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(title page) Doc. No. XIV. Report of the Committee on Banks, Relative to the Currency, &c. &c. &c.
Virginia. General Assembly. House of Delegates. Committee on Banks
From the Duff Green Papers, call number 993, Southern Historical Collection, University of North Carolina at Chapel Hill
At head of title: Doc. No. XIV.
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The committee on banks, to whom was referred a resolution "to enquire into the expediency of providing such legislation as may aid or encourage the combination of individual capital for the absorption of the redundant circulating currency of the country, and of reporting such plan of individual or state co-operation upon the subject of the currency as may promise relief from the evils that prevail on that subject," have had the same under consideration, and respectfully submit the following report:
The magnitude of the subject, the inherent difficulties which surround and involve it, and the momentous results which more or less depend on their successful solution, invest the whole question with an interest hardly less absorbing and attractive than the great military events that are daily transpiring around us. Profoundly sensible of the grave considerations which thus concentre upon this subject, your committee have addressed themselves to its investigation with an earnest solicitude to discover, if possible, some effective plan to arrest the further depreciation of the currency, and thereby protect both government and people from the enormous and multiform evils that must inevitably ensue therefrom--evils as pervading in their extent as appalling in their magnitude--leaving it to the wisdom of the general assembly to develop such plan, if approved, to the public, under such legislative sanctions as may be deemed necessary and proper to effectuate the great object so anxiously desired by all.
It is assumed that any plan, to be thus effective, can only accomplish its results by the adoption of two fundamental features as its necessary foundations. First, the retirement from circulation of so much of the confederate issues as will reduce the volume of currency within reasonable limits; and secondly, the cessation of such issues by the government as its chief resource to meet its current demands.
To effect any sensible reduction of the volume of currency, by any plan of investment other than a forced loan, the public must be inspired with confidence that the notes retired will not be immediately replaced by a new issue. The government cannot, for want of other resources, cease its issue, unless its outstanding issues are returned by investment; nor will capital seek such investment as long as the public credit is being undermined by continued issues that inflate circulation, enhance prices and magnify the public expenses beyond the supposed ability of the government to pay; thus these two principles are mutually dependent and auxiliary. Reduce properly the volume of currency, and you enable the government to stop its issue. This accomplished, and you then have laid the solid foundation of a public credit, upon which you may invite or compel the investment of your surplus capital.
Adopting these two foundation principles, therefore, as just and necessary, regarding as well the immense interests which seem to depend in doubtful scales upon the selection and early development of some correct policy upon this subject, as the actual ability of the country to sustain its government by a timely return to its treasury of a surplus capital alone; and relying much upon the intelligent patriotism of the great masses of our people, and their just appreciation of the patent fact that their property as well as their liberty and honor are deeply involved in the successful administration of our finances, your committee
have endeavored with much labor, though not without the encouragement of hope, to digest such plan as they thought most promising of an opportune relief to the country. That plan is, the creation of a national loan of not less than four hundred million, upon the following terms and conditions, viz:
I. As soon as one hundred million of the proposed loan shall have been paid in, the confederate treasury department shall cease to issue or circulate treasury notes not theretofore issued or circulated, and shall cancel monthly thereafter, of its issue then in circulation, an amount equal to the amount paid in during such month, on such loan; except that so much thereof may be reissued as the wants of the government shall indispensably require, after the entire exhaustion of other available resources, and only when such reissue shall have been expressly authorized by congress.
II. All subscriptions to said loan by others than states, to be paid within sixty days from the date thereof, and those by states, on or before the 1st day of May 1864. For the amount so paid, the subscriber shall receive from the confederate treasury department a certificate, entitling him, on and after the 1st day of May 1864, to an equivalent amount in bonds of the confederate government, coupon or registered, as he shall elect, bearing six per cent. interest from the date of payment, redeemable at the end of twenty years; both principal and interest to be exempted from taxation, and secured by pledge of adequate export duties; the interest to be payable semi-annually, and receivable in payment of public dues to the confederate government. Or in the event that congress shall fail, on or before the 1st day of May 1864, to authorize the issue of such stock, or that the aggregate subscription to said loan shall not by that period have reached the sum of four hundred million, such certificate shall entitle the holder, at his option, to demand the amount thereof either in said stocks, or in treasury notes, with interest at six per centum per annum from the date of payment.
III. That the state of Virginia will subscribe and provide for payment of the sum of fifteen million to said loan, upon condition only, that her sister states east of the Mississippi river will undertake respectively to contribute thereto in such equitable ratio as will secure an aggregate subscription by states, of at least seventy-five million; and that she will adopt such further legislation as may be deemed proper to secure the co-operation of other states, and to induce the largest possible private and corporate subscription to said loan within her own limits.
This scheme, it will be observed, is designed to effect a certain and radical correction of existing and threatened evils, which inevitably follow an inordinate monetary inflation. That such correction is indispensable to the welfare of the country, and is probably attainable under the operation of such a system as that proposed, your committee does not question; and in this connection, they beg leave to refer to the following communication, embracing the lucid and emphatic views of one of the ablest financial minds of the state, to whose intelligent aid your committee have had recourse in the progress of their enquiries on this subject:
Richmond, October 13, 1863.
DEAR SIR--In reply to the invitation with which you have honored me, I submit an outline of a plan for the reform of the currency, prefacing it with such remarks as may place it properly before the committee.
With great respect, your ob't serv't,
WM. H. MACFARLAND.A. S. Buford, Esq., Ch'n Com. on Banks.
"The currency is at a fearful depreciation; and mortifying and alarming as the fact may be, the process of depreciation is rapidly going on. A limit to its decline cannot be
assigned, unless there be a prompt termination of the issue of new notes, and means devised to reduce the present circulation to an approximation to the actual business wants of the country. The currency is so largely in excess of what is needed for business purposes, that it is distrusted as well as depreciated, and we suffer the consequences inseparable from an inflated circulation--exorbitant prices, irregular supplies, and general uneasiness and anxiety. These effects are inevitable from such a condition of the currency, and are remediable only by a rigid process of reduction. Other expedients will be found illusory, if not mischievous. The momentous enquiry presses itself upon its, whether the necessary reduction of the currency can be accomplished, without prejudice to the confederate government in the prosecution of the war. To that end all other considerations should and must yield. A people who value not their lives, in a war for objects above all price, will hesitate at no sacrifice essential to success. The enquiry admits of a solution which dissipates the apprehension, that the expenses of the war, however large the scale on which it may be conducted, need not subject us to a suspected and depreciated currency, and the government finally to repudiation and bankruptcy. If our people at home be inspired with confidence in our ultimate triumph, below that which animates our soldiers in the field, and show in a degree only their heroic devotion, the currency may be reduced within safe limits, and the Confederacy relieved from dependence upon its own issues. It needs only the combined action of the states, their citizens, and their banks and other joint stock companies; and to this they should be impelled by the considerations, that supplies will be augmented, prices reduced and the expenditures of the government, now at a fabulous amount, reduced to limits which may be contemplated without alarm.
The reduction of the currency is harmless to all, except those most in debt, when directed to the withdrawal of what is redundant and in excess. The evil supplies indeed the means for its easy correction. Neither occupations nor trade are cramped or incommoded by the operation, since the amount which remains will be sufficient for all business purposes, with the invaluable advantage superadded, of security against a financial explosion, which, when the circulation is of paper, and excessive in amount, is constantly and justly apprehended. It may be assumed that the circulation is now $400,000,000 above the legitimate uses of currency. What it will be a year hence, if we go on as now, stimulated by constantly advancing prices and the profusion and disorders consequent upon a discredited currency, cannot be estimated. Economy, prudence and foresight would dictate the surrender of the whole excess, large as it is, and the more readily because it is so large, to conflagration, if that were the only mode of getting rid of it, and it were certain it would not return with its plagues. The sufferers would find indemnity for their loss in the appreciation of what remained. With what cheerfulness, then, should the public acquiesce in a plan which provides an immediate and full equivalent for every dollar of currency retired, and commits the government to the limitation of future issues to the wants of trade and commerce.
The plan requires a large sum, but one within the capacity of the Confederacy, provided the country will yield its assent to the economical and patriotic considerations which back an appeal for an instant and thorough financial reform. The excess of their currency must be admitted to be a fair measure of the ability of a people to contribute to an object of great and pressing public necessity."
The outline of [the] plan submitted with this communication is not herein repeated, as its leading features coincide substantially with those of the plan above reported.
In further elucidation of the subject, your committee think proper to submit the following synoptical review of the leading elements of the plan above reported, as the best means of presenting some of the considerations which have induced its adoption. Enough has been already said, it is apprehended, to sustain the committee in the assumption, that a large reduction of the volume of currency, and the cessation of issue by the government, are
indispensable, fundamental elements of any plan adequate to the correction of the evils sought to be corrected. In fixing the amount of the proposed subscription at four hundred million, your committee have acted upon the following data, derived from official sources: The amount of outstanding treasury notes now in circulation is, in round numbers, $550,000,000. By the 1st December proximo it cannot fall short of $650,000,000, with all the aids that may be expected from taxation then realized--thus leaving the aggregate circulation, at the earliest period at which any depletion from the proposed loan could be expected to begin, at $650,000,000 of treasury notes alone. The one hundred million proposed to be paid into the treasury before the cessation of issue is required to take effect, may, if the wants of the government require it, be again reissued: thus, in fact, fixing the actual amount of reduction at $300,000,000--leaving the circulation still at the sum of $350,000,000 of treasury notes--beyond which it is assumed that it cannot go without producing such effect in the enhancement of prices as would seriously endanger any financial system, by inducing distrust and stimulating speculation.
Upon these views, your committee have assumed the sum of $400,000,000 as a necessary amount of reduction by investment in government securities, if it be within the ability of the country to reach that minimum. Upon this feature of the subject, therefore, the question remains, can a draft of this amount upon the capital of the country be safely, and with any reasonable prospect of success, made and realized for the practical purposes of this plan? Upon this point, your committee submit the following considerations: It is assumed, upon data deemed authentic, as an estimate within safe limits, that the aggregate representatives of the moneyed capital of the Confederate States, exclusive of confederate treasury notes, and inclusive of coin, bank notes, state treasury notes and other forms of paper credits, will amount to a sum not less than $180,000,000. Much of this, it is true, has been temporarily withdrawn from circulation, having been substituted in business transactions by the redundant and depreciated issues of the confederate government. But it still remains as an available resource of moneyed wealth for all purposes of contribution to the government, and enters therefore as a proper item in any estimate of the ability of the country to take the proposed loan. Add to this sum of $180,000,000 the sum of $650,000,000 for confederate treasury notes in circulation on the 1st of December 1863, as above stated, and you have an aggregate moneyed capital then available for all the purposes of such loan, of $830,000,000. Abstract from that capital the amount of the proposed loan $400,000,000, and still there is left, for all the business uses of the country, a moneyed capital of $430,000,000--a sum more than double that employed by the whole business of the Confederate States at the commencement of the war, when trade was unrestricted, and the materials in which it was employed much more abundant than at present. It may be safely assumed, therefore, that at least $400,000,000 of the moneyed capital of the Southern States may be devoted to investment in government securities, without hazarding in any degree an undue contraction of the currency for all the purposes of government and legitimate trade. We do not omit to notice in this connection, that of the confederate issues, one hundred millions or upwards are west of the Mississippi river, and therefore may be practically not available. To this it may be sufficient to reply, that there would seem to be sufficient margin in the residue of $430,000,000, to meet the deficit thus created; but it will be observed, in addition, that of the $400,000,000 to be absorbed in the loan, $100,000,000 of that first paid in is in the hands of the government for its general purposes, and may be and probably will be reissued as its wants demand, as soon as the cessation of the new issues and the process of cancellation commences. The result of the argument cannot therefore be materially affected by this fact, even admitting, in general terms, our inability to reach capital west of the Mississippi in large amounts. The fact still appears indisputable, that we may devote $400,000,000 of our capital to government securities, and then have more than enough for all useful purposes of business.
The further enquiry still remains, is it probable that so large a sum may be attracted from general circulation for investment in the stocks of the government?
Your committee have felt this to be the most embarrassing feature of the whole scheme, embracing as it does, a larger range of influences, private and public, financial and political, each more or less affecting the probabilities of success. After the most mature deliberation, however, your committee, while not affecting to feel an absolute confidence, are nevertheless persuaded that the chances of success are sufficiently encouraging to justify the effort. We proceed to submit some of the considerations which have induced this opinion.
The imperious necessity for remedy in the direction and to the extent proposed, is becoming a universal and oppressively urgent conviction with all classes of our population. The private distress and public danger that must ensue upon a continued and accelerated depreciation, superadded to that already existing, is a picture that even the speculator begins to look upon with apprehension and alarm. The influence of excessive circulation in enhancing prices, and thereby embarrassing the government and oppressing large classes of the community, is no longer with us the harmless axiom of the political economist, but is a painful fact, pressed home upon and realized in every castle and cottage of the land. The desire for relief is universal, and effort for relief may be certainly expected, whenever confidence is created that effort promises relief by being well directed. But beyond these general influences, powerful and pervasive as they are, we look to the special attraction which the character of the stock to be created will offer to capital, according to the fixed laws of trade.
It may be remarked in the first place, as a general fact in fiscal operations, that the rate of interest, within certain limits, is not often the leading consideration which determines the attractiveness of a stock in the market, but more frequently the adequacy of security, for the regular and prompt payment of interest and the ultimate payment of principal, on which such stock rests. A high rate rarely ever escapes the taint of the usurer's suspicion of the debtor's ultimate bankruptcy. While, therefore, the rate of interest proposed is not as high as that of some other stocks of the government, it is still a compensating rate to the holder, any supposed inadequacy of rate being greatly overbalanced by the fact that it not only has the general credit of the government to sustain it, but is specially secured by a pledge of adequate export duties. These duties alone, at a moderate rate of imposition, it will be seen from a recently published statement of the secretary of the treasury, afford an ample security for an annual interest of over $48,000,000. But as a conclusive proof of the superior attraction afforded by these special securities, we have only to refer to our own stock market, in which the stocks issued on the fifteen million loan, possessing only this superior attraction, command the enormous premium of eighty per cent. There is no reason to apprehend that the stock of the proposed loan would not be regarded with like public favor. Upon the amount to be issued, the principle of supply and demand would reduce the premium, but would not affect the high comparison which this stock would make with all other investments.
But stronger than all these, in the estimation of your committee, would be the influence of the exemption from taxation prescribed for this stock, in attracting, in heavy volume, the surplus capital of the country. All men look forward to the period when we shall have achieved our independence, and started on a new career of nationality, with the confident anticipation of a heavy burden of debt and current government expenses, which will require an amount of taxation unavoidably onerous for a series of years, to be indefinitely prolonged in proportion to the energy, thrift and financial success which shall mark our progress before and after the close of the war. This consideration, it cannot be doubted, will furnish an attraction to the proposed stock beyond all precedent among modern securities. Nothing short of absolute distrust in the faith of the government and the solvency of the whole of the Confederate States, can defeat this result. To all these considerations may be added another of important weight, which is, that the investment is to be made of a redundant, depreciated, and therefore distrusted currency, which can only be invested in
the permanent property of the country, at a discount of from five hundred to fifteen hundred per cent.--a currency which no man desires to hold a day, for the patent reason that every day he holds it, it diminishes by depreciation.
In reference to the subscription by states, it may suffice to say, that the influence of example as well as the additional means thus secured, it was supposed would go far towards insuring success in the entire subscription. That accomplished, and the benefits to the country must be incalculable. The sum proposed to be subscribed by Virginia ($15,000,000) it is supposed can be raised without serious difficulty, from the receipts in the treasury, together with the sale of our joint stock assets, or exclusively from the latter, if necessary, preferring in such sale, as your committee would recommend, the stocks of the state in our internal improvement companies, or such of them as would be available at fair rates. The argument in favor of this method your committee deem a strong one, but that it is not necessary now to present it. The other and subordinate features of the plan, it will be observed, are mainly designed to harmonize and promote the success of those above noticed; and though all of them are deemed more or less essential, it would transcend the plan and proper limits of this report, to attempt their respective discussion.
Inasmuch as the plan requires the co-operation of the confederate government, especially of congress, to perfect it, your committee therefore have thought proper to ascertain from the chief financial officer of the government whether such co-operation could be expected, particularly from that department. After frequent conferences with the secretary of the treasury, in which the condition and wants of both government and people upon this subject were freely considered with reference to the best scheme attainable for the protection of both, your committee have been assured by that officer that the leading features of the plan reported have his confidence and full approval, and will, if adopted by the general assembly, receive the official recommendation of that department to the congress, for such legislation as may be necessary to carry it into effect. His communication to the committee to that effect is herewith submitted as part of this report.
If the views of the committee shall be approved by the general assembly, legislation will be requisite to enable the corporations of the state to subscribe to the loan, to authorize the state subscription, and provide, by sale of stocks, for its payment. Your committee will be prepared to report bills for these purposes as soon as such approval is indicated.
To the plan submitted, your committee are aware that objections may be urged, as they may and will be, to any plan. They have felt that the whole subject was environed with difficulties, that wisdom, patriotism and an iron will in the pursuit of what is deemed best for our country's cause, can alone surmount or obviate. In some respects they have found it necessary to modify their own views, in deference to the known condition and wants of the government, and have presented the foregoing scheme, as in their judgment likely to incur fewest objections, and to accomplish the largest public good--leaving it to the brave spirit of a determined people, in a momentous crisis, to surmount all unavoidable difficulties when their liberties and honor are in peril. Great issues invoke great efforts. All others are worthless, amid the grand events that sweep our national destiny, with gigantic momentum, on to its development. Even the timid must become heroic, in the presence of such issues as are tendered us in this struggle. Let Virginia do what she can in sustaining the finances, as she has in fighting the battles of the country, and her example, like a pillar of cloud, will lead the hosts of the South to a glorious deliverance from all the perils that now threaten.
In conclusion, your committee respectfully recommend the adoption of the following resolutions:
1. Resolved by the general assembly, that the people of Virginia will, under no circumstances, contemplate the cessation of hostilities until our enemies shall recognize our
separation as final, and our independence as a nation, or shall withdraw their armies from southern soil; and that they will, in vindication of this purpose, and in union with the people of her sister states, devote their means to any extent made necessary by the exigencies of the war, to support the government in its vigorous prosecution, and the expulsion of the enemy from our entire borders.
2. Resolved, that viewing with the deepest concern and apprehension the numerous private evils and the imminent public dangers which proceed from the present disordered condition of the currency, the state of Virginia will unite promptly with her sister states of the Confederacy in such equitable and considerate system or plan, by investment in confederate securities or otherwise, as may be deemed prudent and requisite to preserve the faith of the confederate government, sustain its credit, and secure to it the means of conducting the present war to a successful termination.
3. Resolved, that in the furtherance of the purposes expressed in the forgoing resolutions, the general assembly deem it proper to provide by law for authorizing joint stock companies and other corporate bodies of this state, to invest such portion of their means as they may think proper, in the stock of the confederate government, and that the citizens of the state be urged to invest in like manner, with a view to a reduction of the circulation and the support of the government.
4. Resolved, that a copy of the forgoing resolutions be communicated by the governor to the executives of the other states of this Confederacy, with the request that they be laid before the legislatures thereof, and some responsive action invited thereon at as early a day as practicable, and that he be requested to appoint one or more suitable persons as commissioners to said states, whose duty it shall be to visit said states at such time as the governor shall deem most suitable, and to invite and facilitate, as far as practicable, the co-operation of said states in the purposes set forth in the foregoing resolutions.
Ch'n of Com'tee.
TREASURY DEPARTMENT, C.S.A.
Richmond, October 14, 1863.
I have the honor to acknowledge receipt of your letter of 13th inst., in which you request from me a written communication of the substance of my views expressed in conferences with the committee of which you are chairman, in relation to a plan of finance under their consideration. I expressed to the committee my hearty concurrence in the plan, and stated that it coincided in its main features with the suggestions which I proposed to make to congress. I expressed my gratification that the matter was before the legislature of Virginia, and that in suggesting two modifications, my object was rather to secure the plan from failure, than to vary its essential features. The first of these modifications was to allow a reissue of part of the notes taken in, should the necessities of the government require it; the second, to reduce the conditional amount required for the loan. The first modification has received the sanction of the committee, and the second is proposed only because the amount required to be subscribed seems to me to be greater than can be reasonably expected. The extent of the subscription is altogether uncertain, and as I have no information which is not in the possession of the committee, I cannot claim any preference for my judgment. This difference, however, is not essential, and I shall take pleasure in recommending to congress the legislation requisite to carry out the plan, if adopted by the legislature of Virginia.
Your obedient servant,
C. G. MEMMINGER,
Secretary of Treasury.