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• A History of Banking In Great Britain;
• Chapter I.: Banking In England.
• Section I.: A Record of Beginnings.
• Section II.: Foundation of the Bank of England.
• Section III.: An Era of National Development.
• Section IV.: State of the Irish Currency.
• Section V.: Failure of Currency Reform—inflation and Reaction.
• Section VI.: The Committee On Banking of 1840.
• Section VII.: On the Bank Acts of 1844 and 1845.
• Section VIII.: Commercial Crises.
• Section IX.: Monetary Panics.
• Section X.: General Conclusion.
• Chapter II.: Banking In Scotland.
• Chapter III.: The Theory and Mechanism of Banking.
• Chapter IV.: Definitions of Economic Terms.
• Chapter V.: The Theory of Value.
• Section I.
• Section II.
• Section III.
• Chapter VI.: The Theory of Credit.
• Section I.
• Section II.
• Banking In Russia.
• Chapter I.: The Early Stages of Money and Credit.
• Section I.: Prefatory.
• Section II.: Introduction of Paper Money.
• Section III.: Financial Reconstruction Under Alexander II. And the Founding of the State Bank.
• Chapter II.: Methods and Operations of the State Bank.
• Chapter III.: Banking Vicissitudes From 1862 to 1875.
• Chapter IV.: The Eastern War Period.
• Chapter V.: Private Banks.
• Chapter VI.: The Bourse.
• Chapter VII.: The Precious Metals.
• Chapter VIII.: Foreign Exchanges.
• Chapter IX.: The Debt and Finances of Russia.
• History of Savings-banks In the United States.
• I.
• II.
• III.
• IV.
• V.

SECTION III.

FINANCIAL RECONSTRUCTION UNDER ALEXANDER II. AND THE FOUNDING OF THE STATE BANK.

THE reign of Alexander II. (1855-1881) was destined to be one of great reforms. It was not merely the emancipation of the serfs, the opening of the courts to the public, the establishment of the jury system and of judicial elections, the abolition of the monopoly in brandies, and the convocation of provincial legislatures (Zemstvo) that made memorable the earlier years of this brilliant reign. Sound ideas seem to have prevailed also in the domain of economics and finance.

The new regime went seriously to work to release the State from its position as the sole source of credit, and to emancipate commerce and industry from governmental tutelage exercised through a system of institutions entirely under control of the State. Moreover, the Government was no longer anxious to loan to landed proprietors now that the security they offered was about to disappear. The basis of landed credit had been the number of “souls,” of serfs, dwelling upon the estate mortgaged. The emancipation of these in 1861 was going to put an end to that security, and nothing would be left upon which the State could safely base a loan. The contemplated reforms began vigorously at this point, and the first step was to clear the ground of those institutions through which the State had acted as the chief lender, and also as the chief borrower, of the Empire. These institutions were of two classes; those acting under the supervision of the Minister of Finance and the Committee of Credit Establishments, and those in charge of the Imperial Board of Education.

In the first category were: (a) The Sinking Fund Commission, whose duties are indicated by its title; (b) the Imperial Loan Bank, which received deposits on interest and loaned them on country and city real estate for terms of ten, twenty-eight, and thirty-three years; (c) the Imperial Commercial Bank, which received deposits on interest, both for transfer and for safe-keeping, and loaned on securities, merchandise, and public funds; and (d) the bureau for the issue of bills, whose duties are indicated by its name. The Imperial Board of Education had under its charge: (a) the trust depositories (caisses de dépôts et de consignations) at St. Petersburg and Moscow, receiving deposits on interest and loaning them for long terms on real estate and public funds; (b) the widows’ banks; (c) lombards, loaning on personal property, jewels, etc.; (d) the savings-banks. Thus it appears that every transaction having any reference to borrowing or lending was under the control of some State institution, and for all those charitable and credit establishments the Treasury was responsible. It is needless to dwell at length upon the fatal defect of this system. As a matter of fact, the State was in a position of chronic insolvency, for deposits payable on demand or shortly after demand were secured only by long-term loans, not to speak of the very serious inroads which the needs of the State itself had made upon those deposits. The credit establishments having undertaken to pay interest to depositors at a fixed rate, and the war having increased the mass of bills of credit by nearly R. 500,000,000, this strange anomaly presented itself in 1857, that the State had in its coffers some R. 180,000,000 of deposits on interest for which it could find no employment.*

An imperial decree of July 20, 1857, reduced the interest rate from five to four per cent. On January 5, 1859, the various State institutions had outstanding loans aggregating more than R. 1,038,000,000, of which R. 37,900,000 were for less than a year, R. 31,400,000 for one to fifteen years, and R. 969,000,000 for more than fifteen years. The bank reserves aggregated R. 68,800,000, against which individual depositors had claims amounting to R. 725,100,000, while there was due to the national treasury R. 242,000,000, or R. 967,100,000 in all. Thus the reserves represented less than one-fourteenth of the claims against the banks, and even if the State had been willing to waive its demands there yet remained R. 725,000,000 of claims covered by a reserve of R. 68,800,000, or less than ten per cent., and part of it was in public funds. The practice of loaning on mortgage was stopped; the interest on deposits was reduced to two per cent.; and temporary deposits, payable on demand, were changed into deposits for a long term by the issue of four per cent. State bills (March, 1859). This change not proving acceptable to depositors, five per cent. bills were offered to them in September, 1859, payable in thirty-seven years and obtainable only in exchange for certificates of deposit. These measures and a long list of other conversions and new issues, together with a sterling three per cent. loan of £7,000,000, were partially responsible for the floating debt which weighed upon the State through the instrumentality of its various fiduciary establishments. By the close of 1859, this debt had been reduced by R. 638,555,023, and then stood at R. 328,550,000. At this point, the State may be said to have emerged from the worst of its difficulties, for about half of this last amount consisted of deposits belonging to corporations, municipalities, and public institutions, which were not likely to demand immediate payment. A year later (December 31, 1860), these deposits had been reduced to R. 191,900,000.

The liquidation of the past being thus nearly completed, the next step was the founding of the State Bank by the ukase of May 31, 1860, in its present form, barring such modifications as were made in 1894. The laws under which it was formed aimed to make it an essentially commercial establishment. It was forbidden to loan on mortgage security, and was to conform closely to the practice of the Bank of England; acting as cashier for the national treasury, but having no other connection with it. There was to be no secrecy about its operations, its balance-sheets were to be published weekly and delivered to all applicants. So great was the desire to make of the bank a credit establishment, modeled after the best European institutions, that it was given a capital stock of R. 15,000,000 and a reserve fund of R. 3,000,000, in spite of the fact that all its liabilities were guaranteed by the State. A résumé of the Bank’s regulations is here presented; which need be but brief, as the new regulations adopted in 1894 will be stated on subsequent pages.

In 1860, the State Bank was founded to invigorate commercial undertakings and to consolidate the note circulation (Art. 1); and, to that end, it was provided (Art. 2), with the aforenamed capital of R. 15,000,000 and a reserve of R. 3,000,000, backed by all the resources of the State treasury. Its profits (Art. 3) were to be devoted to the payment of the five per cent. Bills of Credit and the amount loaned by the State to the former credit institutions, as well as to establish a reserve against possible losses. It was forbidden to use individual deposits for State purposes (Art. 9). Idle funds in the hands of State or provincial departments were to be kept on deposit with the Bank (Art. 12). The Bank was empowered to buy and sell State securities, but the total amount on hand should never exceed its capital stock.* The State was to be responsible, to the full extent of its resources, for all the undertakings of the Bank, and rentes were to be delivered to the latter to enable it to pay the amounts borrowed by the State from its depositors, the Bank being primarily liable for these (Art. 16). Commercial loans and discounts were not to be made for a longer term than nine months (Art. 23). No bills were to be discounted unless they represented a commercial transaction (Art. 27). It was made the duty of the courts to facilitate the sale of goods belonging to insolvent debtors of the Bank (Art. 39). The Bank was authorized to buy gold and silver at home or abroad (Art. 40). It could accept deposits for safe-keeping (Art. 48), or on accounts current (Art. 53), and deposits on interest (Art. 60). Every change in the conditions under which these deposits were received was to be published one month in advance (Art. 63). The Bank could loan on public funds, on the precious metals, and on merchandise (Art. 71); but these loans were not to exceed seventy-five or at most eighty-five per cent. of the value of the security as shown by bourse quotations (Art. 73). Upon certain classes of merchandise, the loans were not to exceed fifty or sixty per cent. of the value; and the term of the loan was to be not less than one nor more than six months (Art. 89). All the executive officers of the Bank were to be appointed by the State; but representatives of the nobility and of commerce were to be admitted to the directory, with a deliberative voice regarding certain transactions.

In order to emphasize the somewhat modernized character of the institution, there was placed at its head, not a public functionary, but an old banker, Baron Stieglitz, a business man whose fortune was such that it should have insured him the utmost independence of action, and who gave up his banking business to accept the position of Governor of the Bank of Russia. He devoted himself entirely to the work, but, unfortunately, it must be candidly said that he was not equal to the task. True, he was no bureaucratist, but still less was he a financier. He was an honest parvenu, humble and timid, very deeply impressed with the importance of his office and the honor conferred upon him, but not sufficiently imbued with a sense of the responsibilities of his new position; or perhaps it would be more accurate to say that he looked at his duty only from one point of view, that of the Government under which he held office. We may dismiss Baron Stieglitz with the remark that he quitted his position in the fall of 1866.

The Baron had as assistant, and afterward as successor, M. Eugene Lamanski, the ablest financier and banker in all Russia; a bureaucratist, indeed, but at the same time a man of education. He was very bold in his conceptions—to some of which we shall have occasion to allude later—but not consistent in their application. Was he the author of the new regulations of the Bank? We believe not; but he was bound to submit to them. The current was then setting in another direction, and M. Lamanski would have asked nothing better than to be allowed to float with it. His aspirations and convictions, founded upon a thorough understanding of the situation, and upon ideas which were entirely modern, had to yield to official exigencies, and he bravely undertook to make of the Bank an establishment modeled, as far as possible, upon European institutions of a like kind. We are about to see him at this work in his first semi-annual report of the business of the Bank. The extract from that report which we present shows that, from the beginning, the Bank was simply a branch of the national administration, and that its commercial business was of very small importance. The former credit establishments were closed, but the Bank had merely taken their place as part of the State machinery, and—the statement is true even at the present time—at thirty-five years from its beginning it has not materially altered its position or its methods.

The next chapter exhibits the condition of the Bank after the first six months of M. Lamanski’s management.

CHAPTER II.

METHODS AND OPERATIONS OF THE STATE BANK.

THE “Journal de St. Petersbourg” of August 20 (September 20) contains a report of the operations of the State Bank for the second half of the year 1860. As the document comprises no less than ninety quarto pages, we can here present only a brief condensation of its more important features.

The directors announce that, in publishing an account of the first half-year’s business of the Bank, they consider it advisable to enter into certain details touching not only the principles involved and the progress made by the Bank itself, but also the operations with which it was intrusted for account of the Treasury and those which it was authorized to undertake in order to stimulate trade and industry.

The business of the Bank is divided into two main categories. To the first belong all its operations for account of the State; to the second, its commercial transactions proper. The Bank having entered upon both in the middle of the year, and having taken over all the accounts of the existing branches and of the Bank of Commerce, as they respectively stood on July 1, 1860, the directors found it indispensable, both for the symmetry of the report and as furnishing a just basis of comparison with the business of preceding years, to place in this document, besides the detailed figures relating to the operations of the Bank, certain totals showing the transactions of the Bank itself and those of the branches.

Before entering into the details of these operations the directors furnish the following figures of the liquidation of the accounts of the former credit institutions. According to the balance-sheet of the Bank of Commerce, the State Bank took over on July 1, 1860, as liabilities:

On the other hand, the Bank received from the Bank of Commerce, as assets:

In addition to the accounts of the late Bank of Commerce, which it replaced, and its branches, the State Bank had to take over:

1. All the deposits held by the various credit institutions of the Empire.

2. All the accounts of the 4 per cent. Consolidated Loan for the cancellation of a corresponding proportion of the Treasury debt to the State Bank.

3. All the deposits converted into 5 per cent. bills of the State Bank.

4. The accounts of the Commission for the Issue of Bills of Credit, which now became a department of the State Bank.

5. All the loans made to the Treasury, or to public departments by the credit institutions, to be consolidated into a general account of the Treasury’s debt to the State Bank.

6. The capital stock of the Loan Bank, which the State Bank was to turn to the account of its capital and reserve.

During the second half of the year 1860, the State Bank had finished its settlement with the credit institutions of St. Petersburg only. As to the Commission for the Issue of Credit Bills, the R. 704,904,927 of those bills in circulation on the day of the consolidation of its accounts with those of the State Bank were carried to the debit of the latter, and these were carried to its credit, for account of the redemption fund, R. 92,533,777 in gold and silver, coin and bullion, and in public funds. The R. 612,371,149 forming the surplus of bills in circulation over the redemption fund were brought into the account as a non-interest-bearing debt of the Treasury. The credit bills issued in 1859 to strengthen the cash accounts of the credit institutions, and charged to them at that time, were stricken out of their accounts in 1860, as an offset against their loans to the Treasury, so that the latter became sole debtor to the full extent of credit bills in circulation. Since then, all the business of issuing, exchanging, and redeeming credit bills has become part of the duty of the State Bank.

The liquidation of the affairs of the Loan Bank and of the Lombard of St. Petersburg gave the following general results:

The State Bank entered on the debit side of its account:

To balance these amounts entered to the credit of the respective accounts, the State Bank received:

As the Bank of Commerce was creditor of the Loan Bank to the extent of R. 174,186,574 on account of deposits, interest included, when all the preceding amounts were transferred to the accounts of the State Bank, that claim of the latter against the Loan Bank was settled by the following items: R. 162,549,039 carried over to the liquidation account as above (No. 11); R. 4,000,000 owing by the Bank of Commerce to the Commission of credit bills in exchange for an equal amount deducted from the deposits of said Bank of Commerce with the Loan Bank; R. 5,285,653 of the interest-bearing funds of the latter transferred to the State Bank; and lastly, R. 2,351,881, being the interest due to the Bank of Commerce on its deposits for 1859; total, R. 174,186,574. Immediately after having finished that liquidation, the State Bank began to separate its commercial business from that transacted for the account of the Treasury; to this end it was necessary: (1) To set aside as capital stock, R. 15,000,000, and as a reserve fund, R. 1,000,000; (2) to carry to the credit of the Treasury all the amounts not belonging to the Bank; and (3) to hold the surplus as a security for such outstanding credits as were considered doubtful, and also to cover loans not sanctioned by the new regulations of the Bank.

That sum, carried to a temporary account, was not, however, altogether available, because it had to be used to secure doubtful credits and transactions not authorized by the new regulations, as well as several items of expense to be charged against the Reserve Fund and the profits of the Loan Bank, and the income of the Lombard. By order of the Minister of Finance, there was deducted from that total R. 14,975,835; namely, R. 12,000,000 to counterbalance an equal sum owing by the Treasury for credit bills; R. 1,601,727 for protested bills of exchange belonging to the Bank of Commerce, in order to close that account; R. 175,799 for loans on merchandise not paid to said bank at maturity; R. 1,174,500 for loans contrary to the regulations, but made in accordance with the orders of the Sovereign, and R. 23,809, surplus of expenses arising from loans on merchandise. As a result of these deductions, the amount remaining at the disposition of the Treasury on January 1, 1861, was R. 10,106,524.

The transactions which the Bank undertakes for account of the Treasury have reference to: (1) The credit bills; (2) the repayment of deposits, principal and interest; (3) the payment of coupons and the redemption of the 5 per cent. Bank bills; (4) various conversions into bonds of the 4 per cent. Consolidated Loan; (5) the collection of interest on loans to meet the above payments; (6) the accounts of the Treasury debt and of the Lombard loans.

1.Credit Bills.—On January 1, 1860, there were R. 678,211,187 of credit bills in circulation. During that year, R. 45,679,306 were issued, including R. 7,179,306 against deposits of specie; R. 10,913,924 were withdrawn from circulation, including R. 9,714,322 paid in specie. There were, therefore, R. 712,976,569 of credit bills in circulation on January 1, 1861.

On January 1, 1860, the fund for the redemption of credit bills amounted to R. 95,674,981. This, as has just been noted, was increased by R. 7,179,315 and decreased by R. 9,969,864 during the year, so that on January 1, 1861, it amounted to R. 92,884,431, of which R. 43,123,731 was in gold coin, R. 8,482,078 in gold bars, R. 32,729,198 in silver coin, and R. 8,549,424 in public funds. This redemption fund being deducted from the total of credit bills in circulation, the balance, amounting to R. 620,092,137, formed the non-interest-bearing debt of the Treasury. During that year 18,847,000 new credit bills were printed for an amount of R. 42,253,000; 7,757,315 old bills, aggregating R. 36,888,950 were burned. The Bank received from boards of finance and local treasuries R. 728,240 of copper coin, and from the national treasury R. 110,000 in subsidiary silver coin, to be exchanged for credit bills. On January 1, 1861, R. 38,876 of the former and R. 15,250 of the latter still remained in the hands of the Bank.

2.Deposits at interest; Deposits with former credit institutions and the Bank of Commerce.—On July 1, 1860, the sum total of deposits with the State Bank, including those received from the Bank of Commerce, the Loan Bank, the Lombard, and the balance of deposits after conversion into 5 per cent. bills of the Bank, amounted to R. 288,978,318. Of that amount, during the second half-year R. 97,058,000 were converted into bonds of the 4 per cent. Consolidated Loan and into 5 per cent. bills of the Bank. There remained on January 1, R. 191,920,318 of deposits originally made with various credit institutions of St. Petersburg, but for which the State Bank was now liable. Prior to 1860, the branches of the Bank of Commerce at Kiev and Odessa were the only ones receiving deposits on interest, and on January 1st of that year they had R. 33,683,084 of deposits. All the branches having then been authorized to accept such deposits, the receipts for 1860 were R. 16,568,711 by the branches in Moscow, Archangel, Kharkov, Kiev, Riga, Catherinebourg, and Odessa; the withdrawals were R. 20,307,436, so that there remained R. 29,944,359 in the branches of the State Bank on January 1, 1861.

3.Deposits with the State Bank.—In accordance with its regulations, the Bank receives interest deposits on certain conditions at rates of interest fixed by itself according to the state of business and the length of time for which the deposit is to remain. The acceptance of deposits under the new conditions began at the Bank at its opening, and later at its branch in Moscow. At the other branches it did not begin until 1861. In 1860, the Bank received deposits amounting to R. 29,982,319, of which R. 2,174,757 were withdrawn during the year; so that at the beginning of 1861 there was a balance of R. 27,807,561. That amount was made up as follows: deposits to be withdrawn at will and bearing three per cent. interest, R. 19,038,352; deposits for three to five years and yielding four per cent., R. 2,409,509; deposits for six to ten years and yielding four and a half per cent., R. 6,359,698.

The branch at Moscow received deposits aggregating R. 4,217,072, of which R. 44,030 was withdrawn during the year; balance on January 1, 1861, R. 4,173,042. Among those deposits appeared a certain number of bills of former credit institutions and even bills of the Lombard of Moscow and of several public charitable establishments. After settlement had been made with these establishments and with the Lombard, the Bank (on January 1st) was still their creditor for R. 667,359, and its Moscow branch for R. 545,012.

The old Bank of Commerce kept a special account for interest due but unclaimed by the depositors, on which account the State Bank was debited with R. 13,594,228; on the same account R. 3,115,924 was carried to its credit as profits of the Bank of Commerce. That account must henceforth change its form, and the amount of unclaimed interest accumulated to January 1, 1860 (the date at which the payment of compound interest was stopped), must be carried to the deposits account, when the liquidation of the transfer to the Bank of all the deposits of the other credit institutions is completed.

4.Five Per Cent. Bills of the State Bank.—Before the first of July the Bank of Commerce had converted into five per cent. bills of the State Bank deposits amounting to R. 91,223,545; together with those that were transferred to it for purposes of this conversion in the second half-year by the Loan Bank, the Lombard of St. Petersburg, and the branch at Odessa, the total amount of those deposits being R. 155,114,910. On January 1, 1860, the branches of the Bank of Commerce at Kiev and Odessa had R. 6,327,652 of deposits converted into five per cent. bills of the Bank, and the conversions made during the year were R. 3,785,166. While this conversion was proceeding, the Bank received in sundry small amounts R. 148,516, and repaid (R. 31,165 deposited anew being deducted) R. 1,134,862 to the depositors.

Up to January 1, 1861, the total value of the five per cent. bills of the State Bank exchanged against deposits on interest amounted to R. 276,578,500. During the second half-year, the Bank exchanged R. 10,740,200 of these bills for the same amount in bills of other denominations.

5.Bonds of the Consolidated Loan.—It is the duty of the Sinking Fund Commission to provide for the interest on these bonds, but the State Bank is intrusted with the collection of the amounts paid for them, with the conversion of the deposits of credit institutions into said bonds, and with the delivery of the bonds themselves. The total amount collected by the Bank from the Sinking Fund Commission, the Loan Bank, and the Lombard of St. Petersburg for these purposes and also for the continuation of the exchange until January 1, 1861, was R. 59,609,340. The total amount of deposits converted into these bonds must form a new debt registered in the ledger of the Public Debt, and must be deducted from the debt of the Treasury to the Bank. The latter, not having yet received the total amount of the subscriptions, had a claim of R. 109,313,487 upon that account on January 1, 1861.

6.Debt of the Treasury for Loans from Credit Institutions.—The Bank received from the Loan Bank and from the Lombard of St. Petersburg claims against the Treasury aggregating R. 262,510,589; it recovered in cash (R. 23,856,297) and by offsetting several accounts, R. 158,612,170, which leaves a balance of R. 103,898,418.

7.Long-Term Debts of Individuals and Corporations to the Old Credit Institutions.—The Lombard of St. Petersburg remains intrusted with the recovery of these debts for account of the State Bank, and they constitute a guarantee fund for the payment of its five per cent. bills. The total thus carried to its credit, both from the Loan Bank and the Lombard, amounted (unpaid arrears included) to R. 232,876,418. The Bank has recovered R. 1,492,671; balance due, R. 231,383,746.

8.Loans to Credit Institutions.—On July 1, 1860, claims against the credit institutions amounting to R. 4,014,121 were transferred to the State Bank; during the second half-year the Bank made further advances to them of R. 21,331,598; of that amount, R. 19,290,281 was settled by a balance of accounts, so that, on January 1, 1861, the claims of the Bank on that score amounted to R. 6,055,438.

9.Interest on Long-Term Loans.—As a fund for the payment of interest on deposits and on its five per cent. bills, and of certain expenses for account of the Treasury which formerly had to be deducted from the profits of the Loan Bank, the interest on all loans made by the credit institutions must be remitted to the Bank; but it is carried to the credit of the Treasury, on account of which the above-mentioned payments are made, and the balance, if any, goes to reduce its debt to the Bank. During the year 1860, the Bank received only interest on loans made by the credit institutions of St. Petersburg, although the payment of coupons of the five per cent. bills fell almost entirely upon it. The Bank will recover the remainder when it makes its final settlement with the credit institutions outside of St. Petersburg. The amount the Bank collected for interest during 1860 was R. 17,690,946, from which have been deducted R. 5,285,643, the interest due the Bank of Commerce from the Loan Bank at the time of the liquidation, and R. 238,702 for sundry expenses on Treasury account.

10.Interest Paid to Depositors.—During the second half of 1860, the State Bank paid to depositors interest amounting to R. 3,432,439; the Bank of Commerce had paid R. 13,817,673 during the first half of the year.

11.Payment of the Coupons of the Bank’s Five Per Cent. Bills.—The first coupon of these bills was due on November 1st; up to the end of the year R. 7,043,168 of these coupons was paid by the Bank or brought into its account for payments made by the branches and by local treasuries. Thus, coupons upon about R. 93,000,000 were not presented and will have to be paid during the succeeding year. This statement is not entirely accurate, however, because some coupons paid in 1860 in the provinces were brought into the account of the Bank at the beginning of 1861.

12.Collections for Treasury Account.—The doubtful debts having been deducted from the amounts carried to the credit of the Treasury, the latter is credited with all the collections since made by the Bank on debts of that kind. Up to January 1, 1861, those collections amounted to R. 21,167.

13.Profit and Loss Account of the Treasury.—According to the balancesheet of the Bank of January 1, 1861, the following items were carried to the credit of the profit and loss account of the Treasury:

The same account was debited as follows:

So that there was a surplus of R. 8,538,961 at the disposal of the Treasury. That amount cannot, however, be carried definitively to the credit of the Treasury for the following reasons: (1) A very considerable quantity of coupons of the five per cent. bills due in 1860 have not yet been presented by their holders; (2) several doubtful debts due the branches of the Bank have not been deducted from the amounts with which the Treasury was credited;* (3) certain expenses for account of the Treasury, to be charged against the reserve fund of the late Bank of Commerce, had not been settled at the close of 1860.

The directors proceed next to the commercial transactions of the Bank, taking them up in the following order:

1.Transfers of Cash Accounts.—When the State Bank began business its cash capital was represented by R. 3,629,947. The changes in the cash accounts during 1860 are presented as follows:

Furthermore, R. 368,355 was transferred from the account of the Bank to the account of trust deposits. On January 1, 1861, the cash on hand amounted to R. 10,104,891, or R. 6,475,143 more than on July 1, 1860, and R. 7,221,613 more than on January 1, 1860. The branches had cash on hand amounting to R. 9,265,666, or R. 2,484,225 more than on January 1, 1860. Thus the total business of the Bank and its branches represents R. 1,177,005,977.

2.Capital Appropriated to the Branches.—Of the fifteen millions of capital, R. 7,400,000 has been appropriated to the branches, in the following proportions: R. 4,000,000 for the branch at Moscow, R. 1,000,000 for the branch at Odessa, R. 550,000 each for the branches at Riga and Archangel, R. 500,000 for the branch at Kiev and a like amount for that at Catherinebourg, and R. 300,000 for the branch at Kharkov. In the year 1860, R. 500,000 was placed at the disposal of each of the temporary offices which the branches established during the fairs at Irbite, Rybinsk, Nijni-Novgorod, and Poltava.

3.Deposits in Trust.—The total of these deposits, in articles of gold and silver, in Treasury notes and cash (including those existing on January 1, 1860), amounted during the year to R. 801,541, of which R. 433,186 has been returned; so that, at the opening of the year 1861, there was a balance remaining of R. 368,355, which sum was subtracted from the cash account, in which manufactures of gold and silver appear for R. 56,355; the balance consists of Treasury notes. The acceptance in trust of interest-bearing securities not having begun until September 13, the Bank, up to January 1, 1861, had received but 8909 of such deposits, of a nominal value of R. 2,971,412. Of these, 331, valued at R. 76,950, were returned, leaving a balance of 8578 deposits, valued at R. 2,894,462, consisting mostly of public funds.

4.Deposits for Transfer.—Before the introduction of accounts current, which occurred shortly after the State Bank was established, the place now occupied by them was filled at the Bank of Commerce by deposits for transfer; these deposits were availed of both to transfer funds through the medium of the Bank and to secure the safe-keeping of Treasury notes under pretence of transfer. On July 1st the State Bank received from the Bank of Commerce R. 1,739,456 of those deposits, and before the opening of its accounts current this sum had been increased by R. 4,480,247. Repayments, transfers to the branches, the buying of transfer duties, and, finally, the transference of Treasury notes to accounts current have reduced that sum by R. 6,215,918. When accounts current were opened, the account of deposits for transfer was closed, and the balance carried to a new account under the name of:

5.Accounts of Sums Held in Trust.—This was debited with R. 3876. This sum, together with new deposits made since by individuals having no accounts current (withdrawals being deducted), leaves a balance on that score amounting on January 1, 1861, to R. 13,134.

6.Accounts Current of the State Bank.—These accounts, now introduced for the first time in Russia, furnishing, as they do, by the use of cheques, such great facilities for prompt payment and the safe-keeping of money, have increased with remarkable rapidity from the beginning. Not only individuals and corporations, but public departments also have taken advantage of the services of the Bank in this regard. On January 1, 1861, the number of accounts current was 133. Since the month of September, when the practice began, the Bank has received in accounts current R. 102,314,127, and has paid against cheques deposited with its branches and those turned into the Bank itself for transfer from one account to another, R. 72,000,936, so that on January 1, 1861, the Bank was debited in accounts current with R. 30,313,190, or R. 28,479,667 more than the deposits for transfer in the Bank of Commerce at the beginning of 1860.

7.Account of Transfers with the Branches.—During the second half of 1860, the branches were credited at the Bank with R. 44,031,160 arising from transfers (including their credit on July 1st), and debited on the same account with R. 26,678,505, leaving at the beginning of 1861 a balance to their credit of R. 17,352,655. The changes arising out of transfers between the Bank and its branches produced the following results during the first and second half respectively of the year 1860: During the second half-year, the transfers from the Bank to its branches, made by order of individuals, showed an increase, as compared with the first half-year, of R. 3,750,000, namely, R. 12,997,758, against R. 9,244,995; the transfers from the branches to St. Petersburg increased by R. 800,000, namely, R. 2,153,731, against R. 1,273,019; and, finally, the remittances in silver from the Bank to its branches to strengthen their cash accounts, decreased by nearly R. 9,500,000—that is, R. 11,277,250, against R. 20,734,750. These favorable results were attributed partly to the reduction of the rate of discount on transfers and partly to the increase in the cash resources of the branches arising from the interest deposits of individuals and from deposits by local treasuries of their unemployed funds for Treasury account. Another result of the reduction of the discount rate on transfers was an increase in the profits of the Bank from that source, notwithstanding the fact that no discount is charged on transfers made for the Treasury.

8.Transient Accounts.—For the regularity of its bookkeeping, the Bank opened an account in which are entered all sums received by mail until they are in regular course carried to the proper accounts, and also the sums ordered to be paid, but not yet actually delivered to the payee. For the second half-year that account showed R. 23,576,880 of receipts and R. 23,052,432 in disbursements.

9.Discount of Bills of Exchange.—According to its balance-sheet of January 1, 1860, the Bank of Commerce then had on hand R. 27,556,351 in bills of exchange, of which R. 13,459,371 were in the Bank itself and R. 14,096,980 in its branches. During the first half-year 8559 bills of exchange were discounted for R. 9,737,499.03; during the second half-year, 10,380 bills for R. 15,557,954.80, and coupons of 5 per cent. bills for R. 65,237.41. Total, R. 25,360,691.24. The eleven branches of the Bank discounted within the year 23,991 bills of exchange, aggregating R. 46,670,539. Thus the total was 42,930 bills, valued at R. 72,031,230; an increase of R. 24,402,950 over the transactions of 1859. Of the total of bills discounted (deduction being made of protested and duly honored bills, and of offsets for loans made by special order), the Bank and its branches had still in their portfolio on January 1, 1861, bills for R. 32,141,619, or R. 4,585,267 more than on January 1, 1860.

10.Protested Bills of Exchange.—The face value of the bills protested during the year (including bills for R. 2,400 on which extensions were granted by the branch at Catherinebourg) was R. 475,648; together with those brought forward from the preceding year, the sum total of due debts unpaid was R. 3,269,855, but this was reduced to R. 2,932,691 by the collections made during 1860. Of the protested bills of exchange belonging to the Bank of Commerce and its branches, accumulated since the year 1818, the sum of R. 2,899,362 was carried to the account of profits and balances put at the disposal of the Treasury, leaving on January 1, 1861, at the State Bank and its branches, R. 33,328 in protested bills of exchange; this amount was balanced by profits of the Bank at the closing of its profit and loss account of 1860.

11.Loans on Merchandise.—During the year, the Bank and its branches advanced on merchandise R. 5,583,154; the amount due at the end of the year was R. 3,020,358. Including amounts previously overdue, the holdings of the Bank on that class of loans, not paid at maturity, amounted, at the close of the year, to R. 1,211,760.

12.Loans on Deposits of Gold and of Receipts issued by the Managers of the Oural and the Altai Mines.—The total value of the loans made on these securities during 1860 was R. 6,311,387, and on January 1, 1861, there remained in the Bank and its branch at Catherinebourg, R. 4,334,642 of these pledges.

13.Loans on Deposits of Public Funds.—Of these loans there were issued during the year, R. 13,556,054, of which all but R. 23,371 was repaid at maturity. At the same date, the bank and its branches had out R. 6,747,889 of time loans made on this class of securities.

14.Loans on Railway Stocks and Bonds Guaranteed by the Government.—The total value of these loans was R. 10,512,452. On January 1, 1861, the Bank and its branches held notes aggregating R. 3,893,865 for time loans made on these collaterals; of those that fell due during the year R. 461,258 were not paid at maturity. That large proportion of unpaid engagements consisted principally of loans made upon the stocks of the Grand Railway Company, and especially upon those that were not fully paid up, for the reason that the Bank of Commerce had loaned on those securities 90c. on the rouble of their nominal value, with no special regard to their market price; and whenever an assessment was made on those shares they were abandoned to the Bank. The new regulations of the State Bank put an end to that difficulty.

15.Loans Contrary to the Regulations of the State Bank made before it came into existence.—The Bank of Commerce had made loans of this kind during the first half of 1860 and earlier, amounting to R. 3,000,000: R. 1,000,000 to the Bank of Finland, R. 1,650,000 to the Bank of the Nobility of Esthonia, and R. 350,000 to the Russo-American Company. Of these amounts, R. 1,950,000 had been repaid before July 1st, and R. 1,050,000 in bonds were delivered to the State Bank.

16.Loans made by order of the Sovereign.—The loans and offsets carried to that account in 1860 amounted to R. 1,229,780, of which R. 30,000 had been repaid, and R. 25,280 carried to the account of loans on merchandise security; balance at the end of the year, R. 1,174,500.

17.Account of Arrears and Deficits on Loans.—An amount of R. 25,586 remaining due on July 1, 1860, for loans on merchandise security has been deducted from the funds placed at the disposal of the Treasury. All doubtful debts and those made contrary to the regulations of the State Bank, and all the previous arrears, amounting together to R. 5,242,499, were either deducted from the balance-sheet of the Bank when its accounts were opened, or have been transferred by the branches to the Bank to be deducted in 1861.

18.Interest-bearing Securities Belonging to the Bank.—On January 1, 1860, the Bank of Commerce owned R. 7,843,639 in public funds, consisting almost entirely of perpetual six per cent. State bonds; the whole of this sum was delivered to the State Bank. At the time of the liquidation of the Loan Bank, the State Bank had also received R. 2,340,025 in bonds of this class. By order of the Minister of Finance, all these bonds were delivered to the Sinking Fund Commission against R. 5,100,000 deposited by the latter with the Loan Bank, and transferred to the State Bank, and R. 5,011,450 deducted from the account of the four per cent. Consolidated Loan. After these transactions, the Bank had only R. 72,214 in public funds. During the second half of 1860, there were left in possession of the Bank by borrowers R. 852,878 in stocks of the Grand Railway Company. This raises to R. 925,092 the value of the interest-bearing securities in its possession on January 1, 1861.

In addition to the transactions named above, the Bank had bought and sold interest-bearing public securities on commission. Thus it was intrusted (during the second half of 1860) with the sale of R. 14,000,000 of exchequer bills, out of the five series authorized to be issued; and it succeeded in disposing of nearly all of them, thanks to the great diversity of methods it adopted for the purpose. It made these bills so popular, in fact, that at the time of the last subscription opened by the Bank there was a demand for no less than R. 306,000,000. The Bank undertakes also, for a commission of 1/10 of one per cent., the sale and purchase of these five per cent. bills for the public.

In closing their report, the directors of the State Bank sum up as follows the profit and loss account of the Bank for the second half of 1860:

All the profits made by the Bank of Commerce up to July 1, 1860, including the interest on its funds deposited with the Loan Bank, were placed at the disposal of the Treasury. At the closing of the profit and loss account of the Bank its gross revenue for the second half of 1860 was found to be R. 1,333,715, including the net profits on the discount transactions of the temporary offices at Nijni-Novgorod, Rybinsk, and Poltava, amounting to R. 192,068. From that total was deducted R. 425,836, viz.: R. 92,794 for various expenses of the Bank and its temporary offices; R. 23,807 for protested bills of exchange and unpaid loans secured by public funds and stocks; and lastly R. 309,234 for that part of the interest on loans and discounts belonging to 1861. This leaves for the Bank itself a net profit of R. 907,878.

The net profits of the branches for the year 1860 amounted to R. 722,830, giving a total profit of R. 1,630,708, or a little over ten per cent. of the capital stock of the Bank. During the first half of 1860, the net profits of the Bank of Commerce had been R. 338,646, or R. 569,232 less than the profits of the second half-year.

CHAPTER III.

BANKING VICISSITUDES FROM 1862 TO 1875.

IN 1862 the Bank was called upon to conduct the very serious undertaking of putting an end to the legal-tender power of bills of credit and re-establishing a metallic currency consisting of gold and silver. It should be noted at this point that the trebling of the circulation between 1854 and 1857 had not adversely affected the value of paper money. In April, 1857, the paper rouble was quoted at 403 centimes, even above the par value, which was 4 francs. But such a situation could not last. We have seen that on January 1, 1861, the Bank had in its possession a fund of R. 92,900,000, of which R. 8,500,000 was in State securities, against a note circulation of R. 713,000,000. The value of the rouble was bound to be affected by this state of affairs; and it is interesting to notice that the depreciation had been comparatively small, very small indeed, relative to what it has been at various times since (as, e. g., in 1866, 1879, and 1887), to which reference will be made later on. Evidently, the financial world had great confidence in the economic situation of Russia and in the sincerity of her desire for progress in every direction. And such a desire did exist; it was real and sincere, though somewhat naïve and inexperienced, as is shown by the history of the reform undertaken in 1862. The first conception of this reform undoubtedly originated in the fertile imagination of Eugene Ivanovitch Lamanski. As proof of this, the author may cite a pamphlet which appeared anonymously in 1860, and of which only fifty copies were then issued, and those without authority of the censors—that is to say, in manuscript. “The Causes of the Depreciation of Our Circulating Medium and the Means of Remedying It”—such is the title of this tract, the authorship of which there can be now no reason to conceal. After summing up the various steps taken between 1857 and 1859 to retire a large part of the floating debt, M. Lamanski treats of the reform of the Bank, as he understands it, and of the resumption of specie payments. He thus sets forth and sums up his conclusions upon the subject:

We come now to the conditions under which the return to specie payments was to be accomplished. In pursuance of a ukase of April 14 (26), 1862, a loan of £15,000,000 sterling was placed with the London house of Rothschild, the intention being that the proceeds should be used exclusively to build up the fund reserved for the redemption of bills of credit. On the 25th of the same month, a second ukase ordered that the proceeds of the loan should be devoted to the strengthening of the metallic reserve and to the gradual resumption of specie payments. It was provided in the first of those ukases that “the printing and issuing of the bills of credit shall be done by the State Bank and under its authority, and under no circumstances shall they be issued except in exchange for gold or silver.” The outstanding bills were to be redeemed at a gradually increasing valuation, and a notice issued by the Bank, on April 29th, contained the information that, on and after the first of May, the exchange value of the demi-impériale, gold (intrinsic value, R. 5.15), should be R. 5.70, and that of the silver rouble, 110½ copecks; and that, after August 1st, the values should be, respectively, R. 5.60 and 108½ copecks. Thereafter, the valuation was to be as follows:

When the redemption began, the Bank had in its coffers R. 79,000,000, and the circulation aggregated R. 722,000,000, of which the Bank held R. 15,000,000. At first, the demand for redemption was small, amounting to only R. 10,037,000 between May 1 and December 31, 1862. This latter date was just on the eve of the Polish insurrection. In April, 1863, the chief European powers intervened by diplomatic notes, and it was well known that Napoleon III. was eager to interfere by force of arms, provided England and Austria should offer him other than mere paper support. Then the metallic resources of the Bank melted like snow. From January to the end of July R. 45,000,000 of gold were withdrawn; and between the 1st and 3d of August the demands amounted to R. 4,405,000. A loan was impossible. The Bank, therefore, resolved to stop paying gold and to continue the redemption only with silver. At the same time, however, it was selling to the public drafts on foreign countries at the same rate at which it had undertaken to redeem its bills. In this way, the proceeds of the Rothschild loan were soon exhausted, though still at the Bank’s disposal abroad. On November 1 (13), 1863, the rouble was almost at par (397c.); but it was upon this date that the Bank was forced to suspend the redemption of its paper. It continued the sale of foreign drafts for a few days longer, but this did not prevent the rouble from losing eight per cent. of its value by November 19th; and when on this date the sale of drafts ceased in turn there was a further fall of four per cent., and the rouble was quoted at 350 centimes.

The experiment had failed; and its most obvious result may be summed up thus: On December 1, 1863, the note circulation amounted to R. 642,800,000, of which the Bank held R. 8,000,000 in addition to R. 68,000,000 of specie. Since May 1, 1862, therefore, the note circulation had decreased by R. 79,300,000 and the specie holdings of the Bank by R. 11,000,000. If we take account of the Rothschild loan of R. 96,000,000, the experiment had cost R. 107,000,000 of metal; and as only R. 45,400,000 of the redeemed bills had been destroyed (on June 11, 1863), the net result of the undertaking was an actual loss of R. 62,000,000, not counting the numerous and severe indirect losses attending the failure.

Did this failure arise solely from the Polish insurrection, the public fear of renewed hostilities, and the impossibility of replenishing the metallic reserve by the method outlined in the imperial ukase and M. Lamanski’s pamphlet? Such was the official explanation; but the impartial student cannot accept it. One needed simply to be on the ground in order to witness the extreme eagerness with which paper money was presented to the Bank for redemption. The true explanation is that the circulation had been increased almost threefold within less than ten years, and that this increase was not demanded by any commercial or industrial need, but simply by the necessities of the Treasury. Then, again, the Russian Government had made the mistake of issuing in the form of a floating debt what was simply a substitute for note circulation, a proceeding that had been of considerable service to it at times, but which had now become a great burden. Thus, there had been issued in denominations of R. 100 nearly R. 100,000,000 of so-called “metallic bills” drawing interest at four per cent. Exchequer bills had also been issued, of R. 50 each, bearing interest at 4.32 per cent.—that is to say, 18 copecks per month—and redeemable in eight years. These, in view of their small denominations, were simply bills of credit, except that they bore interest. In ordinary times, the capitalist kept them in his safe and the merchant took them readily because the Treasury would accept them in payment of certain taxes. But the moment specie grew scarce these bills circulated just like bank notes, and the only concession made to the taker was that he had the benefit of the one or two months’ interest due upon them. Thus the public had ample opportunity to exhaust the metallic reserve of the Bank. Not to have thought of this before issuing the ukase of April, 1862, was one of the most serious mistakes made by the authorities, but it was by no means the only one. Thus the attempt to resume specie payments was a failure in 1863, and no other effort has been made since. It will be our duty hereafter to examine the causes which have made all further efforts in this direction impossible up to the present moment. But first we shall make some further examination of the past, for the history of the Bank of Russia cannot be written except in connection with the financial transactions of the Empire, so close is the connection between them.

It is not merely the ukase of April 14, 1862, decreeing a return to specie payments, that makes that year memorable in the annals of the Russian Bank. The same year signalizes another very important reform. M. de Reutern had been only a few days at the head of the Finance Department when he published the first budget of the Empire. Up to that time nothing of the kind had been known in Russia, and the figures the Author was able to quote in the earlier part of this work, bearing upon the expenses of the years 1823 to 1827, were taken from the memoirs of Count Cancrine. Without casting any reflection upon the memory of M. Reutern (obit 1890), we may say that his first budget did not furnish a full account of the situation; it did not even include all of the national receipts and expenditures. In fact, it was several years before the budget became what it ought to be. A central auditing office for the accounts of the Empire had, it is true, long been in existence, but in a condition calling loudly for reform. This reform was accomplished by Tartarinow* (obit 1871); and since his time the annual publications of that institution are of real value and very helpful to all students of Russian finance. The same may be said of the reports of the Finance Ministers, accompanying the provisory budget at the first of January of each year. But at the time of which we speak there was no publication of this kind, and no information was to be had regarding the state of Russian finance except from the annual report of the Commission of Credit Institutions, and there is no reason now to conceal the fact that that information was very meager in its details. It is hardly more instructive to-day; but then it has been a long time since anybody has thought of paying any attention to the tiresome document crammed with figures with which that Commission annually honors the official files. The very precise and accurate reports of which we have just spoken render it altogether superfluous now. But, at the time of which we write, it was the only document giving any information concerning the management of Russian finances, and it could have been made of great value.

The Author has a very distinct recollection of the eagerness with which he pored over the first report of that Commission which fell under his eyes, now thirty-three years ago. It was the “Address of the Finance Minister to the Commission of Credit Institutions, presenting the report of those institutions for the fiscal year 1861.” I studied it with the greater ardor because it was part of my duty at that time to write the Russian chapter for the “Annuaire des Finances Publiques,” published at Paris by M. J. E. Horn. The more we sought to sound the depths of that document the more signal was our failure. All we could be certain of was that the chapters did not agree with one another and that the report was not true to its title, because it did not show even the whole of the public debt. Russia had a press censorship even at that time; but as the administration seemed desirous of illuminating those places that were in need of light, we made known our difficulties in an article sent to the “Journal de St. Petersburg,” of which we were financial correspondent. The Commission condescended to reply in a note which we have preserved, and a translation of which we here present. There can certainly be no indiscretion in publishing it at this late day; and no one will accuse me of egotism, for clearly it caused the Commission no pangs to snub an intermeddler who had dared to call in question the value of an official report read by a minister. But the reader may possibly conclude that as early as 1862 the Commission of Credit Institutions had outlived its usefulness, if, indeed, it ever had any. Here is the official document:

As we have said, the reports of the Commission and the Commission itself have now merely an archæological value. The State Bank is the only institution that interests us at this time, and it has learned to put its reports in a form which is not only intelligible but has almost the precision of a mercantile balance-sheet. This it has succeeded in doing in spite of the complicated network, interweaving its own operations with those of the State and detracting greatly from the simplicity of its accounts. But, in 1862, the Commission might have made its reports of great value if it had not, as its note shows, considered it beneath its dignity to satisfy the curiosity of the public and its desire to know the truth about Russian finance.

It is true that, at the time we are now considering, publicity as to the Bank’s transactions had not been attended with flattering success; and the failure that crowned the work of 1862 almost seemed to justify the secretive policy of the Public Debt Commission. Rarely has there been a more disastrous failure or keener disappointment than was involved in the closing of the Bank’s wickets on November 3, 1863. It was followed not only by a steady depreciation of the rouble, but by a permanent Treasury deficit, so that several loans became necessary between 1863 and 1866. In 1864, a loan was floated in Holland of 70,000,000 florins, or £6,000,000 sterling; and in 1864 and 1866 domestic loans of R. 100,000,000 each, on lottery and premium bonds. Meanwhile, exchequer bills were increased by R. 99,000,000, issued in thirty-three series of R. 3,000,000 each. The credit of the Empire did not improve, and the reader can get some idea of the opinion foreignes had of the situation by glancing over these few lines from an article which appeared in the “Berliner Reform” of September 24, 1865: “Anyone who examines the situation in this country (Russia) must be forcibly struck with its financial and economic condition. That condition is immeasurably sad, not to say hopeless. Paper money is depreciated by one-fifth, despite its legal-tender value; gold and silver have disappeared; there is practically no credit; discount rates are high; there is an annual deficit; trade is nearly at a standstill, and capital is exhausted almost to the last penny; prices are immoderately high; the nobility is ruined, the capital city and trade centers are in visible decay.”

Meanwhile, the State Bank had ceased to be the sole credit institution of the vast Empire. In 1865, a group of capitalists had obtained permission to establish at St. Petersburg the joint-stock “Bank of Commerce” (such is its title still), with a capital of R. 5,000,000 in shares of R. 250 each. The people were so unaccustomed to rashness of this kind that the State was compelled to encourage the enterprise by taking shares for R. 1,000,000, agreeing not to sell them for ten years. But very soon the public became more courageous, and in a few years St. Petersburg and other cities had a large number of these share banks. In fact, that class of banks became so numerous that, in 1873, the State considered it to be its duty to check the movement; it refused to charter any more banks for the capital, the result being simply that, in order to get around this obstacle, banks were set up in the little towns nearby, such as Viborg and Cronstadt, with branches in St. Petersburg.

But, two other palliatives had been found for the State Bank’s inability to satisfy the needs of credit. One of these had been, if not exactly created, at least actively promoted by the State. M. de Reutern had hardly been installed in his office before he had a law enacted for the establishment of communal banks. Any commune furnishing a capital of R. 10,000 could found a bank, with ample powers in all directions, except as to the issue of notes. The great partiality that Russia has always had for the Mir (municipal autonomy), and the hostility in certain quarters to enterprises in which shareholders pocket all the profits, made this ukase very popular. It was useless to point out the fact that a commune or city is, of all corporate bodies, the one least fitted for banking affairs, that its responsibility is illusory, and fraud inevitable; in spite of conservative protest and warning, these banks sprang up on all sides. A fair sample of them was that at Skopine. To the bank in that little city of the province of Riasan, deposits flowed in from all parts of the Empire, the inducement being a promise of interest at the rate of six or seven per cent. The Mayor (Golova), M. Rykow, had become an extremely popular man. He devoted a liberal share of the bank’s profits to public improvements and works of charity. His annual reports and his appeals to the public were perfect gems of puffery. Rykow knew how to realize upon his merits, and his breast was soon covered with decorations. When at last the Government awoke to the danger and amended the law so that a communal bank could not accept deposits exceeding ten times its capital and reserve fund, the bank of Skopine went right ahead with its business and its public appeals, declaring ingeniously that a law could have no retroactive effect and that the new restriction affected only such banks as should be thereafter established. One day, however, about 1875, the bubble burst; Skopine could not pay its deposits, then amounting to about R. 7,000,000. There were disgraceful revelations as to the way in which the money had been spent, and Rykow was condemned to Siberian exile. Government agents were appointed to investigate the business of communal banks, and since then their transactions have been merely local. Further on will be found their balance-sheet for 1893.

Another new form of institution was to some extent a result of the great conflagration which, in the spring of 1862, had destroyed the greater part of the Tchoukine-Dvor of St. Petersburg, which may be called the little bazaar, as distinguished from the Gostinoi-Dvor, or great bazaar. The merchants affected by that disaster had need of credit, and the State Bank, the only banking institution then in existence, could not supply it, because its regulations required three signatures on all paper. In this juncture of affairs, M. Lamanski, then vice-president of the Bank, conceived the idea of founding, upon the model of the Société Général of Belguim, an association in which mutuality should be the controlling principle. It took him more than a year to find two men willing to subscribe an amount which should represent the maximum of their credit at the proposed bank, and to pay in ten per cent. of it. Evidently this was to be an association of very small importance; it was, in fact, so unassuming that its offices were established in one room of the State Bank, where M. Lamanski managed its affairs with the purest disinterestedness. Yet, five years later, that association controlled the fluctuations of the St. Petersburg Bourse, and indirectly, those of all Russia. Instead of confining itself to the discounting of its clients’ paper, it had begun to loan upon public funds, and as it was always able to rediscount its paper at the State Bank, thanks to the common management of the two institutions, this financial conspiracy had promptly led to an excess of speculation, resulting in 1869 in a serious crisis upon the Bourse, of which the independent bank, the only one then in existence, had to bear its part. Both institutions escaped from the crisis in safety, but there was a serious run upon both of them as a result of it—one upon the Bank in 1872, which imperiled its existence and which for nearly twenty years, or until 1890, kept its stock among the lowest of those quoted on the Bourse; and another upon the Mutual Association in 1875, which compelled it to levy an assessment upon its members, then numbering more than seven thousand. Many of the members retired from membership; nevertheless, the association survived the disaster it had brought upon itself, and returned the assessment to its members; but it never recovered the commanding position it had previously held. We shall see later on that the association is still in existence and that it has had a number of imitators in the provinces. But the enthusiasm for that form of association was exhausted after a short trial.

The attempt of the State Bank to resume specie payments having failed once (in 1863), no further effort in that direction had been made; but it must not be inferred that the Bank had altogether abandoned the idea of final resumption. Beginning with 1867, railroad charters, with or without a State guaranty of interest on the bonds, were granted with considerable frequency. At that time, a guaranty of interest was regarded as a purely formal matter, tending to further the enterprise, but not likely to become a burden on the public treasury, and the State was not niggardly in such patronage. Generally its guaranty covered only the bonds, which formed two-thirds of the nominal capital, and which were made payable in specie that they might meet with a readier sale abroad. As to the capital represented by stock, it usually served some other purpose than construction of the road or the purchase of materials. The fewer the calls upon the stock for aid in building the line, the more urgent the necessity for selling the bonds at whatever price they would bring, and a foreign market was found for them, especially in Germany. Finally, the Finance Minister took alarm at this state of things. Five per cent. bonds guaranteed by the State were as good as Russian rentes, and the sale of the latter was greatly impaired by the competition arising from the sale by the railroad companies of guaranteed bonds. For this reason it was determined that the State itself should issue the bonds and pay the proceeds to the companies; and, as the major part of the sums borrowed was to be used in Russia for construction and materials, the Government paid the companies in paper money at prevailing rates and used the specie for its own purposes. Part of it was used in making foreign purchases and in payment of interest on the public debt abroad, and part of it went to swell the metallic hoards in the vaults of the fortress of Peter and Paul in St. Petersburg. This is the explanation of the seven consolidated railroad loans, each of £15,000,000 sterling, made between 1868 and 1875; and it was by this means that the metallic reserve, which we found to be only R. 69,000,000 at the close of 1863, had reached R. 229,400,000 in 1875, of which R. 28,300,000 were in silver, the gold having amounted to R. 126,900,000 at the close of 1869, to R. 128,500,000 at the close of 1870, and to R. 175,600,000 at the close of 1872. The value of the paper rouble (the rate of exchange), which in 1866 had gone as low as 270 centimes, had advanced again to 370, notwithstanding the fact that the circulation during the whole of 1875 had been R. 797,300,000, or nearly three and a half times the metallic reserve. Confidence had returned. The budget no longer showed a deficit, and M. de Reutern, at the end of twelve years of power, was on the point of bringing exchange once more to par and resuming specie payments. The State Bank was already selling silver and gold at current rates. During the years 1873-5, when the first effects of silver depreciation following Germany’s adoption of the gold standard were felt, the Bank was even compelled to defend itself against attempts that were made to deliver silver to it at the value hitherto officially maintained.

CHAPTER IV.

THE EASTERN WAR PERIOD.

AT the period reached at the close of the last chapter, there appeared to have been a recovery in all respects from the disaster of 1863, when the revolution in Bosnia, the Servian war, and, finally, the Russian campaigns of 1877-8 in the East, once more brought to naught the whole splendid prospect. When the war was at an end the metallic reserve of the Bank (July 1, 1878) was only R. 130,300,000 gold and R. 17,500,000 silver. The circulation had been reduced to R. 726,900,000; but, in addition to this, there was an issue of R. 429,600,000 appearing under the misleading title of “bills issued on account of the branch banks.” In fact, the Treasury had used up that sum during the war, and, in addition to this, three large loans, known as “Oriental loans,” had been made, aggregating about R. 700,000,000. Professor Wagner had at this time very charitably urged Russia to part with the gold lying unused in the vaults—gold, as he said, being the proper money for States with an established credit. This advice of the learned German was not followed, but it was ten years before Russia’s metallic treasure had again reached the figure of 1875.

No new taxes had been levied to meet the expenses of the last Eastern war. There was a desire not to make the war unpopular, and it had been expected that the campaign would be short and decisive. All attempts of M. de Reutern to persuade the Imperial Council to sanction a levy of additional taxes had been fruitless. The only concession he had been able to get was a ukase issued in November, 1876, directing the payment of customs duties in gold. When that step was taken it amounted to an increase of only 12 to 15 per cent. in the paper cost of imports, but later, owing to fluctuations in the exchange rate, the increase rose to 40 or 60 per cent. It is true, however, that between 1877 and 1887 the specie thus secured was of great assistance to the State.

There was less opposition to an increase of taxation when the war was over. That unpopular duty devolved upon General Greig, who had succeeded M. de Reutern on the very day the treaty of Berlin was signed, July 1st (13th). As to the State Bank, it could obtain no help, nor could it do anything alone toward reducing the circulation to its volume on the eve of the war. It was not until January 1, 1881, that an imperial decree, issued at the instance of M. Abasa, who had succeeded M. Greig in August, 1880, prescribed a series of measures having that end in view. The R. 417,000,000 of bills of credit issued for the purposes of the war were to be retired within eight years, R. 17,000,000 immediately and the remainder at the rate of R. 50,000,000 per year, and the State was to supply the Bank with the funds necessary for this purpose. This arrangement was only partially carried out. Though there have been no other wars, and the only military operations called for have been those, relatively inexpensive, required in Central Asia between 1880 and 1886, still the international situation in Europe has necessitated heavy expenses, which M. de Bunge, who succeeded M. Abasa in 1881, found it difficult to meet. When he quitted the post at the close of 1886, the value of the rouble was 60⅔ copecks in gold. The provisions of the ukase of January 1, 1881, were modified by a second ukase of December 9, 1894. The latter states that of the R. 417,000,000 of paper money to be retired, R. 87,000,000 had been destroyed; R. 63,750,000 had been transferred from the account of temporary issues to that guaranteed by the fund available for redemption, which, meanwhile, had been increased by R. 40,000,000 of gold taken from the funds of the Bank proper—that is, from the proceeds of its commercial transactions; that R. 92,750,000 had been retained under the heading of provisional issues, and were offset by the amounts due the Bank from its customers, and that the remaining R. 173,500,000 had been covered by rentes delivered to the Bank, upon which it had not yet realized. The important fact is that only R. 87,000,000 had been destroyed. By this ukase, then, it was ordered that the R. 266,250,000 (R. 92,750,000 + R. 173,500,000) should remain permanently part of the circulation; we have just seen that R. 63,750,000 had previously been disposed of in the same way.

Here we must take a momentary glance at the past for the purpose of noting that in spite of the delicate position of international relations, in spite of the fact that the Bank of Germany and the Seehandlung of Berlin were forbidden to loan on Russian securities or purchase them, in spite of the increase of military expenses and other public charges in all countries, a remarkable phenomenon had appeared in the markets of all European capitals; the price of silver had fallen everywhere, and this had produced a favorable effect upon the credit of the various governments. Refunding operations became fashionable, and M. de Bunge himself, about a year before quitting his place, had been on the point of concluding an extensive arrangement with certain German houses which would have resulted in reducing to four per cent. the interest upon a large part of the Russian public debt, and that, too, barely two years after it had been somewhat difficult to find a foreign market for a loan of R. 50,000,000 at six per cent. We may note in passing that that loan, so uncomplimentary to the credit of a great empire, was the last transaction managed by Baron Stieglitz, who retired from the management of the Bank in 1866. The refunding operation undertaken by M. de Bunge did not succeed, but no one can regret its failure who knows the burdensome, not to say humiliating conditions under which it was to have been made. His successor, M. Wyschnegradski, was a man of a totally different character. Though formerly a professor, like Bunge, he had for some years been in control of important enterprises, and had thus acquired, what had been entirely lacking in his predecessor, the art of managing men and conducting business affairs, boldness of decision and rapidity of execution. He had, in addition, the good fortune to be at the head of affairs during four years of very abundant crops and of an export of cereals such as had never been known before. He entered immediately upon the task of refunding the debt, and he was able to interest the French market in the undertaking, though it had up to that time avoided Russian securities almost entirely. He began with the pledge certificates of the Mutual Credit Foncier, which the State had finally guaranteed, and the interest on which had been reduced from 5 to 4½ per cent. at the same time that the premium of R. 20 secured upon their repayment had been withdrawn. Inasmuch as the Rothschilds had taken part in the issue of these securities, they were called upon to assist in this first conversion, and since then they have had a share in other refunding operations which M. Wyschnegradski carried on upon a large scale, and which his successor, M. de Witte, afterward took up and is still carrying forward. It is not merely loans issued directly by the State that form the subject of the refunding operations; besides the securities of the Mutual Credit Foncier, of which we have just spoken, railroad bonds also were included. During the past ten years, and especially between 1888 and 1894, the State has bought a large number of important railways, and has very materially reduced the burdens imposed upon it by the payment of subsidies and the guaranty of interest.

The subject of these refunding operations will be more fully treated in a subsequent chapter. What especially interests us just now with reference to them is their influence upon the condition of the Russian Bank. We have just seen what disposition was finally made of the circulation called into existence by the Eastern war of 1877-8. Notwithstanding the fact that only R. 87,000,000 of the R. 417,000,000 so issued had been paid, there came a time in 1889 when, as a result of the very great increase of exportation coincident with the fair of Nijni-Novgorod, the circulation was for the moment insufficient. M. Wyschnegradski had no hesitancy in authorizing the Bank to make a supplementary issue of R. 25,000,000; but he stipulated that the Treasury should deposit with the Bank a like sum in gold as a guaranty. A second issue of R. 25,000,000 was afterward approved upon the same terms; and it should be stated that these issues were in fact only temporary and were retired at the end of a few months. As a practical matter, the specie deposit carried from the Treasury to the Bank was of no avail. The holders of the “provisional” bills had not, any more than holders of ordinary bills, a right to demand their redemption in gold. The most important result of that temporary measure was that circumstances soon induced M. Wyschnegradski to repeat and extend it; when the famine of 1891 required exceptional sacrifices of the Treasury, the so-called temporary issue was several times doubled and even trebled, so that at times it reached R. 150,000,000; but the credit of Russia was not seriously impaired thereby. Thanks to the prompt recovery from the economic crisis of 1891, and to the boldness with which M. de Witte, the successor of M. Wyschnegradski, has continued the refunding operations; thanks also to the constant decrease of interest rates in the money markets of the world, the Russian rente stands to-day at a figure which, six years ago, the most optimistic hardly dared to hope for.

Inasmuch as the present system plainly consists in intrusting to the State the largest possible share in the economic affairs of the people, the regulations of the Bank were revised on June 24, 1894, and made even more emphatic in the direction indicated. We shall merely cite such of these modifications as are peculiarly characteristic of the new methods. In the first place, in addition to commerce and manufactures, the agricultural classes also are to share the favor of the Bank. Chapter II of the law treating of commercial operations provides in Art. 77 that the Bank shall accept for discount “not only paper resting upon a commercial basis (a completed transaction, paper already in existence), but also paper drawn in view of commercial or industrial transactions yet to be entered into.” As an offset, however, to this privilege, it is stipulated in Art. 85 that “the Bank may at any time demand of its clients a detailed balance-sheet, a complete account of their affairs, and such extracts from their books and other information as may be needful to give it a full insight into all their transactions.” Art. 89, treating of manufacturing and agricultural loans, provides that the Bank “shall give credit and make loans upon such bills drawn to order as may be secured: (a) by a real-estate mortgage; (b) by a chattel mortgage upon agricultural or manufacturing tools and machinery; (c) by a guarantor; (d) by any other security which the Finance Minister may hold to be sufficient.” Art. 93 prescribes that when the loan is secured by new machinery the Bank shall pay the amount of the loan, not to the borrower, but to the seller of the machinery, and shall see that the purchase is delivered. Art. 97—Loans to any single enterprise shall not exceed R. 500,000, and those to a small tradesman shall not exceed R. 600. Art. 100 provides that loans and credits (upon one-name paper) intended to provide any undertaking with money for current needs, shall not exceed seventy-five per cent. of the sum necessary for the financing of the business. Art. 119 stipulates that when the value of any class of merchandise shall have decreased as the result of exceptional circumstances, the managers of the Bank may grant an extension to the debtor and may refrain from demanding even partial payment or additional security. Art. 124 states that in making advances upon paper bearing only one signature and secured by a pledge of personal property, the Bank, if it has full confidence in the borrower, may allow these concessions: (a) it may accept as collateral articles of merchandise not named in the official list set forth in Art. 109; (b) the pledge may remain in the hands of the borrower; (c) the amount of the loan may be as great as seventy-five per cent. of the estimated value of the guaranty. Art. 135 permits call loans to be made, either on collateral securities or on such paper as would be accepted for discount. The conditions of these loans are that the borrower shall repay them at any moment on demand, or else at a fixed time. Art. 138 provides that, at any time when its resources are sufficient, the Bank may extend its credit to provinces, districts, and communes, upon conditions to be approved by the Ministers of Finance and of the Interior. In accordance with Articles 165-8, the Bank may sell bills drawn to order, may buy and sell foreign bills of exchange, gold and silver, securities issued by the State or guaranteed by it, and securities not so guaranteed if they form part of the collateral of one who has defaulted in his obligations to the State; this latter transaction the Bank enters into only upon express instructions from the Minister of Finance. Articles 178 and 179 set forth the services which the Bank is required to render to the public treasury. There is no change in this respect from the original regulations, which have already been set before the reader; we shall not, therefore, repeat the provisions of those sections. Suffice it to say that in addition to all the duties pertaining to the circulation, to the issue of loans, and to the care of the funds of the State, the Bank is required to furnish such sums as the national pawn-offices may need; to assist in caring for the ransom of the serfs—that is to say, in administering the annuities owing by these peasants; and to liquidate the affairs of the former credit institutions of the State, in so far as this duty rests upon it under existing laws. When we have called attention to the fact that “the capital” of the Bank has been increased from R. 15,000,000 to R. 50,000,000 we shall have set forth the whole series of reforms to which that institution has been subjected. At this point, we may introduce the last balance-sheet issued by the Bank, that of August 16 (28), 1895:

Balance-Sheet of the Bank of Russia and of Its Nine Agencies and Ninety-eight Branches, August 16, 1895.

Besides deposits for safe-keeping:—

The Governor of the State Bank: ED. PLESKE.

It appears from this balance-sheet that, at the time it was issued, the circulation amounted to R. 1,121,300,000 (R. 75,000,000 being “temporary”) and the metallic reserve to R. 450,000,000 of gold, R. 75,000,000 of this also being a temporary reserve. If we subtract this R. 75,000,000 from both sides of the account we have left R. 1,046,300,000 of paper money secured by R. 375,000,000 of gold. Moreover, the Bank included under “cash,” on August 1 (13), R. 63,200,000 of gold and silver. Fifteen days later, that important sum no longer appears among the “cash,” but we find it a little further on under the heading “Gold belonging to the Bank,” which amounts to nearly R. 63,000,000. We cannot explain that change in the entry; but a comparison of the two totals will show that silver made up only about R. 250,000 in the first column, while it does not appear at all in the second. This shows that Russia has turned her face resolutely against bimetallism and that she accords to silver no higher position than that of a subsidiary coinage; a fact, moreover, which has been officially declared.

In view of the summary of the Bank’s new regulations which has just been placed before the reader, it would be useless to insist further upon the extent to which the affairs of the Bank and those of the State are intermingled, an intermingling more definite and pronounced than that existing under the regulations of 1860. It is more difficult than ever to understand why a capital stock should be thought necessary, or what place the capital of R. 50,000,000 provided by the new regulations can have in the economy of the Bank. But it is precisely because these intimate relations do exist that the value of the circulation cannot be predicated upon the relation it bears to the cash of the Bank. The State is responsible to-day, as it was thirty-five years ago, as it was also a century ago, for all the agreements of the Bank; and because this is so it becomes important to know that the metallic resources of the Treasury (including those of the Bank) amounted at the close of 1892 to R. 493,900,000; at the close of 1893 to R. 598,000,000, and at the close of 1894 to R. 598,600,000, in gold. On June 30 (July 12), 1895, the “Bulletin Russe de Statistique Financière” published a table showing that, on that date, the total metallic reserve amounted to R. 580,800,000, of which R. 4,666,000 were in silver and subsidiary coin, and the remainder in gold. Upon the strength of such a reserve, equal to more than half of the circulation, the Russian Government has deemed it safe not to insist upon a rigid enforcement of the legal-tender law, and it has given its sanction to the transaction of domestic business upon a gold basis. When it was first proposed, this measure aroused strong opposition. Though discussed at frequent intervals for some years, it was always vigorously resented as an attack upon the credit of the State, or rather upon the fiction that this credit was undisputed within the Empire and that foreigners alone evinced any doubts of Russia’s solvency by refusing to accept the paper rouble at its nominal value. M. de Witte (Finance Minister since 1893) was courageous enough to dissent from that Jesuitical position; but even he was desirous of stopping half-way and of granting the right to deal upon a gold basis only to certain classes of society; his view was like that held in some other countries, where certain classes are denied the privilege of dealing upon the Bourse or making time contracts, lest advantage be taken of their ignorance. It is very interesting to follow the Council of the State as it discusses the question, settles it in a very enlightened manner, refutes the apprehensions of the Finance Minister, and finally determines that its own deliberations upon the matter are of sufficient importance to be given to the public, an occurrence which is very rare in Russia. As this report teaches a valuable lesson and also furnishes one of those rare instances in which we are able to take the measure of the Council, it has seemed to us advisable to publish the document just as it appeared:

As a result of that legislative measure, the State Bank published on July 14 (26) and July 26 (August 7) the two following notices, laying down its regulations for the acceptance of specie deposits, and the price at which the yellow metal was to be bought and sold by it:

By-laws Governing the Issue by the State Bank of Certificates of Metallic Deposits.

1. In accordance with the provisions of section 148 of the statutes, the State Bank will accept on deposit the articles and securities specified in paragraph 3 of these by-laws, and will deliver against them Certificates of Deposit expressed in gold roubles and payable by the Bank in Russian gold coin.

2. The Certificates of Deposit will be issued by all of the agencies and branches of the Bank. The Minister of Finance will designate for each of the establishments of the Bank the particular securities of those named in paragraph 3 in exchange for which that establishment shall be authorized to deliver Certificates of Deposit.

3. The Certificates of Deposit are to be delivered against these metallic securities: (a) Russian and foreign gold coin, on the terms indicated in the table annexed to these by-laws; (b) gold bars of high standard duly stamped by the mint or an assay office, the zolotnik of fine gold being valued at R.3.63767, gold; (c) such foreign bank notes payable in gold as may be selected by the Minister of Finance; (d) drafts which have been delivered by the Department of Mines in exchange for gold deposits, these to be accepted at their face value; (e) coupons of Russian bonds payable in specie and of loans guaranteed by the Government, as well as such of said bonds as have been drawn for redemption, with the usual discount of interest; (f) those drafts on foreign countries which the State Bank is authorized by its regulations to purchase.

4. All the securities named in paragraph 3, above, are to be accepted at their value in gold roubles.

5. The Certificates of Deposit will be made payable only to bearer, and will be of the following denominations: 1 demi-impériale, 1 impériale, 3 demi-impériales, 5, 10, 50 and 100 impériales, the impériale being estimated at 2 zolotniks* 69.36 dolei of fine gold, and the demi-impériale at 1 zolotnik 34.68 dolei. These certificates are payable in Russian gold coin, the limit of toleration not to exceed that provided by section 21 of the monetary statute.

6. If the value of the security deposited, calculated according to the rules laid down above, cannot be exactly expressed in figures corresponding to the denominations of the certificates as set forth in paragraph 5, the surplus is to be paid in credit-roubles at the rate fixed for the purchase of Russian gold coin.

7. Certificates of Deposit of the various denominations enumerated in paragraph 5 are to be issued in series of 10,000 each, every certificate bearing the letter of its series and a number showing its place therein.

8. The Certificates of Deposit are to be issued in a form approved by the Minister of Finance.

9. The State Bank will set aside a special guaranty fund consisting of Russian gold coin, equal in amount to the certificates issued and to be reserved exclusively for their redemption. Foreign gold coin at a valuation calculated according to the table annexed may form part of the aforesaid fund.

10. Certificates of Deposit will be accepted on a par with Russian gold coin in all payments to be made in gold either to the Imperial Treasury or to the State Bank. Individuals may accept or refuse the certificates when offered in settlement of amounts stipulated to be paid in gold roubles.

11. Certificates of Deposit will be redeemed by the agencies of the State Bank in St. Petersburg, Moscow, Warsaw, Riga, Odessa, Rostov-sur-Don, and by such others as may be specially authorized. Other agencies of the Bank will redeem the certificates whenever the cash on hand will allow them to do so.

12. All branches and agencies of the Bank are authorized to exchange Certificates of Deposit of one denomination for those of another.

13. Holders of the certificates may deposit them with any branch of the State Bank and demand that any other branch shall issue certificates to a like amount in exchange for them. No charge is to be made for these transfers, except the cost of the dispatch when they are made by telegraph.

The State Bank will accept gold coin in exchange for Certificates of Deposit on the following terms:

Remark.—Foreign coins of larger or smaller denominations than those named in the table are to be valued upon the same basis.

Rules Governing Accounts Current in Gold Roubles opened by the Bank against Deposits of Gold Coin.

1. The State Bank is prepared to open accounts current in gold roubles for individuals and private establishments against deposits of Russian gold coin. The branches of the State Bank which redeem Certificates of Deposit will also accept such certificates and carry the amount for which they are drawn in accounts current. Amounts deposited in gold coin to the credit of an account current must be repaid in gold coin.

2. A person or institution wishing to open with the Bank an account current in gold roubles must present on a prescribed form a fac-simile of his or its signature and of the signatures of the persons authorized to sign checks in the name of the depositor.

3. The State Bank and its branches and agencies may refuse to open an account current without assigning any reason for the refusal.

4. The deposits are to be entered as soon as received in a special bank-book delivered by the Bank to the depositor. Each deposit is to be attested by the signature of the officers of the Bank.

5. Each deposit in an account current must be accompanied by a special declaration.

6. The depositor may withdraw his deposit by means of checks signed by him or by his attorney in fact (§ 2); a check-book will be delivered to him by the Bank, together with the bank-book wherein his deposits are entered. Checks must be drawn in round figures, and they may be paid in demi-impériales of the new mintage.

7. The drawer of the check may write after the printed words “to bearer” the name of the person to whom he transfers the check.

8. Interest may be paid upon accounts current expressed in gold roubles, the rate being fixed by the Directors of the Bank with the approval of the Minister of Finance. No interest will be paid upon such of these accounts as are opened to the credit of those whose accounts in paper roubles do not bear interest.

9. If a drawer should lose a check the Bank will not be liable for a wrong payment unless it has prompt notice of the loss.

10. Accounts current in gold roubles may be closed at any time, in the discretion of the Bank, but the depositor shall have seven days’ notice of the intention. Whenever an account is closed the depositor must return to the Bank all unused checks in his possession.

Let us here take note of one further measure, destined, if not to increase the business of the Bank, at least to facilitate dealings abroad in Russian securities. We refer to the arrangement concluded between the Finance Minister of Russia and the Bank of France on April 11 and May 1, 1895, in virtue of which the Bank of France undertakes to accept at Paris or at its branches any negotiable evidences of the Russian debt deposited by holders who wish to have them registered. The Bank of France agrees to deliver registered bonds to such holders upon their payment of the stamp duties. It will also keep itself informed as to the drawings of bonds to be paid, and if any are drawn that are registered with the Bank it will inform the holder and make the collection for him. It pays the coupons as they fall due, and for these services it makes no charge against the bondholder, but looks to the Russian Government for all claims except those arising out of stamp duties. This arrangement went into operation on July 1, 1895.

A notice published on September 1 (13), 1895, by the Bank of Russia puts in force a new set of rules relative to the safe-keeping of funds and documents deposited with it by the public. It provides that thereafter the Bank and all its branches will charge upon deposits left for safe-keeping:

With reference to this publication, it should be stated that the custom is widely prevalent in Russia of depositing valuables not only with the banks, but also with the local treasuries. On January 1, 1895, those treasuries held thus on deposit R. 17,600,000 of securities payable in specie, and R. 228,600,000 payable in credit-roubles. The State Bank had R. 217,400,000 of the former and R. 1,941,700,000 of the latter. Taken all together, deposits of this kind aggregated R. 2,405,300,000 on January 1, 1895, against R. 1,967,900,000 on January 1, 1894, for the State Bank and the treasuries.

The reader is thoroughly informed now as to the duties and the methods of the Bank of Russia. It had been the Author’s intention to dismiss the subject at this point, but we have just had our attention called to the following notice published on August 24 (September 5), 1895. It brings out so strongly the “philanthropic” aims of the institution and its solicitude for the agricultural classes that we feel called upon to transcribe it:

CHAPTER V.

PRIVATE BANKS.

PRIVATE joint-stock or non-Government banks, as we have previously said, did not come into existence until 1865. The shares are legally fixed at R. 250 each, except in the case of the Bank of Kama-Volga, which has shares of R. 1000 as well as those of R. 250. The following, according to the “Bulletin de Statistique Financière,” is a schedule of all the stock companies as they existed on January 1, 1894:

The same official publication prints another collective table concerning all non-Governmental credit institutions engaged in short-term transactions. This table is so comprehensive that a summary of it must suffice. All of the joint-stock banks together had in January, 1894, a capital of R. 116,957,000, a general reserve of R. 32,000,000 (27½ per cent.), and a reserve for special purposes of R. 4,200,000. The Municipal banks had a capital of R. 28,400,000, a general reserve of R. 5,500,000, and a reserve for special purposes of R. 945,000. The Mutual Credit associations had a capital of R. 21,400,000, a general reserve of R. 4,400,000, and a special reserve of R. 1,666,000. Thus these various institutions had a total capital of R. 166,750,000, a general reserve of R. 42,000,000, and a special reserve of R. 6,800,000. Perpetual deposits, which, outside of the State Bank, are not found except in Communal banks, aggregated R. 13,100,000. Time deposits aggregated R. 203,100,000; of sight draft accounts there were R. 47,250,000, and in accounts current, R. 237,400,000. Deposits with the branches (for such banks as have branches) were R. 74,000,000; interest due to depositors, R. 6,600,000; profits, R. 10,300,000, of which R. 6,000,000 belonged to Share banks, R. 2,900,000 to Communal banks, and R. 1,400,000 to Mutual associations. On the credit side of their accounts were: Cash (including sums subject to cheque), R. 67,700,000; loans on securities and the precious metals, R. 83,200,000; discounts, R. 337,200,000; loans on pledge, R. 120,400,000; call loans (special accounts current), R. 191,300,000; loans on realty, R. 24,500,000 (of which R. 2,600,000 was on country property); loans to municipalities, R. 2,100,000; debts in default, nearly R. 7,000,000, of which more than R. 4,000,000 were held by the Municipal banks. The balance-sheet of all these associations shows a total of R. 1,092,169,000, the proportions being: R. 801,000,000 for the Share banks; R. 180,600,000 for the Municipal banks, and R. 160,600,000 for the Mutual Credit associations.

With reference specially to the stock banks, the information is more recent, coming down to January 1, 1895. Those of St. Petersburg, ten in number, had then a share capital of R. 83,237,000 (including the branch of the Crédit Lyonnais, with a capital of R. 16,000,000), a general reserve of R. 13,000,000, and a special reserve of R. 2,600,000. Their deposits subject to sight draft and accounts current aggregated R. 131,000,000, and their time deposits were R. 26,400,000. They had borrowed upon securities and in the form of rediscounts, R. 21,300,000. They had earned in the form of interest and commissions R. 14,250,000, and their total transactions represented R. 464,166,000. Among their assets were R. 14,100,000 in cash; R. 19,800,000 in accounts current (of which R. 17,500,000 were in the State Bank); R. 15,100,000 in Russian funds; R. 8,200,000 in other bonds; R. 2,900,000 in foreign drafts; R. 500,000 in single-name paper; R. 14,600,000 in loans on bonds; R. 5,500,000 in loans on merchandise; R. 128,100,000 in special accounts current, guaranteed; and R. 86,600,000 in paper bearing two signatures.

Moscow has only four stock banks, with a total capital of R. 19,000,000 and reserve funds of R. 8,000,000. Their total transactions aggregated R. 133,100,000. The city of Riga has three private banks; Warsaw and Kiev have two each, and there are eighteen in the other chief centers of the Empire. The total transactions of all the private banks in Russia, at the close of 1894, represented R. 887,788,000. Among their assets were included R. 100,600,000 in the hands of their correspondents, and of this amount R. 41,700,000 were over-drafts. Their expenses for the year were R. 8,000,000; the property belonging to the banks was valued at R. 7,700,000 (of which R. 6,900,000 was in real estate); the total of paper held for collection was R. 15,200,000; merchandise for sale, R. 305,000; cash on hand, R. 27,100,000; accounts current, R. 24,300,000; stocks and bonds, R. 61,000,000; drafts, R. 209,600,000; loans on collateral, R. 66,900,000; special accounts current, guaranteed, R. 198,100,000. On the debit side of the account we find R. 140,500,000 of share capital; R. 38,900,000 of reserve; deposits subject to cheque, R. 194,100,000; sight draft accounts, R. 14,000,000; time deposits, R. 112,300,000. The discounts and collateral loans by banks aggregated R. 44,700,000, and the interest and commissions collected were R. 27,700,000.

It is scarcely needful to cite at length the regulations of the class of banks just considered. Suffice it to say that these regulations, like those of all stock associations, must be approved by the Government. Latterly, this control has been extended to include even private banking firms and exchange offices. A decree adopted by the Imperial Council on June 3 (15), 1894, and promulgated on July 5 (17) of the same year, puts in force a series of restrictions, of which the principal are these: Anyone wishing to open a banking house or exchange office must make a formal declaration to that effect, specifying the particular kinds of transactions in which he or they wish to engage. This declaration is forwarded to the Minister of Finance, who may demand further information and explanations. The Minister may order examinations to be made of the books and business affairs of the establishment. After such an examination of a banking house, he may forbid it to sell lottery bonds on time, to borrow on collateral deposited with it a greater sum than it has loaned thereon, to accept deposits of any kind, or to open accounts current. Any banker guilty of having engaged in a transaction forbidden by the Minister is liable, for the first offence, to a fine of R. 100 to R. 1000; for a second offence, to a fine of R. 1000 to R. 3000, and, upon conviction of a third offence, he is to be fined R. 300 to R. 3000 and imprisoned for a term of from two to eight months, his establishment is to be closed and the offender is to be forbidden ever to open another bank.

This moralizing of speculation has been inspired by the best intentions. It has been elsewhere shown what results it had produced one year after the promulgation of the decree. (See chapter on the Bourse.)

MUTUAL CREDIT ASSOCIATIONS.

The origin of the first Mutual Credit association and its rapid development have already been described. Thirty years later (on January 1, 1895) their number was ninety-three, of which two were in St. Petersburg (one in the city and the other in the district) and one in Moscow. These three associations together had 10,494 members, of whom 6127 were in St. Petersburg. The capital cities of the provinces had forty-five Mutual associations, and the capital cities of the districts had the same number. The whole number of members was 56,629, of whom 2200 were in Moscow, 30,318 in the capitals of provinces, and 15,837 in the capitals of districts. Thus the total number of these associations, which were expected to produce such important results, does not exceed that of the branches of the State Bank, and it is rather interesting to note that only one of these associations, that of the capital of the district of Gomel, was established in 1894; all the others are at least ten years of age, and the greater part of them fifteen or twenty years, or more. The enthusiasm which followed upon the establishment of the original association in St. Petersburg has very greatly abated, if, indeed, it has not entirely died out. For this result there are two reasons. Faith in the creative force and earning power of mutuality has been impaired by several serious mistakes; and, secondly, the great amount of aid extended by the State has paralyzed the efforts hitherto made in the direction of self-help. The capital of the associations is R. 21,700,000; their reserve, R. 5,100,000, and their funds reserved for various special purposes, R. 1,700,000. Of this total of R. 28,500,000, St. Petersburg has R. 4,700,000; Moscow, R. 4,000,000; the capitals of provinces, R. 14,400,000, and the district capitals, R. 5,400,000. On January 1, 1895, all of these associations together had in ordinary accounts current, R. 41,800,000; in conditional accounts current, R. 8,000,000; in conditional deposits, R. 1,750,000, and in deposits repayable at a fixed time or on demand, R. 58,000,000. The debts of the associations aggregated R. 14,600,000; their profits, R. 6,100,000, and their total transactions, R. 169,100,000. They held deposits for safe-keeping amounting to R. 12,800,000. Included in their assets were R. 2,600,000 of available cash, R. 56,200,000 of paper bearing two signatures, R. 23,900,000 of bills drawn to order and guaranteed by deposits, R. 20,500,000 of loans on collateral, R. 31,100,000 in special accounts current (on call), and R. 5,900,000 of bonds and stocks. Their debts in default aggregated R. 1,600,000, their real property was valued at R. 2,500,000, their losses amounted to R. 57,600. As mentioned above, their paid-up capital was R. 28,500,000; the capital subscribed but not paid in was R. 187,775,100.

LAND CREDIT INSTITUTIONS.

Until the emancipation of the serfs in 1861, the land credit business of Russia was conducted under the auspices of the State Bank. The process then was quite simple, and no land registry system was required. The terms of credit were based on the number of serfs, or “male souls.” Of course, this unit of reckoning disappeared when emancipation was decreed, and the whole business came to an end. In order to secure outstanding debts, the amount which land-owners owed the Bank was deducted from the so-called “liberation fund,” and this altered debt was laid upon the emancipated serfs, who were to wipe it out in forty-nine years, with interest at five per cent., by an amortization rate of one per cent. yearly. Some of these charges are still current.

Then, for many years, the most varied plans were tried for supplying land-owners with credit. Direct help from the State was not considered; nor even State guaranty of interest. But there were tendencies along these lines. The Kingdom of Poland and the Baltic Provinces had long since made shift for themselves; for in those countries there were joint-stock land credit companies, whose mortgage bonds also found a ready sale abroad. It is true that the countries in question had a land registry system; and, be it added, they were in the habit of helping themselves. Such advantages were quite lacking in the Empire at large. To have drawn up land registry books would have consumed too much time; but there were at least efforts at self-help. Let us first mention the Joint-Stock Land Credit Company which was organized at St. Petersburg in 1866-7, under the directorship of the energetic Marshal, Count Bobrinsky (later, Minister of Public Works). The company was to issue five per cent. mortgage bonds, payable in coin, so as to be acceptable abroad. Loans, interest, and amortization dues were to be paid in coin, and amortization should be complete when the rates had amounted to 125 (it should be explained that in those days exchange was 20 to 25 per cent. below par). These feats were difficult; and the State stepped in, or rather it was adroitly drawn in, to help.

When Count Muravieff was appointed Governor-General of the so-called Western Provinces, in 1863, with headquarters at Vilna, one of the watchwords of the time was the “Russification,” or “Muscovization,” of that western region; and R. 5,000,000 was assigned for this object. But either the Russians were not pleased to settle in that Polish environment, or else the scheme dragged by reason of bureaucratic indolence; for, when Muravieff left his post at the end of 1866, the R. 5,000,000 were still intact. Under the triumphant banner of Count Peter Schuvaloff, then at the zenith of his power, the aristocratic party had again got breath, to the discomfiture of Muravieff and Milutin; so that Count Bobrinsky succeeded in anchoring the loose R. 5,000,000 as a State advance, free of interest, in behalf of his credit colony. It was argued that if the prostrate Russian proprietors were assisted to their feet again, they could transplant themselves to the western and southwestern provinces (Volhynia and Podolia), thereby obviating the necessity of replacing Polish nobility by promiscuous, unlineaged ragamuffins. Thanks to this contribution, the company was now presentable in the European money market; and Rothschild, with alacrity, engaged to place the mortgage bonds to the amount of R. 50,000,000, or even higher. Meanwhile, the provinces also bestirred themselves, and local companies were formed, which issued bonds at five, six, and seven per cent. One of the earliest and most substantial of these companies, that of Kherson, flourishes still. Besides the companies, joint-stock mortgage banks were organized; but all, with an exception to be treated below, were based on paper capital, so that their market generally remained local and restricted. Most of these banks are still in existence, having hitherto withstood the wrenching violence of political agitations; but they have in nearly all cases reduced interest on their bonds to five per cent., which reduction was facilitated by the favorable situation of State credit.

Central Land Credit Bank.—We now come to the exception referred to above. This was the Central Land Credit Bank, initiated in 1873 by capitalists of St. Petersburg, Berlin, and Vienna, with a capital stock of R. 5,000,000. This concern contained germs of decay in its very incipiency, for it originated just at the time of the financial crash in Vienna; nor did the founders enjoy the satisfaction of raising the shares even temporarily above par. This bank’s object was to buy up most of the six per cent. mortgage bonds issued by the local banks and replace them by five per cent. bonds payable in coin, which might be marketed abroad and make good the abatement of one per cent. The process continued until the war in the East, and for so long as the rate of exchange stood between eighty-five and ninety. Losses began in 1877, though at first they could be covered out of the reserve fund, as yet scarcely five years old. The loss for 1877 was R. 797,000; then it reached as much as R. 1,292,000 for single years, and showed a total of R. 10,997,000 from 1877 to 1893. This had reduced the capital stock of R. 15,000,000 to barely R. 4,000,000; though down to 1887 it was partly revived by State advances amounting to R. 4,100,000, which relief then ceased. Thanks to the State reinforcement, the capital stock was still as great as R. 7,400,000 at the beginning of 1894. The State has now transformed the R. 44,700,000 of outstanding mortgage bonds into three per cent. rentes; the bank is dissolved, and the shareholders receive the R. 7,400,000, or about equal to fifty per cent. of their stock.

The Pomestchik, or Proprietors of Large Estates.—No class had been more prompt to welcome the Eastern war, in 1877, than the great landed proprietors. In 1875, the paper rouble had risen to 90 per cent., the Imperial Bank had a considerable coin reserve, and Finance Minister Reutern entertained serious hopes of a speedy solution of the financial problem. But the export trade was imperiled; Odessa could no longer pay high prices for crops, when twenty francs brought only six roubles instead of eight. So a little war, with obligatory increase of paper currency exempt from extra tax, was the Pomestchik, or manorial, ideal; and it was shortly realized. The note circulation of the Bank of Russia rose from 715 to 1140 million roubles, and the rate of exchange fell all the more persistently because at the same time the Bank’s coin reserve had been materially reduced, and at the end of the war was only R. 120,000,000, or somewhat over ten per cent. of the circulation. Could the wholesale producer of grain wish anything better, especially as for full ten years after the war the rate of exchange kept sinking and sinking, and at last twenty francs brought not only eight, but even nine and ten roubles?

However, the sunny situation became gloomy with clouds. American harvests began to influence the grain market of Europe more and more perceptibly, and prices fell. Then, too, the Russian proprietor now had to pay 7½, 8, and even 9 paper roubles in interest and amortization rates on 100-rouble mortgage bonds, instead of 6 or 6½ roubles, as was the case before the war. (The bonds had been issued on a hard money basis.) This went against the grain in more ways than one; and the “poor” Pomestchik, or lords proprietors, pathetically exclaimed that the Eastern war, which they now said they had never approved, and the Nihilistic outrages, which they abominated, were ruining them and society. In other words, the State must assume their burden; as it gradually did. One step in this direction was the institution of the Bauernbank, or “Peasants’ Bank,” in 1882.

Peasants’ Bank.—There were wide complaints that the peasantry, in certain districts, had received too little land at the time of the emancipation in 1861; and in particular governments this was quite true. The general lot of the peasant class was therefore far from enviable; especially as the mir, or agricultural communes, by their periodical redistributions of land, prevented any properly individual ownership, with its promise of better farming. Moreover, the former serfs had come to hold the opinion that each new Czar ought to favor the peasantry by undertaking a fresh distribution of land; and this idea became so fixed in their minds that Alexander III., on the occasion of his coronation in May, 1883, invited six thousand peasant commune chiefs to Moscow, provided for their hospitable entertainment, and assured them, in a stately address, that their ideas, or the current rumors, in regard to his intentions were altogether erroneous. However, the Peasants’ Bank should liberally supply the rural population’s urgent needs of capital, and incidentally facilitate the sales of the large proprietors. The Peasants’ Bank, a strictly State institution, paid eighty per cent. of the price whenever there was a conveyance of land from the large proprietors to the peasants, and the latter paid, or failed to pay, the remaining twenty per cent. in cash. Of this, more anon. The acquisition of land might be either personal or collective and communal. Without entering into too many critical details, let it suffice to say that the defects of the plan, both at the start and now, some twelve years later, may be referred to the fundamental mistake of artificially raising the price of land at a time when American competition and other causes were bringing prices down. The peasants readily consented to pay what was asked without analyzing the market situation. At the most, they had to pay only one-fifth, and even this the seller would willingly throw off, as he generally had a pretty good bargain in the eighty per cent. paid by the State. The interest and amortization of the debt to the State should be discharged in 24½ or 34½ years. The results have been as follows:

By the end of 1893, 11,440 advances had been apportioned between 943,477 persons. In a word, the debts were mostly collective, and the mir, or communal system, still prevailed. The conveyances embraced 2,047,000 Russian dessiatines,* and the proceeds amounted to R. 89,600,000, of which the bank paid R. 70,333,000, and the remaining R. 19,250,000 were paid out of the buyers’ “own resources.” About R. 9,750,000 are bonded for 24½ years and R. 60,500,000 for 34½ years. The status of these debtors may be learned from the following official communication, which was published in connection with the “Act of Grace” on occasion of the Czar’s accession to the throne on November 26 (14), 1894:

“Since its institution, the Peasants’ Bank has loaned money at 5½ per cent. (without amortization or other charges), and has also issued bonds at this rate. Although since the end of last year the bank has converted its debt into 4½ per cent. bonds, and issued no more bonds at 5½ per cent., the annual payments of the bondholders could not be correspondingly canceled, since many of the latter were not in a position to meet their obligations. Their arrears increased, and they finally made over their land to the bank in default of payment. The bank is therefore subject to heavy losses, the extent of which may not be estimated even approximately, since the lands have not yet been sold. It was purposed to cover a part of the loss by fixing a higher rate of interest; but inasmuch as the imperial manifesto has decreed a reduction of interest by one per cent., the losses will fall upon the State.” At the close of 1894, the debt amounted to R. 63,016,796.

Other Mortgage-credit Associations.—We must return to the large estates and their banks. The Central Credit Bank, which was founded in 1873, soon succumbed, as we have seen, to adverse conditions of exchange, and its liquidation was to be completed by the end of 1895. Its older and greater companion, the Land Credit Company, had no shareholders. This, too, was paternally adopted by the State, which in 1885 assumed the guaranty of interest on the mortgage bonds, but at the same time reduced the rate from 5 to 4½ per cent. The amortization bonus (120 to 100) disappeared, as the new bonds were redeemed at par.

Titled Nobility Bank.—The Company was itself transmuted, in 1886, into a purely State “Aristocracy Bank,” and its plebeian patrons had to find other accommodations within five years, meanwhile paying one per cent. higher interest than the aristocracy. By January 1, 1889, after three years of activity, the bank had arrears to the amount of R. 4,900,000 on loans amounting to R. 170,000,000—that is, the arrears amounted to 46 per cent. of the annual charges. Advances in sums above R. 100,000 reached a total of 25 per cent.; in sums between R. 10,000 and R. 100,000, 66 per cent., and 9 per cent. for sums under R. 10,000. Manifestly, the State had done too little for its distinguished clients; but its omissions were made good by the ukase of October 30 (18), 1889, providing for the issue of a lottery loan of R. 80,000,000. As the lots of the two earlier issues (1864 and 1866) were quoted at 240, these new lots at 5 per cent. (though the rate was actually no more than 4¾ per cent., on account of a 5 per cent. tax on coupons) were offered at 215, payable within six months. The resultant enthusiasm was fairly unbounded; instead of 800,000 lots, over 26,000,000 were demanded, but the price soon fell, and payments were far from punctual.

The State Aristocracy, or Titled Nobility Bank was none the worse for these diversions. Most of the proceeds (R. 172,000,000) were turned over to the bank; and as it paid only three per cent. interest thereon, the interest on its own advances was forthwith reduced from 5 to 4½ per cent., with reactionary effect on all loans contracted within the preceding four years. After this, the bank paid R. 100 per bond, and not R. 98, as it had formerly done. The period of amortization was also lengthened from 48⅔ to 51¾ years for borrowers whose annual rate was ½ per cent.; from 367/10 to 38⅓ years where the rate was 1 per cent. At the same time, it was ruled that on and after May 1, 1890, the regulations of the bank should be strictly enforced. Events, however, ruled otherwise, for there came the famine of 1891; and the inaugural manifesto of 1894 granted the same grace to the noble debtors as to the peasants, both being equally brought low by debt and equally helpless to meet their obligations. A six months’ respite, or prorogation of debts, was allowed in case of estates forfeited to the Nobility Bank, as it was impracticable to sell them. An aristocracy bank may not sell estates to commoners, and there is nothing for it to do but exercise aristocratic patience toward its debtors. We summarize the condition of the bank’s affairs for 1893:

At the close of 1894, the claims of the Nobility Bank amounted to R. 468,000,000, of which about R. 117,000,000 had come over from the original institution and included loans to commoners. The Nobility Bank had by no means driven out private credit concerns, nor even seriously checked their activity. We shall proceed to illustrate this by official data, first remarking that the Nobility Bank simply facilitated the acquisition of debts, and (if we may make so bold), it disaccustomed people from the art of paying. The official data are as follows:

On January 1, 1895, the circulation of mortgage bonds was R. 1,530,000,000, including R. 87,600,000 payable in coin, and 7,200,000 German marks. Of the total circulation, R. 282,000,000 belonged to the Nobility Bank; R. 62,900,000 to the Peasants’ Bank, with interest reduced from 5½ to 4½ per cent.; and the remaining bonds, amounting to R. 1,185,100,000, were issued by private banks.

The latest returns of Other Land Companies show, in their latest published statements, the following amounts of mortgaged bonds outstanding:

The Bank of Kherson, a mutual liability company, R. 103,800,000; the ten joint-stock banks of Kharkov, Poltava, Tula, Moscow, Bessarabia, Samara, Kiev, Vilna, Yaroslavl, and Don have, unitedly, R. 506,100,000; five municipal credit companies, R. 374,700,000, distributed as follows: St. Petersburg, R. 179,900,000; Moscow, R. 125,500,000; Odessa, R. 56,200,000; Kiev, R. 10,100,000, and Cronstadt, R. 3,000,000; total, R. 374,700,000. Credit Company of the Kingdom of Poland, R. 117,500,000; Warsaw Credit Company, R. 41,600,000; four other Polish cities, R. 11,400,000; Esthonian Nobility Credit Company, R. 2,000,000 and 7,250,000 marks; Livonian Land Credit Company, R. 30,700,000; Courland Land Credit Company, R. 17,000,000 and R. 1,700,000 payable in coin; five Baltic cities, R. 29,000,000; City of Tiflis, R. 9,100,000, and two Nobility Banks of the Caucasus, R. 17,800,000. Leaving out of account the municipal banks, Peasants’ Bank, and the Polish institutions, we find that the total mortgage obligations on January 1, 1895, amounted to R. 1,164,500,000, against R. 654,400,000 on January 1, 1887; an increase of some R. 510,000,000, or nearly eighty per cent. in eight years. For the Nobility Bank alone there was an increase from R. 208,800,000 to R. 468,000,000, or nearly 124 per cent. In this instance, moreover, the value of the mortgaged property rose from 3070/100 to 3125/100 roubles per dessiatine; the total average increase being from 251/100 to 2612/100 roubles per dessiatine. In other words, the banks loaned more than before, although the decline in prices of crops would seem to have encouraged a contraction in the loan business. But it was necessary to compete effectually with the Nobility Bank; and thus the State subsidy stimulated running into debt. In May, 1894, the third, or socalled “third,” demand addressed to backward State debtors involved no less than nine per cent. of the aggregate estates mortgaged by the Nobility Bank. We have seen that a respite was granted in November, 1894.

The Land Credit banks cleared an annual average net profit of fifteen per cent. for the period 1888-92. The following are specimens of the dividends:

Kharkov, 13.8 per cent.; Poltava, 17.1 per cent.; Tula, 9.6 per cent.; Moscow, 16 per cent.; Bessarabia, 14.1 per cent.; Samara, 16.6 per cent.; Kiev, 19.4 per cent.; Vilna, 15.9 per cent.; Yaroslavl, 6.7 per cent., and Don, 14.8 per cent. The capital stock of these ten banks was R. 33,250,000 in 1888, R. 36,600,000 in 1892, and R. 41,600,000 at the close of 1894. Their net profits in 1894 were R. 7,580,687, or 18.2 per cent.

We have had occasion to speak of the Czar’s inaugural ukase, with its large concessions to debtors. The abatement of ½ per cent. annual interest to the nobles and peasants implies an inevitable expansion of the State budget; and this begins to assert itself in the case of the Nobility Bank whenever the loans increase by R. 42,000,000. The Nobility Bank was to assist in lightening the burdens of its customers, which office it discharged by paying on their account R. 212,000,000 to other banks, and loaning them 112 millions in cash. Meanwhile, had the debts on landed property decreased at private banks? They had increased by R. 217,000,000.

Before the emancipation of the serfs, the estates of aristocratic landowners, with a serf population of 5,000,000 “male souls,” were mortgaged to the amount of R. 328,000,000 to the State Bank. This amount was then converted, at the emancipation, into a bonded debt redeemable in forty-nine years by the liberated peasantry. The only land credit concerns regularly operative in Russia were those of Poland and the Baltic Provinces; and as late as 1869, the total mortgage debt was not above R. 117,000,000. In 1874, it was R. 335,000,000; R. 511,000,000 in 1879; R. 617,000,000 in 1884; R. 930,000,000 in 1889; and, as we have seen, some R. 1,530,000,000 in 1894. The liberation debt of the peasants is not included in the foregoing figures. On January 1, 1893, it amounted to R. 716,000,000, and after an abatement of R. 183,250,000, granted by the State on sundry occasions, it still amounts to more than R. 532,000,000. Under the item of emancipation, the State has paid the noble proprietors R. 572,000,000 in mortgage bonds, R. 6,000,000 in cash, and R. 316,000,000 in the way of canceled debts; a round total of R. 900,000,000. The arrears of the peasant communes for emancipation dues are locally as high at 300 per cent. of the annual charges; so it is no hard matter to understand the State’s frequent practice of canceling back accounts. The end is perhaps not yet.

According to a publication of Mr. Golubov, Secretary of the Committee of Land Mortgage Banks, the mortgage indebtedness for the period 1889-94, was as follows:

The average loan for each dessiatine of land was 24 roubles and 90 copecks in 1889; 26 roubles and 13 copecks for 1894.

SAVINGS-BANKS.

We come now to the Savings-Banks. A new law concerning them went into force on June 1 (13), 1895. Its main provisions are as follows: The State shall assume the responsibility for all sums deposited, and “these are not to be used toward defraying the general expenses of the State” (Art. 2). Deposits cannot be attached except by judicial order. The funds of savings-banks are to be turned over to the State Bank, which shall pay on them a rate of interest less by at least ½ of 1 per cent. than that paid upon sight draft accounts, but never less than ½ of 1 per cent. per annum. The funds are to be invested in State securities or in securities guaranteed by the State. The surplus is to be turned into a reserve fund until the latter amounts to ten per cent. of the deposits held on December 31st of the year last past. Such profits as may yet remain are to be carried to the credit of the Treasury as a budgetary receipt (Art. 9). On the other hand, if the profits are not sufficient to pay the interest due to depositors the State will make up the difference (Art. 10). The limit of interest-bearing specie deposits is R. 1000 for an individual and R. 3000 for a corporation. If this limit is passed, interest ceases on the whole of the specie deposit in that account. Notice is thereupon sent to the depositor, and if, at the end of a month, he has not reduced his deposit within the legal limit, the surplus will be invested in State securities for his account (Art. 35). The rate of interest paid to depositors is to be fixed from time to time by imperial decree (Art. 43). When any account has not been increased or drawn upon for thirty years it becomes the property of the savings-bank (Art. 52).

It is yet to be seen what measure of success these reforms may have. On January 1, 1894, the number of savings-banks under the management of the State Bank was eighty-six, and their deposits aggregated R. 287,500,000, of which R. 260,400,000 was in ordinary savings-banks, and R. 27,100,000 in “postal banks.” The provinces of St. Petersburg and Moscow appear in this total for R. 40,800,000 (14 1-5 per cent.); the five provinces of the north, for R. 13,500,000 (4.68 per cent.); the six provinces of the east, for R. 28,900,000 (10.05 per cent.); the seven provinces of the manufacturing districts of the interior, for R. 46,300,000 (16.11 per cent.); the nine provinces of the Terre Noire, for R. 48,900,000 (17.01 per cent.); Little Russia (three provinces), for R. 15,100,000 (5.24 per cent.); the three Baltic provinces, for R. 9,500,000 (3.31 per cent.); the six provinces of the northwest, for R. 14,900,000 (5.17 per cent.); the three provinces of the southwest, for R. 13,700,000 (4.76 per cent.), and the six provinces of the south, for R. 23,700,000 (8.14 per cent.). This makes for European Russia, properly so called, R. 255,300,000, or 88.67 per cent. of the whole. Of the 11⅓ per cent. remaining there were R. 8,750,000 in the ten provinces of the Vistula; R. 13,100,000 in Caucasia and Transcaucasia, and R. 10,333,000 in Asiatic Russia.

On April 1, 1894, the various social classes were represented among the depositors thus: Agriculture and trades closely allied with it, 241,636 depositors, representing R. 51,100,000; trades-people of the cities, 101,593 depositors, with R. 14,700,000; the mill and factory classes, 83,039 depositors, with R. 11,250,000; domestic servants, 125,959 depositors, with R. 19,800,000; the commercial classes, 123,250 depositors, with R. 20,900,000; soldiers, 72,302 depositors, with R. 12,100,000; Government employees, 95,949 depositors, with R. 21,100,000; personal servants, 119,992 depositors, with R. 22,300,000; all other classes, 281,476 depositors, with R. 61,600,000; and corporations, 112,025, with R. 35,200,000. There were altogether, therefore, on April 1, 1894, 1,357,221 depositors, with an aggregate of R. 270,050,000, or an average of R. 198.97.

The monthly savings-bank report of June 1, 1895, puts the number of these banks at 3,388, the number of depositors at 1,746,309, and the total deposits at R. 350,125,000. Between January 1st and June 1st of that year the savings-banks increased by 198, the depositors by 91,417, and the deposits by R. 14,600,000.

SMALL CREDIT INSTITUTIONS.

We turn now to the examination of a new species of credit institution of very recent origin. The “Messager Officiel” of June 17 (29), 1895, publishes the text of an order of the Council of State, approved by the Emperor on June 1st (13th), authorizing the establishment of institutions for “small credits,” in whose behalf the State Bank will open special credits for the formation of their capital. From the regulations drawn up for the management of these institutions, it appears that they are to be of the following classes: (1) Credit associations; (2) credit and savings associations; (3) commercial or savings banks of rural communes, of bailiwicks, or of Cossack villages (Stanitsas). The Commission, whose duty it was to draw up rules for these institutions, had before it the task of erecting, in the midst of the rural population, a type of credit establishment which should meet the wants of small tradesmen without demanding of them advances from their own resources. To this end, and also to avoid the defects which the practical working of existing credit and savings societies for the past thirty years has shown to exist in them, the new law establishes credit institutions whose working capital shall be furnished by the State Bank under the guaranty of all who share their benefits. Nevertheless, these socieities may, if they wish, be established upon a capital furnished by provincial councils (Zemstvos), or by individuals. If the capital is supplied by the State Bank, the direct management of the institution is with the Bank or its branches, whose agents superintend the business of the enterprise, the management of its affairs, the stockholders’ meetings, etc.; they have a right also to discharge or to prosecute such employees as may be guilty of neglect of duty or malfeasance in office. This same privilege belongs to representatives of provincial councils or agents of individuals who may have furnished the funds necessary for the establishment of one of the new credit institutions. The profits of these institutions are not to be paid out in dividends but are to be used to furnish a capital which shall belong to the institutions themselves.

CHAPTER VI.

THE BOURSE.

IN 1856, the dealings upon the St. Petersburg Bourse comprised only the following items: Exchange on London, Hamburg, Amsterdam, and Paris; under the heading of public funds, one six per cent. and two five per cent. loans; the securities of sixteen corporations, including: The Russo-American Company (dissolved in 1868 as a result of the sale of Alaska to the United States); three fire insurance companies; three maritime insurance companies; one mineral-water company; one cotton-spinning corporation; one Volga navigation company; one company accepting goods on storage and in pledge; and the St. Petersburg-Zarskoe-Selo Railroad Company, with a line 16⅔ miles in length. This was not an extensive showing. By April, 1862, however, there were upon the official list eleven public loans; the bonds of the Crédit Foncier of St. Petersburg; the 5½ per cent. bills of the State Bank and various 4½ per cent. railroad bonds; the stocks of five fire insurance companies; twelve shipping companies, four railroad companies, etc.; in all, thirty-seven different issues. To emphasize the unimportance of the Bourse of those days, we have but to recall the fact that, in 1860, the “Gazette de la Bourse” suspended publication during eighteen consecutive days; for throughout all of Holy Week and Easter Week, and up to the following Tuesday, the Bourse was closed. Ordinarily, it was open only on two days of the week, Tuesday and Friday, and then only from four to five o’clock; for the prices of merchandise and securities dependence was placed mainly on advices from Amsterdam, London, Hamburg, and especially from Berlin. It is so no longer. Since 1872, the Bourse has been open six days in the week, every day; that is to say, except Saturday. It must not be inferred from this that the Jewish element is predominant on the St. Petersburg Bourse; on the contrary, the Jews have always been less prominent there than in other money markets. Moreover, during the last few years, the Bourse has been open on Saturdays, as it is elsewhere. On December 30, 1878, the Bourse dealings represented four issues of five per cent. bank bills; sixteen classes of public securities, including guaranteed railroad bonds; fifty-nine series of mortgage bonds (issued by cities and provinces); the shares of twenty-five commercial and ten foncier banks; the shares of about twenty manufacturing and fifteen insurance companies; the stock of twenty-one and the bonds of five navigation companies; the shares of thirty-six railroads, and the bonds of twenty-four.

At the close of 1890, there were in all Russia:

The important transactions looking to the reduction of interest on Government loans, the purchase of railroads by the State and its refunding of their obligations, which went on from 1889 to 1894, gave to the St. Petersburg Bourse a wholly new bearing, and brought to it business of an importance previously unknown. It is a well-established fact that a country which has need of foreign capital is not in a position to hold a commanding place among either the money or security markets of the world. Nevertheless, there have been several instances in recent years in which countries thus situated have persuaded themselves that they were able to declare their independence of the real money markets of London, Paris, Amsterdam, Berlin, and Frankfort. Between the close of 1893 and the close of 1894, this emancipation on Russia’s part was specially pronounced. Even the death of the Czar Alexander III. did not arrest it. One circumstance peculiar to Russia has greatly aided the emancipation. Ever since M. de Witte has been at the head of the Finance Department he has exerted himself to put an end to speculation in exchange, and on several occasions he has made special efforts in this direction. The speculators have finally taken him at his word and have devoted themselves with the greater ardor to stocks and securities paying a fixed rate of interest. As proof of this may be cited the prices of the shares of a few banking and other corporations as they were quoted on December 31, 1893, and December 31, 1894, respectively:

This upward tendency became so much more pronounced in January, 1895, that the Government, in its solicitude for the public welfare, felt constrained to warn its subjects of the dangerous path they were treading, declaring at the same time that it could afford them no assistance, but relied upon their own wisdom and foresight. The effect of that appeal was only temporary. Those who deal upon the Bourse are always confident that the storm will not reach them or that they will be under cover when it breaks; so the ministerial admonition was little heeded. On August 1, 1895, the majority of shares were much higher than they had been eight months earlier, as will appear from the following comparative quotations:

The months of July and August were signalized by a remarkable advance in prices; a very decided reaction followed during the second half of the latter month; and yet on August 31st (September 12th) the quotations were as follows: The private bank, 595 to 600; Discount Bank, 875 to 868; the International, 712 to 719; Bank of Foreign Commerce, 537 to 533; Volga-Kama, 1320 to 1300; Azof-Don, 720 to 728; Warsaw, 536 to 537; the foncier bank Bessarabia-Taurida, 680; Vilna, 655; Kharkov, 530 to 535; the Insurance Company of 1827, 1600; the Second Insurance Company, 370; Rossia, 440 to 450; the Rybinsk-Bologoë Railway, 179; the Southeastern, 190 to 191. Three days later, on September 2d (14th), at the date of the last quotation, we have seen as we bring this chapter to a close, the Discount Bank had gone down still more, to 840; the International, to 703 to 685; the Volga-Kama, to 1285, etc. Nevertheless, in its monthly bulletin of the Bourse, published on September 3d (15th), the “Journal de St. Petersbourg,” which has always been very conservative, stated that the downward tendency had been brought about partly by the scarcity of money, but more especially by undue speculation in the shares of new concerns having as yet no actual existence; and it added:

Dealing upon the Bourse in Russia is greatly facilitated by certain practices to which the independent banks lend themselves. Elsewhere (in Austria, for example) it has been made a reproach to these institutions that they carry accounts for dealers and allow speculators for a rise to deposit in their hands those shares whose prices they wish to put up or sustain. In Russia that practice is disguised under the name of “call loans.” This is a transaction to which reference has been made in our chapter on banks. Calls loans, as the term is understood in Russia, are loans in the form of accounts current guaranteed by securities or other valuables (including even real estate and mere personal security), which loans may be called in at any moment after six hours’ notice, or a notice of three or four or five days, as the case may be. The minimum interest on call loans is generally above that paid by the State. Thus, during the latter half of 1888 it varied between 6 and 8 per cent.; in 1889, between 4½ and 8; in 1890, between 4½ and 7; in 1891, between 4 and 8; the same in 1892, and in 1893, between 4 and 7 per cent., whereas during those same years the interest paid by the State Bank on accounts current subject to cheque was only once as high as 3.6 per cent. (from September 3, 1888, to March 30, 1889), and for the remainder of the time it was between 1½ and 3 per cent. The “Bulletin Russe de Statistique,” which we have previously mentioned, in speaking of this subject calls attention to the fact that in Russia money loaned for a short term brings in a larger return than that invested in funded securities, which is precisely the opposite of the rule elsewhere. It adds that the banks find call loans to be very profitable, and that they often employ in this way nearly all the money they hold subject to cheque.

The downward tendency that had begun in August was even more pronounced in September. The Government felt called upon to set itself right upon the subject. In a country where the granting of credit is entirely a State function, and where everything centers in the State, it was altogether natural that speculation should demand of it aid and succor in the shape of new issues of paper money. The Minister of Finance had the courage to refuse such aid and to leave speculation to its own devices, holding that the well-being of the State or of the community was in nowise dependent upon a high quotation for banking shares and for the stocks of a few industrial concerns. He explained his position in an official note, inspired by sound principles, which shows that the guardianship assumed by an absolute government sometimes appears to it extremely onerous. As a declaration of sound canons of finance the document may merit reproduction here.

“SPECULATION AND THE SCARCITY OF MONEY.

“The further sudden decline in the security market toward the middle of last week was not unexpected. On several different occasions the ‘Journal du Ministère des Finances’ has pointed out the probable consequences of the stock exchange game which has grown to such dimensions in the last year and a half, and has called attention to the abnormal inflation of prices in a series of securities listed upon the Bourse. This is not the first time facts have confirmed its predictions. Unfortunately, neither warnings nor the sad experience of heavy losses is sufficient to deter speculative amateurs, lured by the irresistible bait of prompt and easy gain, from intrusting their means, often very limited, to the hands of skillful players.

“Everybody knows that there is no game at which all can win; it is always the rule that some win, while others inevitably lose. The stock exchange game is managed by those who know all the sinuosities, while the inexperienced public, allured by the hope of gain, furnishes the means necessary to keep the game going. Evidently in such a game the winners will be invariably those who direct it—men who thoroughly understand the game and know how to take advantage of the people’s ignorance of it—while the unsophisticated, trusting public always loses in the end and so finds itself punished for its unwise desire to gain wealth quickly, easily, and without labor. Yet, in spite of the absolute certainty of the truth of these statements, in spite of the constant teaching of experience and repeated warnings, there are always persons seeking to make their fortune at the game and intrusting their savings to agents for this purpose.

“Some there are who think that industrial progress bears a steady relation to speculative activity; that while some of the new enterprises which spring up during such activity come to grief afterward, others, more substantial, live and grow, and the net result is a national gain though some investors must inevitably lose. Admitting that this is true, and that we are now in the midst of an industrial revival such as is always accompanied by failures which it is not to the national interest to prevent, still we cannot refrain from declaring that the speculation now rampant upon our Bourse, against which we have continually warned the confiding, inexperienced public, and which, as a matter of conscience, we always shall oppose, has not the slightest connection with the upbuilding of any new enterprise. This speculation is concerned chiefly with a certain small class of securities, to which new additions are made from time to time. The prices of these securities fluctuate violently and often reach a height out of all proportion to the income produced by the shares. The fact is, that it is a pure game of chance, played, too, by some who have very small stakes invested through the agency of banks or other intermediaries, and that no account is taken of the real situation of the enterprises whose stocks are speculative favorites. All kinds of false reports are circulated to put up the price of these securities, and the establishments accept orders at a loss in order to give color to their claims of growth and activity; then, when the shares have found their market among the public, the owners of the enterprise, whether it has been long in existence or has newly sprung up, abandon it. For them its usefulness is over, and they go in search of a new enterprise of like kind. What is there about all this that savors of a renewal of industrial activity? Certainly it is desirable that small savings seek investment in industrial undertakings, but transactions of this kind keep them out of such investments by encouraging a passion for foolish gambling, for which amateurs always pay dearly in the end. The facts prove the truth of these assertions.

“This is the third time recently that securities, especially those in which speculation is most active, have suffered a sharp decline. The fall was especially severe on September 22d and October 4th. Some attribute this to the scarcity of money. Let us see what foundation there is for that claim. It is true that in the fall, when the greater part of our agricultural products come to market, the demand for money increases and the cash in the banks generally decreases for a while. But it should be noted: (1) That the crops of all kinds this year, according to preliminary forecasts, are less abundant than last year; and (2) that the ruling price of grain is generally supposed to be too low, in view of the probable demand, and sales have been very limited; farmers have sold only so much of their cereals as was necessary to provide them with money for their actual needs. Moreover, the exports this fall have not only been less than those of last fall, but less even than those of the summer.

“On the other hand, all needful steps looking to an increase of the circulation were taken in due time. One-rouble silver pieces previously held in reserve have been put in circulation, and the Bank has been authorized to issue the gold belonging to its reserve fund. Thus, every provision has been made to meet an increased demand for money. If in spite of these precautions money is found to be so scarce that some have been compelled to sell their securities in order to obtain it, this scarcity has not arisen out of any commercial demand for money, which, on the contrary, is less than it usually is at this time of year; the scarcity is due to the speculation which has had such an extraordinary development recently upon our public bourses and upon clandestine bourses as well, drawing into the game not only the citizens of the capitals, but also, and to even a greater extent, the inhabitants of the provinces.

“We have merely to place side by side various quotations of those securities on which speculation thrives in order to show the remarkable and absolutely senseless advance scored by many of them in a comparatively short space of time. Let us look at a few of those securities. The shares of the Mills of Briansk (quoted at R. 130 in January, 1894, these shares gradually rose to R. 550 in August, 1895, and then went down to R. 450 on October 5th); the shares of the Mills of Poutivl (R. 75 in January, 1894, R. 180 in September, 1895, R. 130 on October 4th); those of Sormovo (R. 175, R. 370, R. 310, on October 4th); the shares of the Société des Mines d’Or (R. 100, R. 420, R. 400, on October 4th). As to this last company, nobody knows as yet what kind of showing its first balance-sheet will make, nor is anything known with any degree of certainty concerning the extent of the company’s operations. This, then, is simply a case of betting on a rise, with no guide to go by.

“The shares of the Russian Bank of Foreign Commerce, quoted at R. 330 on January 3, 1894, went to R. 534 on August 1, 1895, only to fall sharply to R. 500 by October 4th. Shares of the Discount Bank advanced during the same time from R. 490 to R. 880, and fell back to R. 800 on October 4th. The shares of the International Bank of St. Petersburg and of the Volga-Kama Bank of Commerce have likewise been subject to considerable fluctuations; the former went from (R. 498 to R. 725, and then back to R. 680, while the latter went from R. 905 to R. 1375, and fell suddenly to R. 1290.

“Glancing over the balance-sheets of these banks, we notice that accounts current ‘on call’ and credits opened with correspondents of the banks, which are mainly secured by collaterals not guaranteed by the State, make up the main part of their business. In one of the large banks of St. Petersburg credits of this kind constitute sixty per cent. of the total business, while commercial transactions constitute barely ten per cent. If we add the fact that banking institutions engage largely in rehypothecation, we may form some idea of the extent to which speculation is carried on. In comparison with the enormous sums necessary to keep this speculation alive, the amount of money demanded for commercial needs is absolutely insignificant. Here, then, is the real cause of the scarcity of money. Last year, though the demand for money on the part of exporters was greater than now, it was not necessary to have recourse to a supplementary issue of bills of credit; but speculation at that time was far less active than it is at present.

“But people do not confine themselves to declaring that money is scarce (that scarcity, if it existed, would be due to speculation on the Bourse, as we have shown above); some advise a new issue of bills of credit in order to lessen the damage caused by speculation. This advice seems to us as ill-founded as the notion of the artless public that it is possible to deal upon the Bourse with no risk of loss.

“What is the meaning of the term ‘scarcity of money’? Money becomes scarce in the market whenever too large a part of our available resources have been invested in merchandise so that they are locked up until the merchandise can be sold. When such a state of affairs arises in a country with a proper form of circulation, the demand for money causes an influx from neighboring countries having a greater abundance. In this manner money is secured with more or less difficulty, and the temporary embarrassment is promptly ended. On the contrary, countries that have a fiduciary circulation not current elsewhere, and which are in this respect cut off from other countries, experience in such cases monetary disturbances which are hard to quell. A new issue of bills of credit, by satisfying the temporary demand for money, appears for a time to ameliorate the situation, but as soon as specie is once more plentiful new difficulties arise, producing on the one hand an increase in the price of goods, and on the other a decrease in the purchasing power of money.

“Besides, each new issue of bills of credit serves, first of all, as fuel for speculation, and speculation is an enemy to the common weal because it leads to stock-jobbing, to the enrichment of a few persons by means for which there is no justification, and to the ruin of most of the other participants. If we take into consideration the further fact that it is generally a very difficult matter to withdraw these temporary issues (witness the fact that for fear of unsettling the money market we have not yet consigned to the fire the R 75,000,000 of bills of credit issued under a gold guaranty), we shall have a clear understanding, both of the uselessness of these issues and of their harmful effects. As a matter of fact, notwithstanding all the issues hitherto made, we still feel the lack of money every time the demand for it becomes a little brisk.

“What, then, in its final analysis, is the advice given by that large class of persons who trace the cause of all our troubles to the lack of new issues of paper money and demand that such issues be made? They act as one who should advise a doctor to administer poison to a patient, as a sedative, during the crisis of his disease, with the result of complicating the malady, when a regular and hygienic course of treatment would have brought the patient back to his normal state and resulted in a complete cure. We are advised, in fact, to stir up further trouble in the money market and to furnish additional supplies to the speculation whose baleful effects have never been more acutely felt than now. Suppose that by supplying this additional means of speculation we should save certain overbold speculators from loss, is it not evident that others, less expert, would meet with reverses rendered all the greater by the very fact that the day of settlement was postponed? Is it advisable, for the sake of results so unsatisfactory, to disarrange our monetary circulation and all legitimate business by further complicating, through a new issue of paper money, a system which even now is highly unsatisfactory? The need of regulating our monetary system by the re-establishment of a metallic circulation is an urgent one. Our Finance Ministers and far-seeing statesmen have long been waiting impatiently for a moment propitious for the change.

“Our Finance Department has just entered upon a series of measures tending to establish among us at last a sound and healthful monetary circulation, the lack of which paralyzes every branch of our domestic economy. It is not to be supposed, then, that that department, after having felt impelled to find some way out of the anomalous situation which has continued so long, and after having actually decided upon the preliminary steps, will turn back again, even temporarily, to the very devices which caused the trouble and which have long been condemned both by experience and by a knowledge of the normal conditions of national life.

“Finally, the real needs of commerce do not demand recourse to a supplementary issue of paper money. By legalizing transactions in gold; by putting into circulation from the large reserves accumulated by the State Bank gold enough to supply the needs of commerce and industry; by issuing metallic receipts for our people, who are accustomed to handling only paper money; by placing in circulation, for convenience in small transactions, silver of standard weight and fineness taken from the Bank’s reserve—by all these various means there have been placed in circulation, not a fixed quantity of monetary signs as was the case when supplementary issues of paper money were made, but precisely that quantity for which there was a real need. Another important advantage of this system is that the withdrawal of this circulating medium will be effected without any difficulty and in the exact proportion in which the demand for money grows less, because specie always flows back into its strong-boxes when money becomes plentiful in the market.

“If we are not yet accustomed to the use of gold money because it has so long been out of circulation among us, that is a defect that time will cure. The value of the credit-rouble has been so stable during the last few years that even in transacting business with foreigners our merchants have ceased to protect themselves by a purchase of credit bills on time, as was formerly their custom, in order to avoid loss in the exchange. There is reason to hope that before long transactions will be concluded directly in Russian gold coin, at a fixed valuation and for long terms. It is certain that confidence in the fixity of the exchange rate, and in the possibility of exchanging at any moment at such fixed rate bills of credit against gold roubles, is not far in the future. And then our first aim will have been attained, that of giving greater elasticity to our monetary circulation.”

CHAPTER VII.

THE PRECIOUS METALS.

STATISTICS running back over any considerable length of time are always to be received with caution, and this is particularly true of Russian statistics, because the official publications of the country date back only about thirty years; and of all Russian statistics, those relating to the production of the precious metals and to dealings in them are least worthy of implicit confidence, because there enter into them so many elements, all tending to obscure the truth. Suffice it to recall the fact that all dealings in gold dust are there prohibited, and that this prohibition gives rise to all manner of fraudulent and illegal traffic. Nevertheless, in 1861, M. Tarassenko-Otreschkow, an old officer of the Commissary Department of the army, who had taken part in the siege of Sebastopol, and had afterward devoted himself to the study of economic questions, entered upon that new vocation by the publication of a book entitled “Production of Gold and Silver in Russia,” and treating of the production, importation, and exportation of those metals. We should be sorry to speak disrespectfully of a worthy man deceased for twenty-five years, but in view of what we have said above, we cannot accept as of any great authenticity the information contained in a book whose author, while he was unquestionably a most conscientious man, was not in a position to estimate at its proper value the information he had collected.

So much being premised by way of reservation, we may say that, according to the statement of Narcissus Tarassenko-Otreschkow, silver mining in Russia dates from about 1704, and gold mining from 1745. Between these dates and January 1, 1825, the total production of the precious metals was R. 110,804,540, or F. 443,218,160. The minute exactness of these figures, referring to a period not distinguished for precision, furnishes in itself food for reflection, and we do not insist upon their accuracy. During the reign of the Emperor Nicolas I., from 1825 to 1855, the mines produced R. 360,103,480 (F. 1,440,413,920), and from January 1, 1855, to January 1, 1860, R. 120,000,000 (F. 480,000,000); making a total for the three periods of about R. 591,000,000 (F. 2,364,000,000). The author places the average annual production of gold at 1500 poods (a pood being equal to 16⅓ kilograms), of the value of about R. 20,000,000, and the average annual production of silver at 1000 poods, worth R. 951,000; making a total annual production of R. 21,000,000 (F. 84,000,000). During the thirty-five years, 1825-1860, there were mined only R. 480,000,000, or an average of only R. 13,000,000 per year. Finally, for the last three years of his epoch, M. Tarassenko-Otreschkow makes the following detailed statement:

This makes, he says, a value of about R. 23,000,000 per year. The coinage at the St. Petersburg mint in 1857 was R. 27,200,000; in 1858, R. 22,200,000, and in 1859, R. 23,700,000; making a total of R. 73,100,000. The importations for those three years were, respectively, R. 8,800,000, R. 6,600,000, and R. 2,800,000; a total of R. 18,200,000. The exportations were, respectively, R. 23,700,000, R. 30,800,000, and R. 28,600,000; a total of R. 83,100,000. The exports exceeded the imports, therefore, by R. 64,900,000. We may add that from 1825 to 1860 Russia received from abroad in payment of trade balances R. 100,000,000. At this point we may dismiss these citations, whose value is purely archæological. There can be no doubt that during the years immediately following the Crimean war and the Peace of Paris (1856), a number of events conspired to cause a large exportation of the precious metals from Russia. We need only recall what we have previously said about the abundance of paper money, and bear in mind these two facts: that immediately after the war heavy purchases of all kinds were made abroad, and that a large number of Russians, whom the war had kept at home, left the country after it was over, taking considerable sums of money with them.

We have also seen how, as part of the plan of establishing a metallic currency in 1862, R. 100,000,000 were brought into Russia by a foreign loan of £15,000,000, and with what rapidity it went out again at the end of eighteen months. We have described, further, how from 1868 to 1875, as a result of railway loans, for which the State became responsible, the precious metals, and especially gold, were heaped up in the vaults of the fortress of St. Peter and St. Paul in St. Petersburg, and under what pressure arising out of the Eastern war of 1877-8 and the issue of R. 400,000,000 of new bills by the State Bank, this fund was depleted in its turn. Lastly, we have passed in review the series of fortunate events—notably the debt conversions and an excess of exportations over importations—as a result of which the metallic holdings of the Government have once more been restored, in 1895, to about R. 600,000,000. But we have no hesitancy in declaring that no reliable information is to be had as to the production of the precious metals in Russia prior to 1876. In 1894, however, there was issued by the Finance Department a table showing the production of gold from 1877 to 1893. From this it appears that, during those 17 years, the mines of Russia produced R. 477,793,862; that the largest production of any year (R. 33,000,000) was that of 1893, amounting in weight to 2343 poods 6 livres 14 zolotniks 47 dolei;* that the smallest production of any year was that of 1891, a little more than 1052 poods, valued at R. 14,374,720.

During the same period, the mints issued to individuals, in pieces of R. 10 (impériales), R. 5 (demi-impériales), and R. 3 (ducats), R. 54,000,000; to the Emperor’s private treasury, R. 2,167,655; to the fisc (Imperial Treasury), R. 17,636,855, and to the State Bank, R. 324,882,687. The Bank also received R. 124,845,914 in bars, and medals were struck for public institutions and individuals to the value of R. 1,712,867. Putting these sums together, we find that the R. 477,793,862 produced by the mines somehow becomes R. 525,000,000. But it is to be remembered that the production is estimated in fine gold, while the coinage was of a fineness of only 11/12 until 1886, and of 9/10 since that date. The mintage during those seventeen years was as follows, in millions and tenths of millions of roubles:

A brief official table has been issued for 1894 placing the production of that year at 36,312¾ kilograms of fine gold, of the value of F. 125,070,797 (R. 31,250,000); the export of bars at 60 3-5 kilos; the export of Russian gold coin at 53¼ kilos, and the export of foreign gold coin at 48,512½ kilos, the kilogram being estimated at F. 3444½. The imports are estimated to have been 899 3-5 kilos of bars; 43 4-5 kilos of Russian coin, and 140,373¼ kilos of foreign coin. Thus the imports aggregated 141,317 kilos, against 48,626 kilos of exports, a difference of 92,691 kilos, which, at F. 3444½ per kilo, amounts to F. 319,273,149. The imports of manufactures of gold, which should be deducted from this sum, aggregated F. 1,500,000. The gold used in the arts was 8027 1-5 kilos, of the value of F. 27,600,000; the gold coinage aggregated F. 12,000,420, consisting of 1007 impériales (R. 10) and 598,007 demi-impériales (R. 5), having, together, a gross weight of 3871 1-5 kilos and a net weight of 34841/10 kilos.

As for the production of silver, which has never been very great in Russia, an official table informs us that in 1894 it amounted to 8,578,641 kilos, of a value of R. 1,906,774½; that the exports were 155,717 1-5 kilos in bars, 31 3-5 kilos in Russian coin, and 5111/10 kilos in foreign coin, a total exportation of 156,259 kilos, besides manufactured articles of a value of F. 224,912. The importations were 500,491½ kilos in bars, 657 kilos in Russian coin, 8878 kilos in foreign coin, and manufactured articles to the value of F. 1,182,682. In the arts were used 137,338 kilograms of fine silver, valued at F. 30,500,000. There were coined 3000 one-rouble pieces 9/10 fine, and 3,000,000 smaller coins (10-copeck pieces) 5/10 fine. The silver production of Russia for the six years, 1887-92, is officially estimated at 5015½ poods, as follows: 939 poods in 1887, 924 in 1888, 846 in 1889, 889 in 1890, 838 in 1891, and 579½ in 1892.

Russia’s part in the international movements of the precious metals in recent years has naturally been very considerably affected by the great depreciation of silver on the one hand, and on the other by Russia’s extensive conversions of debts held abroad, necessitating large gold movements. The following official table shows the imports and exports of gold during the last twenty-four years:

For the whole of the twenty-four years the importations were R. 421,670,000, and the exportations, R. 539,541,000, a difference of R. 117,871,000. It is needless to say that that difference would have been much larger but for the fact that the last four years of the series alone show imports aggregating nearly R. 300,000,000, against R. 38,500,000 of exports.

Another official publication, which appeared in 1894, shows the movements of the precious metals, bullion, and specie during the seven previous years (1887-93), from which we quote merely the totals, with this word of explanation, that in returning bullion and specie under the same heading, 100 poods of coin has been reckoned as the equivalent of ninety poods in bars.

The following table gives the like facts concerning silver:

The coinage of silver has always been of two kinds: that of standard fineness (9/10), and that serving merely for small change, which, previous to January 1, 1867, was coined to represent seventy-five per cent. of its nominal value, but since that date, only fifty per cent. It is needless to say that, for many years, silver coins in Russia, as elsewhere, have not been worth the amounts inscribed upon them. The silver rouble is to-day a depreciated coin, like the pieces of 50, 25, or 10 copecks, with merely this difference, that the proportion of silver contained in it is forty per cent. greater than that contained in the smaller coins (90 per cent. as against 50). With this explanation, we may state that from January 1, 1860, to September 30, 1894, the St. Petersburg mint coined silver of standard fineness (9/10) to the value of R. 34,780,529¼; subsidiary silver coins to the value of R. 127,944,847.10; and copper to the value of R. 8,571,928.34. The recoinage is not included in these figures. For the same years (1860-94), it aggregated R. 24,500,000 in pieces 9/10 fine, and R. 20,500,000 in subsidiary coins. During the same period of thirty-five years the mintage of coins less than a rouble has consisted of 83.7 millions of 20-copeck pieces, 35 millions of 15-copeck pieces, 14.5 millions of 10-copeck pieces, and 2.2 millions of 5-copeck pieces, a total of 135.4 millions of subsidiary coins, of which 7,725,000 pieces were coined abroad and the remainder in Russia.

Russia is not, any more than other countries, proof against counterfeiters. It has even been said that the counterfeiting of Russian bills of credit has developed into a regular business in various foreign lands. There is nothing astonishing about this, for the more extensive any country is, the greater the ease with which a large number of counterfeit bank bills may be circulated in it before the authorities become aware of the fact. We accept, then, merely as a minimum the figures contained in an official table and purporting to show that the amount of counterfeit Bills of Credit put in circulation between 1879 and 1893 was only R. 1,312,189.

CHAPTER VIII.

FOREIGN EXCHANGES.

THOSE who have never had any experience of a circulation with an enforced legal-tender quality do not know, cannot even imagine, the uncertainties introduced into every business transaction by variations in the rate of exchange. In the first instance, only foreign commerce appears to be affected, and no harm seems to result except to importers who buy foreign goods on credit and do not know what amount of depreciated currency they must put aside against the day of settlement, to pay a debt contracted in francs, pounds, or marks. The domestic producer appears, for his part, to have no concern in the matter; he may even congratulate himself on the fact that the depreciation of the national currency, as measured in foreign money, affords him protection in addition to that furnished by the import duties, and enables him to sell his goods without fear of competition from abroad. But his joy and his profits are transitory. We have seen above, in our allusions to the Crédit Foncier, that Russian farmers were very well satisfied with the depreciation of the rouble caused by the Eastern war of 1877-8, making it possible for them to sell their grain at a higher price, or rather, to get a larger number of roubles for it. But we have seen also that the necessity which the depreciation of the rouble imposed upon these same farmers of paying seven or eight, or even nine roubles per year, as interest and contribution to the Sinking Fund upon every R. 100 of the specie debt they had contracted with the Société Foncier soon made them plead poverty; and this they did so loudly and so successfully that the Government soon took upon itself a part of these payments, and later assumed the whole burden by transforming the Société Foncier into a State mortgage bank, that Bank of the Nobility, of the unsatisfactory management of which we have had much to say above.

Our present purpose is simply to call attention to the very wide fluctuations through which the circulation, the fiduciary money, passes in a country that has once abandoned a specie basis, the only true foundation upon which to establish a circulation. The following table, which we borrow from an official publication, shows the great changes in value to which the rouble has been subjected, not only during the long period of twenty-five years, but often within the space of a single year.

Let us examine a few of the figures in this interesting table. Take the year 1876: war is not yet declared, but it is expected and dreaded; the value of the demi-impériale ranges from 620 copecks to 698, a variation of about sixteen per cent. We have seen above that during that same year gold exports attained their maximum—R101,800,000. But that value, 698 copecks, which marks the maximum depreciation for 1876, was not reached again for some years, except once at the beginning of 1877 (654 copecks), while the war was still in the future. Thereafter, up to and including 1889, the most favorable valuation was never below R. 7 for the demi-impériale; and in 1888 we reach a maximum of R. 10, or 168 copecks, paper, for R. 1 gold. The year 1888 was the year of Boulanger in France, of the death of the Emperor William I. in Berlin, and of the publication of the treaty of alliance between Austria and Germany. Now, observe the two figures standing, respectively, at the right and left of that maximum of R. 10. The average value was 841, and the lowest was 745. The explanation of this is that after the anxiety caused by the events we have named, William II., just after ascending the throne (June 18th), had paid a visit to St. Petersburg, and confidence had been restored by that fact. But what a margin such fluctuations furnish for speculation, for stock jobbers, and with what ruin they menace the honest merchant! It is in 1890 that we find the most favorable valuation of the rouble (611 copecks for the demi-impériale). The reason is that M. Wyschnegradski was then most busily engaged in his refunding operations, and a series of letters appeared in the “Berliner Boersenzeitung” declaring that the re-establishment of a metallic circulation was at hand. As a matter of fact, however, we know that the Minister had never given the subject a moment’s thought. Accordingly, the increased valuation of the rouble was not maintained. Even as we write (October 20, 1895), though the metallic reserve is twice as great as it was in 1890, and though the circulation of gold is officially authorized and encouraged, the paper rouble is, notwithstanding, lower than in 1890; the demi-impériale is quoted in St. Petersburg at 740 copecks in paper.

As to the silver rouble, which is still officially regarded as the legal tender of the Empire, it has been acted upon by two opposing forces—by the depreciation of paper money, tending to increase its value, and by its own depreciation, as silver, tending to lower its value. The table on page 421 shows the direction in which the silver rouble has moved during the past thirty-five years.

The last column of this table furnishes an interesting study for those who believe that the State has merely to put its impress upon a piece of metal in order to ensure it a fixed intrinsic value. During those years in which Russian credit was severely strained, the silver rouble was more valuable than the paper rouble, the difference being at times as great as forty per cent. But as the credit of the Government improved, silver depreciated as compared with paper money, and in 1893 the difference between them was only 1⅓ per cent. In other words, silver has not succeeded in Russia, any more than elsewhere, in holding out against the depreciation forced upon it by the universal law of demand and supply; it follows that bimetallism has not the slightest chance of revival in Russia. The Imperial Government has never had the least predilection for it, under any event, and we have already shown in our examination of the State Bank that its vaults contain the largest amount of gold and the smallest amount of silver of any on the continent of Europe. Moreover, in 1893, the Russian Government dissociated itself, to a certain extent, from the silver rouble, which had been its legal tender, by inserting in the “Messager Officiel” of August 12th

(24th) of that year the following comments upon an imperial decree of July 8th (20th):

CHAPTER IX.

THE DEBT AND FINANCES OF RUSSIA.

ON January 1, 1870, the “Annuaire des Finances Russes” estimated Russia’s public debt at R. 1,854,475,793.29. This sum comprised all the interest-bearing debt, foreign and domestic, including R. 216,000,000 of exchequer bills (seventy-two series of R. 3,000,000 each, in denominations of R. 50, bearing interest at 4.32 per cent. per annum), and including also of the fiduciary circulation of R. 721,788,189 the unsecured part, amounting to R. 567,972,166.30. In this total, the specie debt was estimated at the rate of 29⅝d. per rouble, the rate prevailing on December 31, 1869.

Twenty-five years later, on January 1, 1895, another official publication shows the same debt to have reached the total, in credit-roubles, of R. 5,776,828,440; that is, R. 1,882,872,438 payable in specie (estimated at the rate prevailing during the last few years, 160 copecks, paper, for R. 1 of specie, making R. 3,012,600,000 credit-roubles), and R. 2,764,627,539 payable in paper. Nominally, then, the debt has more than trebled during the quarter-century, having increased from R. 1,854,500,000 to R. 5,776,800,000. Have the expenses of the Government increased in the same proportion? In the budget of 1870, we find under the heading of “interest on the public debt,” in credit-roubles, R. 78,375,496. That we may not have to return to this subject, let us say at once that, in addition to this amount, there was R. 6,500,000 representing a charge upon guaranteed railroad debts. For 1895, we find the interest charge to be R. 74,094,913, upon the specie debt (or, in credit-roubles, R. 118,551,861), and R. 129,647,261 on the debt payable in paper money, a total of R. 248,199,122 in credit-roubles. If we take account of the fact that this sum includes interest due on the bonds of railroads purchased by the State, we find, in the first place, that while the debt has increased more than threefold, the annual interest charge, which for 1870 was R. 85,000,000 (including the R. 6,500,000 upon guaranteed debts), has not increased in the same proportion. This relative lightening of the burden has resulted evidently from a saving of interest by refunding operations. At this point, it is worth while to examine in some detail the various items composing the public debt. Thus we shall find that the formidable increase between 1870 and 1895 has not arisen entirely out of so-called unproductive outlays—that is, outlays made necessary by wars and by the maintenance of large armies in time of peace; though these, in Russia as elsewhere, make up, unfortunately, a heavy total in the annual expense account. It is often difficult to distinguish clearly between loans which are for a productive use and those which are not, because any given loan may have been made entirely or mainly for the construction of railroads, for example; then as the State bought in the roads it issued rentes against them, and these in the public debt statement are indistinguishable from loans made purely for administrative purposes. Nevertheless, from the large total of the public debt payable in specie (R. 1,882,900,000), we can separate the following items:

This gives us a sum of R. 326,000,000 devoted directly to railroads. But there remain also the large total of R. 560,300,000 of four per cent. consolidated bonds and a four per cent. gold loan of R. 455,500,000, a large part of which were used by the State in the purchase of railways. We are certainly justified in placing at least half of these two sums (or more than R. 500,000,000) in the railway account; and this, together with the R. 326,000,000 named above, leaves but little more than R. 1,000,000,000 under the heading of unproductive expenses, or of expenses which can in any sense be so called.

We come now to the debt payable in paper roubles. In the total of R. 2,764,600,000 named above under this heading, we find also the bonds of some railroads that have been purchased by the State, namely:

These figures make a modest total of R. 44,300,000; but to this must be added two domestic (or non-metallic) railway loans, one of R. 74,600,000 made in 1890, and one of R. 74,800,000 made in 1892, and also two issues of five per cent. railway bonds, that of the Oural line, R. 10,200,000, and that of the Riga-Dvinsk line, R. 1,800,000. These four sums together amount to R. 161,400,000, which, added to the R. 44,300,000 above, makes a total of R. 205,700,000 of loans for productive purposes. Adding also the R. 100,000,000 of five per cent. rentes issued for the railway account, we have R. 305,700,000 to be deducted from the total of the debt payable in paper money, which leaves 8/9 (R. 2,459,000,000) of that sum as the amount devoted directly to State purposes.

It was between 1888 and 1894, as we have already learned, that very important conversions of Russian 6, 5½, and 5 per cent. loans into four per cents. were made, as well as a large number of purchases of railways, the result being an increase of budgetary expenses on the one hand, and on the other a decrease in the amount of interest guaranteed. The net result of these operations the official tables sum up thus: Upon loans payable in specie the interest charge was R. 61,881,281 in 1887, and R. 74,094,913 in 1895, an increase of R. 12,213,632; the interest on loans payable in paper was R. 122,514,658 in 1887, and R. 129,647,261 in 1895, an increase of R. 7,132,603. Altogether, therefore, the refunding operations and the purchase of railway lines added to the annual interest charge more than the equivalent of R. 26,000,000 in paper. But this amounts virtually to a decrease if we take into consideration the disappearance of a large amount of interest guaranteed by the State.

In an article recently published (September, 1895), the official organ of the Finance Department presents an estimate of the amount of the public debt on January 1, 1896, and of the interest charges. The totals are practically the same as those we have quoted for January 1, 1895. The addition of the 3½ per cent. gold loan of R. 100,000,000 made in 1894, and other small sums, brings the specie debt to R. 2,038,284,210. The debt payable in paper money will be increased from various causes by about R. 55,500,000, and will amount to R. 2,820,069,317. The two debts together will make a total, reckoned in paper, of R. 6,081,200,000, the metallic rouble being taken as the equivalent of R. 1.60 paper. We are told that the interest upon the specie debt for 1895, which we have estimated above at R. 74,094,913, amounted in fact to R. 74,274,913, and that the sinking fund for that debt required R. 9,268,561, making a total of R. 83,543,474; for 1896 the interest charge will be R. 79,817,708, and the sinking-fund requirement, R. 10,183,001, a total of R. 90,000,709 in specie. As for the debt payable in paper, the interest charge named above is also slightly increased and becomes R. 130,267,281; its sinking fund will demand R. 13,270,312, a total of R. 143,537,593. While the interest charge upon the specie debt is greater for 1896 than for 1895, there will be a reduction in the charge upon the debt payable in paper; interest on this part of the debt will be only R. 123,040,125, and the sinking-fund requirements, R. 11,087,761, a total of R. 134,127,886. To sum up: the requirements of 1895 are R. 83,543,474, specie (the equivalent of R. 133,669,000 in paper), and R. 143,537,593 payable in paper, making altogether an equivalent of R. 277,200,000, paper. For 1896 the specie requirement is R. 96,000,000 (the equivalent of R. 144,000,000 paper), and the paper requirement R. 134,000,000, or R. 278,000,000 in all. Thus the charges for each year are practically the same.

It is claimed that more than half of these expenses entailed by the public debt are met by revenues imposing no burden on the tax-payers. We present the figures upon which this theory is based, without intending to make ourselves responsible for the soundness of the theory itself.

Out of the gross revenue of R. 179,800,000 produced by the State railways, there is set apart under this heading the

There is more than one item in this table whose title to the character it assumes might be contested. For example, the payment of redemption money by the serfs is certainly felt by those who pay it, and so of the fast freight charges. On the other hand, we may be permitted to ask whether absolute dependence can be placed on all these sources of income. It is altogether possible, for instance, that the Bank of the Nobility may meet with some disappointment in its collections, or that some of the former serfs may allow their payments to fall into arrear, especially as they are somewhat accustomed to delays of this kind, like their former masters of a higher social grade. But let us not insist upon these points. We have seen above that the total public debt is estimated at R. 2,038,000,000 payable in specie, and R. 2,820,000,000 payable in paper. Is that the whole of it? It appears to us that the paper money issued by the State ought to have a place in this category. Inasmuch as these issues aggregate about R. 1,100,000,000, while the metallic reserve in the Treasury is nearly R. 600,000,000, which, at the usual rate (R. 1.60), represents R. 960,000,000 in paper, there remains only about R. 150,000,000 paper to be included among the debts. Then, on the other hand, we must take account of the State’s assets. Upon this point we have no official information corresponding to the dates for which we have stated the debt. We have not as yet the report of the Comptroller-General for the year 1894; it will not appear until the end of 1895. In his report for 1893, published in 1894, the various arrearages and credits of the State are reported thus, in millions and tenths of millions of roubles:

This, the report says, amounts to R. 3,683,800,000, estimating gold roubles at the current rate. Compared with the balance-sheet of 1893, this shows a decrease of R. 268,100,000, resulting principally from the abolition of the debts charged against the Orenburg, Moscow-Kursk, Baltic, and Donets railway lines purchased by the State, and against the Baltic shipyards, likewise purchased by the State. We may add that in 1894 and 1895 the State bought a number of railway lines, so that the sums named above as railroad credits, R. 303,700,000 specie and R. 929,000,000 paper, have been considerably diminished; but, on the other hand, the property of the State has been increased to a proportional extent. Properly speaking, there is no occasion to make a critical examination of the market value of the R. 3,683,800,000 of credits held by the State as an offset against its debts. The credit of a State is not to be estimated upon the basis of such claims, on the greater part of which it cannot realize, and least of all at a time when the public treasury is in need of funds. These are the statistics of an amateur; the future of a nation is in nowise involved in them.

The credit of a State depends upon an established financial policy and conscientious fidelity in meeting its obligations. As to Russia, its conduct toward foreign creditors has always been above reproach. Certain stock exchange rumors having been recently circulated concerning a series of proposed refunding operations alleged to be contrary to the express agreement of the Government, an official note was published on October 13 (25), 1895, denying these imputations. As it presents a clear exposition of the Imperial Government’s views upon the subject, we place it before the reader:

A History of Savings-Banks

in

THE UNITED STATES.

by

JOHN P. TOWNSEND, LL.D.,

president of the bowery savings bank, of new york.

new york.

1896.

HISTORY OF SAVINGS-BANKS IN THE UNITED STATES.

I.

ORIGIN AND GROWTH OF SAVINGS-BANKS.

THE birth of the savings-bank idea must be credited to England, where, in 1797, the first publication on the subject was issued by Jeremy Bentham, in whose plans for the management of paupers was included a system of “frugality” banks. Mr. Bentham’s writings interested many philanthropic people, and in the later years of the last century and the early years of this, many well-intentioned plans were evolved in Great Britain, some of which seem queer in the light of the present, but all of which aimed to aid the poor to independence and self-respect. Among others who were interested in this evolution were Samuel Whitbread, Patrick Colgeshoun, Rev. Joseph Smith, Lady Isabella Douglas, and Mrs. Priscilla Wakefield. The latter was, in 1801, the superintendent of a “friendly society for the benefit of women and children,” which combined with it a bank for savings for their benefit. It was not until 1810 that Rev. Henry Duncan, who has been called the father of savings-banks, established at Ruthwell, Scotland, in his own parish, “a savings and friendly society.” It is true that Mr. Duncan’s effort resembled more nearly the modern savings-bank plan than anything which had been previously established, and the publication of his ideas and work stimulated an interest in savings institutions. When, in 1817, the first act of Parliament was passed which established the system in England and Ireland under Government control, there were seventy-eight private societies distributed through England, Ireland, and Wales which received and invested the savings of the laboring poor. In Scotland, where Rev. Mr. Duncan had worked so successfully as a pioneer, these savings institutions were not recognized by law until 1835. It is worthy of mention in passing, that the savings-bank theory was established in Switzerland, at Zurich, in 1805, and the first bank in France was opened at Paris in 1818.

To America belongs the honor of first incorporating and regulating by law a savings-bank. This bank was the Provident Institution for Savings, which was incorporated in Boston, December 13, 1816, the year before the British savings-banks were sanctioned by act of Parliament. The ideas and hopes which possessed the founders of the bank in Boston were well expressed in their appeal for recognition to the Legislature of Massachusetts, as follows: “It is not by the alms of the wealthy that the good of the lower class can be generally promoted. By such donations, encouragement is far oftener given to idleness and hypocrisy than aid to suffering worth. He is the most effective benefactor of the poor who encourages them in habits of industry, sobriety, and frugality.” Though this Boston bank was the first savings institution in the world regulated by law, it was not the earliest savings-bank in the United States, for in a previous month of the same year, 1816, a bank for savings opened its doors in Philadelphia. This latter society was not incorporated until February 15, 1819.

THE BASIC IDEA OF THE SAVINGS-BANK

In looking back, it seems strange that eighteen centuries of time were required before savings-banks came as a practical aid in solving the problem impressed on human intelligence by the words, “The poor you have always with you.” Charity had been taught and applied from the first, but the benefits which flow from the blending of business and benevolence in the savings-bank system were unknown prior to the opening of the present century. Speaking broadly, the history of the first savings-bank is the history of all. The basic idea was the desire to aid the poor in a practical way, and benevolent men associated themselves together in this effort to improve the condition of those who, under conditions then existing, were unable to help themselves. These men recognized the fact that pauperism and crime were allies; that public morals became more lax as poorhouses and workhouses increased. To help the poor individually would decrease the public tax burdens for their support. This was the end hoped for. It is probable that the men who in 1817 developed the savings-bank plan had no conception of the power they were generating. Even so late as 1834, when the Bowery Savings-Bank, the fourth in New York City to be incorporated, was established, so little was its use anticipated that the total amount of deposits allowed by its original charter was limited to $500,000. When it is said that to-day the deposits of this one bank exceed $55,000,000, and it has more than 112,000 open accounts, with assets at market value of $63,000,000, the contrast of the promise of ad 1834 with the realization of ad 1896 can readily be understood. Yet so simple was the theory of the founders, so full was it of a knowledge of human nature, that in the test of sixty-two years of actual practice it has suffered no essential change, only development and expansion, guided by the wisdom and safeguarded by the conscience of the men who have been identified with these institutions in later years. It may be said here that the general law of the State of New York differs in no essential particulars from the original charter granted to the Bowery Savings-Bank in 1834. The secret of the success of savings-banks is found in the truth that “self-preservation is the first law of nature.” They furnish the opportunity in business for the outworking of this law in the individual.

While savings-banks teach the poor lessons in thrift, they at the same time pay to the poor a premium for accepting the lessons. In efforts to elevate humanity, the hope of reward is a more salutary force than the fear of punishment. Every savings-bank is a monument to that enlightened self-interest which is the corner-stone of all progress—material, intellectual, and spiritual. It is worth noting that the inception of savings-banks occurred in that era in the last quarter of the eighteenth century when Europe and America were shaken by a Vesuvius of democracy. Out of the battle-fires kindled at Bunker Hill in 1775, and rekindled with fiercer flame on the other side of the Atlantic when, in 1789, the Bastile fell, the spirit of liberty and equality rose an inspiring sight, illuminating the political, social, and commercial world. For centuries the poor had been enslaved. The rich and powerful ruled the Church and State alike; the many were kept in serfdom that the few might luxuriate in wealth and power. A few years of appalling struggle changed all this. The declaration of independence in America, the eloquence of men like Chatham and Burke in England, and the teachings of Franklin impressed new ideas on Europe and America. Freedom came, greater responsibility for the individual, and with greater liberty, more self-respect. One method of expression of this sense of greater responsibility was found in the organization of savings-banks. They, in the financial world, reach down to the people as the ballot-box does in the political world. The ballot-box enables a man to assert himself in the politics of the nation, and savings-banks furnish him the opportunity of sharing in its prosperity. It was, therefore, natural that when equality came into political life, the savings-bank should quickly follow it in financial life, each in its own way tending to uplift the individual and strengthen the nation.

FAILURES OF OTHER PHILANTHROPIC SCHEMES.

The charitable spirit had been previously displayed in the colonial history of this country, and had found expression in efforts to fix by law the price of articles of necessity, and the wages of mechanics and laborers; but experience demonstrated that such regulations were detrimental to the interests of the people; afterward lotteries with charitable designs were legalized, as well as charitable societies for the protection and support of members who might be in need of assistance, by reason of sickness or accident, and for the relief of destitute widows and orphans of deceased members. In 1803 a petition was presented to the Legislature of the State of New York, praying that sundry persons might be incorporated into a society, with power to build workshops and purchase materials for the employment of the poor. The present political society of Tammany, or Columbian Order, in the city of New York, was incorporated in 1805 as a charitable institution, for the purpose of affording relief to the indigent and distressed members of the association, their widows and orphans, and others who might be found proper objects of its charity. Many benevolent and charitable societies were incorporated in the New England and Middle States in the next decade; some of them fulfilled the designs of their founders to a limited extent, but all failed to accomplish anything for the permanent well-being of those they intended to benefit. Instead of helping the beneficiaries so that at some time in the future they would take care of themselves, they ministered to present wants only, which were ever recurring but never fully satisfied; with every succeeding dispensation the receivers became more dependent, finally lost their own self-respect, and really became paupers. The disease had been aggravated by improper remedies. Experience demonstrated that, in most cases, temporary relief resulted in entire dependence, and the number of poor, instead of decreasing, steadily increased. As soon as it became known in a community that anything could be had without labor; that soup, fuel, clothing, or shelter could be had without cost, then the moral standard of the neighborhood was lowered, and all further efforts on the part of recipients to earn their own living were abandoned, not only for the part gratuitously offered, but all honest work was given up, and ingenious schemes were resorted to in order to obtain the greatest amount possible. Time and labor were wasted which, if they had been directed by honest efforts, would, in most cases, have comfortably supported the degraded persons and their families. Having learned this plain lesson taught by experience, a class of philanthropists resorted to the system of helping others to provide for themselves by teaching the poor to acquire habits of thrift in laying aside some part of their earnings in a time of prosperity, to provide for future wants in the days of adversity or old age.

In addition to the savings-banks opened in 1816 in Boston and Philadelphia, there were others in the United States prior to 1820. The Savings-Bank of Baltimore was incorporated in December, 1818; the Salem (Mass.) bank in the same year; the Bank for Savings in New York, March 26, 1819, and in the same year also, the Society for Savings in Hartford, Conn.; the Savings-Bank of Newport, R. I., and Providence (R. I.) Institution for Savings. All of these institutions are still in existence, and the latest annual reports show them to be in a flourishing and prosperous condition, the results of honesty and common sense in their management, which have characterized them from the beginning.

THE AIMS OF SAVINGS INSTITUTIONS.

The aims and objects of savings-banks do not seem to be well understood by the general public. Even among men of affairs the amount of misinformation regarding the savings-bank plan is remarkable. For example, in a recent magazine article a Western financier referred to the “owners of savings-banks”; and oftentimes when men are approached with an invitation to become trustees the question is asked, “How much stock will I have to buy in order to be elected a trustee?” or, “What pay do trustees receive for attendance at meetings?” It is such questions as these that cause one to welcome the opportunity of explaining the beneficent purposes and philanthropic operations of savings-banks. They are really institutions organized and managed for the purpose of aiding the people of the poorer classes, so called—those who have no knowledge of investments, or whose savings are so small that they cannot be invested, with profit, by the individual. The smallest sums are received. Savings-banks will open an account for a person with one dollar; some accept an account where the initial deposit is only ten cents. As a further inducement for the depositor to save, his money, when the amount to his credit aggregates five dollars, begins to draw interest. And these little savings which amount to the enormous sum hereinafter indicated, belonging to more than four million depositors, become great factors in the financial operations of the country. The different States and the various municipalities, when about to borrow money, send their prospectus to the savings-banks, and so high is the reputation of these institutions that the price the savings-banks will pay for the securities fixes in many instances their market price, or the rate at which money can be borrowed upon them.

Later in this article will be given a digest of the New York law governing savings-banks, as the best way of making entirely clear the operation of these institutions as they attain to perfection to-day.

In the old systems of public economy, mankind were divided into two classes—the capitalist and the laborer; but through the agency of savings-banks, in these later years, our political economy must be written anew, for behold, the laborers have become the capitalists in this new world! The millions of the earnings of the poor are loaned to the rich on bond and mortgage in this State. Is a local improvement projected, the savings-bank is the capitalist who advances money. Nor should we lose sight of the character in which savings-banks are thus revealed as a sort of co-operative union of the industrial classes. Their savings, aggregated as capital, minister to these public enterprises; but these public enterprises demand laborers for their prosecution, and thus return to labor in the form of wages what they have borrowed from it in the form of capital. The laborers get better wages for the facility with which, through savings-banks, the requisite capital can be procured, which is equivalent to having their capital returned to them in full, with extra dividends, by installments called wages, while at the same time they hold in their pass-book the original certificate which entitles them to have it again returned to them, with ordinary dividends called interest. What other capitalist is able to make so safe and at the same time so profitable an investment of his money? Other “unions” are formed as combinations of labor against capital, but here is a combination of labor and capital. The former seeks to control the price of labor by arbitrary dicta; the latter affects the price of labor favorably to the laborer through the operation of natural laws. The former has a fund which offers a premium to idleness by contributing to the support of a laborer while on a strike; the fund of the latter incites to industry by flowing into the channels of enterprise which demand labor for their prosecution.

In view of what the savings-bank system has done and of what it is today, it claims fair treatment and credit according to its performance. Because savings-banks hold hundreds of millions of money securely, because they help those who try to help themselves, because they are giving aid to thousands of men in business or owning houses partly paid for, because the system has been perfected by disciplinary experience and corrective legislation, and because it is rooted in many ways directly—and remotely, too—in the material and moral interests of the people, the savings-bank system deserves the considerate support and demands the patient and sympathetic attention of those who study economical and social problems with the purpose of promoting public welfare and of doing the greatest good to the greatest number.

II.

SAVINGS-BANKS IN THE STATE OF NEW YORK.

The nature and methods of savings-banks can be best understood from a description of them as they exist in the State of New York, as the laws of that State provide a plan on which, with some modifications, all true savings-banks are operated in the New England and Middle States.

The law of the State of New York provides that thirteen or more persons, two-thirds of whom are residents of the county where the projected bank is to be located, may become a savings-bank by executing and acknowledging a certificate in duplicate, one certificate to be filed in the office of the clerk of the county, and the other in the office of the Superintendent of Banks, within sixty days, setting forth: (1) The name selected for the corporation; (2) the place where its business is to be transacted; (3) the name, residence, occupation, and post-office address of each member of the corporation; and (4) a declaration that each will faithfully discharge the duties of trustee in such corporation.

After a notice of the intention to organize has been properly published in the newspapers, and the duplicate certificate filed with the Superintendent of Banks, this officer ascertains from investigation: (1) Whether greater convenience of access to a savings-bank will be afforded to any considerable number of depositors by opening a savings-bank in the place designated in the certificate; (2) whether the density of the population in the neighborhood designated for such savings-bank, and in the surrounding country, affords a reasonable promise of adequate support to the enterprise; and (3) whether the responsibility, character, and general fitness for the discharge of the duties appertaining to such a trust, of the persons named in the certificate, are such as to demand the confidence of the community in which such savings-bank is proposed to be established. If the Superintendent of Banks is satisfied upon these matters, he issues a certificate of authorization for the proposed savings-bank, and transmits it to the County Clerk, who attaches it to the Certificate of Incorporation previously filed with him. If the Superintendent of Banks fails to be satisfied with the necessity for the bank, or the competency of its organizers, he notifies the County Clerk of his refusal to issue the Certificate of Authorization.

The savings-bank corporation thus prepared for work must begin business within one year or forfeit its rights. In addition to the usual powers conferred by the general corporation law, savings-bank corporations have the power to receive on deposit any sum of money that may be offered for that purpose by any person, or society, or corporation, and to invest the same, and declare, credit, and pay dividends thereon, subject to limitations which will be explained hereafter. The number of persons to organize a savings-bank cannot be less than thirteen, as the law provides that there shall be a board of not less than that number, who shall have the entire management and control of affairs, and who shall elect from themselves or otherwise, a president and two vice-presidents, and other officers within their discretion. The thirteen persons named in the certificate of authorization constitute the first board of trustees. This board has the power of filling any vacancy which may occur in it, but no man can be elected a trustee who is not a resident of the State, and whenever a trustee removes from the State, he thereby forfeits his trusteeship. The constant supervision of the management of the savings-bank is ensured by the law, which prescribes that all the by-laws and rules and regulations of the bank, as drafted by the trustees, shall be transmitted to the Superintendent of Banks, and that no change or amendments can be made without his knowledge.

Trustees of banks must meet as often as once a month, and in order to secure the faithful performance of duty upon the part of officers and agents of the bank, they are permitted to ask bonds from such subordinates. As indicating the sedulous care which the State of New York exercises over the management of its savings-banks, the following two paragraphs are worth quoting entire:

Regarding the repayment of deposits, the power regulating the time and method of payment is vested in the board of trustees, but the regulations must be of a permanent character, and must be conspicuously posted in the place of business of the corporation. The trustees are also authorized to limit, at their discretion, the aggregate amount which any person or society may deposit, and they may also refuse to receive any deposit or at any time return all or any part of any deposit. Lest the opportunity of savings-banks for safe investment and sure interest should be used too freely by the rich, for whom they are not intended, the law provides that the aggregate amount of deposits to the credit of any individual at any time shall not exceed $3000, exclusive of deposits arising from judicial sales or trust funds or interest; and that the amount to the credit of any society or corporation at any time shall not exceed $5000, exclusive of accrued interest.

THE PROTECTION OF DEPOSITORS—INVESTMENT OF DEPOSITS.

The advantages and protection which savings-banks offer to minors and to women are of much interest. It is provided that when any deposit is made by or in the name of a minor, it shall be held for the exclusive right and benefit of the depositor, and be free from the control or lien of all other persons except creditors, and shall be paid, together with dividends and interest thereon, to the person in whose name the deposit is made, and the receipt and acquittance of the minor who so deposits is a valid and sufficient release of such deposit or any part thereof. In all actions in any court of the State of New York against savings-banks by a husband to recover for moneys deposited by his wife in her own name, or as her own money, the wife may be examined and testify as a witness just as if she were an unmarried woman. One other section (116) of the savings-bank law of the State of New York may be quoted entire in order to give adequate information as to the manner in which the interests of depositors are guarded. The trustees of the savings-bank can invest the moneys deposited therein and the income derived therefrom only as follows:

The savings-banks are permitted to invest in real property to the extent of owning their own bank building, which, with the lot, shall not cost more than twenty-five per cent. of the net surplus of the corporation, and of retaining for a time such property as may come into possession of the bank at sales upon the foreclosure of mortgages owned by it, or on judgments or other methods of settlement for debts due to it. Five years is the limit of time for which savings-banks can retain such property, other than their own banking house, unless they receive permission anew from the Superintendent of Banks. Even before they purchase the site of their bank building they must submit the plans of the building to be erected, with the estimate of the cost of the lot and building, to the Superintendent of Banks for his approval. The trustees are permitted to keep uninvested an available fund for current expenses, but this fund must not exceed ten per cent. of the whole amount of the deposits in the bank. This sum may be deposited in any bank organized under the law of this State, or of the United States, or in a trust company incorporated by any law of the State whose paid-up capital and surplus aggregates at least four times the amount of money deposited with it by the savings-bank. Another method of use for this current expense fund is provided by the law in the following words: “Such available fund, or any part thereof, may be loaned upon pledge of the securities, or any of them, named in the first four paragraphs of section 116, but not in excess of ninety per centum of the cash market value of such securities so pledged. Should any of the securities so held in pledge depreciate in value after making any loan thereon, the trustees shall require the immediate payment of such loan, or of a part thereof, so that the amount loaned shall at no time exceed ninety per centum of the market value of the securities pledged for the same.”

CAUTIONARY PROHIBITIONS AND LIMITATIONS.

The savings-banks in New York State are expressly prohibited from loaning money on notes, bills of exchange, drafts, or any other personal security whatever, and in all cases of loans upon real property, a sufficient bond, secured by a mortgage on the property, shall be required from the borrower, who must also pay all expenses incident to the transaction. The bank is further protected in its realty investments by the requirement that the mortgagor insure the property, and assign the policy to the bank, which also has the right to renew the policy of insurance from year to year, as it may expire, charging the expenses of the renewal in every case to the mortgagor. The only exception to the prohibition against dealing in commodities is that which permits banks to sell gold or silver received in payment of interest or principal of obligations owned by them, or from depositors in the regular course of business, or they may pay regular depositors, when requested by them, by draft upon deposits to the credit of the bank in the city of New York, and charge current rates of exchange for such drafts. No savings-bank can make or issue any certificate of deposit payable either on demand or at a fixed day, or pay any interest except regular quarterly or semi-annual dividends upon any deposits or balances, or pay any interest or deposit, or portion of a deposit, or any check drawn upon itself by a depositor, unless the pass-book of the depositor be produced and the proper entry be made therein at the time of the transaction. Within their own discretion and subject to the approval of the Superintendent of Banks, savings-banks are permitted to make payments in cases of loss of pass-book or other exceptional cases where the pass-book cannot be produced without loss or serious inconvenience to depositors.

REGULATION OF INTEREST TO DEPOSITORS.

The trustees must regulate the rate of interest or dividends, not to exceed five per centum per annum, upon the deposits in such manner that depositors shall receive, as nearly as may be, all the profits of such corporation, after deducting necessary expenses and reserving such amounts as the trustees may deem expedient as a surplus fund for the security of the depositors, which, to the amount of fifteen per cent. of its deposits, the trustees of any such corporation may gradually accumulate and hold, to meet any contingency or loss in its business from the depreciation of its securities or otherwise. The trustees may classify their depositors according to the character, amount, and duration of their dealings with the corporation, and regulate the interest or dividends allowed in such manner that each depositor shall receive the same ratable portion of interest or dividends as all others of his class. The trustees cannot declare or allow interest on any deposit for a longer period than the same has been deposited, except that deposits made not later than the tenth day of the month commencing any semi-annual interest period, or the third day of any month, or withdrawn upon one of the last three days of the month ending any quarterly or semi-annual interest period, may have interest declared upon them for the whole of the period or month when so deposited or withdrawn. Only upon an aye and nay vote by the board of trustees can dividends or interest be declared; and should any interest or dividend be declared and credited in excess of interest or profits earned by and credited to the savings-bank, the trustees voting for such dividend are liable for the amount of the excess. At least once in three years, all savings-banks whose surplus amounts to fifteen per cent. of its deposits must divide equitably the accumulation beyond such authorized surplus as an extra dividend to depositors, in excess of the regular dividend authorized.

In determining the per cent. of surplus held by any savings-bank, its interest-paying stocks and bonds must not be estimated above their par value or above their market value if below par. Its bonds and mortgages on which there are no arrears of interest of a longer period than six months must be estimated at their face, and its real property at not above cost. The Superintendent of Banks must determine the valuation of such stocks or bonds, or bonds and mortgages, as are in arrear of interest for six months or more, and of all other investments not herein enumerated, from the best information he can obtain, and he may change the valuation thereof from time to time as he may obtain other and further information.

The trustees of the bank who are chosen as officers of the institution, and whose duties require regular and faithful attendance, may receive such compensation as the majority of the trustees deem reasonable. When the vote is passed by the trustees fixing such amount, the trustee for whose services compensation is being allowed cannot vote, and trustees, as such, cannot receive any compensation whatever for their attendance at meetings of the board.

SUPERVISION, INSPECTION, AND REPORTS.

At all times, savings-banks are under the scrutiny and control of the Superintendent of Banks, and if it appears to him from an examination made by or reported to him, or from a report made by any such corporation, that it has committed any violation of its charter or law, or is conducting its business and affairs in an unsafe and unauthorized manner, he directs a discontinuance of such illegal and unsafe or unauthorized practices. Constant and thorough knowledge as to the assets of each savings-bank on the part of the trustees is required by the provision of the law that the trustees of savings-banks, by a committee of not less than three of their number, on or before the first day of January and July in each year, shall thoroughly examine the books, vouchers, and assets of their savings-bank, and its affairs generally. The statement or schedule of assets and liabilities reported to the Superintendent of Banks for the first of January and July in each year shall be based upon such examination, and shall be verified by the oath of a majority of the trustees making it; and the trustees of any savings-bank may require such examination at such other times as they shall prescribe. The trustees shall, as often as once in each six months during each year, cause to be taken an accurate balance of their depositors’ ledgers, and in their semi-annual report to the Superintendent they shall state the fact that such balance has been taken, and the discrepancies, if any, existing between the amount due depositors, as shown by such balance, and the amount so due as shown by the general ledger.

That the expenses which negligence on the part of savings-banks causes to the State may fall upon the savings-banks themselves, it is provided that for the purpose of defraying the expenses incurred in the performance by the Superintendent of Banks of the duties imposed upon him with respect to savings-banks, other than the examination thereof, each such corporation shall annually pay five dollars into the treasury of the State, and the residue of such expenses, to be apportioned among them by the Superintendent, shall be paid into the treasury of the State by savings-banks whose deposits exceed one hundred thousand dollars, in proportion to the amount of assets severally held and reported by them. Whenever any State bank or trust company becomes insolvent, its debt to savings-banks becomes a preferred liability, and is paid immediately after provision has been made for the payment of the circulating notes of the bank or trust company, if it has any, unless, in the case of a trust company, other preferences have been provided for in its charter. The interest of the State in savings-banks is further shown by the decree that no bank, banking association, individual banker, firm, association, corporation, person or persons can advertise or put forth a sign as a savings-bank, under penalty of severe punishment.

It requires the affirmative vote, properly recorded, of not less than two-thirds of the whole number of trustees, at a meeting called for the purpose, to close a savings-bank, and all moneys due depositors must be paid in full, or unclaimed deposits turned over to the Superintendent of Banks. The Superintendent then has the power to pay out such moneys to the depositors entitled to them upon satisfactory identification, and he must annually report to the legislature the names of all closed savings-banks, with the sum of the unclaimed or unpaid deposits to the credit of each of them.

OFFICIAL REPORTS OF CONDITION.

Under the law of New York State, there can be no doubt as to the thoroughness with which the conduct of each and every savings-bank is scrutinized. The details already given of the intimate relations between these institutions and the State can be verified upon examination of the law regarding the reports which savings-banks must make semi-annually to the State. These reports must be made on or before the 20th day of January and July in each year, and must contain a statement of its condition on the mornings of the first days of January and July preceding. The report states the amount loaned upon bond and mortgage, together with a list of such bonds and mortgages, and the location of the mortgaged premises, as have not been previously reported, and also a list of such previously reported as have since been paid wholly or in part, or have been foreclosed, and the amount of such payments respectively; the cost, par value, and estimated market value of all stock investments, designating each particular kind of stock; the amount loaned upon the pledge of securities, with a statement of the securities held as collateral for such loans; the amount invested in real estate, giving the cost of the same; the amount of cash on hand and on deposit in banks or trust companies, and the amount deposited in each; and such other information as the Superintendent may require. The report also states all the liabilities of such savings corporation on the mornings of the first days of January and July; the amount due to depositors, which must include any dividend to be credited to them for the six months ending on that day, and any other debts or claims against such corporation which are or may be a charge upon its assets. It also states the amount deposited during the year previous, and the amount withdrawn during the same period; the whole amount of interest or profits received or earned, and the amount of dividends credited to depositors, together with the amount of each semi-annual credit of interest, and the amount of interest that may have been credited at other than semi-annual periods; the number of accounts opened or reopened, the number closed during the year, and the number of open accounts at the end of the year; and such other information as may be required by the Superintendent. The president and cashier or treasurer of the savings-bank must take oath to the completeness and accuracy of the report, the failure to make which is punishable by a forfeit to the people of the State of one hundred dollars for every day that the report is withheld. Any savings-bank failing to make two successive reports forfeits its charter. An additional report which must be made to the Superintendent of Banks concerns the accounts of depositors of amounts of five dollars or more which have been dormant for twenty-two years or more from the first day of May preceding—that is, accounts which have not been increased or diminished by deposits or withdrawal, exclusive of interest credits. This report must be made by the first of June of each year, and negligence regarding it is punishable in the same manner as in the case of the main report of the bank.

III.

METHODS OF OPERATING IN DIFFERENT STATES.

The method of operating savings-banks is not the same in all the States where they exist. In some they take the form of a society, with power to add to their membership, and with perpetual succession, a certain number of members are yearly chosen by ballot to act as managers; these managers elect their own officers, make rules and by-laws, and alter or rescind them at pleasure. In others the corporators are a limited number, and are themselves trustees, with power to fill vacancies, and are responsible for the management to State authority, to which they report for publication at regular intervals. In some they do business under special charters, in others under general laws to which every institution in the States conforms. This last system is growing in favor, as supervision is simplified so that superintendents or commissioners familiar with the one law can easily determine if investments have been made in prohibited securities or in too great amounts on permissible ones. The laws in the six New England States in relation to savings-banks are very similar, although in some banks the managers are more conservative in their practice than in others. All invest to some extent in United States bonds, in bonds and mortgages on real estate, in national or State bank stocks, State, county, city, town, or village bonds, loans on personal security, in railroad bonds, and some in railroad stocks.

In addition to the investments permitted by the laws of the State of New York, there are permitted to savings-banks, under the laws of the States of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and New Jersey, investments in the county bonds of other States; and New Hampshire, Vermont, and Rhode Island permit bonds and mortgages in the Western States. Maine permits bonds and mortgages beyond its own boundaries only, in the cities of the State of New Hampshire. Maine, New Hampshire, Vermont, Rhode Island, Connecticut, New Jersey, Pennsylvania permit investment in bank and trust company stocks; Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, New Jersey, Pennsylvania, and Ohio in railroad stocks and bonds; Maine, New Hampshire, and Rhode Island in the stock of water companies; New Hampshire, Rhode Island, and New Jersey in gas company stocks; Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut in promissory notes; Connecticut allows investment in bonds and mortgages in four States outside its own jurisdiction; the State of Maryland allows savings-bank funds to be invested in stocks and bonds and mortgages without specifying exactly their character or location.

The limitation on deposits in Maine is $2000, and in Massachusetts the largest amount on deposit permitted to any one account is $1600. In no other State except New York is there any limitation placed upon the amount of deposits. In one savings-bank in Rhode Island there is one deposit amounting to $169,000, which, however, constitutes a fund intended for philanthropic purposes.

DIVIDENDS AND TAXATION.

The limit of dividends allowed in the State of Maine is 5 per cent.; in Vermont, 4½ per cent.; in Massachusetts, 5 per cent., and in the others there is no limit set up. The annual dividends paid in the year 1894 averaged, in Maine, 3.86 per cent.; in New Hampshire, 3.51 per cent.; in Vermont, 3.95 per cent.; in Massachusetts, 4.06 per cent.; in Rhode Island, 4 per cent.; in Connecticut, 3.86 per cent.; in New York, 3.53 per cent., and in New Jersey, 2.86 per cent.

Deposits in savings-banks are taxed, in Maine, seven-eighths of one per cent.; New Hampshire, one per cent.; Vermont, three-fourths of one per cent.; Massachusetts, one-fourth of one per cent.; Rhode Island, one-fourth of one per cent.; Connecticut, one-fourth of one per cent., and in the other States deposits are untaxed.

In Massachusetts the laws really forbid deposits above $1000, but allow interest to accumulate to the amount of $600 additional, making a total of $1600, the largest possible amount held in one account.

The official reports for 1894 show that the number of savings-banks in eleven Eastern and Middle States was 626, and the number of depositors 4,296,133. The average to each depositor was $367.39; the total amount of deposits was $1,578,352,728.00; and the total assets were $1,733,227,013.00; showing the surplus of assets over liabilities, $149,073,165.00.

The following statement of number of depositors and amount of deposits in the Eastern and Middle States and Ohio is compiled from the latest official reports for 1894:

The following statement of number of depositors and amount of deposits in the United States in 1894 and 1895, respectively, is taken from the Statistical Abstract issued by the Treasury Bureau of Statistics:†

IV.

SPECIAL FORMS OF SAVINGS FUNDS.

In addition to the regularly incorporated savings-bank, two railroads have established savings funds. The Baltimore & Ohio Railroad Company has established a savings fund in order to afford to employees and their near relatives an opportunity to deposit savings and earn interest thereon, and to enable employees to borrow money at moderate rates of interest, and on easy terms of repayment, for the purpose of acquiring or improving a homestead, or freeing it from debt. The company guarantees the repayment of deposits and the payment of interest at the rate of at least four per cent. per annum, unless changed by notice. If the net earnings of the savings fund exceed the guaranteed interest, dividends may be declared, and, as a matter of fact, depositors have regularly received no less than five per cent. on their investments. During the year ending June 30, 1895, the interest paid to depositors reached 5½ per cent. The rules governing the savings fund give: (1) An employee of the company, his wife, child, father, or mother, or the beneficiary of any deceased member of the relief feature, the privilege of depositing with the company any sum of money not less than one dollar and not more than $100 in one day, for the repayment of which, with interest, the company becomes the guarantor. Any person ceasing to be employed by the company may continue a depositor if his balance is fifty dollars or more at the time of leaving. (2) Any adult employee of the company, who is a member of the relief feature and has been continuously in the service not less than a year, may borrow from the funds of the savings feature sums not less than $100, at the interest rate of six per cent. per annum, payable monthly. It is, however, provided that every borrower must carry life insurance in the relief department equal to the sum loaned him; or, if the regulations of the relief feature prevent this, the borrower must hold a policy of equal amount in some regular life insurance company. The only purpose for which money can be borrowed is for acquiring, improving or releasing a lien, upon a home situated, except in large cities, within a mile of the railroad company’s lines. No loan is paid directly to the borrower, but is applied to the payment of bills approved by him. The repayment of loans is provided for by deductions from the monthly wages of the borrower of $1.50 for each $100 of the debt. If the borrower leaves the service of the company he must make the monthly payments at his own risk.

The plan of the Pennsylvania Railroad Company’s savings fund differs from that of the Baltimore & Ohio in several particulars, the chief difference being that the Pennsylvania makes no provision for loaning money to employees. Deposits may be made of sums, in even dollars, not exceeding $100 a month. The privilege of depositing is limited to the period of employment in the service of the company. If a depositor’s connection with the company be severed, his accounts must be settled within thirty days. According to the report of June 30, 1894, the savings fund of the Baltimore & Ohio was in debt to 1825 depositors to the amount of $780,668.42. The outstanding loans to the employees were $667,334.75. The deposits during the year were $227,861.11; the amount loaned within the year, $206,081.56. From August 1, 1882, when the savings fund was inaugurated, to June 30, 1894, the total deposits amounted to $2,220,334.28, and the total sum loaned to employees equaled $1,526,842.35. The money thus loaned was used upon houses—in building 813, buying 714, improving 159, and releasing liens on 329. The report of the Pennsylvania Railroad Company, December 31, 1894, shows that 4112 employees of that road were depositors in its savings fund. The total amount of the fund on that date was $1,354,748.33, and of this sum $1,300.000 had been securely invested in four per cent. bonds of the Pennsylvania Company or its allied lines. The company established the fund December, 1887.

The Paymaster-General of the United States Army reports that the United States Army savings fund has about $1,017,000 on deposit at the present time. It is impracticable to give the actual number of men who deposited, as some would deposit small sums regularly every pay-day, while others would not deposit more than once or twice a year, or perhaps during their whole period of enlistment. The fund, he believes, tends to lessen desertion, and in its operations is conducive to better discipline. Four per cent. interest is guaranteed to the depositors.

The Penny Provident Fund of the State of New York has 50,359 depositors, with a total of $31,000 to their credit, an average of sixty-one cents to each depositor. Of these deposits about $25,000 are invested in securities paying nearly five per cent. per annum. The balance is deposited in trust companies at three per cent. interest. The fund has two hundred and ninety-six stations, and pays no interest to depositors. This fund being chiefly used by children, is of great value in inculcating lessons of thrift and self-restraint. Savings in them are frequently made for special purposes; to buy shoes, hats, or clothing, or books, but more often recently, to save five dollars with which to open an account in a savings-bank.

The school savings-banks in the United States, which are located in sixty-nine cities, towns, and villages in the States of New York, Pennsylvania, Massachusetts, Ohio, Vermont, Maine, Indiana, New Jersey, North Dakota, Colorado, Kansas, and Michigan, comprise 1204 constituent banks, and have deposits amounting to $100,837.82. The plan has been introduced into 290 schools, located in twelve States. Though these banks pay no interest to depositors, their salutary influence has been amply proved, teaching the children, as they do, the uses and value of money. The 25,972 depositors in these banks comprise nearly one-half of the number of pupils attending the schools where the banks are located. When the depositor’s balance amounts to a sufficient sum, an account for the pupil is opened in a neighboring bank.

BENEFICENT RESULTS OF SAVINGS-BANKS.

As before stated, the savings-banks in the State of New York are managed upon a system which illustrates the welding of business and philanthropy into a great financial bulwark for the protection of the poorer classes, and the security of the community at large. It is because of the excellence of this plan as well as its general use in other States that its details have been dwelt upon at length. Savings-banks are essentially the banks of the poor; they were established for the benefit of the plain people, and for the purpose of concentrating and utilizing for the general welfare the odds and ends of money which would otherwise remain hidden away unused at the bottom of a trunk or other hiding-place. They are managed by trustees without salary, who can have no interest in the profits of the business, and who administer their affairs with disinterestedness and remarkable ability, sustained in their work of benevolence by a unanimous public opinion. Their funds are wisely and safely invested, the net earnings being credited to the depositors, whose savings are thus augmented by compound interest. The proceeds of labor converted into active capital by depositors are made in this way to produce a revenue without impairing or endangering the original sum, and to go on increasing while the owner is engaged in the production of other surplus savings. The beneficial results of savings-banks are both individual and communal, as well as direct and indirect. The direct benefits both to the individual and to the community must be evident from what has already been said. Indirectly, savings-banks are a great factor in the moral as well as the material growth of the people. The man or woman with a bank account, however meager its proportions, is usually a good citizen. Especially in this country, where opportunities are more nearly than elsewhere equal for all, do savings-banks exert a certain moral influence. The cares which accompany their use sharpen the mental faculties and tend to increase the moral perception of the individual; education is encouraged; patriotism is promoted; family honor, as well as local pride, is engendered; commercial enterprise stimulated; and much which makes for higher spiritual life secured.

The statistics of the number of depositors and the amount of their savings in the regular savings-banks of the eleven States, in the Pennsylvania Railroad, the Baltimore & Ohio Railroad savings funds, in the United States Army fund, in the Penny Provident Fund of the State of New York, and in the school savings-banks in twelve States, was as follows: Deposits, $1,581,636,981; depositors, 4,381,401. These figures prove the steady growth in the past years of the savings-bank principle and practice. The exact percentage of growth in the regular savings-banks between the years 1880 and 1895 is shown by the following table, giving savings-banks statistics in the eleven States for these fourteen years:

V.

DECREASE OF DIVIDENDS AND INCREASE OF DEPOSITS.

On account of the cheapness of money, the returns on savings-bank investments have decreased in the past fourteen years, so that the average dividend paid to depositors has diminished from four and five per cent. in 1880 to three and one-half and four per cent. in 1894; but the deposits to the credit of individuals have increased owing to the accumulation of capital by the plain people, induced and fostered by opportunities furnished through the savings-banks, so that while in 1880 the average was $341.25 on each open account, it was in 1894, $367.39, and the number of open accounts increased from 2,416,280 to 4,296,133. The total deposits increased from $824,515,162 to $1,578,352,728. The surplus fund grew from $62,567.049 to $149,073,165. Investments in bonds and mortgages nearly trebled, increasing from $269,021,908 to $662,002,440. Because of the decreased income from United States bonds, investments in and loans on the same fell off from $199,675,922 to $130,425,578. The total assets were increased from $891,666,424 to $1,733,227,013. The number of banks increased but little; in 1880 there were 594, and in 1894 there were 626 savings-banks. The teachings of the savings-bank system have extended, as will be seen, for there are now a much larger number of people using them, the number of open accounts having increased by 1,879,853, and they are continuing in the same direction. This increase in the number of people who are able to deposit funds in savings-banks seems to contradict the theory that the “poor are getting poorer.” On account of the concentration of deposits in the older and larger savings-banks, the percentage of the expense of management to the total deposits does not increase. In the State of New York nearly one-half the deposits in savings-banks are in New York City, where are located twenty-five banks, and of these twenty-five, four banks have about one-half of the total deposits of the city.

In the State of New York there has been organized among its 125 savings-banks an association for mutual benefit, and delegates from every bank have elected an executive committee, which considers matters of benefit to all. Bills offered in the Legislature affecting savings-banks are considered by the executive committee of this association, and recommended or opposed according to their respective merits. The quality of securities proposed to be authorized by law for investment are discussed; and the safeguards attending the issue of bonds or other evidences of indebtedness issued by cities, counties, municipalities, etc., have lately attracted the attention of this association, and on account of the present lack of system regarding the issue of them, it has been recommended that the validity and genuineness of each and every such issue shall be certified to by a responsible trust company, in order to give proper guarantees of their validity. Bonds engraved by a responsible bank-note company have been recommended as another means of guarding against counterfeiting, to which printed and lithographed bonds are liable. In instituting such reforms as the foregoing, the association secures protection for officials who are responsible for savings-bank funds, as well as security for the investors, as a low rate of interest on valuable property is preferable to higher rates under questionable conditions.

UTILITY OF LARGE SURPLUS FUNDS.

Recently there have been some criticisms of the large surpluses held by some of the more successful savings-banks, and it has been suggested that this surplus money should be divided among the depositors. The framers of the law of the State of New York seem to have foreseen the possibility of such criticism, and to have wisely anticipated it by providing in Article III., Section 123, of the savings-bank law the following: “The trustees of any such corporation whose surplus amounts to fifteen per cent. of its deposits, at least once in three years, shall divide equitably the accumulation beyond such authorized surplus as an extra dividend to depositors, in excess of the regular dividends authorized.” The critics seemed to have overlooked both this law and the fact that no bank in the State at the present time has a surplus large enough for distribution under the law. A good-sized surplus in a savings-bank is not only a very desirable feature in itself, but is also valuable in its advantages and its influence. As a monument to the success of the institution, it gives confidence to depositors and encourages others to enroll themselves upon the bank’s ledgers. In case of sudden financial depression or of any unforeseen disturbance which might cause a run upon the banks, a surplus becomes a source of strength both to the bank and to the community. Moreover, in the year by year operations of the bank, the surplus plays a most important part. To-day the banks that pay the highest rate of interest, even paying four per cent., are the banks that have the surplus, because they could not take the moneys deposited with them now and invest them properly, and secure at the utmost more than 3¾ per cent. on the average. They are enabled to pay to depositors after all expenses of the bank are deducted, a higher rate of interest, simply because they have a surplus which earns interest for their benefit. Another reason that makes a surplus requisite is that it is needed to meet contingent losses in the depreciation of the value of securities. Hence the wisdom of the law which permits its accumulation to the extent of fifteen per cent. of total deposits.

SOUND CURRENCY.

The number of savings-bank depositors in the eleven States in which those institutions are located is equal to one-fifth of the total population; and the localities in which each of these institutions is located are freer from pauperism and crime than in other less favored communities; and to lessen the confidence of depositors in their places of financial trust by unwise legislation like the passage of a free coinage law by Congress, which would lessen the value of the dollar, would be a blunder on the part of law-makers which would tend to undermine a system which it has taken eighty years to build up. After the legal-tender act of 1862 was passed, deposits in savings-banks decreased largely, whilst after the resumption of specie payments in 1879, the percentage of increase was even greater than the withdrawals of seventeen years before. Confidence is a thing of slow growth; and in educating, it is necessary to show by example the teacher’s faith in the principles striven to be inculcated, viz., that honesty and thrift are the best policy; and as these lie at the foundation of savings-banks, the depositor must be made to feel that his self-denial will be rewarded by a return, of the full amount at least, of the money which he has denied himself the pleasure of spending in temporary gratifications; but if he finds that, owing to a depreciation of the currency, a fraction of its value only is given back when he calls for it, because the law has stepped in and confiscated for the benefit of a few any part of his savings, the fruit of the good principles inculcated will be blasted in a moment. The first effects would probably be a run on the bank, followed by extravagance and riotous living with the money withdrawn, which would end by lowering the moral tone amongst the class of people who up to that time had been so largely benefited.

WHAT SHOULD BE THE RATE OF DIVIDEND?

As has been said, the average gross income which a savings-bank can earn on new deposits to-day does not exceed three and three-quarters per cent., and from this the expense of management must be deducted, say one-third to one-half per cent., leaving the net income for depositors about three and a quarter per cent. If more than this is paid, it is out of the earnings of the surplus fund which has accumulated on the undivided earnings of older deposits. Most of the banks have a surplus, and because of it they do pay an average of three and one-half per cent. dividends; but this cannot continue indefinitely, unless a larger range of investments is authorized which will pay an increased rate of interest on the money put into them. The desire to continue or increase the present dividends has induced some bank managers to favor the amendments which authorize the purchase of city bonds in certain States outside of New York. But it may be questionable if it would have been better policy to prohibit savings-banks from paying more than three per cent. interest per annum, except that if one accumulates a surplus of ten per cent. on its deposits (estimating its securities at par value if they are worth it, or the market value if they are worth less), then, once in three years, it should pay an extra dividend on the balances of all accounts which have been in bank for that length of time. Let us consider the latter course. A savings-bank is prohibited by law from receiving on deposit from any individual, or paying interest on, a greater sum than three thousand dollars. The charge is made, and is not disproved, that large sums, in many cases three thousand dollars, are deposited by one individual in each of the several banks, or he opens accounts in trust and thus gets in one bank more than the law intended. This is not prohibited by law, but it enables a well-to-do person who should make his own investments to put the burden on trustees engaged in a benevolent work, and he secures the advantage of investment in first-class securities, and obtains more interest than if he attended directly to the management of his own capital. Now, savings-banks are not designed as resorts for capitalists when prime investments pay low rates of interest elsewhere. They may be likened to kindergarten schools, where the young, the helpless, and the uninformed may learn the advantages of economy and thrift, the good results of which are shown by the increased balances which added interest exhibits each half-year, and who should learn by a study of the results secured by wise and prudent management how they themselves may care for the accumulations when their sum surpasses the limit (not a small one) fixed by statute. This was the theory of the founders, and is the theory of the present law of the States, in forbidding the payment of interest on sums over three thousand dollars. Savings-banks are practically freed from taxation, because they are engaged in a purely benevolent work, for the good of the masses, and it is an evasion of the spirit of the law for the depositors of large sums to use them. An indication that they are using them is shown by an analysis of the following statements taken from the official reports of the Superintendent of the Banking Department of the State of New York for three decennial periods.

At the first date, 1868, about twelve per cent. of the population were depositors in savings-banks; in 1878, seventeen per cent.; and in 1888, twenty-three per cent. were depositors. The average amount to the credit of each had increased in twenty years from $281 to $381, averaging a hundred dollars increase for each depositor. The returns up to January 1, 1896, show a still increasing average. Now, it will not be claimed that the wage-earners, those dependent on salaries and wages, have increased from twelve to twenty-three per cent. of the population, nor that all together have been able to lay up thirty-five per cent. more of their earnings in 1888 than in 1868. Wages, salaries, and expenses were about on the same plane at the two periods, but first-class investments outside of savings-banks paid six to ten per cent. in 1868, while in 1888 the same class of investments paid but two and three-fourths per cent., and the same money deposited in savings-banks paid the depositor three and one-half per cent.

There is in England a law which prohibits a person from having an account in more than one savings-bank, under penalty of forfeiting his deposit. There is no such law in any of our States, and therefore there is no way of preventing investors with large capital from taking advantage of the savings-banks, which were designed solely for the benefit of the poorer classes. A shrewd investor of some thousands of dollars who insists upon gilt-edged securities only, at the highest obtainable rate of interest, and who wishes to avoid the fluctuations of the market in buying or selling, and at the same time to keep his money on call, deposits in the savings-bank. There he finds all his conditions complied with, the law of the State protects his property, and holds the bank’s trustees to a strict accountability. There appears to be a growing tendency to receive deposits of considerable amount, which cannot fairly be considered savings, of the kind for which savings-banks are chartered. This tendency, if unchecked, may result in changing the nature of the banks, and induce the Legislature to tax deposits, which will lower the rate of interest paid. The evil may then be cured, of course, by the applied remedy, but the principle having been violated, the result will be disastrous to the benefit of communities, the inducement will be taken away for the poor to save, and the acquisition to the ranks of good citizenship will be diminished.

GOOD RESULTS OF THE LAW OF 1875.

Savings-banks have prospered since the general law of 1875 was enacted, because under it they have been well and conservatively managed. No failures have occurred since the old wrecks came ashore which met with disaster before the law was enacted. We have had twenty years of prosperity, and no future calamity is feared, unless a reduction of dividends might be so classed. With first-class securities this is unavoidable, the rate of interest tends downward as the country increases in wealth. It seems, therefore, preferable that the regular rate of interest or dividends paid should be reduced to three per cent., rather than to further increase the range of investments. The rule for savings-banks should be, not to pay a higher rate of interest to individual depositors than the aggregate of deposits invested in large amounts can earn when put into strictly first-class securities. The rate suggested is a sufficient inducement for people to save, and inspires a feeling of the utmost security for the safety of their principal.

In addition to the examination of the books of the savings-banks as required by law, a practice has been instituted in this country by the Bowery Savings-Bank of having its books examined at regular intervals by a firm of public accountants. The practice has been found an excellent one. It makes “assurance doubly sure.” In closing their last semi-annual reports, submitted January 9, 1896, these public accountants write as follows: “We examined all vouchers for expenses and found same in order. During the past six months we have examined in detail the ledger balances representing the amount due to individual depositors, as on October 1, 1895, and, with the adjustment of some small clerical errors in interest, found the same in order and in agreement with the general ledger. There are no overdrafts to report on at December 31, 1895. We also compared some 9500 bank pass-books with the corresponding accounts in the depositors’ ledger, and found same in agreement. In our last report we mentioned that the president had instituted some excellent changes in the general routine of the business of the bank. We are pleased to testify that these changes continue to bear good fruit, and that the work of the bank is in excellent order.”

The employment of public accountants has been in vogue in England for some years, but has never been generally adopted in this country in connection with the work of savings-banks so far as known. As the merits of the plan become clearly understood, the employment of public auditors to supplement the work of the trustees of the bank and of the State Bank Department—that is, to examine the examination—will become a general custom.

It may be said that the depositors in savings-banks are relatively the best paid investors in the community. Their security is as nearly absolute as wisdom and law can make it, and the returns from the investments are regular and certain, subject to little or no fluctuation and untouched by the many causes which bring depression to holders of railroad and manufacturing stocks. Savings-bank depositors are the real capitalists of the community. Their money it is which is largely loaned on first mortgages at 4½ per cent. and upwards on the apartment and tenement houses in which they dwell, the churches they attend, the clubs, business stores and factories, the theatres and places of amusement they frequent. It is largely their money which is loaned to the city on its bonds for the construction of public buildings and docks, the purchase and improvement of public parks, and paving streets.

In many cases a parent or relative opens an account for a child at birth, the fact being kept a secret from the beneficiary, and not developed until the death of the person who has performed the good deed. It often becomes capital for a young man to commence business with; or, in the case of a daughter, it may serve as a marriage portion. While it is running, the identity of the beneficiary of the account may be quite unknown to the savings-bank; but if legislation should be enacted to deprive him of his rights, the bank could easily find a way to apprise him of the danger of loss. The accumulations of interest on these accounts is surprising in many instances, as the following memorandum, taken from the books of a well-known bank, will prove:

It does not seem to be generally understood that there are many savings-bank accounts that have been in existence and little used for even more than twenty years; but they exist, and every bank has a large number of them. Because of the fact that they do exist, legislators have been led to suppose that such accounts had no legal claimants, and bills are offered yearly making inquiries about these old accounts. Even the Constitutional Convention in the State of New York two years ago seriously thought of putting a clause in the new constitution confiscating to the use of the State moneys which had been unclaimed for twenty years or more. The Banking Department of the State of New York, at the request of the convention, made inquiry, at the time, of each of the banks of that State; and when it was found that the number of accounts without claimants within the twenty-year limit was comparatively few, the idea was abandoned.

The secrecy which depositors wish to have observed with regard to their transactions with savings-banks does not seem to be taken into account by legislators in their eagerness to enact laws. Existing notions with regard to these accounts have caused many of the savings-banks to seek out the owners of these old accounts, and request them before the expiration of twenty years to make a deposit or a draft, so that the accounts may be revived and not become “dormant.”

CAUSE OF INCREASE IN DEPOSITS.

The increase in the average amount of individual deposits is caused by the banks’ receiving large amounts from individuals. There is no doubt that many people who formerly invested in stocks and bonds, and on bond and mortgage, have divided their funds by putting into each bank as much as would be taken, and thus swelled the aggregate of all the banks. This proceeding is unavoidable, as there is no prohibition against one person opening an account in every bank that will receive it; and one person may have the legal limit in every bank and thus have many thousands on deposit when they are aggregated, although he is prohibited from having more than $1000 to $3000 in any one bank. The limit in the United Kingdom is £300 sterling, or $1500; in France, the limit is F. 2000, or $400; and if the same person has a deposit in more than one bank the penalty is, in the United Kingdom, forfeiture of the whole deposit or benefit to the Government; in France, the deposits will be returned without interest and the depositor will be forever excluded from the savings-banks.

For the reason that, as has been said before, new deposits can only be invested here to earn from 3⅝ per cent. to 3¾ per cent. interest, it has been suggested that deposits of many years’ standing should be allowed a greater rate of interest than more recent ones, because they helped the bank to earn the surplus which enables it to pay high rates of interest; but as it would require very complex calculations, the idea has never been put in practice.

Within the past few years investments in railroad and other securities have become so precarious that many people have striven to place their accumulations in savings-banks, so good was the reputation of these institutions. Here they could secure the greatest safety as well as the highest rate of interest—the savings-banks, on account of their surplus, being able to pay depositors a higher rate of interest than their money alone could actually earn upon investments made to-day. This condition of things, however desirable in itself, gives rise to danger. People are attracted to savings-banks for whom the banks were never intended to be used. Large sums are offered to the savings-banks, and although some of the institutions consent to receive them, it is a matter of doubtful expediency. Not alone does the accommodation of such people divert the forces of the savings-bank from the true channels, but it also makes the bank liable to sudden drains upon its available money. These depositors, who use the savings-bank purely for investment, are always ready to avail themselves of a better investment if one appears, and in the case of a panic, when all securities go down in value, they come eagerly to the bank to secure their money, in order to buy securities which are selling below their value, and which must, as soon as the panic subsides, return to their higher and normal value. It is at just such times that the bank itself needs ready money. Large depositors should be discouraged, because, as a rule, they come from a class who know how to invest their own money, and they should not ask trustees who serve as benefactors to invest their money for them, nor should savings-banks, which were founded for philanthropic purposes, and which in carrying out their purpose are relieved of taxation, permit their institutions to be used for speculative purposes. This question is easy to manage when the amount of the deposit received is kept down. When only small sums are received at a time, savings-banks are, as a rule, serving the class for whose benefit they were intended—that is, those who have not sufficient knowledge of financial affairs to invest their money for themselves profitably.

During the last twenty years there have been but few important failures among the savings-banks of the East. In their rapid increase previous to the War of the Rebellion it is not surprising that many errors and abuses crept in—for which atonement has long since been made in loss and disaster. The multiplication of savings-banks in the early sixties was stimulated by the evidence of prosperity, and the competition for patronage became more and more active and demoralizing. In the management of some institutions the old landmarks of safety seemed to be altogether obliterated. The question of security seemed to be secondary, or to have been lost sight of altogether. Young institutions, conducted more in accordance with the requirements of such a trust, were feebly maintained at the expense of the trustees, or showed a deficiency of income, which enlarged from year to year. But the real conditions of weakness and premature decay were obscured by the glamour of apparent prosperity elsewhere prevalent. The shock which came just previous to the panic of 1873, and the protracted trial which followed, from which we have not yet fully emerged, have rudely dispelled the illusion with which so many were beguiled.

What more natural, what more inevitable than that this period of trial should prove disastrous to the fortunes of very many savings-banks? The wonder is, not that some score or more in New England and New York were forced into liquidation, but that any could survive the tests of this protracted season of financial depression. At the time, much intemperate speech was indulged in concerning trustees, whose only crime was that in their ignorance they had accepted a trust the responsibilities and difficulties of which they understood little, but the duties of which they had endeavored to discharge, at no small cost to themselves in time, labor, anxiety, and money. Of course, not all were so innocent and guileless. This season of trial became a judgment-day not only for institutions weak from their inception, weak from very necessity, but for those which, once strong, had been made weak by inexcusable faults in their management.

In whatever aspect viewed, the employment of industrial force in promoting public improvements and in the creation of public wealth, confers lasting benefits upon society, if integrity and economy govern in the administration of affairs. Whatever, then, facilitates this employment is a social force to be respected and honored, to be protected and surrounded by safeguards. Savings-banks, as reservoirs of capital, are this social force. They make it possible to borrow these tokens of industry offered for practical uses, and thereby to summon industry to further conquests in behalf of the good of mankind.

[* ] Finance Minister Kniajevitch’s report of September, 1859.

[* ] This regulation has not been observed. At times the Bank has been in possession of public funds aggregating R. 200,000,000.

[* ] The total of these debts, since transferred to the Bank to be carried to the debit of the Treasury in 1861, is R. 2,266,663.

[* ] Tartarinow had as successors in office several men of great ability, such for example, as Greig and Abasa, who afterward became Ministers of Finance.

[* ] The dolia equals 0.68578 grains; the zolotnik is 96 dolei, or 65.83488 grains.

[* ] One dessiatine = 1.0925 hectares, or 2.6997 acres.

[* ] A dolia = 0,68578 grains; a zolotnik = 96 dolei, a livre = 96 zolotniks; a pood = 40 livres.

[* ] More exactly, 17 996 grams, or 0.62555 (approximately 5-8) of a standard ounce.

[† ] Including the cost of coinage, which is considerable, for silver it was 6 2-3 per cent.

[† ] This Treasury report includes not only all the savings-banks which the Author has taken into consideration, but also the savings-banks of the West and South; which are organized with capital, have stockholders, take any amount on deposit, and invest the funds in many instances as the directors please. Those institutions are not to be classed with the true savings-banks of the Eastern and Middle States, which have no capital, and whose assets and surplus are held for the benefit of depositors only.