termine the rapidity of the circulation and its ebb or flow in different markets. The greenbacks certainly were not parcelled out by the Treasury among the several States, but they distribute themselves, and no one complains of the inequality of the distribution. The currency of the National Banks is subject to the same influences; no portion of it has any proper home, or any preponderant local attraction, except towards the great centres of trade. Its distribution is quite as free and spontaneous as that of the greenbacks. It is easy to see, therefore, that no additional banking facilities will be created in any State by the allotment to it of a larger portion of the National Currency, any more than by the free gift of an equivalent value in greenbacks or specie. The bounty of the government simply enables the Banks to make larger dividends to their stockholders; it does not increase either their disposition or their ability to foster commerce and manufactures in their respective localities. If these institutions are indebted for their existence to grants from the Treasury, and not to the exigencies of business, they will be banks only in name.

It is often argued in favor of the National Banks, that the taxes which they pay to the National government on their circulation, deposits, and that portion of their capital which is not vested in United States bonds, and to the individual States on the shares owned by their stockholders, are a fair equivalent for the currency which they have received. The obvious answer to this argument is, that capital existing in other forms-in railroads, telegraphs, express and gas companies, insurance, steamboats, and the like— is taxed at least to an equal extent. The tax upon deposits and capital not vested in government securities is paid also by private bankers, who have received no bounty from the Treasury. If the National Banks should cease to exist, the capital which they now possess would not be destroyed, but would be employed in other undertakings, wherein it would contribute as much as at present to the support of government. The tax of one per cent on the circulation is not so much as that imposed on several other kinds of property; and it is not very reasonable to expect that wealth obtained as a free gift should also be exempted from taxation, while the whole public burden should be imposed on labor and on capital that has been produced by labor.

It is true that a judicious application of the taxing power might

lessen some of the evils of the present system. So far only as they are institutions of Deposit and Discount, the banks ought not to be taxed more heavily than other institutions employing an equal amount of capital. Perhaps they should be somewhat favored in the exercise of these two functions, on the ground that they benefit the community by taking capital out of the hands of those who either cannot or will not use it, and confide it to those who will unite it with industry, and thereby make it active in the great business of production. The opinion, held by many, that banking should be more heavily taxed than any other trade, proceeds from an indistinct perception of the fact, that the banks in their third function, as issuers of currency, and especially of the small-note circulation, obtain profits which do not properly belong to them, and subject the community thereby to very considerable hazard of loss for the sake of their own advantage. If paper currency is to be substituted for metallic currency, the profits of the substitution ought to accrue for the benefit of those who make it,—of those who are willing to give up coin, and accept paper with all its attendant risks. The act of substitution is the act of the community at large; to be the agents in this act is a usurped function of the banks, in no wise connected with their other and proper offices. It belongs to the state, and ought to be exercised for the benefit of the tax-payers, that is, of the persons who, by giving up coin and accepting paper, make a saving of the precious metals, and ought to profit by that saving.

Especially is this reasoning applicable to the case of the smallnote circulation. In respect to bills of a higher denomination than $10, it may fairly be urged, that they circulate generally among merchants, bankers, and capitalists, who therefore ought to be allowed, through the banks, to control the issue of them, so far as it can be controlled consistently with maintaining their convertibility into specie on demand, and to reap the benefit of their circulation. But not so with regard to the small bills, which are the money of the bulk of the people. Here the whole risk rests with the persons who use the notes; and if any profit is to be derived from such use, this also should belong to them. Otherwise, a serious hazard is imposed upon them for the benefit of others, who can show no good title to the gains which they usurp.

It appears from the official returns, that about 205 millions, or

more than two thirds of the present amount of bank currency, are in bills of various denominations not exceeding $10. These form the circulation properly so called, passing from hand to hand in wages and retail transactions; they are the money of the working classes, who have nothing to do with the banks, and ought not to be taxed for their benefit. The soiled and ragged state of this portion of the currency is a significant indication of the use to which it is put. The larger bills are usually found as clean as when they were first issued; in fact, they are seldom seen out of the banks, except in the hands of large dealers and wealthy perThe small bills ought to be entirely displaced by specie, or should be taxed at least 7 per cent, so that the whole profits of their emission might be enjoyed by those who consent to use them. An indirect consequence of taxing them thus heavily would probably be, that stockholders in the National Banks would no longer oppose a resumption of specie payments.

sons.

CHAPTER XVII.

NATIONAL DEBT: VARIOUS METHODS OF FUNDING.

NATIONAL Debts, though they are now wellnigh universal, are comparatively modern inventions. They were invented at about the same time in France, England, and Holland, towards the close of the seventeenth century. Before that period, indeed, costly wars had been waged, and governments had not only contracted heavy debts, but often failed to pay them. Sometimes they got rid of them by the dishonest expedient formerly called "raising the standard," though we designate it by the more appropriate phrase of "depreciating the currency." Kings and governments frequently became insolvent; but their obligations, like those of private persons, were always regarded as strictly personal, and as finally dissolved by the death of the bankrupt leaving no available assets. The contrivance of funding a National Debt on the perpetual annuity plan, so as to throw the burden of supporting and paying it upon posterity, in other words, of making debts transmissible by inheritance, like a house or farm, was never heard of on Eng

lish ground before the Revolution of 1688. It was first hit upon during those costly and disastrous wars which were brought upon Europe by the ambition of Louis XIV.

Mr. Macaulay, indeed, in his anxiety to defend the fair fame of his hero, says “there can be no greater error than to imagine the device of meeting the exigencies of the state by loans was imported into our island by William III. From a period of immemorial antiquity, it had been the practice of every English government to contract debts. What the Revolution introduced was the practice of honestly paying them." This statement, like too many others by this brilliant partisan historian, is succinct and terse, but inexact and disingenuous. William III. refused to recognize a shilling of the pecuniary obligations left behind them by the Stuarts, though he did not pay the debts contracted under his own administration, but left 15 millions sterling of them, which are not paid yet, and probably never will be; and he did begin the practice, never before known in England, of bequeathing a National Debt to posterity, when, in 1694, he chartered the Bank of England, and gave it a perpetual annuity of £80,000, in return for a loan of £1,200,000.

Up to 1775, the English National Debt, far the most considerable one in Europe, was but 146 millions sterling, about two thirds of which had been contracted in the Seven Years' War that terminated in 1762. The war of the American Revolution added over 100 millions sterling to its amount; and the long struggle with France, which ended in 1815, raised it to 840 millions. Since that year, it has been reduced to about 800 millions, or somewhat less than 4,000 millions of dollars, the annual interest on which, averaging nearly 3 per cent, is about 133 millions of dollars. The origin of a large debt of the English government to the South Sea Company, about 10 millions sterling, was in what we should call deferred or funded "certificates of indebtedness." The Treasury, being unable in any other way to pay the sailors of the fleet, gave them tickets for the sums due them with interest; and the poor tars, in their need of ready money, were obliged to sell these tickets to brokers at a heavy discount. The South Sea Company, a great financial association, bought them up, and then had interest enough to induce the government to fund them in perpetual annuities.

Every country of any importance on the continent of Europe has now a large National Debt, contracted in the main, like that of England, to meet the extraordinary expenses of war. In proportion to their wealth and ability to pay the annual interest, at least four of these countries, Austria, France, Italy, and Holland, are more deeply in debt than England. Most of these debts, like the English, are redeemable at par at the option of the government; but no definite time is fixed for such redemption. In one sense, therefore, the debt is merely nominal, since no person has a right to demand of the government, at any time, the payment of any portion of the principal. The annual interest is all that the stockholder is entitled to; and this right is inviolable. The state did not borrow his money under any obligation to repay it at a fixed day, but only sold him an annuity, which is a perpetual annuity, unless the government should see fit, at some future time, to exercise the privilege, which it has reserved to itself, of redeeming any portion of it by paying off at par the stock of which it is really the interest. The operation of funding properly consists in putting a National Debt into this form of a perpetual annuity, redeemable, at the option of the debtor, at a certain amount which is fixed upon, and is called the par.

This par is not necessarily the sum which the government received at the time of contracting the debt, but is generally much larger, the excess often being 50 or 60 per cent. For instance : the government sells an annuity of $500 a year; if it chooses to create a 5 per cent stock for this purpose, it designates $10,000 as the par, since this sum, at 5 per cent, will yield a revenue forever of $500 a year; if it prefers a 4 per cent stock, it designates $12,500 as the par, as this sum also, at 4 per cent, will produce a perpetual annuity of $500. In either case, it sells the $10,000 of 5 per cent stock, or the 12,500 of 4 per cents, or the perpetual annuity of $500,- it matters not what name we give it, since in fact they all amount to the same thing, for whatever may be at the time its market value,

- very likely for not more than $7,000 or $8,000. But if, at some future day, the government should see fit to pay off the debt, it will be obliged to pay either $10,000 or $12,500, according as it has called the stock 5 per cents or 4 per cents. Hence it is, that the government usually pays interest on a much