The Online Library of Liberty

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• Pamphlets of Lysander Spooner, Volume Ii
• Our Mechanical Industry, &c.
• Chapter I.: Losses In Our Mechanical Industry Resulting From Our Reliance Upon Gold and Silver As the Basis of Our Currency and Credit.
• Articles of Association of the Spooner Copyright Company For Massachusetts.
• Considerations For Bankers.
• Chapter I.: Explanation of the Author’s New System of Paper Currency.
• Chapter II.: The Author’s System Cannot Be Prohibited By the States.
• Chapter III.: The Author’s System Cannot Be Taxed, Either By the United States, Or the States.
• Chapter IV.: The State Governments Cannot Control, Or In Any Manner Interfere With, the Author’s System.
• Chapter V.: Unconstitutionality of the Legal Tender Acts of Congress.
• Chapter VI.: Unconstitutionality of the National Bank Act.
• Chapter VII.: Exchanges Under the Author’s System.
• Appendix.: the Author’s Copyright.
• Thomas Drew Vs. John M. Clark.
• A New Banking System the Needful Capital For Rebuilding the Burnt District.
• Chapter I.: A New Banking System.
• Chapter II.: Specie Payments.
• Chapter III.: No Inflation of Prices.
• Chapter IV.: Security of the System.
• Chapter V.: The System As a Credit System.
• Chapter VI.: Amount of Currency Needed.
• Chapter VII.: Importance of the System to Massachusetts.
• Chapter VIII.: The True Character of the “national” System.
• Chapter IX.: Amasa Walker’s Opinion of the Author’s System
• Vices Are Not Crimes. a Vindication of Moral Liberty.
• Our Financiers: Their Ignorance, Usurpations, and Frauds.
• The Law of Prices: a Demonstration of the Necessity For an Indefinite Increase of Money.
• Gold and Silver As Standards of Value: the Flagrant Cheat In Regard to Them.
• Universal Wealth.
• Revolution: a Reply to “dunraven.”
• Letter to Scientists and Inventors.

CHAPTER VII.

EXCHANGES UNDER THE AUTHOR’S SYSTEM.

It will be very easy, under the author’s system, to give the currency a uniform value in all parts of the country; as follows:

In the first place, where the capital shall consist of mortgages, it will be very easy for all the banks, in any State, to make their solvency known to each other. There would be so many banks, that some system would naturally be adopted for this purpose.

Perhaps this system would be, that a standing committee, appointed by the banks, would be established, in each State, to whom each bank in the State would be required to produce satisfactory evidence of its solvency, before its bills should be received by the other banks of the State.

When the banks, or any considerable number of the banks, of any particular State—Missouri for example—shall have made themselves so far acquainted with each other’s solvency, as to be ready to receive each other’s bills, they will be ready to make a still further arrangement for their mutual benefit, viz.: to unite in establishing one general agency in St. Louis, another in New Orleans, another in Chicago, another in Cincinnati, another in New York, another in Philadelphia, another in Baltimore, and another in Boston, where the bills of all these Missouri banks shall be redeemed. And thus the bills of all Missouri banks, that belonged to the Association, would be placed at par at all the great commercial points.

Each bank, belonging to the Association, might print, on the back of its bills, “Redeemable at the Missouri Agencies, in St. Louis, Chicago, Cincinnati,” &c.

In this way all the banks of each State might unite to establish agencies in all the large cities for the redemption of their bills.

The banks might safely make permanent arrangements of this kind with each other; because the permanent solvency of all the banks might be relied on.

The permanent solvency of all the banks might be relied on, because, under this system, a bank, (whose capital consists of mortgages,) once solvent, is necessarily forever solvent, unless in contingencies so utterly improbable as not to need to be taken into account. In fact, in the ordinary course of things, every bank would be growing more and more solvent, because in the ordinary course of things, the mortgaged property would be constantly rising in value, as the wealth and population of the country should increase. The exceptions to this rule would be so rare as to be unworthy of notice.

There is, therefore, no difficulty in putting the currency, furnished by each State, at par throughout the United States.

At the general agencies in the great cities, the redemption would doubtless generally be made in specie on demand, because, at such points, especially in cities on the seaboard, there would always be an abundance of specie in the market as merchandize; and it would, therefore, be both for the convenience and interest of the banks to redeem in specie on demand, rather than by a conditional transfer of a portion of their capital, and then paying interest on that capital until it should be redeemed with specie.

Where rail-roads were used as capital, all the banks in the United States could form one Association, of the kind just mentioned, to establish agencies at all the great commercial points, for the redemption of their bills.

Where United States Stocks should be used as capital, the same system could be safely adopted, for redeeming their currency in all the great cities, as where mortgages were the capital; because, although United States stocks are below par of specie, yet every bank, using them as capital, could know that the currency of every other bank of the same kind was worth at least as much as the stocks it should represent. Since there would be always a dollar of the stocks in bank, for every dollar of currency that could be put in circulation, the banks could always know the lowest possible value of each other’s currency, by knowing the market value of the stocks it should represent.

The currency might sometimes be worth more than the capital, dollar for dollar; because, although the capital (U. S. stocks) should be below par of specie in the market, yet the bank might have assets (in the shape of notes discounted, and profits accumulated) equal, or more than equal, to its capital. And these assets must all be exhausted, in the redemption of its bills with specie, before its bills could be worth less than par of specie. But suppose all these assets exhausted, the currency would still be worth as much as the capital, dollar for dollar; because the capital itself can be demanded for the currency, if specie be refused. Although, therefore, the currency of banks, based upon United States stocks, might be sometimes worth more than the stocks, (when these were below par of specie,) it can never be worth less than the stocks. And as the market value of the stocks would be always known, the lowest possible value of the currency (for the time being) could always be known. The bills of a bank, based upon United States stocks, would, therefore, be worth, all over the country, at least as much as the stocks.

It is doubtful, however, whether currency of that kind, always liable to be below par of specie, and variable at that, could be made a desirable one. It would, therefore, probably not be expedient to use United States stocks as banking capital, on the plan of issuing a dollar of currency for a dollar of stocks. The better way of using the stocks as banking capital, while they are so much below par of specie, would probably be to put in two dollars of bonds to make one of banking capital. This would make the bank capital worth a little more than par of specie; and would, of course, make the currency worth par of specie.

Using United States stocks in this way—that is, using two dollars of bonds to make one of banking capital—the United States bonds now extant, and those hereafter to be issued, would probably afford a basis for as much currency as the banks could keep in circulation; especially if mortgages or rail-roads should be used as a basis in competition with the bonds.

If, however, the stocks should ever rise to par, and stand there permanently, and it should be found desirable to issue more currency upon them, the banks using two dollars of bonds for one of capital could be dissolved, and new ones formed, that should use the stocks at their par value, and issue currency upon them accordingly.