t h e r th a t p a p e r money s h o u l d be -made l e g a l t e n d e r .

q u e s t i o n was a t w o - f o l d s u b j e c t ,

in t h a t

power o f C on gress t o a u t h o r i z e the

it

in v o lv e d the c o n s t i t u t i o n a l

issu a n ce o f U nited S t a t e s l e g a l t e n ­

d e r n o t e s , and i n v o l v e d a l s o the n e c e s s i t y ,
l e g i ' imncy and e x p e d i e n c y ,

That

or at

lea st

o f making s u c h n o t e s l e g a l

th e e c o n o m ic

tender.

'h e q u e s t i o n o f n e c e s s i t y was r e a d i l y a n s w e r a b l e in. t h e a f f i r m a ­
t i v e ; b e c a u s e t h e U n i t e d S t a t e s b a d, w i t h i n s i x m o n th s, t r i e d t h e e x f e r inert

o f i s s u i n g U n i t e d S t a t e s n o t e s , p a y a b le on demand, w h ich were

r o t Inga", t e n d e r ;
-ot

and t h a t e x p e r im e n t had shown t h a t su ch n o t e s would

c i r c u l a t e as money, e x c e p t among t h e more p a t r i o t i c p o r t i o n s o f t h e

r-o p le.




*ccordin g i y ,
O m ,™ «
^

or

” W*

t

on January 2 9 ,
m»

e c m t t '* ,

*"«

•« « > « -

1 8 6 2 , S e c r e t a r y Chase w r o t e t o Mr.

•
*-

w
'- o r

o r m k l „ 8 ,.h „

t t |

fh s t M .

p r o p M (!d „ o t „

‘ ordpr;

h r» c*u se

^h^rr*

som e p e r s o n s

a^d

som^

in stitu tion s

which r e f u s e d f o r ^ c ^ iv o a^d pay out t h e t r e a s u r y n c t ^ s o f J u l y ,

1861:

^~d b e c a u s e t o omit t o make th e cow r o t e s a 1 <^gal +errtor, would t h e r e ­
f o r e o ] o r a t e *o d e p r e c i a t e them u n n e c e s s a r i l y , and t o d i s c r i m i n a t e
again st

t h o s e g i v i n g a c o r d i a l s u p p o r t t o th e g o v e r n m e n t, and in f a v o r

o f t h o s e who di'- - o t •
4 4rr

And th e v i e w s o f S e c r e t a r y Chase on t h i s tjUo s -

n e c e s s i t y were f u r t h e r on f o r c e d ur or. ^ o r & r e s s , hy th e

o-r ♦v,r p r i n c i p a l
>

1 'in ^ ^ ir]

au th o rities

j n ♦he lo.val N o r th .

»v0 ron? i i +*ne o f P u M i c S a f e t y o f th e Cj 4 y o f

Now

vork;

advice

Among t h e s e
the

Cham-

x>ors o f Coimerco o f Now ' T r k , P o s t e r , ere: P h i l a d e l p h i a ; and th e Boards
o
o f Trado o f C h ic a g o , S t . L o u i s , C i n c i n n a t i , L o u i s v i l l e , and M ilw a u k e e .
A-d no c o g e n t argument a g a i n s t t h e n e c e s s i t y o f making the p r o p o s e d
■Hhited S t a t e s n o t e s 1e g o l
TTC U S o

of

t e n d e r , was made hy any o f t h e s e ,

s s , who or x osod t h a t m e a su r e .

vhf‘

o f c o n s t j f Ut icr.al i t y was e l a b o r a t e l y d e b a t e d in t h e

w° Ufl* ariri 1n t b * S e n a t e , when t h e M i l
l^ g a l

in e i t h e r

t e n d e r r o t e s was under

g ln n irg - f • ehruary,
'

i nfi3.

f o r iermine; t h e U n i t e d s t a t e s

f ion in C o n g r e s s , about th e h o And A t t o r n e y G e n e r a l R a te s

gave

s p a u l d i n g Of Rev; v o r h , v;ho was *he a u th o r o f *hat >m ,
opinion, i n f a v o r o f t h a t e o n s t i t i i f i o r a l i t y .

t o Mr.

an u n o f f i c i a l

The A t t o r n e y G eneral s a i d

+,’R+ M’f' r o r s M i , , M r p * oe> r c t o x j r e s s T y y e r r . i t or p r o h i b i t , e i t h e r the
«
issu a n c e o f U nited S t a t e s r o t e s ,
everyb ody. a g r e e d + h a f
Of TTni +ed S t a t e s - o t e s ;

or maMng them l e g a l

consM *u tion

i m p l i e d l y p e r m i t s th e i s s u a n c e

and t h a t , in h i s

T u r r i t s w r ing t h o s e n o t e s l e g a l

tender.

oy i n i o n ,

grant




the

was made by Mr. P e n d l e ­

n, mrd nj or. th e f a c t th a t
.0

™

-r » ! » m

a ls o im p lied ly

b a s e d h i s argumeM u; on th e a b s e n c e o f an e x p r e s s

i Vp
Cf

•Tr,

t
*

it

The l e a d i n g s p e e c h m

- e u a o a g a i n s t +he c o n s t 1 * . . ♦ ! onal i t y o f th e M U
ton o f o M o .

ten d er, hut th a t

< M

♦

of | w « r to omit n i l .

th e c o n s t i t u t i o n a l

ln sort

tlv, c o n B t I f u .

of croait: orfl u, on lh»

5

f*ct +h*.t

Webster sni^i in a spn^ch in 3832, +hpt Congress has no

power - o maVo arythirg hut g o M
•

ar<i silver a lor^i

t*act •Va4 vo American staffs man had
*
the cors* i+ut jon v;aR rdo)tod,

rnor: and upon the

corf or nod, at ary f j.mo since

to the contrary of V ehater's opinion.
/

- r d th e o t h e r oj p o n e n t s o f t h o c o n s t i t u t i o n a l i t y o f th e h i n ,
A

in b o t h

,Tcn.°op o f C o r p r e p s , t och subs* a>■ «a l l v t h e same g r o u n d s .
*
Those who arpaied in f a v o r o f th e c o n s t i t u t i o n a l i t y o f th e 1 i n
v'nro m M nfv i t s

author, v r .

S p a u l d in g o f Now vcri<, v r . Pirgham o f Ohio,

evd r'r. S t o v e r s o f P e n n s y l v a n i a ,

in th e u o u s e ; a^d v r . Sherman o f Ohio.

Surrror o f t ^ a s s a c h u s e t t s , and v r .

t 0w
t

rd o f M ichigan in the S e n a t e .

There g e n tle m e n 4 0 0 b t h e ground, t h a t th e a h a e rCe o f ar e x . r e s s g r a n t
in t h e c o n s 4 i-fut ion i s n o t c o n c l u s i v e , n or even w e i g h t y , b e c a u s e o f th e
t

i m i v o m a i i y admit t e d d o c t r i n e o f impi l e d r o w e r s ; and th a t
*Vp c p r P M4 u

+

+ho f a c t t h a t

ccnver. 4 ion v o t e d dorr a p r e p o s i t i o n t o i n s e r t

in t h e

c o n s t i * u t l o r , nr. « xt r ^ s s E rert o f1 power t o em it M l 3 s o f c r e d i t . i s
m ateri 1, becau se i t

a i s o r i ' f ' u s « d +c Insert, a p r o h i b i t i o n o f that,

and b e c a u s e ar, i m p l i e d rower t o em it M i l s

ir„-

pow er/

o f c r e d i t , had r e p e a t e d l y

b e e r exe 'c i ? d b.v C o n g r e s s , arrt^'as a d m i t t e d by e v e r y b o d y ; and t h a t
’e
'e b s< e r'K

oj i r i or. i r

I B ? ,2

was not p a r t i c u l a r l y w e i g h t y ,

because

n o t a p p e a r 1 e b e t h e r e s u l t o f any p a r t i c u l a r d e l i b e r a t i o n ;

and

i t did
that

th e

+
>rJ. *h»* r o s t a t e s m a n had e v e r p r o p o s e d , s i n c e th e c o n s t i t u t i o n was
adopted,

t o i s s u e u n i t e d S t a t e s l e g a l t e n d e r r o t e s , was u n i m p o r t a n t ,

f o r th e r e a s o n th a t no em ergency had a r i s e n , j r j o r t o t h e c i v i l war, t o
n^bo su ch not.os n e c e s s a r y .
TTaVinK *hns *'•«*»'«**
m easu re;

* hr>

o b j e c t i o n s t o the c o n s t i t u t i o n a l i t y o f th e

i t s advocates a f f i r m a t i v e l y s u s ta in e d that c o n s t i t u t i o n a l i t y ,

by a r g u i n g th a t th e power t o e m it U n i t e d S t a t e s n o t e s , and make them a
legal

tender,

is

I n c i d e n t a l t o s e v e r a l e x p r e s s powers c o n f e r r e d upon

f e n r , r e s s by th e c o n s t i t u t i o n .




Mr. Sherman h e l d t h a t th e P0We r t o

issu e

‘ e- her n o t e s r e s u l t e d by i m p l i c a t i o n from th e e x p r e s s power t o

6

borrow money,
•

•

o maint.ain o rm ies and

* p*ort a navy •
ut

' rr . Sumner s a i d

c o r s * i +u 4 ionml t ov/^r o f C o n g ress to make t r e a s u r y r o t ^ s a l e g a l
was s e t t l e d ,

as l o n g ago as rhe>

migM. a u t h o r i z e th e i s s u e

it \ as s e t *l e d , Ahat C o n g ress

o f treasury r o te s :

fVn two have gone + oge +h o r . ‘'

f o r from f irrr immemorial

*r . mroward a rg u ed t h a t h a v i n g th e e x p r e s s
r

power x o borrow money, C o n g ress h as

righ t

to place

in th e hands o f

t h e l e n d e r , a p a p e r p r o m is e t o re p a y the amount b o r r o w e d , and that, the
power "O make t h a t p aper a l e g a l
ex ercise

f order,

i s n e c e s s a r y t o th e p r a c t i c a l

ol‘ the power t o borrow money; and t h e r e f o r e th a t

C o n g ress has

t>o c o n - * id u 4 i o r a l flower, u nder th e c l a u s e a u t h o r i z i n g i t t o borrow
money, s o d e c l a r e J,h i s s p e c i e s o f p-aper
c f dev-^s be t v;^er i r r' i v i d u a i s .

1e g a l

4e n d e r in th e payment

v r . S p a u l d i n g s a i d "It. i s p l a i n l y w i t h i n

4-Up < c cp e o f 4 he c o n s t i t u t i o n t.Vm+ d-o t cvernment s h o u l d ma j r t ? in if seif;

i \'r *

4 a i r e ' 7,
v id e.

?,rr,y s b o u i r be sut p o r t e d ; +hat

*he navy s h o u l ' be ma i n -

X e ways and means of' d o in g 4v j s r re ]r>ft J o Cor g r o s s t o p r o ­
v
I t may i s s u e t r e a s u r y r o t e s r a y a b l e on demand, and make them a

l e ; ;?ii t e r d e r in payment c f d e b t s ."
v
e x p r e s s grant
su lta n t

in t h e c o n s t i t u t i o n ,

from 4hat power,

received

Mr. Bingham s a i d "C o n g r ess h a s , bv
rower t o r e g u l a t e commerce, and r e ­

i t has a l s o t h e power t o d e c l a r e what s h a l l be

in payment o f d e b t s . ”

A e v r. S t o v e r s s a i d "Tf n o t h i n g c o u l d
r

v n '7c* e by C ongress e x c e p t what i s en u m era ted in th e c o n s t 1t u t i o n , th e
government, ecu In not l i v e ,

'Therm v e r a r y law i s n e c e s s a r y t o c a r r y i n t o

e x e c u t i o n a ry enum erated p ow er, duch law i s v a l i d .
e ssity ex ists,
gress

i s s o l e l y f o r th e d e c i s i o n o f C o n g r e s s ,

i s f o r Con­

^*de f i g h t

Ao borrov r cr.ey, and t o p r o v i d e f o r th e g e n e r a l w e l -

4 o emit v i • i s

c f r r e d i t , w hich the r cnvont jen e x p r e s s ­

l y r e f u n d 4c grant as a s u b s t a n t i v e power, h a s ,
*hn r o’ rV n c o n s e n t
iO

f o r f i f t y y e a r s , by

of* ■
be n a t i o n , b een pracf l e n d , a” d i s now c o n c e d e d

by e v e r y o n - o n e n t o f ^ i s > i U .




it

4 c r e t.e r m in e , w h e th e r t h i s > i 1 1 i s n e c e s s a r y t o r a i s e and support

rrm i e s nrr r a v i e s ,
1 °•
1

Whether su ch n e c ­

With what g r a c e can th e c o n c o m i t a n t

0

7

r o v e r 1o

4hem a Tr;^"t ‘ e- rv-r, hr o b j e c t e d t o . "

These : r(,u:rr.‘ s i r f a v o r o r ‘ be c o n s t i t u t i o n a l i t y o r t h e measure
r r e v o i 1 o r ; and ’ r . S p a u l d i n g ' s i i l l
50

par f.oo tb e

ou-ee 1 y a v o t e o r 9 3 t o

, F ebruary 6 , 1 8 6 2 , and p a s s e d th e S o na ta by a v o t e o f 3 0 t o 7 , Feb­

ruary

1 3 , 1862: ar.d was approved and s i g n e d by P r e s i d e n t L i n c o l n ,

ruary 76,
legal

7862.

The s t a t u t o r y law t h u s

Inaugurated,

in r e s p e c t

Feb­

o f th e

t e n d e r q u a l i t y o f U n i t e d S t a t e s n o t e s , h as n e v e r boor, r e p e a l e d ,

anr; j s r.cw r e p r e s e n t e d by S e c t i o n 3588 o f t h e r e v i s e d s t a t u t e s o f th e
’ ti f t e 6 S* a i r s , w h ich r e a d s : " U n ite d S t a t e s n o t e s s h a l l he l a w f u l money,
*
a -d a le g a l , l e n d e r i n payment o f a i l d e b t s , m M i c and p r i v a t e , w i t h i n
tbo T > o o d S + a t e s ; e x c e p t f o r d u t i e s on i m p o r t s , and i n t e r e s t on th e
p u b lic debt."
Ihe a r t o f F eb ru a ry 2 5 , 1 8 6 2 , p r o v i d e d f o r th e i s s u a n c e o f t h e s e
Tr i J od S t a t e s l e g a l
T

t e n d e r n o t e s , t o t h e amount o f $ 1 5 0 , 0 0 0 , 0 0 0 ; and

in r r e r - . r i r g t h o s e n o t e s , a | la n which had n o t b een u s e d on th e s t a t e
borV n o t e s t o a v o i d c o u n t e r f e i t i n g was a d o j t e d .

That p l a n c o n s i s t e d

in I t i n i i n g e l a b o r a t e d e s i g n s upon t h e i r b a c k s ,

as w e l l as upon t h e i r

faces:

a d th ose d e s i g n s , b e in g p r in te d w ith g r ^ n

ink, d is t in g u is h e d

t > e n o t e s s o o b v i o u s l y from th e s t a t e bank n o t e s then
that

in c i r c u l a t i o n ,

the p e o p l e gave them th e pare o f g r e e n b a c k s .
In J u n e ,

1 8 6 2 , t h e U n i t e d S t a t e s r o t e s which had b e e n i s s u e d i n

p u r s u a n c e o f th e

Act o f F eb ru a ry 2 5 ,

->862, were s i x p e r c e n t b elo w par

i r g o l d : b u t t h a t d e p r e c i a t i o n was ranch l e s s th a n the d e p r e c i a t i o n o f
S t a - e bank n o t e s w hich had o c c u r r e d a f t e r th e s u s p e n s i o n o f s p e c i e p a y nn’U s

i r December, 1 8 6 1 , and b e f o r e t h e p a s s a g e o f *he Act o f February

1862

.

m a l l other r e s p e c t s ,

e c t e s u nd er that,
Wl*h0U- i r t -r o s t ’
fo.

th e i s s u a n c e o f t h e U n i t e d S t a t e s

Act, had worked s o w e l l as a nr a re o f b o r r o w in g money
tm r

fu rn ish in g a r e lia b le

he p e o p l e , t h e f S e c r e t a r y Chase, e a r l y in

'’r e s s



Ju re ,

currency

1 8 6 2 , a s k ed Con-

a u t h o r i z e him t o i s s u e $ 1 .5 0 ,o o o , 000 more o f s u c h n o t e s , and t o

8

’ h im
■

pc v 'rii as
>111

4o

)u f 4h^ra cut in d^r c m i r u M o n s 01 * five dollars and less,

fori dollars and more.

Accordingly*

Mr. Stevens reported a

for ft a , purpose from the u ays and foans Cci.imii t e e ; and v r . Love joy
t

of Illinois, who had strongly 0} j csed the passage c * 1he Act of February
f
l
r 5, 1862, said in debate o . that i ill, "I do know that the people have
>
r

rrc; t confidence in these gre^n-b^cV^d treasury rotes; and that
the v do re* generally have if in 4he bark rote issues.

I want a law to

be passed to exclude the bark rote circulation, which is of much less
value tv an 4he United States treasury notes."

Harmoniously with this

speech, t'r. Love joy r ow voted tor the issuance of United States legal
.
tender not es,
vote ot* 76

and the >ill passed the wonse or

< o 4V.

And on July 2, 1862,

the 24 c Jure, by a
l*

it passed tbe Set ate by a vote

oh 2/ 4 o 1Z; a-d it was approved and .signed on July 11, 1862, by Presi­
de"! Lincoln.
J •/u ry 17, 186/#, President Lincoln cl so aj p roved a joint res cl u
•n^n oh Congress, authorizing the Secretary cl the Treasury to issue
?+T-nr U.l 00, 000,000.

in legal

. , ];,6g, ho nfjrovori a m i ,
T
in

n u r"

o '

o h

,

United States rotor..

And on

authorizing the issue of i-150»nno,000

irc'ir irg the hior,ore,ore, which had hoar provisionally

authorized by 'bo join* rescMut ion

of January 17, 3863. l>mt joint res­

olution ••an original ly foj cr*ni hy »<r. Stevens, from the committ e e on
h'avs and ''cans, ‘o provide for ‘V

issua-ce of only $50,000, (W) in legal

terror United states rotes; hut that amour.t was increased t o $100,000.ooo, o . the mot ion o f Mr. I.,ove joy, and that resolution was p a s s e d by
r

• ho Mouse without,
‘
by a veto o f 38 t o

ary

opposition whatever; ar.d was p a s s e d by th e

S en a te

the yeas including the strongest o p p o n e n ts o f t h e

original legal ‘sti^r Act o f 1862.

And the a c t o f March 3, 1863, was

passed by the rouse without opposition enough t o call f o r the y e a s and

r a y s , a r t v as passed by t h e S e n a t e by a vo'e o f 32 t o 4 .
.
P lu s the i m e t i c a l w o rk in g arc r e s u l t s o f United s t a t e s



leg a l ten-

9

n ^ + o s , d u r in g t h e f i r s t
+n r r i v e r 1 n e a r l y a l ]

y e a r a t ’^ r

+h e i r o j p o n e r t s

t h fai r o r i g i n , wore good enough
i n t o 1‘ l e n d s .
r

But th e new f r i e n d s

ard t v e o r i g i n a l a d v o c a t e s o f +he s y s t e m were al ] c o n s e r v a t i v e e n o u g h ,
t o Vncw *bat e v i l may r e s u l t
the c i v i l

from an e x c e s s o f good t h i n g s ;

and though

war was not h a l f t h r o u g h , at t h e tim e o f th e p a s s a g e o f t h e

Art o f ^ a r c ■ 1 3 , 1 8 6 3 , no a d d i t i o n a l

sum o f U n i t e d S t a t e s r o t e s was e v e r

a u t h o r i z e d a f t e r +hnt day; and o f th e

8 4 5 0 , 0 0 0 , 0 0 0 which were a u t h o r i z e d

up to +h'-a t i m e , th e l a r g e s t amount e v e r o u t s t a n d i n g at
t

o n c e , was on

January 3 , 1 8 6 4 , and was $ 4 4 9 , 3 3 8 , 9 0 2 .
An Act o f 0 o r g r a s s was a p r r o v e d v a r c h 1 2 , 1 8 6 6 , w hich a u t h o r i z e d
t h e r e t i r e m e n t o f not mere t h e n $ l o , 0 0 0 , 0 0 0 o f t h e U n i t e d S t a t e s l e g a l
-tender n o t e s , v t h i n s i x months a f t e r th e p a s s a g e o f th e Act; and a f t e r
-’i
th at,

o f r of more than $ 4 , 0 0 ^ , 0 0 0 in any o^o month.

t h e amount o u t s t a n d i n g was r e d u c e d t o $ 3 5 6 ,
years.

oqo,

Under t h a t

A t,
c

000 in l e s s than two

That amount in 4he judgment o f C o n g ress was s m a ll enough; and

th erefore,

ar.y f u r t h e r r e t irem en t. c f U n i t e d S t a t e s

hy Aho Art o f J-ehruery 4 ,
Ir J v e

a il

o f 187^,

>

ot.es

w p s

suspended

1868.
Jho S e c r e t a r y o f t h e T r e a s u r y , a t th e u r g e n t

s o l 1c i*'' * 1on o f C o r n e l i u s V a n d e r b i l t , a - d o t h e r g r e a t f i n a n c i e r s , and
•
w i t h * he ] e r m i ‘- s i i r
*
■

of Presj^ert

G ran t, r e i s s u e d e v e r & 6 , o o o , 0 0 0 o f
2

+ho U n i t e d S t a g e s n o t e s which had beer

retired

in 1866 and 1867; s o t h a t

on January 15, 1 8 7 4 , th e amount o u t s t a n d i n g was $ 3 8 2 , 9 7 9 , 8 1 5 ; and on
Jure 2d,

1874, t h e maximum amount t c he o u t s t a n d i n g t h e r e a f t e r , was

f i v e d at $ 3 8 2 , 0 0 0 , 0 0 0 .
IJ’e »
•{'•' or J an uary 1 4 , 1 8 7 5 , w hich p r o v i d e d f o r t h e r e s u m p tio n o f
s p e e , > payments t o o c c u r Ja n u a ry 1, 1 8 7 9 , a l s o p r o v i d e d f o r t h e r e t i r e ­
ment

o f $ 8 2 , 0 0 0 , 0 0 0 o f TJr.it.ed S t a t e s n o t e s ,

fo u r-fifth s

t i o n a l hanlc c i r c u l a t i o n would i n c r e a s e u nd er t h a t
ed f o r

-’e dooming in c o i n , any or a n

Act; and a l s o p r o v i d ­

o u tsta n d in g U nited S ta te s n o t e s ,

on demand, at a r y tim e ^n or a f t e r Ja n u a ry 1 , 1 8 7 9 .



as f a s t as n a ­

That Act in t e n -

10

t t o n a l l y r e f r a i n e d from p r o v i d i n g w h o th er ar.y or a l l o f t h e $ 8 2 , 0 0 0 , 0 0 0
of U n i t e d S t a t e s r o t e s ,

which might he r e t i r e d or redeemed t h e r e u n d e r .

s h o u l d t h e r e a f t e r he r e i s s u e d ,

or s h o u l d t h e r e a f t e r he car e e l l e d ; ard

Oe^el cr Sherman c a r e f u l l y exyO aln ed in h i s sp^och s i u r c r t i n g t h e h i l l ,
that

i t r e l e g a t e d +hnf cm^slon t o f u t u r e l e g i s l a t i o n .

u r d e r s t ar d i n g ,

Jhe > n i

o f 3P 4 o 14; ard it
‘

With t h i s

clear

p a s s e d t h e S e n a t e a f t e r a l o n g d e h a te hy a v o t e

p a s - e d th e ^ouse hy a vet e o f 136 t o 9 4 .

Under t h i s

Act., & 85,8 1 8 , 9 8 4 o f U n i t e d St at r s n o t e s w e r e r e t i r e d , p r i o r t o May 8 1 ,
1878; -'her P r e s i d e r t Hayes a j p r o v e d +he Act, w h ich h as h een th e jaw
e v e r s i n c e , and w: i c h p r o v i d e d t hat w h ere v er t h e r e a f t e r , a ”.y U n i t e d
S t a t e s l e g a l l e n d e r n o t e s s h o u ld ho redeemed hy th e S e c r e t a r y o f the
Treasury,

or s h o u ld o t h e r w i s e he r e c e i v e d hy him , t h e y s h o u l d not he

r e f j r e d or c a n c e l l e d , hut s h o u l d he r e i s s u e d from tinr^ t o t i m e ,
ment

o f government

o b lig a tio n s,

and th u s Vept in c i r c u l a t i o n .

in p ay­
That *ct

o f Uay 8 1 , 1 8 7 8 , p a r s e d th e v o u s e hy a v o t e o f 177 t o 85; Mr. M cXinlev
v o t i n g in th e e t‘f irmat i v e ;
18.

d i t p a s s e d th e S e n a te hy a v e t e o f 41 t o

When +>>is A
-Ct was s i g n e d hy P r e s i d e n t K a y es, t h e amount o f U n ite d

S p a t e s n o t e s o u t s t a n d i n g was $ 8 4 6 , 6 8 1 , 0 1 6 ; and <haf has t h e r e f o r e heen
t h e amount o f l e g a l 4e n d e r U n i t e d S t a t e s n o t e s a u t h o r i z e d hy lav/, e v e r
<?i r c e t h a t t ime .
On Jan uary 7 , 1 8 7 9 , John Sherman, then the S e c r e t a r y o f the T r e a s ury, hy near.a o f t h e s a l e

o f $05,500, 000 o f f o u r per c o r f b o n d s , had

p r o v i d e d th e T rea su ry w i t h $ 3 0 0 , O^o,000 ir. g o l d , a s a r e s e r v e w i t h which
t o redoer,i s u c h o f t h e U n i t e d S t a t e s l e g a l
sertec' fo r redem ption.

But o n l y about * 5 0 , r.ne.,0 no o f t h o s e r,0t e s were

p r e s e r .4en f o r r edempt i o n , Tr i o r
deenie

out ot

+h e

t e n d e r n o t e s , as might he Pre

to vpreh

s u r p l u s g o ld in

4h e

, Ifftg; and t h o s e were a l l r e

t r e a s u r y ; s o th a t

<he V]0 0 , 0 0 0 , -

o r e g o l d r e s e r v e was n e v e r d i m i n i s h e d h e l o w t h a t amount, u n t i l
o cr a ' i c pnr+y a c q u i r e d c o n t r o l o f a l l b r a n c h e s o f th e f e d e r a l
merit cn th?,+ ' a y .
t ** .



X- . •

* ^ —
>

.1

th e u e mgovern-

TV
in.f ovoi t m a t e r i a l l y r t i m i n i a h ^ tho c o n f i'lo n c n of* -.h^ p e o p l e
L

in

fV'o fti^urr ma ir.+or.p.r. ce of* tho Uritod. S t a i r s r o t e s at par w i t h g o l d ; bo cause

i + f o s +^rod, tho or I r i o n ,

t h a t C ongress w o u ld p a s s ,

p-n«Mrpr ^ rou'id a p p r o v e , ‘a ir 1 c h a r g e s
'-

a? d that, th e

i r 4 v a t a r i f f la w , as would r e ­

duce Jhe re v e n u e s of' the government. b e lo w 11s o u t g o e s , and would a l s o
o.so laws + 0 American i n d u s t r i e s ,

r e d u c e *he p r o t e c t i o n a f f o r d e d by
and t ■u ? i n c r e a s e

im p o r ts from f o r e i g n

co u n tries.

i t was e a s y t o s e e

t h a t such i n c r e a s e o f ini] o r t s would c a u s e p e o p l e t o p r e s e n t U n i t e d S t a t e s
n o t e s t o t he t r e a s u r y

'o r redem ption

wv ir b * c

pay

i n c r e a s e o f im p o r t s ; and i t was a l s o t o be e x ­

ported,

' ° > th e T i t e d s t a t e s n o t e s th u s redeemed would be p n jd out
Jr

‘‘or

1 ha+

in g o l d ,

in o rd er t o get g e l d w i t h

a g a i n , t o mate up f o r ^ n f i r i o r r v o f r e v e n u e , and th p.t thus th e g e l d r e ° ° rvo

vtti V

he p r p c t j r a / ' l y drewr uj on f o r th e payment

porses,

os a n e c e s s a r y r e s u l t

enues.

few i+ i s an o b s e r v e d f a c t ,

more y -Oird i s

o f i n c r e a s e d im p o r ts and d i m i n i s h e d r e v ­
tin t

a p p r e h e n s io n that

a p a rticu la r

i b e i y t o he drawn down in th e f u t u r e , r : Pes some p e o p l e

he g 1^ t o rIr aw i t down i ■lm^dia t.ei y ,
A c c o r d ir .g ly , d u r i n g +he l a s t
o f u n ited

o f governm ent e x -

d ates

in. o r d e r ! o get th e s t a r t , ci* e t h e r s .

t o r months o r 189S , mom than $5 2 , 0 0 0 ,0 0 0

*ps were p r e s e n t e d t o th o t r e a s u r y f o r r a damp t io n in

g o l d , a"d ’
.••pro +1u s r e d e e m e d .
I . 1894, tho app-pV’
r
ondPd charts s in <ho tariff law wore made by

*bo so-called Wilson act: and those charges began at once to operate,
+ c i r e re so

i m j e r + s ; and a l s o t o r e d u c e r o v o n u e s b e lo w governm ent o u t ­

g o e s : and in b o th
tion

ir

t h e s e w a y s, t h o s e c h a r g e s promoted demand f o r redemp­

gold o f U n i t e d S t a t e s n o t e s .

^ e g i a l a 4 1 en i t s e l f

The f e a r o f that, l e g i s l a t i o n , and

^supplemented t o some s m a l l ex te n t, d u r in g t h e

l a s p e w weeks b e f o r e November 3 , 1 8 9 6 , by the f e a r w h ich was e n t e r * a i n et

‘ - n ‘ Mmn, by ‘-one m o i l e ,

tn 4V,°

o f a forthcom ing f a l l

t 0 a s ilv e r b a sis

o t +h° e l e c t i o n o f u r . Bryan t o th e p r e s i d e n c y ) ,

caused

the T e e

t. d ton t o r red em p tio n jn g o l d , d u r i n g th e y e a r s 1 8 9 4 , 1 8 9 5 ,

and 1 8 9 6 ,

ana the e a r l y weeks o f 1 8 9 7 , o f a b o u t $ 5 9 0 , 0 0 0 , 0 0 0 o f U n i t e d




Stf<*ns ro+f'S.

T>’US, a b o u t $ 4 2 2 , ©00»0 0 0 o f U n i t e d S t a t e s

le g a l tender

"C*nf1WArp p r e s e n t M f o r rodemp+ton, and were redeemed m g o l d by t h e
governm ent d u r i n g P r e s i d e n t C l e v e l a n d ' s l a s t , a * d r 1st r a t i o n , a s a g a i n s t

abA,,+ fSo.odO.OOO d u r i n g '-a f'curtAAn y ^ a r s , two m o n th s, and

i

h r e e days

1879, and t h e

h A tro o r th r rASumpticn o f s p o o l s p a y m e n ts , on January ] ,
of x ' + 'd r1 i n i s f r a + i cn.* on *^.rcVi 4 , 7 s 0 3 .
'

^^ i

or J u l y ] 4 ,
^ rA ctin g

H

a

I 8 9 n , P r o s i d e n t w a r r l s o n approved an Act o f C o n g r e s s ,

purchase o f s i l v e r b u l l i o n ,

no^As t h e r e f o r :

and or November i ,

iopb,

and t h e i s s u e o f t r e a s u r y
P resid en t

C l e v e l a n d a p p ro v ed

an »ct 4 c s t o p t h a t p u r c h a s e o f s i l v e r H P H e r and i s s u e o f t r e a s u r y
rotes.

W h ile t h a t

Act was i r t u n

force,

$1 5 5 , 9 8 1 , 0 0 8 o f t r e a s u r y

r o t e s o f 3 8 9 0 , were I s s u e d i r p u r s u a n c e t h e r e o f : and t h a t
*rd s t i n

p rovid es,

Act. p r o v i d e d

^ ^ + t e A n o t e s s h a l l be r e d e e m a b le on demand in

c o i n , and s h u n he a l e g a l t e n d e r in payment o f a i l

d e b t s , p u b l i c and

p r i v a t e , e x c e p t where o t h e r w i s e e x p r e s s l y s t i p u l a t e d in th e c o n t r a c t ,
and s h a l l he r e c e i v a b l e f o r a l l p u b l i c d u e s , and when s o r e c e i v e d may
be r e I s s u e r . .

Non. a o f ‘ h o s e t r e a s u r y r o t e s 0f 3 8 9 0 were redeemed in

gold, ur .. . O c to b e r ,

3891: but. i n ‘ h a t month t h e y began, t h u s t o he r e ­

deemed in s m a l l am ounts, though n e v e r p r i o r t o March 4 , 1 8 9 8 , d i d t h a t
r e d e m p t i o n amount t 0 enough t o n e c e s s i t a t e talcin g any g o l d out. o f t h e
*3 0 ^ . 0

,

aa0

i s t r a t ion,
silv e r ,a t

KCld r e s e r v e .

Put d u r in g P r e s i d e n t C l e v e l a n d ' s l a s t admin-

o v e r * * 0 , 0 0 0 , 0 0 0 o f t r e a s u r y n o t e s o f i 8 9 o were rod„ Bfid ln
‘ he r e q u e s t o f H e h o l d e r s , and

wen.

c a n c e l l e d : w h i l e about

# B n , a e e , o . e C o f t r e a s u r y n o t e s o f i « 9 0 were r e d e ^ d
e.n m ert,

ir. " ™ i M c n

in g o l d by th e g o v -

' o the ah ou t $ 4 2 2 , 0 0 0 , 0 0 0 o f U n i t e d S t a t e s l e g a l

t e n d e r n o t e s , which were t h u s redeemed d u r in g t h a t

t i m e ; and th e t r e a s ­

u r y n o t e s o f 1890 Which were redeemed tn
a
in e’o lrt’ wpre r e i s s u e d from t jme
t-

in e,
* "

**



<n payment of* government ob i j g e t i o n s .
,e M

tr .ftftu ry

* M rV

,h “

of

“ « " .'W '. o n c

.-r o

«■

<(m,

n ,„ M

. „ r , ep

„„„

)?>

+bo g e l C r e s e r v e ,

or out o f tb o s u r p l u s g o l d i r t h e t r e a s u r y , w hich

furdn a g g r e g a t e d $ 1 0 3 , 0 0 ^ , 0 ^ 0 or v a r c b .% 1 8 9 3 , ard row a g g r e g a t e o v e r
$143, 0 r , 0 0 0 .

The r e p l e n i s h m e r t o f t h a t

tr e a su r y g o ld , to enable i t

to w ith sta n d th a t drain o f n e a r ly f i v e tim es i t s

owr. amount, in f o u r

y e a r s , ard I o he $ 4 0 , 0 0 0 , 0 0 0 l a r g e r at. th e end o f +hat d r a i n a g e , than
at th e b e g i n n i n g : came p a r t l y from g o l d b u l l i o n s o l d t o the m i n t s , and
p a i d f o r by c h e c k s which were u l t i m a t e l y p a i d in U n i t e d S t a t e s n o t e s ;
ard p a r t l y from g o l d p a i d I n t o t h e t r e a s u r y f o r d u t i e s and o t h e r t a x e s ;
e^d p a r t l y from g o l d which w a s ysajd i n t o the t r e a s u r y ,
Tr i t e d St a t e s n o t e s ;
T

a^d

ta r t

1 y fror^gold r e c e i v e d in e x c h a n g e f o r i n ­

t e r e s t -■hear in g b o n d s , which were i s s u e d in t h r e e l o t s
ard 1 8 9 0 , r e s p e c t i v e l y ,

in ex c h a n g e f o r

in 1 8 9 4 ,

1895,

t o the a g g r e g a t e amount o f $ 2 6 2 , 3 1 5 , 4 0 0 , f o r

th e purpose o f o b t a i n i n g g o l d f o r s u c h r e p l e n i s h m e n t .
James T . E c k e l s , th e c o m p t r o l l e r o f th e c u r r e n c y ,
T
C o n g ress o f oecember 7 , 1 8 9 6 , t o o k th e ground that
/w

in h i s r e p o r t t o

the c o s t and 1 i a b -

l'M'f.y, which the U n i t e d St^.+ ps had fh a r i n c u r r e d t o m a i n t a i n th e $ 3 4 6 , 6 9 1 , 0 1 6 o f Uni+ed S t a t e s l e g a l t e n d e r not on at p a r , amour t. ad t o $ 7 3 5 , ­
3 0 0 , 5 4 6 in add*t ion t o t h e o r i g i n a l and s t i l l
h e r e a f t e r p a y $ 3 4 6 , 6 8 1 , 0 1 6 , on
amount

ex istin g

th e n o t e s t h e m s e l v e s ,

3 l a b i l i t y to
i'o make up t h a t

o f $ 7 3 5 , 2 0 0 , 5 4 6 , he added t o g e t h e r th e { r i n c i p a l o f XX a l l

h e n d s , which ware a v e r i s s u e d t o c r e a t e th e g e l d r e s e r v e ,
^ ^ 4r e a s u r y p.old; and +he i n t e r e s t
trea su ry gold ,
est. or. p?i

or t o r e p l e n -

on t ha a v era g e amount oi* f r e e

from Ja n u a ry 1 , 1879 t o January i ,

four l o t s

1 he

o f h e r d s from January ] ,

18 9 5 ; and the

in ter­

1895 t o th e f imes oi' t h e i r

m a t u r i t y in 1 9 0 4 , 1 9 0 7 , and 1 9 2 5 , and 1 9 2 5 , r e s p e c t i v e l y .

But t h a t e l a b -

o m Ja c o c u l " t ; c n ct th e c o m p t r o l l e r o f th e c u r r e n c y was wrong; b e c a u s e
t* r-jd n
rcvarm art

r c r e d i t 4ha a c c o u n t w i t h the $ 3 0 0 , 0 0 0 , 0 0 0 in g e l d , w h ich th e
t
f . e n had or hand cut 0f th e p r o c e e d s o f t h o s e h e r d s ; nor
/

with these United States notes, which, having been redeemed with other
proceeds of those hond^had been reissued in payment, of government, ex-




14

p o rs'v * : r.cr wi+h t.ho^c 7.T +cd
rti
nr.rt r ,-u

ar'3 b e c a u s e

ricf ^s which hart h^ori th u s r^dc^mcd
it

ch^rg^d tVc a c c c u r t w i t h mere than

i>'t^r^st. t o a cc r u e h ^ fo r^ F e b r u a r y ,
!c+ s c f 7 ends, a l l

thr» u l + i m a t o p r o c ^ d s

in th e j a .merit o f govermnert e x p e n s e s ,
ment y r c i e r t y ; and h e c a u ° e i t

or th e l a s t t h r e e

o f w h ich had e i t h e r b een u s e d ,

or were s t i l l

or hand as g o v e r n ­

c h a r g e d th e a c c o u n t w i t h

January 1 , 1979 t o January 1, 1 8 9 5 , or. a l l
r Je?r o f cr t ' e

1925,

in terest

from

th e f r e e t r e a s u r y g o l d ,

jr-

hi or,, rr r f pro g e l d r e s e r v e o n l y , which c o n s t i t u t e s o n l y

a per-* e-e - n f r e o t r e a s u r y g o l d .

These f i v e m i s t a V e s

irtred uced e r ­

r o r s amounting t o more than $ 6 7 0 , 0 ^ 0 , 0 ^ 0 i n t o the e l a b o r a t e c a l c u l a t i o n
o f Vr . F c V e i s .
7
T-e

ru J h o f th e m a t t e r i s t h a t fV
<e c o s t

* , r 7 8 , *hn r or - i
»
hr^r ever

o f carrying,

s i n c e January

Merest h e a r i n g g re e n b a c k debt o f $ 3 4 6 , 6 8 1 , 0 1 6 h a s

l e s s then th e i n t e r e s t

s i n c e t h a t +jme,

on th e $ 9 5 , 5 0 0 , 0 0 0

c f bonds at f o u r p e r c e r t , which were i s s u e d t o c r e a t e th e o r i g i n a l .
? v v 'p n --,r!/'c g e l d r o s r r v o ; b e c a u s e t h a t f l 0 0 , 0 0 0 , 0 0 0 c f g o l d reserve
Is

rf

l ° r g e s r d v a H i s h l e a p r o p e r t y o f t h e governnyrt. now, o.s i t was

January 1 , 1879; and ha c a u s e t h e $ 2 6 2 , 8 3 4 , 4 0 0 o f b o n d s , which were i s suad t r i m " i l y ■c r a p io r i s h t h e t r e a s u r y g o l d , r e a l l y d i m i n i s h e d the
'
O t ar c * 1 i.L ; c r .s , or i n c r e a s e d th e a s s e t s o f t h e g o v e r n m e n t, t o amounts
'*
,ren u - 1

‘

e i r o c ^ r t s o f t h o s e b o n d s; and b e c a u s e th e government has

m»fe 3 j-ro fit. o f s e v e r a l n i l M o r s o f d c M a r s out c f t h e greer-hacV c i r e m e M - n str.ee Ja n ua ry 1 , 1 8 7 9 , on a cc o u n t o f th e r o t e s which have b een
hurnec’ Uy i r c o n f l a g r a t i o n s , or o t h e r w i s e l o s t
M 'e.

or d e s t r o y e d d u r in g t h a t

I? e i n t e r e s t on th e $ 9 5 , 5 0 0 , 0 ™ o f b o n d s , from January ] ,

+ c Jarir- ry 1,

' 8 9 7 amounted t o $ 6 8 , 7 6 0 , 0 0 0 ; and i t

1879

,

i s almost, c e r t a i n

t h a t th e y r o f i t w hich a c c r u e d t c the g o v e r n m e n t, d u r in g th e same t i n r ,
from r..e l o s s ar.d d e s t r u c t i o n c f n o t e s when in c i r c u l a t i o n ,

amounted

+ 0 at l e a s t . $ 8 , 7 6 0 , 0 0 0 .
M



is

-rue

+hat no

d irect

evid en ce

e x i s t s

+0

Tr o v e

What

amount, o f

J s

wmmmmmmmmmmwm
mmmmmmmmmmmmm

SM M M fl
MMM

35
T r1 • r
T »*

s* • t.os n o t e s wo

th u s l e s t

cr d e s t r o y e d d u r in g t h e s e e i g h t e e n

y e a r s : hu+ a c o n s e r v a t i v e e s t i m a t e o f t h a t anicurt car, he i n f e r r e d from
t h e l o s s and b e s f r u c t i o n o f t h e f r a c t i o n a l p a p e r c u r r e n c y w h ich was in
u s e from 1 862 t o 1875* and t h e r e a f t e r *
as lfc*o as J an uary 1* 1 8 7 9 .

to a r a p id ly d im in ish in g e x t e n t,

The l a r g e s t amount o f t h a t f r a c t i o n a l pa­

Te r eu'-'- o r r y vJ'ich was o v e r e u + s + a r ^ jr£ at ere t j r.io, was at cut £>50,o e n * o e r t c o n s i s t i n g o f about 2 5 o , o c o , c o o c f s o j a r e t e j j e c e s o f p a p e r ;
th e a v e r a g e amount o f which was at out t w e n t y c e n t s .
fic ia r y

I t has b e e n o f ­

e«:t imated in ^he T rea su ry department, that. $ 8 , 0 0 0 , 0 0 0 o f t h a t

f r a c t i o n a l c u r r e n c y was d e s t r o y e d d u r in g t h e s i x t e e n
c i r c u l a t i o n , w h ich would amount +o f h^ l o s s

years

i* was in

c f about 4 0 * 0 0 0 , 0 0 0 p i e c e s

o f f r a c t i o n a l p a p e r c u r r e n c y d u r i n g 4h a t t i m e .

Now th e a v e r a g e amount

o 4 e* ch o f t h e U n i t e d S t a t e s r o t e s , w hich were in c i r c u l a t i o n

from J a n -

+c January 1, 1 8 9 7 , was about $7, or about t h i r t y - f i v e
l a r g e r - bar. th e a v e r a g e amour t. c f th e f r a c t i o n a l n o t e s , w hich were
*
in c ' r c i . P ' Mon f o r s i x t e e n y e a r s j r i o r t o January 1,
T r o f a v i y u a fo t c assume +ha^ h o l ' e r s
f i Vn *

c a r e f ul

] 879.

And i t

o f t h o s e n o t e s were about t h i r t y —

o f them, as were 4be h o l d e r s o f th e t r a c t i o n a l

cu rr en cy * s o t h a t *e+ more fh a r one TTnit ed S t a t e s n o t e was l o s t
f ' •,dngb c a r e l e s s n e s s *
*
rency.
T° .

Utf

io n e y ,

or tv,o

is

other

t o t h i r t y - f i v e p i e c e s Of f r a c t i o n a l

or d e s cur­

hand, c o n f l a g r a t i o n s are not r e s p e c t e r s o f p a ­

i - v more than o f p e r s ons , a n d v;i l l

c onsrmie a t e n - d o l 1 ar K iiX

S f a t o n r- ^ « ** r e m o r s e l e s s l y as a f e n - c e n t f r a c t i o n a l n o t e .

On

%

4V'>

cV ' ’ 1h em v > ra ,

i s c o n s e r v a t i v e t o e s t i m a t e t h a t as many d o l ­

l a r s w orth o r Uniter) S t a t e s r o t e s were t o s t and d e s t r o y e d p e r annum,
during t^ e e i g h t e e n years ending J a n ia ry ] ,
of fra ctio n a l

3 « 7 9 , a s t h e d o l l a r s w orth

n o t e s , which were l o s t and d e s t r o y e d p e r annum d u r in g t h e

s i x * e e r y e a r s e n d i n g January 3 , 3 * 7 9 ; and t h a t amount h a v i n g b e e n at
least

$ 50 0 ,, or,A p e r annum, our e s t imat.e t h a t th e t i n t e d S t a t e s r o t e s

l o s t ar.d d e s t r o y e d , d u r in g t h e e i g h t e e n y e a r s e n d i n g January 3 , 3 * * 7 ,



♦

<
r

in

a n o i r t.c fit if'Fv.st

760* 000 i s s u ffic i* » r .t.1 y suj y c r t o d .

f'h i » i t on o f p r o f i t r e s u l t i n g from th^ l o s s and. d e s t r u c t i o n o f
i
paper money when i r c i r c u l a t i o n ,

i r an i n e v i t a b l e

nystnui o f papor money: and where p a p e r money i s
r

b'i

ac^rneR

^ e +e s r o t e s ,

■» 0

fboin.

To v e r money i s

r,v,,,A<’ A0 1be i ove-rmertt

Hut

w hore,

as

in

incident to every

i s s u e d by ban V s , a l l
J ho r a s e o f

J

be U n i t e d

i s s u e d b.v t be g o v ernm en t, tba.t p r o f i t

in t b e fir*- + jn s ta n .e e : but u l t i m a t e l y ,

rr,n o c 4 * 'he ] e 0p i o , by re*) l o v i n g them o f th e t a x e s w hich t h e y
r

ac-

it acwou ld

o t h e r w i s e have t o pay t o f u r n i s h funds f o r t i e r e d e m p tio n o f th e l o s t
or d e s ♦r o ye d r o t e s .
Cc’\1

r e v t o compare th e cost, o f c a r r y i n g t h e g re en b a c k d e b t ,

and

m a i n t a i n i n g at par w ith g o l d , th e U n i t e d S t a t e s r o t e s which e v i d e n c e d
+hat r Pn t , through th e e i g h t e e n y e a r s e n d i n g J a r u r r y l ,
lf r - m -

have c o s t t o c a r r y +he same d e b t ,

1 8 9 7 , w i t h what

i f t h o s e n o t e s had been p a i d

° vr‘ ' ' ^ r ^ e i i e d J a n u rry 1, 18^9, w i t h th e p r o c e e d s o f fo u r p e r c e r t l e n d s ,
r V - rV 1 ' -

^ ' ° b r e r i s s u e d f o r t h a t yury-ose; the f i g u r e s w i l l be

fmird *c be ns f e l l o w s .
A'" > ,f’ •'‘ r'r‘ V ***** r o t e * ! which w*rr> u r c a n c e i i e d ar.d wore s a i d
:r
*'* 1n o,,<-r* r ' ' ir p J ; n i ! ry
*”r , r '

/r,/

' 8 7 9 , ameurtrh * c $:,M6,6&] , o i 6 ; t h e a c t u a l

‘ 1 0f,° ’i r c a n c e i i a d r o t e s at t h a t tim e was p r o b a b l y o n l y about
>r r r ‘’ b e c a u s e Ht l e a s t , $ 8 ,6 8 1 , o l 6 had u n d o u b t e d l y boor, d e s t r o y -

od d u r in g th e p r e c e d i n g s e v e r , l e e r

years.

At t b e r a t e at which t o u r per

cort bonds c o u l d have b een s o l d January 1 , 1 8 7 9 ,
ou -r1
c-r.ooi

i t would have taker,

, ' n r , rrr, o f such h e r d s , t o p r o c u r e g o l d enough t o redeem and
th e ' r ^ , r r r , c r r

c i TIr, 1+ort s t a t e s

rotes;

t h o s e b ond s •'ould have beer, $ 1 o o o , n o n p e r ar.rum, ard $2?>4, o o o , 000 in
a l l , d u r i n g t h e e i g h t * * * y e a r s from January 1 , 1 8 7 9 t o Ja n ua ry ] ,
ard t h e c o s t
It

1897;

o f c a r r y i n g th e g r e e n b a c k d e b t , on t h a t p i an o f r e f u n d i n g

i n t o b o n d s , -would t h e r e f o r e have b een $ 1 7 4 , 0 0 0 , 0 0 0 more, d u r in g th e

e i g h t , e e n y e a r s e n d i n g January 1 , 1 8 9 7 , th a n i t h as h * e r,, cn th e p la n of



ard th*

j C
rf

17
k o o p in g th e n o n - i n t n r e s t h e a r i n g TTnif^M S t a t e s r o t e s

jr c i r c u l a t i o n ,

i u r i ’g f,,at t i m e , and k e e p i n g +hcni a t par w i t h g e l d , h y i,rar.s oi* t h e
,r.rr g clr3 r e s e r v e .
Th e c cr c" i t u t j or al
t
r ,?' 'h"°wn in q u e s t i o n

y o f +t o U n i t e d S t a t e s l e g a l

- o r d e r r o + e n , was
>

in t h e Supreme Court i r t h e c a s e o f Fephurr v .

^ r i s v c M , b M ai"ace, 60«% TF7o; ar.d t h a t c a s e was d e c i d e d a g a i n s t th e
c o n st j Ju* io n a i i t y o f +h o so ao-^es, hy a v c ; e o f f i v e J u s t i c e s t o t h r e e .
Those who v o t e d a g a i n s t +he c o n s t i t u t i o n a l i t y were C h i e f J u s t i c e Chaise
ard J u s t i c e s N e l s o n , G r i e r , C l i f f o r d ,
i r f a v o r o f t h e c o n s t i t u t i o n a l i t y were
ue v i s .

The e f f e c t

a rc F i e l d : w h i l e t h e s e who v o t e d
J u s t i c e s Swayne, M i l l e r , and

o f t h i s d e c i s i o n ur or. t v e oj in l e n s o f s t a t e s m a n , and

o f th e p e o p l e , was much weakened hv t h e f a r t t h a t C h i e f Jus + i c e C h ase,
v'h°?’ k w o h r y

o f T r e a s u r y in 1 8 6 1 , 1 8 0 2 , and 180S had c o n i a i t t e d him ­

s e l f ir w r i t in g ,
u n ited 3+ -to s

o v er ard o v er a g a i n ,

lerei

t o the c o n s t i t u t i o n a l i t y o f th e

■e r d e r n o t e s : ard hy th e f a c t th a t J u s t i c e s
<

and G r i e r , ’
were b o t h Vrowr to he a l m o s t l i t e r a l

N elson,

con stru ction i s t s

c o n s t i t u t i o n , having h o f h concurred tw elve years b e f o r e ,

o f th e

in th e b r e d .

G c o t J d e c i s i o n , w hich d e n i e d the c o n s t i t u t i o n a l i t y o f any i n t e r f e r e n c e
w i +h s i a v e r y ir '•h e t e r r 11 or i e r .
5-j- i.i-->forr> th e d e c i s i o n in uopburn v . O r is w o ld was r a r ^ m d ,
February,
v a n i a and
o n ;';

aft ei

in

1b 7 0 , P r e s i d e n t nr a r t ha*4 s e l e c t e d W iU ia m S tro n g o f P e n n s y l ­
Jose

r ho t

jh B r a d le y o f New j e r s e y ,

o r ii^ r

+o

take

t o bp J u s 4 i c e s oi' t h e Suyrene

th e p l a c e o f J u s t i c e c r i e r , who had

resign ed

] r casp c t Hepburn v . Or is. v o i d was argued ar.d was d e c i d e d by th e

c o u r t ., b u t b e f o r e that, d e c i s i o n was announced or became known; and the
l a * f o r t e f l ' - i a v a c a n c y on th e b e n c h .

Mr. S tr o n g ar.d v r . B r a d l e y wore

b o t h n o m in a te d by th e P r e s i d e n t , ard were c o n f ir m e d by t h e S e n a t e , ar.d
c o m m issio n ed hy t h e p r e s i d e n t soon a f t e r th e d e c i s i o n

i* wepburn v .

o r i s w o M was r e n d e r e d , ard p r o b a b l y w i t h o u t k n o w le d g e ,

on th e p a rt

P resid en t



of'

G r a n t, o f t h e , r o, in Io n s r e s p e c t i n g th e c o n s t i t u t i o n a l i t y o f

+he

+

Stofrs

1 o s &1

+ o n d **r r . o f p s ,

S b o r f.lv <*ftor Mr. Ju k 4 ic^ S tro n g and *fr .

Ju ^ M cp B r a d l e y t o o k

t b e i r H^at.3 n .or, tb^ b ^n ch , fb c c afios o f Knox v . Loo, and Parkor v .
r
B a v i n , can 10 on fo r a rg u m ent, and woro found +o i n y o l v o tho q u e s t i o n o f
t b e conat ifu> i o n o i i t y o f th e TTni*cd S t a t e s i p g r l ter.dor r c t o s ,
nnrv , rvora
court

rgu^d wi*b

utmost, c l aboraf 1 on .

and, as

Jr t b r s c cai-'ps the

d e c i d e d , by a v c t ^ o f f i v e t o f o u r , *ba+ 4bn u n i t e d .-.fates l o g a l

+-°ndo r r o 4or. v:rro const- i +u* i o n a l , b o fb as t o cord r a c + s n n 'o
a?'d O': ! r o c ' s nar> a f t e r tbo p a s s a g e o f t b e
th eir

issu e.

Strong,

bo f o r e ,

A f s which p r o v i d e d f o r
c

The OTinion o f 4,ho co u rt was d e l i v e r e d hy v r . J u s t i c e

vhc s a i d f h o r e i n , t h a t

*ba r a s e o f Hepburn v . Orjsv;o3d had boon

d e c i d e d Ly - c o u r t h a v i n g a l o s s number o f j u d g e s th*n th e law t h e n in
e x i s 4 er co p r e v i d o d , and t h a t
vdo-

i t was c o n t r a r y t o cu sto m f o r t h e c o u r t

«bus i r c o m p l e f o , t o h e a r ard d e c i d e c o n s t i t u t i o n a l

qu*st i c n s : and

t h a t t h e m a j o r i t y o f th e f u l l bench was t h o r o u g h l y c o n v i n c e d t h a t t h e
d ecision
lop;rj

o f Hophurn v . G r is w o ld was wrong, and t v at J he U n i t e d S t a t e s

t e n d e r n o t e s were c o n s t i t u + 1 o r a l .

The cases th u s d e c i d e d by tho

Supreme 0c'u r t- v;or° Imported a s th o L e g a l T e n d e r C a s e s , 12 W a l l a c e , 4 5 7 ,
lPhn,
M’t o r th o p a s s a g e o f t h e
who’h e r U n i t e d S t a t e s l e g a l
p u r s u a n ce o f ♦hat

Act o f Kay » ] , 3 0 7 8 , th e q u e s t i o n a r o s e

t e n d e r r o t.e s which had beer, r e i s s u e d i r

» c t , a f t e r t h a t h a y , were e q u a l l y c o n s t i t u t i o n a l w i t h

t h 0n„ w h ic h had been o r i g i n a l l y i s s u e d d u r in g the c i v i l war: f o r some
l a w y e r s t hought, t h a t s u c h n o t e s were c o n s t i* i,t t o r a l ,
as i n c i d e n t

t o t h e war power o f th e g o v e r n m e n t , and were n o t const, i t u -

t i o n a ] where i s s u e d in t im e o f Te a e e .
ment

in th e Supreme Court in 1 8 8 4 ,

That q u e s t i o n came on l o r a r g u ­

in th e e a s e o f J u i l l i a r d v . oreenman,

w hich i s r e p o r t e d as the I .e g a l Tender e a s e in l l o
1874.

Ir. th a t c a s e ,

tj.

s . R eports, 4 2 1 ,

th e c o u r t was u n a n im o u s ly 0f t h e or i n i o n , t h a t th e

i s s u i n g o f U nited S ta te s l e g a l



o n l y where i s s u e d

tender r o t e s

in. M r r o f r e a c e , cannot he

dist irguished,

i n ] oin.t o f c o n s t i t u t i o n a l i t y ,

In 4 ivy^ of* v n r i
suet ro te s

pt!''’

from i s s u i n g such n o t e s

+V o co u rt d e c i d e d by a v o t e o f e i g h t
1

re f u l l y c o r s t it u t ional

in ^ i + t ^ r

M ils

cf cred it,

and m a ki n g 4hem a l e g a l . ' e r d e r ,

e x p r e s s c o n s t i t u t i o n a l pow^r o f Cop , r e s s ,
of 4
-v'e U n i t e d

it ■‘ o s ;
-■

ard that

The o i i r i c n

ca se .

c ~n r t v
,rf»j. d e l i v e r e d h v j u « M c e u r a y , who s a i d t h a t

to one, th a t
of the

t be p ower o f i s s u i n g

is

i n c l u d e d ir, t h e

4 o b o r r o w money on t h e c r e a i t

t h i s rosiM.on

i s f o r t i f i e d h y +he e x p r e s s

c o n s 4 i t u 4 i c r • 1 p ower o f C o n g r e s s 4 c r e g u l a t e

foreig n arc

interstate

COV e r Ce .
T !r
The c or.st i 4 u t i o r a l i t y o f TJni + e d S t a t e s
f i n a l l y a d j u d i c a t e d hv t h e Supreme C o u r t ,
he on f i r s t

t e n d e r n o t e s was t h u s

f w ^ n J y - f T .years a f t e r
,;c

d e f e n d e d h y John Sherman i r t h e U n i t e d S t a t e s S e n a t e ;

when f ‘ u s a d j u e l e a f e d ,
Sherman, h a d p r i n c i p a l l y
power

legal

had

and

i t was m a i n l y b a s e d upon t h e g r o u n d w h i c h S e n a t o r
invcVed, namely; t h e e x p r e s s c o n s t i t u t i o n a l

o f C o n g r e s s 4 c b o r r o w money; b u t

t a l k er b y v r . T'irgham o f Ohio i r

p a r t l y u p o n 4he g r o u n d whi ch was

4he n o u s e o f P e p r e s e r t a t i v e s

name ] y , t h e p o wer t o r e g u l a t e f o r e i s:r and j r 4e r s t a t e
th a4 adjudication
-

it

in 1 8 6 2 ;

c onine r c e .

o f 1 8 8 4 h a s e v e r s ir.ee s t e e d , a r d w i l l

And

always

remain

as t be p e r m a n e n t embodi ment and a u t h o r i t a t i v e d e c l a r a t i o n o f c u r c o n ­
s t i t u 4 i o r a l law upon 4 he s u > j o c t
ed b y a f u l l b e n c h ,

4 o whi ch i 4 r e l a t e s ;

for

it

was d e c i d ­

a r d was n e a r l y u n a n i m o u s , a n d h a s s t o o d l o n g e n o u g h

t o b e s t a r e de c l c i s ; w h e r e a s t h e d e c i s i o n in t h e c a s e o f Hepburn v .
wol d v;as r e n d e r e d by a s m a l l m a j o r i t y o f an i n c o m p l e t e c o u r t ,
i n r i e d i 4 e 1 y c h a l l e n g e d b y 4he

jp c 4 h e r c a s e s ,

and p r o m p t l y an d e m p h a t i c a l l y r e v e r s e d hy t n o Supreme C o u r t .
> future

F or t h e s e

d e b a t e u ^ on 4.he p u e s 4 i on c f xhn c c i',s 3 j-mp i o n a l

power o f C o n g r e s s t o i s s u e U n i t e d S t a t e s l e g a l
m e r e l y a c a d e m i c o r Hit l i e ,

t e n d e r n o t e s , must b e

and ca n h a v e no p r a c t i c a l e f f e c t , u p o n t h e

l aws *r f i n a n c e s o f 4 f e Tin it or; S t a t e s




and was

A t t o r n e y r/'t' orn], cf* 4 ho U n i t e d S t a t e s

w i t h a m o t i o n f o r a r e - a r g u m e n t , and was s c o n r e a r g u e d

reasons,

G ris­

*ctns.

THE PROPOSED RETIREMENT OF THE UNITED STATES NOTES

Mr. C l e v e l a n d , and Mr. C a r ) i s l e ,

and Mr. E c k e l s , and t h e I n d i a n -

a p c l i s Convent i o n o f b a n k e r s and b u s i n e s s men cl' Ja n u a ry i p ,
some o t c e r o i i i c i a l s

1897,

and

and c i t i z e n s , have b een a d v i s i n g c o n g r e s s t o r e t i r e

the U n i t e d States l e g a l

tender

no* o r from ciroulation.

in his last

a n n u a l m e ssa g e o f December 7 , 1 8 9 6 , P r e s i d e n t C l e v e l a n d recommended
t e a t th e U n i t e d S t a t e s n o t e s known as g r e e n b a c k s , be redeemed by t h e
} r o c e a d s o f i n t e r e s t b e a r i n g bonds t o be i s s u e d i c r th e p u r p o s e .

And

i n h i s l a s t a n n u a l r e p o r t which was s e n t t o C ongress about t h e same
t i m e , S e c r e t a r y C a r l i s l e made t h e same r e c o n m e n d a t i o n s ; and added t h a t
t h e n a t i n a l banks s h o u l d a l s o be p e r m i t t e d to t a k e such bonds in e x ­
change f o r U n i t e d S t a t e s n o t e s ,

and i o u s e th e bonds a s th e b a s i s f o r

i b e same amount c i n a t i o n a l bank n o t e s , t o be i s s u e d by them .
h i s annual r e p o r t o f December 7 ,
recomr . o n d a t i o n s ,

1 8 9 6 , C o m p t r o ll e r E c k e l s e c h o e d t h e s e

and a d d ed t h a t h e r e a f t e r th e banks s h o u l d h a v e t h e

issu in g o f a l l c r e d it currency.

And th e I n d i a n a p o l i s convention r e ­

s o l v e d t h a t s t e p s s h o u l d be ta k e n to s e c u r e t h e u l t i m a t e
a ll

And in

c l a s s e s or U n ited S t a t e s n o t e s ,

retirem ent o f

and t o p r o v i d e f o r th e i s s u a n c e o f

t h e f u t u r e p a p er money o f the U n ite d s t a t e s >y b a n k s .
T his programme, i f e x e c u t e d upon th e U n i t e d S t a t e s l e g a l t e n d e r
n o t e s o n l y , and n o t upon t h e t r e a s u r y n o t e s o f 1 8 9 0 , would make th e
government H e r e a f t e r pay i n t e r e s t , . . a t t h r e e o r four p e r c e n t p e r annum,
on what r e m a in s o f i t s n o n - i n t e r e s t b e a r i n g g r e e n b a c k d e b t , on th e one
hand; and, on t h e o t h e r hand, would a i : o w b a r k s to r e c e i v e d o u b le i n ­
t e r e s t ui on a. c o r r e s p o n d i n g amount o f t h e i r own c a p i t a l ,
sin g le

in tere st,

as a t p r e s e n t .

w ould r e s u l t from th e f a c t t h a t ,

in stead o f

And t ’
-'«t r e c e p t i o n o f d o u b l e i n t e r e s t
accord in g to t h i s p la n ,

th e hanks

c o u l d t r u e about $ 3 5 0 , 0 0 0 , 000 o f the c a p i t a l , w hich th e y now have l o a n ­
ed o u t to t h e i r c u s t o m e r s at s i n g l e

in terest;

and w i t h t h a t c *i l t a l

c o u l d buy t h e i n t e r e s t b e a r i n g b o n d s , which a c c o r d i n g t o t h i s p l a n ,
government would i s s u e



the

in e x c h a n g e f o r t h e r e m a i n i n g o u t s t a n d i n g g r e e n -

4*

b a c k s ; and on t he b a s i s o f t h o * e 1 e n d s , c u b ' d i s s u e , and 1oan t o t b e i r
on i n t e r e s t
c is tomers ,^/jan e q u a l amount o f b an V not^R, and a t t h e same tim e be r e ­
c e i v i n g from
It

be g o v ern m en t, t h e i n t e r e s t

is p o ssib le

that

on t h e v onds t h e m s e l v e s .

4M c o p e r a t i o n c o u l d be c a r r i e d out w i t h v e r y
;

lo n g * ime l e n d s b e a r i n g i n t e r e s t as low as t h r e e p e r c e n t ;
its

first
^

and i f s o ,

c o s t o f t h e pro grannie t 0 t h e g o v e r n m e n t, would be about

>0 ./0 p e r annum.

Rut t h e b a n k s would not make, nor th e g o v e r n ­

ment l o s e s o nruch as t h a t

from th e t r a n s a c t i o n ; b e c a u s e ,

accord in g to

p r e s e n t l a w , th e y would have + 0 pay t o t h e g o v er n m en t, a t a x o r one
p er c e n t p e r y e a r m on t h e i r new c i r c u l a t i o n ,
p ro fit,

and

s o t h a t the n e t bank

n e t government l o s s from the p r o p o s e d prograirme, w o u ld ,

a c c o r d i n ; t o th e p r e s e n t la w , be o n l y about t w o - t h i r d s o f # 1 0 ,D 0 0 ,0 0 0 »
p e r annul rn

Rut S e c r e t a r y Carl i s l a

m h is la s t

annual r e p o r t , recom­

mended t h a t th e t a x upon the bark c i r c u l a t i o n be r e d u c e d from
cent,

1o o n e - q u a r t e r o f one p e r c e n t ;

and t h a t c h a r g e ,

one

p er

i f made, would

i n c r e a s e th e p r o f i t s o f th e b ank s and +he l o s s o f the government from
t w o - t h i r d s o f H O , 0 0 0 , 000 t o e l e v e n - t w e l f t h s o f *hat sum, o r ; somewhat
o v e r 5 ^ , 0 0 0 , 0 0 0 p er annum.
i u - i ’ fcppea r s , ar.d cannot be d e n i e d ,

t h a t the p ro p o sed p r o g r amue

f o r th e r e t i r e m e n t o l t h e g r e e n b a c k s would tak e more than & 9 ,0 0 0 , 0 0 0
p e r ar. urn i n d e f i n i t e l y through th e f u t u r e ,

and c e r t a i n l y

t w e n t i e t h c e n t u r y , out o f 4he t r e a s u r y o f *ho U n ite d
i n t o . t h e v a u l t s and o w n e r s h ip o f +he b a n k s .
^ arl i ' l e ,

and Teke I s ,
*

and at

and put

it

C levelan d ,

l e a s t f he l e a d i n g gen flem en who at te n d ed
mist u n d e r s t a n d t h a t

w e l l en ou gh, though 1 he v ha v e i r v o r m e n tio n ed i t

m essages, r e v e r ts ,

fates,

And M e s s r s .

th^ I n d ia n a , o i l s C o n v e n tio n o f ,T nuarv l;>, 1 8 9 7 ,
fact

f a r i n t o th e

in any o f t h e i r

or r e s o l u t i o n s .

d'lt j u s t i c e to n‘ 0 s e a c ^ i l o 4h er a d v o c a t e s o f t v,e r e t i r e m e n t o f
f v,° U n i t e d S t a t e s l e g a l f e n d e r n o t e s , makes n
^ay,

n e c e s s a r y t o i m m e d i a t e ly

thaf- they h o l d t h a t t h e p e o p l e would r e a p from the proposed t r a n s -




—-

.J

r7m, 2

a

a ctio n ,

c e r t a i n indirect, b e n e f i t s ,

far g re a ter

in v a l u e ,

? 9 ,0 0 ',C T C p e r annum, which through t h e governm en t,
would ca u se them to l o s e .

I f t h e y are r i g h t

th a n th e

that tr a n s a c tio n

in t h i s c o n t e n t i o n , t h e i r

a d v o ca cy cl* th e p r o p o s e d r e t i r e m e n t o f th e U n ite d S t a t e s l e g a l te n d e r
notes is r ig h t; tu t

i f t h e y a r e wrong in t h i s

con ten tion ,

wrong in t h a t ad vocacy; and w h e th e r t h e y are r i g h t ,
th e next q u e stio n for a n a l y s i s ,

ascertain m en t,

t h e y are

or are wrong,

is

and answ er.

Those who f a v o r th e r e t i r e m e n t o f t h e U n i t e d S t a t e s l e g a l t e n d e r
n o t e s , b a s e t h e i r arguments upon the f a c t t h a t t h o s e n o t e s w i l l work
g r e a t i n j u s t i c e among th e p e o p l e , by v i r t u e o f t h e i r

f u l l debt p a y i n g

p ow er, u n l e s s t h e y are k e p t a t par w i t h g o l d ; and upon t h e f a c t t h a t
t h e y cannot be k e p t a t par w i t h g o l d , u n l e s s th e government a lw a y s k eep s
i t s e l f x r e p a r e d to redeem them in g o l d upon demand; and upon th e f a c t
t h a t th e government cannot k e e p i t s e l f th u s p r e p a r e d , w i t h o u t k e e p i n g a
l a r g e g o l d r e s e r v e f o r th e p u r p o s e ; and upon th e h y p o t h e s i s ,

th a t the

government cannot be r e l i e d upon to be a b l e to k eep su ch a g o l d r e s e r v e .
Now i t may be a d m itte d that, a l l t h e l i n k s

i n t h i s c h a i n o f argu­

ment are tr u e and so u n d , e x c e p t +he l a s t one; but +h^re i s e v e r y r e a s o n
for d isa ffirm in g that h y p o th e s is .

Those r e a s o n s are th e f a c t t h a t a l ­

w a y s , s i n c e J an uary 1 , 18*79, t h e government h a s been a b l e t o keexj s u c h
a g o l d r e s e r v e ; and th e i a c t t h a t n ° v o r ,
of

—a t t i m e ,

m ain tain in g

d uring t h e f i r s t

a i d t h e government m^ot t h e . s l i g h t e s t

fo u rte en years

in con vonein ce

in

tn at g o l d r e s e r v e a t $>100,0 G 0 ,000; and t h e f a c t t h a t d u r in g

U )4, 18 f3, and 1 8 9 6 ,

though t h e governm ent borrowed money w i t h w h ich

to m ain tain that gold r e s e r v e ,

i t u s e d , or w i l l u s e ,

a l l t h a t money,

p l a c e oi" t a x e s w hich i t r e f r a i n e d from a s s e s s i n g and c o l l e c t i n g ;
t h e f a c t t h a t i t has now become,

and

arc w i l l u n d o u b t e d l y rem ain th e p o l i c y

o f th e g overnm en t, t o a s s e s s and c o l l e c t t a x e s enough to make th e
government r e v e n u e s e q u a l t h e governm ent o u t g o e s ;

and the f a c t t h a t

t h e a s s e s s m e n t and c o l l e c t i o n o f t a x e s t o t h a t e x t e n t , may be




in

»0 .

e x p e c t e d to o p e r a t e , as

a l w a y s did o p e r a t e from J a n u a r y 1 ,

t o th e b e g i n n i n g o f P r e s i d e n t
vent

A *:/ -

C lev ela n d 's la s t

ad m in istration *

any in c o n v e n ie n t , d r a i n a g e from th e g o l d r e s e r v e ;

1879,
to p re­

and th e f a d ,

which V ,,.- s t a t e d by D a n i e l N. Morgan, t h e Tree s u r e r o f th e U n i +ed S t a t e s
P
in h i s annual r e p o r t o f December 1 ,
o f g o l d toward th e t r e a s u r y ,

1 8 9 6 , t h a t ‘' t h e r e

i s a n a tu r a l flow

which i s o f t e n l i m i t e d o n l y by t h e c a p a c i t y

o f th e t r e a s u r y t o c a r r y the s p e c i e " :

and t h e f a c t t h a t

th is

flow o f

g o l d , v.r ich c o n s i s t s c f d o m e s t i c and f o r e i g n M i l l i o n and f o r e i g n c o i n ,
d e p o s i t e d in th e U n ite d S t a t e s mint f o r c o i n a g e ,
c o i n , which i s d e p o s i t e d in the t r e a s u r y
n otes,

i s a s t r e a m w h ich c o n t i n u e s a t a l l

and U n i t e d S t a t e s

in e x c h a n g e f o r U n i t e d S t a t e s
tim es,

and in d e e d which op­

e r a t e d , w i t h o u t any a s s i s t a n c e from borrowed or p u r c h a s e d g o l d ,
crease

.^old

to i n ­

the t r e a s u r y g o ld from $ 1 0 0 , 9 5 7 , 5 6 1 , a t t h e end o f A u g u st, 1 8 9 6 ,

t o more than $ 1 5 0 , 0 0 0 , 0 0 0 now.
These f a c t s
lu sio n ,

are c e r t a i n l y enough t o s e n d back t o t h e domain o f de­

e v e r y f e a r th a t

the government, cannot be r e l i e d upon t o be a b l e

t o k e e p th e g o ld r e s e r v e s u f f i c i e n t

in amount to m a i n t a i n a l l t h e U n i t e d

" t a l e s l e g a l te n d er n o te s at par w ith g o ld ;
c a s e and argum ent,

and t h e r e f o r e th e e n t i r e

in fa v o r o f t h e p r o p o s e d r e t i r e w * n t o f t h e U n i t e d

S t a t e s l e g a l t e n d e r n o t e s , p l a i n l y a p p e a rs 1c b e w i t h o u t any r e a l f e u n d h t i on •
Put s t r a n g e i v enough,

i^ d o es n o t ap pear that

any o f rhe a d v o c a t e s

o f t h e s u b s t i t u t i o n o f bank n o t e s f o r U n i t e d s t a t e s l o g a l t e n d e r n o t e s ,
i n the c u r r e n c y o f t h e c o u n t r y , have p e n e t r a t e d f a r enough i n t o +he sub­
j e c t t o i n q u i r e whether the banks c o u l d be r e l i e d upon,
tirem ent

o f th e U n ite d S t a t e s r o t e s ,

a f t e r the re ­

to redeem t h e i r n o t e s

in g o l d .

And

t h e r e are good r e a s o n s f o r t h i n k i n g t h a t no r e l i a n c e w h a t e v e r c o u l d be
p l a c e d upon t.ha banks redeem in g t h e i r n o t e s in a n y t h i n g b e f + e r th a n
s ilv e r d o lla rs,
ro les.




a t any tim e a f t e r t h e r e t i r e m e n t o f th e U n i t e d S t a t e s

Those r e a s o n s i n c l u d e tr o f a c t t h a t t M

n a t i o n a l ban \ n o t e s ,

n

a cco rd in g to the* n a t i o n ' ! b^nk l-iw, srp n o t retire nibble in g o l d o n l y ,
\ui.

a rc r e d e e m a b l e in s i l v e r d o l l a r s

a lso;

and th e

about 4 4 0 , 0 0 0 , 0 0 0 o l l u l l l ^ g a l t e n d e r s i l v e r d o l l a r s
S tates

i n the U n i t e d

o b t a i n a b l e t o r u s e by t h e h anks in re d e em in g

the f a c t

n o t e s ; and

’ hat ^;old must go to a premium over s i l v e r

so~n as th e p e o p l e g e n e r a l l y a c o u i r e t - e o i i n i o n ,
pe«- money w i l l much l o n g e r he redeemed i n g o l d ;
,v m

'ai v ?irfi ^ i r e t h a t o p i n i o n ,

a, e c a n c e l l e d ,
a lle

t h a t u ^ r e a re

ta ct

in s i l v e r ;

s i l v e r a-jl i a r s ,
ver o n ly ,

in i n i s c o u n t r y ,

ns

t h a t no e x i s t i n g pa-

and t h e f a c t

ns s o o n as a l l

‘ h a t "hey

‘he government n o t e s

an d t aey l e a r n t h a t t h e n a t i o n a l hank

n o te s are redeem-

and th e f a c t t h a t a s soon a s g o ld g o e s t o a premium o v er
a l L the banks w i l l h a v e an enormous m o t i v e t o pay s i l ­

and not g o l d , w henever t h e i r n o t e s

are p r e s e n t e d

tor redemp-

t io n .
in
Thu« f a r * t h e a n a l v s i s oi*

*he

su bject,

it

appears

s u b s t i t u t i o n oi* bank n o t e s f o r U n i t e d S t a t e s l e g a l

th at

tender

the

proposed

n o t e s , would

be s u b s t i t u t i n g a p a p e r c i r c u l a t i o n , which would b e a l m o s t c e r t a i n to
s o .n f a l l to a d ep reciated s i l v e r b a s is ;

f o r a p a p e r c i r c u l a t i o n which

i s a lm o s t c e r t a i n to c o n t i n u e t o be a t par w i t h g o l d ,

and w ou ld b e pay­

in g the b a r k s i^u,0 0 0 , 0 0 0 each y e a r , ou t o f the t r e a s u r y o f t h e U n i t e d
States,

f o r d o in g t h e i r p a r t toward making that, c h a n g e .

Uut. th e r e a d e r may t h i n k

that, t h i s

is too p la in a ca se o f a b su r d ity

in p l a n n i n g , t o b e th e t r u e c h a r a c t e r o f t h e p l a n ; b e c a u s e h e may t h i n k
it

im p ossib le th a t P r e s id e n t C levelan d , Secretary C a r l i s l e ,

and comp­

t r o l l e r ’ c k e l s , and th e I n d i a r a p l o i s c o r ,v e n * ic n , would a l l o v e r l o o k t h e
icir.t

- bout, t be r e d e e m a b i l i t y o f n a t i o n a l bank n o t e s

in s i l v e r d o l l a r s ;

ar.d b e c a u s e b e ma.v t h i n k <hat t h e y do n o t m ention «hat p o i n t , b e c a u s e
it

i s w e l l x x Known to be someway i n v a l i d .

Uut. t h e p o in t

kno'-n »c be i n v a l i d , nor even f a i r l y a n s w e r a b l e ;
most

because

is not w ell
s e v e r a l o i th e

e x p e r i e n c e d and d i s t i n g u i s h e d n a t i o n a l bank p r e s i d e n t s in th e

U n i t e d o t - - t e s / who fa v o r *he p r o p o s e d programme,




have

b een a s k ed in p r i -

«

0

v n t e c o r - » S t o n dence t o snswor the p o i n t ,

and have t r i e d

to M s o ,
o

and

h a v e f a i l e d t o show how th e b ank s c o u l d b e r e l i e d u p o n , a f t e r th e
tirem ent

o f th e U n i t e d S t a t e s ro t^ R , +o red eem Jh e i r r o t e s

t h e g r e a t apparent s t r e n g t h o f t h e j o i n t

re­

in g o l d .

And

i s f u r t h e r f o r t i f i e d by th e

f o 11 owing f a c t s .
'C n a t i o n a l banks do not redeem t h e i r n o t e s in g o l d row, and have
hf'
n e v e r done s o ;

and t h e y do n o t k e e p , and are not rr.(j . , i m d t o k eep any

g o l d at:.w h e r e ,

as a fund or r e s e r v e out o f w h ich to redeem any o f t h e i r

notes.

The o n l y fund in e x i s t e n c e

tor • hat, p u r p o s e ,
‘

i s the s o - c a l l e d

" F iv e Per Cent Redemption Fund" p r e s c r i b e d by s e c t i o n t h r e e o f t h e amend
mar,! o f June 2 s , 1874, t o t h e N a t i o n a l Bank Act o f June

1864.

'i’hat

s e c t i o n p r o v i d e s t h a t e v e r y n a t i o n a l bank s h a l l a t a l l t i m e s have on
d ep o sit,

i n th e t r e a s u r y o f the U n i t e d S t a t e s ,

U rited S t a t e s ,

in l a w f u l money o f t h e

a sum e q u a l to f i v e p e r c e n t o f i t s c i r c u l a t i o n , t o be

h e l d and u s e d f o r t h e r e d e m p tio n o f such c i r c u l a t i o n .
money* i n c l u d e s U n i t e d S t a t e s n o t e s ,
wen

as g o l d ;

The te r m " l a w f u l

and s t a n d a r d s i l v e r d o l l a r s ,

and in d e e d f r a c t i o n a l s i l v e r c o i n

i s l a w f u l money,

as
for

t h e s p e c i a l p urpose o f p a y in g bank n o t e s , o r o t h e r d e b t s , amounting t o
no more than f i v e d o l l a r s .

Fver s i n c e June 20,

1874,

it h as t h e r e f o r e

b e e n oi u . to t h e n a t i o n a l b a n k s to h a v e t h e i r f i v e p e r c e n t r e d e m p tio n
fund e i t h e r
sol

in g o l d , or in U n ite d S t a t e s n o t e s ,

or i n s t a n d a r d s i l v e r

a r s , or in a.ll o f t h e s e k in d s o f money, and a l s o . a r t .ly in f r a c -

tien et

silv er

coin .

But th e a n n u a l r«j ort. of' U ecem ler 1, 1 8 9 6 , o f -h e

Treasurer o f the U nited S t a t e s ,

i n d i c a t e s *hat t h e n a t i o n a l banks have

n e v e r d e p o s i t e d any g o ld in t h a t Hind, and shows
+h• t

fund h a s c o n s i s t e d o f s i n c e J u l y 1 , 1 8 7 4 ,

o f t h o s e k i n d s o f money v.-er e p aid cut o f that

w h at,

k i n d s o f money

and what amounts o f ea c h
fu n d ,

in the

re d e m p tio n

o f n a t i o n a l o'-r.k n o t e s , d u r in g th e t w e n t y - t w o y e a r s en d in g w i t h June
1'“.
6

i.

f i g u r e s are as f o l l o w s ; U n ite d S t a t e s n o t e s , *>540,928,229;

standard s i l v e r d o l l a r s ,
Checks i a y a l l e



$,7,875,29?.;

fraction al

in U n i t e d S t a t e s n o t e s ,

s ilv e r co in s,

$ 2 ,7 5 9 ,2 0 0

or stnr.""rd s i l v e r d o l l a r s ,

$ 1,

170 , 98,",, 2

& i .

in a sm uch as t h e n a t i o n a l b ank s n e v e r have redeemed any o f t h e i r
in - o l d u n d er e x i s t i n g

law s,

even during th e l a s t e ig h t e e n y e a r s ,

when g o l d h a s commanded no premium o v e r s i l v e r d o l l a r s ; he would be a
credulous

s t a t e s m a n who c o u l d b e l i e v e t h e 4 t h e y c o u l d be r e l i e d upon,

u n d er e x i s t i n g l a w s , t o red eem a l l

th e ir notes

in g o l d h e r e a f t e r ,

if

g o l d s h o u l d h e r e a f t e r command a premium o v er s i l v e r d o l l a r s .
^nd g o l d w i ' l h e r e a f t e r command a premium o v e r s i l v e r d o l l a r s ,
cai r.ct
w h en ever gold^Rax be o b t a i n e d in t h i s c o u n t r y a t p a r , in exchan ge
f o r p a i e r money, o r in e x c h a n g e f o r s i l v e r d o l l a r s ,
o f th o se ways.

S ilv e r d o lla rs

are n o t ,

or i n a t l e a s t one

and n e v e r h a v e b een r e d e e m a b le

in g o l d ;

and th e o n l y h in d o f p aper money upon w h ic h g o l d h a s been ob­

ta in a b le

in t h i s c o u n t r y ,

leg a l

tencar n o t e s ,

not.es are r e t i r e d ,
in *h i s

a t a r y time s i n c e 1 8 6 1 , a re th e U n i t e d S t a t e s

and U n i t e d S t a t e s t r e a s u r y M i t e s .

t h e r e w i l l , under e x i s t ing l a w s , be no p a p e r money

c o u n tr y f o r which g o l d can he o b t a i n e d a t p a r , u n l e s s t h e na­

t ionaj books s h o u l d v o l u n t a r i l y redeem t h e i r r o t e s
in
1

*ha

in i o l d .

; o i d , u n l e s s th e n a t i o n a l b a rk s s h a l l

remai n a t

in f a c t redeem t h e i r

in g o l d , v.^pr, at l u l i l i h e r y * 0 redeem them in s i l v e r d o l l a r s .

■Rut by s i u ] j v ro'ieeming 1 bo:;i in s i l v e r d o l l a r s o n l y ,
no-^t

th erefore,

o v e n t , and undor th o s e 3 rwh, s 1 I v e r d.0 1 1 a r s v.*i l } not

° r ^‘i ' h

n otes

A fter a l l th o se

for one week,

4v k

n a t i o n a l banks could d e p r e s s t h e v a l u e o f s i l v e r

d o l l a r s f a r b e lo w par w ith g o l d ,
dol ] a r s

fo>* one day, or at

and c o u l d a l w a y s t h e r e a f t e r get. s i l v e r

vi o w i^a ^0 redeem * h e i r n o t e s ,

iiuch c h e a p e r th a n th ey c o u l d

g et gold for that purpose.

*

Them f o r e th e n a t i o n a l banks would be s u r e , a f t e r t h e r e t i r e m e n t
o f a] 1 t h e U n i t e d S t a t e s n o t e s ,

and d u r in g the

con tin u ar.ee

s e n t n a t i o n a l monetary law s , t o redeem t h e i r n o t e s
on ly,

o f th e p r e ­

in s i l v e r d o l l a r s

and i r:us c a r r y !,11 ■h e b u s i n e s s o f **e c o u n t r y t o a d e p r e c i a t e d
‘

s - n v o r bM.sis: u n l e s s t h e r e Is nonr m o t i v e which v 0ul<1 i n f l u e n c e them t o




i

8

l 0 ”' g0 f ''e u n d e n i a b l e and enormous p r o f i t s w h ich t h e y would reap
rede- mlng t h e i r n o t e s in t h e c h e a p e s t ,
a v c l i a b l e f o r the p u r p o s e .

Ircm

i n s t e a d o r in th e d e a r e s t s p e c i e

Such a m o t i v e cannot be deduced from any

b e n e v o l e n t p r i n c i p l e ; b e c a u s e t h e o f f i c e r s o f n a t i o n a l banks are not a t
l i b e r t y t o g i v e away, or r e n o u n c e any l e g a l r i g h t ,

which t h o s e c o r p o r a -

M o n s h a v e ; at: d b e c a u s e ‘h o s e c o r p o r a t i o n s are c o n d u c te d to make money
for t n e i r s t o c k h o ld e r s ,
otver p eo p le.

r a t h e r than, t o b e n e v o l e n t l y promote t h e

of

And .-uch a m o tiv e c a n n o t he deduced from th e p r o s p e c t ,

th R t ' hc redeu.pt io n o r th e n a t i o n a l bank n o t e s

in s i l v e r d o l l a r s o n ly ,

w ? u l d make ’h e n a t i o n a l banks u n p o p u la r w i t h t h e p e o p l e ; b e c a u s e t h e
banks knew t h a t t h e y h a v e done some u n p o p u la r t h i n g s in t h e p a s t ,

*i V

haVe d r i v e n ;

md

and b e c a u s e t h e p r o s p e c t i v e u n p o p u l a r i t y would n o t

p r a c t i c a l l y d im inish t h e i r b u s in e s s ,

f o r t h e i r r c t . e s , even when redeem­

ed in s i l v e r o n l y , would b e a s good a s ary o t h e r paper m0ney i n c i r c u ­
la tio n ,
M on,

in t h i s c o u n t r y ,

except

and in d e e d would be a l l the

u l v o r an o s i l v e r

For the f o r e g o i n g r e a s o n s ,

, one y i n c i r c u l a -

it'ir a te s.
th e p r o o f seams c o m p l e t e , t h a t th e p r o -

f 9* * 4 * M r e m e n t o r tt»e U n i t e d S t a t e s l e g a l t e n d e r n o $ e s , and • — : r v
roteS,

-ould r e s u l t

v°r

in ’ he n a t i o n a l banks r e d e em in g t h e i r n o t e s ir, s i l i

o n l y » aurt would thus c a r r y a l l

th e b u s i n e s s o r the c o u n t r y ,

t o a d e p r e c i a t e d s i l v e r b a s i s ; u n l e s s the law f o r t h e r e t i r e m e n t o f
t h o s e U n i t e d S t a t e s n o t e s and t r e a s u r y n o t e s , s h o u l d be accompanied by
some o t h e r l e g a t i o n ,

which s h o u l d p r a c t i c a l l y o p e r a t e t o p r e v e n t t h a t

^ i SftK to r •
secretary C a r lis le ,

i n h i s annual r e p o r t o f December, 1 » 9 6 , s h a d ­

owed f o r t h t h e p o s s e s s i o n by him o f some i n c o m p l e t e n o t i o n s , more or
l e s s r e l e v a n t t o t h i s n e c e s s i t y , by s a y i n g t h a t " w h a tev er Plan may be
f i n a l ’ y a d o p ted f o r the r e t i r e m e n t o f U n i t e d S t a t e s n o t e s and t r e a s u r y
notes,
again st

it w ill

r a i l t o a f f o r d c o m p le te p r o t e c t i o n t o the g o v ern m en t,

demands l o r g o l d

in the f u t u r e ; u n l e s s

it

in clu d es a p r o v isio n

r e l i e v i n g th e t r e a s u r y irom the o b l i g a t i o n t o redeem n a t i o n a l bank



n o t o s , e x c e p t such as a r e worn, r o u t i l a t e d ,
t a i l e d b a n k s , or r e q u i r e s t h e s e
c e n t r e d e m p t i o n fund i n g o l d ,

or d e f a c e d , and t h e n o t e s o f

i n s t i t u t i o n s to keep t h e i r f i v e per

and t o d e p o s i t g o l d c o i n f o r w i t h d r a w a l

o f b o n d s , when c r c u l a t i o n i s t o be s u r r e n d e r e d o r r e d u c e d , "
But t h i s s u g g e s t i o n o f S e c r e t a r y C a r l i s l e r e l a t e s t o p r o t e c t i n g
t h e governm ent

from demands f o r g o l d , r a t h e r th a n t o p r o t c t i n g t h e

p e o p l e from r e d e m p t i o n o n l y i n s i l v e r .

His p r o p o s e d p r o v i s i o n r e l i e v i n g

t h e t r e a s u r y from o b l i g a t i o n to redeem n a t i o n a l bank n o t e s , would be
n u gatory tor e i t h e r o f t h e s e p urposes; becau se th ere
upon t h e t r e a s u r y now,

i s no o b l i g a t i o n

to redeem any n a t i o n a l bank n o t e s i n g o l d ; and

b e c a u s e i f t h e r e ware s u c h an o b l i g a t i o n ,

i t s rem o v a l would n o t do an y­

t h i n g tow ard making t h e banks redeem t h e i r n o t e s

in g o l d .

But t h e r e

is

more p o i n t i n h i s a l t e r n a t i v e recom m endation to r e q u i r e t h e s e i n s t i t u ­
t i o n s t c k e e p t h e i r f i v e p e r c e n t r e d e m p t i o n lunri in g o l d ; b e c a u s e as
l o n g a s t h a t lUnd i n t h e

t r e a s u r y w o u ld l a s t , h o l d e r s o f n a t i o n a l bank

n o t e s could p r e se n t th o se n o te s to
i n g o l d , out o f t h a t fu n d .

the t r e a s u r y , and g e t them redeemed

But. t h a t fu n d would not l a s t

p e o p l e came t o u n d e r s t a n d , a s t h e y s o o n w o u ld ,

lon g,

after

that n oth in g e l s e e x i s t ­

e d o u t o f w h ich g o l d i n s t e a d o f s i l v e r c o u l d be o b t a i n e d in e x c h a n g e
f o r n a t i o n a l bank n o t e s .

There w e r e s e v e n d i f f e r e n t c a l e n d a r months i n

P resid en t C lev ela n d 's l a s t a d m in istr a tio n ,

i n each o f which more th a n

f i v e p e r c e n t o i th e U n i t e d S t a t e s l e g a l t e n d e r n o t e s were p r e s e n t e d
t o t h e U n i t e d s t a t e s t r e a s u r y f o r r e d e m p tio n ; e v e n when p e o p l e knew t h a t
t h e r e s t o o d b e tw e e n t h o s e n o t e s and s i l v e r r e d e m p t i o n ,

a g o l d iUnd from

t h r e e t o s i x t i m e s more than f i v e p e r c e n t o f t h e n o t e s ,

and s t o o d a l s o

a c o n s t a n t c u r r e n t o f g o l d f l o w i n g i n t o the t r e a s u r y from v a r i o u s s o u r ­
ces.

The a b s e n c e o f t h i s l a s t e l e m e n t o f c o n f i d e n c e in the m a i n t e n a n c e

o f t h e g o l d fu n d, and th e r e d u c t i o n o f that, g o l d IUnd from as h i g h as
t h i r t y per c e n t,

t o as low as f i v e p e r c e n t , would so shake th e c o n f i ­

d en ce o f t h e p e o p l e in the m a i n t e n a n c e o f g o l d p a y m e n ts , t h a t th e f i v e
p e r c e n t g o l d iUnd p r o 


J o

p o s e d by i o c r e t a r v Car] I s l e ,
f l r s * in sta n c e.
w h ile,

And e v e n

w ould p r o b a b l y not

i f t h e b a n k s s h o u l d k e e p it

t h e r e w o u ld be s u c h a l a c k o f c o n f i d e n c e

ke. p i t r e p l e n i s h e d l o n g ,

o n ce a week,

in 'h a t

i n o r d e r t o p revent, i t

^

■ 1tl

f un d ,

a ,v

as o f t e n

as
Of

l o n g , and th e day would so o n

t o m a i n t a i n that, g o l d fu n d would b e g i n ,
prom th e

i s a n o t h e r a r.a l.v s is w h ich shows t h a t

. o l d r e d e m p tio n o f <»nv‘h ing by

he

o

ir st.

i

->,a hanks c o u l d n o t ,
v

r

, m aintain

r o l t payment o f t.h* bank n o t e s , which w o i l d be in c i r c u l a t i o n
c o u n t r y , a f t e r t h e new bank n o t e s , which i t

in t h i s

i s p r o i c » « d *o i s s u e

p l a c e o f the U n ited s t a t e s l e g a l t e n d e r n o t e s ,
a id e d

to

as much as

in g o l d ,

d 1'* i * co^,!1i z e r ; i s h a v i n g b e e n i n e v i t a / l e
.

And !h e r e
w i t h on-

in t h e i r a b i l i t y

from b e i n g e x h a u s t e d e n t i r e l y .

c o u r s e H y c o u l d n o t s t a n d that, s t r a i n
*.>
it', y.r i c h t h e i r f a i l u r e

<u t h e

r e p le n ish e d ior a

t h a t t h e y would h ^ v e t o d e j o s l t

f i v e p e r cent, o f t h e i r c i r c u l a t i o n

c~me,

1 ast a *nok,

and t r e a s u r y n o t e s , were

t,o t e c n a t i o n a l bank n o t e s w hich are a l r e a d y i n e x i s t e n c e .

t a k e f>e p l a c e s o f t h o s e which a r e s t i l l
016 U n i t e d S t a t e s l e g a l t e n d e r n o t e s ,

in

in e x i s t e n c e ,

To

o f the $ 3 4 6 ,6 a l , -

and t h e * ( 1 3 4 , 0 0 0 , 0 0 0 t r e a s u r y

n o t e s o f 1690; about * > 4 5 5 ,0 0 0 ,0 0 0 o f bank n o t e s would have t 0 be i s s u e d
in a e d i ' i c n to th e $ 2 2 0 , 0 0 0 , 0 0 0 o f t h o s e n o t e s which are non
e n c e , macing $ 6 7 5 , 0 0 0 , 0 0 0 a l t o g e t h e r .
p l a u s i b l e plan for p r o v id in g fo r the
in g o l d , w ith o u t
v i d e that

any a s s i s t a n c e

in e x i s t , -

Now any law which c o u l d make anv
r e d e e m a b i l i t y 0 1' a l l t h o s e n o t e s

from the g o v e r n m e n t, would h a v e t o p r o ­

-he b ank s s h o u l d c r e a t e and m a i n t a i n a g o l d r e s e r v e l a r g e

enough to g i v e c o n t i n e n c e to t h e p e o p l e th at

t h e y c o u ld get.

t h e i r bank n o t e s w henever p r e s e n t i n g them f o r r e d e m p tio n :
g o l d r e s e r v e would have t o be at l e a s t as l a r g e ,

. o l d on

and s u c h a

in p r o p o r t i o n , a s the

$ 1 0 0 , 0 - ‘ , 000 g o l d r e s e r v e , w hich t h e government a c c u m u la te d Ja n u a ry 1 ,
1679,

t o r th e p u r p o s e o f m a i n t a i n i n g g o l d payments o f t h e $ 3 4 6 , S a l , 016

of U n i t e d S t a t e s n o t e s ;

and t h e r e f o r e such a tund o r iu n d s would h a v e

t o a g g r e g a t e a t l e a s t $ 2 0 0 , 0 0 0 , 0 0 0 in g o l d .




But th e banks do n o t h a v e .

11
r .s

(hr governm ent d o e s , any in c o m in g c u r r e n t o f g o l d from t a x e s ,

I'rom d e p o s i t s oi'

o 3< b i t 1l i o n
1

a x c a j i to buy i t ,

or t o r e c e i v e i t

custom*

in mir.t.a, nor anv way t o g o t anv g o l d ,

s ..i 1j n o t dej c s i t g o l d

on roj o s i t

I'rom t h e i r c u s t o m e r s . But

in 1 at V s, wheg. t h e y Hava timch. r e a s o n to

f a a r or to none t h a t .sold i s g o i n g t o a premium: a n t
• '‘tided run cn ‘ he g o l d r e s e r v e s b e l o n g i n g to
*
from g e t t i n g ar.y g o l d t o r tha
4 ‘V

or

tha

replenishm ent

l' a 'r !han t o buv i t a t a p r e m iu m

th e re fo re

any » x -

b a n k s , would prayer.t
o f those m w v e a ,

in

And a s soon as the banks

'""’’Id b e , i n to r 1V g o ld at, a premium, H o l d e r s o f go ld would put t he p r e ­
mium up.
for
an

e

l b a t a d v a n c e would cau sa H o l d e r s o f bank n o t e s to p r e s e n t
si t i o n ,

i n o rd er t o g e t g o ld t o s e l l a t t h a t premium, and thus

e n d le s s chain

would be put

in o p e r a t i o n ,

s u r e en o u g h .

b a - k s c o u l d r.ot endure t h a " e n d l e s s chain" p r o c e s s ,
can:

them

f o r t h e s i m p l e r e a s o n th a *

And th e

as t h e government

"he governm ent has s e v e r a l

great sources

Of k~1 d s u p p l y which r.o barks can e v e r h a v e : n a m e ly , t h e s o u r c e s which
a r i s e ou t, o f i< s t a x i n g power, and out o f i t s c o n s t i t u t i o n a l monopoly
o f t h e r e c e p t i o n o f g o l d b u l l i o n for c o i n a g e .
It

i s somewhat s u r p r i s i n g

' h a t M e s s r s . C l e v e l a n d , C a r l i s l e , and

K c k e l s , and the I n d i a n a p l o i s C o n v e n t i o n , s h o u l d a l l

assume t h a t th e

p ro b lem o i m a i n t a i n i n g g o l d pavemnts o r paper money in t h e U n i t e d S t a t e s
c o u l e be s o l v e d , by s i m p l y s h i f t i n g t h a t burden from t h e government, o f
t h e U n i t e d S t a t e s , which i s t h e most w e a l t h y and p o w e r f u l c o r p o r a t i o n
t h a t e v e r e x i s t e d anywhere on t h i s p l a n e t , t o some banks now o r g a n i z e d
or h e r e a f t e r to b e o r g a n i z e d , w i t h a v e r y s m a l l f r a c t i o n o f "he w e a l t h ,
and w i t h o u t any o f t h e power, which i s at th e command oi th e governm ent.
But s u c h h a s a lw a y s b een t h e i r a s s u m p t i o n ,

and th ey have a lw a y s o m it­

t e d t o '"-se ' hat a s s u m p t i o n on any arg u m en t, or on any s t a t e m e n t o f anv
ground t h » r e i o r .

For ex a m p le , P r e s i d e n t C l e v e l a n d s a i d in h i s a n n u a l

m e ss a g e o f December 7 , 1896 "The e n t i r e c a s e may be p r e s e n t e d by t h e
s t a t e m e n t t h a t the day o f s e n s i b l e and sound f i n a n c i a l m ethods w i l l n o t




1 2

da*vn UiOn u s , u n t i l our government. abandons t h e b a n k i n g b u s i n e s s ,

and

thp a c r u n n l a t i o n o r b i r d s . M But. he s a i d n o t h i n g l o g i c a l l y t e n d i n g to
p r o v e th a t

t h e l u s i n e s s o r m a i n t a i n i n g p aper money a t par w i t h g o l d can

he s a f e l y c o n d u c t e d by b a r k s a l o n e .
ceuher,

1896,

And i n h i s a n n u a l r e p o r t

o f T)e-

S e c r e t a r y C a r l i s l e s a i d "The i s s u e and r e d e m p tio n o r c i r ­

c u l a t i n g n o t e s i s n o t a p r o p e r f i n e * i o n o f t ho t r e a s u r y d e p a r t m e n t , nor
o f any o t h e r departm ent o f t h e g o v er n m en t."

But t h a t r e p o r t c o n t a i n s

no attempt, to show t h a t any banks can. ta k e th e monopoly o f i s s u i n g
•c i r c u l -nr, ing n o t e s ,
thoso n o te s .
sa id

and w i t h t h a t

monopoly,

can m a i n t a i n g o ld payment, o f

And in h i s annual r e p o r t o f December 7 ,

1 8 9 6 , Mr. F c k e l s

A p o i n t must b e f i n a l l y r e a c h e d , when b a r k s s h a l l

i s s u e a l l the

c r e d i t , c u r r e n c y o f th e c o u n t r y , and s t a n d w h o l l y r e s p o n s i b l e ,
o f th e g o v ernm en t,
whatever q u a n t it ie s

in stea d

fo r i t s r e d e m p tio n in g o ld c o i n , w henever and in
p resented."

But

th at rep ort c o n ta in s xo statem ent

or a rg u m e n t, *o show' t h a t th e p e o p l e can s a f e l y t r u s t t h a t trem en d ous
r e s p o n s e - i l i t y w i t h any b a n k s .
uary 12,

1897,

And th e I n d i a n a p o l i s C o n v e n tio n o f J a n ­

r e s o l v e d t h a t a b a n k in g s y s t e m s h o u l d be p r o v i d e d ,

tliri i s h a s a l e and e l a s t i c

to

c i r c u l a t i o n ; b ut the r e s c lu i ions o f th a t

c o n v e r s i o n c o n t a i n r.o a tte m p t

*o e x p l a i n ,

or e v e n sav

that, banks can be

r e l i e d on i c nia.ir.tain 1 o l rl redeinpu io n ot

t h e j ^ cp o s ed c i r c u l a t i o n ,

that. r e t i r e m e n t o f a l l

s+ ates r o t e s ,

c l a s s e s o f U n ite d

a lter

which t h o s e r e s ­

o l u t i o n s a l s o demand.
Tu d e

r ** • h n p r i n c i p a l

plans for future

i s s u e s o f bank n o t e s , wh i c h

have bean m^de and pul 1 i s h e d , by "those who a d v o c a t e t h e r e t i r e m e n t
the

United

.States

totes,

i n c l u d e no p r o v i s i o n w h a t e v e r f o r

t i o n o f t he p r o p o s e d bank n o t e s in s o l d .
ah -j t e d a t 1 he a n n u a l m e e t i n g o f t h e

in Baltimore

in O c t o b e r ,




Amerirm"

18 9 4 , p r o v i d e d t h a t

n o t e s s n o u l d be made a c c o r d i n g t o
h a s a l r e a d y shown t h a t ,

The

the

a c c o r d i n g to

A ssociation, held

t h e r e de mp t io n o f a l l bank

now e x i s t
*hat

red em p ­

p l a n , whi ch was

B altim ore

Ba r ke rs

the

cf

iu p ,

law;

and t h i s

e ssay

l aw, n a t i o n a l bank n o t e s ,

while redeemable

in sold at t h e option of the banks,

are also redeem­
S ecretary

able in silver dollars, and have never been redeemed in gold.

C a r l i s l e ' s plan, which accompanied, or short.lv followed, his annual re­
port of lb94, required each national bank to deposit in the treasury, a
guarantee fund to secure

its notes,

amounting to thirty p»r cent of

t’
-iOH^ notes, and to consist of other lawful
quire

m oney

than gold, and re­

each national bank to a.lso redeem its notes a . its own office,
t

or at its own office and agencies to be designated by it; but. that plan
did not require that any rede ipt.ion should be jn gold.
It hi-1 however, been suggested that
-,

the national banks can be en­

siled and compelled to maintain gold redemption oi their old notes,

and

ot their new notes to be issued in place of +he United States notes,
>w means of an amendment to the national bank act, providing

that each

national bank shall keep in its own vaults, a bind of gold amount i . ; to
n-

* c e n t of i t s outs
»* ’
’
eve-y u a ‘ ioual bank

' »e i
t

it

otes,

Ion a

••hall redeem i t

*or

ym

e

;

■ - >se of
,

» flee; and
totes in ,old

■ i •.
■

.
tuch presen­

tation; and providing that no national bank shall be required to redeem
its notes anywhere else than a . its own office.
t

The argument in support

of ‘his suggestion is, that it would be impracticable for anybody who
wanted to get

a large amount of geld for export or speculation, to col­

lect notes enough of any particular bank to exhaust, its f i v e per cent
f,cl'’ rec mpt ion iund.

The raj ly to this argument,

is that

it would not

be impracticable for either of several g r e a t, handlers of money

in New

York City, to collect in a few davs, or at most in a few weeks, enough
of the notes Of some one bank, which might be selected for t h e raid, to
exhaust 'he five per cent gold redemption fund of that bank in one hour;
and that, a few examples of such an operation would teach the public
t ■-t ’
Uch

r disaster night- happen t.o any hank, on any day, and thus
.

put the notes of that bank below par in gold; and that, where the pub-




1 4

Me

knows ‘.hat s u c h a d i s a s t e r

-iny n a t i o n a l Dank,
par,

th e y w i l l

is p o ssib le,

i n respect o f th e notes o f

a c c e p t the n o t e s o f no n a t i o n a l bank a t

f o r f e a r t h a t s u c h a disaster may haj pen t o t h o s e p a r t i c u l a r n o t e s .
And there is also a const.itutional doubt that national banks car.

be compelled to redeem their own notes in gold only. That constitution­
al doubt i . connected with +he fact that there are
f
silver dollars in the United States, which,
pursuance of which they wore eoined,

than 440,000,000

according to the lavs m

are 1U11 legal tender for all

>

•l/'b ts,

m ore

v/h i cb

including national bank nct^s.

Mow a ]

should provide t h a t

national bank notes can be redeemed only in gold, would thereby repeal
tV> laws which make silver dollars legal tender for all debts, as to
some of' those debts; while leaving those laws in full force a to all
s,
other debts; and there is a serious doubt of the constitutional power
of Congress to make silver dollars legal tender tor some debts, and not
legal

tender for other debts.

That doubt arises out of the express

constitutional regulation of Congressional power on that, subject.; which
power is "to coin money,

and regulate the value thereof.”

now

the only

way to regulate the value of a coin by law, is to ircvide that every­
body in the country, must take it at the prescribed value; because if
the government does no more than certify to the weight and fineness of
that coin,

it leaves its value to be regulated in the market by •♦he

laws of trade, just as the value of a bushel of wheat is regulated,
after some reliable authority has certified to its grade and measure.
.
And t h e value of a coin cannot be regulated by a law which provides that
it s h M « be legal tender lor some purposes,

and r.ot legal tender for

others; because such a law leaves the regulation of that value, for the
latter p u n cses, to the laws of trade; ar.d (he i*+.< or regulation will
always affect the general value of that coin to ever varying extents.
.Therefore, a law which should provide that, ‘he 440,000,000 silver dollar.s i i <>is country, should thereafter not be legal tender
?




in payment

1 5

of national bank notes, while remaining 1> ga 1 tender for all other pur­
'
poses, -oul l apparently be contrary to +he constitutional power and
^ • t . ol Congress
't v

fo regulate the value of’ those coins,

hut aside from this constitutional point,

it is plain that the

government, having coined those 4 4 0 , 0 0 0 , 0 0 0 silver dollars,
account at an enormous profit., with only about

on

its own

filty cents worth of

silver in each one, and having paid them all out at par, either in
their own proper persons, or by their representatives, the silver cer­
tificates;

it would be bad faith and partial repudiation for the govern­

ment to now deprive them of part of their legal tender
the har.es of the public;

power,

while ln

and he is a dreamer, who supposes that, the

Congress oi 1ue United states will ever do that thing.
Still 4here is one plan, by means of which all the United states
> notes,
•
eeiter’,

and ;reasury rotes oi’ 3.890,

e kept at par with gold.

Xhftt i]1, c © a * U t *
ing lords,

ing,

-*♦ i-ed a - d cnn..

r,d nat ional bank notes be issued in "heir pieces, m.d iv-e i&t-

ter n o 1e«

1 ,,^!

ir-v te

in exchange

lr Issuing

about

-:

50,000 of in ereat-bear-

for those of the *346,681,016 of United states

tender notes, which are still

m

existence; and consists in sell­

for use in the arts, the remaining silver bullion w h iohwas pur­

chased With the now outstanding *124,000,000, or thereabouts, of treas­

ury t e ♦rs pi ±890; and consists in issuing about. *20,000,000 of interest
bearing bonds with which to procure gold, to add to the *104,000,000,
wVich n '
at Rilvpr ^billion might, retch; and consists in using the *124,000,ooo cl gold thus collected, to redeem and cancel the outstanding
treasury notes of 1890.

And that flan lurther consists in allowing and

encouraging the national barks to issue *350,000,000 of national bank
notes upon 'be security of those two sets 0f bonds;

and consists m

providing that the 440,000,000 of silver dollars m

the United states,

shall be redeemed by the United States in gold, whenever presented to




16

tho !roasury, either in their own proper persons,
their representedives, the silver certificates;
in the t r e a s u r y ,

or otherwise received
time,

in payment of government

tion.

or in the persons of

and when thus redeemed,

shall be reissued from + ime to

obligations, and thus kept, in circula­

According to this plan, the government would have to keep the

same $100,000*000 gold reserve lor that new purpose, w h ich it has here­
tofore kept

lor the purj one of maintaining gold redemption ol' the United

ot- • os : : te s ; and the oii s tan d ing s i.v e r d o *1a r s and
*
•
+
1
1
could he used hereafter,
used heretofore,

just as +he United states rotes have been

to draw gold out of i^e treasury.

by 4he government o f gold payment

.old payment

And the maintenance

of +>
’e $ 4 4 0 , 0 0 0 , 0 0 0

silver certificates, would operate hereafter,
government of

silver c e r t ii ic a tes
.

of silver,

and

as the maintenance by the

of United Spates notes has operated hereto­

fore, to indirectly maintain t> e ra+ion' l bank notes a . par with g o l d ,
>
t
without ar v gold rede;apt ion of those notes themselves.

The new r e s u l t s

^ ^ ^ r'9r '

,0 0 0

ol

i n t e r e s t hearing; debt.,

te r -o s t b e a r i n g d e b t ,
banks d o u b le

o f t h i s p la n would c o n s i s t
f o r ♦he

o f +he U n i t e d s t a t e s ;

in s u b s t i t u t i n g about
r anr

amount ol' non— n —
i

and in g i v i n g t h e n a t i o n a l

i n t e r e s t upon about $ * 5 5 0 , 0 0 ^ , 0 0 0 o f t h e i r cap i t a l ,

o f s i n g 1e i n t e r e s t ,

in stea d

as a t p r e,snn t * and in c o n t r a c t i n g th e c u r r e n c y ol'

c o u n t r y about $ 1 0 4 , 0 0 0 , 0 0 0 ,

th ro u g h t h e retirem ent. o f t h a t amount

o f t r e a s u r y n o t e s o f 1 8 9 0 , by means ol
o f th e s i l v e r b u l l i o n ,

th e s a l e ,

f o r u s e in t h e ar t.s,

to ♦ h a t com mercial v a l u e , which

h o l d s as an a s s e t a g a i n s t t h o s e n o t e s .

ah

s e c o n d , v o u ld be i n j u r i o u s to e v e r y b o d y in

the t r e a s u r y now

0 f t h e s e r e s u l t s except, th e
c o u n t r y : and t h a t r e s u l t

would be i n j u r i o u s 4o ev e r y b o d y e x c e p t t h e n a t i o n a l b a n k s .
T
b.it ♦ h i s p la n fo r r e t i r i n g a l l t he U n i t e d S t a t e s l e g a l
ro les,

tender

and t r e a s u r y n o t e s cl* 1 8 9 0 , when t h u s found to be e n t i r e l y

e ffe r t iv e,

as a measure *0 - e i l o v e <he government

in-

i rom m a i n t a i n i n g a

g o l ^ rrs< r v e : c c u l d be su] i lei te sted by * tiir t a er i •!an which would have




1 7

p la cet.

That i\x r t h e r p l a n would c o n s i s t

OOO silv e r * h o l l a r s *

and t h e s i l v e r

in r e t i r i n g

th e 4 4 0 , 0 0 0 , -

i i i c a t e s w h ich r ^ | . r p s e n t s some

o f them in c i r c u l a t i o n , w h i l e th e h o l l a r s w hich t h e y r e p r e s e n t are in
treasury.

That r e t irement would r e q u i r e t h e e x p e n d i t u r e o f the

$ 1 0 0 ,0 - 0 ,0 0 0 gold r e se r v e ;

and the s a l e ,

4 4 0 , 0 0 0 , 0 0 0 s i l v e r d o l l a r s t o he
0 00 ,0 0 0

-e t i r e d ;

o f i n t e r e s t hearing- l e n d s .

tor use

i n +he a r t s , o f the

■nd +he i s s u e 0 f about $ 1 2 0 , ­

To d i m i n i s h

- s much as p o s s i b l e ,

th e c o n t r a c t i o n o f +h e c u r r e n c y to t h e e x t e n t o f $ 3 4 0 , 0 0 0 , 0 0 0 which
won"1'’ o t h e r w i s e r e s u l t from

is op era tio n ;

th is

t h r t h e r p l a n would

allcvr and e n c o u r a g e th e n a t i o n a l h a rk s to i s s u e $ 1 2 0 , 0 0 0 , 0 0 0 o f n a t i o n ­
al hank n o t e s , upon the s e c u r i t y o f 4he l e n d s s o l d by th e governm en t,
t o a i d in t h e r e t i r e m e n t o f th e 4 4 0 , 0 0 0 , 0 0 0 s i l v e r d o l l a r s .
fir st;
The new r e s u l t s o f t h i s I h r t h e r p l a n , would c o n s i s t ^ i n s u b s t i t u t i n g
about § 1 2 0 , 0 0 0 , 0 0 0 o f i n t e r e s t b e a r i n g d eb t o f t h e U n i t e d S t a t e s , f o r
second;
t h e same amount o f n o n - i n t e r e s t h e a r i n g d e b t ; and^ in g i v i n g the n a t i o n ­
al hanks r o u b l e i n t e r e s t on about $ 1 2 0 , 0 0 0 , 0 0 0 o f t h e i r c a p i t a l , i n s t e a d
th ird ;
d s i n g l e i n t e r e s t as at, p r e s e n t ; ard^ ir^bor t r a c t in g t h e cu rr e n c y o f th e
c o u n t r y about $ 2 2 0 , 0 0 0 , 0 0 0 , on a c c o u n t o f th e d i f t o r e nee betw een th e
440,0^ 0,000 s i l v e r d o lla r s r e t i r e d ,

on th e one h a n d , and th e § 1 0 0 . 0 0 0 , ­

0 0 ° g o l d r e s e r v e r e l e a s e d , and the $ 1 2 0 , 0 0 0 , 0 0 0 n a t i o n a l bank r o t e s i s „
fourth;
s u e d , on account o f t h a t r e t i r e m e n t , on t h e c +h er hand; and in r e l i e v ’

A

ins, t h e governm ent from g o l f i n g - o v ^ r p i n g r-i.y i;03o r e s e r v e h e r e a f t e r *
t
fifth :
'
p r ' W r! c c m p ^ U in g th o n a t i o n a l fcenVs t c m a i n t a i n •,olO r e d e m p t i o n o f
” ' ^ i r n o t e s , l o r want o f or.y o +* e r 1 0 ^ 1 l e n d e r : ,0n - v in <he country?
s ix th ;
ard ^ in d i s a b l i n g th e government from V r e ^ t ^ r m a i n t a i n i n g , or h e l p i n g
+ 0 t . a i r t r ir, r old payments o f p a p e r money,
.
s h o u l d i-rove fo be u n a b l e t o do t h a t g r e e t
ib e

tirst

work a l o n e .

and t h i r d ol t h e s e r e s u l t s would be i n j u r i o u s t o e v e r y ­

body in th e U n i t e d S t a t e s ;

and th e s ec o n d would be

b ody, e x c e p t th e n a t i o n a l b a n k s .




in c a s e t h e n a t i o n a l banks

in j u r io u s to every­

rhe f o u r t h r e s u l t and th e f i f t h would

IB

go? o r a l l y b e n e f i c i a l ;

p r o v i d e d t h e s i x t h r e s u l t s h o u l d n o t pro v e t o

be an e v i l o u t w e i g h i n g a l l bene . f i t s which c o u l d f l o w from them or any
oth ers.
to d i s a b l e t h e g o v e r u n e n t from h e r e a f t e r m a i n t a i n i n g , or h e l p in s
m a i n t a i n g o l d payments o f p a p e r money i n t h i s c o u n t r y , w o u ld be a v e r y
i n j u r i o u s m easu re; b e c a u s e t h e r e w o u ld t h e r e b y be imposed upon t h e na­
t i o n a l b a n k s , t h e work o f m a i n t a i n i n g g o l d paym ents o f t h e i r p r e s e n t
c i r c u l a t i o n o f $ 2 2 0 , 0 0 0 , 0 0 0 , p l u s t h e $ 3 5 0 , 0 0 0 , 0 0 0 which would be i s s u e d
u i o n th e r e t i r e m e n t o f th e U n i t e d S t a t e s l e g a l

t e n d e r n o t e s and t r e a s ­

u r y n o t e s , and p l u s th e $ 1 2 0 , 0 0 0 , 0 0 0 , w h ic h would be i s s u e d

upon t h e

r e t i r e m e n t o f t h e s i l v e r d o l l a r s ; making $ 6 9 0 , 0 0 0 , 0 0 0 in a l l .

W hile

some o f t h e banks i s s u i n g t h e s e n o t e s would p r o b a b ly be a b l e t o main­
t a i n gold redem ption t h e r e o f ,
in g,

for a w h ile;

o t h e r s o f them would be f a i l ­

from time t o tim e s o to do; and the p e o p l e would n o t know b e f o r e ­

hand w h ich n a t i o n a l banks were t,o s u c c e e d , and which were t o f a i l .

T h is

u n c e r t a i n t y would n a t u r a l l y c a u s e th e p e o p l e t o d i s t r u s t , more or l e s s
a c u t e l y or c h r o n i c a l l y , according' t o c i r c u m s t a n c e s ,
t h e n a t i o n a l banks t o redeem t h ^ i r n o t e s i n g o l d ;

t h e p r o m is e s o f a l l

ar.d t h a t d i s t r u s t

would n a t u r a l l y c a u s e r u n s t o be made on sundry o f t h o s e banks from
tim e t o tim e;
cases;

and th o s e

runs o f c o u r s e would d e v e l o p f a i l u r e s

and t h o s e f a i l u r e s would deepen s t i l l

fu rth er,

i n many

Die p u b l i c d i s ­

t r u s t o f th e r e d e e m a b i l i t y o f n a t i o n a l bank n o t e s .
A d ep rec ia tio n o f those n o tes,

f a r b e lo w par in g o l d , would be

the in e v ita b le r e s u l t o f th a t d i s t r u s t ,

and t h i s n a t i o n would t h u s be

p l u n g e d i n t o the e v i l s o f a d e p r e c i a t e d n o n - l e g a l t e n d e r paper
t h e r ^ t o r e m a in ,




far in to the tw e n t ie th century.

c u r r e r r v

Col lection Title

Series/Volume

Shelf/Accession No.
L 77-38
C

(1/70)





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102