It may be said that such a return of fractional currency for redemption is impossible; but let steps be taken for a return to a specie basis and it will be found that silver will take the place of fractional currency as rapidly as it can be supplied, when the premium on gold reaches a sufficiently low point. With the amount of United States notes to be issued permanently fixed within proper limits and the Treasury so strengthened as to be able to redeem them in coin on demand it will then be safe to inaugurate a system of free banking with such provisions as to make compulsory redemption of the circulating notes of the banks in coin, or in United States notes, themselves redeemable and made equivalent to coin.
As a measure preparatory to free banking, and for placing the Government in a condition to redeem its notes in coin "at the earliest practicable period," the revenues of the country should be increased so as to pay current expenses, provide for the sinking fund required by law, and also a surplus to be retained in the Treasury in gold.
I am not a believer in any artificial method of making paper money equal to coin when the coin is not owned or held ready to redeem the promises to pay, for paper money is nothing more than promises to pay, and is valuable exactly in proportion to the amount of coin that it can be converted into. While coin is not used as a circulating medium, or the currency of the country is not convertible into it at par, it becomes an article of commerce as much as any other product. The surplus will seek a foreign market as will any other surplus. The balance of trade has nothing to do with the question. Duties on imports being required in coin creates a limited demand for gold. About enough to satisfy that demand remains in the country. To increase this supply I see no way open but by the Government hoarding through the means above given, and possibly by requiring the national banks to aid.
It is claimed by the advocates of the measure herewith returned that there is an unequal distribution of the banking capital of the country. I was disposed to give great weight to this view of the question at first, but on reflection it will be remembered that there still remains $4,000,000 of authorized bank-note circulation assigned to States having less than their quota not yet taken. In addition to this the States having less than their quota of bank circulation have the option of twenty-five millions more to be taken from those States having more than their proportion. When this is all taken up, or when specie payments are fully restored or are in rapid process of restoration, will be the time to consider the question of "more currency."
U.S. GRANT.
EXECUTIVE MANSION, Washington, May 12, 1874.
To the House of Representatives:
I return herewith without my signature House bill No. 1331, entitled "An act for the relief of Joab Spencer and James R. Mead for supplies furnished the Kansas tribe of Indians." I withheld my approval of said bill for reasons which satisfy me the claim should not be allowed for the entire amount stated in the bill, and which are set forth in the letter of the Secretary of the Interior of the 7th instant, a copy of which, with the accompanying papers, is herewith transmitted.
U.S. GRANT.
DEPARTMENT OF THE INTERIOR,
Washington, D.C., May 7, 1874.