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SUSPENSIONS OF SPECIE PAYMENT IN ALL
THE UNITED STATES.
HERE have been four periods of suspension of specie payments in the United States in the last sixty-two years. Two were caused by the requirements of the government to carry on wars (1814 and 1861), and two (1839 and 1857) by the collapse of speculation induced by over-issues of bank notes under systems of banking not sufficiently guarded by law in regard to the security of an adequate specie reserve.
In 1814 the government was at war with Great Britain, and conducting extensive operations along the line between Canada and the United States. From 1812 to 1814 the government borrowed in all $45,000,000. Of the first $10,000,000, borrowed in 1812, $6,000,000 was taken by the banks in the middle States, as also a considerable portion of the other loans. The New England people were opposed to the war, and consequently the New England banks took scarcely any of the government loans.* *
The result of these loans to the government was that in 1814 all the banks, except those in New England, suspended specie payments.
As a means of assisting the financial operations of the government, and also to encourage the banks to resume,
*Sumner's History of American Currency, page 65.
the Bank of the United States was organized in 1816-17. (This was the second institution under that name, the first one having been organized in 1791 and wound up at the expiration of its charter, March 4, 1811.) This second charter of the United States Bank extended to March 3, 1836, when there was a strong effort to have it renewed, and a bill for that purpose was passed by Congress but vetoed by President Jackson, July 4, 1832. The Bank of the United States, however, continued its business under a charter granted by the legislature of Pennsylvania. From 1834 to 1838 was a speculative era, not only in the United States but elsewhere, and owing to the absence of any legal restrictions on the issue of bank notes, or in regard to reserves, the volume of bank notes increased from $94,000,000 in 1834 to $149,000,000 in 1837. The result was a collapse of bubble speculations and banks. The Bank of the United States suspended October 9, 1839; it resumed again on January 15, 1841, but finally succumbed to the general tendency of affairs on February 4, 1841.
The next suspension was in 1857, from the same causes as in 1838-9. None of the three foregoing suspensions were legalized by any act of the national government. Legal tender paper money had been issued by some of the colonial governments prior to the war of Independence, but these were prohibited after 1750, and there was no legal tender paper currency from that time until 1862.
The act authorizing the suspension of specie payments and the issue of legal tender paper money will be found in the Digest of Monetary Laws in the act of February 25, 1862, and the amount of currency outstanding each year under this and subsequent laws will be found in
Table showing the gold-price in dollars of one hundred dollars in currency in the New York market, by months, quarter-years, half-years, calendar years, and fiscal years, from January 1, 1862, to August 31, 1875, both inclusive.
1862 1863 1864 1865 1866 1867 1868 1869 1870 1871 1872 1873 1874 1875
85 89.9 86.3
97.6 68.9 64.3 46.3 71.474.3 72.2 73.7 82.4 90.3 91.7 88.7 89.7 88.9
*The following table is from the Report of the Comptroller of the Currency
being entirely due to the aspects of the war. rose again to 73.7 within ten months.* The fluctuation ments have been suspended. From 97 cents in January, 1862, it fell to 38.7 (the lowest point) in July, 1864, and States than in any other country in which specie payover a wider range in a shorter period in the United The value of the currency, measured in gold, fluctuated the table of paper money in the United States each year.
The Bank of England suspended specie payments on February 26, 1797, in consequence of a drain of specie and the increase of public expenditures resulting from the war with the French.
Bank of England notes were declared legal tender; but their issues were so much restricted by law that they remained at par until 1800, when the issues were increased, and they fell to a discount of 8 per cent for gold. In 1810 the discount was 13 per cent, and at another period, in 1815, 25 per cent, at about which depreciation they continued until 1816. In 1817 they had risen to 2 per cent, and in 1819 declined to 4 per cent. In May, 1821, the bank resumed specie pay
The Bank of France first suspended specie payments in 1848; the cause being the revolution of that year, which obliged the bank to make large advances to the provisional government and the city of Paris. But in order to prevent too great depreciation of the paper money the issues of the bank were restricted by law to 350,000,000 francs. In 1851 the bank resumed specie payments.
In August, 1870, the Bank of France again suspended specie payments in consequence of the war with Germany. The effects of this upon the notes of the Bank of France are thus described by M. Victor Bonnet, in an article in the Revue Des Deux Mondes:
"The movements of the paper-money circulation inflicted on France by the war are destined to surprise a multitude of people. There is," he says, "in those movements a complete overturning of the economic and financial ideas which the best authorities had endeavored to establish in the previous history of monetary science. These authorities have always raised their warning voice against paper money and legal tender laws. They tell us with one accord that if the quantity of paper money be not strictly limited, and excessive issues prevented, the public confidence will fail, and depreciation will soon follow. In apparent defiance of these sound principles, we find that in the midst of the war troubles of France, paper money to the amount of 1,800,000,000 of francs was issued, and has been kept at par by means of a coin reserve of 600,000,000 francs, or 33-per cent. This paper money never for a single moment lost its value, or fell to a discount until the first payments were made to Prussia. At that crisis the premium on gold rose to 2 per cent, and, strange to say, this premium fell immediately when the law was passed to expand the circulation, and to increase the issues beyond 1,400,000,000 francs, which was the limit at first assigned to the maximum of the note issues. In November, 1871, these issues were 2,300,000,000 francs, and the depreciation was 21 per cent. At the end of January, 1872, the issues were 2,450,000,000 francs, and the depreciation had fallen to 1 per cent.
"At length, after the lapse of a certain period, when new issues had been authorized, and the legal limit had been fixed at 3,200,000,000 francs, the premium on gold was merely nominal, and nobody paid any attention to it, except those concerned in the foreign exchanges.