Front Page Titles (by Subject) CHAPTER III.: SECURITY OF THE SYSTEM. - The Shorter Works and Pamphlets of Lysander Spooner vol. I (1834-1861)
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CHAPTER III.: SECURITY OF THE SYSTEM. - Lysander Spooner, The Shorter Works and Pamphlets of Lysander Spooner vol. I (1834-1861) 
The Shorter Works and Pamphlets of Lysander Spooner vol. I (1834-1861) (Indianapolis: Liberty Fund, 2010).
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SECURITY OF THE SYSTEM.
Supposing the property mortgaged to be ample, the system, as a system, is absolutely secure. That is to say, the currency is absolutely sure of redemption. The capital cannot, in any possible event, be reduced below the amount necessary for the redemption of the entire circulation.
The only question, then, is—what assurances have the public, that the property mortgaged will always be ample?.
The answer is, that they have abundant assurances, as follows:
1. The mortgages will all be on record, where any body interested can examine them, and judge for himself whether the property holden is sufficient.
2. Each bank will find it expedient to print a large number of copies of its Articles of Association, including copies of its mortgages. Appended to these copies, may be copies of the certificates of appraisers, as to the value of the property. These certificates, if they come from men of known character and judgment, will be entitled to confidence. Certificates also of the assessed value of the property, on the tax lists of the town, may be appended; and these, coming from disinterested and honest men of good judgment, as the assessors of taxes usually are, will be worthy of reliance.
Copies of the Articles of Association, with these certificates appended, will be sent, by the bank, to other banks, and given to individuals, with whom the bank wishes to establish its credit.
3. The Trustees of a bank will be generally known as men of character and judgment—for otherwise a bank would be discredited at once. If they are thus known, their acceptance of the office of Trustees, will be a reasonable guaranty for the sufficiency of the property holden; for such men would not be likely to become Trustees, except for a solvent bank.
4. The abundance of undoubted currency would be such, that the public would be under no necessity to take doubtful currency; and therefore doubtful currency could get no circulation at all.
5. Mortgages upon the real property of the country, at one third, or one half, its value, would probably furnish a great deal more currency than could be used. No one company, therefore, could expect to get out a circulation of more than one third, or one half, the value of the property mortgaged. It would be of no use for them, therefore, to mortgage their property for more than that amount. If they should mortgage their property for more, and attempt to get out more circulation, they would thereby discredit their bank, and thus either fail of getting any circulation at all, or certainly fail of getting as much circulation as they might have got, if their property had been mortgaged only for a proper amount. It, therefore, would not be for the interest of a banking company to mortgage their property at a higher rate than one third, or one half, its value. And at this rate, the mortgages would be safe for a long series of years, (unless in very extraordinary cases,) because, under a system of abundant currency, real estate would always be rising in value, rather than falling. The mortgages, therefore, would be growing better all the while, instead of growing worse.
6. By the Articles of Association, all the mortgages, which make up the capital of a bank, are made mutually responsible for each other; because, (see Articles XXIX and XXXVII,) if any one mortgage proves insufficient, no dividend can afterwards be paid to any Primary Stockholder, until that deficiency has been made good by the company. The effect of this provision will be, to make all the founders of a bank look carefully to the sufficiency of each other’s mortgages; because no man will be willing to put in a good mortgage of his own, on equal terms with a bad mortgage of another man’s, when he knows that his own mortgage will have to contribute to make good any deficiency of the other. The result will be that the mortgages, that go to make up the capital of any one bank, will be either all good, or all bad. If they are all good, the solvency of the bank will be apparent to all in the vicinity; and the credit of the bank will at once be established, at home. If the mortgages are all bad, that fact also will be apparent to every body in the vicinity; and the bank is at once discredited, at home.
From all the foregoing considerations, it is evident that nothing is easier than for a good bank to establish its credit, at home; and that nothing is more certain than that a bad bank would be discredited, at home, from the outset, and get no circulation at all.
It is also evident that a bank, that has no credit at home, could get none abroad. There is, therefore, no danger of the public being swindled by bad banks.
7. It would be easy for a good bank to establish its credit abroad—for it could do it by establishing its credit with other banks. This it could do, partly by means of its credit at home, and partly by making arrangements with other banks to redeem its bills. In order to do this, it must be at the necessary expense and trouble of satisfying these other banks of its solvency—that is, by furnishing them satisfactory evidence of the sufficiency of the mortgaged property; a thing, that is obviously very easy to be done, if the mortgaged property be really sufficient.
8. In addition to the security of each individual mortgage, and of the mutual responsibility of the mortgages for each other, there is the still further security of all the debts due to the banks; debts a little more than equivalent (by the amount of interest on the loans) to the amount of bills in circulation.
In this connexion it may be added, that under the system proposed, the banking business will be a much safer business than it is now; and consequently the debts due to the bank will be a much better security for the solvency of the bank, than such debts now are; because, under a system, which furnishes, at all times, a constant and ample supply of currency, industry and trade will be subject to none of those revulsions and stagnations, which cause extensive or general bankruptcies; the debtors of banks will all make their sales for cash, instead of giving credit. For these reasons the credits, given by the banks, will obviously be much more uniformly safe than they now are; and consequently the debts, due the banks, will afford a much better security, than they now do, for the solvency of the banks themselves.
9. The banks themselves would act as guardians to the public against frauds by each other. This would be done in this way. Bank A (a solvent bank) would not receive the bills of bank B, unless bank B had first satisfied bank A of its solvency. And bank A would be satisfied only by personal examination of the mortgages of bank B. In this way any unsound bank would be discredited by the surrounding banks, and thus discredited in the eyes of the community.
But it has been said that under the New York free banking law, mortgages are deposited with the State Comptroller, (or Superintendent of Banks,) as security for the redemption of the currency; and that when these mortgages come to be sold, the lands often fail to bring the amount of the mortgage. And the question has been asked, whether, under the system here proposed, the mortgaged property might not prove insufficient, as well as in New York?
The answer is, that the mortgages in New York may have proved insufficient for either or both of two reasons.
1. They may have proved insufficient, because the lands, being sold for specie, at a time when specie had mostly left the country, could not bring what was not to be had—that is, specie. But this is no proof that the lands were not, in ordinary times, and under an abundant currency, a sufficient security; but only that, when specie has gone out of the country, lands are affected like all other property, and will not, any more than other property, bring their true value in specie.
But under the system proposed, the absence of specie would occasion no contraction of the currency, and no depression in the price of lands. And therefore a mortgage, that was sufficient at one time, would be sufficient at all times. No forced sales would be made; but the mortgages would run (if only the interest were paid) until the final winding up of the bank. If the interest were not paid, the bank would take possession, and apply the rents to the payment of the interest. Or, at worst, they would sell the property. And it could always be sold advantageously, because, there never being a scarcity of currency, property in general would never be depressed.
2. The other reason, for the failure of the New York mortgages, may have been fraudulent appraisals.
The facilities for fraudulent appraisals are much greater under the New York system, than they would be under the system proposed, and for these reasons.
Under the New York system, all that is necessary to get a bank in operation, is, that mortgages, satisfactory to the State Comptroller, or Superintendent of Banks, should be deposited with him. And he accepts the mortgages on the simple appraisal of men, appointed by himself, or satisfactory to himself. This being done, the currency is then issued, and the public receive it, because the State has thus virtually certified that it is well secured.
Now, it is evident that all that is necessary to get up a swindling bank, under this system, is simply to secure the approval of one man—the Comptroller, (or Superintendent of Banks,) who knows nothing of the land himself—to the appraisal of the land mortgaged. If but this one man can either be cheated, or be induced to become himself a cheat, all the other consequences follow; because the currency is then issued under his authority, and is received by the public, on the strength of his virtual indorsement.
Now, as it cannot be a very difficult matter to cheat this one man, or perhaps to induce him to become himself a cheat, in such a case as this, it is evident that the system affords little security for the sufficiency of the mortgages.
But under the system proposed, no such facilities for fraud would exist, because the credit of the bank would not rest upon the certificate of any one man, nor upon any indorsement of the State. The State would not indorse the currency at all, any more than it now indorses the notes or mortgages of private persons. Each bank would, therefore, have to stand on its own merits, subject to the scrutiny of the whole community.