Mr. Lawyer: It looks as though it might be well to give the Supreme Court one more chance to guess; they might possibly guess right next time. It is certainly "reasonable" to hope so, both in accordance with the Constitution, and in accordance with economic law, and in accordance with the experience of the whole world.
Mr. Merchant: Well, what would happen if, when the Supreme Court guesses again, it should guess right? Would the fact that the Court declared that Congress had no power to make paper money a legal tender render the greenbacks unfit for reserves, or illegal, as reserves?
Mr. Banker: Congress cannot, by law, make anything fit for reserves, which by economic law is unfit for reserves; but Congress may make anything, however unfit for reserves from an economic point of view, a legal reserve; they might make potatoes, wheat, corn, a bale of cotton, or a bundle of hay reserves. Therefore, although the Supreme Court should declare the Legal Tender Act unconstitutional, as it ought to, the United States Notes might still be held as reserves. The silver certificates and the gold certificates are both legal reserves, but neither of them are made legal tender by law, nor should they be, as nothing but gold, which is our standard of value, should be made legal tender. However, all of these barbarous forms of currency, United States Notes, Silver Certificates, bond-secured National Bank Notes should, and must be maintained upon a parity with gold, if possible, as they now are; because the faith and honor of the Government is at stake. It is this very fact that is the source of our weakness from a national point of view, for the United States has no assets with which to meet these enormous liabilities. The United States has no resources, such as a bank has. It has nothing to sell in the way of grain, meat, cotton, or manufactured goods, or personal property of any kind. It has no capital, and no deposits, as our banks have, whose resources today exceed twenty-five billion dollars ($25,000,000,000). The individual deposits of the United States today exceed seventeen billion dollars ($17,000,000,000). Every month about three billion dollars' worth of notes come due. Compare this situation with the condition of the United States Treasury, and its ability to meet obligations. The Treasury does not control a single dollar's worth of assets, except the incoming taxes, which are more than pledged every year to meet the current demands arising from the expenses of the Government.
Mr. Lawyer: That is correct, as we learned upon a former evening. The United States is bound for more than one billion seven hundred million of demand liabilities, directly and indirectly, and has only one hundred and fifty million of gold with which to meet them. All the Government has is the power to tax the property of the people. Of course it can anticipate this taxing power by selling bonds to meet an emergency; but let us imagine for a moment what may happen. This very night we may be looking out upon a perfectly clear and peaceful sky, and even so soon as tomorrow morning war clouds may curtain the rising sun, and before nightfall blacken the zenith of the heavens, and hang low and lowering the whole horizon round, presaging the most titanic and wicked struggle in blood that has ever stained the history of the human race. What do you think the effect would be upon our credit, with all these demand obligations outstanding? Would not that fact, coupled with a great war on our hands, impair our credit to a very great degree, compelling us to sell our bonds at much lower prices, and at rates of interest far higher than could be possibly necessary, if there was no question whatever about our remaining steadfastly upon the Gold Standard instead of resorting to fiat paper money, as we did the very last time we had to meet a similar difficulty, or crisis?
Mr. Banker: There is no doubt whatever about the imperative necessity of our relieving the United States Treasury from the load it is now carrying, and placing the United States Government in the same position precisely that every state and municipality is in, so far as its credit is concerned; for the treasury of the Government, when filling its normal and proper functions, is no more fit to carry on the banking business than a man who may be wealthy in land, but has no cash assets; or a township, city, county or state is. And until the United States Government divests itself of these unnatural burdens, which it is unfitted to carry, we shall continue to suffer immeasurably whenever called upon to use our national credit to any great extent.
Let me explain this principle a little more fully so that we will all get it so thoroughly fixed in our minds that we shall not forget, or overlook it, as we go on. A farmer, however wealthy in lands and prosperous he may be, even though he may be worth half a million, or a million dollars, should not have demand obligations outstanding for any considerable amount because his resources are in lands or fixed investments. If he borrows to enable him to produce his crops, he should make his notes come due when he can meet them with the money he receives from the sale of his crops, and the balance, or his profits, will go to pay the interest on the mortgage, and possibly reduce it. So a township, a city, county, or state has no personal property worth considering to meet demand obligations. It has no liquid property of any kind, in fact, nor any resources whatever, except its power to tax the property within its jurisdiction; and therefore, if it needs money, it may borrow to meet expenses; but it will make its notes come due when the taxes come in, precisely as the farmer times his notes' maturity with the sale of his crops. If a municipality has no demand obligations, and its bonded debt is low, it can borrow on its bonds at a low rate of interest. But if its demand obligations are enormous in proportion to its ready cash, high rates of interest, and possibly even bankruptcy, will always be staring it in the face. Granting or assuming that the United States Government has no power to issue legal tender, or fiat money, which is the greatest peril and most unmitigated curse that ever hung over any country, the United States Treasury is in precisely the same position, or situation, that the farmer is, whose property is in land; that the township, the city, the county and the state is in, and should always keep itself in a position where, in case of war, or any other great emergency, it could use its credit to the best possible advantage to itself; that is, to us, the people who must pay the taxes to liquidate whatever debt it may incur.
Mr. Farmer: I for one want to thank you for this explanation, for I have always had a sneaking idea that the United States Government owned everything, and was, as we say, the richest Government on earth, when it could not possibly mean anything except that the people who constitute the nation are the richest people on earth. Of course the Government doesn't own anything worth speaking of, and cannot take any property, without due process of law, that is, either through the process of taxation or through condemnation proceedings, for public uses. It is perfectly plain to me now that the United States Government is no more fitted to carry on the banking business than Lorrain township, where I live, nor this city, this county, nor this state, except that it operates on a bigger scale, that's all. Do you know that's as clear as a pike staff to me now.
Mr. Manufacturer: Now, gentlemen, I want you to correct me if I don't state this credit question right, from beginning to end; for I'm not sure that I have followed all that has been said with sufficient care to understand it perfectly. I appreciate the fact that we must grasp this question of credit, and comprehend it very clearly, if we are going to prepare a banking bill in which credit must play a most important part.
First: We have credit, which is the result of confidence and trust and gives us the right to demand payment.
Second: If credit is granted for the purpose of producing and distributing consumable commodities, it should be for a short period, proportioned to the time involved to complete the transaction.