1 By Mr. Townshend. See p. 154.

2 This was conceded in terms at a hearing before the committee on ways and means at Washington, in January, 1873. "We will admit," said Mr. Gould, of Maine, "that if the government grants a right to issue a substitute for money, a proper royalty should he paid for the privilege." Addresses on the Repeal of the Federal Taxes on Deposits. Published by the it is collected without cost to the government.

We have, then, a saving of $19,500,000 a year, provided that the government can issue the $650,000,000 of currency and substitute the full amount of its demand notes for interest-bearing obligations. Can that be done ? Is it done, with the United States notes now outstanding ?

Mr. Thurman appears to have overlooked the necessity, as imperative upon the government as upon any private debtor, of keeping a cash reserve to provide for demand liabilities. Secretary Sherman resumed specie payments with a fund of $138,000,000 for the redemption of the notes outstanding in January, 1879. This fund had been accumulated, as Mr. Thurman says, by loan or taxation. The country is losing on this sum, at 4 per cent., by Mr. Thurman's own showing, $5,500,000 a year. This is on a reserve of 40 per cent.

American Bankers'Association, p. 34. On the other hand, Mr. Blaine, in 1866, proposed to levy the bank tax exclusively on deposits.- Congressional Globe, May 23,1866, p. 2780.

But it is not adequate. The resumption which we have reached is only a state of equilibrium, which will last so long as there is no demand for specie for exportation. When such a demand sets in, as some time it will, the secretary of the treasury, if he has a note circulation to protect, will have to strengthen his reserves by selling bonds for coin. He will have to provide for his call loans, like any other debtor, by borrowing on time. The Bank of England, which supplies nearly two-thirds of the paper currency of Great Britain, had in November, 1878, a circulation of $145,000,000 in notes, and held a reserve of $131,000,000 in coin and bullion. The Bank of France, which issues all the paper-money in that country, had in circulation $445,000,000 in notes, and held a reserve of $414,000,000 in specie. The specie reserve of the Bank of England was 90 per cent. of its liability for notes; the Bank of France had a reserve of 93 per cent.1 Assuming that at least 75 per cent. would be needed in the United States, we should have, on $650,000,000 of circulation, a reserve of $487,000,000, ana the annual interest on that sum, at 4 per cent., would be $19,500,000, wiping out the last vestige of the imaginary saving. On a reserve of 90 per cent. the annual interest would be $23,500,000, and there would be an absolute loss of $4,000,000.

It is a mistake to apply banking rules to the reserves for a government circulation. The reserve which will answer for a bank continually receiving deposits, and payment on its loans, will be found totally insufficient for a public treasury without these resources. The national banks held in October, 1878, just before the resumption of specie payments, 30 per cent. of all their liabilities to the public in cash or its equivalent, per cent. in United States and other bonds, and 78 per cent. in loans and other debts due them and daily maturing-in all, $150 of available assets for every $100 owed to bill-holders, depositors, and all other creditors except the share-holders. The treasury, on the 1st of January, 1879, had in cash 40 per cent. of its liabilities for notes and the whole $24,000,000 of deposits -for the treasury is a bank of deposit as well as a bank of issue-making 45 per cent. of its liabilities to bill-holders and depositors. For this deficit of 55 per cent. the government has no resource except the power of taxation and the power to borrow money. But taxation is too slow a process for payment on demand. Practically, the treasury relies upon its power to borrow at a pinch; and this, as Mr. George S. Coe remarks, is "a kind of banking which the government -would arrest, as criminal, if done by its subjects."1

1 American Almanac, 1879, p. 242.

The supposed economy of a convertible treasury note circulation is therefore wholly imaginary and delusive. The reserve must be not less than 75 per cent. of the nominal value of the paper; the loss of interest at 4 per cent. on this sum is equal to 3 per cent. upon the whole issue; and the loss of the bank tax on circulation is 1 per cent. more, making 4 per cent. upon the entire amount. There is no way in which a government can honestly get money, or any other valuable possession, without paying for it.

But the attempt is not merely unprofitable; it is dangerous. There is no record of any government attempting to maintain a convertible paper currency and keeping its promise. Russian paper-money was at a discount for seventy years, and was finally paid off in 1839 at about 30 per cent. in silver. Subsequent issues were again dishonored, and it is said that the imperial government does not now know how much paper has been issued. Austria, since 1848, and Italy, since 1866, have been unable to redeem their treasury notes. Spain and Turkey are in the same condition. Formidable riots have been provoked in Constantinople by the worthlessness of the government paper, and consequent misery of the people. The governments of San Domingo and of the Argentine Republic have issued paper-money which is quoted at a discount of 96 or 99 per cent. One would suppose that this experiment had been often enough tried, with one uniform result, to indicate the wisdom and prudence of retiring this dangerous currency, now that we have succeeded in bringing it to par. That is a feat which has never been accomplished before; the paper-money of France during the late war, and of England during the suspension at the beginning of the present century, was not issued by the government directly, but by private corporations. The United States alone, so far, have succeeded in restoring a purely government currency from the depreciation into which it had fallen. It is not well to tempt fate by subjecting the treasury to the constant strain of a large debt payable on demand.