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in spite of itself, but reaping no profit from them, and only deranging the transactions of other banks by its abnormal interference and competition.

It really performs to a certain extent a third banking function, by supplying a considerable amount of paper currency; when the government draws upon it, there is nothing to prevent the person in whose favor the draft is made from indorsing it in blank, as it is termed, (that is, without naming the indorsee,) and then it is a bank bill, which, without further indorsement, may be transferred successively to many different hands, and effect as many payments, before it is finally presented for payment, or paid in, at the particular Sub-Treasury on which it is drawn. True, the law requires the Secretary of the Treasury "to enforce the speedy presentation of all government drafts for payment at the place where payable, and to prescribe the time, according to the different distances of the depositories from the seat of government, within which all drafts upon them respectively shall be presented for payment." But this provision is wholly indefinite, and cannot be made otherwise than indefinite, as more or less time may be necessary under different circumstances, and within a very short time many transfers of the draft would be possible.

These facts illustrate the general principle, that large pecuniary transactions cannot be effected on the rude and burdensome plan of an actual transfer of specie at every payment. The various commercial expedients, of deposits, transfers of credit, sets-off, bills of exchange, and other forms of paper currency, will intrude themselves, however they may be forbidden by law, in order to save the parties concerned the intolerable annoyance of counting out, or weighing out, large amounts in coin, of carrying tons of specie to and fro over great distances, and of employing a horse and dray every time that it is necessary to pay or receive a few thousands. We might as well seek to do away with gas-lights, steamboats, and railroads, as attempt to prohibit these labor-saving and time-saving contrivances. What is wanted is not prohibition, but regulation, of a paper currency. Take away the small notes, and the large ones will regulate themselves, because they will circulate only among merchants, bankers, and capitalists, who understand the principles on which they are issued, and will most easily

detect any mismanagement in relation to them, by which they would be themselves the first and greatest sufferers.

I have already borrowed from Adam Smith the ingenious illustration, that "the gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either." He carries out the comparison still further. "The judicious operations of banking," he remarks, "by providing, if I may be allowed so violent a metaphor, a sort of wagonway through the air, enable the country to convert, as it were, a great part of its highways into good pastures and corn-fields, and thereby to increase very considerably the annual produce of its land and labor. The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Dædalian wings of paper money, as when they travel about upon the solid ground of gold and silver. Over and above the accidents to which they are exposed from the unskilfulness of the conductors of this paper money, they are liable to several others, from which no prudence or skill of those conductors can guard them."

Among such accidents is the possible occurrence of a panic, or the reaction from a speculative fever, which may cause a drain of specie sufficient to exhaust the reserves of the banks. The mere presence of a reserved fund of coin and bullion in the country is no safeguard against such a calamity, if it be locked up as in the vaults of the Sub-Treasury, whence it will not be forthcoming to meet a drain, whether that drain be caused by a demand for export growing out of previous excessive importation, or by a general propensity to hoard coin stimulated by alarm for the safety of the banks. The fund so locked up might as well, for any practical purpose, be on the other side of the Atlantic.* It is said, indeed, that the neces

*** Any addition of specie," says Mr. Webster, "in order to be useful, must either go into the circulation as a part of that circulation, or else it must go into the banks to enable them the better to sustain and redeem their paper. But this bill [to establish the Sub-Treasury] is calculated to promote neither of those ends, but exactly the reverse. It withdraws specie from the circulation and from the banks, and piles

sity of keeping up this fund occasions frequent calls upon the banks for coin, and to meet these calls they are obliged to fortify themselves with larger specie reserves than they would otherwise deem necessary. So they are; but the additional funds are thus provided to meet the demands of the treasury, and not to be a safeguard of the bank issues; the additional danger exhausts, and probably a little more than exhausts, the additional protection.

The only use to which this idle treasury fund could be put, with a view to the improvement of the currency, would be to make it the basis for an issue by the government of an equivalent sum in small notes, designed for general circulation. As such notes would rest upon the faith of the Federal government, would be represented, dollar for dollar, by coin actually in the treasury, for which, at any time, they could be exchanged, and would have a general instead of a local character and currency, they would be preferred to the small bills. issued by the banks, which they would soon displace and drive out of circulation. Being issued, moreover, only for small sums, never exceeding five, or, at the utmost, ten dollars, they would only form small currency for the bulk of the people, and would be used but to a very small extent in wholesale trade or large financial operations, so that they would not enable government to interfere with the ordinary course of traffic and exchange. As they would be issued only in payment of government debt or in ordinary expenditure, the treasury would still have the use of all its funds, while preserving intact in its vaults an amount of specie equal to the whole amount of its notes in circulation. Such a currency, if limited to an amount somewhat below that of the probable circulation of small bills, would have all the convenience of paper and all the security of coin; no panic could shake public confidence in it, or subject it to a depreciation. There would, indeed, be no

it up in useless heaps in the treasury. It weakens the general circulation, by making the portion of specie which is part of it so much the less; it weakens the banks, by reducing the amount of coin which supports their paper. The general evil imputed to our currency, for some years past, is, that paper has formed too great a portion of it. The operation of this measure must be to increase that very evil. I have admitted the evil, and have concurred in measures to remedy it. I have favored the withdrawing of small bills from circulation, to the end that specie might take their place."-Webster's Works, Vol. IV. p. 457.

economy in its adoption, as a corresponding amount of specie would lie idle in the treasury. But it lies there idle now, while the injurious and unsafe portion of the bank currency circulates freely. The only object in issuing this paper would be to displace the insecure small-note circulation of the banks, and to provide a perfectly safe and convenient currency for the community at large, who are not engaged in trade or banking.

But as political considerations would probably be an insuperable obstacle to the adoption of this plan, or of any other scheme for doing away with the small-note circulation of the banks altogether, the question remains, if there are not some means of lessening the quantity, and adding to the security, of that circulation. A judicious application of the taxing power might have this effect. Here in Massachusetts, and in several other States, a heavy tax is laid on bank capital as such, and individuals are also taxed for the bank stock which they may own, as well as for their other property. Thus, capital invested in banks is taxed twice over, an injurious and unreasonable distinction, as its effect, so far as it goes, is to raise the rate of interest, increase the difficulty of borrowing money, hinder capital from passing into the hands of those who will use it to the best advantage, and prevent the industrious and enterprising classes from obtaining the means of applying their industry and enterprise in such a way as to obtain the largest possible results. I have already shown at some length, (vide ante, pp. 8-12,) that wealth is not locked up when placed in banks, but rather that it is thereby released from a state of inactivity, and "made to do its full part in supplying the lungs of industry, keeping it alive and active, and making all the parts of the body politic and social contribute to the sustenance and growth of the whole.” A widow, for instance, who could make no use of her little property if it remained in her own hands, invests in a bank, which lends it to industrious tradesmen and mechanics, and they obtain additional tools and goods with it, and thus labor to better purpose, sharing their increased gains with the owner of the capital, who thus obtains income from it without diminishing the principal. "The declaration so often quoted," says Mr. Webster, "that all who trade on borrowed capital ought to break,' is the most aristo

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cratic sentiment ever uttered in this country. It is a sentiment which, if carried out by political arrangement, would condemn the great majority of mankind to the perpetual condition of mere day-laborers. When we abolish credit, we divorce labor from capital; and when we divorce labor from capital, capital is hoarded and labor starves."

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Instead of imposing a double tax upon the banks, so far as they are institutions of deposit and discount, they ought rather to be released from taxation altogether. A bounty rather than a penalty should be enacted for taking capital out of the hands of those who either cannot use it or will not use it, and confiding it to those who will unite it with industry, and thus make it active in the great business of production. The double tax has been imposed from an indistinct perception of the fact, that the banks in their third function, as issuers of bank currency, and especially of the small-note circulation, obtain profits which do not properly belong to them, and subject the community thereby to very considerable hazard of loss for the sake of their own advantage. If paper currency is to be substituted for metallic currency, the profits of the substitution ought to accrue for the benefit of those who make it, — of those who are willing to give up coin, and accept paper with all its attendant risks. The act of substitution is the act of the community at large; to be the agents in this act is a usurped function of the banks, in no wise connected with their other and proper offices. It belongs to the state, and ought to be exercised for the benefit of the tax-payers, that is, of the persons who, by giving up coin and accepting paper, make a saving of the precious metals, and ought to profit by that saving. Especially is this reasoning applicable to the case of the small-note circulation. In respect to bills of a higher denomination than $10, it may fairly be urged, that they circulate generally among merchants, bankers, and capitalists, who therefore ought to be allowed, through the banks, to control the issue of them, so far as it can be controlled consist ently with maintaining their convertibility into specie on demand, and to reap the benefit of their circulation. But not so with regard to the small bills, which are the money of the bulk of the people. Here, the whole risk rests with the persons who use the notes; and if any profit is to be derived from

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