The Life and Work of James A. Garfield, Twentieth President of the United States / Embracing an Account of the Scenes and Incidents of His Boyhood; the Struggles of His Youth; the Might of His Early Manhood; His Valor As a Soldier; His Career As a Statesman; His Election to the Presidency; and the Tragic Story of His Death.

by John Clark Ridpath

CURRENCY AND THE BANKS.

“I wish first to state a few general propositions touching the subjects of trade and its instruments. A few simple principles form the foundation on which rests the whole superstructure of money, currency, and trade. They may be thus briefly stated:

“First. Money, which is a universal measure of value and a medium of exchange, must not be confounded with credit currency in any of its forms. Nothing is really money which does not of itself possess the full amount of the value which it professes on its face to possess. Length can only be measured by a standard which in itself possesses length. Weight can only be measured by a standard, defined and recognized, which in itself possesses weight. So, also, value can only be measured by that which in itself possesses a definite and known value. The precious metals, coined and stamped, form the money of the world, because when thrown into the melting-pot and cast into bars they will sell in the market as metal for the same amount that they will pass for in the market as coined money. The coining and stamping are but a certification by the government of the quantity and fineness of the metal stamped. The coining certifies to the value, but neither creates it nor adds to it.

“Second. Paper currency, when convertible at the will of the holder into coin, though not in itself money, is a title to the amount of money promised on its face; and so long as there is perfect confidence that it is a good title for its whole amount, it can be used as money in the payment of debts. Being lighter and more easily carried, it is for many purposes more convenient than money, and has become an indispensable substitute for money throughout all civilized countries. One quality which it must possess, and without which it loses its title to be called money, is that the promise written on its face must be good and be kept good. The declaration on its face must be the truth, the whole truth, and nothing but the truth. If the promise has no value, the note itself is worthless. If the promise affords any opportunity for doubt, uncertainty, or delay, the note represents a vague uncertainty, and is measured only by remaining faith in the final redemption of the promise.

“Third. Certificates of credit under whatever form, are among the most efficient instruments of trade. The most common form of these certificates is that of a check or draft. The bank is the institution through which the check becomes so powerful an instrument of exchange. The check is comparatively a modern invention, whose functions and importance are not yet fully recognized. It may represent a deposit of coin or of paper currency, convertible or inconvertible; or may, as is more frequently the case, represent merely a credit, secured by property in some form, but not by money. The check is not money; yet, for the time being, it performs all the functions of money in the payment of debts. No greater mistake can be made than to suppose that the effective value of currency is not directly increased by the whole amount of checks in circulation.

“I would not for a moment lose sight of the great first necessity of all exchanges, that they be measured by real money, the recognized money of the world; nor of that other necessity next in importance, that bank notes or treasury notes should represent real money; should be of uniform value throughout the country, and should be sufficient in amount to effect all those exchanges in which paper money is actually used. I would keep constantly in view both these important factors. But that is a superficial and incomplete plan of legislation which does not include, in its provisions for the safe and prompt transaction of business, those facilities which modern civilization has devised, and which have so largely superseded the use of both coin and paper money.

“The bank has become the indispensable agent and instrument of trade throughout the civilized world, and not less in specie paying countries than in countries cursed by an inconvertible paper currency. Besides its function of issuing circulating notes, it serves as a clearing-house for the transactions of its customers. It brings the buyer and seller together, and enables them to complete their exchanges. It brings debtors and creditors together, and enables them to adjust their accounts. It collects the thousand little hoards of unemployed money, and through loans and discounts converts them into active capital. It is a reservoir which collects in amounts available for use, the rain-drops which would otherwise be lost by dispersion.

“I find there are still those who deny the doctrine that bank deposits form an effective addition to the circulation. But let us see. A bank is established at a point thirty or forty miles distant from any other bank. Every man within that circle has been accustomed is keep in his pocket or safe a considerable sum of money during the year. That average amount is virtually withdrawn from circulation, and for the time being is canceled, is dead. After a new bank is established, a large portion of that average amount is deposited with the bank, and a smaller amount is carried in their safes and pockets. These accumulated deposits placed in the bank, at once constitute a fund which can be loaned to those who need credit. At least four-fifths of the average amount of deposits can be loaned out, thus converting dead capital into active circulation.

“But the word deposits covers far more than the sums of actual money placed in the bank by depositors. McLeod, in his great work on banking, says: ‘Credits standing in bankers’ books, from whatever source, are called deposits. Hence a deposit in banking language always means a credit in a banker’s books in exchange for money or securities for money,’—Vol. ii, p. 267.

“Much the largest proportion of all bank deposits are of this class—mere credits on the books of the bank. Outside the bank, these deposits are represented by checks and drafts. Inside the bank, they effect settlements, and make thousands of payments by mere transfer from one man’s account to that of another. This checking and counter-checking and transferring of credit, amounts to a sum vastly greater than all the deposits. No stronger illustration of the practical use of deposits can be found than in the curious fact, that all the heavy payments made by the merchants and dealers in the city of Amsterdam for half a century, were made through a supposed deposit which had entirely disappeared some fifty years before its removal was detected. Who does not know that the six hundred millions of dollars of deposits reported every quarter as a part of the liabilities of the national banks, are mainly credits which the banks have given to business men?

“No currency can meet the wants of this country unless it is founded directly upon the demands of business, and not upon the caprice, the ignorance, the political selfishness, of any party in power.

“What regulates now the loans and discounts and credits of our National banks? The business of the country. The amount increases or decreases, or remains stationary, as business is fluctuating or steady. This is a natural form of exchange, based upon the business of the country and regarded by its changes. And when that happy day arrives, when the whole volume of our currency is redeemable in gold at the will of the holder, and recognized by all nations as equal to money, then the whole business of banking, the whole volume of currency, the whole amount of credits, whether in the form of checks, drafts, or bills, will be regulated by the same general law—the business of the country.”

At last, Congress came up to the position taken by Garfield in 1868. In 1875, the Resumption Act was passed, providing that, after January 1, 1879, the United States Treasury would offer one dollar in gold for every dollar in greenbacks presented for redemption. That this law was ten years too late can not be doubted. The delay prolonged the agony. But it was all that popular opinion would allow. In the interim between 1875 and 1879, every effort was made by the paper-money men to repeal the act. Of General Garfield’s speeches in its defense, we select that of November 16, 1877, as the type. The reader shall see whether he had changed his views, whether the panic and hard times had disconcerted his calculations? Let James A. Garfield speak for himself: