After answering the reasons urged in favor of retaining the United States notes as a Government currency the Secretary states that in speaking of the legal tender acts, reference has only been made to those which authorized the issue of United States notes. The interest bearing notes which are a legal tender for their face value, were intended to be a security rather than a circulating medium, and it would be neither injurious to the public, nor an act of bad faith to the holders for Congress to declare that, after their maturity, they shall cease to be a legal tender, while such a declaration would aid the Government in its efforts to retire them, and is therefore recommended. CONTRACTION AND ITS EFFECTS. The rapidity with which the Government notes can be withdrawn will depend upon the ability of the Secretary to dispose of securities. The influences of funding upon the money market will sufficiently prevent their too rapid withdrawal. The Secretary, however, believes that a decided movement towards a contraction of the currency is not only a public necessity, but that it will speedily dissipate the apprehension which very generally exists, that the effect of such a policy must neces sarily be to make money scarce and to diminish the prosperity of the country. It is a well-established fact, which has not escaped the attention of all intelligent observers, that the demand for money increa-es (by reason of an advance of prices) with the supply, and that this dema d is not unfrequently most pressing when the volume of currency is the largest and inflation has reached the culminating point. Money being an unprofitable article to hold, very little is withheld from actual use, and in proportion to its increase prices advance; on the other hand a reduction of it reduces prices, and as prices are reduced the demand for it falls off; so that, paradoxical as it may seem, a diminution of the currency may in fact increase the supply of it. Nor need there be any apprehension that a reduction of the currency-unless it be a violent one-will injuriously affect real prosperity. Labor is the great source of national wealth, and indu try invariably declines on an inflated currency. The value of money depends upon the manner in which it is used. If it stimulates productive industry, it is a benefit, and to the extent only to which it does this is it a benefit. If, on the other hand, it diminishes industry, and to the extent to which it diminishes it, it is an evil. Even in the form of the precious metals, it may not prove to be wealth to a nation. The idea that a country is necessarily rich in proportion to the amount of gold or silver which it possesses, is a common and natural, but an erroneous one, while the opinion that real prosperity is advanced by an increase of paper money beyond what is absolutely needed as a medium for exchanges of real values, is so totally fallacious, that few sane men entertain it whose judgment is not clouded by the peculiar financial atmosphere which an iuflation is so apt to produce. An irredeemable paper currency may be a necessity, but it can scarcely fail if long continued, to be a calamity to any people. Gold and silver are the only proper measure of value. They have been made so by the tacit agreement of nations, and are the necessary regulator of trade, the medium by which balances are settled between different countries and between sections of the same country. As a universal measure of value, they are a commercial necessity. The trade between different nations and between sections of the same country is carried on by an exchange of commodities, but is never equally balanced by them; and unless credits are being established, the movements of coin unerringly indicate on which side the balance exists. The Secretary then shows that an inflated currency stimulates speculation, decreases production, and must result, if continued, in ruin. There are no indications of real and permanent prosperity in ou large importations of foreign fabrics; in the heavy operations at our commercial marts; in the splendid fortunes reported to be made by skillful manipulations at the gold room or the stock board; no evidences of increasing wealth in the facts that railroads and steamboats are crowded with passengers, and hotels with guests; that cities are full to overflowing, and rents and the prices of the necessaries of life, as well luxuries are daily advancing. All these things prove rather that a foreign debt is being created, that the number of non-producers is increasing, and that productive industry is being diminished. There is no fact more manifest than that the plethora of paper money is not only undermining the morals of the people by encouraging waste and extravagance, but is striking at the root of our material prosperity by diminishing labor. The evil is not at present beyond the control of legislation, but is daily increasing, and, if not speedily checked, will, at no di tant day, culminate in wide spread disaster. The remedy, and the only remedy within the control of Congress, is, in the opinion of the Secretary, to be found in the reduction of the currency. AMOUNT OF OUR CURRENCY. The paper circulation of the United States, on the 31st of Octob. r last, was substantially as follows: 1. United States notes and fractional currency.. 2. Notes of the National Banks. 8. Notes of State Banks, including outstanding issues of State Banks converted into National Banks... $454,218.038 20 185,000,000 00 65,000,000 00 $704,218,038 20 The amount of notes furnished to the National Banks up to and including the 81st of October was a little over $205 000,000, but it is estimated that $20,000,000 of these had not then been put into circulation. In addition to the United States notes, there were also outstanding $32.536.900 five per cent Treasury notes, and $178,012.140 compound interest notes, of which it would, doubtless, be safe to estimate that $30,000,000 were in circulation as currency. From this statement, it appears that, without including seven and three-tenths notes, many of the small denominations of which were in circulation as money and all of which tend in some measure to swell the inflation, the paper money of the country amounted on the 31st of October, to the sum of $734.218,038 20, which has been daily increased by the notes since furnished to the National Banks, and is likely to be still further increased by those to which they are entitled, until the amount authorized by law ($300,000,000) shall have been reached, subject to such reduction as may be made by the withdrawal of the notes of the State banks. The following is a statement of the bank note circulation of the country at various periods of highest and lowest issues prior to the war: 103,692,495 1857 64 $195,747,050 $14,778,822 155,208,344 207,102,000 It will be noticed by this statement that the bank note circulation of the United States increased from $61,324,000 to $149,185,890 between the 1st of January, 1830, and the 1st of January, 1837, in which latter year the great financial collapse took place; fell f om $149,185,890 in 1887, to $58,564,000 in 1843, and rose to $214,778,822 on the 1st of January. 1857, in which year the next severe crisis occurred; falling during that year to $155,208,314, and rising to $207,102,000 on the 1st of January, 1860. The following is a statement of bank deposits and loans in the same years: On the 30th of September, the date of their last quarterly reports, the deposits and loans of the National Banks (the Secretary has no reliable returns of these items from the few remaining State banks) were as follows: Deposits, Individual and Government..... Loans To which should be added Investments in U. S. bonds and other United States securities..... These figures are a history in themselves, exhibiting not only th past and present condition of the country, in matters of exceeding interest, but indicating unerringly the dangerous direction in which the financial current is sweeping. EFFECTS OF INFLATION, On the 1st of January of the memorable year 1837, the bank note circulation of the United States was $149,185,890, the deposits were $127,897,000, the loans $525,115,000. In January, 157, the year of the next great crisis, the circulation was $214.778.822, the deposits were $230,351,000, the loans $6-4.456,000. There are no statistics to exhibit the anio nt of specie actually in circulation in those periods, but it would be a liberal estimate to put it at $3,000,000 for 1837, and $50,000,000 for 1857. These were years of great inflation, the effects of which have been already referred to the revulsion of 1837 not only producing great mmediate embarrassment, but a prostration which continued until 1843, at the commencement of which year the bank note circulation amounted only to $58,564,000, deposits to $56,168,900, Joars $254,544,909—fl ›ur having declined in New York from $10 25 per barrel on the 1st of January, 1857, to $4 69 on the 1st of January, 1843, and other articles, in about the same proportion. The reaction in 1857 was severe, but, for the reason before stated less disastrous and protracted On the 30th of September last, the deposits of the National Banks alone amounted to $544,150,194; their loans-estiu ating their national securities as a loan to the Government-to $913,045,629; both of which items must have been increased during the month of October; while on the 31st of that month the circulation, bank and national, had reached the startling amount of u, wards of $700,000,000. Nothing beyond this staten:ent is required to exhibit the present inflation or to explain the causes of the current and advancing prices. If disaster followed the exparsions of 187 and 1857, what must be the conseque ces of the present expansion unless speedily checked and reduced! CONTRACTION. Before concluding his remarks upon this subject, it may be proper for the Secretary, even at the expense of repetition, to notice briefly some of the popular and plausible of jections to a reduction of the currency. First. That, by reducing prices it woud operate injuriously, if not disastrously, upon trade, and be quite likely to precipitate a financial crisis. To this it may be replied, that prices of articles of indispensable necessity are already so high as to be severely oppressive to consumers, especially to persons of fixed and moderate incomes and to the poorer classes. Not only do the interests, but the absolute necessities of the masses require that the prices of articles needed for their use should decime. The Nor is there any reason to apprehend, by any policy that Congress may adopt, so rapid a reduction of prices as to produce very serious embarrassment to trace. Government c› rrency can only, to any considerable extent, be withdrawn by a sale of bonds, and the demand for bonds will be so affected by the state of the market that a rapid contraction will be difficult, if not impossible, even if it were desirable. There is more danger to be apprehended from the ability of the Government to reduce its circulation rapidly enough, than from a too rapid reduction of it. It is, in part, to prevent a final cal crisis, that is certain to come without it, that the Secretary recommends contraction. Prices are daily advancing. The louger contaction is deferred, the greater must the tall eventually be, and the more serious will be its co sequences. It is not expected that a return to specie payments will bring prices back to the stancares of former years. The great increase of the precious Detals and high taxes will prevent this; but this consideration makes it the more important that all improper and unnecessary influences in this direction should be removed Again it is urged, that a contraction of the currency would reduce the public rev enues. It is possible that this might be the immediate effect, but it would be temporary only. The public revenues depend upon the development of our national resources, upon our surplus productions; in other words, upon labor. The revenues derived from transactions based upou a false standard of value, or from interests that can only flourish in speculative times, are not those up on which reliance can be placed for maintaining the public credit. What a healthy and reliable business requires is a stable basis. This it ca not have as long as the country is inflicted with an inconvertible currency, the value of which, as well as the value of the vast property which is measured by it, is fluctuating and unreliable, and may be in no small degree controlled by speculative combinations. It is also urged that the proposed policy would endanger the public credit, by preventing funding; and that it would compel the Government and the people, who are in debt, to pay in a dearer currency than that in which their debts were contracted. The Secretary is unable to perceive any substantial ground for this objection. He cannot understand how the process of funding is likely to be aided by the continnance of prices on their present high lev 1, or how the credit of the Government is to be restored by the perpetuation of an irredeemable currency, especially as that currency consists largely of its own notes. While it is hoped that early provision will be made for the commencement of the reduction of the national debt, an early payment of it is not anticipated. Nor is it understood that those who are apprehensive of the effects of contraction, entertain the opinion that the present condition of things should be continued until any considerable portion of this debt shall be paid. So far as individual indebtedness is regarded, it may be remarked, that the people of the United States, if not as free from debt as they were six months ago, are nuch less in debt than they have been in previous years, and altogether less than they will be when the inevitable day of payment comes round, if the volume of paper money is not curtailed. A financial policy which would prevent the creation of debts aud stimulate the payment of those already existing, so far from being irjurious, would be in the highest degree beneficial. It i further urged that a reduction of the Government notes would embarrass the National Banks, if it did not force many of them into liquidation. To which it may be said, that it is better that the banks should be embarrassed now than bankrupted hereafter. Their business and their customers are now under their control. What will be their condition in these respects if the expansion continues and swells a year or two longer, it is not difficult to predict. While there has been no unhealthy expansion of credits in the United States for which the banks have not been largely responsible, there has been none by which they have not been ultimately the losers. Unless their sentiments are misunderstood by the Secretary, the conservative bankers of the country are quite unanimously in favor of a curtailment of the currency, with a view to an early return to specie payinents. Again: It is said that the excessive bank deposits have as much influence in creating and sustaining high prices as a superabundant currency. This is unquestionably true; but it is also true that excessive deposits are the effects of exces ive currency, and that whenever the currency is reduced there will be, at least, a corresponding, it not a greater reduction of deposits The last objection which will be noticed to the measure recommended is, that it would, by reducing the rate of foreign exchange, reduce exports and increase imports. It is doubtles true that a high rate of exchange did for a time increase the exportatious of our productions, and diminish the importation of foreign articies, but this advantage was much more than counterbalanced by the largely increased expenses of the government and of the people, resulting from the very cause that produced the high rate of exchange. Besides, this apparent advantage no longer exists. The advance of prices in the United States, Lotwithstanding the continued high rate of European Exchange, is now checking experts and inviting imports, and is creating a balance in favor of Europe that is likely to be the greatest obstacle in the way of an early resumption of specie payments. Nor must it be forgotten, that while the export of our productions was stimulated by the high rate of exchange, this very high rate of exchange enabled Europe to purchase them at exceedingly low prices. Unless an unusual den.and for our products is created in Europe by extraordinary causes, it will be ascertained, by reference to the proper tables, that our imports increase, and our exports dininish, under the influence of a redundant currency. But reference to figures is hardly necessary to substantiate this proposition. It is substantiated by the statement of it. A country in which high prices prevail is an inviting one for sellers, but an uninviting one for purchasers. Such a country is unfortunately the United States at the present time. In order, however, that there may be no misapprehension on this point. the attention of Congress is respectfully called to a clear and interesting paper from Dr. Elder, statistician of this Department, accompanying this report. Every consideration, therefore, that has been brought to the mind of the Secretary confinis the correctnes of the views he has presented. If the business of the country rested upon a stable basis, or if credits could be kept from being still further increased, there would be less occasion for solicitude on this subject. But such is not the fact. Business is not in a healthy condition; it is speculative, feverish, uncertain. Every day that contraction is deferred increases the difficulty of preventing a financial collapse. Prices and credits will not remain as they are. The tide will either recede or advance; and it will not recede without the exercise of the controlling power of Congress. POLICY RECOMMENDed. The Secretary, therefore, respectfully but earnestly recommends First. That Congress declare that the compound interest notes shall cease to be a legal tender from the day of their maturity. Second That the Secretary be authorized, in his discretion, to sell bonds of the United States, bearing interest at a rate not exceeding six per cent, and redeemable and payable at such periods as may be conducive to the interests of the Government, for the purpose of retiring not only compound interest notes, but the United States notes. It is the opinion of the Secretary, as has been already stated, that the process of contraction cannot be injuriously rapid; and that it will not be necessary to retire more than one hundred, or, at, most, two hundred millions of United States notes, in addition to the compound notes, before the desired result will be attained. But neither the amount of reduction, nor the time that will be required to bring up the currency to the specie standard, can now be estimated with any degree of accuracy. The first thing to be done is to estblish the policy of contraction. When this is effected, the Secretary believes the business of the country will readily accomodate itself to the proposed change in the action of Government, and that specie payments may be restored without a shock to trade, and without a diminuition of the public revenues or of productive industry. At the close of a great war, which has been waged on both sides with a vigor and energy, and with an expenditure of money, without a precedent in modern times, the people of the United States are encumbered with a debt which requires the immediate and careful consideration of their representatives. The debt is large, but if kept at home, as it is desirable it should be, with a judicious system of taxation it need not be oppressive It is, however, a debt. While it is capital to the holders of the securities, it is still a national debt, and an encumbrance ucon the national estate. Neither its advantages nor its burdens are or can be shared or borne equally by the people Its influences are anti-republican. It adds to the power of the Executive by increasing Feneral patronage. It must be dist-steful to the people because it fills the country with informers and tax-gatherers. It is dangerous to the public virtue. because it involves the collection and disbursement of vast eums of money, and renders rigid national economy almost impracticable. It is, in a word, a national burden, and the work of removing it-no matter how desirable it may be for individual investment-should not be long postponed. As all true men desire to le ve ther beirs unencumbered estates, so should it be th ambition of the people of the United States to relieve their descendants of this national mortgage. We need not be anxious that future generations shall share the burdens with us. Wars are not at an end, and posterity will have enough to do to take care of the debts of their own creation. Various plans have been suggested for the payment of the debt, but the Secretary sees no way of accomplishing it but by an increase of the national income beyond the national expenditures. In a matter of so great importance as this experiments are out of place. The plain eaten path of experience is the only safe one to tread, The first step to be taken is to institute measures for funding the obligations that are soon to mature. The next is to provide for raising, in a manner the least odious and oppressive to tax payers, the reveLues necessary to pay the interest on the dett, and a certain definite amount annually for the reduction of the principal. The Secretary respectfully suggests that on this subject the expression of Congress should be decided and emphatic. It is of the greatest importance in the managen ent of a matter of so surpassing interest that the right start should be made. Nothing but revenue will sustain the national credit, and nothing less than a fixed policy for the reduction of the public debt will be likely to prevent its increase. TR ASURY STATEMENT. On the 31st day of October, 1865, since which time no material change has taken |