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."

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

that use, this also should belong to them. Otherwise, a serious hazard is imposed upon them for the benefit of others, who can show no good title to the gains which they usurp. "It is quite idle," says Mr. T. Tooke, a zealous advocate of the banks, "it is quite idle to say that the lower classes have the option of refusing to take the country notes; practically, in the great majority of instances, they have not and cannot have any such option. But if there is any object more important than another, for which the government of every state has been invested with the privilege of coining money, it is that of protecting the lower classes of society, who are little competent in this particular to protect themselves, from the risk of loss in receiving their stipulated wages or other payments."

Take off the tax of one per cent on bank capital, then, and impose a tax of five or ten per cent on the circulation of all bills below the denomination of $10. The amount of small notes would thus be very much diminished, and as the state, through the tax, would reap nearly the whole profit from those remaining in circulation, it could well afford to guarantee their immediate convertibility into specie. Such a measure would be even preferable to the one adopted in England, after the failure of so many private banks of issue in 1825. The circulation of one-pound notes at that time was computed at upwards of five millions sterling. So many of them became valueless, or were greatly depreciated, by the failure of the issuing banks, that Parliament the following year entirely suppressed this class of notes. However it may be regretted, adds Mr. Tooke, "that the holders of private country bank-notes, being now of the denomination of £5 and upwards, should occasionally be exposed to loss by failure of the issuers, it will hardly be contended that their case is so important and so clearly distinct from the case of depositors, and other sufferers by the failure of banks, as to justify, with the view of protecting them, an alteration of the whole system of issue."

CHAPTER XXI.

PAPER MONEY, AND ITS USE AS A REVOLUTIONARY CURRENCY.

WE have still to speak briefly of the circulation of paper money, properly so called, or of bills which do not profess to be immediately convertible into specie. These are sometimes issued by the state, in cases of great emergency, and are then usually called bills of credit. In this form, they are forbidden by the Constitution of the United States, which declares that “no State shall coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts." Bank-notes, also, after the banks have suspended specie payments, so that their notes are no longer convertible into coin on demand, become bills of credit, or paper money. Thus the currency of Great Britain consisted of paper money from 1797, when the Bank of England suspended payment, till 1819, when it resumed. The distinguishing characteristics of such money are, that it is inconvertible, and its circulation is compulsory. Thus, to take the more common form of this currency, which is issued by the authority of the state, when the government has no longer the means of meeting its pecuniary engagements, it begins to make purchases and to pay its debts by issuing, not coin, nor bills immediately convertible into coin, but its own promises to pay at some future time. These "promises to pay" are made legal tender,- that is, creditors are compelled to receive them in satisfaction of their demands. Their circulation is compulsory, then; but the very fact that they are receivable in payment of debts gives them a conventional value. To any person who has money to receive, it matters nothing whether the money possesses intrinsic value or not, or whether the "promise to pay" which it bears upon its face is ever redeemed or not, provided he is sure that he can make payments with it, and cancel his own obligations. Even if the money is undergoing a rapid depreciation, as he does not expect to retain it any time in his possession, but intends to pay it away again the next day, or even the next hour,

he knows that it cannot lose much value in his hands, but that it will be worth nearly as much when he parts with it as when he received it. Paper dollars are as good as silver ones, so long as they will cancel debts and effect purchases equally well.

Paper money of this kind was issued by nearly all the American Colonies before the period of their separation from England; and from the various degrees of its depreciation in different parts of the country arose the different value of the shilling, which is still with us a popular denomination of account, though not an actual coin, and not recognized in the legal currency. The shilling was the denomination used in the Colonial paper money; and when the shilling had its par value, 4s. 6d. were equal to a silver dollar. But paper shillings became depreciated, so that, in New England, six shillings came to pass for a dollar; in New York, eight, and in Pennsylvania, seven shillings had this value. The names of these "shillings" and "pence" have remained for nearly a century after the disappearance of the reality, and still create much confusion in the popular mode of reckoning money.

But the most remarkable experiment of paper money here in America was the Continental currency, as it was called, issued by authority of Congress during the American Revolution. The epithet "Continental," like National or Federal now-a-days, marked the distinction between what was done by the government of the whole Union, and the acts of the separate Colonies or States. In June and July, 1775, to meet the expenses of the war which was seen to be inevitable, and in fact had already commenced at Lexington, Congress, having no other funds, issued three millions of dollars in these bills of credit, with a promise that they should be redeemed in four annual instalments, to commence at the end of four years. The burden of redeeming them was distributed among the several Colonies, in the ratio of their supposed number of inhabitants. The bills were issued in the purchase of provisions and munitions of war, and in the payment of the troops. In November of the same year, the issue of three additional millions became necessary; the annual instalments for redeeming this sum were to begin in eight years. Specie, which had been scarce before, had now almost entirely disappeared from the country, and the "Continental money" was considerably de

preciated. So rapidly did this depreciation and the exigencies of the war increase, that in the course of the following year, 1776, fourteen millions more had to be issued. After the issue

of the first six millions, no time was fixed for the redemption of the bills. Of course, the depreciation, aggravated by large local issues of the several Colonies, soon became alarming, and futile attempts were made by Congress and the Colonial legislatures to check it. The New England Colonies tried to regulate by law the prices to be paid in this currency for labor and commodities; and Congress resolved, that the bills ought to pass for the same value as Spanish dollars in all dealings and payments, and that all persons who should refuse to take them at this valuation, ought to be considered as "enemies to the United States," and to be punished with forfeitures and other penalties. But the necessary laws of exchange and trade were not to be counteracted by legislative enactments or the patriotism of the people. Additional issues continued to be made, and the paper continued to depreciate, until, in 1780, the amount in circulation was about 200 millions, and 500, even 1,000, dollars in this currency were offered for one in silver.* Then finally the bills ceased to circulate, and became entirely worthless, as dealers would not accept them on any terms.

No attempt was subsequently made to cancel the original obligation by redeeming the bills, either in full or in part; for as the depreciation had been gradual, while the bills were rapidly circulating in the community, it had obviously become impossible to measure the exact loss which each holder of them had suffered. To pay the last holder in full would only have aggravated the injustice, by giving him much more than was his due, and leaving his predecessors without any compensa

* John Adams, in a letter to the Count de Vergennes (June 22, 1780), gives some curious particulars respecting the enormous prices which were paid for commodities in America in 1779 and 1780, in consequence of this depreciation of the currency. "Bohea tea," he says, "forty sous a pound at L'Orient and Nantes, sold for forty-five dollars. Salt, which costs very little in Europe, and used to be sold for a shilling a bushel, was forty dollars a bushel, and, in some of the other States, two hundred dollars at times. Linens, which cost two livres a yard in France, forty dollars a yard. Broadcloths, a louis d'or a yard here, two hundred dollars a yard. Ironmongery of all sorts, 120 for one. Millinery of all sorts, at an advance far exceeding. These were the prices at Boston. At Philadelphia and in all the other States, they were much higher." -John Adams's Works, Vol. VII. p. 199.