A New Banking System Part 5

[G] If the excess mentioned in the text should not be withdrawn, it will be only because the system is so villainous in itself, that other parts of the country will not accept the shares to which they are ent.i.tled.

By the census of 1870, Ma.s.sachusetts had a population of 1,457,351. She has now, doubtless, a population of 1,500,000. Calling her population 1,500,000, the $58,506,686 of circulation which she now has, is equal to $39 for each person, on an average. When $14,400,000 of this amount shall have been withdrawn, as the law now requires it to be, the circulation will be reduced to less than $30 for each person, on an average. If the circulation should be reduced to the proportion to which Ma.s.sachusetts is ent.i.tled, on the basis of wealth--that is, to $25,098,600--she will then have less than $17 for each person, on an average. If the circulation should be reduced to the proportion to which Ma.s.sachusetts is ent.i.tled on a basis of population--that is to $13,879,778--she will then have a trifle less than $9 for each person, on an average.

For years the industry of Ma.s.sachusetts has been greatly crippled for the want of bank credits, although her banks have been authorized to issue their notes to the amount of $58,506,686; or $39 to each person, on an average. What will her industry be when her banks shall be authorized to issue only $44,106,686, or $30 for each person, on an average? What will it be, if her bank issues shall be reduced to her proportion on a basis of wealth, to wit, $25,098,600; or less than $17 for each person, on an average? Or what will it be, if her bank circulation shall be reduced to her proportion on a basis of population, to wit, to $13,379,778; or less than $9 for each person, on an average?

In contrast with such contemptible sums as these, Ma.s.sachusetts, under the system proposed, could have nine hundred millions ($900,000,000) of bank loans;[H] that is, $600 for every man, woman, and child, on an average; or $1,500 to each adult, male and female, on an average; or $3,000 to each _male_ adult, on an average.

[H] Since the notes on page fifth were printed, the _Boston Journal_, of Jan. 11, 1873, says that, by the valuation of 1872, the real estate of Ma.s.sachusetts is $1,131,306,347.

Which, now, of these two systems is most likely to secure and increase the prosperity of Ma.s.sachusetts? Which is most likely to give to every deserving man and woman in the State, the capital necessary to make their industry most productive to themselves individually, and to the State? Which system is most likely to induce the skilled laborers and enterprising young men of Ma.s.sachusetts to remain here? And which is most likely to drive them away?

SECTION 3.

But the whole is not yet told. The present "National" system is so burdened with taxes and other onerous conditions, that no banking at all can be done under it, except at rates of interest that are two or three times as high as they ought to be; or as they would be under the system proposed.

The burdens imposed on the present banks are probably equal to from six to eight per cent. _upon the amount of their own notes that they are permitted to issue_.

In the first place, they are required, for every $90 of circulation, to invest $100 in five or six per cent. government bonds.[I] This alone is a great burden to all that cla.s.s of persons who want their capital for active business. It amounts to actual prohibition upon all whose property is in real estate, and therefore not convertible into bonds.

And this is a purely tyrannical provision, inasmuch as real estate is a much safer and better capital than the bonds. Let us call this a burden of _two per cent. on their circulation_.

[I] At first they were required to invest only in _six_ per cent.

bonds. But more recently they have been coerced or "persuaded"

to invest sixty-five millions ($65,000,000) in _five_ per cent. bonds. And very lately it has been announced that "The Comptroller of the Currency will not hereafter change United States bonds, deposited as security for circulating notes of national banks, except upon condition of subst.i.tuting the new five per cents. of the loan of July 14, 1870, and January 20, 1872."--_Boston Daily Advertiser of February 5, 1873._

From this it is evident that all the banks are to be "persuaded"

into investing their capitals in _five_ per cent. bonds.

Next, is the risk as to the permanent value of the bonds. Any war, civil or foreign, would cause them to drop in value, as the frost causes the mercury to drop in the thermometer. Even any danger of war would at once reduce them in value. Let us call this risk another burden of _one per cent. on the circulation_.

Next, every bank in seventeen or eighteen of the largest cities--Boston among the number--are required to keep on hand, at all times, a reserve--_in dead capital_ (legal tenders)--"equal to at least twenty-five per centum," and all other banks a similar reserve "equal to at least fifteen per centum," "of the aggregate amount of their _notes in circulation, and of their deposits_."

Doubtless, two thirds--very likely three fourths--of all the bank circulation and deposits are in the seventeen cities named. And as these city banks are required to keep a reserve of dead capital equal to twenty-five per cent., and all others a similar reserve equal to fifteen per cent., _both on their circulation and deposits_, this average burden on all the banks is, doubtless, equal to _two per cent. on their circulation_.

Next, the banks are required to pay to the United States an annual tax of one per cent. on their average circulation, and half of one per cent.

on the amount of their deposits.

Here is another burden equal to at least _one and a half per cent. on their circulation_.

Then the capitals of the banks--the United States bonds--are made liable to State taxes to any extent, "not at a greater rate than is a.s.sessed upon the monied capital in the hands of individual citizens of such State." This tax is probably equal to _one per cent. on their circulation_.

Here, then, are taxes and burdens equal to _seven and a half per cent.

on their circulation_.

Next, the banks are required to make at least _five_ reports annually, to the Comptroller of the Currency, of their "resources and liabilities." Also reports of "the amount of each dividend declared by the a.s.sociation."

Then, too, the banks are restricted as to the rates of interest they are permitted to take.

Then "Congress may at any time alter, amend, or repeal this act;" and thus impose upon the banks still further taxes, conditions, restrictions, returns, and reports. Or it may at pleasure abolish the banks altogether.

All these taxes, burdens, and liabilities, cannot be reckoned at less than _eight or nine per cent. on the circulation of the banks_; a sum two or three times as great as the rate of interest ought to be; and two or three times as great as it would be under the system proposed.

And yet the banks must submit to all these burdens as a condition of being permitted to loan money at all. And they must make up--in their rates of interest--for all these burdens. Under this system, therefore, the rate of interest must always be two or three times as high as it ought to be.

The objections to the system, then, are, first, that it furnishes very little loanable capital; and, second, that it necessarily raises the interest on that little to two or three times what it ought to be.

Such a system, obviously, could not be endured at all, but for these reasons, viz.: first, that, being a monopoly, those holding it are enabled to make enormous extortions upon borrowers; and, secondly, that these borrowers--most of whom are the bankers themselves--employ the money in the manufacture and sale of goods that are protected, by tariffs, from foreign compet.i.tion, and for which they are thus enabled to get, say, fifty per cent. more than they are worth.

In this way, these bank extortions and tariff extortions are thrown ultimately upon the people who consume the goods which the bank capital is employed in producing and selling.

Thus the joint effect of the bank system and the tariff is, first, to deprive the ma.s.s of the people of the money capital that would enable them to manufacture for themselves; and, secondly, to compel them to pay extortionate prices for the few manufactures that are produced.

Under the system proposed, all these things would be done away. The West and the South, that are now relied on to pay all these extortions, would manufacture for themselves. Their lands and railroads would enable them to supply all the manufacturing capital that could be used. And they could supply it at one half, or one third, the rates now required by the "National" banks. Of course, Ma.s.sachusetts could not--under the "National" system--manufacture a dollar's worth for the South and West.

She could not keep her manufacturing laborers. They would all go where they could get cheap capital, cheap supplies, and good markets. And then the manufacturing industry of Ma.s.sachusetts, and with it the value of her real estate, will have perished from the natural and legitimate effect of her meanness, extortion, and tyranny.

Looking to the future, then, there is no State in the Union--certainly none outside of New England--that has a greater interest in supplying her mechanics with the greatest possible amount of capital; or in supplying it at the lowest possible rates of interest. And this can be done only by using her real estate as banking capital.

CHAPTER VIII.

THE TRUE CHARACTER OF THE "NATIONAL" SYSTEM.

SECTION 1.

Under the "National" system there are less than 2,000 banks. But let us call them 2,000.

Calling the population of the country forty millions, there is but one bank to 20,000 people.

And this one bank is, _in law_, a person; and only a single person. In lending money, it acts, and can act, only as a unit. Its several stockholders cannot act separately, as so many individuals, in lending money.

So far, therefore, as this system is concerned, _there is but one money lender for twenty thousand people_!

Of these 20,000 people, ten thousand (male and female) are sixteen years of age and upwards, capable of creating wealth, and requiring capital to make their labor most productive.

Yet, so far as this system is concerned, there is but one person authorized to lend money to, or for, these ten thousand, who wish to borrow.

And this one money lender is one who, proverbially "has no soul." It is not a natural human being. It is a legal, an artificial, and not a natural, person. It is neither masculine nor feminine. It has not the ordinary human sympathies, and is not influenced by the ordinary human motives of action. It is no father, who might wish to lend money to his children, to start them in life. It is no neighbor, who might wish to a.s.sist his neighbor. It is no citizen, who might wish to promote the public welfare. It is simply a nondescript, created by law, that wants money, and nothing else.

Moreover, it has only $177,000 to lend to these 10,000 borrowers; _that is, a fraction less than $18, on an average, for each one_!

What chance of borrowing capital have these ten thousand persons, who are forbidden to borrow, except from this one soulless person, who has so little to lend?

If money lenders must be soulless--as, perhaps, to some extent, they must be--it is certainly of the utmost importance that there be so many of them, and that they may have so much money to lend, as that they may be necessitated, by their own selfishness, to compete with each other, and thus save the borrowers from their extortions.

But the "National" system says, not only that the money lender shall be a soulless person, and one having only a little money to lend, but that he shall also have the whole field--a field of 10,000 borrowers--entirely to himself!