IN the latter months of the year 1863, only two years after the beginning of the great struggle which has lately terminated, and long before there was any doubt, in the Southern Confederacy, of its final success, its paper currency had depreciated to an extent which made it almost valueless.
This was looked upon as the natural and inevitable consequence of its excessive redundancy, but that redundancy was not the only reason of its depreciation, because it would have depreciated without it, although to a much less degree.
We believe it may be laid down as an almost settled axiom, without much fear of any successful refutation, that depreciation is of the very essence of paper money, whether it exceeds or not the wants of the community where it is current-that its over-issue only accelerates, or increases the depreciation-and that the depreciation becomes still more rapid and fatal when that paper, either by the action of Government, or from the no less powerful dictates of circumstances becomes a forced currency.
Great national wars have generally been the pretext for the emission of paper currency on a large scale, as a matter of course; and so much so, that in such contingencies it seems to be the first measure which, from its seductive facility, presents itself to the mind. It ought not, however, to be forgotten that the seven years' war of single-handed Prussia, under Frederic the Great, against the combined forces of France, Austria and Russia, in the last century, is a magnificent proof that a long struggle for national existence can be successfully maintained without having recourse to paper currency.
It is true that, as Macaulay says, "The King carried on war as no European power has carried on war, except the Committee of Public Safety during the great agony of the French Revolution." Prussia, which had been devastated in every one of its provinces by uncivilized hordes of Croatians, Cossacks, and other barbarians, had been converted almost into a howling wilderness; but, adds the historian: "One consolatory circum- stance, indeed, there was; no debt had been incurred. The burdens of war had been terrible, almost insupportable; but no arrear was left to embarrass the finances."
We all know how soon Prussia, free from debt, recovered from so many wounds which seemed mortal, and how those meager domains which so recently enjoyed no prouder name than that of Marquisate of Brandebury, assumed an importance and a rank equal to those of the most powerful kingdoms of Europe. We admit, however, that such an example is not easy of imitation, although it shows for the instruction of the world what the genius of one man and the endurance of a nation can accomplish without "issuing bonds," and without manufacturing a paper currency, which inevitably leads to demoralization, repudiation, bankruptcy, and national disgrace.
Notwithstanding this encouragement, this tempting bait-notwithstanding this sop thrown to the fears of the multitude, the currency lost in a few days as much as 75 per cent. In 1706, by a decree of the Government, it was made a legal tender, and thus became a forced currency, under the penalty of pillory, exile, and a fine of three thousand livres.
But, strange as it may appear to those among us who favor measures of this description, from that moment the currency became valueless, so much so, that the Government paid one-fourth of it in coin, on condition that the rest should be converted into treasury notes-which conversion was followed by other conversions, until at last the Government emitted notes bearing an interest of 20 per cent., but without succeeding in stopping the increasing depreciation of every paper currency that was issued in rapid succession.
Merchants asked their customers in what currency the goods desired were to be paid for, and had one price for those who offered to pay in gold or silver, and another price for those who tendered paper; and frequently to those of this latter denomination they pretended that they had no goods at all on hand. The peasantry of France refused also to take it, as many of the Southern farmers refused to take Confederate currency.
A maximum rate having been decreed, at which the French peasants were compelled to sell the produce of their labors, many ceased to work their lands. This circumstance, combined with the effects of an unusually rigorous winter, produced such a famine in 1709, that, even in Paris, only coarse brown bread was used for several months; that in the very palace of Versailles, the seat of so much splendor, several families fed on bread made of oatmeal. and that the celebrated Madam de Maintenon, the avowed confidential friend and the secret spouse of one of the most magnificent monarchs of the world, gave the example of abstemious frugality by partaking of this rude diet.
The price of wheat flour had gone up to 120 livres the sack, but the Government having found out the means of reducing the amount of the paper currency afloat, flour suddenly fell down to 40 livres. It would be profitable and instructive to examine separately and in detail the curious devices to which financiering ingenuity resorted in those days, but this could not be done here without exceeding the bounds which we have prescribed to this article.
That wonderfully skillful adventurer had first attempted to try his great financial experiment in Holland, but had found an insurmountable obstacle in the cold phlegmatic temperament of the Dutch, whom he could not dazzle into the adoption of his magical discovery of assimilating paper to gold and silver.
Then, in 1705, he had, under the patronage of some of the highest magnates of Scotland, whom the plausibility of his plans had fascinated, presented to the Parliament of that kingdom a scheme for removing the difficulties resulting from the scarcity of coin and from the stoppage of payments by its national bank; and in illustration of his views on that subject, he gave publicity to a work entitled: "Money and trade considered, with a proposal to supply the nation with money." What could be more tempting?
It was impossible to be oblivious of the fact that, for ages, great nations had existed, with great military and commercial wants, as great comparatively as in modern times, and that they had met those wants without any paper currency, or anything like it. Why depart from the line of safe precedents? said the enemies of the new system. Coins, it must be admitted, had frequently been debased by governments as a momentary resource, but always with fatal effects; and the policy of paper money was certainly, they thought, as questionable as that of adulterating coin for temporary purposes.
It is possible, however, that paper currency might have been distinguished as an earlier invention if the press had been sooner known, or if, shortly after it was known, it had worked with as much marvelous rapidity as in our days....Finish reading>> ART