'It only remains to add that the plan is recommended by one other consideration, which, in the judgment of the Secretary, is entitled to much influence. It avoids almost, if not altogether, the evils of a great and sudden change in the currency by offering inducements to solvent existing institutions to withdraw the circulation issued under State authority, and substitute that provided by the authority of the Union. Thus, through the voluntary action of the existing institutions, aided by wise legislation, the great transition from a currency heterogeneous, unequal, and unsafe, to one uniform, equal, and safe, may be speedily and almost imperceptibly accomplished.
'If the Secretary has omitted the discussion of the question of the constitutional power of Congress to put this plan into operation, it is because no argument is necessary to establish the proposition that the power to regulate commerce and the value of coin includes the power to regulate the currency of the country, or the collateral proposition that the power to effect the end includes the power to adopt the necessary and expedient means.
'The Secretary entertains the hope that the plan now submitted, if adopted with the limitations and safeguards which the experience and wisdom of senators and representatives will, doubtless, suggest, may impart such value and stability to Government securities that it will not be difficult to obtain the additional loans required for the service of the current and the succeeding year at fair and reasonable rates; especially if the public credit be supported by sufficient and certain provision for the payment of interest and ultimate redemption of the principal.'
Congress adjourned after a session of eight months, and failed to adopt Mr. Chase's recommendation. Indeed, it had then but few advocates in Congress or the country. Events rolled on, and our debt, as anticipated by Mr. Chase, became of vast dimensions. In his Report of December, 1861, the public debt on the 30th June, 1862 (the close of the fiscal year), was estimated by the Secretary at $517,372,800; and it was $514,211,371, or more than $3,000,000 less than the estimate. In his Report of December 4, 1862, our debt, on the 30th June, 1863, was estimated by Mr. Chase at $1,122,297,403, and it was $1,097,274,000, being $25,023,403 less than the estimate. The average rate of interest on this debt was 3.89, being $41,927,980, of which $30,141,080 was payable in gold, and $11,786,900 payable in Federal currency. It will thus be seen that the whole truth, as to our heavy debt, was always distinctly stated in advance by Mr. Chase, and that the debt has not now quite reached his estimate. Long before the date of the second annual Report of the Secretary, the banks had suspended specie payments, and the Secretary renewed his former recommendation on that subject in these words:—
'While the Secretary thus repeats the preference he has heretofore expressed for a United States note circulation, even when issued direct by the Government, and dependent on the action of the Government for regulation and final redemption, over the note circulation of the numerous and variously organized and variously responsible banks now existing in the country; and while he now sets forth, more fully than heretofore, the grounds of that preference, he still adheres to the opinion expressed in his last Report, that a circulation furnished by the Government, but issued by banking associations, organized under a general act of Congress, is to be preferred to either. Such a circulation, uniform in general characteristics, and amply secured as to prompt convertibility by national bonds deposited in the treasury, by the associations receiving it, would unite, in his judgment, more elements of soundness and utility than can be combined in any other.
'A circulation composed exclusively of notes issued directly by the Government, or of such notes and coin, is recommended mainly by two considerations:—the first derived from the facility with which it may be provided in emergencies, and the second, from its cheapness.
'The principal objections to such a circulation as a permanent system are, 1st, the facility of excessive expansion when expenditures exceed revenue; 2d, the danger of lavish and corrupt expenditure, stimulated by facility of expansion; 3d, the danger of fraud in management and supervision; 4th, the impossibility of providing it in sufficient amounts for the wants of the people whenever expenditures are reduced to equality with revenue or below it.
'These objections are all serious. The last requires some elucidation. It will be easily understood, however, if it be considered that a government issuing a credit circulation cannot supply, in any given period, an amount of currency greater than the excess of its disbursements over its receipts. To that amount, it may create a debt in small notes, and these notes may be used as currency. This is precisely the way in which the existing currency of United States notes is supplied. That portion of the expenditure not met by revenue or loans has been met by the issue of these notes. Debt in this form has been substituted for various debts in other forms. Whenever, therefore, the country shall be restored to a healthy normal condition, and receipts exceed expenditures, the supply of United States notes will be arrested, and must progressively diminish. Whatever demand may be made for their redemption in coin must hasten this diminution; and there can be no reissue; for reissue, under the conditions, necessarily implies disbursement, and the revenue, upon the supposition, supplies more than is needed for that purpose. There is, then, no mode in which a currency in United States notes can be permanently maintained, except by loans of them, when not required for disbursement, on deposits of coin, or pledge of securities, or in some other way. This would convert the treasury into a government bank, with all its hazards and mischiefs.
'If these reasonings be sound, little room can remain for doubt that the evils certain to arise from such a scheme of currency, if adopted as a permanent system, greatly overbalance the temporary though not inconsiderable advantages offered by it.
'It remains to be considered what results may be reasonably expected from an act authorizing the organization of banking associations, such as the Secretary proposed in his last Report.