But another mischief is exceedingly apt to be developed under an inconvertible paper currency. When banks are employed as the instruments of its issue, experience overwhelmingly shows that good banking tends to disappear. Bankers, by the help of such notes, obtain resources so easily that they become excited and careless of prudence. They lend themselves to fostering speculation, to promoting wild companies, to making roads in the wilderness which cannot repay for years the wealth destroyed in constructing them, and to other like operations. When the day of reckoning arrives at last, it is discovered that a large part of what was obtained from the public has been lost for ever, whilst the baneful unstable currency remains. Well might Mr Greene, as quoted by Mr Edward Atkinson, exclaim, when speaking of the consequences of the Legal Tender Act, "Speculation ran riot, every form of wastefulness and extravagance prevailed in town and country, nowhere more than in Philadelphia, under the very eyes of Congress - luxury of dress, luxury of equipage, luxury of the table. We are told of an entertainment at which ^800 were spent in pastry. As I read of the private letters of those days, I sometimes feel as a man might feel on looking down on a foundering ship whose crew were preparing for death by breaking open the steward's room and drinking themselves into madness" The Legal Tender currency placed the nation's wealth in the hands of destroyers.
What is a dollar? it has been seen is the question which an inconvertible currency cannot answer. Most correctly and humorously exclaims Mr Atkinson, "Why not say the greenback? A dollar is a piece of gold or silver which we have outgrown. The only use of notes is to buy with; why not, instead of printing on paper, 'The United States - One Dollar,' print, The United States, one turkey, one roast pig, or one horse; and for small change, The United States, one newspaper, and make them a legal tender, promising to convert them into bonds at 365 interest, which interest of course would not be paid in gold, for gold is esteemed a useless, mischievous tyrant, out of date, fit only to be exported or banished, fit for foreign paupers, but entirely played out in enlightened America. If it is proposed to pay interest in gold on the inconvertible bonds, the specie standard is admitted, and the whole case is given up. If it is proposed to pay the interest in inconvertible notes, then the proposal - (to exchange the notes for bonds at 3.65) - is only to swop worthless pieces of stamped paper, one for another"
In the same sense remarks The Financier of New York of July 3, 1875, an Economical journal second to none in any country for ability and clearness of thinkin: "As for the only consistent and honest mode of inflation - not yet proposed, because it is such a mode - that of discarding the promissory form and issuing tokens of paper, rubber, leather, or any convenient material, and stamping them 'One Dollar,' 'United States of America,' under the constitutional power of Congress to coin money, the inflationist would not exchange the meanest thing he has for such money, although he could not consistently refuse"
It is a marvellous thing that so gross a delusion as the supposition that a reality is given to the paper dollar by granting it an interest payable in another piece of paper should have taken so strong a hold on men's minds in many parts of America - that so acute a people should not have perceived that it was to explain, Ignotum per ignotum. It does not occur to them that the vital question to ask of every currency is - What is its power of buying? will it do its work, and upon what principle?
The conclusion is irresistible: an inconvertible currency is incapable of being defended. It may have had an excusable origin in an overwhelming political situation, and if maintained for a brief time only may do comparatively small harm. But its continuance is loaded with ever-repeated calamity to the country. In England no man of the smallest eminence comes forward to defend such a currency; its radical and incurable badness is the settled conviction of the English people. Every one would prefer the payment of interest on an increase of the National Debt to the curse of a currency which meant one thing to-day, and another thing to-morrow. In this matter England has nothing to bias her judgment on the one side or the other; such a conviction, therefore, ought to carry weight in the United States.
But how is an inconvertible currency to be got rid of?
The answer is not easy "Principius obsta, sero medicina poratur, Cum mala per longas invaluere moras"
The roads which lead back to convertibility are many.
Each country has its own situation, and the ways of escape are different, though all unfortunately are attended with pain. Man cannot do wrong without in 5 some manner or other having to atone for it by suffering. In England the path of repentance was comparatively easy. The Bank of England was responsible for the notes it circulated, and it was universally trusted. The discount to which its notes had fallen, a guinea being worth twenty-seven shillings in notes, was in no way due to want of credit; the cause was simply excess of issues, which could not, as bank-notes and sovereigns now can, return at once into store. National misfortunes greatly facilitated resumption of specie payments. A large amount of notes issued by county bankers circulated by the side of those of the Bank of England. The war had swollen the price of English corn inordinately; peace brought the farmers of the whole world into competition with those of England. The year 1813 produced a most bountiful harvest, prices fell heavily, and many farmers were ruined. Confidence was destroyed throughout the country, and banks fell into difficulties. In the years 1814, 1815, and 1816, 250 country banks stopped payment, and the quantity of provincial banknotes was thus vastly reduced. No taint of suspicion came over the notes of the Bank of England; its notes rose in value, and much of the difficulty of resumption was thereby averted. The disposition to demand gold for the notes disappeared, for the notes were as valuable, having ceased to be in excess. Resumption exacted punishment for the past, inasmuch as many contracts to pay or repay pounds compelled the tender either of coin, or of a bank-note as valuable as coin which had become dearer than it was when the contracts were made; but the events here described gradually cleared off old debts and new ones were increasingly based on gold prices. As the value of the Bank of England note rose, it became less profitable to export gold; the bank-note had less the character of an inferior currency, and was less able to drive gold away abroad. Thus the Bank of England was enabled voluntarily to anticipate the day of specie payment fixed by the law and to pay notes in gold in 1821, instead of 1823. No resumption was ever less violent.