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Page 81
'The principal objections to such a circulation as a permanent
system are, 1st, the facility of excessive expansion when
expenditures exceed revenue; 2d, the danger of lavish and corrupt
expenditure, stimulated by facility of expansion; 3d, the danger of
fraud in management and supervision; 4th, the impossibility of
providing it in sufficient amounts for the wants of the people
whenever expenditures are reduced to equality with revenue or below
it.
'These objections are all serious. The last requires some
elucidation. It will be easily understood, however, if it be
considered that a government issuing a credit circulation cannot
supply, in any given period, an amount of currency greater than the
excess of its disbursements over its receipts. To that amount, it
may create a debt in small notes, and these notes may be used as
currency. This is precisely the way in which the existing currency
of United States notes is supplied. That portion of the expenditure
not met by revenue or loans has been met by the issue of these
notes. Debt in this form has been substituted for various debts in
other forms. Whenever, therefore, the country shall be restored to
a healthy normal condition, and receipts exceed expenditures, the
supply of United States notes will be arrested, and must
progressively diminish. Whatever demand may be made for their
redemption in coin must hasten this diminution; and there can be no
reissue; for reissue, under the conditions, necessarily implies
disbursement, and the revenue, upon the supposition, supplies more
than is needed for that purpose. There is, then, no mode in which a
currency in United States notes can be permanently maintained,
except by loans of them, when not required for disbursement, on
deposits of coin, or pledge of securities, or in some other way.
This would convert the treasury into a government bank, with all
its hazards and mischiefs.
'If these reasonings be sound, little room can remain for doubt
that the evils certain to arise from such a scheme of currency, if
adopted as a permanent system, greatly overbalance the temporary
though not inconsiderable advantages offered by it.
'It remains to be considered what results may be reasonably
expected from an act authorizing the organization of banking
associations, such as the Secretary proposed in his last Report.
'The central idea of the proposed measure is the establishment of
one sound, uniform circulation, of equal value throughout the
country, upon the foundation of national credit combined with
private capital.
'Such a currency, it is believed, can be secured through banking
associations organized under national legislation.
'It is proposed that these associations be entirely voluntary. Any
persons, desirous of employing real capital in sufficient amounts,
can, if the plan be adopted, unite together under proper articles,
and having contributed the requisite capital, can invest such part
of it, not less than a fixed minimum, in United States bonds, and,
having deposited these bonds with the proper officer of the United
States, can receive United States notes in such denominations as
may be desired, and employ them as money in discounts and
exchanges. The stockholders of any existing banks can, in like
manner, organize under the act, and transfer, by such degrees as
may be found convenient, the capital of the old to the use of the
new associations. The notes thus put into circulation will be
payable, until resumption, in United States notes, and, after
resumption, in specie, by the association which issues them, on
demand; and if not so paid will be redeemable at the treasury of
the United States from the proceeds of the bonds pledged in
security. In the practical working of the plan, if sanctioned by
Congress, redemption at one or more of the great commercial
centres, will probably be provided for by all the associations
which circulate the notes, and, in case any association shall fail
in such redemption, the treasurer of the United States will
probably, under discretionary authority, pay the notes, and cancel
the public debt held as security.
'It seems difficult to conceive of a note circulation which will
combine higher local and general credit than this. After a few
years no other circulation would be used, nor could the issues of
the national circulation be easily increased beyond the legitimate
demands of business. Every dollar of circulation would represent
real capital, actually invested in national stocks, and the total
amount issued could always be easily and quickly ascertained from
the books of the treasury. These circumstances, if they might not
wholly remove the temptation to excessive issues, would certainly
reduce it to the lowest point, while the form of the notes, the
uniformity of the devices, the signatures of national officers, and
the imprint of the national seal authenticating the declaration
borne on each that it is secured by bonds which represent the faith
and capital of the whole country, could not fail to make every note
as good in any part of the world as the best known and best
esteemed national securities.
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