A

NEW SYSTEM

OF

PAPER CURRENCY.

BY LYSANDER SPOONER.

______________

BOSTON:
PRINTED BY STACY & RICHARDSON,
No. 11 Milk Street.
1861.

 ________

PART FIRST

 ________

NOTE.

___

THE subscriber believes that the right of property in ideas, is as valid, in the view both of the Common and constitutional law of this country, as is the right of property in material things; and that patent and copyright laws, instead of superseding, annulling, or being a substitute for, that right, arc simply aids to it.

In publishing this system of Paper Currency, he gives notice that he is the inventor of it, and that he reserves to himself all the exclusive property in it, ‘which, in law, equity, or natural right, he can have; and, especially, that he reserves to himself the exclusive right to furnish the Articles of Association to any Banking Companies that may adopt the system.

To secure to himself, so far as he may, this right, he has drawn up and copy. righted, not only such general Articles of Association as will be needed, but also such other papers as it kill be necessary to use separately from the Articles.

Even should it be possible for other persons to draw up Articles of Associa­tion, that ‘would evade the subscriber’s copyright, banking companies, that may adopt the system, will probably find it for their interest to adopt also the subscri­ber’s Articles of Association; for the reason that it will be important that Companies should all have Articles precisely, legally, and verbally alike. If their Articles should all be alike, any legal questions that may arise, when settled for one Company, would be settled for all.

Besides, if each Company were to have Articles different from those of other., no two Companies could take each other’s bills on precisely equal terms; because their legal rights, as bill holders, under each other’s Articles, would not be precisely alike, and might be very materially different.

Furthermore, if each Company were to have Articles of Association peculiar to itself, one Company, if it could take another’s bills at all, could not safely take them until the former had thoroughly examined, and satisfactorily ascertained, the legal meaning of the latter’s Articles of Association. This labor among banks, if Companies should he numerous, would be intolerable and impossible. The necessity of studying, understanding, and carrying in the mind, each other’. different Articles of Association, would introduce universal confusion, and make it impracticable for any considerable number of Companies to accept each other’. bills, or to cooperate in furnishing a currency for the public. Each Company would be able to get only such a circulation as it could get, ‘without having its bills received by other banks. But if all banks have precisely similar Articles of [*vi] Association, then one Company, so soon as it understands its own Articles, understands those of all other Companies, and can exchange bills with them readily, safely, and on precisely equal terms.

Moreover, if each separate Company were to have its peculiar Articles of Association, it would be wholly impossible for the public to become acquainted with them all, or even with any considerable number of them. It would, there­fore, be impossible for the public to become acquainted with their legal rights, as bill holders, under all the different Articles. Of course they could not safely accept the currency furnished by the various Companies. But if all the Com­panies should have Articles precisely alike, the public would soon understand them, and could then act intelligently, as to their legal rights, in accepting or rejecting the currency.

The subscriber conceives that the Articles of Association, which he has drawn up, and copyrighted, are so nearly perfect, that they will never need any, unless very trivial, alterations. In them he has intended to provide so fully for all exigencies and details, as to supersede the necessity of By-Laws. This object was important, not only for the convenience of the Companies themselves, but because any power, in the holders of Productive Stock, to enact By-Laws, might be used to embarrass the legal rights of the bill holders under the Article, of Association.

Besides, as the holders of Productive Stock are liable to be continually changing, any power, in one set of holders, to establish By-Laws, would be likely to be used to the embarrassment, or even injury, of their successors.

It is obviously important to all parties, that the powers of the Trustees, and the rights of all holders, both of Productive and Circulating Stock, should be legally and precisely fixed by the Articles of Association, so as to be incapable of modification, or interference, by any body of men less than the whole number interested.

LYSANDER SPOONER.

  Boston, 1861.

 [*9]

A

NEW SYSTEM

-OF-

PAPER CURRENCY.

___________

CHAPTER I.

OUTLINE OF THE SYSTEM

THE principle of the system is, that the currency shall repre­sent an invested dollar, instead of a specie dollar.

The currency will, therefore, be redeemable by an invested dollar, unless the bankers choose to redeem it with specie.

Theoretically the capital may be made up of any property whatever. But, in practice, it will doubtless be necessary, in order to secure public confidence in the currency, that the capital should be property of a fixed and permanent nature, liable to few casualties and hazards, and yielding a constant, regular, and certain income, sufficient to make the PRODUCTIVE STOCK, here­after mentioned, worth ordinarily par of specie in the market.

The best capital of all will probably be mortgages; and they may perhaps be the only capital, which it will ever be expedient to use.

This capital is to be put into joint stock, held by Trustees, and divided into shares, of one hundred dollars each, or any other sum that may be thought best. [*10]

This Stock may be called the PRODUCTIVE STOCK, and will be entitled to the dividends.

The dividends will consist of the interest on the mortgages, and the profits of the banking.

Another kind of Stock, which may be called Circulating Stock, will be created, precisely equal in amount to the PRODUCTIVE STOCK, and divided into shares of one dollar each.

This Circulating Stock will be represented by certificates, scrip, or bills, of various denominations, like our present bank bills - that is to say, representing one, two, three, five, ten, or more shares, of one dollar each.

These certificates, scrip, or bills of the Circulating Stock will be issued for circulation as a currency, by discounting notes, &c., as our bank bills are now.

This Circulating Stock will be entitled to no dividends; and its value will consist wholly <fn1> in its title to be received, at its nominal value, in payment of debts due to the bank, and to be redeemed by PRODUCTIVE STOCK, unless the bankers choose to redeem it with specie. In law, the Circulating Stock will be in the nature of a lien upon the PRODUCTIVE STOCK.

_________

Such are the general principles of the system.

The following provisions, although perhaps not essential to the system, will yet serve to keep the currency at a uniform value, and make the system operate without friction.

_______

The original owners of the PRODUCTIVE STOCK, and all who hold it through purchase from them, (instead of by transfer in redemption of bills,) may be called PRIMARY STOCKHOLDERS. [*11]

Those, who hold PRODUCTIVE STOCK, by transfer in redemption of bills, may be called Secondary Stockholders.

All the resources of the bank - that is, the interest on the mortgages, and the banking profits - should be pledged to pay the Secondary Stockholders precisely six per centum per annum (or such other per centum as the Articles of Association may fix for them to receive) on their Stock; no more, no less. After these dividends shall have been paid to the Secondary Stock­holders, the remaining dividends should be divided among the PRIMARY STOCKHOLDERS - whether such dividends shall be more, or less, than those received by the Secondary Stock­holders.

The effect of securing to the Secondary Stockholders pre­cisely six per centum (or any other given per centum) on their Stock, will be to make the bills represent, to the public, either invested capital, yielding precisely six per centum per annum (or precisely any other per centum, which it may be designed to represent) or specie; because the bills may, at pleasure, be con­verted into such capital, unless the bankers prefer to redeem them with specie.

Whenever PRODUCTIVE STOCK shall have been transferred, in redemption of bills, the bankers will have the right to buy it back, at pleasure, on paying its face in specie, with interest, (or dividends,) at the prescribed rate, for the time it shall have been in the hands of the Secondary Stockholders. <fn2>

It may be desirable, for various reasons, that the currency, representing the invested dollar, should, at all times, be, as nearly as may be, on a par with the specie dollar; neither rising above, nor falling below it, in value. This object, nearly enough for all practical purposes, can be accomplished in this way, to wit:

The rate of dividend, secured to be paid to the Secondary Stockholders, on their PRODUCTIVE STOCK, should be fixed so high as to make that Stock worth, in their hands, par of specie. [*12] (Under an abundant currency, such as this system would furnish, six per centum would probably be sufficient for this purpose). This would keep the bills up to par with specie; because they could, at pleasure, be converted into either PRODUCTIVE STOCK, or specie.

On the other hand, the facts, that the bankers may, if they please, redeem their bills with specie, rather than by PRODUC­TIVE STOCK, and that they will have the right, at any time, to buy back the PRODUCTIVE STOCK, from the Secondary Stock­holders, by paying its face in specie, will generally keep the bills down to par with specie. <fn3>

So long as the banking business shall yield sufficient profit to pay expenses, and the PRODUCTIVE STOCK shall remain in the hands of the original owners, there will be no necessity for the interest on the mortgages being paid; because what would be paid in by each Stockholder as interest, would come directly back to him as dividend. The payment of the interest to the bank, and of the dividends (so far as they shall be made, up of such interest) by the bank, will therefore be merely nominal transac­tions on the books of the bank, without either being actually made.  

If an original Stockholder should sell his PRODUCTIVE STOCK outright, it would then be necessary that he should pay his interest. [*Inserted Page]

Although the banks make no absolute promise to pay specie on demand, the system nevertheless affords a much better prac­tical guaranty for specie payments, than our present system; for these reasons, viz.

1. The banks would be so universally solvent, and so univer­sally known to be solvent, that no runs would ever be made upon them for specie, through fear of their insolvency. They could, therefore, maintain specie payments with much less amounts of specie, than our present banks can.

2. In ninety-nine times in a hundred, the alternative redemp­tion would probably be preferred to specie, by the bill-holders. This would still further lessen the amount of specie necessary to be kept on hand.

3. The banks would probably find it for their interest, as pro­moting the circulation of their bills, to pay, at all times, such small amounts of specie, as the public convenience might require.

4. Whenever specie should not be paid on demand, no divi­dends could be paid to the bankers, until all claims for specie, with interest, should have been paid in full; that is to say, until all Circulating Stock, presented for redemption, and not redeemed by PRODUCTIVE STOCK, should have been redeemed by specie; and all PRODUCTIVE STOCK, that should have been transferred in redemption of circulation, should have been repurchased, by specie, and restored to the original holders. (For particulars on this point, see Articles of Association, especially Articles 13, 20, 23, 24, 25, 26, 27, 28, and 29.)

5. If there should he any suspensions of specie payments, they would be only temporary ones, by here and there a bank sepa­rately. and not by all the banks simultaneously, as now. No general public inconvenience would therefore be felt from that cause. [*13]

If, when any PRODUCTIVE STOCK shall have been transferred, in redemption of the bills, the banking profits should not be sufficient to pay the dividends, .to which such transferred Stock will always be entitled, it will be necessary for the original Stockholders to pay interest pro rata on their mortgages, suffi­cient, with the banking profits, to pay the dividends on such transferred Stock.

If any original Stockholder (mortgagor) should wish, at any time, to take his capital out of the bank-that is, release his estate from the mortgage - he has only to request the Trustees to cancel an equivalent amount of his own PRODUCTIVE STOCK, and also an equivalent amount of Circulating Stock. They can then discharge his mortgage, without injustice to any one; and his rights in, and liabilities to, the bank are at an end; he having first paid all dues that may have previously accrued.

Minor details of the system will be seen in the Articles of Association.

  N.  B. In the Articles of Association, the system appears much more clear, simple, and exact, than it can be made to do in any brief description of it. [*14]

CHAPTER II.

ADVANTAGES OF THE SYSTEM.

 1. THE system would furnish, at all times, an abundant cur­rency. It would furnish currency equal to one third, or one half, the value of all the real estate in the country - if so much could be used.

2. The currency would be stable in value. The system is Capable of furnishing so much currency, that a large demand could be supplied as easily as a small one, and without causing any variation in the market value of the currency, or raising the rate of interest.

The presence or absence of specie in the country, would have no effect, either upon the amount of currency, or upon the stability of its value.

The prices of property would be stable, so far as their stability should depend upon the stability of the currency.

3.   The currency would be solvent. It would be absolutely incapable of insolvency; for there could never be a dollar of the currency in circulation, without an invested dollar (Productive Stock) in bank, which must be transferred in redemption of it, unless redemption be made in specie. All losses, therefore, fall upon the bankers, and not upon the bill holders. If the original Stockholders should all fail- that is to say, if they should be compelled to transfer all their Productive Stock in redemption of their circulation - the result would simply be, that the original capital (Productive Stock) would pass, undiminished, into the hands of a new set of holders, who would proceed to bank upon it (re-issue the bills, and redeem them, if necessary, by the transfer of Productive Stock) in the same way that their pre-­ [*15] decessors had done. And if they, too, should lose all their Productive Stock (capital) by the transfer of it in redemption of the circulation, the Stock itself would pass, unincumbered and unimpaired, into the hands of still another new set of holders, who would bank upon it, as the others had done before them. And this process would go on indefinitely, as often as one set of bankers should fail (lose all their Productive Stock). The holders of the Productive Stock, for the time being, would always be the bankers, for the time being. And whenever one set of bankers should have made such losses as to compel a transfer of all their Productive Stock, that Stock would pass into the hands of a new set of holders, and the bank, as a corporation, would be just as solvent as at first. So that, however badly the banking business should be conducted, and however frequently the bankers might fail, (if transferring all their capital, or Productive Stock, in redemption of their circulation, may be called failing,) the bank itself, as a corporation, could not foil. That is to say, its circulation could never fail of redemption. Its capital would forever remain intact; forever equivalent to the circulation; and forever subject to a compulsory demand in redemption of the circulation. In this way all losses necessarily fall upon the bankers (in the loss of their Productive Stock) and not upon the bill holders. (See Article XXI, of the Articles of Asso­ciation.)

4. The solvency of the currency will be known by all, both in the neighborhood of the place of issue, and at a distance from it (if the bankers should choose to make its solvency known at a distance). These results will be accomplished in this way.

The mortgages, composing the capital of the bank, will be matter of public record, and every body, in the neighborhood, will have the means of judging for himself of the sufficiency of the property holden. If the property should be insufficient, the bank would be discredited at once; for the abundance of solvent currency would be so great, that no one would have any induce-[*16] ment to take that which was insolvent or doubtful. In this way the credit of a bank would be established at home.

Its credit abroad would be established in this way,- 

Suppose a bank, at Chicago, should wish to establish the credit of its bills in New York. All that would need to be done would be to make arrangements with some bank in New York to redeem them. <fn4> And to induce the New York bank to redeem them, it would not be necessary, as now, that the Chicago bank should keep a deposit of specie in New York. All that would be neces­sary would be to satisfy the New York bank of its (the Chicago bank’s) solvency - that is, of the sufficiency of the property holden. This could be done by the New York bank’s sending a commission to Chicago to investigate the question. And when the New York bank should have once become convinced of the solvency of the Chicago bank, the credit of the latter is estab­lished forever. The New York bank would not need to be continually investigating the condition of the Chicago bank; because, under this system, a bank, once solvent, is forever solvent.

It would, therefore, be perfectly easy for banks, in remote parts of the country, to make their bills redeemable in the great commercial centres, or any where else they might please, without keeping deposits of specie at those points.

One important result, among others, of this system would be, that when a merchant, from Chicago, for example, should come to New York to make purchases, he would not buy on his own Credit; but would get his credit, at bank, in Chicago; bring Chicago bank bills to New York, and make his purchases with them. Or else the bills of New York banks would be so abundant at Chicago, that he would there exchange his Chicago bills for New York bills, and bring the latter home, and exchange [*17] them for goods. Thus all the jobbing business of the country would be done for cash, instead of on credit, as now.

5. The currency would be cheap (afforded at a low rate of interest) and for two reasons. 1. Because the capital costs noth­ing: That is, its use as banking capital costs nothing; because its use as banking capital, does not interfere with its use for other purposes. 2. The system admits of competition limited only by the real property of the country. These two facts would bring the rate of interest, at all times, down to the lowest point, at which the simple business of banking could be profitably done.

6. The basis of the currency could not, like specie, be carried out of the country, so as to leave our own people destitute of a currency.

7. The system stands wholly on common law principles; requiring no aid from the government, in the way of charters of incorporation; amid (in the United States) constitutionally admits of no prohibition from the government. <fn5>

8. It gives the Stockholders all the benefits of an act of incor­poration, so far as to shield them from individual liability. At the same time, it avoids all necessity for privileged legislation. It also avoids all injustice to, and all liability of throwing any losses upon, the bill holders, because they are certain to get the [*18] precise thing they bargained for; that being set apart, and made legally incapable of being applied to any other purpose.

9. The system would be a free one. That is, the right of furnishing currency, instead of being made a legalized monopoly, would be open equally to every man, who had the necessary property.

10. The system would be adapted to distribute credit equally as possible through the community.

11. Currency and bank credits would be so abundant, cheap, and generally diffused, as nearly or quite to supersede all other forms of temporary credit between man and man, and introduce a general system of cash payments. This would be the result, for this reason. The banks could generally, if not always, afford credit cheaper than individuals engaged in trade. The banks would be so numerous, that a man deserving of credit at all, could generally obtain it at bank. And the result would soon come about, that nearly all temporary credit would be obtained at bank, and cash payments would be made in nearly all transactions between individuals. The hazards of trade would thus be greatly diminished; every man’s business would stand on its own basis; his solvency or insolvency would be an independent matter, instead of being complicated, as now, with the solvency or insol­vency of so many others.

12. It would tend to diversify industry to the greatest possible extent, by affording the best possible facilities, which a mere currency system can furnish, for engaging in the production of all new commodities as fast as they should be invented.

13. The system would liberate specie for the uses of international commerce.

14. The system would greatly enhance the value of real estate, not so much by reason of the banking profits derived from it, as of the activity it would give to agricultural, manufacturing, and commercial industry.

15. The proposed system would tend to graduate the prices of property throughout the country, according to one common [*19] standard. To illustrate this point, we will suppose that, in Massachusetts, an acre of land, which yields a net income of six dollars per annum, over all charges, is worth $100. Why is it worth $100? Because the rate of interest, in Massachusetts, is six per centum per annum. The acre of land, therefore, yields the same annual income as $100, at interest. But, in Illinois, we will suppose, an acre of land, that yields $12, or $18, net income per annum, (two or three times as much as the acre in Massachusetts,) is worth but $100, the same as the acre in Massachusetts. Why is it worth no more? Because the rate of interest, in Illinois, is twelve or eighteen per centum per annum; two or three times more than in Massachusetts. The acre of land, in Illinois, therefore, although it yields two or three times as much income as the acre in Massachusetts, brings only the same price in the market, because it will yield no more annual income than $100, at interest, in Illinois. But the proposed system, by making currency abundant, and reducing the rate of interest, in Illinois, to nearly or quite the same rate as in Mas­sachusetts, would raise lands, in Illinois, to a price corresponding the income they yield. It would raise them to substantially the same standard of price with the lands in Massachusetts; so that, if an acre of land yielded $12, or $18, net annual income, the market price of the land would be $200, or $300, instead of $100, as now.

In this way, this system, by making currency abundant, and the rate of interest low, throughout the country, would tend to graduate the prices of property by one common standard through­out the country, according to the net income, or real value, of the property.

16. It would benefit the condition of poor men in various ways, to wit: First, those wino should labor for wages, would receive their wages promptly, and in money (currency). They would thereby be enabled to make their purchases with cash, and thus make them more advantageously than now. Secondly, there would be no stagnations in business, by which they would [*20] be thrown out of employment, and compelled to consume their accumulations, and perhaps fall in debt. Thirdly, there would be a much greater diversity of industry than now, and as a con­sequence, all labor would be better paid than now. Fourthly, those who should wish to hire capital, and establish themselves in business of their own, would be much better able to do so than now, because when all traffic should be done for cash, it would be much more safe to loan capital to a poor man, than it is now, when he is obliged to give, as well as to get, credit. Fifthly, men of wealth would retire, earlier than now, from active busi­ness, and make way for, and loan their capital to, younger men; because they could certainly loan their capital more safely than now, and probably more advantageously. By loaning their capital first on mortgage, and thus getting one income from it; and then converting the mortgages into bank capital, and thus getting another income from it, they would probably do better with their capital, than to remain in business. At any rate, the management of their capital would thus be attended with less anxiety and risk, than if they were to remain in business them­selves.

17. As a standard of value, the currency would be much more uniform than it is now, because a dollar, invested for twenty or thirty years, where it is sure to yield, say, six per cent. income each year - never more, and never less - would obviously main­tain a more uniform value than the dollar now does, which brings, say, four per cent. income this year, and ten, fifteen, or twenty next year. [*21]

 CHAPTER III.

SECURITY OF THE SYSTEM.

SUPPOSING the property mortgaged to be ample, the system, as a system, is absolutely secure. That is to say, the currency is absolutely sure of redemption. Thee capital cannot, in any possible event, be reduced below the amount necessary for the redemption of the entire circulation.

The only question, then, is - what assurances have the public, that the property mortgaged will always be ample?

The answer is, that they have abundant assurances, as follows:

1. The mortgages will all be on record, where any body interested can examine them, and judge for himself whether the property holden is sufficient.

2. Each bank will find it expedient to print a large number of copies of its Articles of Association, including copies of its mortgages. Appended to these copies, may be copies of the certificates of appraisers, as to the value of the property. These certificates, if they come from men of known character and judgment, will be entitled to confidence. Certificates also of the assessed value of the property, on the tax lists of the town, may be appended; and these, coming from disinterested and honest men of good judgment, as the assessors of taxes usually are, will be worthy of reliance.

Copies of the Articles of Association, with these certificates appended, will be sent, by the bank, to other banks, and given to individuals, with whom the bank wishes to establish its credit.

3. The Trustees of a bank will be generally known as men of character and judgment - for otherwise a bank would be dis­credited at once. If they are thus known, their acceptance of [*22] the office of Trustees, will be a reasonable guaranty for the sufficiency of the property holden; for such men would not be likely to become Trustees, except for a solvent bank.

4. The abundance of undoubted currency would be such, that the public would be under no necessity to take doubtful currency; and therefore doubtful currency could get no circulation at all.

5. Mortgages upon the real property of the country, at one third, or one half, its value, would probably furnish a great deal more currency than could be used. No one company, therefore, could expect to get out a circulation of more than one third, or one half; the value of the property mortgaged. It would be of no use for them, therefore, to mortgage their property for more than that amount. If they should mortgage their property for more, and attempt to get out more circulation, they would thereby discredit their bank, and thus either fail of getting any circula­tion at all, or certainly fail of getting as much circulation as they might have got, if their property mad been mortgaged only for a proper amount. It, therefore, would not be for the interest of a banking company to mortgage their property at a higher rate than one third, or one half, its value. And at this rate, the mortgages would be safe for a long series of years, (unless in very extraordinary cases,) because, under a system of abundant currency, real estate would always be rising in value, rather than falling. The mortgages, therefore, would be growing better all the while, instead of growing worse.

6. By the Articles of Association, all the mortgages, which make up the capital of a bank, are made mutually responsible for each other; because, (see Articles XXIX and XXXVII,) if any one mortgage proves insufficient, no dividend can afterwards be paid to any PRIMARY STOCKHOLDER, until that deficiency has been made good by the company. The effect of this provision will be, to make all the founders of a bank look carefully to the sufficiency of each other’s mortgages; because no man will be willing to put in a good mortgage of his own, on equal terms with a bad mortgage of another man’s, when he knows that his [*23] own mortgage will have to contribute to make good any deficiency of the other. The result will be that the mortgages, that go to make up the capital of any one bank, will be either all good, or all bad. If they are all good, the solvency of the bank will be apparent to all in the vicinity; and the credit of the bank will at once be established, at home. If the mortgages are all bad, that fact also will be apparent to every body in the vicinity; and the bank is at once discredited, at home.

From all the foregoing considerations, it is evident that nothing is easier than for a good bank to establish its credit, at home; and that nothing is more certain than that a bad bank would be discredited, at home, from the outset, and get no circulation at all.

It is also evident that a bank, that has no credit at home, could get none abroad. There is, therefore, no danger of the public being swindled by bad banks.

7. It would be easy for a good bank to establish its credit abroad - for it could do it by establishing its credit with other banks. This it could do, partly by means of its credit at home, and partly by making arrangements with other banks to redeem its bills. In order to do this, it must be at the necessary expense and trouble of satisfying these other banks of its solvency - that is, by furnishing them satisfactory evidence of the sufficiency of the mortgaged property; a thing, that is obviously very easy to be done, if the mortgaged property be really sufficient.

8. In addition to the security of each individual mortgage, and of the mutual responsibility of the mortgages for each other, there is the still further security of all the debts due to the banks; debts a little more than equivalent (by the amount of interest on the loans) to the amount of bills in circulation.

      In this connexion it may be added, that under the system proposed, the banking business will be a much safer business than it is now; and consequently the debts due to the bank will be a much better security for the solvency of the bank, than such debts now are; because, under a system, which furnishes, at all [*24] times, a constant and ample supply of currency, industry and trade will be subject to none of those revulsions and stagnations, which cause extensive or general bankruptcies; the debtors of banks will all make their sales for cash, instead of giving credit. For these reasons the credits, given by the banks, will obviously be much more uniformly safe than they now are; and consequently the debts, due the banks,, will afford a much better security, than they now do, for the solvency of the banks themselves.

9. The banks themselves would act as guardians to the public against frauds by each other. This would be done in this way. Bank A (a solvent bank) would not receive the bills of bank B, unless bank B had first satisfied bank A of its solvency. And bank A would be satisfied only by personal examination of the mortgages of bank B. In this way any unsound bank would be discredited by the surrounding banks, and thus discredited in the eyes of the community.

But it has been said that under the New York free banking law, mortgages are deposited with the State Comptroller, (or Superintendent of Banks,) as security for the redemption of the currency; and that when these mortgages come to be sold, the lands often fail to bring the amount of the mortgage. And the question Inns been asked, whether, under the system here pro­posed, the mortgaged property might not prove insufficient, as~ well as in New York?

The answer is, that the mortgages in New York may have proved insufficient for either or both of two reasons.

1. They may have proved insufficient, because the lands, being sold for specie, at a time when specie had mostly left the country, could not bring what was not to be lead - that is, specie. But this is no proof that the lands were not, in ordi­nary times, and under an abundant currency, a sufficient secur­ity; but only that, when specie has gone out of the country, lands are affected like all other property, and will not, any more titan other property, bring their true value in specie. [*25]

But under the system proposed, the absence of specie would occasion no contraction of the currency, and no depression in the price of lands. And therefore a mortgage, that was sufficient at one time, would be sufficient at all times. No forced sales would be made; but the mortgages would run (if only the interest were paid) until the final winding up of the bank. If the interest were not paid, the bank would take possession, and apply the rents to the payment of the interest. Or, at worst, they would sell the property. And it could always be sold advantageously, because, there never being a scarcity of currency, property in general would never be depressed.

2. The other reason, for the failure of the New York mortga­ges, may have been fraudulent appraisals.

The facilities for fraudulent appraisals are much greater under the New York system, than they would be under the system proposed, and for these reasons.

Under the New York system, all that is necessary to get a bank in operation, is, that mortgages, satisfactory to the State Comptroller, or Superintendent of Banks, should be deposited with him. And he accepts the mortgages on the simple appraisal of men, appointed by himself; or satisfactory to himself. This being done, the currency is then issued, and the public receive it, because the State has thus virtually certified that it is well secured.

Now, it is evident that all that is necessary to get up a swindling bank, under this system, is simply to secure the approval of one man the Comptroller, (or Superintendent of Banks,) who knows nothing of the land himself- to the ap­praisal of the land mortgaged. If but this one man can either be cheated, or be induced to become himself a cheat, all the other consequences follow; because the currency is then issued under his authority, and is received by the public, on the strength of his virtual indorsement.

Now, as it cannot be a very difficult matter to cheat this one man, or perhaps to induce him to become himself a cheat, in [*26] such a case as this, it is evident that the system affords little security for the sufficiency of the mortgages.

But under the system proposed, no such facilities for fraud would exist, because the credit of the bank would not rest upon the certificate of any one man, nor upon any indorsement of the State. The State would not indorse the currency at all, any more than it now indorses the notes or mortgages of private persons. Each bank would, therefore, have to stand on its own merits, subject to the scrutiny of the whole community.

 CHAPTER IV.

PRACTICABILITY OF THE SYSTEM.

 THE system is plainly practicable, provided the currency will pass.

The only question, then, is, whether the currency will pass? Whether men, if left to do as they please, will buy and sell it, in exchange for other commodities, as they now buy and sell gold and silver coin, and bank notes, in exchange for other com­modities?

To answer this question, it is necessary to ascertain what it is, that makes any hung pass as a currency.

What, for example, is it, that makes gold and silver coin pass as a currency?

The answer is, that five conditions are necessary to make any thing pass readily as a currency. First, that the thing should have much value, and yet be of small bulk and weight; secondly, that it should be divisible into small, parcels; thirdly, that the quantity and quality of each of these parcels should be accurately measured, and then reliably marked upon the parcels themselves; fourthly, that these parcels should be convenient for being manip­ulated, counted, transported, &c. ; and, fifthly, that the currency should have a publicly known market value. <fn6>

These are the only conditions, that are necessary to make any thing pass readily as a currency.

The paper currency proposed - the mortgage stock currency- fulfils all these conditions. First, it would have much value in small bulk and weight.  Secondly, it would be conveniently [*28] divisible into small parcels, that is, parcels as small as one dollar. Thirdly, the quantity and quality of these parcels would be accurately measured, and reliably marked upon the parcels them­selves. Fourthly, the parcels would be convenient for being manipulated, counted, transported, &c. And, Fifthly, the currency would have a publicly known market value. Its market value, in comparison with other commodities, would cer­tainly be as well known, as is the market value of gold and silver coins, or bank notes.

There is no reason, then, why it should not pass, as a cur­rency - at its market value - whatever that may be.

Its market value may be greater or less than that of gold and silver; but this would not prevent its passing, at its market value. Indeed the market value of any thing is only that value, at which the thing will sell readily in the market. So that, to say that a thing has a market value - a publicly known market value - is equivalent to saying that it will pass as a currency, provided it be convenient in all other respects.

Secondly.

But would this paper currency be as much in demand, in the market, as gold and silver coins now arc? That is, would it sell as readily as the coins now do, in exchange for other commodities?

To answer this question, we must ascertain why it is that the coins are in demand at all, as currency; why it is that they have a market value; why it is that every man will accept them in exchange for any thing he has to sell.

The solution of these queries is, that thee original, primal source of all the demand for them, as currency - the essential reason why they have a market value, and sell so readily in ex­change for all other commodities - is because they are wanted, to be taken out of circulation, and converted into plate, jewelry, and other articles of use. [*29]

If they were not wanted, to be taken out of circulation, and wrought into articles of use, they could not circulate at all, as a currency. No one would have any motive to buy them; and no one would give any thing of value in exchange for them.

The reason of this is, that gold and silver, in the stale of coin, cannot be used. <fn7> Consequently, in the state of coin, they pro­duce nothing to the owner. A man cannot afford to keep them, as an investment, because that would be equivalent to losing the use of his capital. He must, therefore, either exchange them for something that he can use - something that will be productive - yield an income; or else he must convert them into plate, jewelry, &c., in which form he can use them, and thus get an income from them.

It is, therefore, only when gold and silver coins have been wrought up into plate, jewelry, &c., that they can be said to be invested; because it is only in that form, that they can be used, be productive, or yield an income.

The income, which they yield, as investments - that is, the income, which they yield, when used in the form of plate, jewelry, &c., - is yielded mostly in the shape of luxurious pleasure - the pleasure of gratified fancy, vanity, or pride.

The amount of this income we will suppose to be six per centum per annum, on their whole value. That is to say, a person, who is able, and has tastes that way, will give six dollars a year for the simple pleasure of using one hundred dollars worth of plate, jewelry, &c.

This six dollars worth of pleasure, then, or six dollars worth of gratified fancy, vanity, or pride, is the annual income from an investment of one hundred dollars in gold and silver plate, jewelry, &c.

This, be it noticed, is the only income, that gold and silver are capable of yielding; because plate, jewelry, &c., are the only forms, in which they can be used. So long as they remain [*30] in coin, they cannot be used, and therefore cannot yield an income.

It is, then, only this six per centum annual income - this six dollars worth of pleasure - which gold and silver yield, as investments, that is really the cause of all the demand for them, in the market, and consequently of their passing as a currency.

This fact may now be assumed to be established, viz. that the origin of all the demand for gold and silver, as a currency -the essential reason why they have a market value, and sell so readily in exchange for other commodities - is because they are wanted, to he taken out of circulation, and converted into plate, jewelry, &c.., in which form only they arc capable of being used, or of yielding an income.

By this it is not meant that every man, who takes a gold or silver coin, as currency, takes it because he himself wants a piece of gold or silver plate, or jewelry; nor because lie himself intends or wishes to work it into plate or jewelry; for such is not the case, probably, with one man in a thousand, or perhaps one man in ten thousand, of those who take the coin. Each man takes it, as currency, simply because he can sell it again. But he can sell it again solely because some other man wants it, or because some other man will want it, in order to convert it into articles for use, lie can sell it, solely because the goldsmith, the silversmith, the dentist, &c., will sometime conic along amid buy it, take it out of circulation, and work it up into some article for consumption - that is, for use.

This final consumption, or use, then, is the mainspring that sets the coins in circulation, and keeps them in circulation, as a currency.

It is solely the consumption, or use, of them, in other articles than currency, that creates any demand for them, in the market, as currency.

It is, then, only the value, which gold and silver have, as productive investments, in articles of use, in plate, jewelry, &c., that creates any demand for them, and enables them to pass, as a currency. [*31]

This fact, then, being established, the following proposition is an inevitable deduction from it, viz. : that the activity of the demand for gold and silver coins, as a currency, depends wholly upon the activity of the demand for them, to be taken out of circulation, and converted into plate, jewelry, &c.

To illustrate this point, let us suppose a community of one million of people, shut out from the rest of tire world, having among them one million dollars of gold and silver coins, and having no gold or silver among them, except in coins. If but one dollar of these coins were to be taken out of circulation each year, and converted into plate, jewelry, or other articles of use, the demand for all the remaining coins, as a currency, would wholly, or substantially, cease. And why? Solely because the stock of coins on hand, (or the stock of gold and silver on hand,) would be equal to a million years’ consumption. The consequence obviously would be that gold and silver would have no value in the market; any more than cotton or iron would have a value in the market, if there were a million years’ stock on hand.

But if, instead of one dollar, an hundred thousand dollars were annually taken out of circulation, and converted into plate, jewelry, or other articles of use, (even though their place were annually supplied by an equal amount taken from the mines,) this demand for the coins, to be take out of circulation, would create a corresponding demand for them, as a currency. And why? Solely because the stock of gold and silver on hand, would be equivalent only to ten years’ consumption. This would give them a value, where before they had none; and enable them to circulate, as a currency, where before they could not.

Thus it is evident that the whole demand for gold and silver, as a currency, depends upon the demand for them for consump­tion, as plate, jewelry, &c. And consequently the activity of the demand for them, as a currency, depends upon the activity of the demand for them, for consumption. In other words, the activity of the demand for the coins, as a currency, depends upon the activity of the demand for them as investments, in articles of use. [*32]

And what is true of the coins, would be true also of the paper currency proposed. The activity of the demand for the Circu­lating Stock, as currency, would be just in proportion to the demand for the mortgages, or Productive Stock, as investments. As the coins would be in demand, as a currency, solely in pro­portion to the demand for them, to be invested in plate, jewelry, &c., so the paper currency would be in demand, as currency, solely in proportion to the demand for it, to be invested in mortgages, or Productive Stock. The demand for these two different kinds of investments, would govern the demand for the two different kinds of currency.

Now, in order to determine whether the paper currency pro­posed would be in as much demand, in the market, as the gold and silver coins circulating in competition with it, we have only to determine whether the community at large would wish to make annually as many investments, in the mortgages proposed, as they would in plate, jewelry, &c. Or, perhaps, rather, the true question is, whether as large a proportion of the whole stock of paper currency, in the market, would be annually taken out of circulation, and invested in the mortgages, as of the gold and silver coin in plate, jewelry, &c. If such would be the case, then one kind of currency would be just as much in demand as the other.

To illustrate this point, suppose that, in this country, one hundred millions of coin, and one hundred millions of the pro­posed paper currency, were in circulation, in competition with each other. And suppose that ten millions of the coin - that is, ten per centum of the whole stock ₀f coin - were annually wanted to be taken out of circulation, and invested in plate, jewelry, &c., and that, ten millions also of the paper currency - that is, ten per centum of the whole stock of paper currency- were annually wanted, to be taken out of circulation, and in­vested in the mortgages, the market demand for these two kinds of currency would be precisely alike.

Or suppose that one hundred millions of coin, and five [*32] hundred millions of the paper currency, were in circulation, in competition with each other; and that ten millions of the coin (ten per centum of the whole stock of coin) were annually wanted, to be taken out of circulation, and invested in plate, jewelry, &c., and that fifty millions of the paper currency (ten per centum on the whole stock of paper currency) were annually wanted, to be taken out of circulation, and invested in mortgages, the demand, in the market, for each of the two kinds of currency would still be precisely equal, in point of activity. That is to say, one kind of currency would circulate just as readily as the other.

On this theory, it is very easy to settle the question of the comparative demand for the two different kinds of currency; for, although the amount of paper currency might perhaps be fifty or an hundred times greater than the amount of gold and silver, yet the demand for the mortgages (Productive Stock) as invest­ments, would probably be fifty or an hundred times greater than the demand for plate, jewelry, &c., as investments.

The reason, why there would be this greater demand for the mortgages, as investments, is, that they would yield their income, in money, or currency, which could be appropriated to the sup­ply of any and all the various necessaries, wants, comforts, and pleasures, which money can buy; while the plate, jewelry, &c., as investments, yield their income mostly in the shape of a luxurious pleasure, which most persons do not highly appreciate, and which few persons can indulge in, to any considerable extent, without being compelled to pinch themselves in the matter of common necessaries and comforts.

Mankind, therefore, desire to have the great bulk of their property invested so as to yield an income in money; and only a very small portion of it in such articles of fancy as plate, jewelry, &c.

Under these circumstances, it is probable that if the paper currency were in circulation in competition with the coin, in the proportion of fifty or an hundred to one, the paper would be just [*33] as acceptable a currency as the coin; would be just as much in demand; would exchange just as readily for other commodities; and would equally well maintain its value in the market.

Thirdly.

Would the mortgages, or Productive Stock, be so desirable a form of investment, as to invite capital into it, and thus create a demand for the currency, with a view to having it redeemed by Productive Stock?

The answer is, that the Productive Stock would be a desirable investment, for the various reasons of security, profit, and con­venience.

1. As regards security, no kind of investment would exceed it.

2. As regards profit, the Productive Stock would pay two different dividends - one to Primary holders, and the other to Secondary holders.

The dividends to Primary Stockholders would be made up of the interest on the mortgages, and the profits of the banking. The rate of these dividends, therefore, will depend upon the rate of interest on the mortgages, and the amount of banking profits.

Probably the best rate of interest for the mortgages to bear, would be seven per centum. This would probably be sufficient to make the Productive Stock, in the hands of Primary holders, worth more than par of specie, even though there should be no profits at all from the banking business. But if there should be profits from the banking business, they would go to swell the dividends. So that the dividends to Primary Stockholders would never be less than seven per cent. so long as the banking business should simply pay expenses; and they would rise above that rate just in proportion to the banking profits. There can, therefore, be no doubt of the desirable char­acter of the Productive Stock, as investments, in the hands of Primary holders. [*34]

In the hands of Secondary holders, the Productive Stock would pay an unvarying rate of dividend, fixed by the Articles of Association.

The currency would represent the Productive Stock, in the hands of Secondary holders, and not in the hands of Primary holders; because the holders of the currency, by returning it for redemption, could generally expect to make themselves only Secondary holders of the Productive Stock. They could rarely expect to become Primary holders; and, therefore, would not return the currency for redemption, with that view.

Probably six per centum would be the best rate of dividend, to be fixed for the Secondary Stockholders to receive; for that is probably the rate, that would put the currency most nearly on a par with specie. If the rate were fixed at seven per cent., the Productive Stock, in the hands of Secondary holders, would be worth more than par of specie; and the consequence would be, that the currency would be returned for redemption, in the hope to get Productive Stock, rather than specie. And thus the currency could not be kept in circulation. On the other hand, if the rate of dividend, for the Secondary Stockholders, were fixed at only five per cent., that might prove insufficient to make the currency worth par of specie. Therefore six per cent. is likely to prove a better rate than either five or seven.

Supposing, then, the rate of dividend, for Secondary Stock­holders to receive, to be fixed at six per cent., the investment would be sufficiently inviting to make the currency worth par of specie. It would certainly be sufficient to attract much capital, as every day’s observation attests. As a six per cent. stock, it would stand on a par with United States stocks, and State stocks, (bearing six per cent. interest,) which are, at nearly all times, worth par of specie, and oftentimes more than par of specie, in the market.

3. As regards convenience, the Productive Stock would be equal to any in the market; especially in the hands of Secondary holders. It being in shares of, say, one hundred dollars each, [*36] and its income (in the hands of Secondary holders) being precisey fixed, its value is precisely known. The stock is, there­fore, in as merchantable forum as capital can be invested in. It is in as merchantable form as United States stocks, or State stocks, (bearing fixed rates of interest,) whelm arc nearly or quite as merchantable as bank bills themselves.

The objections, heretofore entertained against mortgages, as an investment, have no application whatever to stocks of this kind. Those objections have been as follows:

1. The inconvenience of making the investment, owing to the necessity of investigating titles, making valuations, &c., all of which processes are attended with delay, and with some danger of mistakes or frauds. In these bank stock mortgages, these delays and dangers would all be avoided; because the soundness of the titles, and the moderation of the valuations, would be notorious. It would be a necessity, on the part of the banks, to make them. so, as a condition precedent to the banks’ getting any circulation for their currency.

2. A second objection, to mortgages heretofore, has been, that each mortgage was in bulk, and could not be broken. It was, therefore, in a great degree, an unmerchantable article; because it was not always, nor even often, an easy timing to find a person wishing to make all investment of that particular amount. This objection, too, which was really a very serious one, is entirely obviated in time case of the Productive Stock; for here the mortgages are divided into shares of $100, or any other amount that may be desired; and thus put in as merchantable form, as any investment can possibly be in.

3. A third objection, to mortgages heretofore, has been, that neither the interest nor the principal of the investment could be realized from them (unless the debtor should choose to pay) without a tedious delay; taking possession of the premises; looking after rents and profits; giving the mortgagor the (per­haps a long time) for redemption; or incurring delay, expense, and trouble in advertising the premises, and selling them.  In [*37] the case of the Secondary holders of Productive Stock, every objection of this kind is obviated, for substantially the whole resources of the bank (which are morally certain to be ample) are pledged to the payment of the dividends promptly. And even as to the Primary holders, they are not likely to be personally troubled in the matter, for the Trustees attend to all business matters in relation to the mortgages. The only one, of the inconveniences just mentioned, that the Primary Stock­holders are ever likely to be subjected to, is a delay in receiving some portion of their dividends, if the mortgagors should not be prompt in the payment of interest. But this would so rarely occur as to prove a very slight objection, if any, to the invest­ment.

The result, then, obviously would be, that these stocks would be of the very first class, as investments. Their safety, their profit, and their merchantable character, would all conspire to make them preeminently desirable. And the consequence would be that the demand for them would be sufficient to make the currency constantly in demand, as a means of obtaining them.