CURRENCY AND BANKING

Speech
of
Hon. William D. Kelley
of Pennsylvania
in the
House of Representatives,
April 4, 1874.

Washington,
Government Printing Office.
1874

Mr. Kelley said :

Mr. Speaker :  I desire to express, and I shall be grateful to the House if it will give me its ear while I do express, the reasons why I cannot support the bill No. 1572, reported from the Committee on Banking and Currency, and why at the proper time I shall move to substitute for consideration before the Committee of the Whole bill N. 539, presented by myself, and which I find by conversation with members is generally known as the three sixty-five interchangeable-bond bill.

I regard the bill of the committee as fraught with danger to the country and the revenues of the Government.  The title, in so far as it speaks of proposing to establish free banking, is delusive.  I am in favor of free banking, and therefore must oppose this bill, which proposes in terms, but under conditions that are almost impossible of fulfilment, the extension of the monopoly banking system which has become so odious to the country.  It proposes to extend the provisions of existing laws, requiring whomever will organize a bank to deposit Government bonds in excess of the amount of currency to be received, as security for the redemption of the notes received.  In this connection let me suggest that the bill would be well entitled were it called “A bill to increase the value of estates of certain citizens of the United States and other countries by enhancing the market price of United States bonds and promoting speculation therein.”  This would be the inevitable effect of its passage.  I cannot imagine the circumstances that would justify Congress in subjecting itself to the animadversion such action would invite.  But there is nothing to justify it, as the deposit of bonds as security for our circulating medium is not essential to banking, and is at war with and an obstruction in the way of the establishment of free banking.

What is banking ?  It is the borrowing and lending of credit ;  or, in other words, of purchasing power, and involves the use of but little money, whether of gold or paper.  If gentlemen desire demonstration of these facts, I refer them to the remarks made the other day by the amiable and witty gentleman from New Jersey, [Mr. Phelps,] to Bagehot’s Lombard Street and to Bonamy Price’s recent works, and essays in the British magazines and reviews.  One per cent of what Professor Price calls money, or gold as distinguished from bank-notes, nay ½ of 1 per cent, he tell us, serves for the banking of all London ;  and 3 per cent, ½ per cent being in gold and the other 2½ per cent in “cash” or bank-notes, is all the money that is now required to carry on the enormous banking system and trade of London.

As we have said, banking is the borrowing and lending of credit, of purchasing power, and I will detain you but for a passing illustration of the fact.  If I have a thousand-dollar draft at my disposal, I send it to my bank in Philadelphia ;  and if I owe two sums of $500 each, I send checks for that amount to my creditors ;  and the chances are that the whole will be adjusted without the use of one penny of money.  The draft will go to one institution, and the checks to two individuals, each of whom will deposit his check in his bank, and the three will meet and be exchanged in the clearing-house the next morning.  I have named but a small sum, because I am not in the habit of handling much larger ones.  But what is true of my poor $1,000 is equally true of operations involving tens of thousands or hundreds of thousands of dollars.  In the clearing-houses of London and New York balances of hundreds of millions are settled daily without the use of money.

Having shown that money in great sums is not essential to banking, I proceed to add that the power to issue money does not inhere in banking ;  that this power constitutes no part of a just system of banking, but is dangerous to both the public and the banks that exercise it.

No system of banking in this country or in any other, in this age or in any preceding age, that involved the issue by the banks of paper, promising to pay gold or silver on demand, ever went trough its career without insolvency ;  they have all involved ruin to the banks, loss to the note-holders, and general derangement of the industries and trade of the country.  How Government interposition has saved the Banks of England and France I may show hereafter.  The only banking system that have maintained the integrity of their issues have been those which avoided the gold-basis theory and discarded the use of bullion as a security for the redemption of notes.  They have been very few.  Let me name them.  The free banking system, as it was called, of New York, under which bonds of the United States and of the State of New York were deposited to secure the notes.  The next is the Bank of England, which, as we are assured by John E. Williams, an eminent banker of New York, in an interesting article in a recent number of Old and New, borrowed this salutary principle from the New York system.  It may have $70,000,000 of notes afloat, which are secured by the deposit of £14,000,000 sterling of Government securities, and its notes have been interchangeable with money since 1844, with three brief intervals, when the system of promising gold redemption, and of issuing notes based on gold deposits in excess of the £14,000,000 brought about crises, and the Government intervened, and by order in council set aside the restrictions of the law and appealed to Parliament, then in session or when it assembled, to legalize the violation of law.  The partial departure from the true basis has thus brought the bank to the verge of insolvency three times since 1844.  The Bank of France has also been saved several times by the like interposition of the government, which relieved it from embarrassment by declaring its notes a legal tender, as they are at this time.

This was the process by which Thiers saved the bank, animated the industries, and increased the productive and taxable power of the people, and enabled conquered France to anticipate the date at which the enormous indemnity exacted by Germany was required to be paid.  In adopting it he was not governed by speculative theory, but by the results of experience.  The republic of 1848 found itself without revenue and the people without employment, and declared the notes of the bank to be legal tender.

Commenting on this act, the London Times, planting itself upon the doctrines of Hume, Ricardo, McCullough, Bastiat, and other bullionists, denounced it as the most disastrous incident of the revolution.  But what was the result ?  The Times itself shall answer this question.  On the 16th of February, 1849, within one year from the date of the article I have referred to, it said :

As a mere commercial speculation, with the assets which the bank held in its hands, it might then have stopped payment and liquidated its affairs with every probability that a very few weeks would enable it to clear off all its liabilities.  But this idea was not for a moment entertained by M. D’Argout, and he resolved to make every effort to keep alive what may be termed the circulation of the life-blood of the community.  The task was overwhelming.  Money was to be found to meet not only the demands on the bank, but the necessities, both public and private, of very rank in society.  It was essential to enable the manufacturers to work, lest their workmen, driven to desperation, should fling themselves among the most violent enemies of public order.  It was essential to provide money for the food of Paris, for the pay of the troops, and for the daily support of the ateliers nationaux.  A failure on any one point would have led to a fresh convulsion.  But the panic had been followed by so great a scarcity of the metallic currency, that a few days later, out of a payment of 26,000,000 fallen due, only 47,000 franc could be recovered in silver.

In this extremity, when the bank alone retained any available sums of money, the Government came to the rescue, and, on the night of the 15th of March, the notes of the bank were by a decree made legal tender, the issue of these notes being limited in all to three hundred and fifty millions, but the amount of the lowest of them reduced for the public convenience to one hundred francs.  One of the great difficulties mentioned in the report was to print these one hundred franc notes fats enough for the public consumption ;  in ten days the amount issued in this form had reached eighty millions.  No sooner was the bank relieved from the necessity of paying away the remnant of its coin, than it made every exertion to increase its metallic rest.  About forty millions of silver were purchased abroad at a high price.  More than one hundred millions were made over in dollars to the treasury and five hundred and six millions of five-franc pieces have been thrown by the bank into the country since March, and her currency was thus supplied to all the channels of the social system.

Besides the strictly monetary operations, the Bank of France found means to furnish a series of loans to the government—fifty millions on exchequer bills on the 31st of March, thirty millions on the 5th of May, and on the 3d of June one hundred and fifty millions, to be paid up before the end of March, 1849;  of this last sum only one third has yet been required by the State.  The bank also took a part in the renewed loan of two hundred and fifty millions, and made vast advances to the city of Paris, to Marseilles, to the department of Seine, and to the hospital, amounting in all to two hundred and sixty millions more.  But even this was not all.  To enable the manufacturing interests to weather the storm, at a moment when all the sales were interrupted, a decree of the National Assembly had directed warehouses to be opened for the reception of all kinds of goods, and provided that the registered invoices of these goods, so deposited, should be made negotiable by indorsement.  The Bank of France discounted these receipts.  In Havre alone, eighteen millions were thus advanced on colonial produce, and in Paris fourteen millions on merchandise—in all, sixty millions were thus made available for the purpose of trade.  Thus, the great institution had placed itself, as it were, in direct contact with every interest of the community, from the minister of the treasury down to the trader in a distant outport.  Like a huge hydraulic machine, it employed its colossal powers to pump a fresh stream into the exhausted arteries of trade, to sustain credit and preserve the circulation from complete collapse.

But to return from this instructive digression.  The other case referred to is that of the United States.  We were not taught by experience, but forced by that higher law, necessary, to issue notes based on the credit of the Government, pledged to no other form of redemption than their reception in payment of taxes and by making them a legal tender in payment of debts for all abject except—and the exception was an almost fatal error—for all obligations except duties on imports and interest on the public debt.  The volume of currency of this character was supplemented by permitting certain banks to issue a limited volume of currency on condition that they should lend their capital to the Government at 6 per cent and deposit the bonds received therefor as security for the redemption of the notes the Government would prepare and permit them to issue.

Who ever lost a dollar by the note of one of the New York free bank ?  Who has lost a pound by the notes of the Bank of England, which are secured by the deposit of public securities ?  Who has lost a dollar by the failure of the Unites States Treasury note or a national-bank note thus secured to buy him a dollar’s worth of wine, or wheat, or wool, or any other American production ?  No man ;  and I challenge all history for a parallel to any one of these, where the banks promised to redeem their notes in specie.

Mr. Eldredge.  Does not every man to-day who takes a dollar of greenbacks or national banking currency take in the neighborhood of 12½ per cent less than one dollar in bonds, another promise of the United States ?

Mr. Kelley.  Mr. Speaker, I have very brief notes from which to speak ;  and I propose to make my own speech, and not to discuss topics propounded by other gentlemen.  I will listen attentively to the gentleman from Wisconsin when he gets the floor, and hear whatever he may have to suggest upon the question he has suggested.  Should he then do me the honor to interrogate me, I will find pleasure in replying.

No, sir ;  there has been no parallel case, but on the contrary when our banks failed and refused to return the funds of their depositors, and when with the finest satire of all history they issued certificates of deposit and said they did it to prevent a further emission of irredeemable paper, our paper issues retained their value.  While proclaiming themselves bankrupt and unable to pay the checks of depositors, they issued certificates pledging the combined credit and assets of all the banks in the city of New York for the patriotic purpose of preventing a further emission of irredeemable paper.  Could self-sacrifice have gone further than this ?  Now, sir, in three days from the issue of the first of these certificates it took $105 in a certificate backed by all the banks of New York to buy $100 in greenbacks or secured bank-notes ;  and it was months before depositors upon whose deposits these certificates received credit could get the notes of the very banks which held their deposits by any other means than by going to broker-shops and selling the depreciated substitute for irredeemable paper which the combined banks had created.  Was there ever such heartless irony or such supreme impudence ?  Or could the correctness of my position be more clearly proven ?

The bill is in its terms delusive, not only in promising free banking, but in promising to increase the volume of circulation by making it free.  Sir, on 12th of July, 1870—I would like the then chairman of the Committee on Banking and Currency [Mr. Garfield] to hear—on the 12th of July, 1870, this House forced through a bill, as to which I know not whether it was most of a blunder or most of a crime, or whether it was both blunder and crime.

There was at that time on deposit with the Government about $55,000,000, deposited by the American people, in the form of a temporary loan, at 3 per cent interest.

Mr. Garfield.  Will the gentleman be kind enough to point out what it was in the bill referred to which he regards as a “blunder” or a “crime ?”

Mr. Kelley.  If the gentleman will allow me to proceed I shall be specific enough.  I have it in my mind to run pretty directly to some ends.  When we began the discussion of that bill we had somewhere from fifty-five to seventy million dollars, as my memory serves me, of 3 per cent temporary loans.  The American people were content to have 3 per cent interest, with the certainty that when there came tight times in the money market they could carry their 3 per cent certificates, which, being overdue, were payable on call, to the Treasurer or nearest assistant treasurer, and get greenbacks for them.  That loan was the balance-wheel of our whole system of inconvertible paper money.  So long as those millions of temporary loans lay there, greenbacks could not be locked up by speculators, a crisis could not be brought about ;  for there were $55,000,000 held by the Treasury, belonging to businessmen, which was payable on call in greenbacks ;  and it was the use and wont of the holders, when tight money market came, to get their temporary-loan certificates exchanged by the Government.

Mr. Burchard.  If I do not interrupt the gentleman, I would like to ask him what time he refers to.

Mr. Kelley.  I refer to the bill which was passed on the 12th of July, 1870.  The gentleman will oblige me if he will defer any further questions till I shall have closed, when I will be glad to hear him.

The bill is, Mr. Speaker, as I was showing, delusive in promising an increase of the currency of the country.  We withdrew the three per cents ;  we forced their surrender under the lead of the then chairman of the Committee on Banking and Currency, on the theory that the volume of currency was to be maintained without contraction.  Pending the discussion of that bill, and after its suggestion, a large amount of these three per cents came in.  The total amount outstanding, when we came to act on the bill finally was $54,000,000;  and it was provided that $54,000,000 national bank notes should be issued in lieu of the $54,000,000 of these three per cents to be called in.  Gentlemen on the floor said it was to work a contraction.  Men who saw the terrible influence of contraction upon the debtor class and the enterprise of the country warned the House against even that measure of contraction ;  but the answer of the eloquent gentleman from Ohio was, it does not mean contraction.

Now what was the result ?  The three per cents were called in immediately and paid off.  What I am asked, were they paid in ?  They were paid by leaving that amount of 6 per cent gold-bearing bonds, which ought to have been called home and redeemed, remain in foreign markets, and we made the marvelous economy of borrowing $54,000,000 of foreigners at 6 per cent in gold as a substitute for that amount held by our own people at 3 per cent.

How about the $54,000,000 of bank currency going out to substitute the three per cents which had been counted in the reserve as greenbacks ?  Have they all been issued yet ?  No.  They have come out slowly, at distant intervals—part of them have.  Forty-nine million some hundred thousand have been issued, and the Comptroller of the Currency has this day informed me that there are still $4,390,693 of that $54,000,000 to be issued.

Now, I tell gentlemen that if they pass this free-banking bill, as it is called, they will have the same result again.  The South and West are in no condition to buy bonds on a speculative market, such as they will have on the passage of this bill.  They are in no better condition now to institute banks based on gold-bearing bonds than they have been in the intervening four years.  If banks be established under this bill in the South and West, it will be done by capitalists and capital from east of the Hudson River.  They may bear the name of a southern or western town or city, but they will be only a new facility granted to bankers and speculators residing east of the Hudson, where capital has accumulated to take new mortgages, not only upon current productions, but upon the farms and plantations of the West and South.  They will give those sections currency shops ;  they will be of advantage to the people so far as they will make places in which they may deposit their money and thus increase commercial capital, but they will represent an absenteeism as fatal to local enterprise and the prosperity of those sections as English landlordism of Ireland has been to the prosperity of that unhappy island.

Is free banking possible ?  I have heard it said it is not.  I think it is, sir.  In the first place, let me say that the emission of money is an attribute of sovereignty, an attribute which cannot safely be delegated, which never should be delegated, and which the most enlightened opinion of Great Britain in now demanding shall be resumed by the British government for the benefit of the British people.  I could cite many authorities on this subject, but I propose to refer simply to the closing paragraph of a paper entitled “The mint and the Bank of England,” in the Westminster Review for October last.  It says :

In breaking this monopoly of the bank we should be taking a great stride toward the attainment of that ideal system of currency which Sir Robert Peel must have had in his heart when he passed his currency laws;  a system under which the state shall be the sole fountain of issue, under which no money shall circulate on credit, or, if it does, shall circulate on the credit of the state, all bank-notes, as well as coins, bearing the image and superscription of the head of the state, and under which all profits upon the issue of money shall form part of the imperial revenue.

The power of issue is, and ought to be, a sovereign right.  It was a sovereign right in the days of Athelstan, and as a sovereign right was exercised only by the king.  It will be recognized as a sovereign right to be exercised only by the king in the days of Albert VI.  But at our present rate suppressing private coinage, the issue of bank notes, it will not be till the days of Albert VI, and it has not been since the days of Athelstan.  The power of issue now exercised by the Bank of England, and by the English, Irish, and Scotch banks, is a relic of feudalism, and of those rough and rude times when every prelate and noble set up a mint under the shadow of his palace or castle, coined money in their own names as grantees of the king and appropriated the profit of their mints as they appropriated the rent of their estates.  The manufacture of coin has been suppressed long ago, but the manufacture of paper money still remains, and the profits of this manufacture are allowed to remain in private hands, the state taking upon itself the manufacture of the only part of the currency upon which there is, or can be, a loss.  It is high time that this state of things ceased ;  that all rights of issue were gathered into the hands of the state ;  that the debt of the Bank of England was paid off ;  that all notes except those of the state were suppressed ;  that the powers of issue now exercised by the banks were vested in the hands of the royal mint ;  that gold coinage, like silver and copper, was made self-supporting, and that the profits upon paper currency were claimed by the state, and appropriated, like the profits of the post-office, to the reduction of taxation.

I have said that the power to emit money cannot be delegated without danger to the Government and the people, and especially to the current trade and commerce of the country.  It involves the highest attribute of sovereignty, and cannot be parceled out among the people of the several States without such collisions of interest and opinion as must perpetually endanger trade and commerce.  And, sir, I maintain the position that paper money emitted by the Government should be based on the credit of the Government, which rests on the taxable property and power of the country ;  that Government issues promising to pay specie, or any other mode of redemption than by their receipt in payment of taxes and all other pecuniary liabilities to the Government, would be fraught with the same delusive snare that bank promises to do an impossible thing are fraught with.

I know, sir, that this statement will envelop me with the tender emotion of pity, nigh akin to love, of the eloquent gentleman from the Hartford district of Connecticut, [Mr. Hawley] of my eloquent friend from New Jersey, [Mr. Phelps] and, it may be, of my good friend from Illinois [Mr. Burchard] and the learned bullionists of the country generally.  I should undoubtedly be overwhelmed by the consciousness of their loving condescension and pity were I not something of an egotist, and in the habit of thinking my own opinions just as good as those of other men, especially when I stand on a proposition taught me, and supported more ably than I can support it, by Benjamin Franklin, John Jay, (when presiding over the Continental Congress) Thomas Jefferson, Alexander Hamilton, John Taylor of Caroline, James Madison, and John C. Calhoun, among the dead, and by Henry C. Carey, John A. Thomson of Summit Point, West Virginia, and Charles Sears, of Navasink, New Jersey, three as original and profound thinkers as God ever blessed our country with, and with a legion of men less worthy of distinction than they, but scarcely less worthy of it than my associates on this floor, who do me the honor to pity my ignorance and credulity.

But let me say, and it would be well for the country to consider the proposition, that all talk of the resumption of specie payments at this time is a delusion without a shadow of foundation in fact or theory sustained by fact ;  and they who not being bankers or of the creditor class who urge resumption are misled by the teachings of men who proclaim their science to be a science based on assumptions.  This is like the oriental theory by which the earth is kept in its place ;  the earth it is assumed rests on an elephant ;  it is assumed the elephant rests on a tortoise, and the tortoise is assumed to rest on something ;  and if one of these assumptions is wrong, the possibility is that the theory is not exactly right.  And so is it with this science based on assumptions ;  when assumptions are consistent with the facts of history and social life we may prove the deductions from them.  Let me illustrate one generally accepted assumption, before proceeding to another point.

This school of philosophers tell us that by an unyielding law the volume of currency regulates the prices of commodities, and that gold is the standard of prices, the measure of value.  Now I find by reference to page 39 of a work published by Hon. W.A. Richardson, Secretary of the Treasury, entitled “Public debt and national banking laws of the United States,” that—

The amount of currency in actual circulation, including demand notes, reached its highest point about August 31, 1865, when it was $433,160,569.  At the time of the proclamation of the President, April 2, 1866, declaring the rebellion ended in certain States therein named it was $422,749,252.  It was first reduced below $400,000,000 September 1, 1866, near the time of the President’s proclamation of August 20, 1866, declaring the insurrection at an end throughout the whole of the United States, when it was $399,603,592, and has never been so high since that date.

This work was published in 1873, prior to the financial crash which occurred in September.

Now, sir, let us look at the irrefutable assumption which is dinned into our ears daily by the scholars of the House with such pitying condescension toward their unfortunate associates who have not been able to find evidence to sustain it.

According to these learned teachers and Mr. Secretary Richardson’s facts we have a pyramid, starting from its base on the 1st of January, 1864, going to its climax on the 31st of August, 1865, and descending steadily but less rapidly to January, 1867.  If their theory is true, that pyramidal form is an inevitable result.  What I have to say on the subject is, that if that is the law we have been living in flagrant violation of it, for which we deserve the most condign punishment.  But, sir, what are the facts of the case ?  They show that the pyramid was reversed, and that in August, 1865, the price of gold was lower than it had been in 1864, and than it was in 1866.  I state the facts correctly, and if you will do me the honor to refer to my remarks when they shall appear in the Record, you will find a table prepared from the Bankers’ Almanac of New York which gives the price of gold every day, during the months of June, July, August, September, and October, for the three years of 1864, 1865, and 1866.  The facts presented by this exhibit demolish these particular assumptions and repeal all laws which a priori reasoning has deduced therefrom.

Now, I insist that if we lived through those three years in such flagrant violation of known laws there ought to be some means of punishing us for it ;  and that the men who bought their goods so cheaply in 1865, when currency was so abundant, ought, by some equitable process, to be made to pay more, because this law required them to pay nearly twice as much in that year as they did in 1864, and considerably more than they did in 1866.  What have the adherents of this supposed law, who have addressed us so touchingly on the moral aspect of the currency question, to say on this aspect of the case ?  I hope they will give us their view.

But it may be said that the war interfered with the operation of the law.  If so, I reply by asking a question or two.  Was not the war more remote from 1866 than it was from August, 1865;  and pray what kept up the price of gold in 1866, when the work of contraction was going on so vigorously under the action of an enlightened Congress and Secretary of the Treasury ?  I know that well-read gentlemen will say these facts are very vulgar, and I admit it, but must also claim that they have much force.

Sir, I repeat, that all talk of the resumption of specie payments under the existing condition of affairs is idle, and state, as my next proposition, that bond resumption must precede note resumption.  Let us look at this.  Come, let us reason together as brethren.  Is the question of immediate or early resumption a practical one ?  We owe on our gold-bearing bonds, in round numbers, $100,000,000—$99,000,000 and a little more.  We owe on State and municipal and corporate bonds enough to increase the total largely and make the sum payable abroad in round terms about $100,000,000 annually.  This is payable at various periods during the year, the Government interest is payable quarterly or semi-annually, but the date of the semi-annual payments is so arranged that the falling due of instalments of interest may be regarded as quarterly.  Seventy-three per cent of our carrying trade of last year was done in foreign bottoms, and the balance of trade was against us well-nigh $100,000,000.  Our people are much given to foreign travel, and many thousands of them reside abroad.  In the little city of Dresden the last census found more than two thousand American residents ;  in Paris there is a much larger colony ;  and they are found in all the attractive cities of the Continent.  It is estimated that the outlay by European travelers and residents is $60,000,000  a year.  Take into account $100,000,000 of gold interest ;  take the balance of trade, a part of which is profit made by us, but a larger part of it is not profit, but results from the excessive importation through the resident agents of German, French, English, and other foreign manufacturers who put their old stocks on our market by auction at any price.  I cannot make an accurate estimate of the carrying trade, and I throw off $30,000,000 of the estimated $60,000,000 for American travel and residence abroad, and that leaves a total of something over $180,000,000 a year to be paid to foreign countries in bullion or commodities.  The fact that justifies the reduction of this estimate to the amount stated is the receipt of bullion in the hands of immigrants, of which no account can be taken largely over $200,000,000.

I pause here, and regret that my friend from the Hartford district of Connecticut is not here.  I am very glad, however, that my friend from the Milwaukee district of Wisconsin [Mr. Mitchell] is not here.  You will remember the enthusiasm with which my friend from Connecticut shouted over the new discovery in political economy made by the gentleman from Wisconsin, the enthusiasm, expressed by gesticulation and emphasis of every kind, with which he hailed and proclaimed that new discovery in political science—so important did he regard it that he would fain have everybody know that it had been made and appreciate its value.  “I will,” exclaimed he, “quote his demonstration, lest some now listening may not have heard it.”  The demonstration was, that if a vessel sailed from an American port with $100,000 worth of goods on board, and went down in mid-ocean, there was no balance of trade against us, but it showed a favorable balance of exports.  Well, sir, the demonstration was, I doubt not, really an invention of my friend from Wisconsin, and he deserves credit for originality ;  but I am sorry to say it was among the earlier things that Bastiat taught me, and I regarded it with almost as much favor as the gentleman from Connecticut did until, on investigating the history of Bastiat’s works, I found that British writers, when they were less given to free trade than they are now, had suggested to Bastiat that he would do well, in other editions of his works, to leave out this Joe Millerism, as it was a very venerable suggestion, and had long been known under that title to the English people.  The idea of resting the science of political economy on the occurrence of accidents, and the assumption that such accidents do not happen under general laws and in equal proportions to all commercial nations, that no storm shall sweep from the ocean any ship that does not bear the flag of a particular country, while the fleets of other nations move safely through storms and tempests, is a Joe Millerism in political economy to the authorship of which few thoughtful persons would aspire.

Sir, there is an average liability to accidents among commercial nations, and a solid basis for scientific consideration of the laws involved in the settlement of the balance of trade remains, notwithstanding the sanction of the authority of Joe Miller, Bastiat and my friends from Wisconsin and Connecticut.

But the gentleman from Wisconsin, with more ingenuity than candor, proceeded to say :

Of the same character with the balance trade bugbear is that sometimes urged to the effect that we can never return to a specie standard so long as we have so much interest to pay abroad.  That objection is based on the exploded idea that we cannot pay our interest abroad in anything but specie, as if our wheat and corn, our cotton and petroleum, our pork and lumber, will not give us a credit balance in London just as readily as the gold of California.

This discovery is more ingenious than the other, and brings me to a point worthy of consideration by gentlemen about to legislate on banking and currency.  I had the folly, when we were discussing the bill which became the act of July 12, 1870, to suggest that we were blessed in the fact that our currency was inexportable ;  and I now reaffirm the doctrine that our commercial salvation depends upon the fact that our currency is inexportable, although the distinguished gentleman from Ohio then the chairman of the Committee on Banking and Currency [Mr. Garfield] was so immensely surprised at my innocence that, forgetting that money is a creature of law, that it represents the sovereignty of the state by which it is emitted, that it is legal tender and can pay all a man’s debts within the limits of the sovereignty by which it is emitted, he supposed it to be strictly analogous to eggs and butter and cheese ;  and learnedly said that we had addled eggs and moldy cheese, and odorous butter, and divers other things that were not exportable, and wanted to know whether I thought our country blessed in the fact that they were inexportable.  Sir, when were addled eggs made a legal tender ?  What law of the United States ever made musty cheese a legal tender ?  When was the sovereignty of this nation stamped on musty flour, or moldy cheese, or addled eggs ?  It was a pleasant witticism, but it was slightly wanting in strict analogy, inasmuch as different effects ensue from the export of surplus commodities and of part of the life-blood of commerce—the legal tender currency of a country, when that currency is not in excess of the legitimate demands of trade.

Now, sir, I come back to my argument.  We owe abroad about $180,000,000 annually.  Where do we get the gold with which to pay this annual charge ?  We mine about $60,000,000, and we import from nations that become debtors to us in the course of trade, and have gold to spare about $20,000,000, making about $80,000,000.  How do we settle the rest ?  By virtue of our inexportable currency we settle the rest, to use the language of the gentleman from Wisconsin, [Mr. Mitchell] in our wheat and corn, our cotton and petroleum, our pork and lumber, and our gold from California.  Foreigners, not being able to use our legal-tender currency in other lands leave our business to flow on undisturbed in its accustomed channels, and take their balances in the products of our soil, our mines, our fisheries, and workshops.  And here is the point of my argument in favor of a currency that shall be of like value in every man’s hands wherever the American flag floats as an emblem of sovereignty, and yet shall lose its money value when it leaves the limits of our country, and shall therefore serve us with a currency that a gold currency which our creditor covet, would not be permitted to.

Let us see what would probably be the effect of hastening by artificial means to the use of a convertible currency.  I will not stop to discuss the method by which that end shall be attained, but will assume that it is possible that we may reach it, and will only discuss the probability of maintaining the position when we shall have reached it.  We have $180,000,000 in gold annually to settle abroad, which our creditors now very gladly take in commodities. We resume specie payments ;  and the Treasury begins te redeem greenbacks and the banks begin to redeem national-bank notes.  All might go on swimmingly for a month or six weeks, or a few months, when Germany might draws on France for gold, unexpectedly to France, or France draws on Germany, or both draw on England, or England draw on both.  They are all creditors to us.  There being a crisis such as recently happened at Berlin the other day, or as is now happening in London, and as is imminent in France ;  and, finding their specie drawn away from them they would avail themselves of the ocean cable, and telegraph their agents in this country and say, “Sell $5,000,000 of bonds, merchandise, or anything, and remit the specie.”

Under these circumstances orders such as I have supposed would not come from a single banker or merchant, but from dozens or scores of them.  Our stock of gold coin would be the bank on which their crisis would cause a run ;  greenbacks would be sent to the Treasury, and national-bank notes would be presented to the banks for redemption.  Both might sustain the first shock ;  but when steamer day came and it should be announced that one steamer had taken out two millions of specie, another $1,500,000, and another two millions more, merchants would probably say to themselves :  If our gold is all to go abroad we must though it may cause a suspension, take care of ourselves ;  and a run on the banks and the Treasury would ensue, and both would be compelled to suspend specie payment in the midst of a financial crisis.

I pray gentlemen to note that I make a distinction between gold and currency.  I have no objection to our gold going abroad.  It is mined by American labor ;  it is wealth drawn from our mines ;  and is a commodity as much as iron, lead, copper, petroleum, tobacco, cotton, or wheat.  It is one of the productions of our soil, gathered by the labor of the American people ;  and let it go as freely as any other commodity.  But do not make it part of our currency just now ;  do not make every note, whether greenback or bank-note, redeemable in it, until we shall have redeemed or converted half of our gold-bearing bonds and so far restored our commercial marine that we shall have a profit and not a charge in account with the carrying trade and our foreign exchanges.

But, say gentlemen, how can we redeem or convert our bonds ?  Appeal to and trust the American people and you can redeem your obstructive gold-bearing bonds with a rapidity that will be magical.  Rely on the American people as England in her exigencies relies on her people ;  as France relies on hers, and as the German Empire trusts the people of that empire.

Appeal to and trust the American people again !  In the name of God and humanity I appeal to you to lift the laboring masses of our people from their idleness and deep dejection by trusting them again, as you did during the days of the war, when from the results of their labor they loaned the Government $2,000,000,000 on various forms of temporary loan ;  on 3 per cent certificates, on seven-thirties redeemable in three years, on compound-interest notes, a legal tender for the face value but not for accrued interest, on certificates of indebtedness, on certificates of deposit, and other evidences of debt, they gave you $2,000,000,000, while their productive power was stimulated and sustained by a volume of currency adequate to the business of the country.  While educing this wealth from our abounding raw materials and lending it to the Government, they were oaying for three successive years an average of $450,000,000 of taxes, without any contribution from the southern people.  Give to the poor people who have been swindled in New York, in New England, and in my own city alone, to the extent of $2,000,000 by faithless savings-banks, a place in which they may make their deposits, with the assured faith they have in the Government that their money will be kept safely, that they can get it when they may require it, and that they shall have a rate of interest about as great or nearly as great as the savings-banks promised to give them—3.65 per cent.

Sir, one set of representatives of workingmen’s associations in Philadelphia, little skilled in parliamentary law, wrote me letter last week imploring me to get through the three sixty-five loan bill.  Some of them had been caught by the failure of Jay Cooke ;  more of them by the failure of the Franklin Savings Institution, in whose vaults they and their class had put nearly $900,000.  They had gathered their remnants and in going through their affiliated societies found that they had a little over $100,000 among them ;  and their letter to me (I do not happen to have it with me now) begged me to get this bill through so as to save them from the risk of robbery and fire, and enable them to deposit their earnings where they would be safe—where they would remain at low interest but without the risk of such failures as have happened to so many of the savings-banks and private bankers of the country.

Gentlemen descant upon the danger of allowing banks to receive and pay interest on deposit.  Sir, I have here the message of the President of the United States in which he recognizes both this evil and the importance of having a portion of our bonds convertible at the will of the bond holder.  He suggests the deposit of bonds and the withdrawal of greenbacks, and the loss of interest on the bonds by the owner while they remain on deposit.  I have here the report of the Secretary of the Treasury, in which he recognizes the popular demand for convertibility.  He has no word to say for or against it, but asks that whatever measure be adopted may be well considered and guarded.  I have the report of the Treasurer of the United States in which he devotes seven pages to detailing the evils of the payment and receipts of interest on deposits by banks, and to trying to persuade Congress to authorize the issue of three sixty-five bonds, as the only means of breaking up the paying of interest on deposit and the accumulation of the funds of the country in great money centers for speculation at times when the interests of the people require absolute or nearly absolute quiet.  And I have here the report of the Comptroller of Currency, in which he presses these questions for the second time upon the attention of Congress.  He does not rely upon the power of law ;  for he knows we all know that laws do not control banks ;  that when the fact comes out that the banks have been living in violation of the laws provided for the government, they have the people under such embarrassments that those they have wronged are the first to rush to the Legislature or to Congress and ask that the penalties of the law may be repealed and the banks be not put into liquidation.  He knows that no law can bind the confederated banks of the country ;  he knows that the charter of every New York City bank was forfeited last September.  He knows that the only power he has with which to threaten banks when they certify checks to pay which no money has been deposited is to do what he does in this report—say to them as affectionate mothers say to their troublesome sons, “Now, you have been a very bad boy ;  do not do it again ;  for if you do and I catch you alone, I will punish you.”  He knows that when they all transgress, and the enforcement of the penalty would break up the whole system, he cannot even threaten to punish them but must palter with their iniquity and lawlessness.

[Here the hammer fell.]

Mr. Burchard.  If the gentleman from Pennsylvania [Mr. Kelley] desires it, I move that his time be extended.

Mr. Kelley.  I thank the gentleman from Illinois and the House.

Mr. Bright.  I ask unanimous consent that the gentleman from Pennsylvania be permitted to proceed without limit.

[There was no objection.]

Mr. Kelley.  The Comptroller of Currency enforces his recommendation of this year by citing what he said on the same subject last year, filling more than a page of his report.  You profess to desire to stop the payment of interest on deposits.  You cannot do it by the mere force of law.  Suppose you prohibit the national banks from paying interest on deposits, you cannot extend your prohibition to State banks ;  and if you could, you cannot prohibit private bankers from borrowing money on interest.  Here is a statement of the assets and liabilities of the Philadelphia house of Jay Cooke & Co., showing quite a large list of banks which lost their Philadelphia balances, at least for the time being, when this private banking house closed its doors.

If law will not restrain the powerful and confederated corporations, how can you prevent their indulgence in these practices so fatal to legitimate business ?  The remedy is simple and in our hands.  It will save the Government millions of gold annually and hasten the permanent resumption of the use of gold as currency.  It is to enable banks, bankers, insurance, railroad, and other corporations, merchants, farmers and laborers to hold their own balances by inviting them to take convertible bonds at 3.65 currency interest.  When we shall be wise enough to thus restore to our inconvertible paper system the element of temporary loans the power of Wall street will be broken, and the scepter will drop from the palsied hands of its money kings.  Do this and you will find the people’s reserve diffused over the whole country ;  inactive, save as the Government may use it in the purchase of gold six per cents, and waiting the day of active business, when the bonds may be presented to the nearest assistant treasurer for redemption, or be used as domestic exchange from the East to buy the grain of the West, and from the North to buy the tobacco and cotton of the South.

This derided but beneficial system of interchangeable loans was an inherent part of our system of paper money until, as I have said, we blunderingly or criminally eliminated it on the 12th of July, 1870.

Restore it !  Restore the balance-wheel, the governor of the machine, and in doing it you will break up the power of Wall street to gamble with the wealth and industry of the country.  But, sir, if we fail to do it and legislate at all this session, we will work disasters wider spread and greater than those from which we are now suffering.  Twenty-six of the forty-four million dollars have already been issued.  Shall we withdraw them ?  The business of the country is paralyzed.  Men, women, and children who would gladly earn, and were earning last September, honest livelihoods and laying up money for the future, are to-day out of employ by hundreds of thousands, and are living in enforced idleness.  Your machinery, wonderful in its ingenuity and more wonderful in its power, stands still coated with dust or eaten by rust.  Your water-power is running to waste and your mines are yielding but a small percentage of what they were accustomed to yield.  Your revenues have run down, and the savings-banks, called upon by the laboring classes who are their depositors, are notifying mine and factory owners and business men to prepare to pay their mortgages, and the work of contraction thus goes on apace.  What, in view of this condition of things, will be the result if you determine to recall the twenty-six of the forty-four million reserve which have been issued ?

Mr. Speaker, we have voted to issue the remaining $18,000,000.  Ah, sir, that way greater danger lies, if no means be provided by which the surplus may be absorbed in seasons of commercial inactivity, and kept from Wall street and its gambling speculators, and I therefore voted against the proposition, wild inflationist as I am said to be.  Add $18,000,000 to the $26,000,000, with stagnant business, and what will there be for it to do ?  Why, it will go to Wall street, to Third street, to State street ;  it will go into the hands of the Goulds, the Vanderbilts, the Drews, whose existence is proof that man may exist without conscience, moral principle, or human sympathy, and by next August your hotels at the watering places around New York will swarm with speculators, and money will be easy ;  but when September shall come, and money be needed to move the crops of the West and South, we will have last September over again, but with a power increased in the double ration of the increased volume of currency and the listlessness of the productive power and trade of the country.  Let gentlemen who talk of assignats and continental money take heed while they may, and provide legitimate employment at all seasons of the year for the entire volume of our inconvertible currency.

Can you guard against this danger ?  Yes, gentlemen ;  I have shown you how, and have borrowed my suggestions from the illustrious men whose names I mentioned in the earlier part of my remarks.  I ask you to consult the unimpassioned wisdom of Benjamin Franklin.  I ask you to read the words with which John Jay, from his office as President of the American Congress, addressed the people.  I ask you to turn to Jefferson, who in his letter to Mr. Eppes of June 24, 1813, said,

And so the nation may continue to issue its bills as far as its wants require, and the limits of the circulation will admit. ... But this, the only resource which the government could command with certainty, the States have unfortunately fooled away, nay corruptly alienated to swindlers and shavers, under the cover of private banks.

I ask you, gentlemen from the South, to listen to the voice of one whom your section once idolized as its best thinker, the friend and counselor of all your great statesmen, John Taylor of Caroline.  I ask you to read the marvelous addresses—marvelous for the prescience with which they portrayed the present condition of the country—of John C. Calhoun, uttered in 1834, 1837, and 1838.  I could take whole pages of Mr. Calhoun addresses and read them here, and no man who had not read them would discover, except in their more finished style and choicer language, that I was not elaborating the thoughts I have drummed into your ears so often during this session.  Turn to James Medison also.  I know it is often said Mr. Madison, when young, and Mr. Madison, when old, were not the same man ;  that in the course of his long life he was on both side of every question ;  but it so happens that on the question I am considering, especially that of Government using its credit as money, he was consistent, so far as I have been able to discover, throughout his long life.

Sir, such a system as my bill proposes will not only give consistency and steadiness to our business, not only give safety to depositors, not only create small money centers all over the country, but it will open the way to truly free banking.  Charter no more banks ;  grant no more monopoly privileges ;  but substitute a greenback of like denomination for every bank-note which goes into the Treasury, and surrender the bonds by which these notes are secured to the banks as fast as they are redeemed by this process and let them sell them for greenbacks on which to bank.  Then banking will be free ;  and why should it not be ?  Why should not men select the corporation or individual with which they will deposit their money as freely as they select their doctor, their lawyer, and their clergyman ?  Why should not the people select the banker with whom they will intrust their funds just as they do their grocer, their shoemaker, their tailor, and their drygoods merchant ?  Whence does the Government derive the paternal right to regulate these matters for them ?

Banking, the borrowing and lending of credit, of purchasing power, is a matter of business between man and man, with which the Government has nothing to do.  It should issue and be responsible for the money of the nation, and then no man could lose a dollar by using paper money so long as there was a tax to pay to the Government, or an article to purchase from his fellow-citizen.  But more than this, sir ;  under this free system little money centers would organize themselves throughout the South and West ;  private and corporate balances would find use in the localities in which they were produced ;  bankers would receive deposits, and they would be able to show their depositors a reserve which was earning them 3.65 per cent, and which the credit and faith of the Government were pledged to redeem in greenbacks on presentation.

More than that, it would enable the Government to bring home the gold-bearing bonds from abroad ;  it would lessen our interest account, and change its character from gold to paper ;  for the money received from convertible bonds is by the provisions of my bill to be applied to the redemption of gold-bearing bonds.  Ah ! but, say gentlemen, you say the committee’s bill will produce speculation in bonds ;  what would the process you propose do ?  Why, let me add, as I intend to do, a clause, “or to purchase gold wherewith to call bonds,” and my bill would create no speculation in bonds.  If the Secretary of the Treasury should receive ten millions or hundreds of millions in exchange for three sixty-five bonds and had the choice to buy either bonds or gold with which to call overdue bonds, he could restrain speculation in both.  There could be no effective combination against him then.  let him reduce his gold indebtedness by issuing the greenbacks now in his possession in exchange for six per cents, and apply the interest thus saved with the proceeds of three sixty-fives to call in other 6 per cent bonds, and our interest account will run down rapidly, while the assured elasticity given to the currency will reanimate our industries and all will go “merry as marriage-bells” throughout our country in less than six months and our national credit will stand higher than it has ever done.

But other gentlemen say these bonds might come in unexpectedly to the Treasury.  Well, my bill proposes to guard against this unlikely contingency.  It proposes to restore the law to what it was in the beginning.  It goes to the shades of the fathers of the system and ask for guidance.  They who instituted the system foresaw all such contingencies and provided for them by ordaining a redemption fund of $50,000,000, applicable to the redemption of temporary loans when presented in emergencies.  An incident not likely to happen in these happier days compelled the invasion of that fund—an incident of war when troops had to be paid ;  when disaster dogged our steps, and the revenues fell off.  At that time, when the confidence in the resources of the Government was briefly impaired, that fund was drawn upon, and $33,000,000 of it were out on the 31st of August, 1865.  There are no contingencies like that pending now, and that fund could be held so that if these bonds came in at any day in excess of current income and resources that $50,000,000 could be drawn upon, and when the unusual demand ceased it could be replenished from current income.

Mr. Butler, of Massachusetts.  Will the gentleman allow me to ask him a question ?

Mr. Kelley.  Yes, sir.

Mr. Butler, of Massachusetts.  What inducement would there be to any man owning a 3.65 per cent bond to return it to the Treasury for redemption ?  Why would not they circulate as money just as well as the greenbacks with which they would be redeemed ?

Mr. Kelley.  In reply permit me to say that I have alluded to the fact that convertible bonds would constitute domestic exchange, and that is why the banks and bankers dislike them so much ;  they make a great deal of profit out of buying and selling exchange.  I can see no reason why these bonds under any circumstances should be rushed in for redemption ;  but assuming that there might be a conspiracy among bankers, bondholders, and other capitalists to corner the Treasury, I inserted the clause I have referred to out of what I believe lawyers call abundant caution, not because I saw any necessity for it, but to remove doubt from the minds of others.  The soundness of my opinion has been proven by experience.

When the great Chicago fire took place which consumed so many million dollars’ worth of merchandise and property, which lasted, I think, four days, and spread consternation throughout the banking, insurance, and commercial circles of the whole country, there were $70,000,000 of overdue 3 per cent certificates outstanding ;  and what amount do you suppose went into the Treasury during the four days of that fire and two days thereafter ?  Why, $1,500,000.  And I have doubt that if $500,000,000 of these bonds were out, and a similar fire should occur, the fact that it was known there were so many out would protect the Treasury against a run for a single dollar.

Now, by way of drawing to a conclusion, permit me to say that I discover in the committee’s bill a very ingeniously disguised system of contraction by the retirement of all existing issues of national currency.

You will find it in the latter sections of the bill.  It is very simple and very plausible.  It proposes that $2,000,000 of greenbacks payable in gold twenty-four months after date shall be issued monthly, and that $2,000,000 of the existing greenbacks shall be retired, having been substituted by the gold greenbacks, and that that process shall continue as long as there is a note of the existing issues outstanding.  Let us see how this would work.  At the end of twenty-four months there would be $48,000,000 of gold-bearing greenbacks out.  Then the first $2,000,000 issued would have to be redeemed.  Now let us follow it up.  For twenty-four months it would be simply an exchange of one kind of greenbacks for another.  But let us go into the twenty-fifth month.  Then there will be issued $2,000,000 of gold-bearing greenbacks, and $2,000,000 of legal-tenders will be withdrawn.  The Treasury will pay off and cancel the $2,000,000 of gold-bearing greenbacks first issued.  Gentlemen will now see where the little joker comes in.  Each month $2,000,000 of gold-bearing greenbacks will be issued, $2,000,000 will be redeemed, and $2,000,000 of existing legal-tenders retired, until we shall come to a time when there will be but $48,000,000 of common greenbacks out ;  and then for each month thereafter, for twenty-four months, we will take up $2,000,000 of them ;  and then we will land where ?  There will not be a legal-tender greenback of the present issue in circulation ;  they will all have been redeemed, and if no mishap shall have occurred we will be in the happy land of specie payment.

And we will remain there how long ?  As I have already demonstrated, we will remain there until France, or Germany, or England determines that either for their convenience or from their jealousy of our prosperity and growth it would be well enough to trip us up and exhibit our weakness and dependence.  Then they will sell a few million dollars’ worth of goods or bonds, for gold-bearing greenbacks, which they will present for redemption, and ship the proceeds—the basis of our currency.  The we shall be just where we were in 1857, when the Old Lady of Threadneedle street needed, or thought she did, $7,000,000 of gold coin.  Our currency was then on a specie basis.  What did she do ?  She requested some of her customers to draw on us for that amount of specie, and they did.  The notes were presented for redemption ;  and there was a terrible noise in Cincinnati, especially about the doors of the Ohio Life and Trust Company, and a noise equally as great, or perhaps greater, about the doors of the Pennsylvania Bank in Philadelphia.  And the next day there was a feu de joie all over the country.  Never did financial institutions explode more rapidly.  There was scarcely a solvent bank in the country.  The Bank of England had exhausted them, as she will do again if we venture on the ingenious expedient of substituting redeemable greenbacks for the legal-tenders of to-day and redeeming them before we shall brought home in exchange for temporary loans or otherwise at least the principal of $50,000,000 annual interest in gold-bearing bonds now held abroad and shall have put our carrying and foreign trade into such a condition a shall give us a steady balance against the gold-using nations of the world.

And, Mr. Speaker, I thank the great Disposer of events that that day is coming apace.  The largest ship ever launched, except the Great Eastern, was launched the other day near the borders of my district.  She was built of Pennsylvania iron.  And her twin sister of more five thousand tons burden, lies in the same yard ready for launching.  John Roach & Sons have other ships upon the stocks, the Cramps are actively employed, and the Wilmington and Camden iron-ship builders are all as busy as they can be constructing gallant vessels to again carry the Stars and Stripes over the commercial waters of the world.  The orders for this work preceded the panic.  Shall they have others ?  If such is to be the case, we must not paralyze them, must not contract their money and make them pay inordinate rates of interest, must not withdraw the medium of exchange by which they pay their laborers ;  and must not force those laborers to lend their money to recklessly managed savings-banks, national banks, or to private bankers, to be sent into Wall street to be speculated with until they themselves fail and then issue certificates of deposits in order, as they modestly tell us, to prevent a further emission of irredeemable currency by the United States Government.  The destinies of the present generation are in our hands and our constituents will hold us responsible for the fidelity with which we execute the trust.