The Refunding Bill of 1881

THE lack of sound financial judgment in Congress is so unfortunately familiar as scarcely to excite surprise. The method of selling our bonds during the war, the needless passage of the legal-tender act, the factious refusal to permit contraction of the currency, and the insane enactments of the Bland silver bill are mortifying chapters in our financial history. And while modern credit and banking is at once a most intricate and sensitive thing, yet in nothing else does Congress more boldly interfere.

In primitive times, goods were exchanged directly for each other. A hungry warrior bartered a coat of mail for a fat ox. Civilization has gone on, and among its many marvels none is less interesting than the system of banking expedients, by which we are returning to a skillfully adjusted method of barter. It is a system grown up from the slow experience of centuries, and cleverly adapted to the needs of trade, — a natural outgrowth of the increased exchange of goods. It is the heart of the industrial body. Without it, business, in anything like its present magnitude, could not exist. And on this sensitive mechanism Congress often lays its rude hands with a strange mixture of confidence and blundering ignorance.

Banks are not merely lenders of capital, but are the agencies through which the titles to goods pass, so that one article can be otfset against another. Like division of labor, international trade, and great railways, banks are a means of abridging human labor. While ponderous trains thunder into our Eastern cities from the Western grain fields, and others, in return, roll westward across the country filled with silks and cottons, the titles to these goods (and the means by which all are exchanged one for the other) are being carried to and fro in the shape of bills and drafts by the banks, the great railways of credit. For every transaction, every line of steamers, every network of railways, there is a corresponding credit service, tallying with each exchange of goods — as it were, in the air overhead and unseen, but really running on its quick dispatch through the mails, the telegraph, and the telephone, and officered by the bankers of the country. It is as distinct, separate, and legitimate an employment as is that of a common expressman. Modern banking and the business of the country go together, like the two blades of the scissors. Take one away, and you destroy both.

While the national banking system is the best the country has ever enjoyed, it has existed only since 1864. Before that time the old state banks were regulated by each State according to varying standards of honesty, with the marked exception of the system in New York, established in 1838, and memorable as the model for the regulation of our national banks. By the New York law a bank was not granted the power to issue notes unless a deposit of state or United States bonds with the state comptroller was made, sufficient to secure the ultimate redemption of the notes. This plan of a special reserve for circulation is the basis of the English act of 1844, and implies a very different policy from that which keeps no special reserve for any one liability more than another. A bank is like a man in debt, who owns bonds, coin, and securities, to exactly the amount of his debts. He has debts (called liabilities), and he has an equal amount of wealth (called resources) with which to pay. The Bank of England before 1844, the old United States Bank, and the larger number of state banks set aside no special fund for the redemption of their note circulation. One might liken the resources of a bank under that which is now the old system to the crew of a ship, all suddenly called upon to take to their guns; without a man at the sails, a change of wind would be disastrous, and the ship would be wrecked. This, in effect, was what nearly happened to the Bank of England in 1825.

The National Bank Act contains the special-reserve plan, and gives absolute security to the note-holder. No man ever lost one cent by having in his hands a note of an insolvent national bank. But in this system of circulation Congress proposed to introduce very astonishing changes by the refunding bill of February, 1881, the history of which is worth preserving as a valuable means of teaching,—on the principle that a sign-board often warns us where not to go. The provision by which a separate fund was set apart is simple. The banks are required to deposit with the United States treasurer in Washington, to secure their circulation, United States bonds of any kind, and are permitted (there is no compulsion about it) to issue notes to the amount of only ninety per cent. of the par value of these bonds. (Revised Stat., sec. 5171). The requirement as to the increase or reduction of this deposit formed section 16 of the act of June, 1864, and section 5160 of the Revised Statutes : —

“The deposit of bonds made by each association shall be increased as its capital may be made up or increased, so that every association shall at all times have on deposit with the treasurer registered United States bonds, to the amount of at least one third of its capital stock actually paid in. And any association that may desire to reduce its capital, or to close up its business and dissolve its organization, may take up its bonds upon returning to the comptroller its circulating notes in the proportion hereinafter required, or may take up any excess of bonds beyond one third of its capital stock, and upon which no circulating notes have been delivered.”

The important words for the present explanation are “ its circulating notes,” meaning the notes of the given national bank. Should a bank see fit, in a time of depression, to reduce its circulation, it would be able, under this section, to do so only by presenting its own circulating notes, and receiving therefor its deposit of bonds. In actual practice, however, a bank holds but very few of its own notes, and could get them only at the places of redemption. National bank notes, being equally good with greenbacks, are never, in fact, presented to any amount for redemption at the counter of a bank. Moreover, an institution is required to receive the notes of any other national bank, and has no object in presenting the notes for lawful money except in cases of insolvency or retirement. The outstanding notes of a given bank are in circulation (by virtue of the present sound character of all the national-bank circulation) not merely in the locality where the bank is known, but in the hands of merchants, banks, and farmers in almost every part of the country. What is important to observe is that the process of drawing in notes by a bank is a very slow one, and a slow one just in proportion as the national bank note is a safe money anywhere in the Union. For the holder, finding it perfectly good and safe, has no object in presenting it in exchange for other kinds of money, even though the bank may have an object in having it redeemed. A given bank, consequently, could not reduce its circulation and recover its deposit of bonds except by presenting its own notes, and it could never get possession of such as had left its hands until after long use had so worn or mutilated them that they would be sent in to the redemption agency at Washington. The weak spot, then, of the act of 1864 appeared in the practical impossibility of reducing circulation according to the changes in the money market.

This difficulty was removed by the act of June 20, 1874, which repealed sections 5159 and 5160 of the former act:

“ That any association organized under this act or any of the acts of which this is an amendment, desiring to withdraw its circulating notes, in whole or in part, may, upon the deposit of lawful money with the treasurer of the United States, in sums of not less than nine thousand dollars, take up the bonds which said association has on deposit with the treasurer for the security of such circulating notes ; which bonds shall be assigned to the bank in the manner specified in the nineteenth section of the national-bank act; and the outstanding notes of said association, to an amount equal to the legal-tender notes deposited, shall be redeemed at the treasury of the United States, and destroyed as now provided by law: Provided, That the amount of the bonds on deposit for circulation shall not be reduced below fifty thousand dollars.”

It will be seen at once that by this change a given bank could withdraw its circulation instantly and rapidly by presenting, no longer its own circulating notes, but merely lawful money ; that is, greenbacks or coin. The importance of the section, of course, is found in the words “ lawful money; for this was a kind of money which any bank could command at once, and in large sums. An institution could thus send to Washington lawful money to the amount of its bonds, withdraw the deposited bonds, and leave a complete security to the note-holder in the shape of greenbacks or coin in the treasury at Washington, to await the slow incoming of the notes for redemption. The effect of the change was simply in the direction of greater ease and rapidity in reducing circulation.

This was the position of the banks in regard to their circulation when the late abortive refunding bill came before Congress. But to understand clearly the results, it will be necessary to give a short explanation of the generally misunderstood amount of profit derived by the banks solely from their note issues. This can be exactly found by answering the question, What profit would the banks lose by withdrawing their whole circulation ? As the lowest rate of interest paid by the government at that time was four per cent., I shall present a computation of Comptroller Knox, based on a deposit of four per cent, bonds:—

Interest on $100,000 U. S. 4 per cent. bonds. $4,000

Circulation issued on above. $90,000

Deduct premium on bonds. $12,000

Deduct reserve (5 per cent.) 4,500

16,500

Leaving loanable circulation. 73,500, 6 per cent, interest on which is. 4,410

Total income on circulation.

8,410

Deduct 1 per cent. tax on circulation.

$300

Deduct cost of redemptions.

81

981

Leaving as net receipts.

7,429

$100,000 capital loaned directly at 6 per cent.

6,000

Difference in favor of circulation.

1,429

When it is remembered that the functions of deposit and discount in banking can be carried on without the consent of the treasury, and that the profits on circulation are practically the only reason why a bank remains in the system, or in fact why the present admirable and elastic bank currency exists at all, the inducement does not seem very large. But what is more, without any change in the relation of the banks to the treasury, a rise in the market rate of interest (a matter wholly beyond the control of either banks or treasury) will have the effect of reducing the profits arising from circulation. To illustrate : suppose the rate of interest became seven per cent. instead of six per cent., in the above computation ; then the $100,000 could be loaned directly for $7000 without the owners of it going through the ceremony of becoming a bank, or being examined by a government officer. Of course, the $73,500 would likewise be loaned for $5145 ; but the final profit from circulation would be only $1164, instead of $1429, when the rate of discount was six per cent. This will therefore tend to show that an increase in the rate of loans in the money market reduces the profit arising solely from bank circulation.

But, supposing the rate of discount to remain the same, a change in another element may produce a similar effect. If the banks were obliged to deposit bonds bearing three per cent. interest, instead of four per cent., then the item of $4000 in the above computation would be changed to $3000. This would reduce the net receipts to $6429, and leave only $429 as the profit which would be lost by withdrawing circulation. So that, if it should happen that the interest on the bonds were to be decreased by a refunding bill simultaneously with a rise in the market rate, the profit would wholly disappear between these two mill-stones. It must be clear, then, that the profit on circulation depends both on the market rate of loans and the rate of interest paid by the government on the bonds required as a deposit to secure circulation.

But Still, a consideration wholly apart from the mere rate of interest on the bonds deposited will affect the profit on circulation. At present the banks can deposit, to secure circulation, any United States bonds, of whatever description. This is an important provision in these times, when great changes are going on in the form of our bonded indebtedness, either (1) because the bonds are soon to fall due, or (2) because of a change in the market rate of interest. For, in the first place, as the date of payment of a maturing bond draws near, it gradually falls in value to the par which will be paid for it by the government, even though it may be a bond bearing a higher rate of interest than a new one proposed to be substituted for it. The “sixes of 1880” were bonds bearing six per cent. interest, but as they fell due in December, 1880, they gradually came to be worth only their par value ($100), while a four per cent. bond, but just issued, was worth $112. At the same rate of interest, a bond running for a long term of years is better for an investment than one for a short term. The lumberman, who looks at two trees of equal diameter at the base, estimates the total value of each according to the height of the tree. Then, again, a bond running for a short term may be worth less than one for a long term, even though the first bears a higher rate of interest. That is, to resume our illustration, one tree, not rising very high, although larger at the bottom, may not contain so many square feet as another, with perhaps a less diameter at the bottom, but which stretches much higher up into the air. This briefly explains the effect of its term on the value of a bond.

But, in the second place, the market value of a bond fluctuates with changes in the commercial rate of discount. If a four per cent. United States bond sell at par, it means that four per cent. is the highest rate to be obtained in perfectly safe investments ; but if the rate paid in such investments decline, say, to three per cent., the bond which regularly returns four dollars a year to its holder pays a rate higher than can be got for other equally safe securities, and consequently rises in its value beyond par to such a figure (about $118) that four dollars of interest on this last sum is equal merely to the usual three per cent. to be got in the money market; that is, the holder of the four per cent. bond can sell it so much above par that the buyer can get in the four dollars (of annual return) only three per cent. on the amount paid for the bond. In short, all bonds, securities, stocks, land, or any transferable investment yielding a regular income rise or fall in their selling price with the customary rate of loans in the community. If a piece of rented land yield to the owner $100 a year on an investment of $1000, or ten per cent., and if other persons can now get but live per cent., then the owner could sell his land for $2000 ; because the same annual return of $100 would give five per cent. on $2000, the usual rate of interest. So that, without any change in its actual income, the land has risen in its capitalized value, only because of the change in the usual rate of interest. In this way the United States four per cent. bonds, which were at first sold at par (or a very slight premium), have risen in value from $100 to $116 or $117. The price of such a bond, therefore, is a measure of the market rate of interest on safe securities. At the time when the refunding bill was before Congress these bonds were worth 112 or 114, realizing to the investor about three and one fourth per cent. These brief explanations will perhaps make it clear that United States bonds have been constantly fluctuating in value, either (1) because some bonds are falling due, or (2) because the market rate of loans varies with the state of trade and general causes. It is to be observed, also, that the changes in the value of the bonds are due to the action of the government itself, and to causes entirely outside of the control of the banks.

The banks have been charged with reducing circulation merely in order to speculate on bonds. But if the premium on their deposited bonds rise, it practically amounts to these bonds costing them just that much more ; for they have securities in the hands of government which they could at any moment sell for the increased value. Then it follows that the profit of a bank on its circulation may he diminished by a rise in the value of the deposited bonds. It may be objected, however, that the banks have gained by the rise in value while they held the bonds. True, but they would have profited likewise by investing their funds in bonds, purely as dealers in securities, without entering the banking system. They do not get that increase simply because they sent in bonds to secure their circulation ; hence it cannot be said that the gain, in any sense, is derived wholly from circulation, or because they are national banks. If the circulation were discontinued, that opportunity for profit would not disappear, and so it is no inducement to continue note issues. The privilege which banking capital will always claim is that of holding its funds with such freedom that it can turn them in any direction where the market offers the best return. If Congress were to ask the national banks to lock up their bonds, they would be required to forego a reward enjoyed by other capital, and there would be a positive disadvantage in remaining in the national banking system.

A short time before the introduction of the refunding bill, the machinery of the banks with which Congress tampered so rudely consisted of over 2000 institutions, with a circulation of over $300,000,000, a capital of over $500,000,000, deposits of about $900,000,000, and making loans of over $1,000,000,000; but all these banks together had only $56,000,000 of legal-tender notes and the small sum of $18,000,000 of their own circulating notes, among their resources. To the inexperienced, however, these very figures might give some reason for the constant tirades by certain Congressmen against the growth of the money power, and the fear that it was fastening its monopoly fangs on the heart of the country. Yet when it is recalled that the number of banks, the amount of deposits and loans (excepting times of speculation), are the result of and are in direct proportion to the growing wealth and prosperity of the whole business community, an attempt to “ crush out ” the banks is as if a horsebreeder, on finding that some of his colts are developing great beauty and speed, should take this as an injury, and forthwith cut their ham-strings. Now this was precisely the nature, strange as it may seem, of much of the speech-making on the refunding bill ; but how the bill itself was a covert thrust at the banks, and how it brought on a panic, may not have been clear to the general reader. A refunding bill was necessary, because several classes of United States bonds, issued in previous years, fell due last year (1881), and authority must be granted by Congress, in a new bill, to the secretary of the treasury to borrow funds wherewith to redeem them. Considerably more than $400,000,000 of five per cent. bonds fell due May 1st, and about $200,000,000 of six per cent. bonds June 30th. Since these six per cent. bonds were issued, twenty years ago, our credit as a nation had so far improved that a four per cent. bond sold, at this time, at a premium of about 112, which implied that an investor in government bonds would be satisfied with three and one fourth per cent.

Without recounting details, a bill entitled An Act to facilitate the Refunding of the National Debt was introduced (February, 1881) into the House of Representatives by the committee on ways and means. The first section authorized the issue of $400,000,000 of three per cent. bonds, payable in five years, at the pleasure of the government, but which must be paid in ten years ; and $300,000,000 of “ certificates ” (meaning treasury notes), redeemable after one year, but necessarily paid in ten years, and bearing three per cent. interest. These last were analogous to English exchequer bills, and were intended to catch that large amount of floating capital which has not yet found a permanent investment. The rate of interest was placed below the (then) market rate, and, instead of compensating for this disadvantage by a long term, the time at which the Treasury could begin to redeem was fixed at five years, — a condition likely to lower the attractiveness of a bond bearing a higher rate of interest. The discussion in the house centred almost wholly on these points; and the ignorance developed was considerable, of course, but not surprising. The important part of the bill, however, and that which made the refunding bill famous, was the fifth, or “ Carlisle,” section ; but the discussion did not embrace its probable results when in operation:

“ Sec. 5. From and after the first day of May, eighteen hundred and eighty-one, the three percentum bonds authorized by the first section of this act shall be the only bonds receivable as security for national bank circulation, or as security for the safe-keeping and prompt payment of the public money deposited with such banks ; but when any such bonds deposited for the purposes aforesaid shall be designated for purchase or redemption by the Secretary of the Treasury, the banking association depositing the same shall have the right to substitute other issues of the bonds of the United States in lieu thereof : Provided, That no bond upon which interest has ceased shall be accepted or shall be continued on deposit as security for circulation or for the safe-keeping of the public money; and in case bonds so deposited shall not be withdrawn, as provided by law, within thirty days after interest has ceased thereon, the banking association depositing the same shall be subject to the liabilities and proceedings on the part of the comptroller provided for in section fifty-two hundred and thirtyfour of the Revised Statutes of the United States : And provided further, That section four of the act of June twentieth, eighteen hundred and seventy-four, entitled, “An act fixing the amount of United States notes, providing for a redistribution of the national bank currency, and for other purposes,” be, and the same is hereby, repealed; and sections fifty-one hundred and fifty-nine and fifty-one hundred and sixty of the Revised Statutes of the United States be, and the same are hereby, reënacted.“

The aim of the first part of the section was to force on the banks the bonds which they would not take willingly. Otherwise, there would have been no reason for the requirement. But the obligation to hold three per cent. bonds on deposit in itself would probably not have produced any general desire to withdraw from the national banking system. It is true that if, while in receipt of only three per cent. on their bonds, the banks could loan funds at the commercial rate of six per cent., that of itself would reduce the profits arising purely from circulation to less than one half of one percent. But, on the other hand, lenders of money could not be sure that the average rate on safe investments would not continue to fall somewhat, and make three per cent. a fair return. On this chance the banks might have been willing to run the risk of the rate going the other way; that is, of rising instead of falling. Moreover, it does not seem to have been generally known to the public that Comptroller Knox gave his opinion informally to the effect that the reading of the first part of the section would not require three per cent. bonds to be substituted in the place of four per cent. or four and one half per cent. bonds, already deposited and not redeemable. So that, as the banks, taken collectively, held nearly one third of their capital on deposit in these two classes of bonds, this proviso would create a market for, at the most, only about $60,000,000 of the new bonds.

By fixing the rate of interest below the market rate, and, in addition, handicapping these bonds by the short term, thereby creating a situation which made it extremely doubtful whether the new loan would be taken up, and expressing beforehand the lack of confidence of the government in the success of the loan by trying to force the banks to subscribe, Congress tried to lock up the capital of the banks invested in these deposited bonds by making it impossible to withdraw them. The machinery for this purpose is contained in the last proviso of the fifth section, by which the fourth section of the Act of 1874 was to be repealed, and the sections 5159 and 5160 of the Act of 1864 were to be reënacted. These last are the provisions, previously explained, treating of the means of reducing circulation. If this fifth section were to remain in the bill, it would at once, on its passage, take away the power of withdrawing deposited bonds by sending to Washington lawful money (as permitted by the Act of 1874), and would restore the old process (see sections 5159, 5160), by which the bonds could be withdrawn only after the considerable time necessary for the banks to present their own circulating notes. Property belonging to citizens, and deposited at Washington with the understanding that it could be withdrawn at any time, was to be suddenly seized (on the passage of the bill), and held for years ; and this retention would prevent the banks from changing the position of their investments, a power wholly indispensable to the proper carrying on of the banking business. All men are guilty of a little weakness, to be sure, in disliking to see others seize their goods, and bankers are but men in charge of their own and depositors’ money ! The reason why there was not greater indignation expressed by the general public is probably due to the fact that not one man in a hundred understood what was going on, while bankers did, and refused to be robbed. If the three per cent. bond changed in value by the operation of natural causes, the banks had not the power of withdrawing from their (voluntary?) connection with the government : all they could do would be to practice the noble virtue of fortitude.²

History must record with mortification that the bill was passed in this shape by the house, and sent to the senate, where it was generally believed by the country that it would be changed in the interests of sound finance; that the rate of interest on the bonds would be raised to three and one half per cent., and the extraordinary fifth section struck out as disgraceful. It seems as if there was a spice of irony in entitling the bill An Act to facilitate the Refunding of the National Debt. The finance committee of the senate (of which Mr. Bayard was chairman) reported the bill to that body, with the expected changes. Secretary Sherman had appeared before the committee, and given his reasons why he thought a three per cent. bond would not be successful. Estimating the market rate of interest at three and one fourth per cent., on the basis of the price of four per cent. bonds, he presented tables to show what the value of three per cent. and three and one half per cent. bonds, respectively, would be at certain terms in the future.

The second column shows to the eye that an arrangement which ties up a man’s unds, so that he loses something each year, is worse just in proportion to the number of years he is required to lose ; while the third column, on the other hand, shows that if the market rate is three and one fourth per cent., a three and one half per cent. bond is worth a slight premium at the start, and, as it returns each year more than the ordinary rate, it is worth more the longer it continues to pay this higher rate.

Despite these lessons in finance, the senate, on the 18th of February, 1881, rejected the amendments of the finance committee, and passed the bill as it came from the house with slight alteration. Besides one or two minor matters, the term was changed from five-toten years to five-to-twenty years; but what is painful to recall is that the fifth section was retained in the bill by a vote of thirty-two to twenty-nine. The few amendments, however, required the bill to go back to the house for their concurrence before it could be sent to President Hayes for his signature, and finally become a law. This parliamentary form gave the banks time to awake from their sense of security, caused by the general feeling that the senate, at least, would be honest. In the house, the element which fifteen years ago was inflationist, four years ago rabid silver men (led by Ewing, Weaver, Bland, and De la Matyr), was anxious to push the bill, and “ stab the money power,” — as if the “ money power ” were not largely made up of the savings of the industrial classes, such as poor washerwomen and sewing-girls, who are thus represented as constituting a “ menace to our liberties.” Finally, the whole country woke up, and protests against the fifth section began to pour in at Washington ; and inasmuch as it required a twothirds vote to take up the bill from the speaker’s desk in preference to other business, then fast accumulating at the end of the session, it seemed for a short time as if it would be difficult to push the bill through the house. But after several days of manœuvring the friends of the measure gained their point.

Now, however, since the banks, by the existing law, had the power to withdraw their bonds at any moment by the deposit of legal-tender notes, rather than be caught in a trap by the refunding bill, they found themselves obliged to alter the whole character of their present business, — a very serious step, but one to which they were inevitably driven. As honest men, the officers of the banks had no choice but to act so as to prevent the virtual confiscation of a part of the property of their shareholders. The law could not compel them to issue circulation any more than it could force farmers to plant thistle seed in their wheat fields. In short, Congress, either not knowing what it was about, or being maliciously disposed, really forced a sudden contraction of the currency, even against the will of the banks. The result was a panic.

Men who want capital go to a bank, just as a man who wants corn goes to a grain-store. It is hardly necessary, also, to point out that modern business is largely done upon credit. A firm with a capital of $10,000 does a legitimate business of ten times that amount. Men buy, agreeing to pay at a fixed time in the future ; and they sell goods, to be paid for in the same way. So that, although a man is perfectly solvent, his receipts may be so affected, temporarily, that he may need a loan for ten, thirty, or sixty days, until his own collections are made. If the banks, in such cases, are suddenly unable to loan, it is as if the human heart should cease to warm and support the members of the body. That which directly affects the ability of the banks to loan is the ratio of their reserve to their liabilities ; or, in other words, the amount they keep on hand with which to meet any demands compared with the amount of those possible demands. By law the national banks were required to bold their reserve in “ lawful money : ” therefore, anything which acted to subtract from the market the very kind of currency kept as reserve vitally affected the power of the banks to loan ; while the only means the banks had of extricating their bonds from the grip of the government, in the few days before the refunding bill could become a law, was by sending lawful money to Washington, to be locked up in the vaults of the treasury until the bank-notes should become mutilated and sent in for redemption, or be purchased at a premium. Between February 19th and March 4th, one hundred and forty banks had sent in to the Treasury $18,819,585. The disappearance of this amount of money caused a violent paroxysm in commercial circles. Where a dam is thrown across a stream, the back-water forms a wide reservoir, from which a small constant supply of water is led off through a mill-race to turn the wheel of the mill. So the banks form the reservoir of capital (drawn from all classes in the country), from which the smaller stream needed for daily loans is drawn off to “ turn the wheels of industry".” The sudden withdrawal of lawful money to reduce circulation was of course like shutting off the water from the mill, and the wheels of industry were suddenly stopped. The usual indications of a commercial panic instantly appeared. No one had money to loan ; “ industrial strangulation ” was going on ; and had the stringency increased, the business of the country would have come to a standstill in a few days. Money was borrowed at the rate of about four hundred or five hundred per cent. per annum. And what is important to note is that the distress which the hostile or ignorant element in Congress believed they were inflict ing on the banks really passed on to the people in general, who were powerless to help themselves. In view of all this, it seems almost incredible that a senator of the United States should rise in his place and soberly propose the following resolution : —

“ That the hostile attitude assumed by the national banks to the refunding of the national debt at a lower rate of interest, and their recent attempt to dictate the legislation of Congress, are contrary to the best interests of the people, and calculated to excite their alarm for the future.”

It is as if a burglar should declare it was against the best interests of the community that prudent people should lock their doors and windows in order to keep him out of their jewel-boxes. It is not an exaggeration to say that the “ Carlisle section ” was a piece of impudent bad faith, of that kind which has always had the greatest effect to lower our credit. A nation gains, even in money, by being scrupulously honest and fastidious in dealing with its creditors.

I scarcely need say that, although the refunding bill passed both houses of Congress, it was promptly vetoed by President Hayes, and failed to become a law. The danger to the banks ceased at once, and business again went quietly on. We make these things possible in this country by allowing the untrained congressional bull such extravagant smashings in the financial china-shop. But there is little hope of the idea entering his shaggy head that some things are of too delicate mechanism to be brushed by a swing of his tail. A large number of the charters of the banks expire in 1884, and something must be done to preserve the best banking system we ever enjoyed, and which is probably the best in the world. In view of the almost constant struggle between ignorant legislation and our business prosperity, it becomes us all to know more of our present admirable banking methods.

J. Laurence Laughlin.