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CIH^VICMH

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. r,:;f :;..■-

■■:. -f ■

:.- ^

^ Vi».

»*^

Tin-:

Cfiiimdian §itnltinjg ^ptem;

EXPOSITION AND A DEFENCE.

».

WITH KEASONS AGAINST THE ADOPTION OF THE UNITE/J
I STATES NATIONAL r.ANKINO SYSTEM, AND THE WITH-

DllAWAL FROM THE CHAHTEKED BANKS OF THEIR
PRESENT INDEPENDENT .NOTE CIRCULATION.

^ .he Editor of the " Canadian Journal of Commerce."

TO BON TO

1869

E. T. BROMFIELD & CO.

T^^-,

STAR LIFE ASSURANCE SOCIETY,

(OF ENGLAND,)

CAPITAL

$500,000 !

ANNUAL INCOME
$800,000 !

ESTABLISHED
IN 1843 !

RESERVE FUND
$4,000,000!

WILLIAM

Thomas Ball, Esq.,
Thomas Holmes, I'Isq.,
William Merry, I'l'^q.,
Goo. F. Urling, Esq.,

Walter (Jriftith, Esq.,
Sir Francis Lycctt,
Jonathan S.lMdgoon,E8q.
Jo.«ej)h y. Ware, Esq.

l>li'coforN in f^oiidoii :

c;iiair.>ianj

M.<ART1IUU, Esq., Sherill" of London and Middlesex j

DEl'ITY CIIAIUMAN:

JOHN CHURCHILL, ESQ.,
A. Boaloy, Esq., M. A., M. D
John J. Lidgott, Esq.,
William Mewburn, Esq.,
John Vannor, I^sq.,

Couui'lls or RororciK^c :

TOUONT«t

John Macdonalil, Esq., Hon. M'm. McMastcr, M. L. C.

James Metoalf, Esq., M. P. Hon. John lloss, M. L. C, »

A. M. Smith, Esq., Rev. Enoch Wood, D. D.

MONTMEAI-:

T. ^tlaxwcll Bryson, Esq., T. James Claxtan. Esq.,

Hon. Jamos Ferrier, M. L. C, James Adams Mathcwson, Esq.r

John Torrance Jr., Esq.

" I say that you know a pood dcnl about the position of an Insurance Society, wher/
you get three things— first of all, its dutp; secondly, its incomf /mm jiremUtmiix and
thirdly, its accumulations. From the roliition of those three to one another, you know
pretty nearly the position of any Office."— 7i (■(;/'' //"»«. ^y. I'J- Uhulniovi:.

The ^^STAIf lias Itceii in operation 2<i years.
IT HAS PAII> to the Faniilie^i and UepreMentatives
of Policy Holders $:i,000,000.

IT HAN 1>ITI1>GI> PROFITS to Assnrerst anionntinff
to ){{(l,350,OOO.
IVinety per cent, of the protit.s of tho Society aiv divided amongst
the assured every live years.

One IInn<lred Thousand I>ollars in Cash is deposited with
the Dominion (iovernment for the Security of Poliey Ifolders in Canada,

The " fSTAR " continues to meet the convenience and advantage of
Assurers in every way consistent witli prudence and sound management,,
having regard essentially to tlie fittlrk welfare and security of Assurers.

Every information furnished on appHcation to Local Agents, or to

J. GREGORY,

General Agent for B.N.A^
Canada Branch Office, 78, King Street East, Toronto,

{Over Wesley an Book Room.)

^'V

THE

^mUhn Sanltinjg ^pt«m;

r-^.r.

EXPOSITION AND A DEFENCE.

«»»

WITH REASONS AGAINST THE ADOPTION OF THE UNITED

STATES NATIONAL BANKING SYSTEM, AND THE WITH-

DRAWAL FROM THE CHARTERED BANKS OF THEIR

PRESENT INDEPENDENT NOTE CIRCULATION.

- i .

-—*

By the Editor of the " Canadian Journal of Commerce."

TOEONTO

■ %->*

1869.

B. T. BEOMFIELD & CO.

-s nn*-!

THE

tenaiiaH Jouriial of ii^miner^e,

AND >

Trade Advertiser for the Dominion, ;

Is now recognized everywhere as the ablest and most

Independent Exponent of Commercial and
Banking Affairs in Canada.

It affords a regular and business-like means of intorcommunicatiou
between the Wholesale and Retail

TRADES OF ALL BRA]S CUES.

Its pages are freely open to correspondence on all topics connected

with the

Advancement of the Country.

OR POLITICAL BIAS.

.YAt

' Amongst its prominent features arc ample

Trade Reports, a Financial and Meroantilc Review

of tlie Week, Prices Current, MtatsHtlcal lui'or-

mation. Reports of Public Companies,

Correspondence,

'"^f • And Original Articles, on iN:,.,;,.

Commerce, Banking, Mercantile JAWf and Political
Bcononiy, Insurance, JNLinlng,

, And other topics of interest.

PUBLISHED BY ^

EDWARD T. BROMFIELD & CO.,

48 King Street East, Toronto.

PRICE, #S PER. AIVJVXJM: I3V ADVAIVOE.

Post-free to Country Merchants for $1.50 Per Annum.

e^¥7

THE CANADIAN BANKING SYSTEM.

■'■;„v':'i>

The author of the following pages has approached this subject from
a practical and mercantile point of view. . The science of banking is, in
many of it.s aspects, abstruse and difficult, and there will always be differ-
ences of opinion among political economists, to say nothing of theorists
who know little of political economy except the name, as to the relation
between paper and hard money, and the propriety or otherwise of a
governmenl issue. The author would suggest that the particular cir-
cumstances bearing upon each case, where it is proposed to change one
form of circulation for another, are really the chief points to be deter-
mined, and that what may be a very proper step to take at one time
and in one country, may be u very foolish stop to take at another time
or in another country. TIad the author been writing about the United
States cuirency three or four years ago, he would probably have been
among the advocates of a legal tender issue and of the national banking
system ; and why ? The government of the country was fighting for
very existence, and could only meet the fearful emergency by pledging
the resources of the nation for many future years. But to attempt a
comparison between this state of things and what obtains in Canada at
the present moment is absurd. We have no need to increase our debt.
Our government is not embarriissed. There is no overwhelming and
pressing necessity upon us which makes it essential that the floating
capital of the country be placed in its hands. Far better. employ it in
trade and manufactures through the legitimate operations of commerce.
And further, the country cannot afford any drain upon its mercantile
resources. The community is young. Vast merctmtile fortunes have
not been amassed. A largo proportion of our merchacts — and these the
men whose enterprises are greatly beaefittAng us — are men of compara-
tively smal) means ; and any measure which will deprive them of their
banking facilities by diminishing the volume of money on loan at cur-
rent rates, will inflict an untold injury upon them, and through them
upon the country. These two points then, the author invites his reader
to keep prominently before him. There is no absolute and pressing neces-
sity compelling us to make a radical change, whether we desire it or
not : — It is, moreover certain, that a change, such as has been indicated
as desirable in certain quarters would inflict very great injuries upon
the country. These propositions will, the author hopes, be further
elucidated in the course of the succeeding observations.

It may bo useful to stato the main features of the preteiit hanking
system of Canada.

There arc incorporated banks and dealers in unourrent money doing
business in the country. Of the latter it is unnecessary to speak, but
of the former it may bo observed that no bank can issue more notes than
to the amount of its paid up capital, specie, and government securities.
In speaking of specie in this connection, Provincial Notes must be in-
cluded, being legal tenders. ^ The paid up capital (average 1868) of
the various chartered banks of Ontario and Quebec (the returns from
the other provinces are not completn) amounts to $27,223,262.
The specie, provincial notes tmd government securities average
f 14,875,099. This gives a total of al)out $42,098,271, or, deducting
the capital, specie and government securities of the Bank of Montreal,
which abandoned its circulation two years ago, and which therefore
Ought not to be taken into account in the present connection, say,
$29,145,626, as the outside bank circulation permissible. The
independent bank circulation varied in 1868 from $7,030,800 in July
to $10,589,589 in October. We therefore have the following result,
taking all the chartered bonks of the two provinces except the Bank of
MoL^real : — '^' '

Permissible Circulation. Outside Circulation.

$29,145,626. $10,589,589.

The proportion will be a little nearer if we take into consideration
the diminution of specie in the banks during the month when the cir-
culation was jmost expanded, but taking the average specie as well as
the average circulation, and the nearest approach to exactness we can
obtain, we have, as nearly as we can compute, the following result : —

Permissible Circulation 1868. Circulation 1868.

Paid up Capital, less Bank

of Montreal $21,223,262 Highest $10,589,589

Average Specie, Provin-
cial Notes and Gov-
ernment Securities,
less Bank of Montreal,
say 7,922,454 Lowest 7,030,800'"

Total $29,145,716 Average $ 8,525,152

Here we have a total average circulation of between one-third and
one-fourth (say four-thirteenths), the circulation allowed by law. The
following table gives the figures as nearly as possible for each bank, for
May 1868.

Paid up Capiuil, Hpocie
and Oovcrnment Hccuritiu8.

Bank of n. N. A, ..

Quebec Bank

City Bank

Gore Bank

Banque dii Peiiplo .
Niagara DlHtrict...

Molsons

Toronto

Ontario

E, TownsliipH

B. Nationale

Jacque8-{!artier. . . ,

Menliants

Koyal Canadian . . .

Union Bank

Bank of Commerce

• •• ••••■•

$0,517,172
1.903,854
lfi(,iifil5
1,109,909
1,907,409
407,593
1,342,375
1,414,044
2,82G,242
509,500
1,312,521
1,159,089
3,880,802
1,700,487
1,133,032
1,729,845

Total $^0,549,615

Circulation.

922,003

$ 472,325

280,161

290,634

69,371
119,446

90,452

760,118

1,078,462

104,795

112,760

83,115

593,623

1,133,586

81,8!)9
693,389

f6,898,139

The above table shows the proportion of circulation to capital and
specie for one month only. The proportion varies in different months,
according as the demand for money is more or less active. In October
of the same year the circulation of bank notes rose to nearly 10^ millions,
and it is sometimes higher still. The peculiar feature of the system is
that it provides for u large expansion of the currency to meet the require-
ments of business. At the same time, as the banks are directly liable
for the repayment on demand of every note they issue, they have every
motive to guard against an over expansion. After each season of ex-
pansion there invariably follows a season of contraction, in which the
notes come back again for payment, so that a bank cannot always cal-
culate upon having the same volume of notes afloat. This necessitates
watchi'ulness and care, because the bank's name and fame would be lost
were it to be unprepared to redeem its notes in gold, when the time of
contraction comes round. This necessity for watchfulness is a bettf-
security to a bank and to the public, than any artificial support whi
might be derived from a government connection, and is one of th>
strongest arguments for the maintenance of the present system. The
proverb " Take care of the pence, and the pounds will take care of
themselves," really applies to this view of our subject. By the habit of
constantly feeling the pulse of the community through the influx and
reflux of the circulation, a bank can foresee and anticipate changes, and
is better able to take care of its depositors.

The only other feature of Canadian banking which it is necessary to
notice here, is the principle of double liability as applied to shareholders.
A shareholder is liable to the public for twice the amount of his sub-
scribed shares. This is a very important feature, inasmuch as the
majority of shareholders would be able to bear the double liability in
case of its being jaforced, whereas an unlimited liability would defeat
itself.

Thow. who, liko tho author, think that the syHtom of haiikin}^ now
prcvuUirit in this country, is, upon th« whole, better luluptcd to itH cir-
cuniHtances than any other, are nioHtly quite willing to admit that it
is Huseeptible of amendment, but not in respeet of either ofitM leading
fcaturos just mentioned. There In abundant nxtm for vvine legislation
OD questions of detail; tho qualifications of directors, the propriety or
otherwise of government inspection, the nature of the official returns,
the amount of specie to bo held, the question of making notes
a first charge upon assets in the event of failure. But to give up
the principle of an independent note circulation, of direct responsibility
to the public, would be to submit to a grave public injury. The banks
themselves might not suffer, for they would probably obtain a higher
rate of interest for their loans, but tlu! public would suffer, as we shall
herewith proceed to uuike plain. Meanwhile does it never occur to tho
advocates of a change that upon them li> s the responsibility of shewing
the necessity for it and the good to arise out of it ? It is said, as offer-
ing in some sort an apology for this interference, that several (Janadian
banks have failed under this system, but there cannot be a shadow of
doubt that these banks would have failed under any other system. But
the essential point for consideration is, what have the public lost by
these failures ? In one case, that of the Commercial Bank of Canada,
the notes have all been paid in full ; while any loss that may have
been sustained through the Bank of Upper Canada, can clearly bo
traced to its connection with government, which involved it in such a
mass of corruption and jobbery, as ought to be a warning to the public
against all government interference in banking. - ■ >

II.

It is sometimes alleged that under the present system the noteholder
is not siifficientli/ secured, A bank, it is said, ma^ at the time of its
failure owe some hundreds of thousands of dollars to the general public
upon its notes. These notes are in the mcanllme passing from hand to
hand as money, and it is very important, says our theorist, to give to the
general currency of the country the stability of a government guarantee.
Give us, saj's the advocate of a change, a secure currency — one placed
beyond the reach of bank failures or commercial panics.

We admit that there is some force in this demand, but we contend
that, except for peculiar reasons, such as obtained in the United States
during the late war, it is unwise for the general interests of a country
to have a government issue. We shall explain this further in another
section, but in the meantime let us look into this charge of insecurity
as alleged against the note circulation of Canada. We argue that as
the syatefiii now stands the noteholder is practically well secured, and
that for the purposes of a currency lie is really better secured than he
would be by a government issue. Governments may fail to keep their
promises to pay as well as banks, and it is very easy for a government,

when it fliijs thoH*, pror.iiscs to [iiiy ratiicv prcHsinR, to irhuc nn order in
Council to relieve itself of the oblij^atioii, mid to redeem thi"n by insuinf;
other pronuHOH to pn^,. When thin is the ea.sc the ji^per depreciates in
value, and every noteholder suflFerH. But under our preHcnt Hyfltcm the
eimplc anie!idnu'iit of the cliarters ho m to make bank notcH a first
and speedy charge upon the assets, combined with one or two other
guarantees for the public safety, would cause every vestige of insecurity
to disappear, while all the advantages of an independent circulation
would remain. Jitt us illustrate this point.

The average note circulation of the Dominion, irrespective of Pro*
vincial Notes, may betaken for the sake of argument at S1(>,(I0(>,000*
The bank capital (subscribed) is nearly 840, 000, 000 ; but supposing it
were all paid u]>, there is the double liability principle under which
the shareholders of the various banks, including a large proportion of
the wealth owners of the country, are directly and personally liable for
$40,000,000 more. Supposo now that it were enacted, that tliis double
liability should be charged first and foremost with the note circulation
— that not a farthing should be appropriated to the payment of the
other debts of a bank until provision was m?de for the redemption of
every note extant. Surely this would place the notes on a secure basis !
Then, there are the go^ rnment securities, the specie, and other assets
of a real and tangible description. These might be impounded for
the redemption of notes, and in the majority of cases they would, of
themselves, go a groat way towards paying off the potes. Then there
are the notes discounted by the banks — their bills receivable, of which a
large portion is always running. These also might be set aside and not
touched for general purposes until the notes were redeemed or provision
were made for their redemption. During 1868 the government securi-
ties alone held by the different banks, ranged from $3,000,000 to $4,-
000,000, irrespective of the Bank of Montreal. The discounts ranged
from $45,000,000 to $50,000,000, mostly on paper representing com-
modities and at comparatively short dates. The total liabilities of the
banks during 1868, including their liabilities in respect of circulation,
ranged from $40,000,000, to $50,000,000, whereas their assets ranged
from $70,000,000, to $80,000,000. And behind these assets comes
the double liability, $40,000,000 more ! Surely if this proportion
between circulation, capital, and assets, is anything like preserv<'<l by
the individual banks, (and an examination of the ffcnthly returns will
show that it is sufliciently the case for practical purposes) the point of
a bank's stoppage or suspension must be reached (unless as in the case
of the Upper Canada Bank the concern is propped up by the artificial
strength of a government connection) long before its note circulation
could be imperilled. To meet all possible demands arising from its
circulation, there is first its unpaid capital, liable to call, then its securities
and specie, then its outstanding loans, and lastly the double liability,
this last alone amounting in some cases to four times its note circulation.
It has further been suggested that a_ bank should not be allowed ^o pay

in dividends more than eight per cent, per annum until it has accumu-
lated a Rest of 20 or 25 per cent, of its capital. This would be an addi-
tional security, and altogether there would be immeasurably less danger of
loss to the individual note holder under the independent system, than there
Tvould ba under a government system, especially in times of national
pressure, for the notes, or the bonds securing them, might then become
greatly depreciated, aa they h ^ve Vein in the United States, and there
would be no fund to fall back upon for their redemption.

III.

We now come to consider the nature of the} ejected interference
with the Canadian hanking system.

There are two ways by which it is proposed to supersede the pre-
sent system. One is by making the government the sole issuers of
paper money, in other words, hy an extension of the Provincial Note, or
as it would then be termed the Dominion Nbt^ system. Amongst other
advantages which, it is said, would follow this step, is the uniformity of
value which this paper money would possess all over the Dominion ;
but, however plausible, on theoretical grounds, tliis appears to be, it is
by no means necessary or desirable that the paper money of a country
should possess this characteristic. It is one of the advantages of an
independent note system that the circulation is local, and is based on
the credit of local institutions. When payments have to be transmitted
to a distance, they ought, undoubtedly, to be made in exchange or by
bankers' draft. The adoption of a national paper currency leads to many
abuses, especially in the disturbance of values and in the centralisation
of great financial power in the hands of the government. Especially is
this the case when the paper so created is constituted a legal tender,
which almost invariably happens. Indeed, the unsoundness of the
principle is now so generally admitted, that it would be almost justifi-
able to treat it as an exploded theory. Certainly, it is hardly likely
to be seriously entertained by the Canadian Parliament, Still, as many
readers of this pamphlet may not have had the opportunity of studying
the subject, and may be smitten at first sight by the captivating idea of
" government money," one or two authorities may be cited in support
of our position. The writer of the article on Political Economy, in the
Encyclopaadia Britannica, foresaw some of the rocks on which future
statesmen were destined to make shipwreck when he wrote : " There
are extraordinary dangers attending the use of this instrument (govern-
ment paper money) and no cause has, perhaps, been productive of more
signal commercial disasters." Government can, with propriety, lay
down conditions and regulations for other banks, but, when the govern-
ment itself turns banker, who is to keep it in check ? A banker must
take care not to issue more paper than he can redeem instantly, but, aa
the writer above quoted says: "Where the paper money has been

issued by the government, payment may be refused ; but in this case
an i'nmediate depreciation takes place in the value of the notes, and a
deep injury is sustained by all who are possessed of them." Mr. H.
II. Hulburd, the Comptroller of the United States currency, in his
report for 1867, says of this kind of money, " Such a currency possesses
no inherent qualities which adapt it to the wants of trade. It does noo
contract during seasons of inactivity, nor expand to meet the demands
of active business. * * So far has the legal-tender currency
been from performing the equable and harmonious functions of money in
its relations to trade and industry, that it has been the great disturbing
element. By it all relative values have been unsettled, trade interrupted,
and industry disorganized to such an extent that the whole foreign and
domestic trade has been compelled to adjust itself, over and over again,
to the altered condition of the currency. Nothing has been permanent.
Violent fluctuations have characterised the market for every commodity,
and speculation has usurped the place of regular and legitimate
traffic."

How different were the circumstances which compelled the United
States Government to adopt the legal tender system, to those of this
country when the authors of the Provincial Note Act forced their
scheme through the legislature. When Mr. Spaulding introduced the
original bill before Congress, he characterised it as " a war measure, a
measure of necessity and not of choice." The Finance Committee
pledged themselves to it as a temporary measure only and not as a
policy. It was universally felt to be a " hard necessity."

Austria, Russia, and England all tried the expedient of a legal
tender issue during the great continental war with Napoleon I., and
dearly they paid for it. France has played with the treacherous instru-
ment and suffered. No improvident spendthrift ever threw away so
large a proportion of his patrimony to the Jews as have these nations
paid away for the temporary relief taey obtained by the legal tender
system. None but a madman or a fool would seriously propose its
adoption in a time of peace and prosperity. The inevitable deprecia-
tion of the paper money issued by England was so great that it is esti-
mated she contracted a debt of £420,000,000 in order to realize £260,-
000,000. Mr. Hulburd says : " Probably not less than 33 per cent of
this present indebtedness of the United States is owing to the high
prices paid by the government while its disbursements were heaviest ;
and to this day the depreciation of the currency enters into every esti-
mate submitted to Congress as the basis for appropriation. Of every
hundred millions disbursed in legal tenders, over twenty-five millons are
paid for discount." And the direct loss borne by the government is
only a tithe of the injury inflicted upon the general public by the dis-
turbance of values, and the depreciation of the currency, notwithstand-
ing that many persons in the centres of commerce may grow suddenly
rich by speculation, jobbery, or corrupt favoritism.

It may also be argued under this head, that the promissory notes

which are issued by a Government, have no foundation in accumulated
capital like those issued by banks. When a Government issues these
notes, so far from ha'ing capital it is often deeply in debt. By issuing
the notes it becomes a still larger debtor to the public, and by and by
the public find that even Government paper may become subject to a
very close 'shave,' in the money markets of the world. Why is this?
Simply because it is a promise to pay without actual funds being avail-
able to redeem the promise, whereaa a bank note, payable on demand,
represents, not only the credit of the corporation issuing it, but actual
money or money's worth — subscribed capital and marketable securities.
Under these circumstances, and with the well defined experience
of the past to guide ua, besides having the example of the United States
before us as a warning, it does seem almost a work of supererogation to
argue the question of a government paper currency. To advocate it,
except under very peculiar circumstances, implies either palpable ignor-
ance of the plainest historical facts and the most widely admitted con-
clusions on the science of banking, or a strange, infatuous, and obsti-
nate clinging to a mere theory, long after the world has thrown it aside
as absurd. One might almost as reasonably counsel a youthful heir to
a good estate to become a reckless borrower, and to send his ancestral
acres to the winds, in the shape of accommodation paper, as to seriously
advocate the adoption of a government note currency in a community
like ours. It is only justifiable when it is the last resort of an embar-
rassed Treasury, and when the national honor and existence are at stake,
and even then experience shows that whenever it is adopted a long heri-
tage of debt and high expenditures is entailed upon the country which
sanctions or suffers it. • - ■

,1,1. u

IV.

< \'-\.

The other and the only way likely, one would think, to be proposed by
the government, by which to supersede the present banking system
of Canada is hy founding the hank circulation upon national
securities, after the manner of the United States National Banks. The
main feature of this system is that, in return for the privilege of issu-
ing notes, payable on demand, the National Banks deposit with the
Treasury government bonds somewhat exceeding in value the amount
of such circulation. The National Bank notes are then received by the
government in payment of domestic taxes, and of course the banks
receive interest on the government bonds. Should any of the banks
fail, the bonds are sold for what they will fetch, and the proceeds go
towards paying the notes.

Now, plausible as this theory looks on paper, we are quite
justified in asking xohy it is attempted to force it upon Canada ? If
the present system has for many years worked practically well, why
destroy it in order to introduce another system which has never
been subjected to the only real test of banking operations, viz., specie

payments, enforced by regular redemption ? Our system has stood
the test of critical periods, but the severest test of the iiationul banking
system — the return to specie payments — has yet to come. The adop-
tion of the system may have been the best thing to be done under the
circumstances in the United States, for the reason tha! the great need of
( immerce was not currency but stability of some kind. In a time of
over-inflation and speculation, with a legal tender currency driving all
the gold out of the country, safeguards were the great desiderata.
Besides which, the government urgently required money, and by com-
pelling the banks to buy its bonds it kept up their price and absorbed
some $300,000,000 of capital. The circumstances do not apply here.

a. The contemplated change mould place several millions of
dollars in the hands of the government. What would the govern-
ment do with it ? A banker with this large deposit would invest it,
or a large portion of it, in productive loans. In his hands it would be a
reservoir of money, and, lent by him upon mercantile security, it would
flow forth as by innumerable rills, fertilising and enriching all the land.
And this is just what Canada needs. She cannot afford to lock up her
capital. A banker lends his money, but what does a government do
with it ? Docs it lend it ? No. Does it hoard it ? No. Does it
invest it ? No. What then does the government do ? It spends it.
There may be exceptional cases in which a government turns investor,
as, for instance, the Ontario government, which has a few millions
locked up in Dominion Stock. This, however, only puts back the
spending another step. But such cases are very rare. A government
can always find ways and means of dissipating large balances. Unpro-
ductive public works, fortifications, extravagance, high salaries, useless
officials, experiments of all kinds, can be carried on with money
which might be distributed all over the country through the ordinary
channels of trade. It is true that the expenditure of large sums in
this way creates a temporary activity in the country, and lays the basis
for a few private fortunes, but when the money is gone the country
becomea depressed again. The vast commerce and accumulated wealth
of the United States might spare this $300,000,000 of greenbacks to aid
the government in carrying on a war of existence, better than we could
spare $10,000,000 or $12,000,000 of gold to be frittered away by a
popular administration, which is always subject to influences which it
is all but impossible to control.

b. We actually need this money for the legitimate operations of
commerce. Our lumber merchant leans upon his banker for eight or
nine months of the year to carry on his operations, to pay his laborers,
to provision his little army in the woods, to bring his stuff" to market.
He would have to bear his proportion of the contraction of currency ;
and, let us ask, what would our lumber merchants say if there were
two or three millions of dollars less to lend amongst them next year
than last ? 0*ir produce merchants, our importers, our manufacturers,

^5^

all depend moro or less upon the power of the banks to expand the cur-
rency, and would severely feel any restriction. TIk; unuuimous testi-
mony of practical bankers, conversant with the trade of the country, s,
that the adoption of the national bankinji; system would abstract froii
six to eight niillioiib of dollars from the circulation, at seasons of thd
year when every dollar is needed. Who can picture the evil con::o-
quences of this step to the country at large ? This money, instead of
circulating through th« land, raising the price of wheat and other pro-
ducts of the soil, fertilising every branch of trade, enriching the farmer,
enabling the storekeeper to pay his notes at maturity, encouraging the
builder to extend our cities and towns, improving the dwellings of the
people, surrounding them with comforts and refinements, inviting enter-
prise, would be drawn off, as by a process of blood-letting, to swell the
receipts of the Treasury, and to tempt ambitious ministers to rival
foreign nations in their lavish expenditures. The country would become
become dissatisfied and its progress retarded. The price of wheat and
the rents of houses, and the value of the soil would fall lower and yet
lower. The bankruptcy lists would grov larger and larger. The sound
of the axe would grow fainter in the forests, and many a busy warehouse
would be deserted. And through all this baptism of suiFering the country
would gradually, but slowly, shape itself to the new order of things. People
sometimes wonder why Canada does not get on so fast as other colonies.
They need not be surprised, for no country on earth has seen so much
folly and weakness and intermeddling with things not understood in
high places. Is the country to be developed — are railways to be built
— are mining operations to be encouraged — is emigration to be pro-
moted — we have to pass through a long apprenticeship of bungling,
arising from experimental and fancy legislation, playing at government
as children might play with diamonds— a very expensive game — before
we hit upon the right mode of managing matters. Millions of money
have to be wasted before we learn the art of spending one. The most
entei'prising of our people are driven away while we are trying to bait
our hooks with inducements for the cast-arways of othei lands. And
now, to crown all the absurdities of p;ist leg* lation, it is seriously pro-
posed to change the whole currency system, losing sight of its many
advantages, forgetting that it is easier to pull down than to build up,
blind to the folly of destroying a system to which the country is accus-
tomed and under which its industrial resources are being developed
upon a sound and healthy basis. It rests with those who propose a
change to show the crying necessity for this interference with commerce,
and on them will be the blame and ignominy of all the disasters,
individual and national, which will be entailed upon us if these millions
of capital are abstracted from the commerce of the country, in order to
minister to the power and circumstance of a few controlling gentlemen
sitting in state at Ottawa. At the present critical period of our history
as a colony, few propositions could have been made more mischievously
aflFecting our material interests.

We must gather into a small compass a/ew remaining con sidei'at ions
in reference to the projwsed interference with our hanking system, only
premising that our treatment of them must be exceedingly brief.

1. As to the argument that the banks can meet the necessary
expansion by the simple expedient of increasing their capital, a little
examination shows its fallacy. At first sighl this perhaps seems a
natural way of providing for the deposit required by the government.
But how would this plan work ? In the first place the banKS must
increase their capital by a much larger sum than would cover their
deposit, unless they required the new stock to be all paid up. This would
in some cases double the present capital stock, and whether bank stock
would continue to realize an 8 per cent, dividend under these circum-
stances is doubtful, and if it did not it would not be a popular investment.
But secondly, where is the new capital to come from ? We talk of 'creat-
ing ' capital, but if the capital is not here we cannot create it. As the
country grows richer there will be more capital seeking investment, but
at present there is not a redui^dancy of this commodity. Say that the
bankers invited investments — who would make them ? The persons
who would take thjs new stock are the very persons whose money, in
one form or another, is in the hands of the banks already. The
bank returns might show an increase under the head of paid up
capital, but there would be an immediate decrease under the head of
deposits. It would simply be taking money out of one pocket and
putting it into another, and neither the banks nor the country would be
any the richer.

2. The government has already to some extent, encroached upon
the deposits of the banks in instituting the Post Office Savings' Banks,
in creating New Dominion stock, and in compelling Insurance Com-
panies to deposit large sums with the Treasury. It is a question
whether this depleting process has not gone far enough. The money
thus invested with government is not available for the commerce of the
country, and, though security is no doubt a very good thing, yet it
must be borne in mind that it is possible to carry a good thing too far.
In mechanics it is a well known principle that what is gained in time is
lost in power, and there is a point at which power becomes a leading
consideration. You may lock up your capital (especially if it be none
too large) so securely that it may not yield enough to support you, and
then it will eat itself up. And, by leaning too much upon government
security, we may not only diminish, to a sensible degree, the working
capital of the country, but may encourage that very government to a
wasteful expenditure of the very resources which we thus place at its
command .

. It is an important point with a banker to have his securities
rei y convertible. The money locked up with government ^ pro-

}

posed, would 1)0 absolutely uaelcHHto him in time of proHsure; it »vould,
in fact, bo less convertible than a «;ood niort;j;af;o. But the luw wiHcly
forbids banks investing money on n»ort<:;ag(>s, and, to bo consistent,
should regard all lock-up investments witlr jealousy. To compel the
banks to lock up their funds in stocks which they arc forbidden to sell,
is Himply to divert so much money from commerce to the Treasury.

4. Every bank note issued upon the security of government stock,
represents a portion of the public debt for which the public has to pay
interest. The public, therefore, first lends the government the money
and then has to provide the interest upon it. It is obviously then the
interest of the public to keep the principal as low .'vs possible. Further,
that portion of the country which takus the largest share of these notes
would bear the heaviest share of the national burden.

VI.

What then are the practical deductions which should be drawn by
the reader from the foregoing arguments ?

1. TiiK Proposed Change to a National Banking System

IS, IN THE PRESENT CIRCUMSTANCES OP C AN ADA, UNDESIRABLE,
AND ITS ADOPTION WOULD INFLICT DISASTER UPON THE MATERIAL

INTERESTS OF THE COUNTRY. It would be a step in a wrong
direction, and while opening the path to riches to a few, would seriously
imperil the interests of commerc j as a whole, and would bring absolute
ruin upon many individuf.ls. Change in itself may or may not be
desirable, but it certainly rests with the advocates of change to prove
its necessity. In this instance they have not done so. Tlieir sole plea,
as far as we can learn, rests upon the fancied insecurity of the note-
holder — a plea which has no real foundation. Let not any one fancy
that the general security of our banking system will be promoted by
introducing a government connection of any kind. History abounds
with examples in which a government connection has been the ruin of
noble institutions. " The National Banks," says Mr. Hulburd, in the
report from which we have quoted, '• are not exempt from the disasters
which are common to all banking institutions and business corporations."
This great experiment may have been — doubtless was — expedient and
proper in the then condition of the United States. But the proposition
is altogether unsuited to our present circumstances. Nothing could
justify our government in drawing off so much capital from our
commerce, and locking it up in government stock. This course
might suit the ambition of bold financiers, whose proper sphere is, one
would suppose, New York or London, where there are millions of
money lying nearly idle, but it it is altogether out of place in a com-
munity like that of Canada. If the government could devise a plan of
attracting capital to us in agriculture or manufactures without com-
mitting itself too deeply to a protectionist policy, it would earn a good

name and fanu!, biit to drain our working reeourccs to the extent coii-
tcuiplatod in the proposed adoption of " a wy ^tcni ai.iihigous to tliat of the
National IJankH of the United States," w a ste]) which nothing can
justify.

2. The Mercantile Community should study this hvb-
jbct and losk no time in imphessinc their view's ui'on the
Government. The danger to them i:\ imminent. The banks ean
hardly bo expected to agitato this question beyond phicing tlieir views
on record, which they will no doubt do when parliament meets. It is
for the mercantile community, through the various Boards of Trade, oi*
through special organizations, to bring the pressure of public opinion to
bear upon the legislature. The country us n whole is deeply interested
in the question.

The science of banking, it is true, is not an attractive one to the
general reader, but in its main features it is not so difficult to understand
"" us some people imagine. And meanwhile there is no slight danger, lest
government should construe the seeming ap.ithy of the community into
a consent. The daily press of the country, wielding as it does a vast
popular influence, lias a grave responsibility in this matter. They owe
it to their country to examine this question thoroughly for themselves,
and to utter their convictions boldly. Wo are in danger of drifting
into an era of centralization and governmental extravagance, without
enquiry or concern. A calamity threatens our commerce and our manu-
facturing, agricultural and lumbering interests, which is none the less
real and terrible, because it approaches us in the guise of friendliness.
The plea of " additional security to the noteholder " is sufficient to lull
the apprehensions of the community until the crisis is past and men
awake ivs from a dream, but are powerless to shake oflp the enemy. It
is with the view of awakening popular interest in the question that this
essay has been penned, and, whatever be the result, the author will feel
that he has performed a duty to his fellow citizens and to the country.

ftf

1869. SPRING IMPORTATIONS. 1869.

■ ■• ■ . ,

JOPIN CHARLESWORTH & CO.,
44 Yonge-St. and 3 Wellington-St,

HAVE pleiiHuro in informing the Tradti that thoy have completed tholr
extenHivc alterations and improvumentH, l>y a New Front on Wolling-
ton Ht., and aro now in mTi|)t of th.-ir Hl'RlNU IMPORTATIONS, with a
complrto asHortment in every Department.
Their MILJ.INKltY and STIIAW UOODH aro unuHually choice, compriBing

ALL TKii] NOVELTIES OF THE SEASON.

They would call CHpecial attention to their Flowers, FeatlierH, iUbbons
Parasols, Mantles, ShawlH, DroHH Goods, Mantle (JlotliH, Trimmings, Hosiu ry
Gloves and Fancy TrowserinKH.

The STAPLE GOODS having; been purchased under most favorable cir-
cumstances, will be found extra good value.

Their Stocks will l)e kept well assorted, by constant arrivals of Now Goods
throughout the Season.

For a full enumeration of Goods, they beg to refer to the annexed list of
Departments, soliciting an inspection :—

Straw Goods,

Millinory Bonnets,

Widows' Caps,

Bonnet Shapes,

Bonnet Fronts^

Hair Nets,

Ribbons,

^lowers.

Feathers,

Lace Goods,

Sewed Muslins,

Parasols,

Silks and Satins,

Terry Velvets,

Hosiery,

Gloves,

Haberdashery,

Fancy Trimmiiigs,

Dress Buttons,

Umbrellas,

Ladies' Belts,

Bonnet Ornaments,

Braces,

Stays,

Scarfs and Ties,

Paper Collars,

Enamelled Collars,

Linen Collars,

White & Printed Shirts,

Flannel Shirts,

Velvet Ribbons,

Table Covers,

Linen Handkerchiefii,

Boys' Belts,

Prints,

Fancy Dresses,

Alpacas,

Cobourgs,

Circassians,

French Delaines,

French Merinos,

Scotch Tweeds,

Fancy Doeskins,

Black Cloths,

Silk-Mixed Coatings,

Russel Cords,

Gambroons,

Alpaca Coatings,

Mantle Cloths,

Mantle Alpacas,

Mantles,

Shawls,

Irish Linens,

Ginghams,

White Shirtings,

Grey Cottons,

Sheetings,

Forfars,

Rough Hollands,

Dressed Hollands,

Towellings,

Table Cloths,

Hessians,

Baggings,

Ticks,

Regattas,

Denims,

Drillings,

Rolled Linings,

Silesias,

Fancy Flannels,

Linen Drills,

Plain Muslins,

Crapes,

Oil Baises,

Hemp Carpets,

Window Hollands,

Hoop Skirts,

Men's Felt Hats,

Albums,

Smallwares, &o., Ao.

Good Indaoements to Cash and Short Date Buyers.

JOHN CHARLESWORTH & CO.,
Entrance 44 Yonge Street,

Toronto.

lO,

EARLY SPRINGJPORTATIONS.

r£UK uiKlerHiK'neil bcjr to cnll tlio attention of the Trade to their
SPRING IiMl'OilTATTOXS OP

BBY G-OOBS^

Which will be arrivinj,. by Weekly Stean.ers durinji this and next
month, and will be fully aHHorted and

01^Tr;:Nr FOR I NST^KCTIOISr

BY THE FIRST OF MARCH.

V^ To Close, CAsii,'or Prompt I'avino buyers wo can ofler

VALUABLE INDUCEMENTS.

BUCIIAI^AISr & CO.

Hnmilton, Ont., Feb., 18C9.

J. WINER <fe CO.,

IMPORTERS AND WHOLESALE DEALERS IN

PATENT MEDICINES,

OILS. PAINTS. COLOURS. VARNISHES.

BRUSHES, COMBS,

AND

HAMILTON.

I I'll I I I I It

m^mmmf^-^mimimmmm

^■

1. GILLESPIE & CO.,

MANirArTI'IIKIIM <i»

HATS, CAPS, . FURS,

IMPUKTKHH or

stra:^w O'

KI]F«

Office and V/arerooms
64 YONGE STREET, TORONTO.

SOLK ACJENTS JN CANADA FOU

Kelley Manufacturing Company, New York.

t«

<ii<i. ®4mEim 4 €0.,

UANUFAtlTUnBHH OK

STRAW GOODS,

AND 1MP0RTKH8 Of

FRENCH AND ENGLISH NOVELTIES.

RIBBONS, LACE GOODS,
MILLINERY, &c.,

40 TONGE STEEET, TOKONTO, OKT.

k ft

* If