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 1980 
 
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 Maps or plates too large to be entirely included 
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 iNfW^ CHAPTER 
 
 ADDKO TO 
 
 POLITICAL ECONOMY 
 
 W>|»TWe OUT A 
 
 THAT MAY BK MADE AVAILABtE TO CANADIAN IN0UISTRIES BY 
 
 TE& ltl*ABLISSMlNT Of A 
 
 MORTGAGE BANK OF j^UE, 
 
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 A NEW CHAPTER 
 
 ADDED TO 
 
 POLITICAL ECONOMY: 
 
 POINTING OUT A 
 
 fOO 
 
 MILLION 
 CAPITAL 
 
 THAT MAY BE MADE AVAILABLE TO CANADIAN INDUSTRIES BY 
 
 THE ESTABLISHMENT OF A 
 
 MORTGAGE BANK OF ISSUE. 
 
 T. GALBRAITH, Port Hope. 
 
 TORONTO: 
 
 PRINTED BY HUNTER, ROSE & COMPANY. 
 
 1882. 
 
 a£Ai£^;! 
 
 t 
 

INTRODUCTORY. 
 
 /' 
 
 The reputation of Smith's " "Wealth of Nations " is something phenomenal. 
 After a hundred years it is considered preposterous to question its doctrines. 
 Writers that have followed have only served to add lustre to the name of Adam 
 Smith. He is the only figure on the canvas that attracts attention. He Is the 
 Shakspeare of Political Economy ; having absorbed the knowledge of his own 
 and preceding times, and expressed it in an interesting, methodical and convinc- 
 ing manner. But no one man was ever made to do all the thinking for the race. 
 The highest authorities must pass the ordeal of a common experience which is 
 the final test of truth ; and it is now suspected that the pen dropped from the 
 fingers of that great author before he had completed his contract. He appears to 
 have left an unfinished building — an arch without the key-stone — a column 
 without its capital ! Hence another chapter must be added to give unity and 
 significance to the principles of Political Economy. But if I should undertake 
 the task you will relieve me, in this limited space, of the necessity of again defin- 
 ing the well-known terms in use ; and of repeating all about the cowry shells, 
 leather money, and all that sort of thing ; have they not been reiterated a thous- 
 and times in the A B of Political Economy ? 
 
 Perhaps no passage of the " Wealth of Nations " has been the occasion of so 
 much discussion as the chapter on " Stock Lent at Interest." Smith did not con- 
 cede what was generally believed that the influx of gold from the Spanish Ameri- 
 can mines was the cause of the reduction of the rate of interest from that of ten 
 per cent, previous to their discovery, to five, four, and even to thi'ee per cent per 
 annum, in the countries favored with the money. The facts are well attested 
 by all writers on the subject ; and Smith himself did not doubt the facts, but 
 contended " that an increase of money taking place while the quantity of commo- 
 dities to be circulated by it remained the same would only have the effect of 
 lowering the value of money, and with it the value of the interest ; but would 
 not reduce the rate of interest." It is obvious the immediate effect would be, as 
 he said, to inflate prices ; but the quantity of commodities could not long remain 
 the same ; for either by purchase or production they would very quickly be in- 
 creased. His conditions were th ^fore an impossibility in a country having for- 
 eign trade relations. 
 
 When gold was first discovered in California the prices of provisions and other 
 necessaries went up with a bound ; the cost of board, clothing, tools, &c., was 
 enormous, but that only stimulated imports and productions to fill the void. 
 The value of the money Was gradually increased, and as a certain writer remarks, 
 " It is a historical fact that since 184-8 California has produced $1,000,000,000 in 
 gold ; astonishing as this statement may appear it is none the less true ; Aus- 
 tralia, that island continent has produced £200,000,000 in gold ; and the grand 
 ' ^*ftl of bullion from ail sources since 1848, amounts to $5,862,000,000." Yet in 
 
that short period have prices declined lower than ever in the countries benefited 
 by these discoveries ; and interest as well. 
 
 The effect of the influx of the precious metals from all these sources was 
 simply equivalent to so much fixed capital made active. It stimulated produc- 
 tive and manufacturing enterprise and levelled prices ; and as the annual revenue 
 increased beyond the powers of consumption, the loanable capitals increased ; and 
 their competition for employment reduced the rate of interest. The influx of 
 gold to Europe performed a similar service before the eighteenth century to what 
 banks of issue did afterwards, in furnishing an equivalent for so much fixed cap- 
 ital set free for the purposes of commerce. No nation has done more to increase 
 the circulation than Great Britain, especially Scotland. There, the circulation is 
 more than double that of Canada, yet a dollar will purchase more commodities 
 than in almost any other country, and the rate of interest is lower. The ex- 
 planation is, that increased circulation stimulates industry ; and in the long run 
 increases loanable capitals, raises wages, and reduces interest, as well as the cost of 
 living. 
 
 One does not readily catch the Scottish philosopher napping over any point 
 upon which his attention has been thoroughly aroused ; but the utility of the 
 fixed capital appears to furnish an exception in this respect. In the chapter " On 
 the Division of Stock," he defines capital to be that part of the stock which is in 
 excess of immediate consumption, and from which a revenue is expected, and di- 
 vides it into fixed and circulating capital. That part of the capital of the farmer, 
 for example, vested in the implements and land, is the fixed capital, 
 and that which is employed in wages and maintenance is a circulating capital. 
 The capital vested in the tools of the manufacturer is fixed, and the goods he buys 
 and sells, wages paid, &c., is the circulating capital. The capital of the merchant 
 is almost entirely circulating. The intention of the fixed capital he affirms to 
 be the increase of the productive powers of labor — a farm well improved will 
 yield a better return on that account. Again, he says that every saving of expense 
 of the fixed must increase the circulating capital — the fund which puts industry 
 in motion; but with all that he did not comprehend that borrowing money on 
 mortgage was a most effective method of making the capital in the land active. 
 The casual remark that " the Scotch invented another method of issuing 
 their notes by granting what they call cash accounts on landed security," showed 
 his ignorance of their system of banking, which was particularly designed to 
 make available the fixed capital, in their business and industry. Again, his com- 
 prehension of banking was limited ; as he appears to have thought there was al- 
 ways a sufficiency of gold circulation, and that bank issues were limited to sup- 
 plying the place of gold set free for use in a foreign market. He had not the 
 most distant idea that the fixed capital of the real property might afford an ex- 
 baustless supply of bank issues upon capital, and far better than gold itself. It 
 is curious to observe how the father of Political Economy so coolly tolerated the 
 existence of such a large fund of fixed capital, when its activity was so much re- 
 quired ; but he must not be held responsible for what he did not pretend to do ; he 
 was no discoverer nor projector. Paterson, of Bank of England fame, and Law of 
 that of France, accomplished a thousand times more for the world's industry than 
 
did the author of the "Wealth of Nations." He was simply the historian of 
 Political Economy, and failed even to apprehend the import or to explain the 
 banking of his own country. Admirers of his works may do well to remem- 
 ber that a nation may be very wealthy while the majority of the inhabitants suf- 
 fer from pinching poverty ; that the distribution is a higher purpose than 
 the accumulation of wealth ; and moreover, that banking is the sum and substance 
 — the beginning, middle and end of Political Economy. 
 
 PRINCIPLES OF TRADE. 
 
 It is sufficient to say that gold, the legal tender, is money; and that currency 
 is a debt payable on demand. All fair commercial transactions may be ranged 
 under the three following classes : — 
 
 First, — Cash sales ; requiring no definition. 
 
 Second, — Debts payable on time ; these include all ordinary mercantile 
 business, where a certain amount of capital is pledged to make good losses. In 
 such cases time is given to realize by the sale of assets to pay off maturing obliga- 
 tions. The amount of capital necessary to insure success is settled by agreement 
 between debtor and creditor. When one applies to a wholesale merchant for 
 credit he is met with the enquiry — What is your capital? and is generally 
 credited in proportion. If, in starting business with a Sl.OOO cash, goods valued 
 at double that amount may at least be had, — the business ability and character of 
 the purchaser being considered. Failure in this class of business cannot affect 
 the general trade. That is credit business. 
 
 Third Class, — Debts payable on demand, or currency ; an adequate capital 
 has to be pledged for the immediate payment of debts denominated currency. A 
 bank of issue is simply a commercial company, but differing from the second class 
 in that its debts are payable on demand. It must have a capital to do as it 
 promises ; or failing that, its assets should be, under all circumstances, adequate 
 security for speedy payment. It is not sufficiently noted by writers that as 
 discounts create deposits, as well as circulation, they both are virtually circulation, 
 if payable on demand. 
 
 Beyond these three classes there is no conceivable transaction, excepting it 
 may be a " national currency," that is, a debt without any conditions of payment 
 Paper currency cannot be money, but only a debt payable in money. The mint 
 does not give value to gold, but makes it money by designating the fineness and 
 (Quantity in the sovereign. A promise signed by the Government and not issued 
 on capital, therefore, is not a proper currency. The Government has no capital. 
 A Government issue is well defined as the promissory note of your hired man 1 
 A sound currency must either be capital, or an equivalent of capital, to be a 
 perfect medium of exchange, or measure of value. 
 
 CANADIAN BANKS. 
 
 Let us now analyze the Dominion banking system, and observe how it tallies 
 with these obvious and universal commercial principles. The issue of currency 
 
you observe must be a fair business transaction ; otherwise it will lead not in the 
 direction of progressive prosperity, but to bankruptcy and ruin. 
 
 The statement from Ottawa for December, 1881, is nearly the following in 
 round million dollars : 
 
 PAID-UP CAPITAL. 
 
 5ai 
 
 BPICIE. DOM. NOTES. 
 
 D WOO U NTS. 
 
 Ci 
 
 93 
 
 U, states, 19 J 
 Dominion, 1G3^ 
 
 183 
 
 Deposits at Notice, 36 
 Demand, 533 
 Circulation, 32} 
 
 122 
 
 The capital is merged in the assets, but it bas undergone a total transforma- 
 tion, you observe, — changed to a different sub^ »ce. Originally, it was capital 
 available in a foreign market ; now it has assumed the form of credit, and ranks 
 with other evidences of or titles to property which swell the bulky as-sets to 199 J 
 million dollars. In amount the paid-up capital is less by 3 J millions than it was 
 in November, 1879, but discounts have increased since that date from 154 to 
 183 millions, including all sorts of property. The circulation, together with 
 deposits on demand have also increased from G3 to 86 millions, whilst the gold 
 reserve is less than seven per cent, of the immediate liabilities. With less capital 
 the credit business has vastly increased, say 29 millions during that period. It is 
 worthy of note that with credit banks no recognised relation is observed between 
 the capital and the volume of credit business transacted ; that is — no limit is put 
 to speculation. An uncontrolled power of inflation and contraction — to make or 
 mar — over the manufacturing, farming, mercantile and laboring interests of four 
 millions of people, is vested in or thrust upon the banking institutions by the 
 legislature, without any reserve or guarantee for proper management. But the 
 legislature, not the banker, is to blame, for he is powerless under the law to 
 render assistance to the debtor class in the hour of trial, because if a bank cannot 
 pay, it is incapable of giving security to its creditors. 
 
 To put the above statement into a more compact form : Upon limited capital 
 the banks borrow from one class of customers and lend to another class. With 
 56i^ millions capital, 122 million dollars are borrowed from circulation and 
 deposits, payable mostly on demand to class A. ; and 183 million dollars are lent 
 to class B. at 3 months' time. These figures are governed very much by the con- 
 dition of the foreign trade. Every business man knows that while exports are 
 active, and foreign exchange plentiful, discounts ai-e easy at the banks ; because 
 the purchase of exchange is equivalent to buying gold on credit. But when a 
 turn of the tide takes place and exchange is scarce, the banks are obliged to shut 
 down discounting, and call in loans, as they are forced to collect to be in a condi- 
 tion to pay. A tight money market causes a rise in the rate of interest and some 
 of class A. may want exchange ; for, although creditors of the banks, they may be 
 debtors abroad. Others of class A. may wish to invest at paying interest, and 
 some may even check out their balances for safety. Every demand on the bank 
 serves to tighten the screws on the debtor class, who have maturing notes to 
 meet. In such an emergency the banker is powerless to protect his customer^. 
 He is forced to collect to meet his own engagements. The stocks of merchants 
 
are thrown on the market ; and debtors in wild fury submit to every sacrifice to 
 got the cash. The money market tightens, and finally a run is made on the 
 banks. 
 
 THE CRISIS OF 1875. 
 
 Such an event, it will be remembered by business men, occurred not so long 
 ago. With but little more capital an increase of discounts took place between 
 1872 and 1875 of from 82 millions to 141 millions ; when, in consequence of 
 foreign exchange falling short in the market in Feb. 1875, the banks stopped dis- 
 counting and called in loans ; and during that year the discount line fell back to 
 112 millions — a reduction of 29 millions ! That caused 30 millions of business 
 capital to be thrown into bankruptcy. In 1876, 25^ millions; 1877, 25J millions ; 
 1878, 24 millions ; and in 1879, 29 millions. In all 134 million dollars of bank- 
 ruptcies took place ; and all sorts of property dropped in value fearfully, and 
 why ? Because bankers were powerless to protect their debtors — because of the 
 difficulty of borrowing on their assets. A disregard of the just relations of 
 capital and credit led to an increase of 75 per cent, in discounts in three years, in 
 direct violation of the laws of trade. Banks lend right and left while exports are 
 active, and only when exchange falls short do the scales fall from manager's eyes ; 
 and in the hurry to recover lost ground, they fall foul of the poor debtors, and 
 destroy the geese that layed the golden eggs. At this point of the programme 
 trade is at a standstill. No business, no money ; and what follows ? The rate of 
 interest having doubled, money comes in through the Loan Societies to be lent 
 on mortgages ; exchange is sold to the Banks ; and business begins again 
 to pulsate. The relief which the debtor class fails to impart, the straight loan 
 societies afford. When credit fails capital comes to the rescue. Thus forty mil- 
 lion dollars foreign capital have been invested by loan societies on mortgage. If 
 banks in a crisis have barely the stamina to ride out the storm, let alone carry 
 through their customers ; if when exports fall short they can neither secure their 
 creditors nor protect their debtors : there must be something rotten in the state 
 of Denmark. An institution which serves only as a financial sieve through 
 which the trade percolates, and pays toll, as flour through a bolting cloth, may 
 well be termed a parasite that prospers on the profits of industry. 
 
 But take another view of the case : Suppose, for example, that the assets, 
 1 9G\ million dollars, consisted of mortgages instead of credit pledges, under no 
 circumstances could the trade apprehend danger ; as the assets might be made 
 available in any market for gold, foreign exchange, or else accepted as security 
 for speedy payment, by creditors. And the debtor class, who are generally 
 intent upon improving their own wealth with that of the community, might 
 never be sensible of the difficulty. 
 
 A money crisis or commercial revulsion was unknown before the establish- 
 ment of the Bank of England, and is as easily accounted for as the foundering of 
 a ship or the bursting of a steam boiler. A credit bank undertakes a volume of 
 business disproportionate to its^ capital, in its haste to get rich ; and the assets 
 being difficult to estimate, cannot afford security if creditors, from any unlucky 
 circumstance, take alarm, as the latter are payable on demand. If it can neither 
 
8 
 
 borrow nor collect, it suspends payment, and the derangement to trade is propor- 
 tionate to the business done. It is quite impossible for a bank to fail if it deals 
 in such assets as may he valued by the hanker and his creditors with equal 
 facility. If oanks were held to guarantee their integrity, inflation would be pre- 
 vented, and subsequent contraction of prices be made impossible. All financial 
 storms are traceable to excessive credit, and governed by the principles explained. 
 It is not the solvency of the banks that is under consideration, but their compe- 
 tency to assist the trade. It is their vast powers of inflation and contraction 
 which, at inconvenient times, threaten with widespread emban-assment and ruin 
 the general trade, that is worthy of being noted by the student of Political 
 Economy. 
 
 Credit has its Uses. — While faith is found on the earth there must be 
 credit ; but it must be relegated to the general trading community ; it falls under 
 the second class of mercantile transactions. A merchant who can give security 
 for his debts may be said to deal on capital ; one who cannot, to that extent has 
 he speculated. If credit may be defined as a debt not secured, then capital is a 
 debt secured — speaking of goods not in possession. It is replied, the banks do 
 business on the goods, but the tenure by which they are held is of the veiy 
 essence of credit, as the bailiff" so frequently verifies — no goods ! A promissory 
 note bearing undoubted names without the goods or property is not worth a 
 straw. Then banks, as well as mercantile firms, fail long before they are 
 gazetted. As a general rule, they are marked good by Mercantile Agencies up 
 to the veiy last. It is crises that test mercantile virtue ; when there are 
 no suspicions, of coui'se, everything is good enough. Banks of issue which 
 fail to maintain prices, and let the bottom fall out of business, are unfit to 
 be entrusted with the powei-s of issue. To charter such institutions is as wise 
 as to expect to coin gold out of whims and fancies. It is basing trade and 
 industry on an illusion. It is high time the legislature in its acts should have 
 regard to facts not fancies, to capital not credit, in its financial legislation. 
 
 THE CAUSES OF THE IMPORTATION OF FOREIGN CAPITAL. 
 
 This question deserves some attention. Not having the data to estimate the 
 foreign indebtedness of the Dominion, take the authority of the London Econo- 
 mist. It estimrtes it all told at seventy million pounds sterling; which at 5| 
 per cent is a drain of fifteen million dollars interest annually, and lessening the 
 effective value of the annual exports that much. The bells ring from Dan to 
 Beersheba if an English Earl or French Count deigns to invest a few thousand 
 pounds, or as many francs, in Canadian mortgages ; and instead of regarding it in 
 a proper light it is pocketed by servile ignorance as a matter of course that Cana- 
 dians are as poor and cheap as they are taken to be, and as stupid on money 
 matters. If Canadian capital be txhausted, how is security given for the money 
 borrowed ? Interest paid for money in this country is something enormous. 
 The average is fully 10 per cent. If mercantile paper be discounted at seven, 
 that is eight per cent interest, and balances left at the credit of customers are 
 counted upon. Whether these are from discounts or otherwise, the borrower 
 
9 
 
 foregoes the interest, as the banker expects an account to be worth at least ten 
 per cent, and that is decisive as to the average paid. 
 
 Prof. Bonamy Price says that four per cent, was the average paid in England 
 the past thirty years. As a hundred years is but a Jay in a nation's industry 
 take the following figures as a basis of comparison — interest being compounded 
 annually. 
 
 One dollar at 3 per cent, a hundred years, is $ 19 38 
 
 II 4 M II II 50 50 
 
 11 5 II II II 131 50 
 
 II 6 I. ' II 11 340 00 
 
 I, 8 M .1 II 3,200 00 
 
 ,1 10 I. It M 13,780 00 
 
 „ J2 11 It II 84,400 00 
 
 II 18 I, II II 15,000,000 00 
 
 II 24 II It II 2,551,000,000 00 
 
 If at four in England and at ten per cent, here, then Canadian industry pays 
 two hundred and seventy-four times more interest than British industry does, for 
 the use of the same amount of capital during a hundred years ! But if you object 
 to 10 as the average latterly, take 8, and in England 3 In that case one 
 hundred and sixty times more interest is paid in Canada than in England for the 
 use of the same amount of capital during a hundred years. Interest has been 
 exceptionally low in Canada the past year, yet the most favorable discount rates 
 for commercial paper have been 6 and 7 per cent, or double what is paid in Eng- 
 land ; and there is no guarantee for even such rates continuing ; on the contrary 
 higher rates than ever may fairly be expected before very long, so says " old pro- 
 babilities." Such questions, however, can only be argued upon fair average : It will 
 be remembered that all interest is compounded after a first payment. There is 
 something, surely, at fault in the "ruling principles" of such philosophers who con- 
 tend that all that is wanted in order to establish industries in Canada at such odds 
 is to raise the tariff"! I am free to maintain that the difference between one 
 country and another in industrial ability and power will finally be found in the 
 rate of interest paid. 
 
 DIVISION OF CAPITALS NECESSARY. 
 
 The field of industry is divisible into two parts — personal and real property 
 
 the goods and the mortgages. It is not possible that banks dealing in the goods 
 can directly aid the landed interest. That is why a farmer has to apply to a Loan 
 society when he wishes to borrow. The lands and the goods are two distinct capi- 
 tals and cannot be mixed up in banking business with advantage to the o-eneral 
 public. I am pointing out a principle which unaccountably has been overlooked 
 by writers on political economy. If the two properties be mingled in the trans- 
 actions of a bank of issue, the real estate in case of suspension or failure must foot 
 the bill of losses. That was the case in thej City of Glasgow Bank failure ; and 
 must be so in every case. Evidently division of labor, that great principle so 
 well elaborated by Adam Smith, has also to be extended to properties and their 
 
-7^ 
 
 10 
 
 • 
 
 capitals. If one should go to a shoemaker for hats, or to a hatter for shoes, he 
 oould hardly commit a more stupid blunder than to go to a credit bank to dis- 
 count a mortgage ; as the borrower on mortgage is entitled to longer time as well 
 as to lower interest than the borrower on promissory note. It is loosely im- 
 agined that real estate is held for the payment of personal debts, but that may 
 not hold good at all times, for a merchant after he has exhausted his credit at the 
 banks may encumber his real estate at convenience. The capitals of the real and 
 personal properties are therefore as distinct from each other as oil and water ; 
 but notwithstanding their equal claims upon the currency, the rights of issue are 
 denied to capital and extended to credit, thereby eontracting the basis and limit- 
 ing the volume of the circulation, and is a leading cause of the prevailing high 
 rate of interest. Then you have to consider the risk of dealing on credit as 
 present and prospective losses have to be covered. But that is not all, you must 
 take into account the void caused by no issue on the real estate. These three 
 causes — a monopoly of credit issues, the hazard of credit transactions, and no is- 
 sues on mortgages — fully account for the high average rate of interest in Canada 
 — 274 fold that paid by British industries during a hundred years ! 
 
 THE LOAN SOCIETIES. 
 
 These facts account for the country being overrun by loan societies. " Where 
 the carcase is there the eagles are gathered together." There are now nearly a hun 
 dred, and new charters are applied for every month of the year. They mostly borrow 
 at 4 to 5 J per cent, and lend at an average from eight to ten per cent, on the 
 very best security. The monopoly of credit bank issues on the one hand and the 
 best mortgage security on the other, aiford the leading inducements to the foreign 
 capitalist to invest in Canada. 
 
 This formidable list of loan" societies doing business in the Dominion is fur- 
 nished by the Government, Sept. 1881 : 
 
 NAME OF COMPANY Oil SOCIETY. 
 
 t ! 
 
 Ontario. 
 
 Commercial Building Society Toronto 
 
 Imperial Loan and Investment Company h 
 
 Freehold Loan and Havings Company n 
 
 li^nion Loan and {Savings Company m 
 
 C'anada Permanent Loan and Savings Co 
 
 ■Western Canada Loan and Savings Company m 
 
 Building and Loan Association < 
 
 The British Canadian Loan and Investment Co « 
 
 Farmers' Loan and Savinp^ Company i 
 
 People's Loan and Deposit Company 
 
 London and Ontario Investment Co. (Limited) n 
 The EnKlish and Scottish Investment Co. of 
 
 Canada n 
 
 Canada Landed Credit Company n 
 
 Home Ravings and Loan Company (Limited) ■ 
 London and Canadian Loan and Agency Co. n 
 
 (Limited) ,i 
 
 Toronto House Building Association n 
 
 Trust and Loan Company of Canada n 
 
 <Jntario Industrial Loan and Investment Co 
 
 (Limited) , 
 
 The Canada Mortgage Agency 
 
 Ontario. 
 
 National Investment Company Toronto 
 
 North British Canada Investment Company., n 
 Scottish Ontario and Manitoba Land Co. 
 
 (Limited) " 
 
 Scottish American Investment Company 
 
 The Real Estate Loan and Debenture Co n 
 
 Bristol and West of England Canada Land, 
 
 Mortgage and Investment Co. Toronto.... n 
 Manitoba and North- West Loan Co. (Limited) n 
 
 Ontario Loan and Debenture Company London 
 
 Ontario Loan and Savings Company i. 
 
 Superior Savings and Loan Society i 
 
 Huron and Erie lioan and Savings Society i. 
 
 Dominion Savings and Investment Society. . . m 
 
 Agricultural Savings and Loan Company n 
 
 Canadian Savings and lioan Company < 
 
 London Loan Company of Canada n 
 
 Koyal Standard Loan Company of Canada. . . » 
 
 The Financial Association of Ontario n 
 
 The English Loan Company " 
 
 The Ontario Investment Association ii 
 
 Hamilton Provident Society Hamilton 
 
1 is fur- 
 
 Toronto 
 
 Hamilton 
 
 11 
 
 OlITAUIO. 
 
 Anglo-Canadian Mortage Company, merged 
 
 i»to the Omnium Secuiitiea Company. Hamilton 
 
 Landed Banking and Loan Company n 
 
 Canada Loan Company 
 
 Canada Loan and Banking Company n 
 
 Hamilton Real Estate ABgociation m 
 
 Metropolitan Loan and Savings Company Ottawa 
 
 Civil Service Building Society i 
 
 Socictd de Construction Canadienne n 
 
 Ottawa 2nd Mutual Building Society n 
 
 Capital Mutual Building Society n 
 
 Southern Loan and Savings Company. . St. Thomas 
 South Western Farmers' and Mechanics' 
 
 Savings and Loan Society n 
 
 Elgin Loan and Savings Company „ 
 
 Ontario Building and Savings Society Kingston 
 
 Frontenac Loan and Investment Society. . m 
 Lambton Loan and Investment Company. . Sarnia 
 Huron and Lambton Loan and Savings Co. . n 
 
 Koyal Ijoan and Saviligs Company Brantford 
 
 Brant Loan and Savings Company^ n 
 
 Oxford Permanent Loan and Savings So- 
 ciety Woodstock 
 
 Security Lonn and Savings Company. St. (Catharines 
 
 Ontario Loan and Savings Company Oshawa 
 
 Midland Loan and Savings Company.... Port Hope 
 Guelph and Ontario Investment and Savings 
 
 Society Guelph 
 
 Hastings Loan and Investment Society. . Belleville 
 Orangeville Building and Loan Asso'n. Orangeville 
 Peterboro' Keal Estate Association Peterboro' 
 
 QUEBEC. 
 
 Montreal Loan and Mortgage Company. 
 Compagnie de Prct et Credit Foncier. . . 
 
 Credit Foncier du Bas Canada 
 
 Provincial Loan Company 
 
 Metropolitan Building Society 
 
 Montreal 
 
 Quebec. 
 
 Socidt^ Canadienne Frangaise de Construc- 
 
 ■ tion Montreal 
 
 La SocitSt^ Perraanente de Construction 
 
 Jacoues Cartier n 
 
 Canada Mutual Building Society n 
 
 Socidtd de Construction Canadienne n 
 
 Commercial Mutual Building Society 
 
 Canada Investment and Agencj^ Company. . n 
 
 French Canadian Building Society m 
 
 Imperial Mutual Building Society n 
 
 Montreal Mutual Building Society 
 
 Provident Mutual Building Society 
 
 Victoria Mutual Building Society n 
 
 Colonial Building and Investment Asso'n. . . n 
 
 Montreal Building Association 
 
 Montreal Investment and Building Company h 
 
 Quebec Permanent Building Society Quebec 
 
 Socidtd de Prets et Placements de 
 
 Artizans' Permanent Building Society n 
 
 Socidtd Permanente de Construction du Dis- 
 trict d' Iberville St. John 
 
 Ldvis Permanent Building Society LCvis 
 
 Sherbrooke Permanent Building Society. Sherbrooke 
 Waterloo Imperial Building Society Waterloo 
 
 Manitoba. 
 
 Manitoba Investment Association Winnipeg 
 
 Dundee Mortgage, Trust and Investment 
 
 Company 
 
 New Bbunswick. 
 
 St. John 
 
 St. John Building Society 
 
 The Provincial Building Society 
 
 No Scotia. 
 
 Nova Scotia Permaneni Benefit Building 
 
 Society and Savings Fund Halifax 
 
 There are sixty-seven in Ontario — eight of which did not comply with the 
 request of the Government for a statement of their business. The remaining 
 fifty- nine societies have a paid-up capital of 19| million dollars. The cash value 
 of assets is put at 59 millions, and the value of the property held by them at 
 112^ million dollars! They have borrowed 31 millions for the purposes of 
 lending. 
 
 Quebec has twenty-six societies, having 3^ million dollars capital, and hold 
 3 1 millions worth of property. 
 
 That statement is a suggestive one not merely to the student of Political 
 Economy, but also to the intelligent farmers of Canada. Wonder if a crooked 
 Loan Society would thrive in Aberdeen ! The farming and landed interests find- 
 ing the banks incompetent to accommodate their necessities for money have 
 here borrowed fifty-nine million dollars in straight loans and otherwise at from 
 eight to ten per cent., and more in some instances, per annum ! 
 
 The 3^ million dollars borrowed by the societies is chiefly from foreign 
 sources, and the interest of course is sent abroad annually. Out of the 19^ mil- 
 lions capital paid-up, tlie larger part must have been imported. 
 
 One of these societies, established in 1873, with a paid capital of but $560,000, 
 has borrowed S3,000,000, and holds property worth $7,317,737; its mort- 
 gages pay 8J per cent., and dividends 10 per cent. Another with apparently no 
 paid-up capital holds property valued at $15,000,000 and divides 12 per cent, on 
 
1 
 
 12 
 
 the subscribed stock. Another with over li millions paid-up borrows 4i mil- 
 lions, has assets in cash $6,315,536 ; property held at 12J million dollars 
 and pays 8 per cent, dividend. Another, with capital of 8989,000, borrows $1,625,- 
 000 and has cash assets $2,089,742. The property held is valued at 7 million 
 dollars. These few examples show their extensive powers of borrowing and lend- 
 ing upon mortgages, with comparatively insignificant capital ; and their assets 
 are of such a reliable character that they might, in case of necessity be redis- 
 counted in the British or French markets, at convenience. 
 
 While the banks deal on credit, the loan societies deal on capital. The 
 former are chartered to manufacture their funds, and the latter are forced to 
 import theirs. When the banks are hard pressed for money they have 
 recourse to the latter for assistance. These two classes of institutions afford a 
 practical definition of the terms credit and capital, which are puj^zling financiers 
 every day. • 
 
 It may be asked what do all these facts, calculations, reasons and inferences 
 suggest ? The reply is the necessity for a bank of issue, established to deal in 
 mortgages. 
 
 A NEW BANK OF ISSUE. 
 
 Mortgages are at once capital or security for capital, as the case may require. 
 What is wanted is a charter to recognise their value and business then may proceed. 
 Mr. Smith desires a discount line on his property, which is good security for say 
 $10,000. How long ? Fifty yeai's if you wish, Mr.S. That is something new; how 
 can you lend at so long time ? The reason is, the bank gets as good as it gives — a 
 property that is always available. True, the issue may come in for gold the fol- 
 lowing day, but the banker is prepared for it. The secret is, this bank deals in 
 mortgages — assets which are always available in a foreign market ; and can in 
 its corporate capacity at all times protect its debtors — by affording at least, 
 security to its creditors; by selling exchange or paying the gold. You 
 object; a mortgage is not payable at three months' date; but it is nego- 
 tiable to-mon-ow. The banker has no motive to call in loans unless the 
 property declines in value. The borrower looks to his own interest, and the 
 banker minds his own business. Mr. Brown, a neighbour of Smith's, enquires 
 what can be done with his property ? You say it is equal in value to Smith's, 
 and you don't want the money ? Invest in stock, Mr. B., it now pays 10 per 
 cent. dWidend— limited liability. The bank buys Smith's mortgage with its 
 issue, and Brown's mortgage with its stock at par. These two classes of trans- 
 actions comprise the chief business of the institution. Of course it receives 
 deposits, deals in foreign exchange on exports, as well as on mortgages and in 
 gold. With but ten millions capital in mortgages, thirty million dollars of mort- 
 gages might be discounted, having thirty millions circulation payable on demand ; 
 the assets would be 40 millions, the debts 30 millions. Such a bank might 
 discount at 6 per cent., and declare a dividend of 12 per cent. ; or at 5 per cent., 
 and declare a dividend of 10,— after due allowance for expenses. The obligations 
 of this bank would differ from those of the Trust and Loan Co., in this particular : 
 The debts would be owing in Canada as currency and not requiring payment ; 
 
18 
 
 4i mil- 
 i dollars 
 I 81,625,- 
 r million 
 md lend- 
 )ir assets 
 36 redis- 
 
 tal. The 
 forced to 
 ley have 
 J aiford a 
 financiers 
 
 inferences 
 J deal in 
 
 ly require. 
 y proceed, 
 ity for say 
 new; how 
 t gives — a 
 d the fol- 
 \k deals in 
 nd can in 
 f at least, 
 old. You 
 i is nego- 
 anless the 
 b, and the 
 3, enquires 
 to Smith's, 
 lys 10 per 
 e with its 
 of trans- 
 it receives 
 yes and in 
 :s of mort- 
 )n demand ; 
 •ank might 
 5 per cent., 
 obligations 
 particular : 
 r payment ; 
 
 whereas the debts of thtv latter are payable principal and interest in a foreign 
 country — in London. Thc>. Trust & Loan borrows in London on its debentures a 
 $100,000 ; and sells the exchange to the banks in Canada and reloans their circu- 
 lation on mortgage. That $100,000 is payable abroad with interest. The new 
 bank would afford the same accommodation in this manner : It would open 
 debtor and creditor interest accounts with customers here for say $100,000 
 secured by mortgages ; then, it would only require probably a tenth part of the 
 sum to meet payments in gold — only that much would have to be borrowed. 
 Do not, if you please, insist that this bank would encourage inflation ; as it would 
 merely take the place of the loan societies. The landed interest, you see, must 
 have money, even if it has to be borrowed in other countries ; and the new bank 
 furnishes its issues as the existing banks do, but at longer time, on safer terms, 
 and payable on demand — and moreover keeps the interest and profits in the 
 country. But what is the difference between lending bank issues and lending 
 borrowed money as the societies do — the security being equal ? If there be any 
 difference it is surely in favour of domestic industry. The loan societies are 
 owing 40 million dollars abroad ; that is, certainly, a financial blunder of the 
 gravest sort. The proposed bank would afford A HUNDRED million dollars of 
 ACCOMMODATION on that much borrowed. It would lower the rate of interest one- 
 half and establish on a sound basis all important domestic industries, and save 
 interest to the Dominion. If a banker were asked why he did not import his 
 funds to loan instead of getting them from deposits and circulation, he would 
 reply, because there would be no money in it. 
 
 The proposed bank conforms to correct commercial principles : pledges an 
 adequate capital to pay its debts, can always secure or pay creditors, and protect 
 debtors. That is what may be called guaranteeing its integrity. The daily 
 settlement of balances at the clearing house would administer a salutary check 
 upon speculation, and keep the circulation healthy. As matters now stand, a 
 banker may discount paper to many times the paid-up capital, there being no 
 limit to the speculation of credit banks ; but the moment you establish the bank 
 dealing in capital, the credit banker is compelled to limit the excess of issues by 
 a daily reckoning. The causes of inflation are excessive credit issues ; but no 
 arbitrary law has ever been competent to the task of regulating credit issues. 
 That can only be done by the competition of issues on capital. When that is 
 accomplished the causes of commercial crises are prevented. 
 
 As has been pointed out, division of properties, of capitals, is as important 
 a principle as division of labor. Every tub must stand upon its own bottom. In 
 a true economy, credit must be made to answer for itself, as assuredly capital will 
 for itself. In no other way can you give activity to the fixed capital of the 
 landed estate ; and you may be sure that every dollar of it is wanted to develop 
 industries and do justice to the laborer — the very class that society cannot do 
 without. The influx of gold to Europe in the sixteenth and seventeenth cen- 
 turies was equivalent to giving activity to so much fixed capitf ■, while the pro- 
 posed bank gives activity to the capital itself. 
 
14 
 
 THE FIXED CAPITAL DEFINED, 
 
 It will be seen that merely discounting a mortgage does not make available 
 the fixed capital — that is done every day by the loan societies for proprietors 
 who are hard pressed for money. That is only half the import of a mortgage. I 
 have shown that a mortgage is capital to the extent it is security ; hence, equal, 
 to bank stock. When that fact is understood, it will be evident that the country 
 possesses any amount of banking capital in its mortgages. Take this illustration •. 
 six proprietors with farms worth $10,000 each. At present, the sum of $6,000 
 might be borrowed on each property, in all $36,000, at say 8 per cent. But obvi- 
 ously they all are borrowers, and, bidding against themselves, keep up the rate 
 of interest. But if, on my principle, two of these proprietors pay off their 
 mortgages, and take bank stock for $12,000; then $24,000, or half the capital of 
 the whole, would be thrown on the market — reducing the rate of interest to 
 borrowers one-half, or four per cent. Again, you will observe that the reduction 
 of interest would not be confined to borrowers on mortgages, but the advantages 
 would be reaped also by persons discounting their paper at the credit banks. 
 The mortgage bank would reduce the rate, but all classes would shi\re the benefit 
 On that principle only, can a cash trade be done by the retail busine^is. There is 
 only one house I know of that does a purely cash business. It can nover become 
 general because the present banking law prevents the issue of a suL^ciency of 
 currency for the purpose. If I am not correct, what means the existence of over a 
 hundred million dollars of fixed capital ? Either the fixed capital io of no 
 account, or the Political Economy of the nineteenth century is of no account ! 
 What say you ? If I have not given an answer to the question, then let an ade- 
 quate reply be given. The industrial interests of the country demand an 
 explanation. 
 
 CAPITAL AND LABOR. 
 
 Were the economy of banking und( fcood, writers, such as Prof. Goldwin 
 Smith could never commit the blunder of affirming that "there can be no contention 
 between capital and labor " at the very moment when the capitalists and laborei s 
 were at daggers points. The error lies in imagining that all capital ha8 a bearing 
 on the money market, as all the labor certainly has on the wages market ; but 
 that is far from being the case. When a low rate of interest prevails, the capi- 
 talist and laborer work together in perfect harmony, for a mutual advantage ; but 
 when the average interest is high, the operative is at a disadvantage, as he is 
 chargeable with the interest for capital that employs him. The amount of capital 
 that bears on the money market is limited to the issues of credit banks which 
 keep up the rate of interest, and proportionately limits the quantity of subsis- 
 tance that wages command. The mission of Political Economy is, by a correct 
 system of banking, to place labor and capital upon an equal footing. When that 
 is done there can be no longer any controversy between them. 
 
 Take the example of a capitalist with $10,000, who lends it at 10 per cent.^ 
 compounded annually. In 17 J years it amounts to $50,000, principal and interest. 
 He may, after having lived that time comfortably, be the possessor of $20,000 ; 
 
15 
 
 available 
 oprietors 
 Sfage. I 
 ;e, equal. 
 
 country 
 stration -. 
 if $6,000 
 Jut obvi- 
 
 the rate 
 
 off their 
 
 iapital of 
 
 tereat to 
 
 reduction 
 
 vantages 
 
 it banks. 
 
 10 benefit 
 
 There is 
 
 sr become 
 
 rjiency of 
 
 of over a 
 
 isi of no 
 
 account ! 
 
 an ade- 
 mand an 
 
 Gold win 
 mtention 
 I laborers 
 a bearing 
 cet ; but 
 the capi- 
 age ; but 
 as he is 
 of capital 
 cs which 
 f subsis- 
 a correct 
 hen that 
 
 per cent.^ 
 I interest. 
 $20,000 ; 
 
 whereas, had the rate only been 2 per cent., the capitalist would be a poorer 
 man at the end of the period. The active laborers employed by it would in the 
 latter case be taxed with less interest and receive more wages. 
 
 SCOTTISH BANKING. 
 
 The nearest approach to just principles in practical use is that of the unlim- 
 ited liability banks of Scotland. With a comparatively small paid-up capital an 
 extensive business is done and very profitably. Over a hundred years ago Scot- 
 tish industries were insignificant and demanded more accommodation. The 
 Scotch did not resort to the device of a high tarifi" against English goods ; nor did 
 they clamor, like Canadians, for more credit ; but said to themselves, we must 
 have more capital, at least more capital made active, and " unlimited liability " 
 was resorted to. The defects of the system caused the failure of the City of 
 Glasgow Bank. With but five million dollars paid-up capital, it transacted a 
 business of fifty million dollars ! But if, at the failure, ten millions of the aasets 
 proved worthless, it resulted from discounting bad paper ; and the real estate of 
 the shareholders had to make good the deficiency ; so all the debts, deposits and 
 circulation were paid. The error lay in doing a mixed business — on credit as well 
 as on real estate. The capital was real estate and it discounted real estate. So 
 far, so good : but it discounted also paper, bad paper, and came to grief, but paid 
 its debts. Unlimited liability is a barbarous device, but it could not be avoided 
 in a country where the tenure of property is so involved by feudal usages — 
 when in borrowing money the creditor demands possession of the title deeds as 
 security. Yet those who blamed the bank for the shareholders' losses, were un- 
 reasonable ; for had they not paid, the creditors would have suffered equally . 
 The Scottish law is absolute, — debts must be paid ; recognizing the principle that a 
 people who pay their debts may always borrow at the most favorable market rati\ 
 In their banking, the Scotch show admirable tact and knowledge of money 
 matters in relation to their industries. They brought down the rate of interest 
 to a level with the English market, and raised their manufactures of iron, tobacco, 
 sugar, cotton, chemicals, woollens, &c., to the same plane of excellence with their 
 contemporaries. A sterile and mountainous country was soon made to occupj^' a 
 foremost place in agriculture and gardening. The iron ship-building yards of the 
 Clyde astonish visitors ; at one time lately it was reported that no less than 
 ninety steamships were on the stocks. That industry is simply prodigious. In 
 18.38 there were only 7G0 steamers, of 140,718 tonnage, in all Great Britain, and 
 of that only 8,000 tons belonged to Glasgow. Now last year — 1881 — no less 
 l/han 340,828 tons of "hipping were built on the Clyde alone, being an increase of 
 98,000 tons over the previous year, and about two and a half times more than the 
 entire steam-shipping of Great Britain forty-five years ago. There were 217 iron 
 steamships and 52 sailing vessels built on the Clyde in 1881. The increase alone 
 as mentioned above is a greater amount of tonnage than the aggregate of all the 
 Allan line of steamships and Clipper ships. England, Russia, Germany, France, 
 Turkey, Italy, and the South American States — indeed all nations — go to Scot- 
 land for their steamships. Every steamship now crossing the ocean is made of 
 
^mm 
 
 w 
 
 A 
 
 ^ 
 
 !l 
 
 iron or steel, and no matter what flag she carries she is essentially a product of 
 Scottish genius. Great efforts have been made to set up rival steamship-building 
 yards to those of Scotland, but the best things they have done are simply the 
 appropriations they have made of the latest Clyde improvements in the hulls and 
 compound engines. It is upon little Scotland, with a population less than the 
 City of London, that the glory and power of Great Britain's modern commercial 
 greatness now rests. Lord Roseberry said lately, at the University of Aberdeen, 
 that since the Union, Scottish industries had increased so rapidly as almost to 
 obliterate her nationality ! 
 
 The Scottish banker is an acknowledged success ; he even makes a convenience 
 of the Bank of England itself ; preferring to make a draft on it for gold, rather 
 than to keep the expensive article on hand. The suggestion made, of a new 
 bank, is virtually the Scottish system adjusted to this country with its superior 
 registration law — discarding unlimited liability, but discounting only one sort of 
 property, and that the best. 
 
 REVIEW. 
 
 In briefly recapitulating the leading points of my argument you will observe 
 that all the commerce of the country rests for a foundation upon a currency — the 
 debts of credit banks. As is the foundation so will be the superstructure in 
 stability or otherwise ; for ability to meet paj'ments, either on demand or on time, 
 depends finally upon the character of the assets. The Government, in granting 
 the charters, imagined no doubt that they legislated upon a fact, a substance, 
 instead of an illusion ; but such is the character of credit that the widest differ- 
 ence of opinion may obtain as to the value of assets in credit pledges to meet a 
 sudden demand for payment. Hence the glaring economic fallacy to which the 
 trade is committed by the Canadian banking law. To the limited basis of credit 
 add the hazard of credit transactions and you have the causes of the chronic high 
 rate of interest ; which, more than tariff, or any other cause, have hindered the 
 development of general industry. The agricultural class, mark you, are barely 
 recognized as a component part of the industrial system. Money is doled out to 
 them in homceopa,thic doses, and in indirect ways, by the sale of crops, &c. The 
 farmers are relegated beyond the charmed circle of bank favors as a class that 
 may very well be done without, or handed over to European usurers and the 
 tender mercies of loan societies, their agents in Canada. 
 
 CREDIT, AN UNKNOWN QUANTITY. 
 
 It looks as though capital and credit had never been defined. A broad dis- 
 tinction must now be made. With the exception of the specie on hand, the capi- 
 tal of the banks no longer exists in its original form. It has long ago furnished 
 foreign exchange for short exports, and is now merged in the assets consisting of 
 credit pledges. The design of the banking law is to clothe credit with the 
 powers of capital, to evolve capital in fact from an unknown quantity, but with 
 what success the reader may judge. A promissory note is discounted with circu- 
 lation payable in gold, and when that comes in for redemption in quantity the 
 assets are put to the 'strain to furnish the gold. While exports are active the 
 
17 
 
 exchange coinmaads the needful ; but wlicn that source fails there is no alterna- 
 tive but to call in loans, and force the trade into bankruptcy. Had the law 
 extended to a bank of issue dealing in mortgages — in capital — the assets in which 
 all loan societies deal, — embarrassment to the general public could never happen. 
 Carskin was a model banker. His client, on being advised by him to go into 
 business, demurred for lack of capital. His reply was characteristic ; you are but 
 a novice not to know that pens, ink, paper and stamps, are all the business 
 capital that is necessary in these days for success. 
 
 The capital of the landed property is made of no account, — fit only to be 
 exported for borrowed money, and at such ruinous rates of interest, as shortly 
 absorbs the principal, and limits the development of that most important field of 
 labor — agriculture — the natural foundation of all national greatness. 
 
 Credit, unchecked by capital, fosters a negative economy. Not the capitalist, 
 but his debtor, is made the banker ; who deals in negative property and issues a 
 negative currency, because his assets are an unknown quantity ! Credit being 
 made plus, makes capital a minus quantity ; and what are denominated securities 
 are simply debts, and should have a minus sign. So an excess of imports is 
 regarded as a favorable balance of trade. The same false principle sustains all 
 the monopolies who get hold of property without paying for it. The active 
 public are defeated, deceived, robbed, and mocked by a negative commercial 
 system, which always gets the better of the honest borrower of money, and also 
 the receiver of wages ; makes the rich richer, and the poor poorer ! 
 
 Had we not better awake from this stupor, and rub the scales from the eyes ; 
 put down the brakes and reverse the engine ? And learn to distinguish 
 between fancy and fact ; shadow and substance ; negative and positive ; credit 
 and capital ? 
 
 In "A Cronique of y^ Olden Time," Gower relates of a prudent king, the old 
 officers of whose household became dissatisfied because younger servants were 
 promoted over their heads. The king, hearing of their grumbling, resolved upon 
 quelling their discontent by saddling their demerits upon themselves. He ordered 
 two caskets to be made, of outward appearance perfectly alike ; and after filling 
 one with the precious metals from his treasury, the other he filled with stones 
 and dirt. He had them placed side by side in his parlor, and sent for the mal- 
 contents, addressing them thus :- You complain of not having been rewarded 
 for your long services ; but I wish to convince you that it is not altogether my 
 fault. There stand before you two caskets, one is filled with treasures that 
 would make you all rich, and the other is filled with rubbish. You have your 
 choice, and see you don't commit the fault of refusing so much wealth ; but 
 whichever you choose will be your own act." After some consultation among 
 themselves they made their choice, and their master handed over the key to open 
 it, which they did, and found therein stones and dirt. The king opened the 
 other and gave them a sight of the treasure. 
 
 These foolish people were not so very blameable for having rejected so much 
 wealth, because thev were in a manner blind-folded : but here in Canada are set 
 before the people two dishes, not covered as were Timon's, but the contents open 
 
WT 
 
 18 
 
 to inspection. One plate is filled with solid capital and the other contains credit ; 
 the one positive, and the other nejjativo property ; yet the good people, through 
 their legislators, and with their eyes open, choosa the worthless material by 
 which to construct their whole commercial system ! But worse than that, an 
 indulgent Providence does not ask them to choose the one, on the penalty of 
 losing the other; yet they contemptuously reject the treasure that was intended 
 to make all wealthy ! 
 
 Mine and thine, is a lesson in tho ethics of trade that has yet to be learned. 
 The distinction forms a new departure in political economy. Credit and capital 
 must be placed aide by side nnd a fair field given to work out their destiny. 
 When it is shown that a first mortgage is not capital to the same extent that it is 
 security ; when that self-evident axiom is disproved ; when landed property is no 
 longer wanted ; when credit banks protect tlioir debtors ; when the capitalist 
 and the laborer work in harmony ; when the capitalist only, becomes the money- 
 lender ; when the rate of interest is governed by a fair market ; when property 
 is fairly distributed ; then, indeed, it will be no longer necessary to demand that 
 capital be placed on a level with credit ; as the industrial machine will do its 
 duty. 
 
 Extraordinary as it may appear, our legislation — our banking law — is made 
 operative upon an unknown quantity ! Writers have imagined that the com- 
 mercial system had a positive character, but credit is only negative property, as 
 a lie is but negative truth. The former answers for capital just as the latter 
 answers for truth, till the lie is found out. Hence ours is an inverted economy ; 
 and industrial progress is by fits and starts, — hesitating, or, like the crab, back- 
 wards. That explains all the anomalies that have so long puzzled commercial 
 writers, and, particularly, that standing dispute on tariff protection to industries. 
 A high tariff places the burden of their establishment upon the consumer ; that is 
 clearly unfair. Individual consumers can have noj personal profit in empty- 
 ing their pockets into the hopper of the monopolist ; not even to suit the hobby 
 of a soi-diaant protection govei'nment ; and the latter has no right to ask them 
 to " cast their bread upon the waters " with the peradventure that they " shall 
 find it after many days." The good old proverb is safer — " a bird in the hand 
 is worth two in the bush." But in the case of Canada, having so large a foreign 
 debt, and a liability to short exports, commercial crises are apt to level the indus- 
 tries periodically, because they are built upon foreign capital. On the other 
 hand, the revenue tariff advocates can never hope to establish industries without 
 a low rate of interest affording an equivalent for a high tariff. British industries 
 are the best protected in the world ; the proof is the goods sell in every market, 
 because a low rate of interest fully compensates for a nearly pure free trade. 
 
 The banking of the future will have a positive character ; dealing in capital, 
 in mortgages, in gold. The turning point is, in the mortgage being regarded as 
 capital, to the extent it is security, which is self-evident. That idea brings to 
 bear a low rate of interest, — adds a new factor to the industrial forces ; hence, a 
 new result — a positive in place of a negative economy. We have hitherto been 
 building with unburnt bricks ; we will ere long make permanent work with 
 
 if! 
 
 I : 
 
19 
 
 burned bricks. The former appear the same shape and size, I grant you, but the 
 first storm — rain storm — melts the structure, and it collapses into a heap ! 
 
 THE BALANCE OF TRADE. 
 
 Of course all improvements in the machinery of industry ought to bear 
 finally on the balance of trade. If a nation produces commodities of an equal 
 value to those it consumes it may be said to pay its way. If it produces less, it 
 has become inde'^ted to a foreign country ; and the balance is said to be unfavor- 
 able. If it produces more, it has a sirrplus to sell, or a foreign country may be in 
 its debt. The foreign trade is but a fractional part of the whole trade of a 
 nation ; but if the balance is adverse, it tells on the foreign trade, though it may 
 be difficult to verify the fact. If, for example, 850,000 worth of flour be sent to 
 Spain and there sold for $90,000 ; and goods bought and entered that much 
 inwards, the balance is actually favorable, though the customs records would 
 make it appear otherwise. Another example, going the rounds of the papers, is 
 that of £205,000 worth of coal sent to India and sold for £900,000 ; and the 
 money invested in jute for Dundee, and entered inwards. The balance in the 
 latter case is also favorable. But these examples only go to show that customs 
 records are not to be taken as unreserved data to decide the (juestion. It is 
 just as possible for goods to be exported and sold for less than their export 
 figures. If, as is the case with England, that not only is the public debt owned 
 by the people, but large investments are made by her capitalists in foreign 
 securities : importations, say of cotton, may be drawn against to pay interest 
 upon American securities. • In that case the balance of British trade might appear 
 unfavorable when it was otherwise — it being a matter of indifference with the 
 capitalist whether he invests in home manufactures or in foreign securities. But 
 when the national debt is in other hands, as is the case with Canada, and no 
 investments abroad, the ( oess of imports would have a very different significa- 
 tion A good deal too mu^ i is made by writers of the items freight and charges, 
 to account for the excess of imports to England ; 25 per cent, on the cost of goods 
 should at least cover freight on the average. If, as has been stated, Canadian 
 indebtedness necessitates the annual payment of fifteen million dollars interest, 
 the effective value of the exports will be reduced that much ; and is gravely sug- 
 gestive of foreign indebtedness being increased with alarming rapidity. Of 
 course it is replied that Canada has run in debt not for war purposes but for 
 public improvements; but if these improvements do not tell favorably on 
 exports, it is all the same as wasted. 
 
 The increase of the active capital by the establishment of a capital bank of 
 issue would most effectively increase exports ; as the reduction of interest would 
 not only stimulate manufacturing industries, but would supersede the necessity 
 of Governments borrowing abroad, and check the exportation of interest. The 
 question is simply that of the national foreign account, which has to be settled by 
 industry, in the manner any private debtor pays his debts ; if we would not re- 
 pudiate. 
 
T 
 
 20 
 
 THE TARIFF. 
 
 If 
 
 'ko 
 
 It is not difficult to define the function of a tariff It may be used to raise a 
 revenue with advantage ; but to collect more than is re(|uiied to pay current ex- 
 penses is unnecessary and oppressive taxation. To raise the tariff in favor of par- 
 ticular manufactures is to extort from the consumer n bontis without returning 
 an equivalent. They arc monopolists who are privileged to tax their fellow citi- 
 zens by forced sales of goods. All industries .sliould be \ipon an equal foot- 
 ing ; if one is protected all .should be ; for no industry can claiui any special merit 
 over another to tax it for support. A high tariff will build up monopolies and 
 divert the trade into rings that oppress and fleece consumers. The monopolists, in 
 efTect, say to the Government, " you cannot establish manufactures with the pre- 
 vailing high rate of interest in Canada ; but if you raise the tariff so as to secure 
 to us a market for our goods, at such prices as will refund to us the difference be- 
 tween the average interest of 4 per cent in Great Britain and S to 10 per cent 
 paid by us to the banks here — that is the consumer nmst pay the difference " — 
 then we will invest our capital in manufactures. That is virtually the plea. All 
 persons who have thought upon the subject will agree that with money as cheap 
 here as in England the old revenue tariff would afford sufficient protection. A 
 low rate of interest harmonises .all the forces of industry and wipes out monopo- 
 lies. There can be no antagonism between capital and labor with a low rate of 
 interest. When the rate of interest is high, the banking, manufacturing, railway 
 and mining companies are leagued together against the interest of the merchant, 
 farmer, mechanic and laborer. The latter are consumers, borrowers of money and 
 receivers of wages. These latter can have no object or profit in taxing themselves 
 to put money in the pockets of monopolists. Ilmployees are never protected by 
 tariflf. When a strike takes place the monopolist is always at liberty to import 
 laborers free ; they are always on the free list. Consumers are always at liberty 
 to vote for high tariffs and unnecessary taxation ; and when they do so it should 
 be with their eyes open. But on exercising the franchise they would do well to 
 remember the fate of the frogs in the fable, who, tired of good king log, demanded 
 a ruler. Jove at the'r request crowned the water-snake. Before long the frogs 
 repented, and demanded of their ruler " why he devoured them ? " The reply 
 was worthy any lawyer — so pointed : " You voted for me ! " 
 
 THE MONOPOLISTS. 
 
 When interest is high, as it always is in Canada, the following companies be- 
 ing privileged, and bonused, are pure monopolies. Banks of issue, manufacturers, 
 railways, &c. 
 
 THE DUPES. 
 
 Merchants, farmers, mechanics, laborers, as borrowers of money and consum- 
 ers. But were interest low these two classes would work in perfect harmony. 
 
21 
 
 THE DISTRIBUTION OF PROPERTY. 
 
 Should one bo dispoHcd to investigate tliis (luestion let him begin by enquir- 
 ing as to the cause of the present disposition of property. There must be a cause 
 for existing circunistances. There must be a reason why, on the one hand there 
 are but a few heaps of wealth, and on the other hand a great many heaps of 
 poverty. If you divide the community into eight parts, one of these enjoys all 
 the riches, and the other .seven parts have to be contented with their lot of pov- 
 erty and \» otchedne.ss ; whereas a true economy would command a generous and 
 liberal prosperity for all. 
 
 A close examination will satisfy one, that but two elements control ^-.he dis- 
 tribution of property. First, ability backed up by industry accumulate wealth 
 which the laborer is justified in enjoying. Second, there is the rate of interest. 
 A merchant who retires with SlO.OOO may live comfortably on the interest which 
 at 10 per cent compounded annually will in 17^ years amount to SSO.OOO, princi- 
 cipal and interest. After having paid his broker a percentage for keeping it in- 
 vested, and deducting his own expenses of living, may at the end of that period 
 be in possession of 820,000, having doubled it. But say he could only invest at 
 2 per cent instead of 10 ; at the end of the period he might not have saved a 
 fourth part of the original sum. At the low rate his aipital would soon be dis- 
 tributed, and the late capitalist would be forced to become a producer. 
 The original capital need not travel beyond the limits of the same community 
 and yet be as useful, and employ as many laborers as ever it did ; but the less in- 
 terest the laborer pays for the capital that employs him, the greater will be his 
 recompense, and the cheaper living. Because interest declines by competition of 
 capitals employed in manufacturing, and ]jroductive industries, and that increases 
 commodities. The less or more the rate of interest, the less or more the in- 
 come of the capitalist. If the income be too small to maintain him, the capital gets 
 distributed. If that reasoning be correct clrcumtitancea are not left to chance, 
 but are of our own making or marring. Is it not the disgrace of our civilization 
 that the circumstances are such as to favor the accumulation of colossal fortunes 
 by the Vanderbilts, Goulds and Stewarts of the age ; who may by selfish tyranny 
 torture so many millions of their *" '^ows ? Robert Owen, if not the first to announce 
 the axiom " man is the creature . . circumstances," was at least the first who had 
 the heart to make the experiment, as he did at his New Harmony ; of trying to 
 improve the character of his fellow men by improving their circumstances. So 
 strong was his faith in the theory that he is said to have celled " give me a tiger 
 and I will educate him." His little community, however, was strewed to the 
 winds by the competition of the larger world, crushing it like an egg shell. 
 Owen was not aware that the rate of interest was reducible by bringing a new 
 factor to bear on the circumstances, distributing property and yet retaining in force 
 healthful competition. I have given the key note for a just distribution ; I say 
 just, for equality of distribution is as undesirable as it is impossible, and can only 
 find place in the brain of a Communist A true political economy does justice to 
 all the forces of industry ; capital gets its interest, and labor its full wages. As I 
 
22 
 
 have said elsewhere, a low rate of ^.nterest, consequent upon making active the 
 fixed capital, will intensify competition and will wipe out monopolies. Then 
 will the employer and operative, work together in perfect harmony. 
 
 There is a world of interest bound up in the just and fair distribution of 
 property. Surely man, puny man, with a full purse, was never made to lord it 
 over his fellows ; no, not for ever ; his reign must soon cease. The lowliest mor- 
 tal or member of the race has a higher destiny here, than is prophesied of; but his 
 character is hidebound and degraded by a distribution of goods made at the in- 
 stance and command of a negative, a false economy, 
 
 " Progress and Poverty " is the title of a book remarkable at once for strong 
 assertion, and impotent reasoning, by Mr. Henry George, an American Communist. 
 He advocates vesting the lands in the Government, and requiring it to let the 
 farms, and collect the rents, as a revenue ; a cool suggestion you will say, but he, 
 backs it up with a show of reason : 
 
 First ; he claims that wages are not paid out of capital, but out of the product 
 of labor ; and infers the laborer is entitled to all the product. That extraordi- 
 nary assumption forms the leading argument of the book. The author forgets 
 that although all wealth is the product of labour, nevertheless said labor is di- 
 vided into two parts ; labor active, and labor stored ; that is — labor and capital. 
 The goods manufaciiured are properly tlie product of both combined ; therefore 
 the capitalist is entitled to interest for his investment. If the laborer objects to 
 pay interest, why does he allow the capital to get out of his own hands into the 
 hands of others ? 
 
 Second ; he makes the bold assertion that " all the bank notes, bonds and 
 mo"tgages might be destroyed without affecting the wealth of the community." 
 As well might one argue that the destruction of all the implements of agriculture 
 would not affect agricultural wealth. The notes, bonds, &c., are the instruments 
 of trade ; and the trade would be paralyzed were the instruments destroyed, ^n 
 that case where would be its productive power ? 
 
 Third ; on the land question. Land, labor and capital are the elements of in- 
 dustry. What is there in land as a possession, but the capital invested ? And what 
 is rent but interest for the investment ? The land question is therefore the capi- 
 tal and labor question ; and the less interest the laborer pays for the use of capi- 
 tal the greater will be his earnings. As to vesting the titles to land in the Gov- 
 ernment, why not also the titles to wood, iron, wool or any other commodity ( 
 Persons who imagine that a land title is any more important than pr-operty in 
 anything else, may ask themselves the question. What would be the use of a 
 farm without the tools to cultivate it ? Clearly, Mr. George has got beyond 
 his depth ; but he amply makes up for his deiiciencies in Political Economy by 
 the audacity of the highwayman, and demands : " Stand and deliver ! " Commu- 
 nists are sure to haul up in lawless company. 
 
 REPLIES TO CRITICS. 
 
 The following criticism of a lecture delivered in Montreal on Banking and 
 Business appeared in the Journal of Commerce, August, 1880. I give the re- 
 
2S 
 
 marks of that paper as they appeared, and also my reply. The object iu (ioing so 
 ia to induce the reader to turn to the pages of both Macaulay and Alison, and 
 make himself familiar with what has been written upon Land Banks and Assi- 
 gnats, that a fair judgment may be formed of all previous projects. 
 
 A LAND BANK. 
 
 Montreal has recently been honored with a visit by Mr. Galbraitb, who, we learu from the 
 Oatelle, met several prominent business men at the Mechanics' Hall, on the,evening of the 4th instant, 
 tn explain his views as to "the present systen. of banking, and the currency question generally.' 
 The Gazette regrets that the attendance was not larger, as the subject is both interesting and impor- 
 tant. Plenty of money and a low rate of interest are doubtless tempting offers to make to business 
 men at any time, but we can scarcely believe that Mr. Galbraith could have succeeded in making 
 many converts to his view--, notwithstanding his sporting proposal to wager §50 a side "if any man 
 could controvert his views." IJefore such a wager could be arranged, certain preliminaries would have 
 to be settled, the principal of which would be the mode of deciding whether Mr. Galbraith's views 
 had or had not been controverted. We are told that " the leak in the financial system was in regard- 
 ing real estate as mere security for foreign capital when it was actual capital." It is no'w nearly two 
 centuries since an attempt was made in England to persuade the people that land was actual capital, 
 meaning a basis for the issue of notes. We cannot occupy our space better than by quoting a few in- 
 structive passages from Macaulay 's History. 
 
 " Pre-eminently conspicuous among the political mountebanks, whose busy faces were seen every 
 day in the lobby of the House of Commons, were John Briscoe and Hugh Chamberlayne, two projec- 
 tors worthy to have been members of that academy which (Julliver found at Lagado. These men af- 
 tirmed that the one cure for every distemper of the State was a Land Bank. A Land Bank would 
 work for England miracles such as had never been wrought for Israel, miracles exceeding the heaps 
 of quails and the daily shower of manna. There would be no taxes, and yet the Exchequer would be 
 full to overflowing. There would be no poor rates, for there would be no poor. The income of every 
 landholder would be double. . , . These blessed effects the Land Bank was to produce simply by 
 issuing enormous quantities of notes on landed security. . . . Both Briscoe and Chamberlayne 
 treated with the greatest contempt the notion that there could be an over issue of paper as long 
 as there was for every ton pound note a piece of land in the country worth ten pounds. . . . 
 The projectors could not deny that many people had a prejudice in favor of the precious metals, and 
 that therefore, if the Land Bank were bound to cash its notes, it ^ould very soon stop payment. 
 This difficulty they got over by proposing that the notes should be inconvertible, and that everybody 
 should be forced to take them. The speculations of Chamberlayne on the subject of the currency 
 may possibly find admirers even in our time. . . . Distress, however, and animosity had made the 
 landed gentlemen credulous. They insisted on referring Chamberlayne's plan to a committee, and the 
 committee reported that the plan was practicable, and would tend to the benefit of the nation. But 
 by this time the united force of demonstration and derision had begun to produce an effect even on the 
 most ignorant rustics in the House. The report lay unnoticed on the table, and the country was saved 
 from a calamity, compared with which the defeat of Landen and the loss of the Smyrna fleet would 
 bave been blessings." 
 
 Instead of Chamberlayne's Land Bank a charter was granted to the Governor and Company of 
 the Bank of England "to trade in bills of exchange, bullion and forfeited pledges." The conditions 
 of this celebrated charter were that the subscribers to the stock should lend to the Government 
 £1,200,000 sterling at 8 p. c. interest. The stock was all subscribed in ten days from the opening of 
 the books. Two years later the land bank scheme was revived in a form " less shocking to common 
 sense and less open to ridicule " than that of Chamberlayne. " By this time the united force of reason 
 and ridicule reduced the once numerous sects which followed Chamberlayne to a small and select com- 
 
 Eany of incorrigible fools." It was found that few even of the squires believed that "the State can, 
 y merely calling a bundle of old rags ten millions sterling, add ten millions sterling to the riches of 
 the nation." The new projectors bid high. The Government wanted money, and the projectors of 
 the land bank offered double what the Bank of England had given at 7 instead of 8 per cent. The 
 Act was obtained, but it was found impossible to raise the capital. The King was induced to sub- 
 scribe £5,000 by way of example, but in three weeks' time only £1,500 had been added to his subscrip- 
 tion. The truth was that the bank was demanded not by capitalists, but by b-irrowers, which is pre- 
 cisely the case with Mr. Galbraith and his supporters, if he has any. The end , - l;he scheme was that 
 the whole contribution by the nation to the magnificent undertaking was £2,100. The Government 
 had at last to fall back on the Bank of England, which provided what it required, and the Land Bank 
 was heard of no more. The only difference that we can discover between Mr. Galbraith and the^a< 
 money theorists in the West is, that the latter have common sense enough to perceive the absurdity of 
 pretending to redeem such issues as those advocated by Mr. Galbraith, and they therefore avow that 
 they are to be inconvertible, while JMr. Galbraith, acknowledging the absurdity of issuing any but con- 
 vertible notes, is guilty of the equal absurdity of basing his issues upon a security that would be ut« 
 tarly unavailable for the purpose of redemption. 
 
24 
 
 THE LAND BANK SCHEME. 
 To the Editor of the Journal of Commerce. 
 
 Sir, — Your criticism of 13th inst. of my lectures on Banking and Business has been brought to 
 my notice ; and as it appears so foreign to the subject in hand, I trust you will allow me the privilege 
 of correcting some of your misapprehensions. 
 
 In the case of Briscoe and Chamberlayno's project of a Land Bank, allow me to remark that the 
 cause of the failure was evidently their inability to treat real estate on true business principles ? That 
 is, by pledging an adequate capital for the payment of debts on demand. The purchase of mortgages 
 in the manner they proposed would of necessity prove a failure. But instead of pointing out the 
 errors of their proposal, which might have done him some credit, Macanlay, like the common run of 
 modern critics, found it easier to use the projectors as a target for his ridicule. Their inquiries, how- 
 ever, were aimed in the right direction ; and had they been successful, a greater benefit might have 
 been conferred upon society than was accomplished by the establishment of the Bank of England itself. 
 But surely you do not mean to infer that the failure of that ill-digested scheme can in any way invali- 
 date the capital in real estate, nor prevent that property from being wisely dealt with. You must 
 be aware, as certainly every well-informed individual is, that it has never been pretended that the 
 principles of money were understood ; en the contrary, what Sir Astley Cooper affirmed of Medicine 
 was quite as ajfplicable to Finance, as being founded on conjecture ! The true method of utilizing the 
 capital of real estate is what I now propose to explain : and first, I remark, that all debts payable by 
 a bank on demand are its circulation ; and an adequate capital must either be held in reserve for the 
 purpose, or the assets should be of [such a character as to afford security for speedy payment, 
 becondly, that a mortgage taken at a cash valuation of the property, and at a margin to recover the 
 debt, measures its available capital. Thirdly, that said capital may as easily be lent as borrowed, as 
 the case required. 
 
 Keeping in view these indisputable principles, let us see how they may be applied to a bank of 
 issue dealing in mortgages. To Mr. Smith a line of discount is extended, a Dr. and Cr. interest 
 account. He checks out and deposits at pleasure, and no motive exists on the part of the bank to 
 foreclose, unless when the property declines in value or interest is unpaid. Again, Mr. Jones, a capi- 
 talist, desires to invest in stock, and if money be scarce a mortgage is quite as acceptable. Hence the 
 assets consist of mortgages and money always available to pay. This bank might discount at 6 per 
 cent, and pay 12 per cent, dividend ; at 5 per cent, and pay 10 ; at 4 per cent, and pay 6 per cent., 
 after allowing for reasonable expenses. So you see it is hardly fair for you to represent that capitalists 
 have no interest in the scheme. 
 
 You put this question, "^oes Mr. G. imagine that loans on mortgages can be so converted to 
 meet his issues of notes payable on demand ? " Are you not aware that it is being done by loan socie- 
 ties every day ; who borrow even in foreign markets on the basis of mortgage assets. In fact, that is 
 the only business method of importing money excepting by the export of produce and manufactures. 
 But I might reply in a difiTerent form by asking the apologists of banks to point out a case where 
 bankers were ever successful in borrowing on their promissory note assets beyond the limits of the 
 country. When exchange on exports falls short, why have bankers to call in their loans at the risk of 
 distressing their debtors, by forcing sales of assets and thereby spreading dismay and bankruptcy ? 
 Evidently, because the assets of banks are practically unavailable either for gold or security. You say, 
 "it is simply absurd to suppose that a Corporation whose business is to loan money on real estate 
 would be prepared to redeem notes which are only kept in circulation by constant re-issues. The 
 Banks are daily redeeming and daily re-issuing their notes." Here you forget to distinguish between 
 redeeming notes and the ordinary bank business of receiving in and paying out their circulation. Nine- 
 tenths of the daily transactions of banks have not the slightest reference to redemption. A bank 
 redeems its obligations only by its transactions in foreign exchange. And it is perfect nonsense to 
 make so much ado about keeping out the note circulation, as that is usually but one-third of the actual 
 accommodation of a bank of issue. The true circulation comprises all debts payable on demand. The 
 present banks open accounts with customers on personal credit, the proposed bank on security ; but 
 the great bulk of transactions hare no more reference to redeeming of notes than have the most ordi- 
 nary commercial business. But if you mean that the note circulation is less likely to be presented 
 when gold is a scarce article ; then of course the credit banks will always have a decided advantage. 
 I imagine you also are in error as to the character of the enormous balances charged to foreign agencies 
 of Canadian banks. Doubtless the most of them are commercial paper discounted ; and why the 
 note of an American is considered more available than that of a Canadian merchant is for you to 
 explain. Since the "New Principles" are now fairly before the public, the matter cannot rest until 
 they are either accepted or thoroughly exploded. Business engagements prevent me being in Montreal 
 before November, so that will afford ample time to find a man that can talk common sense on money 
 matters. I am indifferent as to conditions. A popular verdict should suit all parties. 
 
 Respectfully yours, 
 
 T. Galbbaith. 
 
 Port Hope, 25th August, 1880. , 
 
 The Journal of Goramerce committed the error of imagining that the project 
 of Briscoe and Chamberlayne, so mercilessly ridiculed and condemned by 
 Macaulay was identical with my suggestion of a bank of issue dealing in mort- 
 gages.* The fact of many ill-digested schemes having been concocted to get at the 
 
25 
 
 capital of the real estate by an issue is not at all surprising; but it certainly does 
 not follow that there never could be a wise suggestion upon the subject, — one 
 justified by sound principles of trade and economy. Although mortgages desig- 
 nate the capital in the property, the discounting of them by an issue payable in 
 gold or otherwise would of necessity prove a failure, where no margin of capital 
 was pledged to make good the losses. That was the error of all previous attempts to 
 utilize mortgages in the circulation. The authors of the project named did not 
 understand banking, nor did they explain the principles of trade ; hence their 
 scheme did not survive the ridicule. My labors, I trust, will have a very different 
 issue. If I have not explained the principles of trade clearly, and applied them 
 to a bank of issue dealinfj in mortfjacres in as correct and scientific a manner as 
 they ever were applied to banks dealing in promissory notes, then I may deserve 
 equal treatment. The more this subject is studied the more extraordinary it will 
 appear that commercial principles and banking have never had an adequate 
 explanation. It is pointed out that not even mortgages can be successfully dealt 
 in with an issue, without an adequate margin of capital ; but it is the first time 
 it has been shown that the capital is to be found in the mortgages themselves. 
 The bank buys A.'s mortgage with its issue, and B.'s mortgage with its stock at 
 par. That is the secret which enables one to explain not only commercial prin- 
 ciples, but Political Economy. 
 
 In fact, the suggestion is identical with the unlimited liability banking of 
 Scotland, rejecting the barbarous device unli'niited, and promissory notes; but 
 dealing only in the better property. There are already a sufliciency of credit 
 banks in Canada ; the bank dealing in mortgages only is wanted to supply funds 
 to the real estate interest ; and let the two systems meet each other at the clear- 
 ing house and pay over balances in gold. That is the only way you can give 
 credit its due, and capital its due. Then all industrial interests will have their 
 due. 
 
 mFEREISICES AND AXIOMS. 
 
 Submit the principles of Political Economy to a scientific test and you necessarily infer that : — 
 
 1. A law to discount promissory notes by bank issues will convert the capital and assets into 
 " credit pledges," and force the available capital abroad. 
 
 2. If a bank deals in assets which cannot be rediscounted in case of necessity, the debtor class 
 will be forced Into bankruptcy whenever exports fall short. 
 
 3. When banks fail to purchase exchange on exports, they have to suspend, till money comes 
 into the country at high rates on mortgage, and till the loan societies sell the exchange. 
 
 4. Redeemability is better maintained by assets in mortgage, than in credit pledges, 
 
 5. A high rate of interest taxes industry, limits exports and runs the country into debt. 
 
 6. The cause of high average interest is the scarcity of capital employed in banking— the less 
 apital the more credit, and of course hazard. 
 
26 
 
 7. A low rate of interest harmonises the forces of industry, wipes out monopolies, and super- 
 sedes a high tariff. 
 
 8. Credit must be relegated to common mercantile transactions. 
 
 9. The fixed capital is wasted, has no income, and no bearing on uie money market. 
 
 10. A mortgage bank of issue would utilize tht lixed capital to the extent of a hundred mil- 
 lions of dollars, for industries I 
 
 11. Capital and credit should have the chance of meeting at the clearing house in the settle- 
 ment of balances. 
 
 12. If prices be not inflated, financial crisis could never occur. 
 
 13. The debtor, instead of the capitalist, is chartered to lend money. It should be the 
 
 reverse. 
 
 14. Capital is positive, and credit is negative property ; yet, strange to say, the latter, the un- 
 known (jnantily, is made the basis of the currency. 
 
 15. A currency should either be capital, or its equivalent. 
 
 16. The principles of banking and business have never been understood. 
 
 17. Political Economy is the science of managing property to the best advantage. 
 
 18. The recognition of the fixed capital, adds a new factor to the forces of industry, more than 
 doubles the currency, and gives a now significance to Politic.il Economy. 
 
 u^ 
 
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