This system of currency has put an end at once and forever to the old banker's trick of expansion and contraction. The present generation knows of that trick hardly by tradition. It is now complained that the national bank note currency is not elastic. That is very true. The old local bank note currency had the highest conceivable elasticity, and instead of varying with the requirements of the market, the banker was forever operating on its elasticity by his arbitrary will, and imparting fluctuations to the market. In order to stop him from doing that, a stringent system has been made, which has taken away the elasticity altogether; but if there was no other currency than a national bank note currency, limited far within the requirement, and combined with a large component of specie, the specie margin would give all the elasticity which would be required.
It is not possible that any government issue, whether direct like the greenbacks, or indirect like the national currency, should ever be elastic. It cannot be conducted on the banking principle, but only on the currency principle. We have attempted to maintain the government issue on a reserve of specie, which was planned at first to be one-third of the paper, in reliance on an old-fashioned empirical rule of banking; but a government issue can never be made to imitate the ebb and flow of the operations of the market. If the issues are put out in the payment of expenditures and are recovered in taxes, the two movements take place within some limit of time which is a tax period; but this does not resemble the movements of the market any more than a petty and arbitrary mechanism resembles an organism. What sustains a bank note circulation, as we have had repeated opportunity to observe, is the pulsation of borrowing and lending, or buying and paying, which, within a limit of time, or successful transactions, must equal each other. At every pulsation the bank notes are called into existence, and are canceled. A permanent government issue cannot be made to operate in a way in the remotest degree resembling this.
Under the operation of the paper-money system which existed for fifteen years after the war, prices and credits expanded to absorb the paper. Every autumn a stringency was experienced in the money market when the demand came for moving the crop. Under the pressure of the demand created by this stringency, the Secretary of the Treasury re-issued, in 1869, $1.5 millions of the treasury notes which had been retired by Secretary McCulloch. They were afterwards withdrawn. In 1871 a like sum was issued and withdrawn. During these years the effect of the central redemption system was to draw more and more of the free capital of the country into New York; but the expansion absorbed it all and renewed the stringency. In 1872 the amount issued was about $5 millions, and there was great difficulty to get it back. These phenomena all pointed to the fact that the system was working to a crisis. The cycle of phenomena of a paper money inflation was regularly repeated up to the point where the next thing to be expected was a crisis. The stage of investment in fixed capital had already been reached for a year or two. In this case it consisted
