"The constitutional and legal foundation of the monetary system of the United States is thus distinctly seen; and the power of the federal government to institute and regulate it, whether the circulating medium consist of coin or of bills of credit, must, in its general policy, as well as in the terms of its investment, be deemed an exclusive power."
These extracts from a document of great ability, state the whole question in a few words. Congress has the power to regulate commerce; Congress has the power to borrow money, which involves the power to emit bills of credit; Congress has the power to regulate the value of coin. These powers are exclusive. When, by the force of circumstances beyond our control, the national coin disappears, either because of war or of other circumstances, Congress alone must furnish the substitute. No state has the power to interfere with this exclusive authority in Congress to regulate the national currency, or, in other words, to provide a substitute for the national coin.
I next stated the objections to local banks. The first was the great number and diversity of bank charters. There were 1,642 banks in the United States, established by the laws of twenty-eight different states, and these laws were as diverse, I might say, as the human countenance. We had the state bank system with its branches. We had the independent system, sometimes secured by local bonds, sometimes by state bonds, sometimes by real estate, sometimes by a mixture of these. We had every diversity of the bank system in this country that has been devised by the wit of man, and all these banks had the power to issue paper money. With this multiplicity of banks, depending upon different organizations, it was impossible to have a uniform national currency, for its value was constantly affected by their issues. There was no common regulator; they were dependent on different systems. The clearing house system adopted in the city of New York applied only to that city. There was no check or control over these banks. There was a want of harmony and concert among them. Whenever a failure occurred, such as that of the Ohio Life Insurance and Trust Company, it operated like a panic in a disorganized army; all of the banks closed their doors at once and suspended specie payments.
Another objection to these local banks was that of their unequal distribution among the states. In New England the circulation of the banks was about $50,000,000, while in Ohio, a state with three- fourths of the population of all New England, it was but $9,000,000. The contrast, if made with other states, was still more marked. I called attention to the fact that the circulation of banks in the eastern states had then reached about $130,000,000, and of that amount, $40,000,000 was circulating in the west. If these notes were driven out of circulation and the United States notes substituted, a contribution would be made to the treasury of the United States of $2,400,000 a year, for the mere interest of a currency which the west did not prefer, but was compelled to use.
I called attention to the loss to the people by counterfeiting, which could not be avoided when we had such a multitude of banks. It then required experts to detect counterfeits. It was impossible to prevent counterfeiting. An expert could save the banks, but the loss fell upon the people. By the substitution of national currency we substantially could lose nothing by counterfeiting. The notes would be few in kind, only three or four of them, all issued by the United States, all of a uniform character, that could not be counterfeited. I described, with some detail, the loss to the people of the United States by bills of broken banks, computed them to be equivalent to five per cent. per annum of all the bills issued. On an average, every twenty years the entire bank circulation ceased to exist or deteriorated.
The loss of exchange from the west to the east on local currency was one per cent. This loss was usually made a gain to themselves by the bankers and "shavers." Under the most favorable state of trade between the east and west an exchange of one per cent. was demanded from drafts and bills of exchange. With a national currency, uniform and equal throughout the country, this cost for exchange would not exist or would be greatly reduced. I called attention to the then increasing volume of local currency in the United States. When the United States had issued $250,000,000 of notes, the banks had largely increased their circulation. This tended to depreciate both United States and bank notes.
I discussed at similar length the proposition that, as the states were forbidden by the constitution to authorize the issue of bills of credit, they were equally forbidden to authorize corporations to issue circulating notes, which were bills of credit. Upon this point it seemed to me that the authorities were absolutely conclusive. That position was taken by the most eminent members of the constitutional convention, by Joseph Story in his "Commentaries," by Daniel Webster, and other great leaders of both parties since that time. It was in reference to these bills that Mr. Webster used the language often quoted:
"A disordered currency is one of the greatest of political evils. It undermines the virtues necessary for the support of the social system, and encourages propensities destructive of its happiness. It wars against industry, frugality, and economy; and it fosters the evil spirits of extravagance and speculation. Of all the contrivances for cheating the laboring classes of mankind, none has been more effectual than that which deludes them with paper money. This is the most effectual of inventions to fertilize the rich man's field by the sweat of the poor man's brow. Ordinary tyranny, oppression, excessive taxation, these bear lightly on the happiness of the mass of the community, compared with a fraudulent currency, and the robberies committed by depreciated paper."
In speaking of the bank circulation then afloat in the country, he further said:
"It is further to be observed that the states cannot issue bills of credit; not that they cannot make them a legal tender, but that they cannot issue them at all. Is not this a clear indication of the intent of the constitution to restrain the states, as well from establishing a paper circulation as from interfering with the metallic circulation? Banks have been created by states with no capital whatever, their notes being put into circulation simply on the credit of the state or the state law. What are the issues of such banks but bills of credit issued by the state? I confess, Mr. president, that the more I reflect on this subject, the more clearly does my mind approach the conclusion that the creation of state banks, for the purpose and with the power of circulating paper, is not consistent with the grants and prohibitions of the constitution."