Democratic Sentinel, Volume 1, Number 36, Rensselaer, Jasper County, 19 October 1877 — EXPERIENCE. AGAINST CONTRACTION. [ARTICLE]

EXPERIENCE. AGAINST CONTRACTION.

[From the Chicago Inter-Ocean.] Frequent reference is made to the French financial system in connection with the wonderful recuperative powers of that nation as shown in the events since the close of the war with Germany. Starting after a disastrous war, and with all departments of Government disorganized, France, during an interval of great financial depression in Germany, England and the United States, not only anticipated the extraordinary demands made upon her, but maintained the industries of the people and made a better financial record than the nations that had been prosperous when she was prostrate with industrial and manufacturing interests paralyzed. The extraordinary spectacle of a nation rallying so promptly from disaster, and devoting itself so earnestly to the work of building up all interests that contributed to substantial prosperity, has invited study while it has called forth admiration. The inquiry as to the causes of prosperity in France, when all the circumstances seemed to point to a period of great distress and depression, has been an interesting feature of financial discussion in this country for two or three years. Among the more recent and most interesting contributions to our knowledge on this question is a carefully-prepared paper by the Hon. Wm. D. Kelley, published in the Philadelphia Times, Among the essential facts preliminary to the general discussion, Mr. Kelley calls particular attention to two : Under all changes of dynasty and forms of government the labor of France has been protected by the most elaborate and ingenious tariff and system of prohibitions ever devised. The patronage of art by the Government, the diffusion of a love of art and the knowledge of its laws among the producing classes, secures a market for French fabrics and wares when the home and foreign markets of other nations are shrinking. This blending of art with utility not only secures France universal markets, but enables her to sell abroad imponderable things, such as genius, taste, art, and skill. Mr. Kelley believes that the distinguishing characteristic of the financial policy of the French Government is found in the fact thatit assumes the duty of preventing alternate periods of inflation, and their inevitable consequent intervals of contraction. To accomplish this end, whenever war or other exigency has caused the issue of irredeemable paper, it has invested such issue with the character of legal tender, or, in other words, made it available for all purposes to which money could be applied in France., In such cases the Government has also taken measures to prevent the withdrawal of the paper money until a continuous balance of trade had brought into the country metallic currency enough to supply the channels temporarily filled by the paper money. The Government maintains its power over the money of the country by demanding a slight tax upon circulation, whenever it authorizes a bank to issue notes, and pays the bank but 1 per cent, on the amount of notes loaned it when first issued. Great Britain and the United States restrict the volume of legal-tender money to the narrowest possible limits available as a basis for bank circulation. “France seeks to give the whole people money; we, following the example of England, seek to compel them to use credit or currency obtained through banks at such rates of discount as may prevail. ” The fact that France has been prosperous, while England and the United States have experienced periods of financial depression, speaks well for the French system. The last war experience of France was peculiar. In April, 1870, three months before war was declared, the circulation of the Bank of France was $288,750,000, and it held of specie and bullion $261,550,000. In August the Government required the bank to suspend specie payments, and by the same decree made its notes a legal tender. The first statement published after peace had been restored showed a circulation of $442,000,000, with $110,000,000 of specie. The decree of legal tender fixed the maximum of the issue of the bank at $480,000,000. This was increased by law of Dec. 29, 1871, to $560,000,000, and finally, by the law of July 15, 1872, to $640,000,000. This is the bank record, and the question at once occurs, what effect had the issue of this vast amount of paper money on the premium on gold ? In November, 1871, when a large payment on the war fine was due, the premium on gold rose to its highest point, 21 per cent. It remained at this but a few days. When the irredeemable circulation had been increased from $460,000,000 to $490,000,000, the premium fell to 1 per cent, and in October, 1873, when the volume of notes had actually reached $614,000,000, the premium was merely nominal, and was only demanded on large sums. Legal tender, gold, silver, and paper money were then circulating in common, and at par with ea«h other. This in itself answers many of the arguments of the contractionists, but there is another important point, a striking illustration of the harmony of the interests of the Government and the people, a something that very many people lose sight of in this country. The war fine amounted to $1,100,000,000; the total cost of the war to $2,000,000,000; the direct loss to agriculture was about $800,000,000. Yet the last payment on account of the war was made Sept. 5, or in two years and four months after the conclusion of the treaty of peace. The Bank of France is now burdened with an excess of gold, and holds in addition, it is said, $100,000,000 of silver, which, like gold, is legal tender; yet the law will not permit the bank to resume specie payments until Jan. 1,1878. The bank pays now, and has paid for nearly two years, in gold or silver, sums of 1,000 francs or less, and, to escape the tax on circulation, would have resumed more than a year ago had the Government consented. The latest returns as to specie held by the different nations show that France has, by the aid of paper currency, by which the industries of the nation were kept active, accumulated nearly $100,000,000 of gold more than the united stock of the banks of England and Germany. It has been the fashion lately among the contractionists to quote largely from the past financial history of England. Mr. Kelley seems to have given them a sweeping broadside by quoting from the financial history, past and present, of France. He concludes his article with the following pertinent question: In view of these facts, may not the stricken

people of the United States wisely order a halt in the work of contraction, and, following the example of France, demand the repeal of the Resumption act, the remonetization of silver, and the maintenance of the existing volume of our legal-tender paper money, which measures will enable them to go to work at honest wages, and to earn the gold and silver with which, in due time, we can, if desirable, resume specie payments ?