WAYS AND MEANS FOR THE WAR
Published: September 30, 1861
IMPORTANCE OF A MORE EXTENDED ISSUE OF DEMAND NOTES.
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To the Editor of the New-York Times:
On the 1st of July last you published my hastily drawn plan of ways and means to provide the Government with the sinews of war. It was not supposed, as I stated to you verbally, that such a plan would be adopted in full, but that the views expressed might be of service in directing the Government to some measure which would prove available under all circumstances.
The principal features of my plan were:
1. To authorize a loan of sufficient amount to carry on the war to its issued.
2. To raise, by sale of stock, twenty to thirty millions dollars, to be retained as a specie basis.
3. To issue the residue of the loan in currency and twenty-year stock, at 7 per cent. interest. The currency to bear the same rate of interest, redeemable on demand or convertible into long stock. Leaving it to the discretion of the Government to determine the amount of each, as the future may require. But in the meantime to receive subscriptions for the long stock at not less than par.
The fact, that by decrease of business the discount and loan lines of the Northern Banks would become reduced about $150,000,000, and the currency of the country, owing to the condition of the Western Banks, would become also reduced about $50,000,000, induced this suggestion of Government currency; without any expectation of being compelled to increase, as some fear, the volume of it beyond what we had heretofore had.
The bill passed 17th July, authorizing a National loan, limited the demand notes to fifty millions of dollars, without interest, and the supplemental bill of 5th August authorized the conversion of the three year Treasury notes, bearing 7 3-10 per cent. interest, into long stock bearing 6 per cent. interest.
In other respects there is much similarity in our plans; which will prove to be the best, however, remains to be seen. I am still in favor of my own, and though not agreeing altogether with the views of the "Bank Officer," recently expressed, he confirms me in the opinion I have held, that the demand notes should bear interest of 7 or 7 3-10 per cent. per annum.
This interest consideration is the desideratum which will convert the currency into stock, and keep its circulation within bounds. By the issue thereof by Government, instead of coin, like water finding its own level in every channel that is open to it, it would reach every nook and corner of the Republic without an effort -- first to the people, then to the banks as a matter of necessity, beyond control. Every man receiving five dollars more than his wants require, would hold it as an investment. Thus all, rich and poor, would be lending their surplus earnings to the Government.
Whilst, on the other hand, in going to the banks first in the shape of a three years stock, it depends altogether upon the good will and confidence of the people whether they will relieve them or not. The banks, in this case, are entirely at their mercy. It is not generally the case that the weak will assist the strong. After the Government have received the money from the banks, very little interest will be felt to relieve them.
The "Bank Officer" argues that the Banks will be able to furnish the Government with all the means necessary for the successful prosecution of the war, without the issue of demand notes; which, he urges, will tend to produce inflated prices, &c. I do not believe that the small amount of demand notes to be issued by the Government, in view of the depreciated state of the Western currency, can have any bad effect; but as to the ability of the Banks to carry the Government through, I have very little faith. The people must come forward, and if they don't come, they must be brought. Government cannot rely solely on the Banks, unless the people sustain them with every dollar in their possession. And I do not believe any measure will bring the people to the assistance of the Government more quickly, or more satisfactorily to both, than the issue of demand notes bearing interest.
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I do not intend, however, to be understood to imply that the Banks cannot meet the, whole one hundred and fifty million loan, which they have agreed, conditionally, to advance by the 15th of December next, but they cannot go further. At that date they will have loaned their entire capital and average deposits. Coin will, of necessity, find its way back to their vaults, but unless it does so for the relief of the Loan and Discount Line, their position is not much improved. - The truth is, that the bulk of the capital of the country is already invested; and their being no increase of wealth, the absorption of Government securities must be left to capital becoming idle, and accumutations of income in the hands of capitalists, large or small.
Changes of investment may occur; deposits from Savings Banks may be withdrawn; but all this does not create greater ability. If Savings Banks meet their depositors, they must put their securities in market, and thus money will merely change hands, not increase the quantity.
Therefore, if I am right, it is necessary, in view of the extraordinary wants of Government, which we now learn are $1,200,000 per day, either for the people to be more active and generous in their subscriptions, or for Congress to modify the Loan bill at its next session, as soon as possible.
In regard to the objections to demand notes, I will further say, that I should unhesitatingly object to an unlimited supply of paper money without adequate security for its redemption. If that, however, is the only other plan by which the ways and means are to be reached, it is well to consider to what extent it can be carried, without causing depreciation or inflation.
Its security must be as good as an issue of Stock. If a bank can issue paper upon the pledge of securities to the State, without a dollar of coin in its coffers -- or if the currency of large cities may consist (as it does) in checks of individuals, a Government issue based on the pledge of the faith and resources of the whole country, must be not only as good, but far better.
Much of our bank-note issue is made upon the pledge of United States Stock, therefore the note, without any value of itself, performs the duty as agent of the Stock.
Then what danger can arise when the principal merely takes the place of its agent?
As to its specie basis, which every one will consider, my reply is, that it has the whole stock of coin in the country as its basis. But what is the coin of the whole country? What we denominate as coin is merely the representative value of some element of wealth. So that a barrel of flour worth $5 is, in fact, "coin," or "money." -- and metal is its representative and exchangeable commodity. Therefore, the productions of our labor are the "coin" of the country.
The discovery of the California gold fields produced rapid advances in the value of all property. The value of gold was supposed to be depreciated in the same ratio; but I am inclined to think that, by furnishing us with a new article of export, it merely enabled us to extend our trade with foreign nations. Thus, with our other rapidly increasing crops of home produce, it stimulated and expanded the trade and commerce of the whole country, which, of course, was followed by a rapid increase in the worth of all property.
In like manner, the activity created in the transfer of property, by the disbursements of Government, will tend to inflate prices quite as much by the use of coin as paper. And this remark may apply to previous like cases where the fault has been laid entirely to the depreciation of Government issues. Prosperity stimulates trade and commerce -- they beget wealth -- wealth begets extravagance, and extravagance causes inflation. When war ceases, Government trade ends, business declines, confusion follows, labor lacks employment, and, of course, the whole is charged against an inflated currency.
Should reverses in battle cause a return of the notes for specie, the banks should promptly meet it for the Government, thus displaying a confidence which would quickly allay the fears of the public.
The greatest objection, however, to such a currency would be the disturbance caused by a displacement of the bank issues, with which the public have been so long familiar. And the introduction of new representations of exchange may meet with disfavor from the banks, who have relied upon their circulation, to a considerable extent, for their profits.
But in case of the interest clause being attached, the objection on that score would cease, because the same profit, and a more reliable one, would be gained; than by lending their means or issue on individual paper.
On the one hand, Government paper, bearing interest, competes with individuals, for the loan of bank capital, thus acting as a wholesome check on speculation. Whilst on the other hand a currency without interes would leave it free to the public.
Heretofore coin lay comparatively idle, notwithstanding, the immense business of the country. Now, by its, sole use, the Government is pushing it into circulation at the rate, of $1,200,000 daily. And although the actual amount in the country remains the same, still, by its being brought into active circulation, it appears to be increased, because the volume of it is enlarged in business transactions.
Therefore, whether it be coin or paper, the effect, must be the same, and prices will advance by cause of increased demand and consumption, which necessarily augments the circulating medium. And during our late years of prosperity, it will be found that expansion in Bank paper followed in proportion to our prosperity, and not contrariwise.
Finally, the limit of such an issue must be confined, if possible, to the probable amount of other circulating medium which can be displayed so gradually as not to create revulsion, and to such an amount as the Government, by duties and other exactions, may be able to meet promptly its return for specie. But if the necessity arises, Government will at least have a decided advantage in the use of currency in the saving of interest, which, in case of a war debt of three hundred millions, and an appropriation made for the, payment of interest and final redemption of the principal of forty millions annually, will amount to one hundred and forty millions, and eleven years will be required to accomplish it.
The same amount of currency would be redeemed in seven and a half years by the same appropriation, and without the cost of this enormous sum of one hundred and forty millions of dollars interest money. Yours respectfully,
ORANGE, N.J.
