Front Page Titles (by Subject) CHAPTER I.: EXPLANATION OF THE AUTHOR'S NEW SYSTEM OF PAPER CURRENCY. - The Shorter Works and Pamphlets of Lysander Spooner, Vol. 2 (1862-1884)
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CHAPTER I.: EXPLANATION OF THE AUTHOR’S NEW SYSTEM OF PAPER CURRENCY. - Lysander Spooner, The Shorter Works and Pamphlets of Lysander Spooner, Vol. 2 (1862-1884) 
The Shorter Works and Pamphlets of Lysander Spooner, vol. 2 (1862-1884) (Indianapolis: Liberty Fund, 2010).
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EXPLANATION OF THE AUTHOR’S NEW SYSTEM OF PAPER CURRENCY.
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, in the first instance, by an invested dollar, unless the bankers choose to redeem it with specie.
The capital is made up of a given amount of property deposited with trustees.
This capital is never diminished; but is liable to pass into the hands of new holders, in redemption of the currency, if the trustees fail to redeem the currency with specie.
The amount of currency is precisely equal to the nominal amount of capital.
When the currency is returned for redemption, (otherwise than in payment of debts due the bank,) and the trustees are not able, or do not choose, to redeem it with specie, they redeem it by a conditional transfer of a corresponding portion of the capital. And the conditional holder of the capital thus transferred, holds it, and draws interest upon it, until the trustees redeem it, by paying him its nominal value in specie.
Under certain exceptional and extraordinary circumstances, this conditional transfer of a portion of the capital, becomes an absolute transfer; and the conditional holder of the capital transferred, becomes an absolute holder of it—that is, an absolute stockholder in the bank.
In such cases, therefore, the final redemption of the currency consists in making the holders of the currency bona fide stockholders in the bank itself.
To repeat, in part, what has now been said:
The currency, besides being receivable for debts due the bank, is redeemable, first, with specie, if the bankers so choose; or, secondly, by a conditional transfer of a part of the capital.
The capital, thus conditionally transferred, may be itself redeemed, by the bank, on paying its nominal value in specie, with interest from the time of the transfer.
Or, this conditional transfer, of a portion of the capital, may, under certain circumstances, become an absolute transfer.
A holder of currency, therefore, is sure to get for it, either specie on demand; or specie, with interest, from the time of demand; or an amount of the capital stock of the bank, corresponding to the nominal value of his currency.
In judging of the value of the currency, therefore, he judges of the value of the capital; because, in certain contingencies, he is liable to get nothing but the capital for his currency. But if the capital be worth par of specie, or more than par of specie, he infers that his currency will be redeemed, either in specie on demand, or by a temporary transfer of capital; which capital will afterwards be itself redeemed with specie.
All that is necessary to make a bank, under this system, a sound one, is, that its capital shall consist of productive property—its actual value fully equal to, or a little exceeding, its nominal value—and of a kind not perishable, or likely to depreciate in value.
Mortgages, rail-roads, and public stocks will probably be the best capital; and most likely they are the only capital which it will ever be expedient to use.
If further explanation of the nature of the system be needed, at this point, it can be given—more easily, perhaps, than in any other way—by supposing the capital to consist of land—as follows:
Suppose that A is the owner of one hundred, B of two hundred, C of three hundred, and D of four hundred, acres of land; that all these lands are of uniform value, to wit, one hundred dollars per acre; that they will always retain this value; and that they are all under perpetual leases at an annual rent of six dollars per acre.
A, B, C, and D, put all these lands into the hands of trustees, to be held as banking capital; making an aggregate capital of one hundred thousand dollars. Their rights, as lessors, going with the lands into the hands of the trustees—that is, the trustees being authorized to receive the rents, and apply them to the uses of the bank, if they should be needed.
A, B, C, and D, then, are the bankers, doing business through the trustees.
Their dividends, as bankers, it is important to be noticed, will consist both of the rents of the lands, and the profits of the banking; making dividends of twelve per cent. per annum, if the banking profits should be six per cent.
The banking will be done in this way—
The trustees will make certificates for one, two, three, five, ten dollars, and so on, to the aggregate amount of one hundred thousand dollars; corresponding to the whole value of the lands.
These certificates will be issued for circulation as currency, by discounting notes, &c.
Each certificate will be, in law, a lien upon the lands for one dollar, or for the number of dollars expressed in the certificate.
The conditions of this lien will be these—
1. That these certificates shall be a legal tender in payment of all debts due the bank.
2. That when one hundred dollars of these certificates shall be presented for redemption, the trustees, unless they shall redeem them with specie, shall give the holder a conditional title to one acre of land. This conditional title will empower the holder to demand of the trustees rent for that acre, at the rate of six dollars per annum, until they redeem the acre itself, by paying him an hundred dollars in specie for it. And no dividends shall be made by the trustees, to the bankers, (A, B, C, and D,) either from the rents of any of the other lands, or from the profits of banking, until this conditional title to the one acre, given to the holder of currency, shall have been cancelled, by the payment of the hundred dollars in specie, with interest, or rent, for the time the conditional title shall have been in his hands.
3. That when certificates are presented for redemption, in sums less than one hundred dollars, the trustees, unless they redeem them with specie on demand, shall redeem them with specie, (adding interest, except on small sums,) before making any dividends, either of rents, or banking profits, to the bankers (A, B, C, and D).
4. Whenever an acre of land shall have been conditionally transferred in redemption of currency, a corresponding amount of currency (one hundred dollars) must be reserved from circulation, until that acre shall have been redeemed by the bank; to the end that there may never be in circulation a larger amount of currency, than there is of land, in the hands of the bankers, with which to redeem it.
5. So long as any of the lands shall remain the property of the original bankers, (A, B, C, and D,)—free of any conditional title, as before mentioned—the trustees will have the right, as their agents, to cancel all conditional titles, by paying an hundred dollars in specie for each acre, with interest, (or rent,) at the rate of six per cent. per annum, during the time the conditional title shall have been outstanding. And the trustees must do this, before they make any dividends, either of rents, or banking profits, to the bankers themselves.
But if, at any time, the banking shall be so badly managed, as that it shall become necessary for the trustees to give conditional titles to the whole thousand acres, (constituting the entire capital of the bank), the rights of the original bankers (A, B, C, and D) in the lands, shall then be absolutely forfeited into the hands of those holding the conditional titles; who will then become absolute owners of them (as banking capital, in the hands of the same trustees)—in the same manner as A, B, C, and D had been before; and will go on banking with them in the same way as A, B, C, and D had done, and through the agency of the same trustees.
This currency, it will be seen, must necessarily be forever solvent—supposing, as we have done, that the lands retain their original value. It will be absolutely incapable of insolvency; for there can never be a dollar of currency in circulation, without there being a dollar of land, in the hands of the bankers, (or their trustees,) which must be transferred (one acre of land for a hundred dollars of currency) in redemption of it, unless redemption be made in specie. All losses, therefore, fall upon the bankers, (in the loss of their lands,) and not upon the bill holders. If the bankers should fail—that is to say, if they should be compelled to transfer all their lands in redemption of their circulation—the result would simply be, that the lands would pass, unincumbered, into the hands of a new set of holders—to wit, the conditional holders—who would have received them in redemption of the currency—and who would proceed to bank upon them, (reissue the certificates, and redeem them, if necessary, by the transfer of the lands,) in the same way that their predecessors had done. And if they too, should lose all the lands, by the transfer of them in redemption of the currency, the lands would pass, unincumbered, into the hands of still another set of holders, (the second body of conditional holders, who will now become absolute holders,) who would bank upon them, as the others had done before them. And this process would go on indefinitely, as often as one set of bankers should fail (lose all their lands). Whenever one set of bankers should have made such losses as to compel the conditional transfer of all their lands, the conditional transfers would become absolute transfers, and the lands would pass absolutely into the hands of a new set of holders (the conditional holders); and the bank, as a corporation, would be just as solvent as at first. So that, however badly the banking business should be conducted, and however frequently the bankers might fail, (if transferring all their capital (lands), in redemption of their circulation, may be called failing,) the bank itself, as a corporation, could not fail. That is to say, its circulation could never fail of redemption. The lands (the capital) would forever remain intact; forever equivolent to the circulation; and forever subject to a compulsory demand in redemption of the circulation. In this way all losses necessarily fall upon the bankers, (in the loss of their capital, the lands,) and not upon the bill holders, who are sure to get the capital (lands), dollar for dollar, for their currency, if they do not get specie.
From the preceding explanation it will be seen that, if all lands were of an uniform value, and were to retain that value in perpetuity, it would be perfectly easy to use them as banking capital, under the author’s system, and thus create the most abundant and solvent currency that could be desired.
But all lands are not of a uniform value; and, therefore, they cannot be used, acre by acre, as banking capital, under this system. Nevertheless, by means of mortgages, lands may be used as banking capital; since mortgages upon lands can be made to any desirable extent, and all of a uniform value; or at least nearly enough so for all practical purposes. And this value they will retain in perpetuity.
The real estate of this country amounts to some ten thousand millions of dollars. Mortgaged for only half its real value, it would furnish banking capital to the amount of five thousand millions of dollars.
The rail-roads that we now have, and those that we shall have, taken at only half their value, would furnish several hundred millions more of good banking capital.
There will probably also be two thousand millions, or more, of United States Stocks, which, if they should stand permanently at par, or thereabouts, will make good banking capital.
There is, therefore, no more occasion for a scarcity of currency, than for a scarcity of air.
And this currency would all be solvent, stable, and furnished at the lowest rate of interest at which the business of banking could be done.
Under such a system there could never be another crisis; the prices of property would be stable; the rate of interest would always be moderate; industry would be uninterrupted, and much more diversified than it ever hitherto has been; and prosperity would necessarily be universal.
No evils could result from the great amount of currency furnished by this system; for no more would remain in circulation than would be wanted for use. By returning it to the bank for redemption, the holder would either get specie for it, or have it redeemed by the conditional transfer to him of a part of the capital, on which he would draw interest, until the capital so transferred to him, should either be itself redeemed with specie, or made an absolute property in his hands. Currency, therefore, returned for redemption, and not redeemed with specie, is really put on interest, by being redeemed by the conditional transfer of interest-bearing capital. Whenever, therefore, if ever, the prices of property should become so high as not to yield as good an income as money at interest (the interest being paid in specie), the holders of currency would return it to the banks for redemption, beyond the ability of the banks to pay specie. The banks would be compelled to redeem it by the conditional transfer of interest-bearing capital; and thus take it out of circulation.
In short, the currency represents a dollar at interest, instead of a dollar in specie; and whenever it will not buy, in the market, property that is worth as much as money at interest, (the interest payable in specie,) it will be returned to the bank, and put on interest, (by being redeemed in interest-bearing capital,) and thus taken out of circulation. No more currency, therefore, would remain in circulation, than would be wanted for use, the prices of property being measured by the value of an interest-bearing dollar, instead of a specie dollar, if there should be a difference between the two.
Such is, perhaps, as good a view of the general principles of the system, as can be given in the space that can be spared for that purpose. For a more full description, reference must be had to the pamphlet containing the system itself, with the Articles of Association, that will be needed by the banking companies. In the Articles of Association, the system is more fully developed, and the practical details more fully given, than they can be in any general description of the system.*
The recent experience of this country, under a currency redeemable only by being received for taxes, and made convertible at pleasure into interest-bearing bonds (U. S.), is sufficient to demonstrate practically—what is so nearly self-evident in theory as scarcely to need any practical demonstration—that under a system like the author’s, where the currency (when not redeemed in specie on demand) is convertible at pleasure into solvent interest-bearing stocks, there could never be a redundant currency in actual circulation, nor any undue inflation in the prices of property. That experience proves that currency issued, and not needed for actual commerce, at legitimate prices, will be converted into the interest-bearing stocks which it represents, and thus taken out of circulation, rather than used to inflate prices beyond their legitimate standard.†
This experience of the United States, with a currency convertible into interest-bearing bonds, ought, therefore, to extinguish forever all the hard money theories as to the indefinite inflation of prices by any possible amount of solvent paper currency. It ought also to extinguish forever all pretence that a paper currency should always be redeemable in specie on demand; a pretence that is merely a branch of the hard money theory. This experience ought to be taken as proving that other values than those existing in gold and silver coins—values, for example, existing in lands, rail-roads, and public stocks—can be represented by a paper currency, that shall be adequate to all the ordinary necessities of domestic commerce; and consequently that we can have, at all times, as much paper currency as our domestic industry and commerce can possibly call for; and that the frequent revulsions we have hitherto had—owing to our dependence upon a currency legally payable in specie on demand, and therefore liable to contraction whenever specie leaves the country—are wholly unnecessary. This experience ought, therefore, to serve as a practical condemnation of all restraints upon the most unlimited paper currency, provided only that such currency be solvent, and actually redeemable, at the pleasure of the holder, in the property which it purports to represent.
Substantially the same things are proved by the experience of England. The immense amount of surplus money in that country is not used to inflate prices at home; but seeks investment abroad. It is sent all over the world, either in loans to governments, or as investments in private enterprises, rather than used to inflate prices at home beyond their true standard.
The experiences of the two countries, therefore, demonstrate that there is no such thing possible as an undue inflation of prices, by a solvent paper currency — that is, a currency always redeemable in the specific property it purports to represent. And such a currency is that which would be furnished by the author’s system; for the property represented by it is always deliverable, dollar for dollar, in redemption of the currency itself.
[* ] In the Articles of Association, as published, the capital is supposed to be mortgages. If United States stocks should be used as capital, the Articles of Association would need to be the same as for mortgages, with but very trivial alterations. If rail-roads were to be used as capital, very considerable alterations would need to be made in the Articles of Association.
[† ] The fact, that U. S. currency is now below par of specie, does not affect the principle stated in the text. That currency is worth, as all such currency must be worth, as much as the stocks into which it is convertible. The depreciation in the U. S. currency is to be accounted for, therefore, not at all on the ground of superabundance for the uses of commerce, but on one or more of the following grounds, to wit: 1. That the public credit is suffering from the apprehension that the U. S. bonds may never be paid; 2, that the loanable capital of the country is either becoming exhausted, or finds more lucrative investments in business than in U. S. stocks; or, 3, that the burdens imposed upon the use of U. S. stocks as banking capital, are so great as to depreciate the value of the bonds.