Sunday, March 29, 2009

Our Financial Troubles:The Government and the Panic in America 1873 (2)

These reasons are in argument perfectly conclusive; but we admit that it is most difficult for a Government to act on them. The collapse of a large system of banking causes so much evil, and that evil affects so many persons, that it is most difficult for a Government to be passive in it. On every side it is pressed on to "do something," and it is most difficult to refuse. A "cast-iron" executive would refuse. It would say: "All help to these bad banks is so much impediment to future good banks; it is so much sacrifice of future good to avoid present pain. We are trustees for the future nation, and we must resist the cries of the present nation." But a "cast-iron" executive like this is very difficult to find, and is especially difficult in free States. For an elected Government to deny the wishes of its electors is near to an impossibility. Though sound principle commands a Government to give no aid at a great collapse of banking credit, we do not expect that principle often to be obeyed. Much too often the present evil will be cured, though at the cost of greater evil. Things will be "made pleasant" for the time, no matter how unpleasant they may be afterward. The symptom will be abated, but the disease will be uncured.

Under these difficult circumstances President Grant appears to be acting very fairly probably as well as a person so placed can be expected to act. If he is not doing absolutely nothing, he is doing as little as he can. In two respects, indeed, his position is not quite so simple as it would at first sight appear. The American Government, though it has escaped the usual aggravations of a banking panic, though its own money is safe, though the currency is unsuspected, nevertheless has difficulties of its own. Its legislation has been unusual, and that legislation has had singular results. it prescribed that the banks should keep a certain reserve, and the panic was intensified because the public saw that the limit of that reserve was approached, if not infringed. As this part of the evil was caused by the past action of the Government, there can be no objection to its being retrieved by its present action. President Grant has, therefore, very reasonably connived at a temporary evasion of the law; it has been given out that the banks will not be required to make a statement for any date during the panic, and therefore, it will not be known what is their precise reserve, but no one doubts that it is generally less than the prescribed proportion. This is most certain to be the case with the New-York banks which have also suspended, since the panic, their usual practice of publishing weekly statements. There is nothing aginst principle in this connivance; on the contrary, it is in accordance with principle. In another respect, too, the position of President Grant is difficult and peculiar.

The principal currency of America the legal tender of the country is supplied by the Government, and the scarcity of it is an underlying cause of the present confusion. A fixed quantity of currency has been maintained in the face of a rapidly augmenting trade, and in consequence money has been dear and prices have been depressed. here again, as Government caused the difficulty, it might be said that Government should cure, or, at least, alleviate it. But this would be said i n error. This case is not on the same footing as the former one; the requirement of a fixed reserve is a questionable benefit, which might be temporarily foregone without disadvantage. But the non-increase of the inconvertible paper during an augmenting trade is the remedy, the painful but necessary remedy, by which that paper has gradually been raised much nearer to the level of gold than it was once. The application of that remedy cannot be interrupted without serious evil: its progress is necessary to the future welfare of the country. The present bad currency is at the root of the Anmerican disasters, and till it is removed the country is not safe from a recurrence of them. But every additional "greenback" issued at the present crisis is an interruption of the remedy. If President Grant were now, as he has been much urged, to issue a large number of new greenbacks, those greenbacks would remain in circulation, and would, in part, undo the beneficial work which has been already done; they would augment the premium on gold and increase the depreciation of the paper. Against such demands President Grant has in the main been firm. He has yielded only to this extent.

There are in the Treasury, as we have before explained, some $44,000,000 of greenbacks, which once made part of the currency, but which were formerly withdrawn from it; a part, and only a part of these withdrawn greenbacks have been reissued at this crisis. Perhaps even this was contrary to principle, and the Government had better have abstained from it; but in such a moment_in a system of Government so popular, and after demands so urgent and prolonged__few Governments would have been so firm, few would not have deviated further from the strict letter of economical teaching.

To be continued: (3)

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