^
 
 A FEW 
 
 FACTS AND SUGGESTIONS 
 
 ON 
 
 MONEY, TRADE, AND BANKING. 
 
 BY 
 
 J. H. WALKER. 
 
 [WOBCESTER, MASS.] 
 
 BOSTON : 
 HOUGHTON, MIFFLIN AND COMPANY. 
 
 JfBW TOBK : 1 1 KA8T SEVENTEENTH STREET. 
 
 CT)C Htbfriftlrc \Ov(^i, Cambritrgr.
 
 Copyright, 1881, 
 Br HOUGHTON, MIFFLIN & CO. 
 
 All rights reserved. 
 
 TTie Riverside Press, Cambridge : 
 Stereotyped and Printed by H. 0. Houghton and Company. 
 
 . . • < 
 
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 M. 
 
 CONTENTS. 
 
 PAfll 
 
 Iktbodtjction .5 
 
 CHAPTER I. 
 
 MUNBT 7 
 
 CHAPTER II. 
 Trade 15 
 
 CHAPTER III. 
 Function of Coin 19 
 
 CHAPTER IV. 
 Capital 22 
 
 CHAPTER V. 
 
 BORROWEE AND LENDER .25 
 
 CHAPTER VI. 
 Interest 29 
 
 CHAPTER VII. 
 Banking Necessary .... ... 83 
 
 CHAPTER VIII. 
 Government Bonds 35 
 
 ,jbyi74
 
 iv CONTENTS. 
 
 CHAPTER IX. 
 National Bakks • .38 
 
 CHAPTER X. 
 Banks in thb Interest of the Peoplb .... 44 
 
 CHAPTER XI. 
 Inducement to bnoaqb in Banking 6f 
 
 CHAPTER XIL 
 Practical working of a Bank 68 
 
 CHAPTER XIII. 
 The Clearing House 58 
 
 CHAPTER XIV. 
 Bt whom Monet is hade • • 6S 
 
 CHAPTER XV. 
 Impotence of Statute Law 66 
 
 CHAPTER XVI. 
 
 Conclusion W 
 
 Government Legal Tender Notes 77 
 
 U S. Sub-treasury 81 
 
 Legislation needed ........ 87 
 
 APPENDIX. 
 
 BUMMART OF THE PRINCIPAL RESTRICTIONS AND REQUIRE- 
 MENTS OF THE National Bank Act . . • .93
 
 INTRODUCTION. 
 
 Every man in the community has now the same 
 liberty to make and issue money, that he has to 
 buy, sell, walk, run, lift, or do a dozen other things, 
 
 — no law hindering him. The only restriction is, 
 that his money shall not be made in imitation of 
 that made by any other man. 
 
 Two to three hundred millions of dollars, in 
 money, are made each day, doing the work of 
 money for the day, and are destroyed at night. 
 
 Money is coin, or any non-interest bearing title to 
 property, that can be immediately realized on, with 
 the option of coin. 
 
 In what is herein presented, the endeavor is to 
 make plain what MONEY, TRADE, and BANKING 
 really are, spending no time on theories, and claim- 
 ing to do nothing more than to present existing 
 facta with reasonable clearness and free from all 
 technicalities. There is no other department of 
 knowledge in which theories are of so little value, 
 
 — where experience should so exclusively be teacher
 
 Q INTRODUCTION. 
 
 and master. In finance, as in nearly all other 
 things, the truth lies on the surface. If it has been 
 missed it is because we have ploughed too deep for 
 it. We have missed it because it was so near and 
 so simple ; we rejected it when we saw it. Further- 
 more, there is nothing in these questions that a 
 plain man may not fully understand. In. order to 
 fairly cover the ground and make the statements 
 reasonably complete, it will be necessary to state, 
 formally, many familiar things.
 
 MOIl^EY, TRADE, AND BAIJ^TKING. 
 
 CHAPTER I. 
 
 MONET. 
 
 The word money conveys to the mind of the 
 merchant the idea of everything in the shape of an 
 obligation of one person or corporation upon an- 
 other, which a bank will take for its face value. It 
 is true that wage-workers and small farmers under- 
 stand money to mean only coin and bank-notes ; 
 but only about two thousand millions of dollars are 
 annually paid to wage-workers and small farmers, 
 while thirty thousand millions of dollars of the 
 annual exchanges of the property of the country, 
 made by merchants and traders, are paid for with 
 other forms of money. The farmer and wage- 
 worker use the words MONEY or CASH to convey 
 the idea of coin or bank-notes, because only coin 
 and bank-notes do for them the work of money. 
 
 The meaning of the words money or caih to all 
 others also includes everything that does the work 
 of money, which besides coin and bank-notes are 
 cashiers' checks, checks, drafts, bills of exchange,
 
 8 MONEY, TRADE, AND BANKING. 
 
 etc., each of which, excepting coin, are titles to 
 'property. The titles to property that annually 
 change hands probably exceed seventy billions of 
 dollars, to pass which scarcely three billions of dol- 
 lars of currency and coin change hands. 
 
 Coins are pieces of gold or silver, stamped by 
 the government for the purpose of indicating their 
 weight and fineness, and for that purpose only. 
 Stamping them adds, and can add, nothing to the 
 purchasing power of gold or silver (excepting for 
 brief periods and under exceptional conditions). 
 This fact is very clearly stated in the law author- 
 izing the issue of United States bonds and the 
 redemption of the greenbacks, passed March 18, 
 1869, and July 14, 1870, which says, that they 
 shall be paid " in coin or its equivalent of the 
 (then) present standard value " (that is to say, 
 coin of the same weight and fineness), which means 
 so many pounds of go].d ^ of a given fineness, pre- 
 cisely as we specify wheat of a given quality and 
 number of bushels, in a contract for the delivery of 
 wheat. 
 
 1 All admit gold to be the standard of value; some claim that 
 silver is equally so. As I do not wish to burden this discussion 
 with any question of a double standard, each person may under- 
 stand gold to include silver, or gold aloBe, according to his own 
 opinion of what should constitute the standard of value. But in de- 
 ciding the question we must remember that, in the light of reason 
 »nd aU the experience of the past, gold and silver cannot both be 
 the standard of value at the same time, excepting for the brief 
 period their lines of fluctuation in value cross each other. When 
 a given weight of two metals is mentioned as the standard of value^ 
 the debtor class always fix on which it shall be, and iuvariablj 
 choose the cheaper one.
 
 MONEY. 9 
 
 That the government coinage stamp adds noth- 
 ing to the value, or purchasing power, of gold, is 
 further shown by the fact that there is no merchant 
 or banker who will not take gold, guaranteed to be 
 of the same weight and fineness as $1,000 of gold 
 coin, for $1,000 worth of property, as readily as 
 the gold coin. Gold, having intrinsic value, is 
 money, and more : it is property, capital ; all other 
 forms of money are titles to property. Of all the 
 forms of money now used, gold only has the power 
 in and of itself to pay debts, because it only is 
 capital. 
 
 When coin passes from one person to another, 
 actual property, or capital, passes, and the transac- 
 tion is final in its nature ; that is to say, there is 
 no other thing to be done by the receiver in order 
 to secure possession of actual property. By the 
 transfer of nothing else, short of the passage of the 
 final papers changing absolutely the residence of 
 the title of actual property (and giving possession 
 of the property) from one person to another, is the 
 transaction final. There are many forms of trans- 
 fers of titles^ to property in common use, all of 
 
 1 The word claim, as commonly usetl, conveys the idea of a dis- 
 puted title to property. A title is commonly understood to mean a 
 paper which securely vests the property in its holder, — an admitted 
 title. A check, bill of exchange, etc., is cither a claim upon the 
 projjerty of the maker (or indorser) for tlio amount named therein, 
 or it is a title to so much of his jiropcrty. Perhaps to call any ono 
 of them a claim would be more accurate as a legal term ; but the 
 universal and unvarying practice of business men to suriendcr 
 promptly, to the liolder, the amount of property named in any one 
 vf them, justifies the use of the word title, because it more accu 
 rately describes the thing.
 
 10 MONEY, TRADE, AND BANKING. 
 
 which do the work of money and are counted in 
 coniinercial transactions and accounts as CASH or 
 MONEY, as before stated, each of which is indis- 
 pensable in its place. 
 
 The titles to property, which are money, are : — 
 First. Bank-notes, which are forms of transfers 
 of the property of banks, and are necessary to the 
 affairs of e very-day life. They require no act on 
 the part of any one who uses them to make thera 
 complete. They are as readily received from stran- 
 gers as acquaintances. They are, in essence, the 
 checks, drafts, bills of exchange, etc., of all the men 
 whose business is not large enough to require the 
 direct assistance of the banker, and they are noth- 
 ing more. They are for use in transactions so 
 small that the other forms of money are not practi- 
 cable or desirable. They are nearly identical in 
 form, and perfectly identical in substance, with 
 checks, drafts, etc., a more convenient form, for the 
 persons using them, of the same thing. The law of 
 the land recognizes no more value or power in 
 them than in any ordinary demand note of one in- 
 dividual against another. No one can compel an- 
 other to accept them in liquidation of a debt, any 
 more than he can the demand note of an individual. 
 They are the same in form and substance as an or- 
 dinary demand note, excepting that they are made 
 payable to any one in possession of them, instead of 
 to the order of some individual named in them. 
 The law recognizes the power of nothing to dis- 
 charge a debt, excepting a specified kind of prop.
 
 MONEY. 11 
 
 erty, and of the amount named in the paper ac- 
 knowledging the debt. The law saj3 the term 
 " dollar " shall mean a given weight and fineness 
 of gold. In fact, custom, or rather a universal law, 
 as certain as any law of nature and recognized and 
 acted upon as such the world over, has fixed the 
 conditions of payment of any and every debt to be 
 the transfer of a given weight and fineness of gold 
 or silver. There is no exception anywhere, either 
 among civilized or barbarous peoples. If any man 
 accepts anything other than gold or silver, it is by 
 . his free consent, aside from the agreement made at 
 the time the debt was contracted. This is the uni- 
 versal law and the universal custom. 
 
 Second. Cashiers' checks, which transfer, by the 
 bank itself, the title to the property of the bank, 
 to the amount named in the check, to the person 
 or corporation named therein. 
 
 Third. Checks, which transfer the title of the 
 individual making them, to the amount of property 
 named therein, which he owns, that is in the pos- 
 session of the bank upon which the check is made, 
 to the person or corporation named in the check. 
 
 Fourth. Drafts, which are means of transferring 
 the title of property from one individual or corpo- 
 ration to another, through the assistance of a bank. 
 
 Fifth. Bills of exchange, which transfer the title 
 to the property of a banker in one country to an 
 individual or banker in another country. 
 
 Accepting the declaration that " money is what 
 money does " (which is the only practical defini-
 
 12 MONEY, TRADE, AND BANKING. 
 
 tion of money), these five forms, by which the titles 
 to property are exchanged, are preeminently money. 
 Coin is scarcely ever passed, and bank-notes but 
 fieldom. 
 
 With these five simple forms of money are all 
 the exchanges of the ownership of property be- 
 tween individuals and corporations made through- 
 out the world, — exchanges so vast in the aggre- 
 gate that they are beyond the comprehension of 
 man. These forms of money are so simple that 
 any school-boy can make them. They are as sim- 
 ple as the alphabet. They are the alphabet, or 
 rather the language, of trade and commerce every- 
 where. They are as necessary and as indestruc- 
 tible as ordinary human language. They are as 
 necessary to the vast exchanges of the world as are 
 the canals, the steamboats, and the railways. They 
 have grown up with, and are a part of, the means 
 of making the actual exchanges of the products of 
 the world. They are the concrete forms of the 
 unwritten laws of trade, — laws as inexorable as 
 are any of the laws of nature. They are as surely 
 the result of ages of abrasion and accumulation as 
 is the soil upon which we tread. Their money 
 function has grown up with civilization, and in all 
 matters pertaining to finance they are the exponent 
 and vehicle of civilization. They are as indepen- 
 dent of national boundaries and legislation as is 
 international law. 
 
 Of the six enumerated forms of money, as has 
 been before stated, coin is the only one that can do
 
 MONEY. 13 
 
 more than to transfer the title to property from one 
 person to another. Not one of the others can extin- 
 guish debt. Notwithstanding this fact the universal 
 practice is for each man to take, in exchange for his 
 property, some one of these titles to the property 
 of some other man. Every man takes all the titles 
 to the property of every other man that he receives, 
 and deposits them in a bank, and accepts in their 
 place a title to the property of the bank, to an 
 equal amount. This title to the property of the 
 bank is always transferred by the individual having 
 it to the same or some other bank in exchange for 
 some title to his own property, which he has before 
 given; and as each bank, the world over, sends 
 all the money titles, or its equivalent, to the prop- 
 erty it buys, not cancelled at its own counter, to 
 the " clearing house," every money title issued ulti- 
 mately finds its way there, and is there cancelled 
 and destroyed, — meeting there the equivalent 
 which each merchant is obliged to give some one, 
 for each money title to his property which any one 
 accepts from him. After any bank or clearing house 
 has exhausted all the titles to the property of others 
 which it has, in matching the titles it has issued, to 
 its own property (which are presented to it), it 
 must then give to every man who presents any fur- 
 ther title to its property, gold to satisfy it. The 
 fact that gold settles the final balance is equivalent 
 to its being actually passed from one man to another 
 in paying every debt in the country, to the exclu- 
 eion of every other form of money, because the re-
 
 14 MONEY, TRADE, AND BANKING. 
 
 suit is precisely the same as it would be if gold act- 
 ually passed in each transaction. By this means 
 it actually touches and measures the value of every 
 commodity, in every trade, from the selling of a 
 dozen of eggs to the funding of hundreds of mill- 
 ions of the public debt. Thus money grows out 
 of trade, and is a part of it. It has no existence 
 aside from it, and cannot be described without in- 
 cluding trade.
 
 CHAPTER II. 
 
 TRADE. 
 
 Every form of money, excepting coin, repre- 
 Bents barter, and that only. Taking any other of 
 the many forms of money is taking a title to the 
 property of its maker to the value named in the 
 bank-bill, cashier's check, check, draft, or bill of 
 exchange, etc., as the case may be, in coin, and 
 nothing more. In exchange for them, the person 
 receiving them gives either a like amount of his 
 property, or a title to it, or a title which he has to 
 the property of some other person or banker. By 
 means of these devices, primitive barter becomes 
 modern trade, but is not changed in its substance. 
 Ejicli individual uses these devices to accurately di- 
 vide and subdivide the unsecured title to his aggre- 
 gate property into such portions as he wishes to 
 exchange for the property of his neighbor. The 
 crudest form of barter and modern trade are essen- 
 tially the same. The only difference being in the 
 number of persons who take part in a given trans- 
 action, the facility and accuracy with which prop- 
 erty is divided and moved, and the accuracy with 
 which values are computed. There can be no trade 
 other than the exchanging of property for property,
 
 16 MONEY, TRADE, AND BANKING. 
 
 unless one person or class is content to maintain 
 trade with another by exchanging something for 
 nothing. The difference between the old and the 
 new is development, not substitution. It is not 
 abandoning the stage-coach and turnpike for the 
 railway and railway cars. It is rather the develop- 
 ment of the original loom into the loom that 
 weaves the fancy cassimere of to-day. It is a loom 
 still, retaining all its original features. The differ- 
 ence is in the devices for dividing the property of 
 the purchaser into the exact amount that the party 
 selling demands for the thing sold, — the numb'ei: 
 of persons uniting to do it, and the unanimous as- 
 sent and assistance of all in consummating each 
 transaction. 
 
 Besides the forms of exchangeable titles to the 
 property of their makers and indorsers heretofore 
 mentioned, namely : Bank-notes, cashiers' checks, 
 checks, drafts, and bills of exchange, which by 
 common consent are money, there are — 
 
 First. Individual and corporate titles to a speci- 
 fied amount of the property of their maker, called 
 bankable notes, payable in the near future, at a 
 time and place named therein. 
 
 Second. Individual or corporate titles to a speci- 
 fied amount of the property of their makers, called 
 demand notes, payable on the demand of the party 
 owning them. 
 
 Third. Book accounts, which in the country 
 store represent primitive barter, in the settlement 
 of which very little use is made of any of the
 
 TRADE. 17 
 
 devices for transferring titles to property, before 
 described. The products of the farm or shop are 
 directly exchanged for the goods of the trader. 
 
 Fourth. Stocks, each share of which is the title 
 of the holder to that proportion of the whole prop- 
 erty, described therein, which is owned by him. 
 
 Fifth. Bonds and mortgage notes of individuals 
 or corporations secured by conditional bills of sale 
 of certain specified property, described therein. 
 
 The passage of the title to a mortgage bond or 
 note is always associated in our minds with the 
 passage of the title to the property described in the 
 mortgage ; but, as a matter of fact, both in custom 
 and law, the right of the owner of a mortgage bond 
 or note to the property specified in the mortgage, 
 is no more than is the right of the holder of any 
 one of the other nine forms of titles to so much of 
 the property of the maker thereof as will fully sat* 
 isfy the obligation. The only difference is, that the 
 owner of the mortgage bond or note has a prior 
 riglit to the property mentioned in the mortgage. 
 The holder of any of the other forms of obligation 
 can levy on any kind or portion of the property of 
 the maker not pledged by mortgage. To satisfy the 
 owner of any one of the obligations the law re- 
 quires the maker to deliver coin, and if the holder 
 accepts any other form of money he simply ex- 
 clianges his obligation against one party for an ob- 
 ligation against another party. Every one of the 
 obligations named must, of necessity, represent 
 property. The moment they cease to do that they
 
 18 MONEY, TRADE, AND BANKING. 
 
 are valueless. The theory and fact is, that each 
 one of them specifies on its face the day on which 
 the maker will deliver to the holder property of the 
 value named therein, in the performance of which 
 promise the obligation dies.
 
 CHAPTER III. 
 
 rUNCTION OP COIN". 
 
 Coin, which is property aud not an obligation, 
 as are the other forms of money, is never passed, so 
 long as the holder of an obligation desires or is will- 
 ing to accept any form of capital other than coin ; 
 and as no income can be derived from coin, there is 
 no inducement under ordinary circumstances for 
 the creditor to demand it of the debtor, or for an 
 individual receiving it to retain it in his possession. 
 Nothing is properly called money which affords an 
 income. It is fatal to the monetary function of an 
 obligation to contain any inducement for an in- 
 dividual to keep it as an investment. Money is a 
 title to property, from which no income is or can be 
 derived, that can be immediately realized on, with 
 the option of gold. 
 
 The only reason why banks hold, or should be 
 required to hold any gold, is not because it is 
 money, but because it is property, — property be- 
 cause of its intrinsic value, in and of itself, acknowl- 
 edged as such the world over. The sphere of gold 
 in the system of exchange is purely that of property 
 used to settle the final balance, not of money, — 
 understanding money to mean purely a circulating
 
 20 MONEY, TRADE, AND BANKING. 
 
 medium. Gold thereby becomes the measure of 
 the value of every other kind of property. The 
 monetary system of the civilized world treats gold 
 as the property by which the value of all other 
 property is measured. It measures it as gold prop- 
 erty^ not as money, and irrespective of the pieces 
 into which it is divided, or the stamp they bear. 
 We actually measure the value of any given thing 
 by it, by determining how much weight of gold is 
 demanded in exchange for the thing. Not by a 
 process of reasoning, but by actually making the 
 exchange. The ratio of that exchange fixes the 
 price, in gold, of the thing exchanged for it, until 
 another like exchange is made at a different ratio. 
 This is accomplished by the banks. When the 
 titles to the property of others, received by any 
 bank on any day, are less in amount than the titles 
 to its property which it is called upon to deliver to 
 others, the difference is immediately settled by the 
 delivery of coin. 
 
 The law requires coin to be passed in every 
 transaction, and as long as the final balance is paid 
 in coin, it is practically a perfect and literal com- 
 pliance with the law. Coin measures the value of 
 every article exchanged until the final exchange 
 when coin itself passes in liquidation of a title, as 
 truly as though it passed in every transaction ; be- 
 cause the final result is precisely the same as though 
 coin itself passed in each transaction. Thus it 
 really and certainly measures all values. No one 
 thinks of questioning the fact that the price at
 
 FUNCTION OF COIN. 21 
 
 which the surplus of any particular brand of flour 
 is sold in England for gold fixes its price in gold 
 here. So with every other article a surplus of 
 which is sold in Europe for gold. The millions 
 worth of the same property exchanged here is 
 every dollar of it exchanged on the basis of its gold 
 value there. Gold as really measures the value of 
 each thing exchanged as though it was passed by 
 the buyer to the seller, for all the millions at which 
 the whole is valued, every time a purchase is made. 
 So long as the banks are ready to pay gold to 
 any one who has a title to any of their property, 
 and demands gold in payment, and do actually pay 
 it in settlement of the final balance against them, 
 gold is practically present and does its office in 
 every purchase and sale that is made in the land.
 
 CHAPTER IV. 
 
 CAPITAL. 
 
 Many terms in common use are technically fai 
 from accurate, and those of trade are no exception. 
 We say the sun rises and sets, when we mean that 
 the earth revolves. We say we wish we had more 
 money, when we mean that we want more capital. 
 We do not long for titles to capital, but for capital 
 itself. Men very rarely borrow money, they borrow 
 capital. A. has $50,000 in capital, all of which he 
 uses himself, doing a business of 1500,000 a year, 
 but is at no time, for twenty-four hours, in actual 
 possession of |100 in bank-bills or coin. B. has 
 $100,000 in capital, $50,000 of which he uses him- 
 self, the other $50,000 he loans to his neighbors. 
 When B. loans C. any of his capital, C. receives 
 from B. a title to just that portion of the $50,000 
 which he borrows of B., say $10,000, and calls it 
 money. C. immediately exchanges this $10,000 
 title to capital for $10,000 worth of any of the 
 myriad forms of property he most desires to have. 
 C. has parted with his money^ but he still has ex- 
 actly what he desired to have, and borrowed of B., 
 namely, capital. B. has $10,000 less capital than 
 before he loaned $10,000 to C, and has in its place 
 a title to $10,000 of C.'s aggregate property. C.
 
 CAPITAL. 23 
 
 has $10,000 more capital than before he borrowed 
 of B. The papers that passed from B. to C, called 
 money, were no more to the transaction than is the 
 stick over the shoulder of the miner to the gold he 
 carries on it, the jewel box to a lady's jewels, the 
 basket used in gathering the crop, or the wagon 
 that takes it to market, to the crop. They carry 
 property, the piece or pieces of paper carried the 
 capital that passed from B. to C. 
 
 While writing the above my eye fell upon the 
 following newspaper paragraph : — 
 
 " The New York makes neat definitions : ' Mr. 
 
 Longfellow can take a worthless sheet of paper, and by 
 writing a poem on it make it worth $50. That 's genius. 
 Mr. Vanderbilt can take a sheet of paper, and by writ- 
 ing fewer words on it can make it worth $50,000,000. 
 That 's capital.' " 
 
 If this paragraph means anything, it means that 
 the value of the worthless paper was made '$50 by 
 the creative power of Longfellow, and $50,000,000 
 by the creative power of Vanderbilt. That is to 
 say, it declares that genius can, by its inherent 
 power, add to the capital of the world the sum of 
 $50, by making a worthless piece of paper worth 
 $50, and a capitalist can, by his power as a capital- 
 ist, add $50,000,000 to the wealth of the world, by 
 a few strokes of his pen upon a worthless piece of 
 paper. 
 
 What Longfellow can do is to give us the re- 
 sults of a long life of application to his divine pur- 
 suit, in a poem that reprefwints and is the result of
 
 24 MONEY, TRADE, AND BANKING. 
 
 labor, as much as gold dug from the mine, wheat 
 raised upon the farm, useful things made from 
 worthless wood, or beautiful vases from dull clay. 
 The paper upon which it is written has no more 
 connection with it than the spade of the gold-dig- 
 ger, the plough of the farmer, the tools of the 
 wood-worker, or the wheel of the potter. 
 
 What Vanderbilt can do is to give to another a 
 title to $50,000,000— of his capital. When the 
 person to whom it is given presents his title to, and 
 takes possession of the $50,000,000 — of property, 
 Vanderbilt has $50,000,000 less capital, and the 
 person receiving it $50,000,000 more than before. 
 So with all money (except coin). It has no value 
 in itself. It adds nothing to the capital of the 
 world. It purports to be and is only a title to 
 property, — a convenient device for transferring 
 the ownership of property.
 
 CHAPTER V. 
 
 BOEKOWER AND LENDER. 
 
 The man who loans capital to another, neces- 
 sarily becomes the partner of the borrower in the 
 business in which the borrower uses the capital 
 borrowed. Whatever term is used to describe the 
 compensation which the lender receives from the 
 borrower for the use of his capital, whether it be 
 premium, interest, rent, or profits, they all mean 
 the same thing, namely, that the lender is to re- 
 ceive a part of its increase as capital, while it is in 
 the hands of the borrower. This does not mean 
 increase of the capital unaided by the endeavor of 
 the borrower. Capital becomes such by being 
 united to man's skill and intelligence. There is no 
 form of capital that can exist for a moment, as 
 capital, after man's vivifying power is withdrawn. 
 It thereby loses its character as capital and be- 
 comes as the rocks and as the sands of the desert. 
 
 What would New York be, if to-night every 
 human being should leave it and all its wealth, 
 never to return? Its vast wealth would be as 
 nothing. Though it should never decay, it would, 
 as capital, be as though its surrounding waters had 
 swallowed it up forever.
 
 26 MONEY, TRADE, AND BANKING. 
 
 The necessities, the comforts, the luxuries, the 
 innumerable advantages of every kind secured to 
 the wage- worker of to-day, in the form of the 
 compensation he receives from his employer, come 
 very largely from the advantages furnished to 
 this generation by the wealth accumulated by the 
 generations that have preceded it. The difference 
 between the condition of the barbarian and the 
 average wage-worker of to-day (who is temperate, 
 industrious, and frugal) is the measure of what the 
 wage-worker daily receives from capital accumu- 
 lated before his day. Only a modicum of the actual 
 benefits of capital are exclusively enjoyed by its 
 owners, or are paid by the borrower to the lender 
 for its use. The great bulk of its earnings are 
 commonly enjoyed by all. 
 
 In speaking of the natural increase of capital we 
 include the power that vitalizes it. The terms 
 commonly used to describe the compensation which 
 the lender receives tend to confuse the mind. The 
 one word which conveys the most correct idea is 
 rent. 
 
 A man always borrows something of intrinsic 
 value. What he borrows is not. a piece of paper, 
 whatever may be on it, but a farm, a house, a fac- 
 . ory, or a part of them ; a store, a mine, or goods. 
 No man can borrow or lend anything else. The 
 borrower gets from the lender what puts him in 
 possession of the thing he seeks, and it must be 
 some one of these things. "Whatever becomes of 
 the piece of paper which he took from the hands of
 
 BORROWER AND LENDER. 27 
 
 the lender, or however soon it disappears, the bor- 
 rower has the real thing borrowed, nntil he returns 
 it or its equivalent to the lender. The inducement 
 to the lender to part with his capital for a time is 
 the belief that the borrower can do better with it 
 for him than he can do for himself. The induce- 
 ment to the borrower is the belief that the increase 
 on the capital borrowed will be more than the rent 
 for it which is demanded by the lender. 
 
 Any attempt by legislation to interfere with the 
 buying, selling, or renting of farms, houses, fac- 
 tories, stores, or mines, is now never suggested ex- 
 cepting to secure justice to the weak. It has been 
 proved by a thousand trials, that any interference 
 by legislation with the price at which any goods 
 shall be sold, invariably increases their cost to the 
 consumer, and it is now so plain that no one pro- 
 poses it. But it is equally true of all property. 
 Any one who borrows the capital to pay for half 
 of his farm is joint owner and partner with the 
 lender — tlie lender getting that share of the profits 
 of the farm Mgreed upon as the rental for his half, 
 until the borrower buys out his half at the price 
 agreed upon ; or failing to keep his agreement 
 jeopardizes his ownership in the balance, precisely 
 as do the partners in any other business. So with 
 the joint ownership in a house. One man holds 
 the titles and assumes all the chances of both loss 
 and gain on the whole house, paying for only half ; 
 another pays for the other half with a conditional 
 ownership with a fixed rental for his half of the
 
 28 MONEY, TRADE, AND BANKING. 
 
 house (his capital loaned), on which he has no 
 chance of gain oy^i; the reiatal, and is guarajit^j^d 
 against loss. • 
 
 Selling goods by the merchant, the price for 
 which is to be paid on a future day, or loaning 
 capital by a bank or by an individual to a trader 
 or manufacturer, is taking a part ownership in his 
 stock. The rental on the part owned by the mer- 
 chant is called profit. The rental for the part 
 owned by the banker or money lender is called in- 
 terest, but the terms, profit, interest, and rent, mean 
 the same thing.
 
 CHAPTER VI. 
 
 INTEREST. 
 
 There is no more beneficent law of finance than 
 that requiring the payment of rent for the use of 
 capital. Abolishing interest would be the death of 
 enterprise. By the rental paid for the use of cap- 
 ital, capital is put into the hands of every man who 
 is believed by those who have accumulated it to 
 have the skill to keep it safely and use it wisely. 
 Every man who loans his capital to another is in- 
 fluenced in the rent he demands for it by three 
 considerations : First, its security ; second, the 
 length of time on which the loan is made ; third, 
 the amount loaned ; the* lowest rental for capital 
 being received on loans the most jjerfectly secured, 
 for the longest time, and the largest amount, 
 these considerations governing in the order named. 
 The highest rental is paid where the greatest risk 
 is taken, the time is shortest, and the amount the 
 smallest. 
 
 The high rate of interest paid for one day's loan 
 of capital in the New York Stock Exchange, the 
 high rate in the shop of the pawn-broker, and tho 
 low rate on government bonds, ilkistrate and en- 
 force this rule. These inflexible laws of finance
 
 30 MONEY, TRADE, AND BANKING. 
 
 are in the interest of the mass of the people. It ia 
 in their interest, as it is in the interest of every 
 man in the community, to have doubtful and haz- 
 ardous enterprises kept within reasonable limit, by 
 high rates of interest on capital ventured in them. 
 Those industries which supply the necessities of, 
 and furnish employment to, the mass of the people, 
 secure what capital they need at the very lowest 
 practicable rate. Being the longest established, on 
 the most secure foundation, and needing the largest 
 amount of capital, they secure it at the lowest rates, 
 and are thereby enabled to pay higher wages and 
 to sell their products at lower rates ; while tho 
 newest and most uncertain enterprises pay the 
 highest rental for capital, whether it be for the 
 building of a house in an undesirable locality, or 
 the erection of a mill to manufacture goods of doubt- 
 ful value. No portion of the people are proportion- 
 ately so much interested in the stability of all kinds 
 of business as the wage-worker. To him it is a 
 matter of daily bread. 
 
 The prohibition in this country of all entail of 
 property, and the freedom of every man to dispose 
 of his capital to any person in any manner and for 
 any price they can mutually agree upon absolutely 
 or conditionally, whether called loans or sales, in- 
 duces hundreds to loan their capital rather than 
 use it themselves. This freedom of capital is at 
 the foundation of business prosperity. Like the 
 governor on the engine, which is left free to ex* 
 pand and contract the circle of its movement, there-
 
 INTEREST. 31 
 
 by keeping the working power of the ponderous 
 machinery at its most effectiye point, so the com- 
 pensation paid for the use of capital is the governor 
 of the stupendous movements of finance. Its free- 
 dom to increase and to decrease, as the enterprises 
 constantly pressing for its use are safe or unsafe, is 
 the regulating power that keeps our financial sya^ 
 tern at its equilibrium. The reason of our pros- 
 perity, notwithstanding the laws of so many states 
 attempt to interfere with the freedom of the move- 
 ment of capital, is that these laws do not com- 
 mend themselves to the conscience, and are against 
 the interests, of the people, and are therefore in- 
 operative. Their only effect, if perfectly obeyed, 
 would be to make the cost of the capital employed 
 in all enterprises, — the safe and the unsafe, the 
 useful and the useless, — the same, raising the 
 rate of interest to those great and fundamental 
 enterprises which now secure their capital at the 
 lowest rate, thereby increasing the cost of their 
 products to the consumer, and lowering it to the 
 doubtful or chimerical enterprises which use up 
 and practically destroy capital, for a time, in enter- 
 prises soon dead. 
 
 It is not for the interest of the public that en- 
 terprises which for to-day prove visionary and un- 
 profitable, should be absolutely stopped, because 
 they almost invariably prove ultimately useful in 
 developing the resources of the country. The only 
 practical way that finance has found to keep them 
 »n proper proportion to the immediately useful and
 
 32 MONEY, TRADE, AND BANKING. 
 
 necessary, in an experience covering centuries, is 
 by the restraints of higher rates for the use of cap- 
 ital thus employed. 
 
 Very few writers on finance now dispute the 
 proposition that any restrictive interference with 
 the mobility of capital results in injury to the mass 
 of the people. To-day, as compared with a cent- 
 ury ago, capital seems almost liquefied. Invest- 
 ments were never before so insecure to the indi- 
 vidual, and never so permanent to society. Capital 
 was never so equally distributed, was never increas- 
 ing so rapidly, and the mass of the people was 
 never so secure in its use, enjoyment, and posses- 
 sion as now. 
 
 In bringing this to pass, and in all the progress 
 we have made in commercial exchanges, banks have 
 been a safe and indispensable agent, and none of 
 them more so than those established under the pres- 
 ent National Bank Act.
 
 CHAPTER VII. 
 
 BANKS A NECESSITY. 
 
 The business of the banker is as simple and as 
 easily understood as that of the merchant, the man- 
 ufacturer, the trader, or the farmer; it is just as 
 legitimate, just as necessary, just as indispensable. 
 The farmers all over the world produce the raw 
 material, the merchants collect this raw material 
 (buy it), and also distribute manufactured articles 
 to traders (sell to them). The manufacturer takes 
 the raw material from the merchant (buys it of 
 him) and converts it into the forms in which it is 
 consumed. The trader distributee) it (sells it) to 
 the consumers, — wage- workers and farmers, — tak- 
 ing from the farmer in exchange the raw material, 
 which he sends to the merchant, and from the 
 wage-worker the obligations against the banks, 
 (bank-notes), which the manufacturer or farmer 
 gave him for his labor. 
 
 These exchanges of property cannot be made, 
 unless they are accompanied by some means of 
 exchanging the titles to the property exchanged. 
 This is easily accomplished without bankers, where 
 the propei'ty of A. is desired by the neighboring 
 farmer B., and B. desires the property of A. But
 
 34 MONEY, TRADE, AND BANKING. 
 
 when the farmer in Calcutta wishes to exchange 
 his raw material for the goods manufactured in Bir- 
 mingham, it must go through the whole circle of 
 trade and manufacture, and the assistance of the 
 banker is i-equired by each one of the thousands who 
 compose this circle in order properly to exchange 
 and adjust the titles of each one of the thousands 
 to his share of the property, at each stage of its 
 progress. So, too, when the farmer in Iowa wishes 
 to exchange his raw materials for the cloths of 
 Lowell. 
 
 Each exchange of property (not primitive barter) 
 is accompanied by two papers : one is given by the 
 seller to the buyer, which is a certificate that the 
 property described in it has passed from the posses- 
 sion of the seller to that of the buyei", and. is called 
 a bill of sale, which vests the title to the property 
 in the buyer. The other is given by the buyer to 
 the seller, and is a title to an equal amount of the 
 property of the b*.:yer, or some other party, and is 
 called note, draft, check, bank-note, etc., as the 
 case may be. This exchange of titles completes the 
 transaction between these two parties. At this 
 point in the transaction the assistance of banks is 
 indispensable, for without the assistance of the 
 banker it would be impossible for the seller to come 
 in possession of the property to which he has ac- 
 cepted a title in exchange for the property he has 
 just parted with.
 
 CHAPTER VIII. 
 
 GOVERNMENT BONDS. 
 
 The fact that banks are required to deposit with 
 the United States treasurer government bonds, to 
 secure against loss the holders of the promissory 
 demand notes issued by the banks, may mislead 
 some honest people as to the true character of these 
 bonds ; it may, thei-efore, be well to state exactly 
 what the bonds issued by the United States govern- 
 ment really are, before proceeding to examine the 
 workings of the national banking system. 
 
 The United States bonds were given for and now 
 represent property actually received from individ- 
 uals by tlie United States government. Certain 
 individuals voluntarily surrendered the whole or a 
 large part of their property to the whole people 
 (nauiely, the government), in the day of their ne- 
 cessity, but for which voluntary surrender of their 
 property by individuals the government would have 
 been compelh-d, at that time, to take by force 
 from all the people the same amount of property 
 as that voluntarily surrendered by the few, taking 
 from each person that fraction of his property which 
 his whole property bore to the property of all the 
 people coipbined (taxes). The amount then
 
 36 MONEY, TRADE, AND BANKING. 
 
 needed was so large as to make it impracticable to 
 immediately collect it by taxation. 
 
 Some individuals could surrender all their prop- 
 erty without seriously disturbing society or them- 
 selves ; but all could not give up so large a part 
 without bringing disaster on all. Each person at 
 the time he voluntarily surrendered his property 
 received for it from the whole people (the govern- 
 ment) their solemn obligation (United States 
 bonds) to contribute from their property from year 
 to year (taxes) an amount sufficient to return to 
 him, on a certain day in the future, a specified 
 amount of property as the equivalent of that vol- 
 untarily surrendered by him to the government; 
 until which day the government further agreed to 
 pay to him, quarterly, a sum agreed upon for the 
 use of the capital surrendered. 
 
 These government bonds are, in essence, titles to 
 a fraction of the property of each and every person 
 in the country, who thankfully gave the title to 
 this fraction of his property at the time the bonds 
 were made, that he might thereby save the bal- 
 ance ; each individual is personally indebted to the 
 holders of these bonds because of the voluntary 
 surrender of his property which the bondholder 
 then made in place of his surrender. Each of them 
 has had and enjoyed the fraction then saved to him, 
 and its increase from that day to this. 
 
 The United States bonds are an admirable secur- 
 ity for the circulating demand notes of national 
 banks, or for any other obligation ; but they ar«
 
 GOVERNMENT BONDS. 37 
 
 not money. They fulfil none of the conditions 
 of money. They represent uncollected taxes, — a 
 lien on property. They represent fixed and not 
 quick capital. They have no rightful place in 
 banks of discount, except as security for business 
 notes, and, to a limited amount, as a special re- 
 serve. The whole theory and practice of bank- 
 ing is the dealing in titles to property in transit 
 that quickly mature. Goyemment bonds are the 
 exact opposite. 
 
 389174
 
 CHAPTER IX. 
 
 NATIONAL BANKS. 
 
 A BANK is made by five or more persons, who, 
 desiring to begin the business of banking, put into 
 a common fund the whole or a certain part of the 
 capital of each, sufficient to make up the required 
 amount, say $100,000, each taking from the custo- 
 dian of the fund a paper which states what propor- 
 tion of the whole capital of the bank belongs to 
 him. 
 
 Having the requisite capital, the next step is to 
 purchase so much of the obligations of the United 
 States (government bonds) as the law requires the 
 bank to deposit to secure the circulating promissory 
 demand notes it applies for. Surrendering these 
 bonds to the secretary of the United States Treas- 
 ury, not absolutely, but in trust for the benefit of 
 the whole people and the bank, the bank gets from 
 the United States treasurer notes in blank, ready 
 for its officers to sign, to the amount of ninety per 
 cent, of the bonds surrendered, so made and printed 
 that they cannot be counterfeited. 
 
 These blank notes are of no more value than 
 waste paper when they are received from the treas- 
 urer of the United States by the bank. They are
 
 NATIONAL BANKS. 39 
 
 to the bank exactly what any blank note is to the 
 merchant. But when they are signed by the proper 
 officers of the bank they then have the full value 
 stated in them ; that is to say, they are worth just 
 as much as and no more than any other promissory 
 demand note, the payment of which is as thoroughly 
 secured. 
 
 Calling them bank-bills, currency, or money, does 
 not change the fact. All these terms are simply 
 descriptive of the use to which they are put. The 
 fact that they are promissory demand notes, and 
 that only, is very carefully stated in the National 
 Bank Act in the following words, namely : " Upon 
 the transfer and delivery of bonds to the United 
 States treasurer, etc., the association (bank) shall 
 be entitled to receive circulating notes, in blank, to 
 the amount of ninety per cent, of the bonds so de- 
 posited. After any such association (bank) shall 
 have caused its (blank) promises to pay . . . to be 
 signed ... in such manner as to make tJiem oblig- 
 atory promissory notes, payable on demand, such 
 association (bank) is authorized to issue a nd circ u- 
 
 Thus it appears that it is stated, as clearly as it 
 is possible to state it, that the government assumes 
 no responsibility for the issuing of national bank 
 notes. It prohibits the bank from issuing its notes 
 for more than ninety per cent, of the aggregate 
 amount of United States bonds deposited by it 
 with the United States treasurer to secure its circu- 
 lating notes ; and in order to be absolutely certain
 
 40 MONEY, TRADE, AND BANKING. 
 
 that this restrictive provision of the National Bank 
 Act is complied with, it prints the blanks for the 
 national bank notes itself. Here its responsibility 
 begins and ends. 
 
 It is true that the government has its bonds, but 
 it holds them as the trustee of each individual who 
 has in his possession any national bank notes, and 
 not for the banks. The title of the bank to them 
 is secondary. It is a restrictive measure upon, and 
 not in the interest of the bank, but in the interest 
 of the people who take the notes of the bank. It 
 is true the government is paying interest on its 
 bonds to the banks that deposit them as security 
 for their circulating notes, and the banks are paying 
 no interest on their circulating notes. The banks 
 do, however, pay in taxes what is equivalent to full 
 interest on the untaxable bonds that secure their 
 circulating notes. By an ingeniously contrived 
 system of taxing the business of the banks, so as to 
 collect taxes from each of them, not in proportion 
 to the amount of the circulating notes each has 
 issued, but in proportion to the amount of business 
 done by each, the national and state governments 
 receive from the banks, as a whole, more money 
 than four per cent, interest on the aggregate na- 
 tional bank notes outstanding. 
 
 The national bank notes outstanding October 27, 
 1880, amounted to $317,350,000. Interest on this 
 amount at four per cent, would be $12,694,000 ; 
 while the state and national taxes paid by the 
 banks in 1880 amounted to $14,619,000. Thii
 
 NATIONAL BANKS 41 
 
 Btatement shows the amount of taxes collected on 
 capital in banks which usually escapes taxation. 
 The equivalent of taxes on the bonds is also col- 
 lected at each time the interest on the bonds is paid, 
 by the rate of interest the government pays on 
 them, being less by just the amount of the taxes, 
 were the bonds taxable. The government bonds 
 specify that they are not again taxable ; but the 
 banks pay in taxes nearly two million dollars more 
 than the interest on the bonds deposited by the 
 banks with the United States Treasurer, to secure 
 their circulating notes. 
 
 Whether this is for the best Interests of the peo- 
 ple, is not so clear. Banks were not invented or 
 created by the government. They existed long be- 
 fore the United States government was created, and 
 may exist long after it has passed away. It is en- 
 tirely proper, and the duty of the government, to 
 take from the banks in taxes a sum equal to the 
 pecuniary benefit conferred upon them by the gov- 
 ernment, and to provide all the safeguards neces- 
 sary to prftvent the banks from cheating the people 
 by means of the " promissory notes " (money) they 
 issue, or in any other manner ; but any interfer- 
 ence further than that must result in mischief. 
 
 The National Bank Act gives a very complete 
 description of the work done by a bank. It says 
 having been qualified to do so, a bank may " carry 
 on the business of hanking, namely, by discounting 
 and negotiating promissory notes, drafts, bills of 
 exchange, and other evidences of debt ; by receiv-
 
 42 MONEY, TRADE, AND BANKING. 
 
 ing deposits ; by buying and selling exchange, coin, 
 and bullion ; by loaning money (its property) on 
 personal security ; by obtaining, issuing, and cir- 
 culating notes, according to tlie provisions of tbis 
 act." Every one of the things specified, as proper 
 for a bank to deal in, excepting coin and bullion, ia 
 a title to property " in transit." In fact, national 
 banks can deal in nothing else with safety. They 
 have dealt in government bonds, it is true, but 
 under special protection and exceptional conditions. 
 So large a portion of the capital used in their busi- 
 ness is upon " call " (deposits) that the titles they 
 take for their loans must be of fixed value and to 
 property that they can quickly realize on. The av- 
 erage unexpired time before they will come in pos- 
 session of the property, the titles to which they 
 receive in exchange for their capital (their loans), 
 does not much exceed thirty days. 
 
 The word hank means bank of discount, not a 
 trust company, whether called Savings Bank, Life 
 Assurance Association, Loan Association, or by 
 any other name. All of these only deal in titles to 
 real or fixed property. They belong to a different 
 guild, and are not like and have no more connec- 
 tion with institutions engaged in banking than do 
 individuals who loan capital on real estate and 
 like property. The National Bank Act prohibits 
 " banks" from dealing in titles to, or loaning money 
 flpon real estate. It confines the banks to dealing 
 in titles to property "in transit." They cannot 
 lawfully invest one dollar in any property whatever 
 not " in transit."
 
 NATIONAL BANKS. 43 
 
 Property in transit is any property between the 
 producer and final consumer. A cooking stove is 
 " in transit " until it comes into the possession of 
 the family. A machinist's lathe is "in transit" un- 
 til it becomes the property of the man who is to 
 use it to make other machinerj\ Every form of 
 personal property is " in transit " until it reaches 
 the hands of the man who buys it to use, not to 
 Bell again. 
 
 Experience proves that without legal prohibition 
 banks will allow their capital to accumulate in 
 fixed property to the injury of the great manufact- 
 uring and distributing interests, deranging the ex- 
 changes of the country and throwing workmen out 
 of employment; and for this reason they are re- 
 stricted to dealing in titles to property in transit. 
 
 The requirement of reserves in greenbacks, bank 
 balances, circulation, etc., by the bank act, is very 
 necessary for the security of the bank. It is neces- 
 sary that bank officers know their proper propor- 
 tion and substance, but they need not be discussed 
 here. Their effect upon the business of banking, 
 as of all restrictions, is to increase or diminish 
 safety in the conduct of its business, and to in- 
 crease or diminish the cost to the community of 
 the services which it is obliged to have from banks.
 
 CHAPTER X. 
 
 BANKS IN THE INTEKEST OF THE PEOPLE. 
 
 The government (the people) derives almost in* 
 calculable advantages from requiring that the bank- 
 ing capital of the country, to secure the circulating 
 demand notes of the banks, shall fii'st be invested 
 in government bonds. It gives security to the gov- 
 ernment debt. The integrity of the government 
 is by this arrangement so interlaced with every 
 interest in the country, that the dullest intellect 
 cannot fail to see that the repudiation of the gov- 
 ernment bonds would strike every man having a 
 national bank note, making it clear to his pocket 
 if it does not to his head, that the violation of the 
 public faith, as well as private, is not only a dis- 
 grace to Christian civilization, but an immediate 
 loss to every citizen. 
 
 Again, it gives to all the national bank notes a 
 uniform and certain value all over the country, 
 thereby lessening the excessive rates of exchange 
 between one part of the country and another, which 
 are unavoidable under any system of banking con- 
 trolled by the states. Under the old state banking 
 system the price of exchange sometimes reached 
 above ten per cent, between Chicago and Boston,
 
 BANKS IN THE INTEREST OF THE PEOPLE. 45 
 
 This unnecessary tax upon the industries of the 
 country cost the country millions of dollars annually, 
 every dollar of which came directly from the pockets 
 of the people, in the increased price which every 
 trader was obliged to ask for his goods, in order to 
 reimburse himself for this loss. It also secures a 
 much lower rate of interest for the use of capital, 
 by the feeling of security which it inspires, as it 
 ministers very greatly to the stability of all the oper- 
 ations of business and social life, thus cheapening 
 the cost to the consumer of every article he buys. 
 
 Still again the difference in value of sales to 
 and purchases from one section of the country by 
 another, in certain seasons of the year, and in cer- 
 tain products, is counted by millions, but the be- 
 neficent working of the banking system saves the 
 shock and strain of these immense variations in a 
 given season of the year, locality or department of 
 commerce, by so adjusting the supply of capital to 
 the demands of time and place as to lessen mate- 
 rially the total amount of capital required. This 
 also cheapens production, enabling the masses to 
 secure the things they consume at a less price. 
 
 But for banking every man in business would be 
 obliged to keep about him, throughout the whole 
 season, all the capital he needed to use at that part 
 of the season when he required the most capital. 
 That is to say, he must at all times have on hand 
 the tnaxiinum of capital necessary, and any excess 
 of that needed for present wants would be profitless 
 when ho was not using it. All the earnings that
 
 46 MONEY, TRADE, AND BANKING. 
 
 could be got from any body of capital that without 
 banking must remain idle, must be added to what 
 the article for the production of which the capital 
 was kept idle now costs the final consumers, the 
 large majority of whom are wage-workers. 
 
 Take the cotton crop, for example. When the 
 cotton crop is ready to be sent to market, the whole 
 body of farmers who produce it probably owe a 
 suui equal to the value of the whole crop. That is 
 to say, the amount of money left in the hands of 
 the cotton-growers as a capital with which to grow 
 another crop is no more than they, as a body, owe 
 on their realty. The value of the raw cotton in 
 1870 was about $125,000,000. With no banking, 
 this sum must have been in the hands of the cotton 
 growers all the year, or the crop must be reduced 
 to that amount of capital they permanently had. 
 So of wheat, 1245,000,000. So of manufactured 
 products. Without banking each man doing any 
 kind of business must have, all the time, as much 
 capital as he needs at the time when he requires 
 the most capital. 
 
 Whoever furnishes to another anything of in- 
 trinsic value, cloths, tools, seeds, animals, etc., "on 
 time," furnishes capital to the value of the thing 
 sold on credit ; and the seller must deplete his 
 working capital by so much, or secure a like volume 
 of capital from a third party (usually the banks), 
 and so on. Each man in business must have, of 
 his own, on the average, the amount of capital of 
 his minimum needs. The balance he uses, in most
 
 BANKS IN THE INTEREST OF THE PEOPLE. 47 
 
 cases, is ultimately furnished by the banks. Bank- 
 ing makes nearly every dollar of the capital in the 
 country productively available every day in the 
 year. 
 
 It generally obscures, rather than serves to make 
 clear, a subject to burden its discussion with statis- 
 tics ; but this point cannot be made so clear by any 
 process of reasoning, as by stating the work per- 
 formed daily by the capital each man in business 
 is obliged to have in advance of its immediate use 
 by him, which is now aggregated in deposits in the 
 banks, and which would inevitably be idle but for 
 banking. 
 
 The capital of all the national banks, including 
 their undivided earnings, is about $600,000,000. 
 The people have placed in their hands capital they 
 do not need, for one day or more (deposits), about 
 $900,000,000 more. Total, $1,500,000,000. The 
 banks have loaned to individuals $1,300,000,000. 
 Taking all the banks in the country on any given 
 day and the unexpired time on $1,000,000,000 of 
 this loan will average about thirty days (the other 
 $300,000,000 loan is reasonably permanent, being 
 on their own circulating notes) This loan averages 
 about sixty days each, and is renewed six times a 
 year. 
 
 A few men have about the same amount of capi- 
 tal, borrowed from the bank, every day in the year. 
 Others borrow for one department of their busi- 
 ness at one time, advancing it to their customers in 
 the form of credit on the goods they sell, and for
 
 48 MONEY, TRADE, AND BANKING. 
 
 another department, representing a different raw 
 material, at another time. Taking it all in all the 
 $900,000,000 of bank deposits undoubtedly do the 
 work which it would require $6,000,000,000 of 
 capital to do in addition to what the country now 
 has, were banks to make no loans on deposits. 
 As agents for facilitating the use of capital not 
 immediately needed by its owners, they are the 
 means of very materially cheapening the cost of all 
 the products of the country. 
 
 The banking capital in Worcester, Mass., a city 
 of 60,000 inhabitants, is 12,200,000. The bank 
 deposits average about $2,500,000. The average 
 time each dollar deposited remains on deposit is 
 about ten days, and the exchanges annually made 
 through these banks are about 1100,000,000. In 
 fifty-six New York banks with a capital and surplus 
 of $90,000,000, the deposits average about $270,-. 
 000,000. The average time each dollar deposited 
 remains in bank is about two davs, and the value 
 of the exchanges made by these deposits is about 
 $50,000,000,000. 
 
 If each one dollar deposited in banks in the 
 United States remains three secular da.js, the ex- 
 changes made by the $900,000,000 deposited would 
 be $90,000,000,000. Whether the figures given 
 are correct or not, it is certain that the capital 
 which each business man in the country thinks pru- 
 dence requires him to have, in advance of the ne- 
 cessities of the day, when aggregated, is an immense 
 Bum, and the work done with it by banking equala
 
 BANKS IN THE INTEREST OF THE PEOPLE. 49 
 
 the addition to the capital of the country of many 
 times that amount. 
 
 There is no pretence that all the property "in 
 transit" that passes from one person to another 
 during a year aggregates more than about one third 
 the sum named as the exchanges of titles to prop- 
 erty made by the banks. It must be remembered 
 that there are immense transactions in all forms of 
 titles to property, where the property itself is not 
 moved. Although these bank deposits average to 
 be all drawn out every three days, in equal propor- 
 tion each day of the three, the deposits as surely 
 average to be renewed in three days, and each is 
 going on at the same time, thus giving this aggre- 
 gate deposit the character of a permanent loan, as 
 the human body is said to be renewed each seven 
 years while keeping its integrity. Perhaps a better 
 illustration is the passenger traffic. Trains are run 
 at various hours, full each way, run with a reasona- 
 ble certainty of being full, when that result depends 
 upon the voluntary and selfish action of isolated 
 persons. 
 
 Think for a moment of its effect upon its busi- 
 ness interests if each man in the country attempted 
 to draw out of the bank the balance due him (his 
 bank deposits) and keep it out twenty-four hours, a 
 total of about $1,000,000,000. It would produce a 
 commercial disaster that no man can conceive of, 
 much less estimate ; and yet we proceed with as 
 much assurance of safety ia this department of hu- 
 
 4
 
 50 MONEY, TRADE, AND BANKING. 
 
 man affairs as in any other, in fact with greater 
 safety. 
 
 Taking it all in all, the world over, there is no 
 other department in which we can so safely calcu- 
 late the future ; where we have so strong an as- 
 surance that what has been will be. On the great 
 sea of finance tlie wrecks of the fortunes of indi- 
 viduals who bid defiance to its laws are found on 
 every hand; but the transactions of the world — 
 from the check sent by the smallest country trader 
 to the city merchant, to the floating of millions of 
 the national debt ; from the pay for a load of wheat 
 the country farmer takes to the country store or 
 railway station, to the pay for the cargoes of the na- 
 vies of the world — ride on her bosom in a security 
 as nearly perfect as is found in any human affairs. 
 
 The financial system is of the most delicate or- 
 ganization, so delicate that the slightest breath 
 disturbs it ; yet it is tougher, more stable, more en- 
 during than all other human institutions. The fears 
 of its servants do not arise from the workings of 
 the natural and beneficent laws of finance, but from 
 the meddling of alien or ignorant hands. 
 
 No financial contrivance of the present time is 
 any more thoroughly the natural product of past 
 experience than the national banking system of 
 the United States. Every consideration urges its 
 extension, with some slight modifications, to the ex- 
 tent of supplying all the circulating demand notes, 
 as it does now all the banking facilities required 
 by the business of the country. Its creation was
 
 BANKS IN THE INTEREST OF THE PEOPLE. 51 
 
 but the putting into the form of statute hiw the 
 recognized conditions of safe banking, and prohibit 
 ing any other. The universal acquiescence and ap- 
 proval of the system recognizes the certainty of the 
 continuance of what now is, because it is the re- 
 sult of inexorable business laws — of ages of busi- 
 ness habits. 
 
 There is no department of business in which its 
 habits, rules, and obligations are varied so little 
 from year to year, and even from century to cent- 
 ur}^ as in that of banking. The operations of none 
 are more simple, and none require more nerve, 
 penetration, promptness, and integrity. It benef- 
 icently binds eveiy one of its members and all busi- 
 ness men to implicit obedience to their promises. 
 The unwritten banking laws of the ages justly pre- 
 scribe the conditions upon which men may take 
 part in making the exchanges of the country, while 
 only helping their endeavor. 
 
 Any man can enter the circle of business, and re- 
 main there as long as he obeys its laws. He can- 
 not stay there one day after violating them. If his 
 obligation, for which he has pledged his honor and 
 liis property, is not satisfied on the day named, the 
 announcement of his failure is flashed to the ends 
 of the country. From that moment he can neither 
 buy nor sell, and business men no longer recognize 
 him as one of their number. If he returns to the 
 t'uild of business he must enter as a new-comer.
 
 CHAPTER XI. 
 
 INDUCEMENT TO ENGAGE IN BANKING. 
 
 The inducement to persons to engage in bank- 
 ing is the same as that in all other business, 
 namely, the expectation of making more money 
 by doing that business than by doing any other 
 they care to engage in. Whatever capital is used 
 to make a bank existed as real or personal prop- 
 erty, or title to property, before the bank was made, 
 by bringing it together, and afforded an income to 
 the five or more individuals who made the bank. 
 
 It is purely a question of the use one will make 
 of a specified amount of capital. By no leger- 
 demain can one use the same capital for two pur- 
 poses at the same time. The possession of capital 
 gives one more or less credit. Credit does not 
 mean the power of getting something, which having 
 does not lessen what another has. Any use of 
 credit is the borrowing by one man from another 
 of his capital, the having of which by the borrower 
 lessens the capital the lender has by just the 
 amount loaned. Every man understands that any 
 one who puts $50,000 into the mining business, or 
 manufacturing business, or mercantile business, 
 has that much less to use in any other investment
 
 INDUCEMENT TO ENGAGE IN BANKING. 53 
 
 It is precisely the same with banking. Capital in- 
 vested in the banking business is in hanking, and 
 cannot be used for anything else until it is got out 
 of the business of banking. 
 
 The profit on banking will average no more, cov- 
 ering a period of years, than that on any of the 
 other kinds of business requiring the same skill and 
 judgment. The banking business may be entered 
 into with the same freedom as any kind of manu- 
 facturing, mining, farming, or any kind of trade. 
 Every restriction put upon it by the law is one to 
 protect the people from being cheated by the in- 
 competency or dishonesty of those engaged in bank- 
 ing ; not to hinder any one from doing the business 
 of banking, or to help any one who undertakes it. 
 
 There is not a provision in the law intended to 
 obstruct in the least honest and safe banking by 
 any who desire to do it ; or that gives the banking 
 business any advantage whatever over any other 
 business. Putting capital together to make a bank 
 or trust company is in answer to a real or supposed 
 demand for its use in that business, which is as 
 promptly and freely complied with, and for the 
 Bame reason that an additional factory is built, or 
 an additional acre of ground is planted to wheat or 
 corn ; and banks are, to-day, just as necessary. 
 
 How many banks we shall have, where they 
 shall be located, and how much capital they shall 
 have, can only be rightly settled by the unrestricted 
 0[)eration of the law of supply and demand. No 
 government, no association of bankers, no body
 
 54 MONEY, TRADE, AND BANKING. 
 
 whatever can be so circumstanced as rightly to set- 
 tle this question. To attempt it is to do violence 
 to the best interests of the community. 
 
 Free banking is our only safety. It is purely a 
 question of what proportion of the whole capital of 
 the country shall be devoted to the holding of the 
 titles to property " in transit," and this, in the 
 nature of the case, can only be determined by ex- 
 periment. Inventions are so rapid, and the condi- 
 tions of trade so variable, that this question, like all 
 other purely business questions, must be left to the 
 free action of the people without governmental in- 
 terference. If there are too many banks, the capi- 
 tal invested in them will not make as good return 
 to its owners as that invested directly in farming, 
 manufacturing, or trading, and it will be withdrawn 
 from banking and devoted to some other business. 
 If capital invested in banking is more profitable to 
 its owners than that invested in other pursuits, it 
 will be taken out of those pursuits and put into 
 banking. 
 
 Capital, like water, is always pressing with all 
 its power to secure a common level for its whole 
 volume. The competition between bankers is as 
 sharp and persistent as between persons engaged in 
 any other business ; and their charges for the serv- 
 ices they render are kept down by it as in all 
 other business, as the reports of their profits, open 
 to all, fully prove. That a bank is a necessity 
 will be made more clear by examining more car© 
 fully the work it does.
 
 CHAPTER XII. 
 
 PEACTICAL WORKING OF A BAKK. 
 
 (1.) A BANK buys (receives on deposit), besides 
 coin and bullion, all the titles to property deliver- 
 able " on demand " (heretofore described as the 
 merchant's cash), which come into the hands of 
 every man in its neighborhood engaged in any kind 
 of trade or business ; in place of which it gives each 
 depositor a title to a like amount of the property of 
 the bank, to be satisfied on demand. 
 
 (2.) It takes from any person, anywhere in the 
 world, any perfect title which he may have to any 
 property, in the hands of any other person living 
 anywhere in the world, and collects the equivalent 
 of the property, and turns it over to the depositor. 
 
 (3.) It buys every "good" title offered for sale 
 to property " in transit," where the title to the 
 property is not perfect until a certain specified day 
 in the near future (notes on time), if the capital in 
 its possession is sufficient to do so. The bank 
 usually requires, in addition to the title bought, that 
 tlie seller give the bank a title to a like amount 
 of his own property by writing his own name on 
 the back of tiie note (indorsing it). Of course the 
 title is purchased at a price mutually agreed upon.
 
 56 MONEY, TRADE, AND BANKING. 
 
 The difference between its nominal value and the 
 price paid for it by the bank is called " discount," 
 and the buying of the note, draft, bill of exchange, 
 etc., is called " discounting it." C. in Chicago sells 
 a thousand bushels of wheat to B. in Boston foi 
 $1,000. As soon as C. delivers the wheat and 
 hands a bill of sale to B., C. has no more claim to 
 the wheat than any other man whom B. owes. And 
 B., by the act of accepting it, has delivered to C. a 
 title to a thousand dollars' worth of his property. 
 This title that B. gives is in the form of a check, 
 draft, bill of exchange, etc. It calls for the imme- 
 diate delivery of the thousand dollars' worth of 
 property, or in the form of a note may call for its 
 deliveiy at a fixed day in the future. It may caL' 
 for its delivery in Chicago, or in Boston, or in Lon- 
 don. The general rule is to make the check, draft, 
 note, etc., payable at the place of business of the 
 buyer. 
 
 Again, D. in Boston sells forty cases of boots to 
 E. in Chicago for $1,000, which is done on the same 
 day and upon the precise relative conditions that 
 the wheat is sold. It is plain that these transac- 
 tions balance each other. Whatever papers are 
 passed, their practical significance is to demonstrate 
 that fact. All trade the world over is identical 
 cvith the balancing transactions described, however 
 remote or near the buyer is to the seller, or the 
 specified day of payment. Every man, every town, 
 every city, every country, can buy only by selling 
 an equal amount. If the sales of property ," in
 
 PRACTICAL WORKING OF A BANK. 57 
 
 transit " from Boston to Chicago exceed like sales 
 from Chicago to Boston, the difference must b« 
 paid in coin or by the transfer of the ownership of 
 titles to property not " in transit," from citizens of 
 Chicago to citizens of Boston (supposing all titles 
 held in each city to property " in transit " had 
 been exhausted). This requires the going outside 
 of the domain of banking proper, and of commerce 
 proper, into that of the trust companies and real 
 estate. This operation takes capital heretofore de- 
 voted to holding property " in transit " and puts 
 it into fixed property. The changes of capital 
 from real estate to property " in transit " and the 
 reverse, are always being made, but in ordinary 
 times they relatively balance each other. It is im- 
 possible to use any capital in real estate that it is 
 necessary to use in handling property " in transit." 
 The line of division between the two classes of prop- 
 erty is as distinct if not as discernible as the divid- 
 ing line between the United States and the British 
 Empire, and the interchange between them is gov- 
 erned by the same laws. 
 
 The title to property taken by any and every 
 bank, the world over, not satisfied at the counter of 
 the bank first receiving it, is finally cancelled at the 
 clearing house.
 
 CHAPTER XIII. 
 
 CLEARING HOUSE. 
 
 There is no device of banking that is so perfect 
 an epitome of, and so thoroughly illustrates, its 
 workings (excepting the loaning of its property 
 which differs in no respect from the loaning of 
 capital by one individual to another), as the " clear 
 ing house " ; which is used locally in most cities, 
 and so far as the public is concerned, by its con- 
 nection with all other clearing houses, unites all 
 the banks of the city, the country, and the world 
 into one bank. 
 
 Usually each bank in town or city connects itself 
 with banks in one or more cities other than New 
 York, and thereby becomes a part of the clearing- 
 house system of those cities ; and each is connected 
 with some New York bank, and through that con- 
 nection becomes a part of the New York clearing 
 house. The New York banks, through private 
 bankers, branches of foreign banking houses, con- 
 nect themselves with London. So that each bank 
 in the world is indissolubly connected with every 
 other bank in the world, and in London is the 
 final clearing house of the world. 
 
 The clearing house, in small cities, is usually 
 some one of the banks, with which every other 
 bank deposits a small percentage of its capital.
 
 CLEARING HOUSE. 59 
 
 This deposit does not practically lessen the capital 
 of the bank making it, for the reason that the de- 
 posit there made is counted as a part of the reserve 
 of the bank making it that the law requires it to 
 keep. At a certain hour of each day a boy from 
 each bank meets at the " clearing house " a boy 
 from each of the other banks, each having every 
 check that the bank he represents has paid during 
 the day upon any bank in the city other than it- 
 self.^ With his package of checks each boy pre- 
 sents a " clearing house " memorandum having the 
 name of every bank printed on it, between debtor 
 and creditor columns. Against the name of each 
 bank, in the debtor column, the boy, before he 
 leaves his own bank, enters the aggregate of all the 
 checks his bank has in the package upon that bank, 
 and carefully foots up the debtor column. The 
 footing shows the total of the checks his bank has 
 upon all other city banks, namely, upon the " clear- 
 ing house." Each boy in succession calls off the 
 total of the checks his bank has upon each of the 
 other banks. As he calls them off, each of the 
 other boys enters in the creditor column, against 
 the bank calling, the total of the checks that bank 
 has upon his bank. Having gone through the list, 
 each boy adds up the creditor column. The dif- 
 ference between the creditor and debtor columns of 
 the clearing house memorandum each boy has then 
 * Tlie usual itracticc now is for each bank to iucludo with the 
 checks it sends to the " elearinj,' iiouse " all the matured obliga- 
 tiuDB it has u]>od each of the other banks.
 
 60 MONEY, TRADE, AND BANKING. 
 
 shows the amount due the clearing house (all the 
 other banks) from his bank, or to his bank from 
 the clearing house. 
 
 Each of the boys then calls off to the clerk of the 
 clearing house the totals of the debtor and creditor 
 columns of his memorandum, which the clerk enters 
 in his records. After each boy receives and verifies 
 the checks each of the other banks has against his 
 bank, each gives a check to, or receives a check 
 from, the clearing house, as the balance may ap- 
 pear, and the work of the clearing house is finished 
 for that time. 
 
 In Worcester eight boys, from seventeen to 
 twenty years old, meet each day around a table in 
 the directors' room of the clearing house bank and 
 settle, in fifteen minutes, the business of its eight 
 banks between each other for that day, amounting 
 to about 8125,000. The total coin and currency 
 held by these banks average about $225,000, their 
 daily transactions about $300,000.^ In New York 
 fifty-seven meet daily and settle in like manner the 
 
 1 The clearing house ia Worcester is made each day. It lives 
 about twenty minutes and disappears. It has no capital. The bank 
 acting for the clearing house receives from each bank from which a 
 balance is due the clearing house its check on its Boston corre- 
 spondent for the balance due the clearing house, and the clearing- 
 Bouse bank gives to each bank that has a balance due it from the 
 clearing house its check on its Boston correspondent for that bal- 
 ance. Of course, the total of the checks given by the clearing- 
 bouse bank and those received by it, balance each other less its owi 
 balance with the clearing house.
 
 CLEARING HOUSE. 61 
 
 business the banks of that city have with each 
 other, amounting daily to about $125,000,000. 
 The total coin and currency held by the New York 
 banks probably average about $75,000,000, and 
 their daily exchanges are probably about $175,- 
 000,000.
 
 CHAPTER XIV. 
 
 BY "WHOM MONEY IS MADE. 
 
 Money is necessarily made by individuals, not 
 by the government. It is impossible for any gov- 
 ernment to make the money daily required by 
 its people. To make the daily payments required 
 by the trade of the United States, there are from 
 1200,000,000 to 8300,000,000 of paper obligations 
 made each day by banks, and by individuals who 
 have deposits in banks, which is money, as surely 
 as any bank-note or greenback is money. It does 
 the office of money for the day, and is destroyed at 
 night. It is impossible to make the exchanges of 
 the country unless the men who make them have 
 and freely use the power of making the money 
 they require. They cannot transfer the titles to 
 and make payments for the goods they buy and 
 sell without it. 
 
 Bank-notes or greenbacks, and much more coin, 
 whatever their convenience for small and local 
 transactions, are impracticable for the larger part 
 of commercial transactions, for the reason that they 
 are too cumbersome. It is impossible to have them 
 at hand at all times and places they are needed. 
 The inconvenience and cost of their transportation,
 
 BY WHOM MONEY IS MADE. 63 
 
 small as is the percentage of that form of money- 
 no w used, is a considerable inconvenience to and 
 tax upon industry. Of the money daily used a 
 very small percentage is bank-notes. The great 
 bulk is checks, drafts, and telegrams. The tele- 
 graph transmits millions upon millions of bank 
 credits from Boston to New York, Chicago, London, 
 etc., etc., and the reverse, where the telegram is the 
 only money used ; no papers of any kind pass or 
 are made, certainly none pass from one city to the 
 other. The facts of the telegram are confirmed by 
 letter. All that is done is to write, transmit, and 
 deliver the telegram and make the proper entries 
 on the books of the merchants and bankers inter- 
 ested. This money lacks no essential thing that 
 the money issued by the banks has. If that de- 
 scribed as made by individuals is not money, then 
 that made by the banks is not money, for they are, 
 in every respect, identical in substance. Trade in 
 its present form is impossible without the continu- 
 ance of the right which every man has now of mak- 
 ing the money needed for his daily business, as far 
 as he has the power to make it, which power is 
 measured by his credit. 
 
 This is a part of the " inalienable rights of life, 
 liberty, and the pursuit of happiness," reserved to 
 the people in the United States Constitution, and 
 the Constitution of every State, in substance if not 
 in words. Congress has the same right and power 
 to interfere with and " regulate " the use by the 
 people of any of these forms of money that it has
 
 64 MONEY, TRADE, AND BANKING. 
 
 " to regulate commerce with foreign nations and 
 among the several States," and no more. " To reg- 
 ulate " is the limit of its power. It has the same 
 right to interfere to protect the weak and poor, 
 from the strong and rich, in the department of 
 finance, that it has in that of buying, selling, and 
 transporting, because it is a part of it. The prod- 
 ucts of this country and of the world are as much 
 " floated" by means of the various forms of trans- 
 ferring the titles to property used as money, as by 
 the railway, the steamboat, and the canal, which 
 transfer property itself. Congressional power over 
 the forms of transferring titles to property (paper 
 money) is found in the clause of the Constitution 
 quoted above. By all rules of legal interpretation 
 it is prohibited from issuing them to be used as 
 money, by the limitations of the Constitution, in the 
 words " to coin money, regulate the value thereof 
 and of foreign coin." Congress is bound to exercise 
 its power over the titles to property transported, 
 within the letter of the Constitution, with the same 
 cautious regard to private rights and interests that 
 it observes in dealing with the question affecting 
 the moving of property itself. All that Congress 
 is asked to do by the people, all it has a right to 
 do under the Constitution, is to stamp gold or silver, 
 which is property, so that its weight and fineness 
 may be known to all men, and to make such rules 
 as will protect the people from being cheated by the 
 forms of the titles to property, called money, which 
 banks or individuals use.
 
 BY WHOM MONEY IS MADE. 65 
 
 Congress has no riglitf ul power to " create " any 
 form of paper money. The letter of the Constitu- 
 tion reserves to the people in their private or vol- 
 untary associate capacity this whole power of prac- 
 tical money, aside from the specified power granted 
 to Congress, in the letter of the Constitution, to 
 mould the precious metals into such forms as seemed 
 to it desirable, and to stamp their weight and fine- 
 ness upon them by any device it may choose to 
 use.
 
 CHAPTER XV. 
 
 IMPOTENCE OF STATUTE LAW. 
 
 Gold ia the soul of the financial system of the 
 world. It is to money and banking what light 
 and air are to life. In all the vast transactions of 
 commerce it is the wand that ever reveals to all 
 the exact obligations of one man to another, the 
 world over. The power of municipal law to sepa- 
 rate it from them, or in any respect materially to 
 change or modify its relation to or power over 
 them, is as impossible as would be an act of crea- 
 tion. To attempt it is to attempt to say by statute 
 what shall be the thoughts and opinions of men, 
 without changing any of the conditions that sur- 
 round them, what shall be their motives of action, 
 while acknowledging that all the things that go to 
 make up inducements to act are beyond control. 
 
 How very small is the influence of that law 
 which is enforced in courts of justice as compared 
 with the habits and customs of daily life. The 
 latter are more powerful than formal enactments, 
 because they carry in themselves the means of their 
 own enforcement. They are the very warp and 
 woof of our existence. Such are the " laws of 
 trade." They are as powerful as the mills of Go(^
 
 IMPOTENCE OF STATUTE LAW 67 
 
 and as pi-ompt in their execution as the lig•^tning's 
 flash. Such is the power of gold over all commer- 
 cial transactions. It is not by human enactment. 
 It grows out of the absolute necessity of having 
 some substance that in itself fully meets and satis- 
 fies the idea of value, implanted by God in the 
 mind of man. 
 
 It is as impossible to conceive of, much less ex- 
 press, a definite value, without something in the 
 mind that embodies and unerringly expresses it, as 
 of a yard, without something in the mind of a defi- 
 nite length ; or of quantity with no vessel or stand- 
 ard in mind that will measure quantity. It is as 
 preposterous to deny the absolute power of gold to 
 measure value, because value is a thing of the 
 mind, or attempt to control it by statute law, as it 
 would be to deny the existence of thought, because 
 we cannot weigh thought in a balance, or to at- 
 tempt to govern and regulate thought by act of 
 Congress. 
 
 No law can be rightfully enacted which pre- 
 scribes that any " money symbol " shall be a legal 
 tender for all debts. Gold is not made a legal ten- 
 der by the force of statute law. The law follows 
 a usage. It does not make one. All commercial 
 obligations agreed to deliver gold before statute 
 law began, and it has continued in accordance with 
 statute law and in spite of it down to the present 
 time. It was made a legal tender by commercial 
 usage, and no government has the power perma- 
 nently to change it. The forming of gold into coin
 
 68 MONEY, TRADE, AND BANKING. 
 
 and declaring it a legal tender is the putting of the 
 usage of the ages into a convenient and legal form, 
 and nothing more. The purpose and power of 
 coinage and legal tender acts are to prevent misun- 
 derstandings between the parties to contracts as to 
 the exact weight and fineness of the gold, the de- 
 livery of which is promised in contracts and the 
 saving of words in writing them. 
 
 The violation of the letter and spirit of the Con- 
 otitution, by the enactment of a law to compel all 
 creditors to accept government promissory demand 
 notes in the place of the coin they were entitled to 
 have in 1862, was not submitted to by the people 
 because it was legally or morally right, but because 
 of the resolve of every loyal man that no act of 
 the government, honestly done, should be called in 
 question in the face of a great national peril. But 
 all contracts have been made from that day to this 
 with reference to the amount of gold that the num- 
 ber of dollars mentioned in them would net. This 
 is clearly shown by the fact that all articles that 
 have a sale in Europe have sold here for the num- 
 ber of dollars that would net the same amount of 
 ^old here that the same things netted here when 
 sold in Europe. 
 
 Providing by law that a man shall take any 
 " money symbol " for his property, already sold or 
 to be sold, is attempting to compel him to part 
 with property which has intrinsic value for some- 
 thing which commands nothing of intrinsic value 
 anywhere in the whole line of exchanges. This,
 
 IMPOTENCE OF STATUTE LAW. 69 
 
 in the nature of the case, cannot be done because it 
 is contrary to fundamental natural rights. 
 
 It is useless to waste words on hare-brained 
 theories. We must assume that gold has in itself 
 intrinsic value, that it is the most concentrated 
 form of capital, and that it has the power to do 
 what it has done since the world began, — measure 
 the value of all other commodities by its own in- 
 trinsic value, as we are obliged to assume the fact 
 of our own existence. Why or how it has this 
 power has no more practical import in discussing 
 financial questions, than how food nourishes the 
 body has in the discussion of practical agriculture. 
 It is certain that somewhere in the system of ex- 
 changing titles to property all values must be 
 brought to a uniform and practical test, and this is 
 only possible by making every commercial obliga- 
 tion, the world over, refer to and promise to deliver 
 the same thing. 
 
 While every title exchanged, however small or 
 however large, has reference to the delivery of a 
 particular thing, or a promise to do a particular 
 thing, there must be some provision made for the 
 delivery of the thing, or the doing of the thing 
 promised. Make it certain, or even probable, that 
 the thing promised will not be delivered, or will 
 not or cannot be done, and the whole edifice of 
 finance will immediately come down with a crash. 
 It is because of the perfect confidence of the busi- 
 ness world that the gold will bo forthcoming when 
 called for, that the commercial edifice stands firm.
 
 70 MONEY, TRADE, AND BANKING. 
 
 Gold is the foundation ; integrity, ability, fidelity, 
 industiy, and promptness are the superstructure. 
 It is all expressed in the one word " confidence," or 
 in the sentence " confidence in our business asso- 
 ciates." All the experience of the past and the 
 facts of the present testify to the necessity of pay- 
 ing gold or its equivalent, in the settlement of 
 every commercial obligation. 
 
 ■iii:t ,«ii*ni?$«'!Ta u fir
 
 CHAPTER XVI. 
 
 CONCLUSION". 
 
 It appears then, (1.) that moneys are titles to 
 property, the ownership of which or its equivalent 
 passes with these moneys and is always in the per- 
 son who for the time being holds them. 
 
 (2.) That coin, as distinguished from gold as 
 property, and as used as currency, is the crudest 
 and most inconvenient form of money, and is rarely 
 used, only .81 of one per cent, of debts being paid 
 in coin ; and that nearly all of that small sum 
 passes as property, rather than currency. 
 
 (3.) That greenbacks and bank bills are next to 
 the lowest form of the money of commerce. That 
 they are only used for the smallest and simplest 
 transactions, only 4.6 per cent, of debts being paid 
 in them. 
 
 (4.) That the great bulk of all payments, 95.13 
 per cent, of them, is made in checks, drafts, and 
 other forms of money which are made by individ- 
 uals, no piece of which continues in existence for 
 scarcely more than a day. 
 
 (5.) That bank-notes can only be made to circu- 
 late to meet a specific and very limited demand ; 
 and can be made to do so small a part of the work
 
 72 MONEY, TRADE, AND BANKING. 
 
 of practical money, that the only needed restric- 
 tions upon their issue are the ones we now have ; 
 which simply secures, beyond a chance, their 
 prompt payment by their maker on demand. 
 
 (6.) That no money is possible (excepting its 
 circulation is compelled by might as against right) 
 that has not in itself intrinsic value, or does not 
 represent and is a title to property of intrinsic 
 value. The aggregate of all paper moneys in cir- 
 culation are titles to property of many times ita 
 nominal value. (The bank capital, United States 
 bonds, signatures and indorsements on money, tak- 
 ing it all together, actually represent and make lia- 
 ble for its satisfaction more than ten dollars in 
 value of bond fide property, for every dollar of 
 paper money in circulation.) 
 
 (7.) That all capital used in banking is tbe ag- 
 gregate of the capital of stockholders and depos« 
 itors, and that banking is the exchanging of the 
 titles to this property for titles to every kind of 
 property that the community the bank serves de- 
 sires to use, which are again exchangeable for oth- 
 ers, and so on indefinitely. 
 
 (8.) That all forms of obligations used as money 
 necessarily contain the option of having them con- 
 verted into gold on demand, but that they are not 
 based on gold exclusively, or to any large percent- 
 age. They are based on all the property, to which 
 they are titles, which is in process of being ex- 
 changed. It is understood to be, and is, the op- 
 posite of credit. Money is passed to end a credit
 
 CONCLUSION. 73 
 
 not to make one. A. passes money to B., because 
 he is indebted to B. The obligation of A. to B. 
 may be one second old or one year. A. meeting B. 
 says, " Will you lend me $1,000 for ten days ? " 
 " Certainly," says A. That instant B. has a credit 
 with A. for $1,000. A. ends the credit by hand- 
 ing $1,000 to B. and receives for it a title to the 
 property of B. maturing at the expiration of the 
 ten days. 
 
 (9.) That the banking business is never done on 
 credit as distinguished from capital. Credit, as that 
 word is usually understood, forms no appreciable 
 part of it. Money is based on the capital in proc- 
 ess of being increased in volume and usefulness, in 
 the factories and in the stoi-es of the country — 
 capital in transit. All the obligations of a bank 
 are titles to actual capital, of which gold is a very 
 small but absolutely necessary part. 
 
 What safety requires its proportion to the bank 
 deposits to be, is determined by circumstances, and 
 is constantly varying. That there must be a suffi- 
 cient amount in any country to make it certain 
 that the final balance between it and other coun- 
 tries,^ and between its own banks, will be promptly 
 paid in gold, in addition to the amount necessary 
 to supply the wants of the financij^lly timid or ig- 
 norant, is certain. 
 
 1 The " final balance " is the balauoe due at any time, from one 
 country to another, after they have for the time exchanged all 
 those thin^H wliich they then dcuire to exchange and can agrea 
 opon the terms of exchange.
 
 74 MONEY, TRADE, AND BANKING. 
 
 The mail avIio dares trust no man will hoard bia 
 accumulations in gold. The man who, migrating, 
 does not know the use of safer and better ways, will 
 carry his capital in gold, and so on. The more en- 
 lightened a people and the more complete its means 
 of exchanging property and information, the less 
 gold is required, propoi'tionately and absolutely, 
 which proportion is constantly growing less. 
 
 As there is no essential difference between bank 
 promissory demand notes and any other form of de- 
 mand against the property of a bank, there is no 
 good reason for making any distinction between 
 them and any other form of bank liability, in re- 
 stricting their amounts by taxation or by any other 
 disability. 
 
 The only effect of any such regulations must be 
 to discriminate unjustly against that class in the 
 community whose convenience compels them to 
 use bank-notes. The liability of a bank is not 
 increased one dollar by having it expressed by 
 outstanding bank-bills rather than by its outstand- 
 ing book accounts, checks, drafts, or liabilities of 
 any other kind. Again, excepting at the season of 
 the handling of the crop, the demand for bank-bills 
 is very uniform, and any accumulation of them in 
 any depository "out of the reach of the people can- 
 not fail to work hardship. 
 
 It is immaterial whether this hoarding is done for 
 
 a good or a bad purpose, by an individual or by the 
 
 reasurer of the United States ; the effect upon the 
 
 labor of the country is the same. It is clear that
 
 CONCLUSION. 76 
 
 the interest of all is best served by the immediate 
 deposit in banks of the capital any one has, not 
 needed by him for immediate use, which bank-bills 
 stand for and are titles to. All admit that if at 
 any time all persons withheld, or attempted to 
 withhold, such deposits, commercial ruin would im- 
 mediately sweep over the country. 
 
 So far as its monetary transactions are concerned, 
 the United States government is a huge business 
 corporation. The same hardship is caused to the 
 laboring men of the country by any disturbance of 
 business caused by its action in violation of the in- 
 exorable laws of trade and finance, as would be 
 caused by a private corporation or individual, — 
 doing business of the same magnitude, — doing the 
 same thing. That widespread ruin has not hereto- 
 fore been caused by the operations of the United 
 States sub-treasury, and by the issuing of legal 
 tender notes by the government, proves the ex- 
 trav;igant and wasteful methods of this country, to 
 which the government is no exception, rather than 
 the exemption of " the great American nation " 
 from those maxims and laws that inexorably hold 
 all other peoples. 
 
 Poisons may be taken and death not immediately 
 follow, and even permanent injury may not always 
 be done. Hundreds of men survive wounds that usu- 
 ally cause death. Reckless and unsound business 
 iiiftliods, under exceptional circumstances, some- 
 times succeed for briff periods, where obedience to 
 Bound maxims and recognized laws fails; but a true
 
 76 MONEY, TRADE, AND BANKING. 
 
 and enduring prosperity is only secured to a nation 
 or individual by a strict compliance with those laws 
 "which are approved by all human experience. They 
 are such not by man's creation. They are a part 
 of nature, discovered, not made, and can no more 
 be continuously defied or ignored than the law of 
 gravitation. 
 
 Scarcely any two things can be conceived of that 
 are alike in appearance, that are more opposite in 
 character or in their effect on the business of a 
 country than the promissory demand notes of a 
 bank (bank-bills) and government legal tender 
 notes. Every bank-bill paid out by a bank is a 
 title to the permanent property of the bank, in 
 exchange for which the bank receives from the in- 
 dividual to whom it hands the bill, property, or 
 a title to property, of a like amount. The property 
 to which the titles have been thus exchanged is " in 
 transit" quick capital, sure to be realized on at a 
 time certain, and is set apart by the borrower to 
 pay the loan of the bank. 
 
 A legal tender promissory demand note is a title 
 to nothing. It has no permanent property set apart 
 to pay it. It is always issued for property con- 
 sumed or for property put into public buildings, 
 river and harbor improvements, etc., etc., so that 
 it cannot possibly be used to satisfy the obligation 
 assumed when the legal tender representing it was 
 issued. The legal tender has no duplicate title to 
 quick property, or to anything else. It is a forced 
 loan, to the injury of both parties to it. In its very
 
 CONCLUSION. 77 
 
 best aspect, it is only a promise to exercise the 
 sovereign power of taxation at some future time, 
 the exercise of which must inevitably disturb all 
 the business adjustments of the country to just the 
 extent it is exercised. 
 
 In the return to the bank of the capital the in- 
 dividual borrowed of it (represented by the bank- 
 note he received from the bank), he surrenders to 
 the bank the equivalent of that capital, either in 
 titles to the property of the bank (bank-notes) or 
 their equivalent. To the government, for its issue 
 of promissory demand notes, nothing is promised or 
 due. 
 
 In the case of the government, if it proposes to 
 redeem promptly its promissory notes (legal ten- 
 ders) it is obliged to keep sufficient capital to do so 
 constantly on hand unemployed, to the great loss of 
 the government (the people), — see the millions 
 now idle in the United States treasury, — while 
 the banks are loaning and deriving an income from 
 their capital which their promissory notes (bank- 
 bills) represent. 
 
 By the working of the known laws of banking 
 they have a certainty that their capital will return 
 to them, and be available (deposits) to meet their 
 promissory notes (bank-bills) when they are pre- 
 sented for redemption. Again, the borrowing of 
 the capital of the bank (bank-bills) is the securing 
 the titles to bond fide capital of intrinsic value for a 
 limited time, and at a sacrifice by the borrower of 
 a portion of the profit secured by liim by his use of
 
 78 MONEY, TRADE, AND BANKING. 
 
 this capital, in the form of a fixed rental for its use 
 (interest). This rental operates as a limitation, to 
 the actual necessities of the community, of the 
 volume of bank-bills issued. It also operates as 
 a constant pressure on the whole volume of bank- 
 bills in circulation, to compel the return to and de- 
 struction by the banks of any surplus that may 
 have been issued over the necessities of the people. 
 This withdrawal of bank circulation does not de- 
 pend on the will of the bank, but on the legitimate 
 needs of borrowers. 
 
 Upon the legal tender promissory notes issued by 
 the government every influence is the exact op- 
 posite of that on the promissory notes issued by 
 the banks. There is no pressure upon the whole 
 volume of government legal tender promissory notes 
 to cause any portion of them to return to their 
 source. Every consideration which seemed to 
 justify their original issue inevitably operates, and 
 with redoubled force, to prevent their return and to 
 compel and justify a still further issue. Bank 
 promissory notes are issued to meet the necessities 
 of those receiving and using them and for a valua- 
 ble and permanent consideration, representing prop- 
 erty in transit, and are under the control of the cer- 
 tain and well-known laws of finance. 
 
 Government legal tender notes are issued to meet 
 the necessities of the party making them, and for 
 the exact opposite of a permanent consideration, 
 and represent consumed property and in violation 
 of all safe financial maxims. The existence of lega.
 
 CONCLUSION. 79 
 
 tender notes issued by any governments shows as 
 reckless a disregard of well-understood financial 
 law as a plague does of healthful sanitary condi- 
 tions. Any redundance of legal tender notes must 
 be absorbed by inflating prices, to the great injury 
 of the wage-workers, for their volume is necessarily 
 inflexible ; while under our system there can be no 
 redundance of national bank bills, exchangeable 
 for gold on demand, because any surplus is retired 
 by being paid into the bank in order to stop the 
 rental on the capital they are titles to. This proc- 
 ess is constantly going on. The struggle by one 
 set of persons and influences to increase, and by 
 another set to diminish, the volume of bank-bills in 
 circulation, is as intense as self-interest can make 
 it, the result being to make the supply exactly 
 equal to the legitimate demand. 
 
 There is scarcely an existing government that 
 has not tried the experiment of issuing legal tender 
 notes, and there is not a single instance of its fail- 
 ing to inflate prices, bringing uncertainty of em- 
 ployment and positive suffering to the wage-workers, 
 and only profiting, and that for a brief period, the 
 reckless and unscrupulous speculators who are 
 found in every department of business. On the 
 other hand, there is no instance where the promis- 
 sory demand notes (bank-bills) issued by banks, 
 redeemable in coin, ever affected unfavorably any 
 community that used them. Kept within their 
 natural limit, injury from their issue is impossible, 
 for there is a dollar's worth of property of intrinsic
 
 80 MONEY, TRADE, AND BANKING. 
 
 value especially pledged to meet instantly every 
 one of them on demand. If the conditions of issue 
 were the same as of government legal tender notes, 
 the effect of their issue would be the same ; but the 
 conditions of their issue being the exact opposite, 
 their effect is the exact opposite. 
 
 Let the government withdraw all the legal tender 
 notes ; they can work no good, and are a source 
 of great danger ; and the people themselves will 
 supply all the circulating notes they can advantage- 
 ously use, that are at all times interchangeable for 
 gold. The issuing of currency by the government 
 to the amount of any fraction of that permanently 
 absorbed by the people, takes from the elasticity of 
 the whole volume by just so much. In its least ob- 
 jectionable feature it is as effective and objection- 
 able as it would be for a manufacturer to fill up his 
 reservoir with stones, above its lowest outlet, to 
 make the water run over the flash-boards, to supply 
 his mill-pond below, when by simply raising the 
 artificial obstruction, the gate, the water would 
 flow of its own accord ; or for him to put into his 
 factory a steam-engine, to get more power where 
 the heat and steam would be of no possible advan- 
 tage to him, and where it was liable to do him very 
 serious damage, when he could get the added power 
 vith perfect safety and at no expense by the action 
 of the law of gravitation, by simply hoisting the 
 water-gate of his mill-pond a little higher. 
 
 The only possible office of the government note 
 is the doing abnormally and at great risk, a part ol
 
 CONCLUSION. 81 
 
 the work that the hank-note -would naturally, safely, 
 and better do. Besides its other vices, it has the 
 vice of being an obstacle between the people and 
 the gold they are entitled to " on demand." Now 
 their demand for gold at the counter of a bank is 
 answered by handing to them a greenback, and the 
 gold for the paper handed them can only be legally 
 demanded at a sub-treasury, perhaps a thousand 
 miles away. 
 
 The one obstacle that stands in the way of a 
 prompt withdrawal of all forms of government de- 
 mand notes is the United States Sub-Treasury Act. 
 Repeal that act and the path is clear to the entire 
 withdrawal of the government from all interference 
 with the finances of the country, excepting the Ex- 
 ercise of its police power, the exercise of which, and 
 only which, it has any warrant for in the Constitu- 
 tion. 
 
 Whatever may have been the condition of the 
 banks of the country which seemed to justify the 
 establishment of the sub-treasury, it is to-day the 
 gi-eatest curse that afflicts the finances of the coun- 
 try. It not only places duties, powers, and oppor-- 
 tunities in the hands of the United States treas- 
 urer, such as no human being should ever be in- 
 trusted with, but it compels him to do what is made 
 ;^ misdemeanor, visited with severe penalties when 
 done by a bank, and would not be submitted to for 
 ^. day if done by an individual : namely, it locks up 
 the money of the people. The making of any loan 
 upon the security of United States or national bank
 
 82 MONEY, TRADE, AND BANKING. 
 
 notes, or agreeing for a consideration to withhold 
 the same from use ; in other words, the " locking 
 up" of money, is made a misdemeanor, and the 
 bank committing the offence is punishable by a fine 
 of $1,000, and a further sum of one third of the 
 money so loaned. The officers of the bank making 
 the loan are also subject to a penalty equal to one 
 quarter of the money loaned. 
 
 This provision of law is not applied to individ- 
 uals, because locking up money is an offence they 
 do not commit without the assistance of banks. 
 These severe penalties were provided because the 
 locking up of money was an injury to the public ; 
 and furthermore, the injury is in exact proportion 
 to the amount of money locked up, and is not made 
 any greater or less by the " locking up " being done 
 by a bank, an individual, or by the United States 
 treasurer. 
 
 Yet in the face of the enactment of a law by the 
 United States government severely punishing a 
 bank for withholding currency from circulation, it 
 maintains the sub-treasury in violation of every 
 sound maxim of finance, in violation of the laws 
 governing the banks, and in the face of the damage 
 to the industries of the country admitted to be 
 done by it, every day of its existence, now neces- 
 Barily inflating, and now necessarily curtailing the 
 volume of the circulating medium, by the accumula- 
 tion in, or the disbursements from, the treasury. 
 
 The absurdity, to call it nothing worse, of a gov- 
 ernment needlessly keeping the people in a chroniff
 
 CONCLUSION. 83 
 
 state of suspense and anxiety as to what the gov- 
 ernment treasurer will do, by compelling him by 
 law to lock up from the use of the people the 
 means necessary to the steady and safe conduct of 
 the daily business of the country, or of putting the 
 power to do so in the hands of any one of its citizens, 
 with the certainty (in the light of the peculations 
 heretofore practised by high government and pri- 
 vate officials) that some one of them, by using his 
 information and power, will sooner or later put 
 millions in his pocket, cannot be matched by the 
 financial action of any nation having a sound credit 
 now in existence. 
 
 There is not a solid reason to justify the continu- 
 ance of the sub-treasury for a day. Ample security 
 can be furnished by the deposit of government or 
 other solid bonds, by any one of a hundred banks, 
 for every dollar the United States treasurer need 
 deposit in them, and at any one of the points where 
 it is desirable to keep the deposit. The people 
 would then have the use of the capital accumulated 
 by the United States government, in anticipation of 
 its wants, in the form of " deposits in bank " to the 
 credit of the United States government, as it now 
 has the capital that every private citizen or corpora- 
 tion now has in advance of needs. 
 
 In the domain of finance the whole people acting 
 as one, the Ujiited States government, is the peer 
 of the humblest man who counts one in the great 
 whole. It can avail itself of no power in the uni- 
 verse to raise itself above the level upon which
 
 84 MONEY, TRADE, AND BANKING. 
 
 each individual member of it stands. It can no 
 more permanently control or modify the laws of 
 finance, in its own behalf, than it can the law of 
 gi'avitation. 
 
 The United States government, in all that per- 
 tains to finance, is a huge business establishment, 
 and nothing more. The following table, compiled 
 from the reports of the comptroller and United 
 States treasurer, shows to what extent the opera- 
 tions of the United States treasurer, by locking up 
 currency in the sub-treasury, needlessly disturbs 
 the finances of the country. It further shows how 
 needless is the further existence of the government 
 legal tender notes, either to the government as a 
 business corporation or to the volume of circulating 
 notes. The vicious sub-treasury system, and gov- 
 ernment legal tender note system, complement and 
 support each other, to the good of none and the in- 
 jury of all. 
 
 That ample security in government or other 
 bonds approved by the United States treasurer 
 would be gladly furnished by banks situated at 
 convenient points, for all the money the govern- 
 ment would have to deposit, no one doubts. If this 
 is true, there is no good reason for maintaining the 
 sub-treasury. On the 30th day of September, 1879, 
 if the United States treasurer had deposited in the 
 banks all the funds in his hands and had called in 
 and destroyed every legal tender note, the money 
 in actual use by the people would have been re- 
 duced by only one million four hundred thousand 
 dollars.
 
 CONCLUSION. 
 
 85 
 
 DIFFERENT FORMS OF MONEY (IX MILLIONS) IN THE UNITED 
 STATES TREASURY. 
 
 eoid 
 
 Silver 
 
 Legal Tender 
 Bank-notes 
 
 Total 
 
 Gold 
 Silver 
 
 Legal Tender 
 Bank-notea 
 
 Total 
 
 Sold 
 Bilver 
 
 <egal Tender 
 Lank-notes 
 
 Total 
 
 T/egal Tender in Circulation . 
 Money in Treasury other than 
 Legal Tender 
 
 Legal Tender In Circulation in 
 cxceu of Money in Trcaa- 
 nry. 
 
 IN UNITED STATES TREASURY. 
 
 $74.8 
 
 21.6 
 
 208.6 
 290.1 
 
 $595. 
 
 $208.6 
 76.6 
 
 Sept. 30 
 1876. 
 
 Sept. 30 
 1877. 
 
 Sept. 30 
 1878. 
 
 Sept. 30 
 1879. 
 
 $55.4 
 6. 
 
 73.2 
 15.2 
 
 $107. 
 7.4 
 82.8 
 14.1 
 
 $136. 
 27.9 
 73. 
 9.3 
 
 $169.8 
 63. 
 48.8 
 4.5 
 
 $149.8 
 
 $211.3 
 
 $246.2 
 
 $276.1 
 
 Sept. 30 
 1880 
 
 $135.6 
 
 78.7 
 
 27.9 
 
 3.5 
 
 $245.7 
 
 IN N.ITIONAL BANKS. 
 
 $18.9 
 
 $19. 
 
 $24.7 
 
 $37.2 
 
 2.5 
 
 3.7 
 
 5.3 
 
 6. 
 
 84.2 
 
 66.9 
 
 64.4 
 
 69.2 
 
 16.9 
 
 16.6 
 
 16.9 
 
 16.7 
 
 $121.5 
 
 $105.2 
 
 $111.3 
 
 $128.1 
 
 IN CIRCULATION. 
 
 $102.8 
 6.5 
 
 56.6 
 18.2 
 
 $184.1 
 
 $132. 
 
 $66.7 
 
 39. 
 
 200.2 
 
 287. 
 
 $86.7 
 
 47.1 
 
 219.2 
 
 294.9 
 
 $98.7 
 63.4 
 22<.7 
 314. 
 
 $592.9 
 
 $637.9 
 
 $704.8 
 
 $200.2 
 128.5 
 
 $209.2 
 173.2 
 
 $228.7 
 227.8 
 
 $717 
 
 $36. 
 
 fl.4 
 
 $127. 
 67.1 
 262.1 
 822.1 
 
 $778.8 
 
 $262.1 
 217.8 
 
 $44.8
 
 86 MONEY, TRADE, AND BANKING. 
 
 Whatever the necessities of the government were 
 that were thought to justify the original issue of 
 legal tender notes, it is now impossible for it to 
 derive any advantage from continuing them, even if 
 there were no objections to their use. 
 
 Taxation, as now exercised, draws from the 
 banks more than the equivalent of the interest on 
 every government bond pledged to secure the de- 
 mand notes of the bank now in circulation. 
 
 It should be the aim of the government to so 
 levy taxes as to increase the rate of interest as little 
 as possible, as increasing the rate of interest most 
 quickly checks production. Still there is no valid 
 reason why the banks should not pay taxes to the 
 equivalent of the especial advantages they derive 
 from their connection with the government ; or 
 why capital, in the form of deposits in banks, 
 should not be taxed so long as anything is taxed, 
 other than property having intrinsic value ; but the 
 absurdity of laying any portion of the taxes on the 
 promissory demand notes of the banks is unequalled. 
 They are a part of the bills payable of the banks 
 and that only. They are the checks, drafts, bills of 
 exchange, etc., of the common people, and must not 
 be taxed while the same thing used by another 
 class are not taxed. 
 
 It is immaterial whether the obligations of a 
 bank are in the form of outstanding " promissory 
 demand notes " (money), or on deposit accounts, 
 drafts, checks, etc., etc. The total indebtedness of 
 a bank, and the certainty of its prompt payment on
 
 CONCLUSION. 87 
 
 demand, is the only thing its officers or the public 
 regard in adjusting the amount and character of its 
 reserve. 
 
 The importing or exporting of gold, or the main- 
 taining of specie jDayments by the banks, is affected 
 less by their ch-culating demand notes than by any 
 other form of bank obligation, because they are so 
 much less in volume ; and further, they are so nec- 
 essary to the common transactions of every-day life 
 that to collect and present them for payment in 
 a sufficient amount to reduce permanently their 
 volume, is impracticable. 
 
 Banks ought never to be short of currency. It 
 is as unnecessary, under proper forms of taxation, 
 as to be short of blank checks, drafts, etc. Have 
 enough for the maximum needs, adjust the whole 
 volume of taxation so as to produce the just amount 
 of revenue from the banks, leaving bank-bills free 
 from taxation, and you accomplish that end. 
 
 To place the financial system of the country as 
 far as practicable beyond the possibility of dis- 
 turbance by the action of any one man, be he pub- 
 lic officer or private citizen, and to make it as se- 
 cure as possible, we need : 
 
 (1.) To abolish the whole sub-treasury system 
 and require that all moneys received by the govern- 
 ment shall be immediately deposited, at convenient 
 points, in national banks. All banks at designated 
 points shfjuld have tlie right to bid freely and pub- 
 licly for the privilege of acting as depositories of 
 public funds, and should furnish ample securities in
 
 88 MONEY, TRADE, AND BANKING. 
 
 government or other solid bonds for all deposits 
 made in them by the government. 
 
 (2.) To redeem and cancel every dollar of gov- 
 ernment demand promissory notes. 
 
 (3.) To require the United States treasurer to 
 act as custodian, free of expense to the banks, of all 
 gold offered to him for safe-keeping by any bank, 
 and to issue gold certificates therefor of any de- 
 nomination desired in sums the multiple of five. 
 
 (4.) All reserves of banks to be in gold, gold 
 certificates, or in bank balances, etc., as now. The 
 banks to be prohibited from receiving on special de- 
 posit coin or bullion, and the prohibition of any 
 loan on United States or national bank notes as se- 
 curity to be extended to coin and bullion. 
 
 (5.) Gold, or government gold certificates, to be 
 legal tender for all debts, public and private. 
 
 (6.) The banks to pay taxes predicated upon 
 their having each day a gold reserve to an amount 
 equal to a certain percentage of their total deposits 
 for the day. 
 
 (7.) As the gold in any bank rises above the 
 prescribed amount, its taxes shall proportionately 
 decrease, until the amount of gold the bank holds 
 shall reach an amount equal to a specified percent- 
 age of their total deposits, above which percentage 
 the bank shall reap no advantage in taxation by 
 accumulating gold.^ 
 
 1 There is ample gold in the world for all its legitimate uses in 
 commerce, provided it is free, within reasonable restrictions, to seek 
 its trade level. Next to so arranging our financial system as tt
 
 CONCLUSION. 89 
 
 (8.) As the gold in any bank decreases below 
 the required amount, its taxes shall proportionately 
 increase. 
 
 (9.) When any bank fails to redeem on demand 
 its promissory demand notes in gold, from that day 
 its taxes should be increased to a penalty tax, 
 which shall continue so long as the suspension of 
 gold payments continues, or until a receiver is ap- 
 pointed. ^ 
 
 (10.) Each bank to select a bank at any one of 
 several designated points, with the approval of the 
 comptroller of the currency, at which it shall re- 
 deem its promissory demand notes, which redemp- 
 tion banks shall send to the New York redemption 
 bank any bills received of banks outside of its cir- 
 cuit, to be thence sent to their proper circuit. 
 
 (11.) Mutilated bills to be sent to the United 
 States treasury, for duplicates or for final redemp- 
 tion. 
 
 As all commercial transactions refer to and are 
 measured by gold, it is necessary that a certain 
 definite and unvarying part of them be actually 
 made in gold, lest by long periods of non-use its 
 power be underrated from its being obscured. The 
 laws of mind are such that we cannot trust our- 
 
 fail to secure our fair share, is the arranging it so as to accumulate 
 here an undue proportion. Ilenco the advantage to the banks of 
 reduced taxation should stop when it has accumulated a reasonable 
 amount. 
 
 * A bank should not be allowed to profit by failing to meet its 
 obligations, and as the injury is done to the public, no exception 
 can justly be taken by the bank to such a provision of law.
 
 90 MONEY, TRADE, AND BANKING. 
 
 Belves to estimate justly things long out of practical 
 use and long out of mind. We cannot keep in 
 health the financial tissues without the reasonable 
 and constantly visible use of gold. It becomes 
 more necessary to secure an arbitrary use that its 
 place and power may be always recognized, as finan- 
 cial operations become more refined. Therefore 
 the duties on imports should be invariably paid in 
 gold or gold certificates. 
 
 Again, the accumulations of the whole body of 
 the people should of right be in that form of prop- 
 erty in which their obligations are discharged. If 
 the gold is not collected and deposited in bank 
 by the government, the people will soon fail to see 
 the moral right of the government to demand gold 
 of the banks to pay the interest on its bonds. But 
 the master consideration for adhering to the policy 
 of requiring all duties on imports, not only in form 
 but in substance, to be actually paid either in gold 
 or gold certificates, is because it is the only safety 
 of the country in times of panics or long-continued 
 commercial disaster. Without this most wise pro- 
 vision in our revenue laws it is impossible to have 
 them operate justly in abnormal conditions. 
 
 Continuing our present policy of collecting all 
 revenue on imports in gold, with the power in the 
 hands of the United States treasurer to sell the 
 bonds he holds as security for deposit, when gold is 
 refused by the bank in answer to his demand, and 
 his position is as secure with no sub-treasury as 
 now.
 
 CONCLUSION. 91 
 
 The only remaining question that my limits will 
 permit any observations upon, is that of the recur- 
 rence of financial panics, — disturbances of the 
 financial system so great as to cause the suspension 
 of specie payment by the banks, etc. Will th^ 
 adoption of the suggestions herein made be a 
 remedy in the future for all panics such as have 
 been experienced in the past ? Yes 1 without the 
 shadow of a doubt, — when hurricanes cease ; when 
 earthquakes are unknown ; when railway and steam- 
 boat accidents are things of the past; when acci- 
 dents never come to the prudent ; when the unex- 
 pected never happens ; when the operations of the 
 known laws of the universe cease to be disturbed 
 and apparently frustrated by the operations of the 
 unknown. 
 
 All human conduct is based on the doctrine of 
 chances. Do all that prudence dictates in the light 
 of past experience, and rest it there, is the law in 
 all the concerns of life. Progress is only consistent 
 with holding in our conduct a just equilibrium be- 
 tween risk and security. But this fact does not 
 justify or excuse any departure from well-settled 
 principles or practices by an individual or govern- 
 ment.
 
 APPENDIX. 
 
 SUMMARY OF THE PRINCrPAL RESTRICTIONS AND RE, 
 QUIREMENTS OF THE NATIONAL BANK ACT. 
 
 Bt John Jay Knox, Comptroller of the Currency. 
 
 (1.) The corporate powers possessed by the national bank- 
 ing associations, and which they cannot exceed, are liiuitud 
 by the organic act which governs them, and are very carefully 
 enumerated therein. They are briefly as follows : — 
 
 First. To adopt and use a corporate seal. 
 
 Second. To have succession for twenty years, unless sooner 
 voluntarily dissolved, or their franchise becomes forfeited by 
 some violation of law. 
 
 Third. To make contracts. 
 
 Fourth. To sue and be sued, as fully as natural persons. 
 
 Fifth. To elect or appoint directors, and by the directors 
 to appoint a president, cashier, and other officers, and define 
 their duties. 
 
 Sixth. To adopt all necessary by-laws, not inconsistent 
 with law. 
 
 Seventh. To exercise by their boards of directors, or officers, 
 subject to law, sucn incidental powers as are necessary to carry 
 on the business of banking ; by discounting and negotiating 
 promissory notes and other evidences of debt ; by receiving 
 deposits; by buying and selling exchange, coin, and bullion 
 by loaning money on personal security; and by obtaining ani 
 issuing circulating notes. 
 
 These are the entire powers possessed by the national 
 banks, and it has licen judicially held that all powers not here 
 enumerated are witliheld. These enumerated powers, there- 
 fore, operate also as restrictions upon the banks.
 
 94 APPENDIX. 
 
 (2.) One of the provisions appearing in the above grant of 
 powers is tliat tlic national banks may loan money upon per- 
 sonal security only — that is, real estate may not be taken by 
 them directly or indirectly, as original security for any loan; 
 the effect of which is to make them commercial institutions, 
 and to discourage the loaning of money upon securities not 
 readily convertible. 
 
 (3.) Mortgages on real estate may be taken, or real estate 
 be conveyed to them, by way of security for, or in satisfaction 
 of, debts previously contracted in good faith; or they may pur- 
 chase the same at sales under judgments, decrees, or mort- 
 gages held by them. But all possession by them of such real 
 estate, whether under mortgage, by purchase, or otherwise, i 
 limited to five years. 
 
 (4.) They are required to have a paid-up capital of not less 
 than $100,000 each, and in cities of 50,000 inhabitants their 
 capital must be not less than $200,000 each. In the discretion 
 of the secretary of the treasury, however, banks with not 
 less than $50,000 capital may be organized in places hav- 
 ing less than 6,000 inhabitants. The design and effect of 
 these provisions is to prevent, as far as possible, the establish- 
 ment of feeble organizations, unequal to the wants of the com- 
 munities in which they are located. 
 
 (5.) At least one half of the authorized capital must be 
 paid in before commencing business, and the remaining por- 
 tion must be paid in at the rate of not less than one fifth 
 monthly from the time the association is authorized to com- 
 mence business. Proper provision is made for enforcing pay- 
 ment of installments of capital stock subscribed, or for making 
 good any impairment of capital which may occur in the course 
 of business. 
 
 (6.) The comptroller is also authorized and required, be- 
 fore issuing his certificate of authority to any association to 
 commence business, to ascertain if such association has in 
 good faith complied with all the requirements of law prelim- 
 inary to its organization, and he may appoint a special com- 
 piission for this purpose if thought necessary. He must also
 
 APPENDIX. 95 
 
 obtain a sworn statement of the president and cashier and of 
 a majority of the directors of the proposed association, setting 
 fortli all the facts properly bearing on this irupiiry. 
 
 (7.) No increase or reduction of the authorized capital of 
 an association can be made without the approval of the comp- 
 troller beino^ first obtained, and no increase is valid until the 
 whole amount is actually paid in and certified to under oath. 
 
 (8.) Every director must be a citizen of the United States, 
 and three fourths of the directors of any association must be 
 residents of the state, territory, or district in which it is 
 located. Each director must also, during his whole continu- 
 ance in office, be the bona fide owner of not less than ten 
 shares of the capital stock of the association of which he is a 
 director, which shares must not be hypothecated or in any 
 way pledged as security for any loan or debt. To all of which 
 he must make oath. 
 
 (9.) Every director must also, immediately upon his elec- 
 tion or appointment, make and transmit to the comptroller an 
 oath that he will faithfully administer the affairs of his asso- 
 ciation, and will not knowingly violate, or permit to be violated, 
 any of the provisions of the National Bank Act. 
 
 (10.) The shareholders of every national bank are each 
 made individually responsible, equally and ratably, and not 
 one for another, for all contracts, debts, and engagements of 
 such association, to the extent of their stock therein, at its 
 par value, in addition to the amount invested in such shares ; 
 thus giving a double security to the general creditors of these 
 associations. 
 
 (11.) Each national bank, before it is authorized to com- 
 mence business, must have first deposited with the treasurer 
 of the United States an amount of interest-bearing, registered 
 United States bonds, not less in any case than $30,000, nor 
 less than one third of the paid-in capital of the bank, except 
 that, by a late act, the maximum deposit of bonds recpiired 
 for any bank is S50,000. These bonds are primarily held as 
 security for the redcni[)tion of the circulating notes of the 
 bank; but as the amount of circulation issued equals ninety
 
 96 APPENDIX. 
 
 per cent, only of the par value of the bonds deposited, any- 
 excess in the value of the bonds above the amount of circular* 
 tion to be redeemed becomes an added security, in the posses- 
 sion of the government, applicable to the payment of claims of 
 the general creditors of the association depositing them, should 
 it become insolvent. 
 
 (12.) National banks are forbidden to make transfers or as- 
 signments of any of their assets or credits after an act of in- 
 solvency, or in contemplation thereof, with a view to the pref- 
 erence of one creditor to another; and any transfer or assign- 
 ment so made is null and void. 
 
 (13.) Every association in the national system is required 
 to receive at par, for any debt or liability to it, the circulating 
 notes of any and all other banks in the system, and these 
 notes are also receivable by the government for all taxes or 
 other dues, except duties on imports, and are payable for all 
 debts or demands owing by the government, except interest 
 on the public debt. These features give to the notes an ad- 
 ditional value beyond that which they possess through a de- 
 posit of United States bonds. 
 
 (14.) One of the most invaluable features of the national 
 banking system is that requiring each association to have at 
 all times on hand an available cash reserve of specified pro- 
 portions as compared with its deposits and circulation. The 
 proportion required for banks located in the financial centres 
 of the country is twenty-five per cent, of their deposits. For 
 all other banks the required proportion is fifteen per cent, of 
 their deposits. The proportion of reserve to circulation is the 
 same for all banks, namely, five per cent., which amount is to 
 be at all times on deposit with the treasurer of the United 
 States, to be held and used by him in the redemption of their 
 notes. This sum is also permitted to be counted as part of 
 the required reserve on deposits. Most stringent means are 
 placed at the disposal of the comptroller for enforcing com- 
 pliance by the banks with the requirements of the law relat- 
 ing to the maintenance of a cash reserve. 
 
 (15.) Equal in importance with the requirements as to a
 
 APPENDIX. 97 
 
 cash reserve are the provisions which compel the accumu- 
 lation by each national bank of a surplus fund, to be set 
 apart by it from time to time out of the profits of its business, 
 and which fund may not be used by the bank for any purpose 
 other than to meet and charge off losses in excess of its cur- 
 rent earnings. These provisions require that each association 
 shall, before making any dividend, carry to its surplus fund 
 one tenth part of its net profits since its last preceding divi- 
 dend, until the same shall amount to twenty per cent, of its 
 capital stock. It is further provided, that no dividend shall 
 ever be declared by any association to an amount greater than 
 its undivided profits (not surplus) then on hand, deducting 
 therefrom its losses and bad debts, and that if such losses 
 shall equal or exceed its profits on hand other than surplus, no 
 dividend shall be made. Careful provision is thus made for 
 the steady growth of the surplus fund of each national bank, 
 until its sum shall equal one fifth of the capital of the associa- 
 tion, thereby establishing a reserve fund against which it may 
 charo^e any excess of losses over and above its other profits on 
 hand, and thus preserve its capital stock unimpaired. Under 
 these provisions the amount of surplus accumulated by all the 
 banks now in operation is $116,897,800, against an aggregate 
 capital of 8466,147,436. 
 
 (16.) Another very important feature of the law is the re- 
 quirement that detailed statements of the condition of each 
 national bank, verified by the oath of its president or cashier, 
 and attested by not less than three of its directors, shall, not 
 less than five times in each year, be made to the comptroller, 
 and also be published in the city or town where the bank is 
 established; and to guard against the possibility of any bank 
 fortifying itself, in advance of a known day for making a re- 
 port, so as to make a good showing on that particular day, it 
 is further provided that each report shall bo for some past day, 
 to be specified by the comptroller. This office, also, under 
 the law, makes annually a report to Congress, containing a 
 great number and variety of statistical tables compiled from 
 the various reports of the banks, through the wide distributioa 
 7
 
 98 APPENDIX. 
 
 of which full information concerning the banks and the work- 
 ing of the system is annually placed before the public. 
 
 (17.) The national banks are also required to make semi- 
 annual reports to the comptroller of their dividends declared, 
 and the amount of their profits in excess of such dividends, 
 which returns are also tabulated by him, and the results pre- 
 sented to Congress and the country in his annual reports. 
 Full means are provided for enforcing compliance by the 
 banks with the provisions of law concerning both classes of 
 reports here named, by authorizing a severe penalty for any 
 failure or neglect to make and transmit the same. 
 
 (18.) In addition to the means for acquiring a knowledge 
 of the condition of the banks furnished by the reports already 
 mentioned, the law provides for their examination periodically 
 by disinterested persons to be appointed by the comptroller. 
 These persons visit the banks, inspect their books of account, 
 securities, and assets and liabilities generally, have power to 
 examine their officers and directors under oath, and inquire 
 into all matters necessary to a full understanding of their 
 actual, existing condition, and then make immediate and full 
 report in writing of the results of such examination. This 
 feature of the law is an invaluable one, operating not only as 
 a restraint against irregular practises by any banks so dis- 
 posed, but as a means of detecting them and preventing their 
 recurrence. These examinations may be as frequent as is 
 thought necessary, and their expense is borne by the banks 
 themselves. 
 
 (19.) All necessary publicity as to the ownership of shares 
 in any national banking association is secured by a provision 
 requiring that a list of the names and residences of all its 
 shareholders, and the number of shares held by each, shall be 
 kept in the office where its business is transacted, and shall, 
 during business hours, be subject to the inspection of any 
 ghareholder or creditor of the association, and of the officers 
 authorized to assess taxes under state authority. A copy of 
 Buch list, verified by oath, must also be transmitted to the 
 comptroller annually.
 
 APPENDIX. 99 
 
 (20.) The national banks serve a very useful purpose, both 
 to the government and the public, more especially in localities 
 where there is not a sub-treasury, by acting, when so au- 
 thorized by the secretary of the treasury, as depositories of 
 public moneys and financial agents of the United States. For 
 their services in this regard they receive no direct compensa- 
 tion, and are, moreover, required to give satisfactory security 
 for the faithful performance of their duties and the safe cus- 
 tody and prompt payment of all public moneys intrusted to 
 them, by a deposit with the treasurer of a sufBcient amount 
 of United States bonds. 
 
 (21.) The national banks are prohibited from loaning to 
 any person, company, corporation, or firm, an amount exceed- 
 ing one tenth part of their capital, and in estimating the 
 liabilities of a company or firm the liabilities of its several 
 members are to be included. They are thus, by law, made 
 conservative in their management, and restrained from grant- 
 ing excessive loans, which would at least lessen their general 
 usefulness to the communities in which they are situated and 
 perhaps impair their safety. 
 
 (22.) They are further prohibited from making any loan or 
 >Uscount whatever on the security of the shares of their own 
 capital stock, or from purchasing or holding the same unless 
 to prevent loss upon a debt previously contracted in good 
 faith. And, even in the latter case, they are not permitted 
 permanently to hold or to cancel shares so obtained, but must, 
 within six months from the date of their acquirement, sell or 
 dispose of them at public or private sale. 
 
 (23.) They are also prohibited from becoming indebted or 
 in any way liable to an amount exceeding that of their capital 
 stock actually paid in, except on account (1) of their circulat- 
 ing notes; (2) their deposits or collections ; (3) bills of ex- 
 change or drafts drawn against money actually on deposit to 
 their credit or due to them; and (4) liabilities to their own 
 stockholders for reserved profits. The purpose and effect of 
 these provisions are to make the national banks lenders and 
 tot borrowers of money.
 
 100 APPENDIX. 
 
 (24.) They are further forbidden, either directly or indi- 
 rectly, to pledge or hypothecate any of their circulating notes 
 for the purpose of procuring money with which to pay in or 
 increase their capital stock, or for use in their banking opera- 
 tions, or otherwise. This restriction effectually precludes the 
 practice, which was common in some former state systems, of 
 employing the circulating notes of an association in the in- 
 crease of its own capital, or in furnishing capital for a new 
 association, which practice has at times been carried to an 
 extreme limit. 
 
 (25.) The national banks are restricted in the rate of in 
 terest which they may take, receive, or reserve, to the rate 
 allowed by the laws of the State, Territory, or District in 
 which they are located. 
 
 (26.) A system of redemption of the circulating notes of the 
 national banks is provided, whereby not only may they be 
 readily converted into lawful money, but the mass of the cir- 
 culation may be kept clean through the retirement of such 
 portion as becomes worn or mutilated, and the issue of new 
 notes by the comptroller, in their stead. This redemption is 
 accomplished and compelled by requiring, first, that each 
 national bank shall redeem its circulating notes at its own 
 I'ounter, at par, in lawful money on demand; second, that the 
 notes of all closed banks shall be redeemed by the treasurer, 
 third, that all worn, mutilated, or defaced national bank notes, 
 which are received by any assistant treasurer or designated 
 depository of the United States, shall be forwarded to the 
 treasury for redemption; and, fourth, by providing that when 
 the notes of any associations, assorted or unassorted, are pre- 
 sented in sums of $1,000, or any multiple thereof, to the 
 treasurer they shall be redeemed by that ofBcer. The gov- 
 ernment is indemnified for all redemptions made by it, eithei 
 by the bonds which it holds, as in the case of insolvent banks, 
 or by a deposit of lawful money which is required to be pre- 
 viously made by all other banks. 
 
 (27.) If a national bank fails to pay its circulating notes, 
 the comptroller is authorized to sell its bonds and provide for
 
 APPENDIX. 101 
 
 kheir payment. The government is indemnified against any 
 possible loss from its guaranty of the payment of such cir- 
 culating notes, by having reserved to it by law a paramount 
 lien upon all the assets of any association which defaults in the 
 redemption of its notes, to make good any deficiency arising 
 from the sale of its bonds. 
 
 (28.) The destruction of all mutilated notes and of notes of 
 closed banks, redeemed by the treasurer, is regulated by in- 
 structions of the secretary, given in pursuance of law. All 
 notes destroyed are previously counted by separate agents or 
 representatives of the secretary, the treasurer, the comptroller 
 of the cun-ency, and the banks which issued the notes; they 
 are effectually mutilated by clipping and punching, to prevent 
 their possible circulation should they by any remote chance 
 pass out of the possession of the treasury before destruction ; 
 they are, in the presence of each of the agents mentioned, 
 placed in a triple-locked macerating machine, where they are 
 immediately ground into pulp; and their destruction is certified 
 to by all the agents, both upon proper books in the treasury 
 department and in certificates sent to the banks of issue. 
 
 (29.) The banks are prohibited, under a severe penalty, 
 from certifying any check drawn upon them, unless the person 
 or company drawing the check has at the time on deposit with 
 them an amount of money equal to that specified in the 
 
 check. 
 
 (30.) They are also prohibited from making any loan on 
 the security of United States or national bank notes, or from 
 a"-reeinf for a consideration to withhold the same from use, 
 the purpose of the prohibition being to prevent the " locking 
 up " of money by the national banks, in the interests of spec- 
 ulators. 
 
 (31.) The officers of national banks are requricd to make 
 leturns under oath to the treasurer of the United States and 
 to pay to him in semi-annual installments an annual duty of 
 »ne per cent, upon the average amount of their circulating 
 notes, one half of one per cent, upon the average amount of 
 Ihcir deposits, and a like rate upon the average amount of
 
 102 APPENDIX. 
 
 their capital stock beyond the amount invested in United 
 States bonds. This duty is in lieu of all other government 
 taxes. 
 
 (32.) The payment to the United States of the duties 
 named does not, however, relieve the national banks from any 
 liability to taxation by other than government authority, as it 
 is expressly provided that nothing in the act shall prevent the 
 shares of these associations from being taxed by the States as 
 is other similar property, or shall exempt their real property 
 from state, county, or municipal taxation, to the same extent 
 as other real property. 
 
 (33.) Should the capital stock of any association become 
 impaired in the course of business, by losses or otherwise, it 
 must, within three months after the association shall have re- 
 ceived notice from the comptroller, be made good by assess- 
 ment upon the shareholders pro rata for the amount of stock 
 held by them ; and during such impairment the treasurer is 
 required, upon notification from the comptroller, to withhold 
 the interest on all bonds held by him in trust for such associa- 
 tion. The authorized capital of the banks is thus by law 
 compelled to be kept always intact, for the protection of their 
 creditors. 
 
 (34.) When a national bank goes into voluntary liquidation, 
 it must, within six months thereafter, deposit in the treasury 
 an amount of lawful money equal to its entire outstanding cir- 
 culation, which circulation is thereafter redeemed by the 
 treasurer. Thus the banks, under existing law, derive no 
 benefit from the accidental loss or destruction of any portion 
 of their notes, such benefit inuring solely to the government. 
 
 (35.) Should any bank become insolvent, the most ample 
 powers are possessed by the comptroller to take possession of 
 such association, through a receiver to be appointed by him, 
 and to proceed to collect its assets, and pay off, by dividends 
 from time to time, the claims of its creditors. The note-hold- 
 ers are in such cases as secure as though the bank had re- 
 mained solvent, the notes being protected by the bonds held 
 by the government ; while the other creditors have as a pro*
 
 APPENDIX. 103 
 
 tection, in addition to the assets of the bank, the individual 
 liability of the shareholders before mentioned, together with 
 the capital paid in, no part of which can be returned to the 
 shareholders until all approved claims against the association 
 shall have been paid. 
 
 (36.) Mention has several times been made herein of the 
 ample means provided in the National Bank Act for enforcing 
 compliance with its provisions, by the infliction of penalties 
 for their violation or non-observance. All of these penalties 
 are severe, and many of them summary, the principal ones 
 being here enumerated : — 
 
 I. For charging or exacting a usurious rate of interest, the 
 whole interest agreed to be paid is forfeited; or, if actually 
 paid, twice its amount may be recovered back by the person 
 paying the same. 
 
 II. For certifying any check, unless the person by whom 
 the check is drawn has on deposit with the association an 
 amount of money equal to that represented by the check, the 
 bank may be immediately closed by the appointment of a re- 
 ceiver. 
 
 III. For every day, after five days, in which a national 
 bank shall fail to make and transmit to the comptroller any 
 report of its condition called for by him, and for similar de- 
 lay in transmitting to him the required proof of publication of 
 such report, and also for every day, after ten days, in which 
 a bank shall fail to transmit its semi-annual report of divi- 
 dends and earnings, a penalty of one hundred dollars is im- 
 posed. And if any association fails or refuses to pay the 
 amount of such penalty when assessed and demanded, the 
 Treasurer of the United States is authorized to retain it, upon 
 the order of the comptroller, out of the interest, as it may 
 become due to tlie association, upon the bonds deposited to 
 secure its circulation. 
 
 IV. For failure of the president or cashier of any associa- 
 tion to report to the treasurer semi-annually, for purposes of 
 taxation, the average amount of its notes in circulation, de<
 
 104 APPENDIX. 
 
 posits, and capital stock not invested in United States bonds, 
 a penalty of two hundred dollars is imposed, which may be 
 collected as in the preceding paragraph. The treasurer may 
 also, in such cases, assess the association upon the highest 
 amount of its circulation, deposits, and capital stock, to be 
 ascertained in such manner as he may deem best. 
 
 V. If an association fails to pay the duties assessed upon its 
 circulation, deposits, and capital, such duties also may be re- 
 served by the treasurer out of the interest falling due upon 
 its bonds. 
 
 VI. The making of any loan upon the security of United 
 States or national-bank notes, or agreeing for a consideration 
 to withhold the same from use — in other words, the "locking 
 up " of money, — is made a misdemeanor, punishable by a fine 
 of one thousand dollars, and a further sum of one third of the 
 money so loaned; and the officers making the loan aro subject 
 to the further penalty of one quarter of the money loaned. 
 
 VII. Embezzlement of the funds of an association by any of 
 its officers, directors, or agents, or any false entry by any of 
 them, in any book, statement, or report, with intent to injure 
 or defraud the association or any other company or person, is 
 punishable by imprisonment of not less than five nor more 
 than ten years. 
 
 VIII. If any officer or agent of an association, whose charter 
 has expired, knowingly reissues or puts into circulation any 
 note, draft, check, or other security of such association, he is 
 punishable by a fine of $10,000, or by imprisonment of from 
 one to five years, or by both such fine and imprisonment. 
 
 IX. If the capital stock of any national bank falls below 
 the minimum amount required by law, through the failure of 
 any shareholder to pay the whole or any part of the amount 
 of his subscription for such stock, and the deficiency in capi- 
 tal shall not be made good within thirty days thereafter, a re- 
 ceiver may be appointed to close up the affairs of the associa- 
 tion. 
 
 X. Whenever the lawful money reserve of a national bank 
 falls below the limit required by law, and remains below such
 
 APPENDIX. 105 
 
 limit for thirty days after receiving notice from the comp- 
 troller to make its reserve good, a receiver may be appointed 
 and the bank closed. 
 
 XL A receiver may also be appointed for any association 
 which fails to redeem its circulating notes at its own counter 
 or at the treasury, at par, on demand. 
 
 XII. If an association -which accepts any shares of its own 
 capital slock in order to prevent a loss upon a debt previously 
 contracted in good faith (which is the only way in which such 
 stock can be legally acquired by it), shall fail to sell such 
 stock, at pubUc or private sale, within six months thereafter, 
 it may be closed by the appointment of a receiver. 
 
 Xni. Whenever an association fails to pay up its capital 
 stock as required by law, or an impairment of its capital oc- 
 curs by losses or otherwise, and it shall not, within three 
 months after receiving notice from the comptroller, make 
 good the deficiency by an assessment upon its shareholders, it 
 may, unless it consents to go into liquidation, be placed in 
 possession of a receiver and its business closed. 
 
 (37.) Finally, if the directors of any national banking as- 
 sociation knowingly violate, or knowingly permit any of its 
 officers, agents, or servants to violate any of the provisions of 
 the National Bank Act, all the rights, privileges, and fran- 
 chises of the association become thereby forfeited; in addition 
 to which, every director who participates in or assents to such 
 violation is held personally and individually responsible for all 
 damages sustained by any person in consequence thereof.
 
 UNIVERSITY OF CALIFORNIA AT LOS ANGELES 
 
 THE UNIVERSITY LIBRARY 
 This book is DUE on the last date stamped below 
 
 Form L-0 
 
 20j»-1, '42(8518)
 
 lir SniiTHERN REGIONAL LIBRARY FACILITY 
 
 AA 000 591 602 8 
 
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 mssf 
 
 1888