at New York should be authorized to issue to those banks that amount of notes as a loan upon a pledge of clearing-house certificates secured by ample collaterals, and for which certificates all the banks were to be jointly and severally responsible. This proposition was declined, it being clearly not within the duty or the authority of the Treasury Department, under any provisions of law, thus to employ the public money.

Exchange on Europe having fallen to unusually low rates, and indeed having become almost unsaleable in the market, to the embarrassment of our foreign and domestic trade, applications were made to the Secretary of the Treasury to use the money in the Treasury in the purchase of exchange. The Treasury Department having no occasion to do this for its own use, and no necessity for transferring funds to Europe, was compelled to decline this proposition, which, if accepted, would have put the Department in the position of becoming a dealer in exchange, a position clearly inconsistent with its duties.

Subsequently the New York Produce Exchange made a proposition to accomplish the same result in a different form, and also requested, as others had before, that the Secretary should pay at once the twentymillion loan of 1858, to which the following reply was made:

TREASURY DEPARTMENT, Washington, September 30, 1873. SIR: Your letter of the 29th inst., covering two resolutions of the New York Produce Exchange, has been received and the subjectmatter fully considered.

The resolutions are as follows:

"WHEREAS the critical condition of the commercial interests of the country requires immediate relief by the removal of the block in negotiating foreign exchange; therefore be it

"Resolved, That we respectfully suggest to the Secretary of the Treasury the following plans for relief in this extraordinary emer


"First. That currency be immediately issued to banks or bankers, upon satisfactory evidence that gold has been placed upon special deposit in the Bank of England, by their correspondents in London, to the credit of the United States, to be used solely in purchasing commercial bills of exchange.

"Second. That the President of the United States and the Secretary of the Treasury are respectfully requested to order the immediate prepayment of the outstanding loan of the United States due January 1, 1874."

While the Government is desirous of doing all in its power to relieve the present unsettled condition of business affairs-as has already been announced by the President-it is constrained, in all its acts, to keep within the letter and spirit of the laws, which the officers of the Government are sworn to support, and they cannot go beyond the authority which Congress has conferred upon them. Your first resolution presents difficulties which cannot be overcome. It is not supposed that you desire to exchange coin in England for United States notes in New York at par. If your proposition is for the Government to purchase gold in England, to be paid for in United States notes at the current market rate in New York, it would involve the Government in the

business of importing and speculating in gold, since the Treasury has no use for coin beyond its ordinary receipts, and would be obliged to sell the coin so purchased at a price greater or less than was paid for it. If your object is to induce the Treasury Department to loan United States notes to banks in New York upon the pledge and deposit in London of gold, it is asking the Secretary of the Treasury to loan the money of the United States upon collateral security for which there is no authority in law. If the Secretary of the Treasury can loan notes upon a pledge of coin he can loan them upon a pledge of other property in his discretion, as he has recently been requested to do, which would be an extraordinary power as well as a most dangerous business to engage in, and which my judgment would deter me from undertaking, as the Secretary of the Treasury, even if by any stretch of construction I might not find it absolutely prohibited by law. The objections already mentioned to your first resolution are so insuperable and conclusive that it is unnecessary for me to refer to the many practical difficulties which would arise if an attempt should be made to comply with your request. Your second resolution calls for the payment at once of the loan of 1858, or the bonds commonly called "Fives of 1874." Upon a thorough investigation I am of opinion that Congress has not conferred upon the Secretary of the Treasury power to comply with your request in that particular, and in this opinion the law officers of the Government concur. Under these circumstances you will perceive that, while I have great respect for the gentlemen comprising the New York Produce Exchange, I am compelled, by my views of the law and of my duty, to respectfully decline to adopt the measure which your resolutions propose.

I have the honor to be, very respectfully,

WM. A. RICHARDSON, Secretary of the Treasury.

The Chamber of Commerce of Charleston, South Carolina, petitioned for the transfer of currency to that city, and the purchase with it, at that point, of exchange on New York, to aid those engaged in forwarding the cotton crop to the market. The following letter was sent in answer to this petition:


October 3, 1873.

President Chamber of Commerce, Charleston, S.C.:

I have the honor to acknowledge the receipt of the memorial of the Charleston, South Carolina, Chamber of Commerce, addressed to the President of the United States, and referred to this Department, which, after reciting the present stringency in the money market and the difficulty of obtaining currency, requests "that the sum of five hundred thousand dollars be placed and maintained on deposit with the assistant treasurer at Charleson, to be used by him in the purchase of New York exchange from the banks."

To comply with the request it would be necessary for the Treasury Department to send currency by express to Charleston from time to time, and to buy with it exchange on New York in competition with private bankers.

Should this request be granted a hundred other places in the country might, with equal propriety, ask for the same relief, and if all such requests were impartially granted, the Department would find itself engaged in an extensive exchange business, fixing and regulating the rate of exchange between different places in the country, and the public money, raised by taxation only for the purpose of carrying on the Government, would be employed to a very large amount in a business which Congress has not given the Secretary of the Treasury any authority to engage in.

With a due regard to the proper management of the Treasury Department, within the provisions of law, I have felt it to be my duty to decline all similar propositions from other places, and your request must, therefore, receive the same response.

I have the honor to be, very respectfully, yours,

Secretary of the Treasury.

The Executive Department of the Government was anxious to do everything in its power, under the law, and with due regard to the protection of the Treasury and the maintenance of public credit, to allay the panic and to prevent disaster to the legitimate commercial and industrial interests of the country; but it was found impossible to afford the relief in any of the many forms in which that relief was asked. It was decided, therefore, to adopt the only practicable course which seemed to be open to it, the purchase of bonds for the sinking fund to such an extent as the condition of the Treasury would allow, and thus release a considerable amount of currency from its vaults. Purchases of bonds were commenced on the morning of the 20th of September, and were continued until the 24th, when it became evident that the amount offering for purchase was increasing to an extent beyond the power of the Treasury to accept, and the purchasing was closed after bonds to the amount of about thirteen million dollars had been bought, and without the use of any part of the forty-four millions of United States notes, generally known as the reserve.

It should be stated that in the excitement there were many persons in the city of New York who insisted with great earnestness that it was the duty of the Executive to disregard any and all laws which stood in the way of affording the relief suggested by them—a proposition which indicates the state of feeling and the excitement under which applications were made to the Secretary of the Treasury to use the public money, and which, it is scarcely necessary to add, could not be entertained by the officers of the Government to whom it was addressed.

These facts are recited in order to lay before Congress, and place on record in a concise form, exactly what the Treasury Department was asked to do, and what it did, in the late financial crisis.

The currency paid out of the Treasury for bonds did much to strengthen many savings banks, and to prevent a panic among their numerous depositors, who began to be alarmed, and had there developed an extended run upon those useful institutions, it would inevitably have caused widespread disaster and distress. It also fortified other banks, and checked the general alarm to some extent. But the loss of confidence in the value of a great amount of corporate prop

erty which immediately followed the failure of banking houses connected with largely-indebted corporations, the distrust of the solvency of many other institutions, the doubt as to the credit of firms and individuals whose business was supposed to be greatly extended, and the legitimate effect thereof in disturbing the business of the country, could not be avoided by any amount of currency which might be added to the circulation already existing.

Confidence was to be entirely restored only by the slow and cautious process of gaining a better knowledge of true values and making investments accordingly, and by conducting business on a firmer basis, with less inflation and more regard to real soundness and intrinsic values.

There can be no doubt that the practice by banks of allowing interest on deposits payable on demand is pernicious, and fraught with danger and embarrassment to borrower and lender, as well as to the general business interests.

Deposits payable on demand should be limited to that surplus which individuals require over and above their investments, and no part of that from which they expect an income. Such deposits are comparatively stable in average amount, and constitute a healthy basis for banking purposes within proper limits, which prudent bankers know how to determine.

But if deposit accounts are employed as temporary investments, the interest attracts a large amount of money to those cities where such interest is paid, and where speculation is most active, at seasons when as much profit thereon cannot be secured elsewhere. With the first return of activity in legitimate business these temporary investments are called in, and jeopardize in their sudden withdrawal the whole business of the banks, both affecting the legitimate depositors on the one hand by excitement and distrust, and on the other creating a condition of things in which the borrowers on call are also unable to respond. The banks have borrowed their money of depositors on call. They have loaned it on call to speculators, who by its use have contributed to inflate the prices of the stocks or merchandise which have been the subject of their speculations. The speculator wants it to carry the stocks till he can dispose of them without a loss. This he is unable to do in a stringent money market. The banks, their depositors, and the borrowers, all want it at the same time, and of course a stringency is developed which spreads distress throughout the country.

The system creates immense amount of debts payable on demand, all of which thus suddenly and unexpectedly mature at the first shock of financial or commercial embarrassment in the country, and at the very time when most needed by debtors and when they are least able to respond.

There is no safety for corporations or individuals whose capital employed is wholly or mostly borrowed on call. Many savings banks were protected from ruin in the recent financial excitement by availing themselves of provisions in their rules requiring sixty days or other periods of notice before paying depositors, thus making all their deposits payable on time. Every cautious and well-managed savings institution has such a rule among its by-laws.

Without attributing the stringency in the money market, which is experienced every autumn and occasionally at other seasons of the year, solely to this practice of paying interest upon deposits in the large cities, it is evident that, when money is less needed in legitimate business, the practice encourages overtrading and speculation, always detrimental to the best interests of the country, and the bad effects of which upon those interests become more apparent, and the disaster more widespread, when the necessary contraction begins to be felt.

I recommend that national banks be prevented from paying interest on deposits, or that they be restricted and limited therein, either by direct prohibition, by discriminating taxation, or otherwise.

While legislation by Congress cannot prevent State banks and private bankers from continuing the practice, it can prevent national banks from becoming involved in, and instrumental in producing, the embarrassments and difficulties to which it necessarily leads.

The national banks, organized by law of Congress and having relations with the Government in the issue of circulating notes, ought to be the most cautious and safe banking institutions of the country, and should be kept aloof from all hazardous business which it is not possible to prevent sanguine, venturesome, and speculative individuals from engaging in, at the risk of their capital and their credit.

With a fixed amount of circulation of bank notes and of United States legal-tender notes not redeemable in coin, and with gold above par in currency, there must be each year times of redundancy and times of scarcity of currency, depending wholly on the demand, no method existing for increasing the supply.

With a circulating medium redeemable in coin, a redundancy is corrected by the export, and a scarcity by the import of specie from other countries.

There is a prevailing sentiment that more elasticity should be given to the volume of the currency, so that the amount in circulation might increase and diminish according to the necessities of the business of the country. But the difference of opinion on this subject is so great, and the real difficulties attending its solution are so numerous, that, without discussing any of the multitude of plans which have been presented to the public through the press and otherwise, I earnestly commend to the wisdom of Congress a careful and thorough consideration of this important subject, rendered more obviously important by the present embarrassed condition of large business interests which have suffered by the recent financial crisis; and that, in such inquiry, avoiding further inflation of the issue of irredeemable legal-tender notes, the most desirable of all financial results to be attained, namely, a permanent return to the sound basis of specie payments, and a gold standard to which all our paper issues shall be made of equal value, shall be the aim.

To allow national banks to use part of their reserves at seasons of the greatest pressure, under proper restrictions and regulations, would afford some flexibility.

Rigid statute laws applied to all banks, at all seasons, and in all places alike, often prove an embarrassment and injury when they conflict with economic principles and the laws of trade and business, which are stronger than legislative enactments, and cannot be overthrown thereby. Associated banks at the several redemption cities

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