Popular Science Monthly/Volume 33/June 1888/The Surplus Revenue
By EDWARD ATKINSON.
IS the United States now in receipt of a revenue derived from taxation in excess of a reasonable expenditure for conducting the functions of the Government and meeting the current annual expenses of the nation, the pensions and other like obligations already incurred?
To this question a positive answer may be given. Yes. The surplus revenue of the United States, above the necessary expenses of the Government economically administered, is now at least $100,000,000 a year; and unless Congress at its present session takes some action for the reduction of the revenue, it may exceed ere long $150,000,000 each year.
On the other hand, it may be asked. Would a private corporation consider itself in possession of a surplus revenue from its business, which it would be at liberty to deal with at its own pleasure, if it owed a large sum of money on demand and a still larger sum of money subject to be paid on demand within a .short period of time? No sound business man could be found who would affirm that under such conditions a private corporation could make any more suitable use of the revenue received in excess of its necessary expenditure than to apply it to the payment of its debt due on demand, and to prepare the way for making payment of the debt soon to become due at a date fixed.
If this reasoning be applied to the present condition of the United States, it will appear that the Government is not at the present time in the possession of a surplus revenue in any true sense. It owes on demand that sum of money which is represented by the evidences of debt, known as legal-tender notes, and commonly called greenbacks.
In order to be able to pay these notes on demand when demand is made, the treasury of the United States holds a special reserve of $100,000,000 in gold coin; but the amount of notes due is in round figures $350,000,000. The United States, therefore, owes substantially $250,000,000 on demand, for which it has as yet made no specific provision either in gold coin or to any considerable extent, even in silver coin which can be made available for such payments. The remainder of its gold held in the treasury above the special reserve of $100,000,000 is either subject to payment on demand in liquidation of gold certificates of deposits, or else it constitutes a part of the necessary daily balance of money necessary to the ordinary conduct of business. The larger part, if not the whole, of the silver dollars held by the treasury are held to meet the payment of the silver certificates which have been issued against them. There are, therefore, substantially $250,000,000 of United States notes due on demand, for which no specific provision has yet been made and to the payment of which the so-called surplus revenue could now be applied. Yet the public mind has become so accustomed to the common use of a debt currency, which under a fiction of law has been declared to be lawful money by the Supreme Court of the United States, as to have lost sight of the fact that the greenback or legal-tender note is not true money, but that it is an evidence of debt to be paid. Therefore, no consideration is given to the possible application of surplus revenue, so called, to such payment of these notes now due on demand.
In order that this subject may be made clear, it becomes necessary to recur once more to the original purpose of the Government in issuing United States notes and compelling their acceptance as lawful money by means of the legal-tender act. These notes were issued in time of war for the purpose of collecting a forced loan and for no other purpose. The necessity for a forced loan has ceased; the revenue of the Government is in excess of its necessary expenditures. When the revenue derived from taxation is paid to the Government in its own notes, that forced loan, to the amount of such notes paid in, has been liquidated by way of taxation. Each note returned to the treasury in settlement of a tax becomes like a common bank-note when redeemed by the bank; it is a note paid. It is functus officio. Its reissue by the treasury of the United States is in fact the collection of a new forced loan without authority of law under any act authorizing such a new loan, without necessity, without benefit to any one, and with positive danger to the whole community.
If the executive officers of the United States were to take the ground that these notes should not be reissued when they had once been paid into the treasury of the United States in settlement of a tax, except under a specific act of Congress authorizing the collection of a new loan—i. e., without an act being now passed authorizing a new loan of money, for which purpose a specific act is required on the part of Congress under the existing statutes—could Congress itself compel the Executive to reissue these notes even as the laws now stand? Could Congress meet the case by a mere mandatory act, instructing the treasurer to reissue the notes, without passing an act for borrowing money or for negotiating a new loan on the terms named in these notes?
If not, then, so far as the excess of revenue received by the treasury of the United States over and above its necessary expenditures under the appropriations made by Congress consists of legal-tender notes, such notes cease to be money when they come back into the treasury. They no longer constitute a surplus; they are simply evidences of a demand debt which has been paid.
What objection is there to this course being taken? Simply this: Under a fiction of law, sustained by a decision of the Supreme Court, these evidences of debt have become a part of the circulating medium—i. e., a part of that which is used as money in that portion of the transactions of the people in which actual money is required; also, under the provisions of the bank act, these notes may constitute a part of the bank reserves held by them to meet their obligations when demand is made upon them for payment in money. Why should banks not be required to hold coin only for that purpose?
Upon what ground can a rich and prosperous nation hold to the belief that it can not afford to pay its debt due on demand lest it should be unable to supply itself with real money in place of this mock-money which has been forced into circulation under the stress of war and under an alleged necessity which has ceased? The instruments of exchange or currency which serve the purpose of money in the United States now consist of seven different kinds, viz., gold coin of full legal tender; Government certificates of gold coin; silver dollars of full legal tender; Government certificates payable in silver dollars; legal-tender notes redeemable on demand and receivable for taxes; national-bank notes convertible on demand into lawful money on presentation at the banks; subsidiary coin of limited legal tender.
The proportion of the transactions of the country in which actual money of either of these seven kinds is necessarily used, constitutes but a very small fraction of the transactions of all kinds. A vast proportion, far exceeding ninety per cent of all the transfers, bargains, sales of goods, stock, and real estate, are liquidated and settled by the use of checks, bills of exchange and book accounts, without recourse to any actual money whatever. The money itself is used as an instrument only in the petty transactions of life. Yet such is the delusion regarding the necessity for a certain quantity of real or coined money, or for substitute money redeemable in coin, to be kept in actual circulation, that a panic nearly happened last summer because it was assumed that an undue proportion of these various kinds of money or currency would be called into the treasury and would not be reissued for lack of appropriations. Even the most sagacious bankers then appealed to the treasury for relief, as if this country did not hold a demand check upon the reserves of gold coin throughout the world sufficient to meet any such temporary difficulty! The panic was allayed, but allayed only by the very judicious action of the Treasury Department; but the cause of the panic was very soon removed by the import of over $30,000,000 in gold coin in response to our drafts during the summer and early autumn.
The whole volume of the coin of the world is at our disposal if we choose to draw upon it as we did last summer. If right consideration be given to existing conditions there could perhaps be no better use for the excess of revenue derived by Government from taxation than its application to the payment of that part of the demand debt, to wit, $250,000,000, which is not now covered by gold in the treasury. There could then be no objection to the continued circulation of United States notes in place of the coin itself; their form could be changed; they could be made into gold certificates corresponding to the silver certificates. Then the whole financial system of the country would be placed upon a solid foundation such as it had never before reached. If such a course were adopted, the excess of revenue over necessary expenses and probable appropriations by the present Congress would be likely to amount to about the sum of uncovered notes, viz., 8250,000,000, in the interval between the present time and the time when the four and a half per cent bonds would become due and payable in 1891. Any excess of revenue at that time could then be applied to the payment of such four and a half per cent bonds. Is it not a financial absurdity to buy bonds not yet due at a high premium, and to make a forced loan by the issue of notes due on demand for that purpose?
It may, therefore, be time enough to shape legislation on the mere ground of an alleged excess of revenue, when the legal tender notes and the four and a half per cent bonds shall all have been paid, and not before.
There may be other reasons for reducing taxation. The purpose of this memorandum is simply to treat the alleged excess of revenue and to show that there is as yet none above the positive obligations of the Government which are due and payable. The purpose is to bring out the fact that there is a debt of the United States now due which can be paid; that the country is rich enough to pay it; that no financial disturbance would of necessity ensue; that the vast deposits of gold coin now held in Eu-. rope and our own annual product would suffice to meet our checks for $200,000,000, without serious embarrassment, to be used in the next two or three years, in liquidation of the balance due us for cotton, for corn, and for other commodities which the world must have and can not spare.
It therefore follows that if any temporary financial stringency should occur because of the withdrawal of the legal-tender notes from the bank reserves and from their use as money in this country, the burden or strain of that condition need not and would not be carried by the banks or bankers of this country, but would be transferred to our debtors who owe us, and will continue to owe us annually, on our merchandise account, more than we require to put ourselves on the most solid financial foundation of any nation in the world, viz., on a basis of a paper currency based upon actual bullion held in reserve, dollar for dollar. If it be said that such a demand for coin on the bank reserves of Europe would be met by a return of our securities, may it not be held that these securities are mostly held for investment, and that the more apparent the danger of war and of financial disturbance in Europe becomes, the larger will be the transfer of capital to this country for investment?
May it not be held that the very excess of revenue paid into the treasury over and above the necessities of the Government, is in itself a witness to the enormous financial power now held by the United States because of the very accumulation of capital which has occurred during the last few years? May we not be misled by a mere delusion in assuming that the legal-tender notes or greenbacks have any further useful function in this country if they ever had any?
When the fact is baldly stated which can not be denied, that the reissue of these notes from the treasury of the United States is not the continuance of a former loan, but is the actual borrowing of new money under a forced loan and in time of peace, can anything be more absurd than to assume that such a course is necessary? If the burden of taxation demands relief, that is altogether another matter. If, on the other hand, the burden of taxation is not serious, to what better purpose can the revenue be put than to the payment of any or all debts of the United States, to the end that, before the century is completed, the United States may be absolutely free from the debt which it incurred in order to maintain the integrity of the nation?