In referring to the condition of the circulating medium, I shall merely reiterate substantially that portion of my last annual message which relates to that subject.

The proportion which the currency of any country should bear to the whole value of the annual produce circulated by its means is a question upon which political economists have not agreed.  Nor can it be controlled by legislation, but must be left to the irrevocable laws which everywhere regulate commerce and trade.  The circulating medium will ever irresistibly flow to those points where it is in greatest demand.  The law of demand and supply is as unerring as that which regulates the tides of the ocean; and, indeed, currency, like the tides, has its ebbs and flows throughout the commercial world.

At the beginning of the rebellion the bank-note circulation of the country amounted to not much more than $200,000,000; now the circulation of national-bank notes and those known as “legal-tenders” is nearly seven hundred millions.  While it is urged by some that this amount should be increased, others contend that a decided reduction is absolutely essential to the best interests of the country.  In view of these diverse opinions, it may be well to ascertain the real value of our paper issues when compared with a metallic or convertible currency.  For this purpose let us inquire how much gold and silver could be purchased by the seven hundred millions of paper money now in circulation.  Probably not more than half the amount of the latter; showing that when our paper currency is compared with gold and silver its commercial value is compressed into three hundred and fifty millions.  This striking fact makes it the obvious duty of the Government, as early as may be consistent with the principles of sound political economy, to take such measures as will enable the holders of its notes and those of the national banks to convert them, without loss, into specie or its equivalent.  A reduction of our paper circulating medium need not necessarily follow.  This, however, would depend upon the law of demand and supply, though it should be borne in mind that by making legal-tender and bank notes convertible into coin or its equivalent their present specie value in the hands of their holders would be enhanced 100 per cent.

Legislation for the accomplishment of a result so desirable is demanded by the highest public considerations.  The Constitution contemplates that the circulating medium of the country shall be uniform in quality and value.  At the time of the formation of that instrument the country had just emerged from the War of the Revolution, and was suffering from the effects of a redundant and worthless paper currency.  The sages of that period were anxious to protect their posterity from the evils which they themselves had experienced.  Hence in providing a circulating medium they conferred upon Congress the power to coin money and regulate the value thereof, at the same time prohibiting the States from making anything but gold and silver a tender in payment of debts.