John C. Calhoun, in a speech in the United States Senate, December 18, 1837, said:
“It appears to me, after bestowing the best reflection I can give the subject, that no convertible paper—that no paper that rests upon a promise to pay—is suitable for a currency. It is the form of credit paper in transactions between men, but not for a standard of value to perform exchanges generally, which constitutes the appropriate functions of money or currency. No one can doubt but that the credit of the government is better than that of any bank—more staple and safe. I now undertake to affirm, and without the least fear that I can be answered, that paper money issued by the government, to receive it for all dues, would form a perfect circulation which would not be abused by the government; that it would be uniform with the metals themselves.”
Legal-tender paper money is usually issued in times of war, when gold and silver are hoarded[hoarded] or exported from the country; and, as a consequence, such legal tender is put to the severest possible tests, those of an imperilled government, disturbed industry and impeded foreign trade. Nevertheless, history abounds with instances to prove the entire sufficiency of this kind of money.
In 1156 the Republic of Venice established a system of paper credits which served as the principal circulating medium of that country until 1797. This money was always at par and frequently at a premium. In 1770 the Russian government issued its own notes, which sustained the government through two wars and commanded a premium over coin. In 1797 to 1823 England issued $225,000,000 full legal-tender paper with which to carry on war against Napoleon. In his “Political Economy,” John S. Mill says of these notes: “After they were made a legal tender they never depreciated a particle.”
During the colonial period of American history several of the colonies issued and successfully maintained legal-tender paper money. One instance is illustrative of them all. In 1739 Pennsylvania issued $400,000 in legal-tender paper not redeemable in coin, but receivable for taxes, which was loaned directly to the people on security of land and plate. This money continued in circulation until it was prohibited by the British government in 1775. Commenting on the success of this system, Dr. Franklin said: “Between the years 1740 and 1775, while abundance reigned in Pennsylvania and there was peace in all her borders, a more happy and prosperous population could not, perhaps, be found on this globe.”
During the Franco-German war France issued an enormous volume of legal-tender paper money, of which Victor Bonnet, the eminent French economist, says: “In the midst of the greatest calamities that ever befell a nation, with an enormous ransom to pay a foreign nation, and with great domestic losses to repair, a credit circulation was maintained four times as large as its base, without depreciation. This circulation reached $600,000,000.”
During the war of the rebellion in the United States (1861-5) the government issued a volume of legal-tender “greenbacks” which, on July 1st, 1865, was outstanding to the amount of $432,687,966.
The first $60,000,000 of this paper money, issued under authority of the acts of July 17th and August 5th, 1861, and February 12th, 1862, called “demand notes,” was made a full legal tender for all debts public and private. This issue never fell below and often was above par as compared with gold. In a speech delivered in the United States Senate, July 4th, 1862, Hon. John Sherman said of these “demand notes”:
“The notes are now held and hoarded. The first issue of $60,000,000 were issued with the right of being converted into six per cent. twenty-year bonds and with the privilege of being paid for duties in customs. They are now far above par and hoarded.”
In Schuckers’ Life of Salmon P. Chase, p. 225, the author says: