The privilege of issuing notes to be used as money is granted, of course, because it is for the general advantage that the supply of loanable funds shall be as large as possible, in order that the rate of interest may be low; but a valuable privilege ought only to be conceded by the government, representing the whole people, on certain conditions. It should not be a monopoly, but should be bestowed upon all citizens who desire it, on equal terms. It should not be abused to the injury of the people, and the government should make efficient regulations to prevent such abuse. Finally, the government is entitled to a share of the profits in the form of taxes.

The two latter principles, in their application to the privilege of issuing a credit currency, have commanded the general assent of prudent statesmen and of writers of repute on political economy. Some theorists have held that the public is no more concerned in the issue of a bank-note than in the negotiation of an ordinary promissory note; but the opinion is nearly universal that the government, in the inter of the community, is bound to regulate such issues, and to require a part of the gains therefrom to be paid into the public treasury.

The question has often arisen, as it arises now in the United States, whether the government should not itself issue whatever paper currency is needed, and so secure whatever profit is to be obtained, for the people at large; but the suggestion has never been adopted except under the pressure of some great exigency, and then with reluctance and well-grounded apprehension.

At the meeting of the first Congress of the United States, in 1789, Alexander Hamilton, the first secretary of the treasury, was directed to report a plan for the support of the public credit, and in January, 1790, he submitted a comprehensive scheme for funding the national debt, then amounting to $54,124,465, and for securing a revenue to provide for the interest on this sum, and for the gradual extinction of the principal. In this report he said that he contemplated the management of these transactions through the medium of a national bank, and in December, 1790, he presented to Congress an elaborate report on this special subject. In the report on the bank he asserted broadly and clearly the right of the government to regulate paper issues. "If the paper of a bank," he said, "is to be permitted to insinuate itself into all the revenues and receipts of a country; if it is even to be tolerated as the substitute for gold and silver in all the transactions of business; it becomes, in either view, a national concern of the first magnitude." But he rejected, with even more decision and emphasis, the idea of a government currency. On this point he said :

The emitting of paper-money by the authority of the government is wisely prohibited to the individual States by the national constitution ; and the spirit of that prohibition ought not to be disregarded by the government of the United States. Though paper emissions under ft general authority might have some advantages not applicable, and be free from some disadvantages which are applicable to the like emissions by the States, separately, yet they are of ft nature so liable to abuse - and, it may even be affirmed, so certain of being abused-that the wisdom of the government will be shown in never trusting itself with the use of so seducing and dangerous an expedient. In times of tranquillity it might have no ill consequences ; it might even, perhaps, be managed in a way productive of good ; but in great and trying emergencies there is almost a moral certainty of its becoming mischievous. The stamping of paper is an operation so much easier than the laying of taxes, that a government, in the practice of paper emissions, would rarely fail in any such emergency to indulge itself too far in the employment of that resource, to avoid as much as possible one less auspicious to present popularity. If it should not even be carried so far as to be rendered an absolute bubble, it would at least be likely to be extended to a degree which would occasion an inflated and artificial state of things, incompatible with the regular and prosperous course of the political economy.1

The same question which Alexander Hamilton considered in 1790, came up in England during the long discussion of the means of regulating a paper currency, precipitated by the bank failures of 1825, and' culminating in Sir Robert Peel's famous act of 1844. Touching this question, the English statesman said, in summing up the argument in favor of the act:

1 Reports on the Finances, vol. i. p. 64.

Another point for consideration is, whether the profits which must necessarily he derived from the circulating medium of the country should be preserved by government, or should be allowed to remain in private hands. Now the advantages, the only advantages which I have been enabled to discover in a government bank, as compared with a private company, are those which result from having responsible persons to manage the concern, the public deriving the benefit; but then, on the other hand, I think these benefits are much more than counterbalanced by the political evils which would inevitably result from placing this bank under the control of the government. I think the effect of the State having the complete control of the circulating medium in its own hands would be most mischievous.1

Under the charter of 1844 the capital of the Bank of England, about £15,000,000 sterling, is all invested in the government 3 per cents, and the bank is authorized to issue notes to this full amount without any reserve, but can issue none beyond that sum except in exchange for deposits of gold coin or bullion, and must exchange notes for coin, or coin for notes, on demand. The operation of the issue department is thus made strictly automatic. For the privilege of issuing notes on the £15,000,000 of government securities the bank pays about £135,000, and in lieu of stamp duties £60,000-in all £195,000-or about 1.3 per cent. on the circulation not covered by gold. The gross circulation in November, 1878, was £29,000,000 sterling, and on this amount the government receives seven-tenths of 1 per cent.

1 These are Lord Althorp's words, in 1832, repeated and adopted by Sir Robert Peel.

In 1848 the charters of the nine departmental banks of issue in France were revoked, and the privilege of issuing notes was reserved exclusively to the Bank of France. In the same year the bank was compelled to suspend specie payments in consequence of the political disturbances of that time, and the notes were made a legal tender on condition that the whole issue should not exceed 350,000,000 francs. The maximum was raised, in 1849, to 525,000,000 francs, and during the debate in the Corps Legidatif on this proposition, it was suggested that the government might as well issue the currency itself. To this suggestion the veteran finance minister, M. Achille Fould,replied with much warmth:

You are asked if you will give the bank the power to emit paper-money, and yet refuse to exercise it yourselves. It would be a most dangerous power, and you would not find a prudent man who would be willing to accept it. If you were to give us the power to make paper-money, it would be a sure step to the creation of assigants. When once you had armed us with this machine, you would every day present a pistol at our heads and compel us to make use of it on one pretext or another, till at last nobody would accept your paper.1

But although M. Fould declined this dangerous responsibility, he took care that the government should secure a share of the profits of the Bank of France. From 1848 to 1871 the bank paid a stamp duty of half a mill on its notes, and since 1871 the tax has been doubled.

In the United States, the civil war of 1861 found the government without any machinery for the negotiation of loans. Gold and silver, the only currency in which taxes could lawfully be paid, disappeared.

1 Quoted by George Walker in Proceedings of the American Bankers' Association, 187S, p. 32.

The State bank currency had been tried in the war of 1812, and had failed. In this emergency, Secretary Chase was compelled to consider the alternative of an issue of government notes or the creation of a system of national banks. The former project he deliberately condemned in these words:

The plan is not without serious inconveniences and hazards. The temptation, especially great in times of pressure and danger, to issue notes without adequate provision for redemption ; the ever-present liability to be called on for redemption beyond means, however carefully provided and managed ; the hazard of panics, precipitating demands for coin concentrated on a few points and a single fund; the risk of a depreciated, depreciating, and finally worthless paper-money; the immeasurable evils of dishonored public faith and national bankruptcy; all these are possible consequences of the adoption of a system of government circulation. It may be said, and perhaps truly, that they are less deplorable than those of an irredeemable bank circulation. Without entering into that comparison, the secretary contents himself with observing that, in his judgment, these possible disas-ters so far outweigh the probable benefits of the plan, that he feels himself constrained to forbear recommending its adoption.1

Out of this decision, made in concurrence with the weighty opinions already cited, grew the national banking system of the United States. To that system we owe the negotiation of the later war loans, the refunding of the debt at 4 per cent., and the restoration of specie payments. For the first time since the expiration of the charter of the second national bank the government of the United States is provided with suitable agencies for the management of important financial operations. And "in the fact of a uniform law for all the issuing banks of the United States," as Professor F.A.Walker remarks, "is found, for the first time in our history, the possibility of regulating the paper-money circulation of the country."1 If the automatic regulation of the paper currency of Great Britain is to be preferred, as some people think, it may any day be established by Congress, without assuming that mischievous control of the circulating medium which Sir Robert Peel deprecated and the British Parliament declined.

1 Finance Report, 1861, p. 18.

Meanwhile it should be observed that the United States get a larger proportion of the profits on bank circulation than is secured by the government of England or of France. The tax here is 1 per cent., in England, seven-tenths of 1 per cent., in France, one-tenth of 1 per cent. on the circulation. A still more important advantage in the American system is its entire freedom from monopoly. The national bank recommended by Hamilton, like the public banks of Europe and most of the State banks in this country, was open to this grave objection. We have now a sys-tem which furnishes a national currency under the control of the general government, pays a liberal duty for the privilege, aids the treasury efficiently in the manage-ment of the public debt, and. besides, is absolutely free to all citizens who choose to comply with the regulations of a general law. This fact makes it impossible that the profits of banking should rule permanently above the ordinary gains in other pursuits, and so removes the last excuse for incurring now the risks from which Secretary Chase shrunk when called upon to provide means for a great war.

1 Money, p. 508.