Communicated to the House of Representatives, January 26, 1819.
Mr. Lowndes made the following report:
The committee appointed to inquire whether it be expedient to make any amendment in the laws which regulate the coins of the United States and foreign coins, respectfully report:
That the laws of the United States make all gold and silver coins issued from their Mint, and Spanish dollars, and the parts of such dollars, a legal tender for the payment of debts. The gold coins of Great Britain, Portugal, France, Spain, and the dominions of Spain, and the crowns and five-franc pieces of France, are also declared to be a tender, by an act passed on the 29th of April, 1816. These coins, excepting the five-franc pieces, had been made legal by two earlier acts, which had been allowed to expire; and their renewal, with slight modifications, must be attributed not to a disregard of the inconveniences which the use of coins, so various and unequal in their purity, must produce, but to the exigencies of a country endeavoring suddenly to recover a specie circulation. The act of 1816 was accordingly passed but for three years, and will expire on the 29th of April, 1819, after which no foreign coin but the Spanish dollar will, under our present laws, pass current as money within the United States. The act for establishing a Mint was passed in April, 1792, and it was then expected that foreign coins, including the Spanish dollar, might be disused after three years. But neither an examination of the laws which regulate the currency of American and foreign coins, nor the observations of the effects which they have as yet produced, will justify us in expecting that a continued reliance upon them will enable us to dispense at any time with foreign coins.
The gold or silver bullion carried to the Mint by individuals is coined, if it be of standard fineness, without charge or seignorage; and, if it be below the standard, the expense of refining it only is paid by them. All foreign gold and silver coins received by the Treasury must be “coined anew previously to their being issued in circulation.” These are the only provisions which the law has made for supplying the Mint with gold and silver; and the last provision is without effect, since banks have become the only depositories of public money.
The silver which is most frequently brought into the United States in the common course of commercial business is the Spanish dollar; but individuals have no inducement of interest to send this coin to the Mint. Within the United States it has an equal value with the American dollar, and in many foreign countries a much higher value. The Mint, however, has been employed in converting Spanish into American dollars, but it has been employed by banks, not individuals. The American dollar and half-dollar, however, have been found not unfit for exportation, and the Bank of the United States has made large importations of the five-franc pieces of France, which it prefers, because it supposes them less likely to be exported than other coins.
The legal value of the American and foreign coins which are current in the United States is so nearly proportioned in each to the pure metal which it contains, that where a remittance is to be made in specie, the foreign and national coin will be sent to many countries almost indifferently, except that coin of the nation to which the remittance is to be made will be preferred whenever it can be procured. On the other hand, if a remittance in specie is to made to the United States, the coins of half of Europe serve the purposes of money here as well as our own. This variety of current coin results, indeed, from a temporary law; but while the dollar of Spain and that of the United States are of exactly the same value within the United States, and of nearly the same value in many of the foreign countries to which our remittances of specie take place, it would be unreasonable to expect that the merchant should not often make them indifferently the subjects of exportation.
It is, however, true that in Canton, and many parts of the East Indies, the Spanish dollar is valued much higher than that of the United States, or than any other coin, in proportion to the quantity of pure silver which it contains. In many parts of the East Indies, indeed, no other coin is current; but in such as have mints of their own, (as in the British possessions,) our coins are estimated at their real value, or nearly so. The annual exportation of silver from Canton to British India is known to be very large; and this circumstance can hardly fail to raise the price of American silver even in Canton, slowly as customs and opinions change there; at any rate, we cannot calculate on the preference of Spanish dollars leading exclusively to their exportation, while of the articles which we import from the East Indies, including China, nearly one-half is drawn from countries in which our coins are all valued nearly in the just proportion to their purity and weight; and such was the proportion in our importations, at least during the year 1817.
The equal proportion between the legal and the intrinsic value of American and foreign coins, which tends to produce their indiscriminate exportation, has also an unfavorable effect upon their use in manufactures. The difference between the quantity of pure silver in the American and Spanish dollar is not such as to form any obstacle to the employment of the former by the manufacturer of plate. Fortunately, however, an objection to it is frequently found in the quality of the alloy, which makes it more difficult to be worked. As to our gold coins, they are employed with as much advantage by the manufacturer as any foreign coins, and with more advantage than some of those which are made current by law. Nor is the quantity of gold and silver annually employed in the manufactures of the United States now an inconsiderable one.
To preserve the coins which are issued from the Mint from being melted and exported, the laws must give them some advantages in internal commerce over foreign coins of equal purity and weight.
In respect to the gold coinage of the United States, the Mint depends for its supply of bullion upon banks or individuals, as it does in the coinage of silver. But there is a difficulty in the operations of the Mint, which is peculiar to the coinage of gold. The relative value of gold to silver is fixed by our law at one to fifteen, which is much below the relative value which is assigned to it in all those countries from which we might have expected to procure it. In Spain and Portugal, the legal value of gold is to that of silver as one to sixteen; and in that colony of Spain with which our intercourse is most frequent and valuable, (Cuba,) its price in commerce is at least seventeen for one. Hence we are not only precluded in the common course of trade from obtaining gold from these rich sources of supply, but the little which finds its way into the country from other quarters is drawn from us by the higher estimate which is there placed upon it. In France, the legal value of gold is to that of silver nearly as one to fifteen and a half. In most parts of Italy, it is somewhat higher. In England, silver coin is only current in small sums; but if a specie circulation shall be restored in that country, on the basis of its present Mint regulations, the relative value of gold to silver will be about one for fifteen and one-fifth. The exaction of a seignorage on its silver coins makes the comparison less easy, but the merchant who shall carry bullion to the English Mint will obtain very nearly the same amount of current money for one ounce of pure gold, or fifteen and one-fifth of pure silver. In Holland, the relative value of gold to silver is estimated (if there have been no recent changes in respect to it) at one to about fourteen and three-fourths. In Germany and the north of Europe, the value may be stated as rather below an average of one to fifteen. The West Indies, which are probably our most considerable bullion market, estimate gold in proportion to silver very little, if at all, below an average of one to sixteen. And this is done, although some of the most considerable colonies belong to Powers whose laws assign to gold a lower relative value in their European dominions. This estimate, which was forced upon many of the colonies by the necessity of giving for gold the price which it commanded in their neighborhood, and particularly in the countries which formed the great sources of their supply, seems to indicate the fair proportion between the metals in the West Indies, since it is believed to have been, in most instances, confirmed by the colonial laws rather than introduced by them. The difference established by custom in the United States between coined gold and silver, before the establishment of the present Government, seems to have been nearly as one to fifteen and six-tenths. The difference proposed by Congress, in their resolution of the 8th of August, 1786, was nearly one to fifteen and one-fourth; and the reduction in the valuation of gold by the act of April 12, 1792, to the proportion of one to fifteen, may be attributed to the belief which was expressed in the report on which that act was founded, “that the highest actual proportion in any part of Europe very little, if at all, exceeded one to fifteen; and that the average proportion was probably not more than one to fourteen and eight-tenths.” The difficulty of obtaining correct information upon points of this kind makes it not improbable that there may have been some error as to the state of the Mint regulations of Europe at the period of the report. But be this as it may, the principle which seems to be assumed in it, that the valuation of gold in this country should be higher than in Europe, would lead to the conclusion that the present valuation of one to fifteen is too low.
This conclusion is confirmed by the circumstance of the contract made not long since between the Bank of the United States and Messrs. Baring and Reid, for the supply of specie. Under this contract, gold and silver were to be furnished, if it were practicable, in equal amounts, according to the American relative valuation of one to fifteen. Upwards of $2,000,000 of silver have been accordingly supplied, but not an ounce of gold.
As the committee entertain no doubt that gold is estimated below its fair relative value, in comparison to silver, by the present regulations of the Mint, and as it can scarcely be considered as having formed a material part of our money circulation for the last twenty-six years, they have no hesitation in recommending that its valuation shall be raised, so as to make it bear a juster proportion to its price in the commercial world in general. But the smallest change which is likely to secure this object, (a just proportion of gold coins in our circulation,) is that which the committee prefer; and they believe it sufficient to restore gold to its original valuation in this country, of one to fifteen and six-tenths.
But, although the Mint regulations may affect the proportion of American and foreign, or of gold and silver, coin in the country, it seems difficult to suppose that they can reduce the general amount of specie below the quantity which our business really requires; and yet there is no complaint more generally made than that of a want of specie in any shape.
What, then, are the circumstances which produce this acknowledged difficulty of retaining gold and silver coin in this country? We are told of the immense amount of our foreign importations; and it is plain enough that, if we did not import from other countries, we should not export silver or any thing else. But we retain and employ in our service, among all the articles which we produce, and all we traffic in, whatever suits our wants, convenience, or taste. Warehouses enlarge and shops multiply to the measure of the augmented demand, and even gold and silver, in every shape but that of money, are imported from abroad, and manufactured at home, and lose their migratory character whenever they become plate, and cannot be exported without loss. The want of gold and silver coin cannot, therefore, proceed from an inability on our part to buy, or in other countries to supply our wants. There is, however, one branch of commerce which seems obviously connected with the disappearance of specie, and which must be admitted to exert a strong disturbing power on the whole system of our currency. The trade of the East Indies has in all ages carried to those countries the silver of every part of the world which consumed their produce, and the United States have a very large share of this trade. The whole amount of our current coin is not probably more than double of that which has been exported in a single year to India, including China in the general term. Will not an exportation as great as this go far to account for the deficiency of silver in our circulation? And yet a direct trade with India, if it encourage a larger consumption of her produce, gives us that produce at a much lower rate; if it carry from the country a great amount of specie, probably adds by an equal sum to our sales in foreign markets. The annual exports in American vessels from the United States and all other places to China and the East Indies can hardly be estimated at more than $12,000,000, and it cannot be doubted that our sales of East India articles in Europe exceed that amount. The value of merchandise from China and India annually consumed in the United States is probably equal to $5,000,000; if this be so, the consumption of East India articles by the United States is paid for by the mere profits of the trade. A branch of industry in which three thousand men (for this is about the number of seamen in the India trade) add $5,000,000 to the annual produce of the country, would be worthy of protection, even if it were not connected with considerations of naval defence. These views may make us doubt whether the India trade tends to diminish the average quantity of silver in the United States. Its effect in the nations which have engaged in it before ourselves has been generally to increase their specie circulation as well as their naval strength; and it seems reasonable that it should have done so. No man supposes that Holland, by supplying the rest of Europe with spices, left her own wants unsupplied. Nobody apprehends that our market must be destitute of teas, because we export millions of pounds annually; and why should the dealers in silver rather than in spices or teas make no provision for the home demand? When Genoa, Venice, Portugal, and Holland carried on an extensive trade in East India articles, and had no paper circulation, they were the depositories of the silver of Europe. When the States of America had no trade to the East Indies, but a full paper circulation, they were destitute of silver. Wherever the trade has existed without the paper, specie has been abundant; and scarce always where the paper has existed, either with or without the trade. We must conclude, that where the precious metals become scarce while the price of foreign and domestic productions continues high, their scarcity results not from the country being unable to procure or retain them, but from its choosing to employ a substitute for their use.
While, however, the Indian trade has probably no tendency in itself to lessen the average amount of specie employed in the country, it produces, under the present Mint and bank system of the United States, the most inconvenient effects on the currency. The general demand of the commercial world for the material of which we make our money is useful, by giving stability to its value. But if a state of things be supposed in which one country has a constant demand for this money, taking from us nothing else, while we are obliged to keep up our quantity by importations from other States, it is obvious that a demand and supply like this, instead of making our circulation equable, or proportioned to our wants, must produce that very instability in the value of money which the precious metals are employed to remove. Undoubtedly, a nation, like an individual, if it owe a debt, must pay it; and if it have no other means of payment, must even export its coin for the purpose. But although this exportation cannot be prevented when a general balance exists against the nation, it is still true that the coin or money of the country should not be the object of regular remittance in any foreign trade; nor is it so with any commercial nation but the United States.
But the inconvenience of making the coin or money of the State the object of regular remittance in a foreign trade is greatly enhanced in a country which, like the United States, has a mixed circulation of specie and of the paper of banks of discount.
While these banks remove a large portion of coin, whose place they supply by their notes and credits, they give a new character to that which remains. Their obligation to pay specie upon demand makes it the most important office of the precious metals to regulate and restrain the issue, and to support the credit of bank paper.
A prosperous condition of trade, an abundance of native products, and a foreign demand for them, which requires a large circulation, produce an increased issue of paper on the part of the banks. This very prosperity is the incentive to a trade to India, which not only abstracts very largely from the silver coin of the country, but obliges the banks to withdraw a still larger amount of their paper. Under this system, indeed, the importation of what the laws make current coin is encouraged, as well as its exportation; but the quantity of our money and its value fluctuate with the seasons and the winds. The banks are obliged to contract their discounts, not only by a general or durable state of exchange, but from temporary causes, and from the condition of a particular trade.
But the India trade, under the present system of our coins, produces another and, ultimately, perhaps a worse effect upon the operations of the banks. We have spoken of the inconveniences which that trade must cause if the banks which issue paper redeem it by specie whenever it is presented. On this supposition, the merchant will make no effort to prepare the bullion or the Spanish dollars which he wants for the India market. The bank collects them without charge. He will draw from that reservoir, and avoid the risk and trouble of a double operation. But the banks do not always pay specie promptly and willingly when it is required for the India trade. Their resistance, indeed, must be often ineffectual, although it cost something to the merchant and give some profit to the broker; but if a combination of banks can close their vaults whenever the public interest may seem to require it, the best limitation upon the issue of paper is destroyed, and the stability of our currency and the execution of contracts have no higher security than the public spirit and disinterestedness of their directors. While our coins are such as it is the interest of the merchant habitually to remit to India, the apology for evading their engagements will be sometimes made by the banks and encouraged by the people.
Whether we are to have banks or not, however, the principles which would proscribe the India trade are incompatible with fair and wise legislation. But it is desirable that the regulations of the Mint should be such as may prevent that trade from alternately filling and draining the circulation of the country — such as shall not encourage the merchant to make its coins the regular subjects of foreign exportation.
The inconveniences which have been attributed to our present system of coins would, in a great measure, be removed if gold should be made the only legal tender for all debts above a moderate amount. In favor of such a provision it may justly be said, that there has been less variation for some centuries in the value of gold than of silver, and that it would avoid the embarrassments which are inseparable from a mixed circulation of both metals. The balances of payments between different States would be settled with more ease than if our coins were principally silver, and the traveller would be relieved from the loss and imposition which he frequently suffers when he carries with him bank notes, the value of which must vary with the course of trade, because their transmission cannot extinguish a debt, though it may change its form and its parties. But, whatever may be the advantages of a circulation consisting principally of gold, we have been too long accustomed to consider silver as the principal measure of value, to make it prudent, or indeed practicable, to supersede its office. To attempt by law to prevent the currency, or to decry the value, of a metal which the public consider as the standard of value, would be much more futile than the enterprise of giving legal value to a substance intrinsically destitute of it. There have, indeed, been countries in which the use of silver, in large payments, has been abolished, and gold substituted; but it is believed that, in those instances, law has only confirmed the change which had been made by custom.
We may conclude that, in any amendment which may be made to the laws respecting the coins of the United States, those of silver must continue to be a tender in payment of all debts.
An advantage may be afforded to American silver coins in internal commerce over foreign coins of equal purity and weight, either by assigning a diminished value to foreign coin, and particularly the Spanish dollar, or by reducing the weight of the American dollar. The first is impracticable. The Spanish dollar, whatever our laws may be, will be received by the banks and the people.
In all civilized countries (except China, in which there is no Mint,) it has been considered as the office of the Government to ascertain by its stamp the weight and fineness of the metals which are used as money. In some countries (and these the most enlightened and liberal) the State exacts no duty upon this stamp or coinage, so that the individual receives from the Mint in coin the exact quantity of pure metal which he has deposited in bullion. This is the case in France, in Britain, (in respect to her gold coins, and it was so until recently in respect to her silver,) and in the United States. In France and Great Britain, however, no foreign coin is allowed to be current. Under this system, the merchant is encouraged to carry to the Mint whatever bullion he receives; the circulation of the country is increased or diminished, without artificial impediments, as the state of its trade may require; and the value of the coin is made to depend upon the general value of the metal in the commercial world. It is believed that both in France and England, however, it is made penal to export or melt the coin.
Upon the first establishment of a Mint in the United States, the question of a seignorage upon the coin was necessarily presented to the Legislature. The Secretary of the Treasury, in his report on the establishment of a Mint, urges the propriety of commencing our coinage without a seignorage, or with a small one. “It will be better to increase it hereafter,” he says, “if this shall be found expedient, than to recede from too considerable a difference.”
A seignorage in the United States will produce the effect which results in other countries from foreign coins not being allowed to be current. It will cause the national coin to be more valuable at home than abroad. It will prevent it being melted or exported, while other coin can be procured; and may thus effect, in some degree, by an application to the interests of the citizen, an object which the penal provisions of other States have been very unsuccessful in attaining. It will indirectly exclude foreign coin from circulation, and thus make the quantity and value of the coin which we employ more uniform. It must be considered, however, as principally recommended by the character and amount of our trade to India, and it will be remembered that this trade had been scarcely opened at the period of Mr. Hamilton’s report.
If a small seignorage be imposed upon the silver coin of the United States, and no other foreign coin but the Spanish dollar be allowed to be current, it is probable that silver, from the same countries, and to the same amount, would be sent to the Mint, as if there were no seignorage. Without a seignorage, it would be sent only when it was wanted for the circulation of the country, and it would be as valuable to the individual for this purpose after the duty was deducted as if there were none. The Mint would not, in this case, receive Spanish dollars, and it does not now. The banks would have an obvious interest in converting all their coin into that which would be least liable to exportation. The India merchant, unable after a short time to collect his cargo to advantage from the circulating money of the country, would prepare his silver for India as he does his muslins for Europe.
Neither this regulation, however, nor any other, will retain in the country a quantity of coin disproportioned to the amount of property which it is employed in exchanging. It will not prevent the perpetual banishment of the precious metals, if a paper not convertible into specie is supported by law or public opinion. It may, indeed, well be questioned whether a sound circulation can be obtained with an amount of bank paper as large as we have had, even at periods subsequent to the late war, and whether the amount can be permanently diminished unless the present bank capital of the country be reduced. But these questions do not fall within the province of the committee appointed to report on the laws “which regulate the coins of the United States and foreign coins.”
In a fair exposition of the effects of a seignorage upon coins, it must be admitted that, where it is exacted, coin will be generally, but not always, more valuable than its weight in bullion. While, then, it is believed that, in the United States, it would tend to make the value of our money more uniform, it is not denied that an opposite result may sometimes, and, where the seignorage is high enough to make it a resource of Government, may often be produced by it.
A nation which employs both gold and silver as its legal money, has an additional inducement to those which have been mentioned for establishing a seignorage on one or both metals. The relative value of these continually changes; and a small change, which, without a seignorage, would make it the interest of the merchant to export the one and import the other, will not produce that effect if there be a seignorage upon the undervalued metal.
The reasons which may be urged in favor of a seignorage upon silver have not the same force in respect to our gold coins. There is no country to which gold is the regular object of remittance from the United States; and a difference of valuation is not necessary in order to give to the gold coin of the United States an advantage in internal commerce over other coin, because it is not impracticable to exclude foreign gold directly from general circulation.
The committee submit to the House the following provisions:
Any plan which may be proposed for supplying the United States with coins of their own would probably be liable to considerable difficulties, but the inconveniences of the present system are not slight. An annual exportation of the current money of the country to an amount much greater than our own Mint can supply — perhaps half as great as our circulation employs; an irregular importation from other countries to repair the loss; the use of foreign money so various that our current coins are now of at least seven different standards; a provision for a national Mint, which was expected, after three years, to dispense with foreign coins, and which, after twenty-six years, has left the great mass of our coins still foreign — these circumstances seem to show that some change is necessary. The wisdom of the Legislature must determine what that change shall be.