A New Banking System.

by Lysander Spooner.

The reader will understand that the ideas presented in the following pages admit of a much more thorough demonstration than can be given in so small a s.p.a.ce. Such demonstration, if it should be necessary, the author hopes to give at a future time.

_Boston, March, 1873._

CHAPTER I.

A NEW BANKING SYSTEM.

Under the banking system--an outline of which is hereafter given--the real estate of Boston alone--taken at only three-fourths its value, as estimated by the State valuation[A]--is capable of furnishing three hundred millions of dollars of loanable capital.

[A] By the State valuation of May, 1871, the real estate of Boston is estimated at $395,214,950.

Under the same system, the real estate of Ma.s.sachusetts--taken at only three-fourths its estimated value[B]--is capable of furnishing seven hundred and fifty millions of loanable capital.

[B] By the State valuation of May, 1871, the real estate of the Commonwealth is estimated at $991,196,803.

The real estate of the Commonwealth, therefore, is capable of furnishing an amount of loanable capital more than twelve times as great as that of all the "_National_" Banks in the State[C]; more than twice as great as that of all the "National" banks of the whole United States ($353,917,470); and equal to the entire amount ($750,000,000, or thereabouts) both of greenback and "National" bank currency of the United States.

[C] The amount of circulation now authorized by the present "National" banks of Ma.s.sachusetts, is $58,506,686, as appears by the recent report of the Comptroller of the Currency.

It is capable of furnishing loanable capital equal to one thousand dollars for every male and female person, of sixteen years of age and upwards, within the Commonwealth; or two thousand five hundred dollars for every male adult.

It would scarcely be extravagant to say that it is capable of furnishing ample capital for every deserving enterprise, and every deserving man and woman, within the State; and also for all such other enterprises in other parts of the United States, and in foreign commerce, as Ma.s.sachusetts men might desire to engage in.

Unless the same system, or some equivalent one, should be adopted in other States, the capital thus furnished in this State, could be loaned at high interest at the West and the South.

If adopted here earlier than in other States, it would enable the citizens of this State to act as pioneers in the most lucrative enterprises that are to be found in other parts of the country.

All this capital is now lying dead, so far as being loaned is concerned.

All this capital can be loaned in the form of currency, if so much can be used.

All the profits of banking, under this system, would be clear profits, inasmuch as the use of the real estate as banking capital, would not interfere at all with its use for other purposes.

The use of this real estate as banking capital would break up all monopolies in banking, and in all other business depending upon bank loans. It would diffuse credit much more widely than it has ever been diffused. It would reduce interest to the lowest rates to which free compet.i.tion could reduce it. It would give immense activity and power to industrial and commercial enterprise. It would multiply machinery, and do far more to increase production than any other system of credit and currency that has ever been invented. And being furnished at low rates of interest, would secure to producers a much larger share of the proceeds of their labor, than they now receive.

All this capital can be brought into use as fast as the t.i.tles to real estate can be ascertained, and the necessary papers be printed.

Legally, the system (as the author claims, and is prepared to establish) stands upon the same principle as a patented machine; and is, therefore, already legalized by Congress; and cannot, unless by a breach of the public faith, any more be prohibited, _or taxed_, either by Congress or this State, than can the use of a patented machine.

Every dollar of the currency furnished by this system would have the same value in the market as a dollar of gold; or so nearly the same value that the difference would be a matter of no appreciable importance.

The system would, therefore, restore specie payments at once, by furnishing a great amount of currency, that would be equal in value to specie.

The system would not inflate prices above their true and natural value, relatively to specie; for no possible amount of paper currency, every dollar of which is equal in value to specie, _can_ inflate prices above their true and natural value, relatively to specie.

Whenever, if ever, the paper should not buy as much in the market as specie, it would be returned to the banks for redemption, and thus taken out of circulation. So that no more could be kept in circulation than should be necessary for the purchase and sale of property at specie prices.

The system would not tend to drive specie out of the country; although very little of it would be needed by the banks. It would rather tend to bring specie into the country, because it would immensely increase our production. We should, therefore, have much more to sell, and much less to buy. This would always give a balance in our favor, which would have to be paid in specie.

It is, however, a matter of no practical importance whether the system would bring specie into the country, or drive it out; for the volume and value of the currency would be substantially unaffected either by the influx or efflux of specie. Consequently industry, trade, and prices would be undisturbed either by the presence or absence of specie. The currency would represent property that could not be exported; that would always be here; that would always have a value as fixed and well known as that of specie; that would always be many times more abundant than specie can ever be; and that could always be delivered (in the absence of specie) in redemption of the currency. These attributes of the currency would render all financial contractions, revulsions, and disorders forever impossible.

The following is

AN 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, except when redeemed by specie, or by being received in payment of debts due the banks.

The best capital will probably be mortgages and railroads; and these will very likely be the only capital which it will ever be expedient to use.

Inasmuch as railroads could not be used as capital, without a modification of their present charters, mortgages are probably the best capital that is immediately available.

Supposing mortgages to be the capital, they will be put into joint stock, held by trustees, and divided into shares of one hundred dollars each.

This stock may be called the PRODUCTIVE STOCK, and will be ent.i.tled to the dividends.

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

The interest on the mortgages should be so high--say six or seven per cent--as to make the PRODUCTIVE STOCK worth ordinarily par of specie in the market, _independently of the profits of 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, _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 currency, as our bank bills are now.

In law, this _Circulating Stock_ will be in the nature of a lien on the PRODUCTIVE STOCK. It will be ent.i.tled to no dividends. Its value will consist, _first_, in its t.i.tle to be received in payment of all dues to the bank; _second_, in its t.i.tle to be redeemed, either in specie on demand, or in specie, with interest from the time of demand, before any dividends can be made to the bankers; and, _third_, in its t.i.tle, when not redeemed with specie, to be redeemed (in sums of one hundred dollars each) by a transfer of a corresponding amount of the capital itself; that is, of the PRODUCTIVE STOCK.

The holders of the _Circulating Stock_ are, therefore, sure, _first_, to be able to use it (if they have occasion to do so) in payment of their dues to the bank; _second_, to get, in exchange for it, either specie on demand, or specie, with interest from the time of demand; or, _third_, a share of the capital itself, the PRODUCTIVE STOCK; a stock worth par of specie in the market, and as merchantable as a share of railroad stock, or government stock, or any other stock whatever is now.

Whenever PRODUCTIVE STOCK shall have been transferred in redemption of _Circulating Stock_, it (the PRODUCTIVE STOCK) may be itself redeemed, or bought back, at pleasure, by the bankers, on their paying its face in specie, with interest (or dividends) from the time of the transfer; and _must_ be so bought back, before any dividends can be paid to the original bankers.

The fulfilment of all these obligations, on the part of the bank, is secured by the fact that the capital and all the resources of the bank are in the hands of trustees, who are legally bound--before making any dividends to the bankers--to redeem all paper in the manner mentioned; and also to buy back all PRODUCTIVE STOCK that shall have been transferred in redemption of the circulation.

Such are the general principles of the system. The details are too numerous to be given here. They will be found in the "_Articles of a.s.sociation of a Mortgage Stock Banking Company_," which the author has drawn up and copyrighted.