cluded? And as it is here, so in many other parts of the world are to be found unproductive investments, and the inconvenience resulting therefrom. The exhaustion consequent upon this excessive action is most serious, but by no means fatal. It is only in degree that our inconvenience differs from that of the rest of the world. Theorists find occupation in ascribing the troubles to a disregard of their hobbies the bullionists to a paper currency, and inflationists to the need of more paper money. The sources of them are, however, more remote, and are to be attributed to an excess of prosperity-a very common cause of trouble-rather than to local errors or minor agencies.

Notwithstanding this, the subject of the currency is worthy of the most careful study. The conflicting views which prevail in regard to it, the various thoughts on it which have been uttered by distinguished men, and which are not in harmony with pre-existing opinions, and the great interest which, at this moment, the action of political parties has attracted to it, make it desirable that every one who has an opinion upon it should express it, and that all the views, thoughts and opinions which are expressed should be subjected to such tests as will determine their value and assign to them their true place in public estimation.

The desire for a flexible currency, as it is called, is said to prevail generally. It is to be a panacea for panics and a power to allay every possible financial disturbance. The plan for its provision, which has been presented in Congress by Judge Kelley, is the one which is most prominent before the country. Anything coming from this gentleman is entitled to great respect. He has labored long and faithfully in the public service. He is most unselfish in his devotion to the interests of his constituents. His public efforts in and out of Congress show intelligence, research, great force, and a broad reach of statesmanship; and, although generally agreeing with him in his views of public policy, what he has in this instance advocated with so much ability and earnestness, appears to me to be fraught with difficulties of a most serious and destructive character.

His plan, stated simply, is this, the Treasury of the United States is to have a new duty assigned to it. All its offices are to be authorized to receive deposits of legal tender notes, in sums of fifty dollars, and its multiples, and in lieu thereof are to be given United States bonds, bearing an interest of 3.65 per annum-interest pay

able semi-annually-which bonds are to be payable on demand with accrued interest. Of the legal tenders so received one-fourth are to be held as a reserve fund, to meet 3.65 bonds which may be presented for repayment, and three-fourths of the legal tenders are to be used in the purchase or redemption of the outstanding debt of the United States. And, in addition, the national banks are authorized to hold 3.65 bonds for a reserve, instead of legal tenders, as now required by law.

The two great objects to be gained by this, as claimed by Judge Kelley, are first, a flexible currency; that is, when currency is in excess it may be exchanged for bonds, and thus be made less abundant, and when currency is in short supply bonds may be exchanged for it, and thus be made more abundant; and, second, the transfer home of the debt now due by the United States abroad, that the payment of the gold interest in foreign lands may be stopped, which, to use the words of the honorable gentleman, "Is what is crushing the hearts and the hopes, and undermining the morals of the laboring people of our country." (p. 21. Judge Kelley's letter to his constituents.)

Before proceeding to an examination of this interesting proposition it is well that we should understand its predicted effect when put into operation, lest our conclusions should be warped by some insensible influence, and incorrect results be reached. To avoid the possibility of that we have on page 23 of Judge Kelley's letter to his constituents, &c., the following passage as uttered by him in Congress, in which it is definitely stated: "It would give the Government immediately—when I say immediately, I mean within, say, six months from the time when the first bond should be issued—about five hundred millions at that low rate of interest, payable to our own people within our own limits, with which to redeem gold bearing bonds now held by foreigners. It would relieve us of that amount of that 'debt abroad' which so curses us."

The plan suggests three questions:

First, is this a measure of inflation? As it is not proposed that there shall be an increase in the legal tenders, it does not involve an increase in the sum of the legal tender currency. The flexibility of the currency is to be attained by its flow into and its flow out of the United States Treasury, in accordance with the wants of the community, but the bank reserve is to be released and a treasury reserve

is to be created, and on the relations between these two reserves mainly rests the answer to this question.

The reserve required to be held by the national banks, as stated by the Controller of the currency in his report of December 6, 1875, see page 53, was on October 1, 1875, one hundred and fifty-one millions, six hundred thousand dollars. This reserve, it will be remembered, consists of legal tenders and bears no interest.

the proposed law it would be exchanged for bonds bearing 3.65 in-. terest, and, consequently, this amount hitherto held in confinement would be released. On the other hand, at the end of six months, on Judge Kelley's estimate, the deposit in the U. S. Treasury will be five hundred millions, which, under the proposed law, will require a reserve of twenty-five per cent. or one hundred and twenty-five millions; and as the sum released exceeds the sum reserved by twenty-five millions, six hundred thousand dollars, that would be the extent of the inflation the first six months from this cause, varying more or less in accordance with any deviation from Judge Kelley's estimate. How far the 3.65 bonds may enter into circulation is a matter of conjecture. They would be redeemable with greenbacks in all the leading commercial cities of this country; and as they would bear interest and also be peculiarly convenient for transportation, the probability is great they would compose a very considerable part of the circulation. Thus by the release of the reserve and this new element in the currency its volume would be materially increased.

The second question is: How will the action of the Treasury Department, as a place of deposit or savings bank, disturb existing systems, which, from long standing, are most intimately interwoven with the great material interests of the country?

Judge Kelley estimates the deposit in the United States Treasury within six months at five hundred millions of dollars. This ought not to be a mere random guess. It is a result, no doubt, reached after great research. His associations are such as to justify the opinion that it has been arrived at after a close and intelligent scrutiny, and it must be taken as a fact which will be realized. Being so, it presents a most serious aspect. It must be borne in mind that this is not to be capital newly acquired, not the fruits of a few days' industry, nor of a vein of newly-discovered ore, or it were a matter of little moment. It is existing capital; capital that has

been and is doing its work here and elsewhere. There is, strictly speaking, but little idle capital. It is more active at one moment and less active at another. Even the little that is found in men's pockets is capital in transitu. That which is deposited in banks and savings institutions is part of the great mass performing its daily operations. Therefore, if, at the end of six months, five hundred millions are to be on deposit in the Treasury of the United States, which were not there at the beginning of the six months, where can that capital have come from? It can have come from no other than its ordinary places of deposit, the banks, the savings banks and kindred institutions. The deposits in those institutions now approximate two thousand millions, but, as to a certain extent one is the depositary for another, and the cash reserve (say one hundred millions) is twice counted, a fair estimate may be nineteen hundred millions; and that vast sum does not lie in their vaults in currency, but is largely represented there by mortgages and bonds, many of them bonds of the United States, and notes of hand, known as commercial paper; and just to the extent that the deposits in these institutions are transferred to the Treasury of the United States, must these obligations now held by these institutions be paid, and the whole business of the country which has grown up under a system most conducive to the prosperity of the people be disturbed to such an extent that no one can foretell how seriously destructive its consequences will be. If Judge Kelley's calculation is realized, then it is inevitable that five hundred millions of invested capital are within six months to be drawn from their present employments and forced into new channels; and, if in six months so large a sum is to flow into the treasury, how long will it be before that treasury will be the maelstrom in which the whole capital of the country will centre?

The question may well be asked, if, as it is claimed by some that our present troubles arise from the abstraction from the currency of four millions a month for eleven months, or about five per cent. of its whole volume, what would be the consequences to the industries of the country by the transfer within six months of five hundred millions of capital from its present occupations at home to a foreign land for the payment there of the bonds of the United States? and this is one of the great purposes of the plan.

There is another view of the subject which ought not to be disregarded. Whilst things work smoothly those who operate largely

with the money of other people find their occupation agreeable; but when the current changes and an ebb sets out, consternation is substituted for satisfaction, and despair becomes the bankrupt's companion. The first six months the government deposit may reach five hundred millions, the second it may be swollen to one thousand millions, then seven hundred and fifty millions will have been invested in government five and six per cent. loans, at constantly increasing prices, and the market will supply no more. The inward flow of deposits having reached its climax, the outward flow begins, the reserve is exhausted, the purchased loans have been cancelled, and for seven hundred and fifty millions of 3.65 bonds no means of redemption remain. This is a possibility. And why should the functions of the government be expanded to such an extent as to hazard the welfare of the people and the honor of the nation? Simplicity was the aim of its founders, and the protection of person and property their chief end. Departures from this simplicity should be confined within the narrowest limits, and are only to be justified when connected with the well-being of the nation. What is now proposed is the creation of a new department, endowed with the broadest powers, compassing a large part of the moneyed capital of the country and the creation of evidences of debt equal to it; not confined to the seat of government nor to the leading commercial cities, but with an ubiquity only limited by the existing offices of the Assistant Treasurers of the United States. It is the establishment by the government of a deposit bank, as a department of the Treasury, with innumerable branches. Besides all this, it will swell enormously the army of office holders, who are already so great a cost to the people, and who interfere so seriously with the proper exercise of their rights; it will also directly invade the domain of a legitimate business which gives occupation to a large body of most excellent and enterprising citizens.

I cannot leave the present branch of the subject without suggesting that probably this movement is intended as the first step towards the overthrow of the banking system of the country. It has for a long while been the practice on the part of some of the advocates of the plan now under consideration to urge that the banking system is that which most promotes inflation, and the favorite example of it adduced is "The London and County Banking Co.," which, with a capital and reserve of nine millions, loaned one hundred millions, and