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 IV.

PRACTICABILITY OF THE SYSTEM.

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

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

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

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

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

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

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

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

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

Secondly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thirdly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Under an abundant currency, such as the system would furnish, and under the low rates of interest that would follow, the Productive Stock would probably be much more in demand than stocks, paying similar dividends, now are; because now, a very large amount of loanable capital is kept invested in promissory notes, and other personal securities, on account of their paying a better interest than stocks. But under the system proposed, the banks would be so numerous, and the rate of interest at them so low, that temporary loans would all be obtained at the banks, rather than in the street; and the capital, which is now loaned in the street, would then, as the best alternative, seek investment in bank stocks.

Fourthly.

The next question is, would the paper currency proposed, maintain a par value with specie?

This question has already been discussed somewhat; but a few more words need to be said.

We have already seen that the paper would circulate, at its true value, whatever that might be. It is, nevertheless, an important question, whether its value, in the market, would be equal to that of specie?

The answer is, that if the rate of dividend, paid to Secondary holders of Productive Stock, should be six per cent., that would be sufficient to make the currency, at most times, if not at all times, worth par of specie. If it should not be at all times, it would be because the market value of specie would fluctuate more than that of the paper; thereby proving that the paper was the most uniform standard of value.

The paper currency could never rise above the value of specie; because the banks would have the right to redeem their circulation with specie, if they should so please.

If, therefore, there should ever be a difference between the value of the paper, and that of specie, it must be either because the specie would stand constantly above the paper, or because it would occasionally rise above it.

Whether the value of specie would stand constantly above that of the paper, would depend upon the rate of dividend secured to the Secondary holders of the Productive Stock. If this rate should be six per centum, that would certainly be sufficient to make the currency worth as much as specie, at times; because there are times, when there is plenty of specie to be loaned at that rate.

The only remaining question, then, is, whether the specie would occasionally rise in value above the paper? The answer is, that it would very rarely, if ever; and for this reason, viz.: that the supply of paper would always be so abundant and constant, that it is probable, if not certain, that none of those scarcities or contractions, in the currency, which alone cause a rise in the price of specie, would ever occur. And if they never should occur, the paper would always be on a par with specie. If, however, the specie should ever stand above the paper, that would only prove, not that the paper had fallen, but that the specie had risen. In other words, it would prove that the fluctuation was in the specie, and not in the paper; and, consequently, that the paper was the least variable standard of value.

Under these circumstances, the paper would constitute nearly all the currency in circulation (unless for sums below one dollar). It would be the only currency loaned by the banks. It would be a legal tender in payment of all debts due the banks. And it would be sufficient for all cash purchases and sales between man and man. And if an individual should want specie for any extraordinary purpose—as, for exportation, for example—he would buy the specie as merchandize, paying the difference between that and the paper.

Still, specie would probably, at all times, be more abundant, as a currency, in proportion to the demand, than it is now; because it would be so much less needed. The supply would be greater, in proportion to the demand, than now, because the greater supply of paper would supersede the necessity for, and the use of, specie, as a currency.

If the proposed paper currency should be introduced throughout the world, (as it sooner or later would be, if found to be essentially better than any other system,) the coins would become superabundant, unless a greater proportion of them should be consumed in the arts, than now. And gold and silver, whether in coin or not, if they now stand above their value for uses in the arts, would fall to that value, and there remain, as they ought.

Fifthly.

Could the proposed system be introduced in competition with the existing system?

Yes, for various reasons, as follows:—

1. The proposed system would meet with no material opposition from any quarter, unless from the stockholders in the existing banks. Would it from them? No; because it would probably subserve the interests of four fifths, or nine tenths, of them, better even than the existing system. Let us see.

The stockholders of the present banks are made up of two classes, viz.: those who hold their stock in order to lend money, and those who hold it in order to borrow money.

Both of these classes would probably be benefitted, rather than injured, by the adoption of the new system.

Those, who have money to lend, could probably do better with it, by investing it first in a mortgage, and thus getting one income from it; and then using the mortgage as bank capital, and thus getting another income from it.

Their capital would thus be more safely invested than it is now; and would probably yield a larger income.

Those, who own bank stock, in order to borrow more than they lend, would probably do better than they do now, because, first, they would keep their own capital wholly in their own business; and, secondly, if they needed more, would easily borrow it (if worthy of credit) on account of the abundance of banks, that would be seeking borrowers. Thus they would be as well supplied with capital as now, and with less risk and trouble; because they would borrow only what they needed over and above their own capital; and this they would do directly, and without complicating their business, as now, with that of a bank, by becoming stockholders, and being compelled to look after, and take the risks of, all the business of the bank.

Another reason, why the stockholders in the present banks would be benefitted by the new system, is, that very many of these stockholders are large owners of real estate. The new system, by enabling the owners of real estate to get an income from it, as banking capital, and still more by furnishing increased facilities for agriculture, manufactures, and commerce, would greatly increase the value of real estate in general. This increased value, given to real estate, would be of more importance to the owners thereof, than any income or advantage, derived by them from the present system of banking, over those to be derived from the proposed system.

The opposition to the new system, then, (if any there should be,) on the part of stockholders in the present banks, would be an opposition of prejudice, and not of interest; for there are few or no stockholders in the present banks, who would not derive greater advantages from the new system, than from the present one.

2. The new currency could be introduced (brought into circulation) in competition with the existing paper currency, for the further reason, that, if the existing banks should receive the currency of the new banks, at par, the currency of the new banks would thus be enabled to circulate, in the community, on a par with that of the present banks. On the other hand, if the present banks should not receive, at par, the currency of the new banks, the new banks and their friends would systematically, and to the extent of their ability, run upon the existing banks for specie; and thus compel them to suspend payments in specie. And when the existing banks should have suspended payment in specie, the new banks would stand better than the present ones, in the estimation of the community; because the existing banks would then offer no redemption of their bills, except by receiving them in payment of debts; whereas the new banks would not only offer that redemption, but also a further redemption in Productive Stock.

If the new banks, and their friends, should systematically run upon the existing banks for specie, the existing banks could not retaliate; because the new banks could redeem with Productive Stock, instead of specie, if they should so choose.

Thus the new banks, by drawing specie from the existing banks, could pay specie, to the public, as long as the existing banks could pay it; and thus the new banks would put themselves on a par with the existing banks, so far as paying specie, to the public, should be concerned. But the difference between them would be, that the present banks would be compelled to pay specie to the new banks; but the new banks would not be compelled to pay specie to the existing banks.

This advantage, which the new banks would have over the existing ones, would enable the new banks to coerce the existing ones, either into a suspension of specie payments, (when the new ones would stand better than their rivals,) or else into receiving the currency of the new banks at par—in which case the new banks would stand at least as well as the existing ones.

3. The new banks would have an advantage over the existing ones, in introducing their currency into circulation, by reason of the fact that, inasmuch as their capital would cost them nothing, (they not being obliged to keep any considerable amount of specie on hand,) they would be able to lend money at a lower rate of interest.

4. The currency of the new banks would go into circulation, for the further reason, that every body would prefer it, (the currency,) on account of its superior safety, convenience, and merchantable character, to the credit of private persons. This preference would be sufficient to bring it into use in substantially all those purchases and sales, which are now made on credit. And if the currency were to go into use only to that extent, it would be a success. But if it were to go into use to that extent, it would obviously go into use to a still greater extent, and supersede, wholly or partially, the existing currency, even in those purchases and sales, which are now made for cash.

Doubtless nine tenths, and perhaps nineteen twentieths, of all the persons, who now get credit, get it elsewhere than at the banks; in fact, never go to a bank for credit. Yet these persons are worthy of credit, as is proved by the fact that they get it of private persons, by purchasing commodities on credit. It would be far better for them to get their credit at bank, and make their purchases for cash, for they would then make them much more advantageously. All this class of persons, therefore, could be relied on to introduce the new currency. And they would have no difficulty in introducing it—that is, in making their purchases with it—because it would be preferred to their private credit, even by those who now give them credit.

5. Under the existing system, when the banks suspend specie payments, we see that their bills not only continue to circulate, but that they maintain a value, in the market, very nearly on a par with specie. Why is this? It is principally, if not solely, because the bills of each bank are a legal tender in payment of any debts due to that bank. Inasmuch as the public always owe a bank more (by the amount of interest on loans) than the bank owes the public, there is sure to be a demand for all the outstanding bills of a bank, to pay the debts due to the bank—provided the debts due to the bank be solvent. It is this fact, that keeps the bills of the bank so nearly on a par with specie. That is, the bills are worth very nearly dollar for dollar, because they will pay debts to the banks, dollar for dollar, which would otherwise have to be paid in specie.

This fact, in regard to the circulation of the bills of suspended banks, under the existing system, sufficiently demonstrates that the paper currency now proposed, would not only circulate, but that it would maintain a value very nearly, if not quite, on a par with specie; because it would not only be a legal tender, dollar for dollar, for all debts due to the banks, but would also be redeemable in Productive Stock, which would always maintain, very nearly or quite, a par value with specie, in the market. In this latter respect (of being redeemable by Productive Stock) the proposed currency would have a clear, and very important, advantage over the bills of suspended banks, which now circulate, and maintain their value nearly on a par with specie. There is, therefore, no ground for saying that the new currency would not circulate, if it were offered, when we see that a far less safe, less redeemable, and less desirable currency, to wit, the bills of suspended banks, under the present system, do not only circulate, but maintain their value so nearly on a par with specie.

6. It may be supposed, at first view, that merchants, especially importers, might reasonably object to the proposed currency, on the ground that their interests require that the currency of a nation be such as can be converted into specie, whenever they (the merchants) may have occasion to export specie.

Admitting, for the sake of the argument, that the merchants might suffer some inconvenience of this kind, the effect would only be to make them more careful to keep the imports within the exports of the country. And this benefit to the country would counterbalance a thousand fold any inconvenience to the merchants.

The merchants have no claim that the whole country shall depend, for a currency, upon a commodity, or commodities, like gold and silver, which the merchants can at pleasure carry out of the country, leaving the nation destitute of a currency. And it is nothing but suicide for a people to depend upon such commodities for a currency.

Under the present system, whenever the balance of trade is much against us, the merchants export specie in such quantities as to cause sudden and severe contractions in the currency, a great reduction in the price of commodities relatively to specie, (that is, a great rise in the price of specie,) general bankruptcy among persons in debt, general stagnation in industry and trade, and immense distress and ruin on every hand. This state of things checks importations for a while, until the balance of trade turns in our favor; when the specie returns, currency expands, credit revives, industry and trade become active, and, for a time, we have what we call prosperity. But in a few years, the merchants again export the specie, and the same catastrophe is acted over again. And such must continue to be our experience, until our present vicious system of currency and credit shall be corrected. This no one seems to doubt.

Certainly such evils are not to be endured by a whole nation, from no motive but to maintain a currency, which the merchants can export, whenever they shall have imported more goods than the legitimate exports of the country will pay for.

It is the proper function of merchants to conform their business to the interests of the people, in the matter of currency, as much as in the commodities bought and sold with and for it. And it would be as legitimate for the merchants, instead of supplying the people with such commodities as the latter desire, to dictate to them what they may, and may not, buy, as it is for them (the merchants) to dictate to the people what currency the latter shall use.

It is the legitimate function of merchants to buy such commodities as the people have to sell, and to sell such as the people wish to buy. So far as merchants do this, they are a useful class. And the principle applies as well to the currency, that is to be bought and sold, as to any other commodities. And, as matter of fact, whatever this principle requires of merchants, they readily acquiesce in. They adapt themselves at once to any system of currency, that happens to prevail for the time being. And certainly no class will more eagerly welcome any system of banking, that will furnish them, at all times, with abundant credit, and abundant currency, and cash payments in trade; for such a system would be a guaranty, to them, of a safe, constant, and profitable traffic, in the place of the present fitful, chaotic, and perilous one, in which so many of their number are being continually wrecked.

So far as the export of specie is concerned, probably not one merchant in a hundred—perhaps not one in a thousand—has the least interest in it. A currency, that will pay their bank notes, is substantially all that, as a class, they demand, or desire.

But, in truth, the system would favor, instead of injuring, the interests even of those few merchants who occasionally do export specie; for it would put at their disposal nearly all the gold and silver of the country, for exportation, or any other purpose. That is to say, the merchants could export nearly all the gold and silver, without affecting our home currency; and consequently without disturbing industry and trade. And this is one of the great merits of the system. The presence or absence of specie in the country would not be known by its effects upon the general body of currency.

If the paper currency, now proposed, were introduced throughout the world, gold and silver would enter very little into the internal commerce of nations. They would go back and forth between nations, to settle balances; and would be found, in large quantities, in seaports as merchandize. And merchants would purchase them for export, as they would any other commodities.

7. The system proposed would obviously tend to the concentration of specie, in large quantities, in the seaports. This would enable the banks, in the seaports, to pay specie, if it should be at all necessary. And this would enable the banks, in the seaports, to furnish a specie paying currency for the interior of the country, when the banks themselves, in the interior, would not pay it. The advantage of circulation, which the seaport banks might thus obtain over the banks of the interior, would be great enough to compensate for any little trouble it might be for the former to pay specie. In fact, this interior circulation might very probably become so extensive, as to be a source of great profit to the seaport banks.

If the seaport banks should send their currency, in large quantities, into the interior, the banks of the interior would have little need to redeem their currency with specie. It would be sufficient for them to redeem it with the seaport currency.

8. The system is practicable for the further reason, that it can be introduced without the aid of bank charters, or special legislation of any kind. It stands wholly on common law principles; and companies can go into business under it—as they go into mercantile, manufacturing, or any other business—when it suits their interest or pleasure, without asking the consent of a body of ignorant, conceited, tyrannical legislators, who assume to know what business it is, and what business it is not, best for men to engage in; instead of leaving the wants of mankind to give direction to their industry and capital.

The banks, too, when established, would be free of all special control, oversight, taxation, or interference by the government. As the banks would ask no favors of the government, in the way of charters, monopolies, or otherwise, the government would have no more excuse for specially taxing them, or for sending Commissioners to pry into, investigate, or report their affairs, than it now has for specially taxing the capital, or for sending Commissioners to pry into, investigate, or report the affairs, of merchants, manufacturers, or any other class of persons.

The fact, that the existing system requires special legislation in favor of the banks, (in the shape of charters and monopolies,) and special legislation against them, (in the shape of restrictions of various kinds, the espionage of Commissioners, &c., &c.,)—in short, the fact, that the banking business cannot be left subject only to those general laws, which are applicable to all other kinds of business, is sufficient evidence that the system is a vicious one, and ought to be abolished.

[* ] Diamonds would not answer well as a currency, because, although they have a market value, that value is known only to a few.

[* ] The sale of them, as a currency, is not a use of them; any more than the sale of a horse is a use of the horse.