must have gone far to console him for the vanished "Lyric feasts made at The Sun, The Dog, The Triple Tun."

and Flowers" were all Herrick's. Near by, in the "Meddowes," I knew that children must be playing push-pin or cherry-pit, barleybreak or stoolball; that the girls, "with Honysuccles crown'd' were bearing "the richer couslips home" in "wicker Arks." It was the country of

Another day I hunted up Moreshead House, which in Stuart times was grander than Dean Court. Now it is a cattle-barn, and has fallen on those pitiable days which come to many old estates even in a wellcared-for land like England. When Her rick used to visit there, Robert Furse was the man of the house. Elizabeth Furse, his wife, was buried by Herrick. I found her tomb, the only one in the church-yard which has survived from his day. Only the date, 1640, shows now. The inscription could all be read thirty years ago.

With the vicar's guidance I inspected his "Kitchin." The precise whereabouts of the

"little Butterie, and there in

A little Byn,

Which keeps my little loafe of Bread

Unchipt, unflead,"

Of Bride grooms, Brides, and of their Bridall Cakes." "May-poles, Hock-carts, Wassails, Wakes,

I did not know whether the Spurs, Chubs, Raggs, Mudges, and Traps of to-day teach their children to say, as they did a hundred years ago,

"In the houre of my distresse, When temptations me oppresse, And when I my sins confesse,

Sweet Spirit, comfort me!"

I did not know whether the poet's ghost still walks the lanes by night. But I knew that behind some hedge stood Oberon's temple-" the surplices of cleanest cobweb"

of the incomparable Prewdence Baldwin, that "dearest Maid," is thought not to have been much changed when the vicarage was rebuilt.

It took exploring to find Herrick's Dean Bourn, the "rude River in Devon, by which sometimes he lived." But the cool, stimulating air from Dartmoor makes exploration a pleasure. Dean Bourn turned out to be one of the granite-bedded streams, cold and transparent, which abound near the Moor. It flows excitedly through a narrow gorge. I recalled

its niche, the holy-water in half a nutshell. And the vicarage seemed simply the "grange" of long ago. Herrick's Prew was at the window. My arrival was announced by Herrick's "creeking Hen," his spaniel, Trasy, his goose "with jealous eare," his cat "grown fat with eating many a miching mouse." I found myself looking about for "rare Phil," his sparrow, and for the notorious black pig that he taught to drink from a tankard, that pig which has disgusted at least one critic more than all his most strikrall privacie," among all these "toyes, to ingly "unbaptized rhymes." In this "rugive his heart some ease," I all but saw the much-becurled, high-nosed "cavalier vicar" himself.

"Thy rockie bottome, that doth teare thy streames,

And makes them frantick, ev'n to all extreames."

As I walked back to the vicarage that afternoon, the "Brooks, Blossoms, Birds,

W

HILE the problem of the standard in the United States is largely settled, other forms of our money raise serious questions. Certain forms of our media of exchange, ultimately redeemable in the standard coin, may be issued either by the government or by the national banks chartered by the government. Viewed in the light of wisdom and experience, should these notes be emitted by the general government, or by the banks? That is the next great monetary question. It is certainly a momentous one deserving impartial examination. We may then weigh the arguments (1) for and (2) against government issues and those (3) against and (4) for bank issues.

I

(1) LEAVING out of account inconvertible paper, it has been claimed that the issue of convertible paper by the general government would be a saving to the people. The idea is that in issuing paper money a profit exists which should be reaped by the State. Obviously, every country must invest a certain part of its wealth in its machinery of exchange; and it is economy to keep this investment as small as possible consistent with the highest efficiency. Convertible paper is resorted to, not because of a scarcity of gold, but because it saves the expense of gold; since the reserves for preserving convertibility need not be more than 40 or 50 per cent. The interest on the difference between the total amount of paper and the reserves, therefore, represents the saving in question. This difference can be set free to be used in industry, and the earnings on it constitute the country's saving in issuing paper in place of gold. The saving, of course, is only the interest, not the whole of the difference.

The validity of this theory can be tested by our actual experience with the greenbacks, which were inconvertible from 1862 to 1878, and convertible from 1879 to the

VOL. XLV.-30

present time. Assuming a reserve, as at present, of $150,000,000 in gold to be necessary for the redemption of our $346,681,016 of greenbacks, we may say, in round numbers, that $200,000,000 is the amount of the uncovered issues, on which the interest at 3 per cent. (at which any gold bond could be easily floated) would be $6,000,000. This last sum represents the annual gross gain to the people, if, on other grounds, it should be regarded as best to supplant a gold currency by a convertible paper issued by the government.*

Immediately, however, the question is raised: Does it cost anything to maintain the reserve? Of course, the political or financial management of the State, whether good or bad, will directly influence the ability of the State to keep its reserves intact. Any policy which excites distrust as to the willingness or ability of the Treasury to redeem its paper in gold will create activity in the presentation of its notes for coin. Only on the assumption that the government will always be wise and capable will the reserves always remain intact. If not, the reserves will be drawn down, and new loans must be made in order to supply additional gold for the reserves. But our monetary policy has not always been wise: it has often been cranky, foolish, and most ill-judged. Our national vagaries with silver are known the world over. Hence, it is but inevitable that the people should have had to pay the price. In truth, so often and great was the fear that we could not maintain gold payments that several times the gold reserves were almost exhausted. Our foolishness reduced to figures means that, to maintain a reserve for $346,681,016

not a positive gain, but only the reduction of a loss. Suppose *In reality, the gain from using the convertible paper is all the wealth of the country is earning 3 per cent. Take out of this total the sum of $350,000,000, which is used in form of a gold currency, and while so used yields no concrete returns. The total loss, or price, which the country pays for a currency consisting entirely of gold is the 3 per cent. on this $350,000,000, or $10,500.000. But, if this $350,000,000 is partly economized by using $200,000,000 of convertible paper, $200,000,000 is released to go back to productive industry; hence the loss to the community is reduced to 3 per cent. on $150,000,000, or only $4,500,000. The gain of $6,000,000 annually, or 3 per cent. on the $200,000,000 released, is not a positive gain; it is only a reduction of the total loss.

265

greenbacks, we have had to increase the public debt by $357,815,400, on which the additional interest charges to the tax-payer are $15,632,616.* Thus, as against the reduction of loss by $6,000,000, the issues of the government have entailed an enormous annual expense of $15,632,616. It does not do to base expectations solely on theory. Indeed, it is a serious question whether our governing class is sufficiently intelligent in managing monetary matters to allow our nation to issue paper money except at a fearful cost to the people.

But the above statement of the cost is not all. The iniquitous act of March 31, 1878, required that the notes redeemed by such a vast increase of debt should be re-issued. This is the act which created the "endless chain" and the constant drain on the Treasury in time of danger. Consequently we have the silly result of having actually redeemed more than $407,000,000 of greenbacks, by an increase of debt ($357,815,400) greater than the total original issues of the greenbacks-and yet we have the whole amount still outstanding! It sounds childish, but it is literally true. In fact, if we had borrowed the $346,681,016 by issuing 4 per cent. bonds, at the time of resumption, the annual interest charge would have been only $13,876,240, or an annual saving of $1,765,376 on the interest of the debt actually incurred in keeping up the reserves. On the face of experience, at least in the United States, it can scarcely be urged that there is any saving to the people in issuing government notes.

remove the whole basis for this opinion. It never has been shown that the Treasury was unable to borrow at some rate at the time (1862) when the first greenbacks were issued, or at any time since. Moreover, if a State must borrow, it is egregious folly to borrow in the form of paper money, which may easily disturb the standard of value, change contracts, cause an upheaval of prices, and create riotous speculation. Indeed, a loan put out in the form of demand notes is highly objectionable as compared with a loan in the form of bonds issued for a term of years. The demand obligations may be, and generally are, presented in times of distrust and danger, just when their redemption by the Treasury is most difficult, and when their conversion adds to the severity of a crisis. On the other hand, a loan on time in the form of bonds gives no trouble beyond the payment of interest, is not turning up at critical emergencies to be redeemed. Even if the cost to the people of both methods were the same, the latter method of borrowing should be recommended on every ground of theory and experience. Indeed, the confusion of mind between the fiscal and the monetary functions of the Treasury should be widely separated. But of this more later on.

(3) In favor of government issues is the obvious claim that they would be uniform throughout the different States of the Union, and prevent the condition of variety and depreciation which existed in the State currencies before the Civil War. But this admitted advantage in favor of government notes is no argument against bank-notes, if the latter, as in the case of the national banknotes, can also be made safe, redeemable, and uniform throughout the whole country.

(4) A more interesting point in favor of government issues is the suggestion that bank-notes are unconstitutional. Obviously this point has no reference to banks chartered by the national government. That issue was settled long ago, in 1819. If the claim has any relevancy, it has it only in re

par in coin, is the least burdensome form of debt. The loss of interest in maintaining the resumption fund, and the cost of printing and engraving the present amount of United States notes, are less than one-half the interest on an equal sum of four per cent. bonds. The public thus saves over seven million dollars of annual interest, and secures a safe and convenient medium of exchange, and thus the assurance that a sufficient reserve in coin will be retained in the Treasury beyond the temptation of diminution, such as always attends reserves held by banks."-Report of Secretary of Treasury, 1880. p. xv.

McCullock vs. Maryland, 4 Wheaton, 316.

gard to notes issued by banks chartered by the several States. The Constitution forbids States to emit bills of credit, but it does not forbid a State to incorporate banking institutions. In constant practice, from the beginning, State banks have been allowed to issue notes. Webster urged that the power of the general government to regulate coinage included the right to supervise all State bank issues; and the right of Congress to regulate the issue of State banks, or tax them out of existence, has also been settled. Therefore, all there is in this objection applies only to notes of State banks, and in no way affects the right of national banks to issue notes under an act of Congress.

Having thus examined the arguments in favor of, we may next proceed to consider those against, government issues.

II

(5) WITHOUT doubt, the least recognized, and yet the most far-reaching, consideration involved in discussing government issues is the failure to separate the monetary from the fiscal functions of the Treasury. Almost all our monetary ills from 1862 to 1900 can be traced to it. The crude idea that, when funds were needed, they could be obtained by issuing demand obligations bearing no interest, which could be circulated as money, has been prevalent, and has produced no end of trouble. Ignorant of the principles regulating the monetary system of a country, the Treasury might, solely from a need of income which had no relation whatever to the demands of trade for a medium of exchange, inject additional sums of money into the circulation, and upset the whole delicate machinery of exchanging goods. Foolishly to unsettle the monetary standard and the confidence of the public by trying to borrow in a form certain to interfere with the nation's currency is only a way of crippling the power to borrow in general. Thus, two evils result from this fateful confusion of mind: (1) changing the supply of money without any adjustment to the needs of trade is a blow at the very vitals of exchange, prices, contracts, and business security; and (2) the credit of the Treasury being dependent on its man

* Veazie Bank vs. Fenno, 8 Wallace, 533.

agement and resources, the issue of paper money is a blow at credit, because it is an open confession of inability to borrow in the market on normal conditions. Since the government, in 1862, when borrowing had not yet been fully tried, issued inconvertible notes, without providing any reserves whatever, it cannot escape the charge of having descended to the last resort of a bankrupt Treasury; and this unwise action enormously injured the credit of the United States and increased the rate at which it was subsequently forced to borrow. There is only one way to borrow: that is, to pay the price fixed by the credit of the borrower in the open market. From this there is no appeal. Indeed, the depreciated paper caused to the Union a loss of about $500,o00,000 in the creation of additional debt due to higher prices, speculation, and the diminished amount received for bonds due to a damaged credit. In no way can the facts of our experience support borrowing by issuing forms of money.

(6) C'est le premier pas qui coute. Once a false step has been taken, it is apt to lead to serious consequences. The very existence of paper issues, originating in a wrong method of borrowing, is a constant menace. The mere lapse of time in which no injury has been incurred unfortunately serves to lull the fear of danger. If retained, such issues are a suggestion for similar crude expansions in the future, when men are too excited to judge calmly of their acts. Their very presence is an incentive. If legislators were all monetary experts, and never influenced by political considerations, there would be little risk in retaining for a time our greenbacks; but we must take men as they are, and provide for the probable acts of those who are incompetent and ill-advised. Obviously, these national guardians of our monetary system do not personally lose anything when they get the Treasury into desperate straits; they have no weight of responsibility due to any personal relation to the issues-quite differently from the relation of bankers to bank issues. Humiliating as it may seem, the maintenance of the convertibility of greenbacks into gold has again and again been imperilled. The whim of the Executive, the sudden rise of an unreasoning campaign cry, may make it impossible to keep the slight gold reserves which protect our stand

ard of value and prices. As yet redemption in gold as against silver is largely a matter of the personal choice of the Executive. All in all, the very presence of government issues is too much of a danger to be kept forever hanging over a great commercial nation.

(7) What is still more dangerous is the fact that the whim of the government is the only limit to its issues. Ordinarily, sane business men would concede that the quantity of the media of exchange should bear a direct relation to the amount of exchanging to be done. In the case of government issues, the quantity as well as the quality depend on a vote of Congress. If a fancied need presses upon men inexperienced in monetary operations, especially if they have been inoculated with the fallacy that the more money a country has the better, there will be excessive issues, followed by raids on the reserves. The paper will depreciate and the country will undergo rapid fluctuations in prices, an unsettling of contracts, a period of mad speculation, leading to the inevitable ruin of a commercial crisis. These are not matters of imagination: they are only mild descriptions of what the country actually suffered from 1862 to 1879 because of government issues. The crisis of 1873 is directly traceable to the speculation inherent in the fluctuating greenback standard which followed the Civil War.

(8) Naturally enough, false doctrines expressed in government action poison the whole course of public opinion for generations to come. There was the idea that a government stamp creates value. If so, why did its solemn promises to pay, although made a full legal tender, depreciate to 35 cents on the dollar? Then came the fallacy that the more money the more wealth; as if wealth came into existence by increasing the counters. Again, because paper was depreciating and prices were soaring, the conviction grew that prosperity comes with increasing the quantity of paper money. The fact was, the prices rose to keep up with the depreciation of the standard. And, far and wide has the belief spread to-day-coming down from the days of the depreciated greenback-that prices depend upon the quantity of money in circulation. Thus the ground was prepared for the silver agitation; on the theory that gold was insufficient in quantity. This

whole brood of heresies is traceable to the crude conceptions which led Congress to attempt to borrow by issuing inconvertible paper in 1862.

III

Ir judgment be given against government issues on the grounds thus presented, we are next forced to weigh the claims for and against the only other alternative instrument to be used as paper money-banknotes.

(1) There has come down to us from the State banking orgies before the Civil War, as well as from the period of depreciated greenbacks, a belief that the right to issue money gives to the issuers the power to control the money market; to put prices of goods and securities up and down; and even to bring on panics. The money "octopus" is supposed to work through the issues of banks, and to wish to confine the sole right of issue to the banks. The problem we are here discussing has nothing to do with inconvertible paper of changing value. The real issue is between government issues and bank issues-each convertible into gold. Issues of either kind of money, if kept redeemable in gold, would have no greater effect on prices than gold itself would have.

The only way in which the "money power" can control prices and securities is by obtaining control over capital and purchasing power, and thus influencing the demand. This purchasing power can be had by loans from banks. The pith of the matter lies in the ability to get loans. Now, suppose the "high financiers" have got the loans, where do the bank issues come in? Nowhere. When a loan is given, the borrower's deposit account is credited with the amount. Then payments are made, especially in all large transactions, by checks on these deposit accounts. No bank-notes to speak of are used. It would be an inconvenience to the borrowers to be forced to take the bank's notes; and as the profit to the bank arose from the discount on the loan, it is realized just the same whether it gives a deposit and checking account or whether it gives its own notes. The National City Bank of New York, the largest bank in this country, has loans of $135,405,002, but it issues only $9,217,497 of notes.