The Online Library of Liberty

A project of Liberty Fund, Inc.

• Shorter Works of Lysander Spooner, Volume I
• The Deist’s Immortality, and an Essay On Man’s Accountability For His Belief.
• The Deist’s Immortality.
• An Essay, On Man’s Accountability For His Belief.
• Worcester Republican.—extra.
• The Deist’s Reply.
• Chapter I.: The Early Spread of Christianity.
• Chapter II.: The Nature and Character of Jesus.
• Chapter III.: The Alleged Miracles of Jesus.
• Chapter IV.: The Prophecies.
• Chapter V.: The Resurrection.
• Supreme Court of United States, January Term, 1839. } Spooner Vs. M’connell, Et, Al.
• Constitutional Law.
• Chap. I.: The Unconstitutionality of All State Laws Restraining Private Banking and the Rates of Interest.
• Chap. II.: What Bank Charters Are Unconstitutional.
• Chap. III.: What Bank Charters Are Constitutional.
• Chap. IV.: The Power of Congress Over the Currency.
• Errata.
• Poverty: Its Illegal Causes and Legal Cure. Part First.
• Chapter I.: Illegal Causes of Poverty.
• Chapter II.: Economical Propositions.
• Chapter III.: Economical Results From the Preceding Propositions
• Chapter IV.: Social, Moral, Intellectual, and Political Results From the Preceding Propositions.
• Chapter V.: The Legal Nature of Debt.
• Chapter VI.: The Legal Nature of Debt.—( Continued. )
• Who Caused the Reduction of Postage? Ought He to Be Paid?
• Illegality of the Trial of John W. Webster.
• A New System Paper of Paper Currency.
• Part First
• Note.
• Chapter I.: Outline of the System.
• Chapter II.: Advantages of the System.
• Chapter III.: Security of the System.
• Chapter IV.: Practicability of the System.
• Chapter V.: Legality of the System.
• Part Second.
• Articles of Association of a Mortgage Stock Banking Company.

CHAPTER I.

OUTLINE OF THE SYSTEM.

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

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

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

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

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

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

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

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

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

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

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

Such are the general principles of the system.

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

The original owners of the Productive Stock, and all who hold it through purchase from them, (instead of by transfer in redemption of bills,) may be called Primary Stockholders. Those, who hold Productive Stock, by transfer in redemption of bills, may be called Secondary Stockholders.

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

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

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

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

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

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

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

If an original Stockholder should sell his Productive Stock outright, it would then be necessary that he should pay his interest.

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

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

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

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

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

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

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

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

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

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

[* ] With a single exception, (provided for in Article XXVII, of the Articles of Association,) not affecting the general rule.

[* ] See Article XIX, of the Articles of Association.

[* ] Even if the rate of dividend, fixed for the Secondary Stockholders to receive, were such as to make their Stock worth more than par of specie, that would not be likely to make the bills worth more than par of specie; because a person, by returning his bills for redemption, would not be sure of getting Productive Stock for them. He might be paid in specie, instead of Productive Stock.

Furthermore, even if his bills should be redeemed by Productive Stock, instead of specie, he would not be likely to hold it a very long time, before it would be bought back by the bank, by simply paying its face in specie.

There would, therefore, be likely to be no scramble for bills (in order to get Productive Stock for them) even though the rate of dividend, fixed for the Secondary Stockholders to receive, should be such as to make the Productive Stock worth, in their hands (supposing they could retain it a length of time) more than par of specie.