Money and banking illustrated by American history, rev. and continued to the year 1914

Front matter

?it (Cornell Uniuecsitg

Cornell University Library

The original of tliis bool< is in tine Cornell University Library.

Preface To The Fifth Edition

The fourth edition of this work was printed in 191 1. It was occasioned by the publication of the plan for currency reform proposed by Senator Aldrich, chairman of the National Currency Commission. That plan was not put in the form of a bill for enactment by Congress. Mr. Aldrich himself soon thereafter ceased to be a member of the Senate ; the Republican party, in the elections of 19 10, lost control of the House of Representatives ; and the plan slumbered. The national election of 19 1 2 gave the Democratic party control of both legislative and executive branches of the government. Congress took up the banking and currency question, and framed and passed the Federal Reserve Act of December 23, 19 13. The national banks of the country have accepted the plan, and the process of organizing the new system is now on foot. It will doubtless be in practical operation before the end of the present year.

In the movement of public opinion which has led to this action, three significant steps have been taken. In the Aldrich- Vreeland Act of 1908 asset currency was authorized, although none has actually been issued. In the plan of the National Monetary Commission a central bank system was outlined and indorsed, although not distinguished by that name, and provision was made for the eventual abandonment of bond-secured currency altogether. In the Federal Reserve Act a series of central banks has been provided for and made compulsory, and the same abandonment of bond-secured currency has been formulated. Finally, the government has taken supreme control

IV PREFACE

of the Federal reserve system by means of a board at Washington City, appointed by the President of the United- States. This does not mean control of the national banks in their separate capacity. Still less does it mean control of the state banks and trust companies, which now constitute about one-half of the banking power of the country.

The full text of the Federal Reserve Act is printed as an appendix to this volume, and an analysis of it is given in

Chapter XXII.

March, 1914

Book I. Evolution Of Money

Page CHAPTER I. MONEY A COMMODITY i

Difference between Money and Promises to Pay. Aristotle on the Origin of Money. Various Kinds of Money. Wampum and Beaver. Disappearance of Wampum. Tobacco Money in Virginia. Rapid Decline in Price. Tobacco Riots in 1683. Tobacco Paper Currency. Early Massachusetts Currency. Early New York Money. Rice Currency. Early California Devices. Private Coins and " Slugs." General Principles. The Value of Gold. All Trade is Barter. Portability. Stability. Uniformity. Durability. Divisibility. Cognizability. Gold not wholly Free from Variations in Value. A Standard of Deferred Payments. Money a Product of Evolution. Recapitulation. Authorities.

Chapter II. Coinage 16

Principles of Coinage. Subsidiary and Token Coins. Shape of Coins. Materials. Weight Coins. The Monetary Standard. An "Ideal Dollar" Impossible. Seigniorage. Deposits of Gold Bullion. Assaying. Coining. Private Coining Inadmissible. The Mint Price of Gold. A " Premium on Gold." Abrasion of Coin. The Spanish Dollar. Gresham's Law. Early Colonial Coins. The Pine-Tree Shilling. The Proclamation of Anne. It is disregarded. Money of Account. Recapitulation. Authorities.

Chapter III. Legal Tender 30

Roman Law of Tender. Origin of Modern Law of Tender. Our First Coinage Act. Double Legal Tender. Its Failure. Our Second Coinage Act. Silver Coins in the United States prior to 1853. Our Third Coinage Act. Our Fourth Coinage Act. The Trade Dollar. Present Varieties of Legal Tender. Recapitulation. Authorities.

V vi CONTENTS

PAC5B

Chapter IV. Gold As A Metal 4'

Where Gold is found. Its Affinity for Quicksilver. Placer Gold. Methods of Collection. Hydraulic Mining. Quartz Crushing. Chlorination. The Cyanide Process. Recapitulation.

Chapter V. Gold Production 49

First Half of the Nineteenth Century. California and Australia. The Comstock Lode. South Africa. The Klondike. Cripple Creek, Colorado. Second Half of the Century. Effect of New Gold on Prices. Its Modus Operandi. Prospect of Continued Advance. The Quantity Theory. Recapitulation. Authorities for Chapters IV and V.

Chapter VI. The Gold Standard 60

Market Values of the Precious Metals. Experience of England. Act of 1774. A Tentative Step. Gold Standard Adopted. The United States and Portugal. Experience of Germany. Act of 1871. Act of 1873. Treasury Order of 1900. Bimetallist Agitation Ineffectual. French Monetary Law of 1803. Did not keep the Market Ratio Steady. The Latin Monetary Union. Austria- Hungary. Adopts the Gold Standard in 1892. Her Modus Operandi British India. Petition for the Gold Standard. The Herschel Commission of 1893. Fowler Committee of 1898. Japan adopts the Gold Standard. Her New Coinage Law. Russia adopts the Gold Standard. New Russian Coinage Law. International Monetary Conferences. Obstacles to Bimetallism. Recapitulation. Authorities.

Book II. Government Paper Money Chapter L Colonial Bills Of Credit .... 79

First Bills of Credit. Strife with the Mother Country. And with the Colonial Governors. Prohibitions by Parliament. Rhode Island an Awful Example. Testimony of Thomas Paine. Loans from the Treasury. Other Pretexts for Bills of Credit. False Reports. Forcing Laws. Usual Career of Bills of Credit. Extending Time for Redemption. Counterfeiting. Depreciation. Swindling. Mob Law. Repudiation. Economic Effect of the Loan Bills. A Conspiracy of Landowners. Recapitulation. Authorities.

CONTENTS Vll

Page CHAPTER II. REVOLUTIONARY BILLS OF CREDIT. 91

Franklin's Warning. First Issues. Pelatiah Webster. Early Depreciation. Price Convention in New England. Burglary legalized. Price Convention of the Middle States. Washington's First Views. Subsequently changed. The Final Cataclysm. Social Terrorism. Mutiny of Soldiers. "New Tenor." Counterfeiting. Specific Supplies. A Complete Failure. Impressments. Also a Failure. "Scales of Depreciation." "Not worth a Continental." Continental Money considered as a Tax. Or as Confiscation. The AUernative. Display of Luxury during the War. Post-Revolutionary Bills. Recapitulation. Authorities.

CHAPTER III. THE GREENBACKS 106

Treasury Notes before the Civil War. War Loans of 1 861. Suspension of Specie Payments. The Legal-Tender Bill. Bankers remonstrate against it. Mr. Chase assents to it. The Bill passes. The Second Issue. The Coin Purchase Act. Third Issue. Depreciation. Interest-Bearing Notes. Compound-Interest Notes. Fractional Currency. The 10-40 Bonds. Maturing Bonds paid in Gold. Funding Clause repealed. The Anti-Gold Law. Its Repeal. Were Legal-Tender Notes Necessary ? Other Methods of War Financiering. Effect of Legal Tender on Wages. Effect on Prices of Commodities. First Trading in Gold. Gold Exchange organized. Gold Exchange Bank. Gold Clearings. A Commercial Necessity. Gambling Raids. " Selling Short." Black Friday. California adheres to the Gold Standard. Early Embarrassments. Severe Losses. Confusion in Business. Greenbacks not Legal Tender for Taxes. Rise of the Rate of Interest. Specific Contract Law. Sustained by the Supreme Court of the United States. Supreme Court Decisions. Gold Contracts Enforceable. The Hepburn Case. The Hepburn Judgment reversed. Judge Strong on "Value.*' The Latest Decision. George Bancroft's Criticism. Recapitulation. Authorities.

CHAPTER IV. CONFEDERATE CURRENCY 140

First Steps. A Produce Loan. The Currency not Legal Tender. Failure to Tax. Compulsory Funding. Partial Repudiation. Final Collapse. Fatal Mistakes. State and Private Currency. Recapitulation. Authorities.

VIU CONTENTS

Pagb CHAPTER V. AFTER THE WAR 150

Money as an Educator. Paying Bonds with Greenbacks. Policy of Contraction adopted. Repealed. Greenbacks reissued. Inflation Bill of 1874. Vetoed by President Grant. Specie Resumption Act of 1875. Doubts as to its Meaning. Attempts to repeal it. Political Campaign of 1875. Resumption accomplished. Gold Imports in 1879 ^^^ 1880. The $100,000,000 Reserve. The Sherman Act. Silver and Tariff Bills in 1890. The Treasury Deficit. Gold Exports. The Currency Act of 1900. Treasury Divisions of Issue and Redemption. The " Endless Chain." Treasury Notes of 1890 to be retired. Minor Provisions of the Act of 1900. Denominations of Paper Currency. Recapitulation.

CHAPTER VI. SILVER DOLLARS AND THE PANIC OF 1893 167

First Silver Agitation. The "Crime of 1873." Movement for Remonetization. New Alignment of Parties. The Bland Bill. The Allison Amendment. Vetoed and passed. Modus Operandi. Slow Circulation of the New Dollars. Rapid Movement in 1879 and 1880. Crisis in 1884. Small Silver Certificates introduced. Panic predicted. The Act of 1890. Gold Movements of 1891 and 1892. Action of Secretary Foster. Panic of 1893. Commercial Crises. Causes of the Panic. End of the Silver Purchasing. " Coining the Seigniorage." Indifference of Congress. Bond Sales in 1894. Bond Syndicate of 1895. Panic of 1895. j!ioo,ooo,ooo Bond Sale. Coinage of the Silver Bullion in the Treasury. Act of 1900. Its Defect. Direct Redemption of the Silver Dollar Desirable. Recapitulation. Authorities for Chapters V and VI.

Chapter I. Functions Of A Bank

Original Meaning of the Term. A Manufactory of Credit. Discounting Commercial Paper. Two Kinds of Deposits. Utility of Bank Credits. Limit to Bank Credits. Bank Reserves. Bank Notes. Of the Same Nature as Checks. Issue of Notes Automatic. Utility of Bank Notes. Evolution of Bank Notes. A Common-Law Right. Why Interest is paid for the Use of Bank

CONTENTS IX

Page Notes. How Banks aid in the Work of Production. Recapitulation. Authorities.

Chapter II. A Bank Statement 205

Loans and Discounts. Accommodation Paper. " Cash Credits." Drafts and Bills of Exchange. Acceptances. Bills of Lading. Letters of Credit. United States Bonds. Other Interest-Bearing Securities. Real Estate. Due from Other Banks. National Bank Notes. The Cash Reserve. Bank Note Redemption Fund. Country Bank Deposits. Interest on Deposits. Certificates of Deposit. Certified Checks. Cashier's Checks. Capital and Surplus. Profits. Recapitulation.

Chapter III. The Clearing-house System . . 216

The Essence of Clearing. The Old System. New York Clearing House. Preparations for Clearing. The Operation. The Result. Present System of Payment. Magnitude of Clearings. Other Varieties of Clearing. Clearing-House Loan Certificates. "Pooling" the Reserves. Form of Certificates. 'Effect on the Public Mind. The Case of a Small Town. That of a Large City. Plans to Legalize Bank Suspension. Shinplaster Currency. A Premium for Cash. Recapitulation. Authorities.

Chapter IV. Colonial Banking 232

Colonial Ideas of Banking. The Bank of Amsterdam. The Fallacy of Land Banking. " The Fund at Boston in New England." The Massachusetts "Projection" of 1714. Crude Conceptions. The New London Bank of 1732. The Company suppressed. Private Note Issues in 1731. A New Hampshire Experiment. The Massachusetts Land Bank of 1740. Its Note Issue. Opposition of Governor Belcher. Political Consequences. Parliament takes Action. Mob Violence. Recapitulation. Authorities.

Chapter V. Early American Banks 244

Bank of North America. Chartered by Congress in 1781. Its Service in the Revolution. Rechartered by Pennsylvania. Attacks on the Bank after the War. The Charter repealed. And reenacted. Bank of Massachusetts. First Legal Restrictions. Bank of New

X CONTENTS

Page York. At First Unpopular. Legal Restrictions. Question of Small Notes. Restriction of Debts and Credits. Other Prohibitions. New York Restrictions. Recapitulation. Authorities.

Chapter VI. First Bank Of The United States 254

Hamilton's Report. The Bank's Capital. Regulations of its Charter. Constitutionality of the Bill. Reasons for Regulations. The Government as a Shareholder. Voting Power of Shareholders. Other Provisions. Great Financial Success. A Regulator of the Currency. Renewal of Charter proposed. The Spoils System. Opposition to the New Charter. Alleged Foreign Influence. The Government's Shares in the Bank. Senatorial Debate. Charter refused. Mr. Gallatin's Opinion. Recapitulation. Authorities.

Chapter VII. Second Bank Of The United States 267

Financial Distress in 18 14. A National Bank proposed. The Bank Charter of 1816. Public Deposits. Other Regulations. Deposits payable ^n Specie. Duties and Taxes. Post Notes. Branch Drafts. Penalty for Suspension. Bonus for Charter. Branch Banks. Scandalous Beginnings. The Bank in 1829. Recapitulation.

Chapter VIII. The Bank War 276

The Question of a Recharter. First Signs of Political Conflict. Isaac Hill. Amos Kendall. Jackson's first Message. Its Misstatements. Benefits of the Bank. Bank sustained by Congress. The Previous System. Biddle and Ingham. Jackson's Message of 1830. Milder Tone of the President. Baltimore Platform of 1831. Henry Clay and the Bank. Affair of the 3 Per Cents. Mr. Biddle's Duplicity. The Charter passed! The Charter vetoed. Jackson's Victory. The Deposits removed. The Pennsylvania Charter. Wild Speculation. Final Collapse of the Bank. Recapitulation. Authorities for Chapters VII and VIII.

Chapter IX. The Suffolk Bank System ... 291

Stock Notes. Struggle to compel Payment of Capital Stock. Chaos of Banking in New England. The New England Bank. The Suffolk Bank. Country Banks asked to redeem in Boston.

CONTENTS XI

Page The Forcing Process. Basis of the Suffolk System. Its Popularity and Success. Small Losses. The " Banking Principle." The "Currency Principle." Specie Reserve. Massachusetts General Laws. Recapitulation. Authorities.

Chapter X. The Safety Fund System .... 303

Banks and Politics. The Manhattan Company. Joshua Forman. Safety Fund System. Notes made a Prior Lien. Reason for this. Fraudulent Overissues. Faults of the System. The Safety Fund in Canada. Recapitulation.

Chapter XI. The Free Bank System 311

The Evils of Monopoly. Political Revolt. Free Banking Law. A Bad Beginning. Abuses of Free Banking. Faults of the System. System perfected. Elasticity of Note Issues. Free Banks in Illinois. Final Collapse. Indiana. Wisconsin. Free Banking in Canada. Recapitulation. Authorities for Chapters X and XI.

CHAPTER XIL CHAOS OF BANKING IN THE XIX CENTURY 322

Speculation in Bank Charters. Bank Failures. Chaos in North Carolina. In Georgia. In Michigan. " Wild-Cat Banks." Counterfeit and Spurious Notes. Counterfeit Detectors. Minor Abuses. Recapitulation. Authorities.

Chapter XIII. Some Notable Banks 333

State Bank of Indiana. Its Branch System. Charter Regulations. Circulating Notes. The System of Examinations. Final Liquidation. Crisis of 1857. Mortgage L.oans. George Smith. The Wisconsin Marine and Fire Insurance Co. Efforts to suppress Smith. " George Smith's Money." The " Raison d'Stre." Smith's Retirement. Louisiana Bank Act of 1842. Recapitulation. Authorities.

Chapter XIV. The National Bank System . . 348

Origin of the System. Difficulty of passing the Bill. Comptroller. Organization. Capital Stock. Powers. Deposit of Bonds. Directors. Liability of Shareholders. Circulating Notes. Their

Xll CONTENTS

Page Redemption. Retirement of Circulation. Redemption of Failed Bank Notes. Tax on Circulation. Legal Reserve.- Usury. Restrictions. Reports. State Taxation. Bank Examiners. Receivers. Public Deposits. Bank Statistics, August 22, 1907. Recapitulation.

Chapter XV. State Banks And Trust Com- Panies 361

State Banks. Private Banks. Cash Reserves. Trust Companies. New York State Law. Bank Notes as Reserves. Bond Reserves. Trust Companies and the New York Clearing House. Mutual Bank Examination. An Important Advance in Banking Science. Recapitulation.

CHAPTER XVI. FOREIGN BANKING SYSTEMS ... 369 The Bank of England

Successful Beginning. Monopoly of Note Issues. The

"Restriction" of 1797. Sir Robert Peel. The Act of 1844.

Suspension of the Bank Act. The Arguments Pro and Con.

The Bank keeps the Gold Reserve of the Nation.

The Scotch Bank System

Cash Credits. The Branch System. Note Issues. Economy in the Use of Gold.

The Canadian Bank System

Note Issues. Safety Fund. Branch Banks. Bank Note Inspection.

The Bank of France

Note Issues. Cash Reserves. Suspension of Specie Payments. Branches and Discounts. Great Service to the Government.

The Imperial Bank of Germany

Its Organization. Note Issues. The Elastic Feature. Various Provisions. Dividends. Recapitulation. Authorities.

Chapter XVII. Recent History 401

Inflexibility of Note Issues. Seasonal Demand for Notes. Unnecessary Contraction and Expansion. Extending the Public

CONTENTS xm

Page Debt Loss of Interest. Bad Financiering. Secretary Shaw's Policies. Various Bonds as Security for Government Deposits. No Bank Reserve against Government Deposits. Stimulating Gold Imports. Moving the Crops. Omniscience in the Treasury Department.

Chapter XVIII. The Panic Of 1907 411

The Knickerbocker Trust Company. The Run on Other Trust Companies. Drain on Bank Reserves. Premium on Currency. Importation of Gold. Action of the Government. Cause of the Panic.

Chapter XIX. The Stock Exchange And The Money Market 416

The Stock Exchange Panic. Distinction between Money and Capital. The Stock Exchange as a Promoter. What the Money Market is. Advances on Securities. A Cycle of Speculation. Buying on Margin. Loans to Brokers. Ups and Downs of Speculation. Interest on Deposits. Is Speculation an Evil ?

Chapter XX. Present Problems 425

State of Public Opinion. Defect of the Bond Deposit System. No Panic in Foreign Countries in 1907. Branch Banks. Their Relation to Note Issues. Legal Cash Reserve. Bank Notes as Reserves. Frequent Redemption Desirable. " Emergency Circulation." The Proposed Tax. The German Practice.

Chapter XXI. The Central Bank Question . . 433

Fortification of Credit. Functions of a Central Bank. Its Note Issues. Drains on Bank Reserves. How Banks drain Each Other in the United States. The Purpose of a Central Bank of Issue. No Motive for Favoritism. Is a Central Bank Feasible ? Advantages of Union. The Aldrich Plan. For a Reserve Association. Local Associations. Branches. Directors. Restrictions. Rediscounts. Other Discounts. Note Issues. Advantages of the Plan. Steadying Influence. Objections Considered. Recapitulation.

XIV CONTENTS

Page CHAPTER XXII. THE FEDERAL RESERVE SYSTEM . 443

The Chief End and Aim of the System. Its Organization. Dividends. Federal Reserve Board. Its Powers. The Advisory Council. Powers of Regional Banks. Federal Reserve Notes. The Collection of Checks. To retire the Two Per Cent Bonds. Cash Reserves. Foreign Branches. Farm Loans. The National Banks come in. Plan of the National Currency Commission. The Chief Aim. A Misleading Phrase. An Open Discount Market. An Elastic Currency.

APPENDIX A. THE ALDRICH-VREELAND ACT. FULL TEXT AND ANALYSIS 453

APPENDIX B. THE ALDRICH PLAN FOR THE RE- SERVE ASSOCIATION OF AMERICA 467

APPENDIX C. GUARANTEEING BANK DEPOSITS . . 485

APPENDIX D. THE FEDERAL RESERVE ACT .... 491

APPENDIX E. COMMERCIAL PAPER ELIGIBLE FOR REDISCOUNT .

53° 537

MONEY AND BANKING

Chapter I Honey A Commodity

Money is a commodity which mankind voluntarily accepts in exchange for all other commodities and services.

We are now speaking of real money, not of promises to pay money. All of our paper circulating medium and all of our Difference be- smaller Coins are, either directly or indirectly, tween Money and promises to pay money. In the case of the Promises to pay. f^^^gj. jjjg promise is Stamped on it. In

the case of the latter it is merely expressed in the laws. The diiference between real money and a promise to pay money is the same as that between a meal and a meal ticket, or between a trunk and a trunk check.

A commodity which is universally accepted as a medium of exchange naturally becomes a standard of value, by being continually brought into comparison with other commodities.

Aristotle gives us the following definition of money and account of its origin :

It is plain that in the first society (that is, in the household) there was no such thing as barter, but that it took place when the

I community became enlarged : for the former had all things in common, while the latter, being separated, must exchange with

each other according to their needs, just as many Aristotle on the barbarous tribes now subsist by barter ; for these

merely exchange one useful thing for another, as, for example, giving and receiving wine for grain and other things in like manner. This kind of trading is not contrary to nature, nor does it resemble a gainful occupation, being merely the complement of one's natural independence. From this, nevertheless, it came about logically that as the machinery for bringing in what was wanted, and of sending out a surplus, was inconvenient, the use of money was devised as a matter of necessity. For not all the necessaries of life are easy of carriage ; wherefore, to effect their exchanges, men contrived something to give and take among themselves, which, being valuable in itself, had the advantage of being easily passed from hand to hand for the needs of life — such as iron or silver or something else of that kind, of which they first determined merely the size and weight, but eventually put a stamp on it in order to save the trouble of weighing, for the stamp was placed there as the sign of its value.^

Among the things used as money by various people within the historical period are cacao beans, salt, silk,

furs, tobacco, dried fish, wheat, rice, olive oil, Itmmej!^^^ cocoanut oil, cotton cloth, cowry shells, iron.

copper, platinum, nickel, silver, and gold. It would be difficult to say what had not been used as money at some time or place. Our own history furnishes an abundance of curious examples, the most instructive being the tobacco currency of the colonial period. It may be said that Virginia grew her own money for nearly two centuries, and Maryland for a century and a half.

The first settlers of New England found wampumpeage, sometimes called wampum and sometimes peage, in use among the aborigines as an article of adornment and a medium of exchange.. It consisted of beads made from

^ Politics, I, 9.

MONEY A COMMODITY 3

the inner whorls of certain shells found in sea water. The beads were polished and strung together in belts or sashes. They were of two colors, black and white, BeavM.""* the black being double the value of the white. The early settlers of New England, finding that the fur trade with the Indians could be carried on with wampum, easily fell into the habit of using it as money. It was practically redeemable in beaver skins, which were in constant demand in Europe. The unit of wampum money was the fathom, consisting of 360 white beads worth sixty pence the fathom. In 1648 Connecticut decreed that wampum should be " strung suitably and not small and great vncomely and disorderly mixt as formerly it hath been." Four white beads passed as the equivalent of a penny in Connecticut, although six were usually required in Massachusetts and sometimes eight. In the latter colony wampum was at first made legally receivable for debts to the amount of \2d. only. In 1641 the limit was raised to £io, but only for two years. It was then reduced to 40J. It was not receivable for taxes in Massachusetts. The use of wampum money extended southward as far as Virginia.

The decline of the beaver trade brought wampum money into disrepute. When it ceased to be exchangeable in large sums for an article of international trade the basis of its value was gone. Moreover it was extensively counterfeited, and the white beads were turned into the of w^"m°° more valuable black ones by dyeing. Nevertheless it lingered in the currency of the colonies as small change till the early years of the eighteenth century. While it was in use it fluctuated greatly in value.

The first General Assembly of Virginia met at Jamestown July 31, 16 19, and the first law passed was one fixing the price of tobacco " at three shillings the beste, and the second sorte at iS^/. the pounde." Tobacco was already the local currency. In 1642 an act was

to v"°nfa°"^ passed forbidding the making of contracts payable in money, thus virtually making

tobacco the sole currency.*

The act of 1642 was repealed in 1656, but nearly all the

trading in the province continued to be done with tobacco

as the medium of exchange.

In 1628 the price of tobacco in silver had been 3J. 6</.

per pound in Virginia. The cultivation increased so rapidly that in 1631 the price had fallen to 6d.

ta'iSce'"'""' ^"^ °'*^^' ^° ^^'^^ ^^^ P"^^*^^' ®*^P^ ^^^^ taken to restrict the amount grown and to improve

the quality. The right to cultivate tobacco was restricted

to 1500 plants per poll. Carpenters and other mechanics

were not allowed to plant tobacco " or do any other work

in the ground." These measures were ineffective. The

price continued to fall. In 1639 it was only ^d. It was

now enacted that half of the good and all of the bad should

be destroyed, and that thereafter all creditors should accept

40 lb. for 100 ; that the crop of 1640 should not be sold for

less than i2d., nor that" in 1641 for less than 2s. per pound,

under penalty of forfeiture of the whole crop. This law

was ineffectual, as the previous ones had been, but it caused

much injustice between debtors and creditors by impairing

the obligation of existing contracts. In 1645 tobacco was

worth only i\d. and in 1665 only id. per pound.

These events teach us that a commodity which is liable to great and sudden changes of supply is not a desirable one to be used as money.

In the year 1666 a treaty was negotiated and ratified between the colonies of Maryland, Virginia, and Carolina, to stop planting tobacco for one year in order to raise the iHening, I, 262.

MONEY A COMMODITY 5

price. This temporary suspension of planting made necessary some other mode of paying debts. It was accordingly enacted that both public dues and private debts falling due " in the vacant year from planting " might be paid in country produce at specified rates.

In 1683 an extraordinary series of occurrences grew out of the low price of tobacco. Many people signed

petitions for a cessation of planting for one

Tobacco Riots r ..i. e • • j_i •

^ jjj year for the purpose of mcreasmg the price.

As the request was not granted, they banded themselves together and went through the country destroying tobacco plants wherever found. The evil reached such proportions that in April, 1684, the Assembly passed a law declaring that these malefactors had passed beyond the bounds of riot, and that their aim was the subversion of the government. It was enacted that if any persons, to the number of eight or more, should go about destroying tobacco plants, they should be adjudged traitors and suffer death.

In 1727 tobacco notes were legalized. These were in the nature of certificates of deposit in government warehouses issued by official inspectors. They CummCT^*^" were declared by law current and payable for all tobacco debts within the warehouse district where they were issued. They supply an early example of the distinction between money on the one hand, and government notes, or bank notes, on the other. The tobacco in the warehouses was the real medium of exchange. The tobacco notes were orders payable to bearer for the delivery of this money. They were redeemable in tobacco of a particular grade, but not in any specified lots. Counterfeiting the notes was made a felony. In 1734 another variety of currency, called " crop notes," was introduced. These were issued for particular casks of tobacco, each cask being branded and the marks specified on the notes.

The circulating medium of the New England colonies was quite as fantastic as that of Virginia. Merchantable beaver was legally receivable for debts at los. per Massachusetts pound. In 1 63 1 the General Court of Massa- Currency. chusetts ordered that corn should pass for

payment of all debts at the price it was usually sold for, unless money or beaver skins were expressly stipulated. In other words, a debt payable in pounds, shillings, and pence might be paid at the debtor's option in any one of three ways : in corn at the market price, in beaver at i os. per pound, or in the metallic money of England. For more than half a century this order continued in force and operation, other things being added to the list from time to time.

In 1635 musket balls were made receivable to the extent of i2d. in one payment.

In 1640 Indian corn was made current at 4J-. per bushel, wheat at 6s., rye and barley at 5J., and peas at 6s. Dried fish was added to the list. Taxes might be paid in these articles and also in cattle, the latter to be appraised.

The need of metallic currency was severely felt. In 1654 it was ordered that no coin should be exported, except 20s. to pay each one's traveling expenses, on penalty of forfeiture of the offender's whole estate.

The cost of carrying the country produce taken for taxes amounted to 10 per cent of the collections. A constable once collected 130 bushels of peas as taxes in Springfield. He found that he could transport this portion of the public revenue most cheaply by boat. Launching it on the Connecticut River, he shipped so much water on board at the* falls that the peas were all spoiled. Thus we learn that money ought to be easy of carriage and not liable to injury by exposure to the elements.

MONEY A COMMODITY J

In 1670 it was ordered for the first time that contracts made in silver should be paid in silver.

In 1675, during King Philip's war, the need of metallic money for public use was so great that a deduction of 50 per cent was offered on all taxes so paid.

The first local currency of New Netherland was wampum,

but it was subordinate to the silver coinage of the mother

country ; that is, it was reckoned in terms of that coinage as

fixed by the Dutch West India Company from beads for a stiver. Wampum was not made in the province, but was imported from the east end of Long Island, the principal seat of production. It is mentioned in a letter from the Patroons of New Netherlands to the States General in June, 1634, as "being in a manner the currency of the country with which the produce of the country is paid for," the produce of the country being furs.

Beaver soon became current here, as in New England, and for the same reason, its currency value being fixed by the company at 8 florins per skin. As 6 wampum beads were equal to i stiver and 20 stivers to i florin, and 8 florins to i skin, the ratio of wampum to beaver was 960 to 1. The market ratio did not coincide with the legal ratio very long. Nor was the legal ratio of either wampum or beaver to silver maintained ; for, in 1656, Director Stuyvesant wrote to the company urging that beaver be rated at 6 florins instead of 8, and wampum at 8 for a stiver instead of 6, as these rates were nearer the commercial values.

In 1719 the Assembly of South Carolina made rice

receivable for taxes, " to be delivered in good barrels upon

the bay in Charlestown." In the following Rice Currency. „ , . , . ,

-year a tax of 1,200,000 lb. of rice was levied,

and commissioners were appointed to issue rice orders to public creditors, in anticipation of collection, at the rate of 30s. per 100 lb., in the following form :

" This order entitles the bearer to one hundred weight of well-cleaned merchantable rice to be paid to the commissioners that receive the tax on the second Tuesday in March, 1723."

Rice orders were made receivable for all purposes, and counterfeiting was made felony without benefit of clergy.

In eastern Tennessee and Kentucky, early in the nineteenth century, deer skins and raccoon skins were receivable for taxes and served the purposes of currency.

When California was first invaded by gold seekers there were a few Mexican coins in circulation there, not nearly sufficient to answer the needs of the growing community. The immigrants brought more or less metallic money with them. The smaller coins were those of many Devtee?"*"™* different countries, chiefly Spanish. For want of sufficient coins, the first trading was done largely with gold dust, sometimes by weighing it in scales, sometimes by guesswork. A "pinch" of gold dust about as large as a pinch of snuff had a current value and was a common measure in places where there was no means of weighing. At a public meeting in San Francisco, September 9, 1848, it was resolved by unanimous vote that $16 per ounce was a fair price for placer gold. This rate was at once adopted in all business transactions. By and by private coiners of gold came into the field. The Legislature was at first alarmed by the appearance of these unaccustomed pieces, and passed a law to prohibit their circulation and to close the shops where they were made. It was soon found, however, that they were a great convenience. Thenthe law was repealed. Several establishments immediately went to work assaying and coining gold. One of these was at Salt Lake City, whose productions were known as