sions served only as a reason for allowing banks to reckon as a part of their reserve the funds deposited by them with banks acting as their redeeming agents.

This inadequate arrangement did not satisfy the conservative banking opinion of the country; and in 1865 and 1866 an important movement for establishing assorting houses in the chief financial centres, with central redemption, was organized in New York, Boston, and Philadelphia, with the approval of the Secretary of the Treasury and the Comptroller of the Currency.* The elements of opposition, however, were too strong. The project lost its strength, and died; and the opportunity was lost. The national bank system grew up with an ap paratus of redemption which did everything but redeem; and no change was made until 1874, when the function of redemption was transferred to the Treasury, and banks were even forbidden by law to redeem anywhere else, except at their own counters. Thus we have to-day a system of so-called redemption, which no doubt removes from circulation notes which for sanitary reasons, or from wear and tear, are unfit for further use, and enables banks which are overloaded with bank-notes at any season to convert them into greenbacks; but, plainly, the redemption thus carried on has little more than an accidental connection with the financial condition of any issuing bank. A large amount of notes may be passing through the Redemption Bureau; but the National Bank of X has no reason to look for any unusual return of its notes, however extreme its expansion may be, for the holder of its notes, whatever the amount of its obligations, will sooner use them in payments than waste time by sending them to the Treasury. This is not a kind of redemption which can possibly make the bank circulation re

*For the action of the banks engaged in this movement, and for Secretary McCulloch's part in it, see Banker's Magazine, 1865-66, pp. 193, 401, 415. For the views of the Comptroller of the Currency, Report, 1865 (for Mr. Clarke's) and (for Mr. Hurlburd's) 1866 to 1870.

sponsive to the demands of business, whatever else it may accomplish.

The singular futility of all this part of our legislation is no doubt closely connected with the ideas as to the meaning of note redemption in general, which have grown up in connection with the greenbacks. Even before the act of 1878 ordered the reissue of the redeemed greenbacks, the original idea of redemption as the fulfilment and ending of a contract had been obscured. That, as a matter of legal interpretation, a note "retired and cancelled" had been paid, and that any new issue must be a new debt, requiring clear legal authority for incurring it, had been disputed for more than ten years,* until something more than the mere interpretation of a statute had come into the question. From 1866 to 1878 there is shown in the debates and the acts of Congress a progressive weakening of the force assigned to the term "redemption," and the growth of an opinion that everything needful is accomplished, if the opportunity for an exchange of one kind of currency for another is somewhere held open.

But is it enough that every holder of government or bank notes should understand that gold can always be had for the paper at the Treasury or the bank? Especially as regards bank-notes, can redemption do its work if it is merely a passive arrangement for possible payment, in case anybody thinks it worth while to call for it, and not an active system of prompt presentation? At the bottom of much that is said and written on this subject there would seem to be an impression that to give the public

In January, 1868, Mr. Edmunds stated in the Senate his opinion that the notes "retired and cancelled" under the act of 1866 could be reissued, and moved an amendment to a pending bill to prevent this. Mr. Sherman objected that reissue was illegal and further legislation on the point needless, and Mr. Edmunds's amendment was lost. Congressional Globe, January 10, 1868, pp. 435, 529. Six years later $26,000,000 of notes once "retired and cancelled " were reissued.

convincing assurance of convertibility is the only object to be provided for. But the redemption of a currency has a bearing much broader than this. The exchange of notes for specie on any large scale is called for in most cases because the trade relations of the country or the section concerned are such as to make specie for the time its cheapest export. This state of things may be the result of deplorable misfortune or of equally deplorable folly; but in either case it is the misfortune or the folly that is to be deplored, and not the process by which we pay in the easiest way the debts which have been created. The payment is, after all, a curative process, by which our currency seeks the condition of equilibrium with our real ability to hold money, as the first step towards sound strength; and it is for the general interest that the movement of specie should be easy, and that the payment of our debts, in this form as well as any other, should be prompt.

Moreover, whether we look at the government issue or at that of the banks, it is important that the natural effect of a depletion of our currency by specie export should not, under ordinary circumstances, be thwarted or warded off. In the one case, for the government to undertake, by the reissue of its notes, to keep up the domestic currency in the face of a movement for redemption and specie export, is to make that currency, so far as may be possible, insensitive to the influences which tend to its final replenishment. Mr. Sherman perhaps had a vision of this truth when he recommended "that by law the resumption fund be specifically defined and set apart for the redemption of United States notes, and that the notes redeemed shall only be issued in exchange for or purchase of coin or bullion." No doubt such an arrangement, so long as Congress permitted its existence, would at any rate have insured the close reciprocal relation which any

*

*Finance Report, 1879, p. x.

effective redemption of greenbacks should have with the active currency, and would have made the position of the Treasury defensible without the alternation of panic and loan which has been witnessed since 1893. In the other case, it is almost equally important that, so far as an export movement of specie draws from the bank-note circulation, it should draw as directly as possible from the particular banks which are in a state of relative expansion. The drain of specie is presumably not the consequence of any equally distributed imprudence or any level stroke of misfortune; and its effect should fall, both by the rule of right and by that of expediency, upon some more heavily than upon others. This can only be secured by providing for an easy, automatic return of notes, so that expanded liability shall, so far as is humanly possible, be followed by increased demand for payment.

With the imperfect conception of redemption in general, on which our law proceeds, it is not surprising that the national bank-note, when once issued, should be regarded as a liability of indefinite date, differing from other bank liabilities in this, that the issuing bank hardly need trouble itself as to its discharge. The fact that it has thus become something not far different from a permanent obligation, is no doubt one of the grounds for the idea of unjust privilege which so many of our people connect with the national bank system. It is also singularly at variance with the principle of having a wholesome restraint upon the operations of each bank by itself, which governs our treatment of other demand liabilities. Provision for the systematic return of notes by other banks, like the daily collection of checks, is so contrary to our present established habits of thought that it seems abnormal, inconsistent with full credit, and useless, if not hostile. But, not to dwell upon other considerations, it appears too plain to require demonstration that a regular

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return flow of notes is the necessary condition of the elasticity which is now commonly demanded for our bank currency. Elasticity cannot be secured without the operation of restrictive force upon an outstanding circulation restrictive force cannot operate there, except through the agency of the holders of the notes; and it can only operate through them by virtue of some legal provision or of some convention or practice having equivalent force. Of legal provisions for this end a striking example is supplied by the law of Massachusetts, which from 1843 forbade any bank to pay out any notes except its own, and thus made it necessary that notes received on deposit or in payments should be sent to the issuing banks for redemption. Of a practice equivalent in effect to this, there is the equally striking case of the Canadian banks, which, without any requirement of law, but simply as competitors for business, "demand prompt and daily redemption of all the notes of other banks that have come in." But our system presents nothing analogous to these devices for making the self-interest of the banks the restrictive force needed to secure elasticity of issue.† We appear to rely vaguely upon some supposed slowly acting tendency of the public to free itself by some means of a currency, if felt to be excessive; but we set no machinery in motion for that purpose, and do not make it for the interest of anybody in particular to do that which on gen

*Breckinridge states that the average life of a bank-note in Canada is found to be about four weeks. Canadian Banking System, p. 407.

† Breckinridge gives (ibid., p. 408) a diagram showing the monthly variation of the issues of the Canadian banks for fifteen years. The minimum is usually reached in June, but sometimes in August, and one year in September; and the maximum is always near the beginning of November. From the lowest point to the highest, the average annual rise, which disappears in January, is about 20 per cent., varying in the last dozen years from under 13 per cent. in 1882 to 24 per cent. in 1888. There is also a small rise in the spring, nearly always at the beginning of April, but occasionally a month earlier, trifling in amount, but singularly constant, and showing a remarkably close correspondence between the notes in circulation and some regularly recurring condition of business.