credit and make something else than gold and silver a legal tender when, and only when, congress did not consent.' There is much to be said in favor of the view that this is one of the cases where, by force of circumstances, an actually valid constitutional right has been created which runs counter to the true intent of the constitution. This cannot, however, be asserted with certainty. The provisions of the constitution and the debates of the Philadelphia convention show beyond doubt that the intention was to place the entire monetary system in the hands of the federal government, not only for the sake of uniformity but because the states were distrusted.2

1 Elliot's Debates, V., 484.

2 Here it must be noted that congress is expressly authorized to enact penal laws against counterfeiting both coin and paper currency. Art. I., sec. 8, § 6.

The national debt of the United States reached its highest point in 1865. It was then $2,844,649,626. At the close of the fiscal year 1883-84, it had been reduced to $1,830,528,923. The annual payment of interest has been diminished from $150,977,697 in 1865 to $47,926,432 in 1884. The per capita debt of $78.25 in 1865 has been reduced to $25.89 in 1884, and the per capita interest from $4.29 to 86 cents.

The history of paper money in the United States economically, politically and legally has formed one of the most significant chapters in the story of national development. Upon the recommendation of the first secretary of the treasury, Alexander Hamilton, the act of February 25, 1791, created a "Bank of the United States." Its capital was not to exceed $10,000,000 in shares of $400, of which the government might take one-fifth, in consideration of which it was bound to receive the notes of the bank in payment. Its franchise was good for twenty years. When the bank sought a renewal it was refused. In the meantime the states had evaded the provisions of the constitution which forbade them to issue bills of credit by authorizing the creation of banks with the right of issuing notes. These small banks, the jealous complaints of which had much to do with preventing a renewal of the franchise of the United States Bank, now had a free field. Like mushrooms after a warm summer shower, they

§ 37. THE BUDGET AND ADMINISTRATION OF FINANCE. The axiom, that "the purse strings must be in the hands. of the representatives of the people," i. e., of the legislature, the Americans obtained from England. In its application, however, it has undergone an important change and won a much wider range. In this connection it becomes particularly clear and evident that there is a

sprung into existence, and very often did business in a most extraordinary manner.

The "wildcat currency" period still survives in the memory of the people. Scarcely was the United States Bank dissolved than the United States had to create a substitute for its notes. Trouble with England, finally leading to war, produced financial embarrassments which induced congress in 1812 to authorize the issue of interestbearing treasury notes. They were the first federal notes under the constitution of 1789, which, although not legal tender, were nevertheless issued in order to circulate as money. In 1815 the issuance of non-interest-bearing notes was begun. The cessation of cash payments in almost the entire country and the innumerable different bank-notes produced boundless confusion. The report of the secretary of the treasury in 1815 says: "Hence it has happened (and the duration of the evil is without any limitation) that, however adequate the public revenue may be in its general product to discharge the public engagements, it becomes totally inadequate in the process of its application, since the possession of public funds in one part no longer affords the evidence of a fiscal capacity to discharge a public debt in any other part of the Union." The treasury notes varied in market value in different portions of the country as much as fifteen per cent. Congress sought to stem the evil by creating a new United States bank, again for a period of twenty years. The chief provisions of the law of April 10, 1816, were as follows: There was a capital of $55,000,000, of which the United States took a fifth; all the government offices had to take bank-notes at par; the bank was bound, under heavy penalties, to redeem its notes in coin; the government funds were to be deposited at the bank, and it was to pay the government $1,500,000 annually for its privileges.

From the outset the bank had to contend with difficulties of the most diverse kinds. Vigorous and, in part, not unfounded complaints were made of its business management, and President Jackson made its annihilation a chief end of his administration. When the bank

substantial difference (in the proper sense of this word "substantial") between what is called in Europe the "government" and in the United States the "administration." It is the duty of the president and certain organs of the executive authority to administer the af fairs of state in the manner prescribed by law. But so far as their determination is concerned, his constitutional, in 1832 asked for the renewal of its franchise, the bill was passed by congress, but vetoed by the president July 10. The bank held, it is true, a charter from the state of Pennsylvania, but was nevertheless unable to maintain itself. It is now generally accepted as a good thing that the connection of the government with the bank was dissolved, but the new order of things was ushered in at the time of a general bank and monetary crisis. When the conflict between the north and south had ripened into a catastrophe, the government in its embarrassment laid hold of the means used before and issued treasury notes. Besides this it negotiated a number of loans in coin in exchange for interest-bearing bonds from the state banks whose notes were at par. While its necessities grew apace from day to day to gigantic proportions, it nevertheless continued to issue treasury notes and refused to receive the bank-notes. These were presented to the banks in large amounts for redemption. The banks thereupon, on December 27, 1861, suspended cash payments. On January 1, 1862, the government did likewise. Secretary Chase now wished to issue irredeemable paper money. The law of February 25, 1862, passed after a long debate, authorized the government to issue $150,000,000 in notes, the lowest denomination to be $5, which should be "legal tender" for all public and private debts then existing or thereafter contracted, and exchangeable for six per cent. bonds. The import duties were to be paid in gold. Even though the law did not explicitly declare it, it was nevertheless understood that the sum of $150,000,000 should not be exceeded. But necessity soon compelled the issuance of new notes, likewise made a legal tender; at the same time, the provision forbidding the issue of notes in sums less than $5 was repealed. Moreover, the law of March 3, 1863, authorized interest-bearing notes; provided that the right to exchange the paper currency for six per cent. bonds at par should lapse July 1, 1863; and burdened the notes of the state banks with a tax of two per cent. But this taxation was not, however, the only means with which the secretary of the treasury and congress attacked the sixteen hundred

legal, and practical influence is restricted to the fact that he can recommend to congress such measures as seem good to him, and that by refusing to approve an act he can put before congress the alternative either of stopping the wheels of government in whole or part or else changing its conclusions, unless both houses by a two-thirds majority persist therein. In European countries one of state banks, the notes of which at the beginning of the war comprised the largest part of the circulating medium. The attack was justified, for the genuine notes were about seven thousand in number, and the counterfeits - Upton distinguishes between "altered, spurious, imitated, and other kinds more or less fraudulent ❞— also ran up among the thousands. The system of national banks, towards which Chase gave the first impetus in December, 1861, put the axe to the root of this wretched confusion. The first law about the national banks (approved February 25, 1863) has in the course of time received manifold, more or less substantial, amendments. The most important of the provisions in force at present are the following: A minimum capital is fixed, which increases with the size of the place; a minimum number of stockholders is likewise fixed; at least onehalf of the capital must be paid in immediately, and the rest in monthly instalments of at least ten per cent.; at least one-third of the paid-up capital is to be deposited with the treasurer of the United States in the form of interest-bearing, registered United States bonds; for ninety per centum of the market value of the bonds deposited — provided that does not exceed the par value- the bank receives notes of different denominations engraved in blank; if the bank desires to diminish the note circulation, it pays the United States treasurer "legal tender notes," receiving a corresponding amount of its bonds on deposit, and the treasurer redeems the notes of the bank to an equal amount when they are presented to him; each bank must deposit an amount equal to five per cent. of its notes in the United States treasury, and the treasurer uses this deposit to redeem the notes presented to him; every national bank must receive the notes of every other national bank at par; the government pays out the notes at par, except for interest on the public debt; the notes redeemed by the treasurer are destroyed, and in lieu thereof new notes are given the bank upon its making its deposit for redemption good; no limit of time is fixed for the redemption of the notes of banks which have ceased to exist for one or the other reason, and the part

the chief tasks of the government is to prepare and present the budget. The legislature must accept it, after making such corrections as it may see fit. The ministers are free to escape any responsibility for these corrections by resigning. In the United States, on the other hand, so far as the constitution is concerned, the labor and the entire responsibility of the budget rest upon congress. It is permitted to summon the organs of the executive to its aid as much and in whatever way it may see fit. If

of the five per cent. deposit not used for redemption must finally fall to the United States, as no other use for it is provided. At the conclusion of the civil war there were still $143,000,000 of the state bank notes in circulation, against $146,000,000 of national bank notes. But as from July 1, 1865, the state banks had to pay a tax of ten per cent. on their notes, the state bank currency disappeared entirely. All the notes of the United States of every kind whatever added together reached at the time $695,000,000. With the spring of 1866, measures were taken to reduce this monstrous mass of depreciated money. The speculations of the exchanges ran the price of gold in a wild whirl up and down and at times staggered even the policy of congress and of the administration. Under the operation of the general business crisis of 1873, congress resolved, in April, 1874, to increase the amount of notes outstanding, but President Grant refused to sign the bill. An act of January 14, 1875, fixed the resumption of specie payments for January 1, 1879, and despite all opposing prophecies this was carried out without any difficulties, fourteen and a half years after the legal tender notes had sunk to about one-third of their face value. (On the 11th day of July, 1864, gold was quoted at its highest point, 285.) But the national banking system, which has finally given the country a uniform and safe circulating medium, and even in the judgment of its original opponents has proved itself of substantial excellence, is approaching a crisis. The basis of the system is the deposit of United States bonds, and this basis is being destroyed by the rapid extinction of the public debt and the vigorous reduction of the rate of interest. See E. G. Spaulding, History of Legal Tender Paper Money, 2d ed., Buffalo, 1875; F. Q. Ball, National Banks, Chicago, 1881; W. G. Sumner, A History of American Currency, N. Y., 1874; J. J. Knox, United States Notes, 1884; J. R. Upton, Money in Politics, Boston, 1884.