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Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations, vol. 3 (France, Italy, Spain, Portugal, Canada) [1896]

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Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 3 (France, Italy, Spain, Portugal, Canada). http://oll.libertyfund.org/titles/2239

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About this Title:

A four volume set edited by the by the “Editor of the Journal of Commerce and Commercial Bulletin” in New York city. It consists of: Vol. 1: “The United States,” by W.G. Sumner. Vol. 2: “Great Britain,” by H.D. Macleod; “The Russian Empire,” by A.E. Horn; “Savings Banks in the United States,” by J.P. Townsend. Vol. 3: “The Latin Nations,” by P. Des Essars; “The Banks of Alsace-Lorraine after the Annexation,” by A. Raffalovich; “Canada,” by B.E. Walker. Vol. 4: “Germany and Austria-Hungary,” by M. Wirth; “The Netherlands,” by R. van der Borght; “The Scandinavian Nations,” by A. Jensen; “Japan,” by J. Soyeda; “China,” by T.R. Jernigan.

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Table of Contents:

Edition: current; Page: [vii]
A HISTORY OF BANKING IN ALL THE LEADING NATIONS;
COMPRISING THE UNITED STATES; GREAT BRITAIN; GERMANY; AUSTRO-HUNGARY; FRANCE; ITALY; BELGIUM; SPAIN; SWITZERLAND; PORTUGAL; ROUMANIA; RUSSIA; HOLLAND; THE SCANDINAVIAN NATIONS; CANADA; CHINA; JAPAN;
COMPILED BY THIRTEEN AUTHORS.
edited by the editor of the journal of commerce and commercial bulletin.
IN FOUR VOLUMES.
VOLUME III.
published by THE JOURNAL OF COMMERCE AND COMMERCIAL BULLETIN,
19 Beaver Street, New York.
LONDON AGENTS: effingham wilson,
11 Royal Exchange, E. C., and
john jones,
11 Tokenhouse Yard, E. C.
1896.
Edition: current; Page: [viii]

copyright, 1896,

by

the journal of commerce and commercial bulletin

new york.

Edition: current; Page: [ix]

TREATISES IN VOL. III.

A HISTORY OF BANKING IN THE LATIN NATIONS,

by

PIERRE DES ESSARS;

and of

THE BANKS OF ALSACE-LORRAINE

AFTER THE ANNEXATION,

by

ARTHUR RAFFALOVICH;

A HISTORY OF BANKING IN CANADA,

by

BYRON E. WALKER.

new york.

1806.

Edition: current; Page: [x] Edition: current; Page: [xi]

A History of Banking

IN

THE LATIN NATIONS;

NAMELY

FRANCE, ITALY, SPAIN, BELGIUM, SWITZERLAND, PORTUGAL, AND ROUMANIA.

BY

PIERRE DES ESSARS,

chief of the department of economics of the bank of france.

NEW YORK.

1896.

Edition: current; Page: [xii] Edition: current; Page: [xiii]

CONTENTS.

  • BANKING IN THE LATIN NATIONS.
    • PART I. BANKING IN FRANCE.
      • CHAPTER I. ITS STATUS BEFORE THE REVOLUTION.
        • Ancient Beginnings—The Jews as Money-Lenders—Jacques Cœur—Revenue Farmers as Bankers—Treasury Bankers—Gabriel Julien Ouvrard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-10
      • CHAPTER II. THE BANK AND “SYSTEM” OF LAW.
        • France at the Close of the Reign of Louis XIV.—Doings of the Chamber of Justice—John Law Appears—Law’s Bank Scheme—Law’s Success Arouses Competition—The Royal Bank Supersedes the General Bank—Law’s Compagnie d’Occident—Law’s Compagnie des Indes—The Culmination and Decline of Law’s Schemes—The King Comes to Law’s Rescue—Measures to Stay the Collapse—Law’s Flight and End—Liquidation of the “System”—The “Brothers Paris” Gather Up the Wreck—An Impartial Estimate of Law . . . . . . . . . . . . . . . . . . . . . . . 11-30
      • CHAPTER III. THE DISCOUNT BANK—LA CAISSE D’ESCOMPTE.
        • Authorization of a Bank of Issue—The Discount Bank under Turgot’s Ministry—Regulations of the Bank—The Bank in Difficulties—Recovery of Confidence and Increase of Capital—The Prosperity of the Bank Causes its Ruin—Necker Proposes to Make the Discount Bank a National Bank—Plan Adopted by the National Assembly—The Committee of Public Safety Extinguishes the Bank—La Caisse des Comptes Courants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-41Edition: current; Page: [xiv]
      • CHAPTER IV. ASSIGNATS—THE BASIS OF THEIR ISSUE.
        • Over-Issues—Then Depreciation—“The Maximum”—Attempts to Restore the Value of the Notes—Issues under the Directory—The Assignats Converted into Mandats . . . . . . . . . . . . . . . . . . 42-47
      • CHAPTER V. THE BANK OF FRANCE.
        • SECTION I. Origin of the Bank.
          • Plans for the Creation of a Great Bank in 1796—Bonaparte’s Initiation of a Plan—Advances Toward Note Monopoly—The Crisis of 1805—Law of April 22, 1806—Provincial Branches Created—Attempted Reforms—Services of the Bank to the State—Revolution of 1830—The Discount Bureau—Establishment of Branch Banks—Extension of the Bank’s Privilege—The Crisis of 1847—The Revolution of 1848, and More Bank Monopoly . . . . . . . . . . . . . . . . . . 48-65
        • SECTION II. The Bank Under the Second Empire.
          • Crisis of 1857—Renewal of the Bank’s Concession—The Bank Helps Railroad Building—The Bank’s Trials in 1860-1864—The Bank and the Franco-German War—The Bank and the Commune—Calm and Recuperation—Then Speculation and Crisis—The Bank and the Copper “Corner” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66-73
        • SECTION III. Administrative Organization of the Bank.
          • Regents and Censors—Governor and Sub-Governors—The General Council—Committees—Discount Council—Branch Banks and Subsidiary Offices—Staff of the Bank . . . . . . . . . . . . . . 74-78
        • SECTION IV. Operations of the Bank.
          • Open Accounts—Open Discount Accounts—Loans Against Collateral Security—Miscellaneous Functions of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79-84
        • SECTION V. Relations Between the Bank and the State.
          • Obligations to the State—The Treasury Account of the Bank—Contracts Between the Treasury and Bank—Taxation of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85-88
        • SECTION VI. Administration of the Cash Fund and the Circulation.
          • Basis of Note Issues—Mechanism of the Double Standard—Maximum of the Circulation—Profits on Circulation—Expenses and Dividends—Accounts of the Bank—Economic Importance of the Bank’s Balance-Sheet—Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89-100Edition: current; Page: [xv]
      • CHAPTER VI. BANKS AND BANKERS AFTER THE REVOLUTION.
        • SECTION I. The Great Discount Banks of Paris.
          • The Comptoir’s Capital Doubled and Quadrupled, and its Regulations Changed—Unfavorable Conditions After the War of 1870—The Comptoir’s Commitment to the Société des Méteaux—The National Discount Bank of Paris Takes Over the Comptoir d’Escompte—The Crédit Foncier—Mortgage Banking—Crédit Foncier de France—The Crédit Agricole—The Crédit Industriel et Commercial—Company for the Encouragement of Trade and Industry—The Crédit Lyonnais—The Bank of Paris and the Netherlands—Private Banks. . . . . . . . . . . . . . . . . . . . . . . . . . 101-128
        • SECTION II. The Bourse, Clearing-House, and Financial Operations at Large.
          • Clearing House of Paris—Changes in Banking Methods—Competition for Paper—Agricultural and Popular Loans—Raiffeisen Institutions—Popular Credit Institutions. . . . . . . . . . . . . . . . 129-134
      • CHAPTER VII. BANKING IN THE FRENCH COLONIES.
        • SECTION I.
          • The Bank of Algeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135-141
        • SECTION II. Other Colonial Banks.
          • Statistics of the Colonial Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142-151
    • PART II. BANKING IN ITALY.
      • CHAPTER I. PRIMITIVE BANKS.
        • The Monte Vecchio—The Bank of St. George—The Mont de Piété of Naples—Apodissary Accounts—A Banking Monopoly Established—Debasement of Money Standards—Another Crisis in Naples—Misfortunes to the Old Banks—The Bank of the Two Sicilies—The Bank of Sicily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153-161Edition: current; Page: [xvi]
      • CHAPTER II. BANKING UNDER THE UNIFICATION OF THE KINGDOM.
        • National Bank of the Kingdom of Italy—The Banks of Tuscany—The Banks and the Unification Drama—Forced Currency—Syndicate of Banks of Issue—Dissolution of the Syndicate—A New Source of Trouble—A Building Crisis—Extensions of the Banks’ Concessions—Investigation and Strange Discoveries—Reorganization of the Banks—The Consolidated “Bank of Italy”—Liquidation of the Roman Bank—The Banks Since the Consolidation—The State Again Embarrasses the Banks—Organization of the Bank of Italy—Organization of the Bank of Naples—Transactions of the Issue Banks—Management of Circulation and Coin—Clearings of Bank Notes—Crédit Foncier Operations of the Banks—Compulsory Liquidations—Relations between the Banks and the State—Annual Statements—Conclusion. . . . . . . . . . . . . . . . . . . . . . . . 162-195
      • CHAPTER III. ITALIAN CO-OPERATIVE BANKS.
        • Embodiment of the Popular Ideal of Banking—The Schulze Movement—Progress of the Popular Banks—Organization of Popular Banks—Transactions of the Popular Banks—Collapse of the Italian Crédit Mobilier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196-211
      • CHAPTER IV. THE BANKERS OF FLORENCE.
        • Origin of Florentine Banking—Florentine Bankers in England—Florentine Bankers in France—The Bankers of Florence—Commercial Associations—Management of the Companies—Downfall of the Florentine Bankers—The Medici. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212-220
      • CHAPTER V. BANKS AND BANKERS IN SICILY.
        • The Money-Changers—“The King’s Exchange”—Banking Proper in Sicily—Legal Regulation of Banking—The Banks and the Grain Trade—Deposits and Accounts Current—Nature of the Deposits—Uses Made of Deposits—Certificates of Deposit—Their Important Use as Currency—The Polizza—Decadence of Sicilian Banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221-229
    • PART III. BANKING IN SPAIN.
      • CHAPTER I. THE EARLIEST BANKS.
        • The Bank of St. Charles—The Bank of St. Ferdinand—Bank of Isabella II.—The Two Banks Consolidated—Repeated Reconstructions of the Consolidated Institution. . . . . . . . . . . . . . . 231-237Edition: current; Page: [xvii]
      • CHAPTER II. THE BANK OF SPAIN.
        • Its Origin—Grant of Exclusive Privileges to the Bank—Organization of the Bank—Business of the Bank—Administration of the Coin and Paper Circulation—The Circulation of the Bank—Denominations of the Notes—Liabilities versus Assets—Relations Between the Bank and the State—Profits and Expenses of the Bank—Running Expenses—Dividends—Repoits and Balance-Sheet—Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238-265
    • PART IV. BANKING IN BELGIUM.
      • THE BANK OF BELGIUM.
        • Its Early Vicissitudes—Renewal of the Bank’s Charter—Organization of the Bank—Management of the Bank—Branches, Agencies, and Bureaus—Transactions of the Bank—Rate of Discount—Advances Upon Collaterals—Current Accounts—Collections for Account-Holders and Trust Orders—Trust Deposits—Coin and Paper Circulation—Relations of the Bank with the State—The Bank’s Service to Savings-Banks—Taxes on the Bank—Profits and Dividends—Balance-Sheet—Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267-286
    • PART V. BANKING IN SWITZERLAND.
      • BANKS OF ISSUE.
        • Their Recent Origin—The Federal Bank—Disturbance from the Franco-German War—Enactment of the New Basis—Bank Clearings at Zurich—Note Issues Under the Law of March, 1881—Grave Discontent with the Law of 1881—Note-Issuing Finally Restricted to a National Bank—Features of the Law of 1801—Powers and Operations of the Bank—Conclusion. . . . 287-305
    • PART VI. BANKING IN PORTUGAL. 1750 to 1891.
      • CHAPTER I. THE FIRST GREAT BANKS.
        • Bank of Lisbon—Original Bank of Portugal—The Bank of Portugal Established—Six New Banks of Issue—Privilege of the Bank of Portugal Extended—Attempt to Reform the Gold Coinage—Consolidation of the Banks of Issue—The Bank Receives a Monopoly of Note Issues—The Bank in the Crisis of 1890. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307-313Edition: current; Page: [xviii]
      • CHAPTER II. THE BANK OF PORTUGAL.
        • Its Constitution, Mechanism, and Management—Branches, Agencies, and Correspondents—Transactions of the Bank—Administration of the Metallic and Paper Circulation—The Note Circulation—The Constitutents of the Bank’s Paper—Relations Between Bank and State—Profits, Reserves, and Dividends—The Bank’s Balance-Sheet—Conclusion. . . . . . . . . . . . . . . . . 314-332
    • PART VII. NATIONAL BANK OF ROUMANIA.
      • A Brief Experiment with State Notes—Then a National Bank, with Monopoly of Issuing—The Bank of Roumania—Organization of the Bank—Business Regulations—Administration and Circulation of Coin and Paper—Embarrassment Caused by the State’s Notes—Relations of the Bank with the State—Capital, Reserves, and Earnings—The Balance-Sheet—Conclusion. . . 333-344
    • PART VIII. THE LATIN MONETARY UNION.
      • Convention of December 23, 1865—Proposals for a Conference—An Agreement Reached—Defects of the System—Moneys of the Papal States—The Decline of Silver—The Scandinavian Union—The Growing Over-Supply of Silver—Agreement of January 31, 1874—Conferences of 1875 and 1876—Causes Compelling a Limitation of Coinage—The French Legislature Suspends Silver Coinage for Private Account—Additional Agreement of June 30, 1879—Léon Say Proposes to Extend the Law of 1876—The Bland Act and Conference of 1878—Withdrawal of Italian Coins from Other States—A Serious Dispute with Italy—The Conference of June, 1879—Italy again Refractory—Agreements of 1885—The Conference Reconvenes—The Settlement Clause and Prolongation of the Union—Continuation of the Union after 1890—The Conference of 1893. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345-379
    • PART IX.
      • Dynamics of Circulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381-391
    • PART X.
      • The Banks of Alsace-Lorraine after the Annexation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395-412Edition: current; Page: [xix]
    • BANKING IN CANADA.
      • Author’s Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415, 416
      • CHAPTER I. 1608-1760, CARD MONEY OF NEW FRANCE; 1760-1812, RESORT TO FOREIGN COIN; 1812-1817, ARMY-BILL ISSUES
        • Earliest Monetary Expedients—Card Money—Return to Coin Money—Then a Relapse to Cards—Bigot’s Due-Bill Currency (Ordonnances)—Currency under British Rule—Introduction of Banking—Resort to Army-Bills as Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417-425
      • CHAPTER II. 1817-1841. BANKING UNDER JOINT-STOCK CHARTERS.
        • Legislation by the Provinces—Experience of Treasury Notes—Creation of Banks in Lower Canada—Charters Granted to Three Banks—Their Provisions—Banks Founded in Upper Canada—Banks Established in Nova Scotia—Growth of Banking in the Various Provinces—New Legislation Relating to Note Issues—Banks with Exceptional Charters—Banking Progress in Upper Canada—Public Clamor for More Banks—Restraint from the Colonial Office—Unsound Banking—The Panic of 1837—Suspension of Banks and Popular Rebellion—Resumption of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426-442
      • CHAPTER III. 1841-1867. BANKING IN OLD CANADA.
        • Steps Toward Uniform Regulation of Banking—“Free Banking Act of 1850”—Increase of Bank Capital Authorized—A Government Bank of Issue Proposed . . . . . . . . . . . . . . . . . . . . . . 443-450
      • CHAPTER IV. BANKING UNDER THE DOMINION.
        • The Present Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451-459Edition: current; Page: [xx]
      • CHAPTER V. SCOPE OF EXISTING LAWS.
        • Term of Charter—Circulation—Business and Powers—Penalties, etc.—Incorporation—Internal Regulations—Capital Stock—Annual Statement—Dividends—Cash Reserves—Note Issues—Business and Powers of the Bank—Statements by Banks to Government—Insolvency of Banks—Offences and Penalties—General Remarks on the Act—Note Issues—The Borrower and the Branch System—The Depositor—Bank Inspection . . . . . . . . . . . . . . . . . . . . . . . . 460-479
      • CHAPTER VI. LAND BANKS—LOAN COMPANIES.
        • Savings-Banks—Dominion Notes—Bank Failures—Land Mortgage Companies—Savings-Banks—Dominion Note Issues—Bank Failures—Returns to Government . . . . . . . . . . . . . . . . . . . 480-491
Edition: current; Page: [1]

BANKING IN THE LATIN NATIONS.

PART I.: BANKING IN FRANCE.

CHAPTER I.: ITS STATUS BEFORE THE REVOLUTION.

ANCIENT BEGINNINGS.

THE business of banking and loaning money at interest has existed from the earliest forms of civilization, because it responds to an imperative need of society. It was conducted in Athens, probably in Carthage, and certainly in Rome; but, after the establishment of Christianity, it encountered serious obstacles.

Profits derived from loaning capital—which was regarded as including money, whereas money is only a representative of capital—were regarded as illegitimate; which is virtually the position assumed by modern socialists. “Money,” it was said, “is in its very nature sterile, and not reproductive.” Profits accuring from the sale of merchandise or the establishment of a productive industry were held to be just and proper; but it was not conceded that a loan of that capital, which could immediately be transformed into merchandise or instruments of production, entitled the lender to remuneration. This course of reasoning seemed to be supported by the Gospel injunction that we loan to the needy without hope of recompense. These prejudices, which have continued to our own day, cast a shade of suspicion upon all commerce in money and caused it to be carried on clandestinely and by men constituting a distinct caste, such as Jews and Lombards. Edition: current; Page: [2] Lenders at interest, or usurers, being always exposed to the hatred of their creditors and victims of the cupidity of governments, made it their constant care to keep their capital in the form most readily convertible into money and least likely to attract attention.

THE JEWS AS MONEY-LENDERS.

Thus it is that we find the Jews, in all ages, following the pursuits of money-changer, goldsmith, dealer in precious stones, to which they have added that of lender on pawn. Community of language and of origin and exposure to the same dangers impelled them to seek one another out, to establish the closest relations among themselves, though dwelling far apart, and to invent divers means of transmitting money from one to another, the earliest being the bill of exchange. We find an indubitable instance of the bill of exchange in 1246, that by means of which the Pope, Innocent IV., sent 25,000 marks of silver to the pretender, Henri Raspon, an amount which was paid to him at Frankfort by a Venetian banking house. Even earlier than this, in 1202, the Crusaders had given to Henri Dandolo, Doge of Venice, bills payable to order as security for 85,000 marks, in silver, demanded of them by the Venetians in return for vessels furnished to carry them to Syria. It was to pay this immense debt that the Crusaders aided Dandolo to recapture the city of Zara in Dalmatia. In France, the Jews, though contemned and despised, lived in comparative security until the time of the Crusaders, trafficking in money with a fair degree of impunity. They were, indeed, persecuted from time to time, but the persecutions were never of long duration. Under Philip Augustus, their situation grew worse. In 1182, the King became convinced that the Jews were too numerous in Paris and throughout the kingdom, and that they were amassing great wealth. They were accused of having Christian servants, whom they seduced from the true faith, and of despoiling nobles and commoners of their goods under pretence of having loaned them large sums of money. To these accusations the populace added fabricated accounts of divers misdemeanors, and the King issued a decree banishing the Jews, allowing them to take their personal property with them, or to sell it, but confiscating their real estate. Philip the Fair, on the contrary, was very kindly disposed toward the Jews at the beginning of his reign. With that fiscal genius which he afterward put to such evil use, he appreciated the value of money-dealers; and while he extorted heavy taxes from them, he forbade that they be any longer subjected to imprisonment at the behest of the first monk who might demand it; this was in 1288. Rendered over-confident by the protection which Philip thus accorded them from interested motives, the Jews became less cautious than they had previously been. Their indiscretion was severely punished; for, in 1306, the King ordered the arrest of all Jews in his dominions, confiscated their goods, and ordered them to leave the kingdom under pain of death.

Edition: current; Page: [3]

But the lender at interest is too important a wheel in the machinery of the commonwealth to be destroyed with impunity. The absence of the Jews very soon made itself felt, and there was such a general desire to have them back that, in 1315, Louis X. recalled them for twelve years, restored to them such of their houses and synagogues as had not been destroyed, and gave them permission to sue in the courts for those debts which the agents of Philip the Fair had not been able to discover, on condition that two-thirds of all amounts recovered should be paid over to the King.* During the following reigns, persecutions against the Jews were renewed upon the most absurd pretexts. Every ridiculous charge brought against these unfortunates found ready credence not only among the common people, but among the more enlightened classes as well, all of whom being more or less indebted to the Jews, hoped by persecuting them to escape payment of their debts. The Jews were alternately banished and recalled. In 1361, the Duke of Normandy, destined to a glorious reign as Charles V., persuaded his father, John the Good, to allow the Jews to take up their residence, for a period of twenty years, in the provinces of Langue d’Oil, for the sake of the heavy taxes that might be wrung from them, and the quickening of monetary circulation and industrial activity. The Comte d’Etampes, a prince of the blood, was appointed guardian of the unreasonable and excessive privileges thus sold to the Jews, and to him was given exclusive jurisdiction of all their suits at law. They were allowed to charge interest at the rate of 6 deniers per livre per week, or 130 per cent. per annum; and the oath of any Jew touching the amounts due him was accepted as final unless the debtor could establish the contrary by affirmative evidence. No class of Christians was so zealously protected against arbitrary exactions and prosecutions. Upon the death of Charles V. the persecutions were renewed. During the troubled reign of Charles VI., Jews and Lombards were robbed and butchered by the people of Paris at their will. But, in spite of tyranny and extortion, the Jews remained in France, exercising always secret but powerful influence in public and private affairs alike.

Their archives have never been published, and it is not easy to learn the exact nature and extent of the business to which they devoted themselves. Loaning on pawn was the occupation in which they most commonly engaged; but it is probable that their transactions took on a much wider range, including at least the transfer of funds throughout France and to foreign countries, and probably loans to the King. The persecutions to which money-dealers were subjected resulted, unfortunately, in the destruction of those documents which it would be indispensable to consult in order to arrive at the extent and importance of the commerce in money during the Middle Ages; we are confined, therefore, at least in dealing with the subject in France, almost wholly to conjecture. In Italy, on the contrary, Edition: current; Page: [4] the documentary evidence is full and complete; and that we shall freely use when we come to treat of banking in that country. The influence of the Jews and their competitors, the Lombards, was of necessity merely local. It was most potent, however, because by means of loans frequently and skillfully renewed they held within their power a large part of the population. But their business was carried on in secret. They employed a language and modes of procedure known only to themselves; and their transactions were not such as to familiarize the people with the true nature of credit and the services it is capable of rendering under wise and honest management.

JACQUES COEUR.

Toward the end of the Middle Ages, there arose a man who transacted his business openly and who probably would have made clear the true nature and value of credit if he had confined himself to his rôle of merchant. Jacques Coeur, son of a furrier of Bourges, after spending part of his youth in the shop of his father, became assistant, about 1427, of the Mint-Master of Bourges. Implicated with the Master in a prosecution for issuing coin below the legal standard, Coeur made a thorough study of the nature of money—a subject which Nicolas Oresme, Bishop of Lisieux under Charles V., had already analyzed with great clearness. He studied with special care and imitated the business methods by which the Italian republics had enriched themselves. A bold and clear-sighted man, he established branch houses along all the shores of the Mediterranean; he obtained permission to trade with “infidels” without incurring the censure of the Church, and he became very rapidly one of the richest merchants and ship-owners in Europe. In 1435, Coeur returned to Bourges and secured the position of Mint-Master of that city and of Paris. He put an end to the debasement of the coinage, and all coins were kept at full weight and fineness throughout the reign of Charles VII. Having become a member of the Council of the King, he was appointed King’s Treasurer, meanwhile continuing his private business. His public office gave him a monopoly of money-changing; meanwhile, his commercial and banking transactions, carried on upon a scale hitherto unknown, brought him a very large fortune, which he devoted to the most worthy uses. It was he who supplied Charles VII. with the resources needful for driving the English out of France and bringing to an end the Hundred Years’ War. Jacques Coeur’s title of “King’s Treasurer” does not mean that he exercised the functions of a finance minister; his duties were those of steward of the royal palace. His fortune was such that he was enabled to make large loans to the King; but this was not, properly speaking, a banking operation. He was, first of all, a merchant, and his banking operations consisted simply in exchanging foreign moneys (which he could dispose of through his numerous branch establishments), and especially in purchasing copper and silver coins, which he exchanged for gold in Egypt. The immense fortune of Coeur and a desire to share his spoils created Edition: current; Page: [5] enemies against him. He was accused of poisoning Agnes Sorel, mistress of Charles VII., who had died in childbirth after appointing him to act as her executor. He was placed on trial, threatened with the rack, and finally condemned to death. Remembering his former services, Charles VII. refused to have the sentence executed, but commuted it to imprisonment for life. With the aid of one of his former clerks, and after a series of romantic adventures, he finally made his escape. He took refuge in Rome, where he was received with great cordiality by the Pope, Nicholas V., and the latter’s successor, Calixtus III., made him commander of a squadron which he was fitting out against the Turks. Worn out by sorrows and hardships, Jacques Coeur died at Scio in November, 1456. Louis XI. ordered a re-examination of the case against him and cleared his memory of the stain upon it. History does not record the name of another merchant of like calibre. After his time, bankers confined themselves more and more to the business of loaning on collateral and exchanging money, and this latter transaction must have been a source of great profit. It may be cited in illustration of the profits made by money-changers, that, a few years ago, there was found and published the diary of one De Gouberville, a country gentleman who had lived in the neighborhood of Cherbourg. In this diary, which extends from 1553 to 1562, mention is made of thirty-five coins differing in origin, value, and name. One Spanish coin, the “ecu pistolet,” often mentioned in the diary of De Gouberville, varied in value between February and December, 1555, from 43 to 49 sous. A German coin, the “angelot,” was even more unstable, and the smaller coins were often counterfeit. Under date of July 16, 1556, De Gouberville writes: “I sent Lajoye to Cherbourg to exchange one crown. Jean Simon, son of Gabrielle, changed it for him, keeping one sou for the service, and he gave him six sous counterfeit money, wherefore I sent back the said Lajoye to return them to him.” This passage brings out very clearly the need there was of money-changers and the extent of their profits. In the case we have cited the commission was twice as great as that which an ordinance of 1565 made lawful.

REVENUE FARMERS AS BANKERS.

The Italian wars of Charles VIII., Louis XII., and Francis I. directed toward France the attention of Italian bankers. Having a knowledge of finance and credit far superior to that of the French ministers, they were well received, and little by little they came to fill a very important place in the economic organization of France. In addition to the domanial dues, the Royal Treasury, since the fourteenth century, had been in the habit of levying, for temporary needs, a variety of dues, sanctioned by the States-General, under the name of “aids.” Continual wars, and more especially a very loose administration of the finances, had increased these aids and made them permanent. It was at this juncture of affairs that the Italian financiers conceived the idea of farming out these “dues”; and, after the Edition: current; Page: [6] battle of Pavia and the capture of Francis I., when it became necessary to pay the ransom demanded by Charles V., the “Traitants,” as the farmers of the revenue were called, became persons of great importance. There are, unfortunately, very few original documents relative to French finance, all those in existence at the time of these usages having been destroyed when the offices of the Finance Minister were burned by the Paris Commune in 1871. We are compelled, therefore, to rely very largely upon information more or less fragmentary and second-hand. For this reason, it is impossible to follow step by step the improvement in the various methods of tax collection; but, leaving the details aside for the most part, we can at least trace the general outlines of these operations. During the reigns of the later Valois, rendered so sadly famous by religious wars, the financial affairs of the kingdom fell into the most grievous confusion. The remedy was applied by Sully, the firm and able minister of Henry IV. In a memoir drawn up at the beginning of his ministry, Sully estimated the total of the taxes levied upon the people in the King’s name at 47,000,000 livres; of which about 20,000,000 livres remained in the hands of the receivers and farmers of taxes. Out of the salt taxes and certain temporary dues which had been granted to him through the intervention of the revenue farmers, the Grand Duke of Tuscany was in receipt of an annual revenue of about 2,000,000 livres. The sub-contractors were the bane of the system, because they were compelled to make a profit out of the collection after paying large sums to their immediate grantors. Sully’s remedy was a very simple one; he compelled the sub-contractors to show their contracts and to turn over their collections directly to the Treasury; by this means the Government could learn the exact product of the taxes, and it had a sound basis upon which to treat. Sully brought together, in a single lease, all the taxes of the same general nature, adopted a new form of award, introduced competitive bidding, and thus obtained better prices for the concessions. After the death of Henry IV, and the removal of Sully from office, financial confusion reigned again; but, finally, under the ministry of Colbert, the tax leases took on the form which they preserved for a hundred years. The principal business of revenue farmers was the collection of the taxes; but they were also bankers in the sense that it was to them that priests, nobles, and commoners intrusted their money to gain them favors at Court, either because the sums were too small to be offered in the form of a direct loan or because the owners shrank from proffering a loan directly to the King.

TREASURY BANKERS.

Side by side with the farmers of the revenue, or even among them, was always to be found a person who, under one title or another, and sometimes with no title at all, was in reality the King’s banker. Such had been Jacques Coeur under Charles VII., and such under Louis XIII. was Barthelemy d’Herwart. This Barthelemy d’Herwart, whose name is little known Edition: current; Page: [7] to-day, loaned very large sums to the Treasury, by way of furnishing supplies for the army, of which he was commissary. At the death of Bernhard of Saxe-Weimar (July 18, 1639), his army, left without means of subsistence, would probably have taken service under some foreign power had not d’Herwart retained it for France by supplying a considerable part of its needs. The famous Superintendent of Finance, Fouquet, was also a banker whose duty it was to settle with the farmers-general and to make advances to the King. Among the various persons who acted as bankers of the Treasury, that is to say, who advanced the funds necessary for the public service while the taxes were being collected, there was one singular individual known as Samuel Bernard. Born in 1651, he was received as master in the guild of jewelers, gold-wire-drawers, and dealers in cloth of gold. Apparently, his fortune was chiefly made in various foreign ventures.* It was to him that application was made whenever the State had need of funds. We find him in 1697 sending 200,000 crowns to Dantzic bankers in an attempt to ensure the throne of Poland to the Prince of Conti. Thirty-six years later, in February, 1733, he was once more busied with an election to the Polish throne, when he loaned 4,000,000 livres to Stanislas Leczinski, who was elected, but retained the dignity for only two years. Everyone is familiar with the anecdote that Saint-Simon tells of Bernard. When the Minister Chamillard solicited a loan from him in the name of the King, he received this reply: “When anyone has need of others, the least he can do is to make the request himself.” Minister Desmarets remembered this reply, and in 1708 he persuaded Louis XIV. to receive Samuel Bernard at the Chateau of Marly and show him the honors in person; in return for this act of condescension, Bernard advanced all the money that was demanded of him. In the following year, during the month of April, 1709, Bernard, who then had large business interests in Lyons, met with severe reverses. He suspended payments with liabilities amounting to between 37,000,000 and 38,000,000 livres. Desmarets, who had a high appreciation of the banker’s services, rendered him all the assistance in his power; the greater part of his debts were paid, and, strangely enough, the credit of Bernard was hardly dimmed, and his business affairs were soon in prosperous shape once more. Notwithstanding the aid he had frequently extended to the State, Samuel Bernard fell under the condemnation of the Chamber of Justice in 1716 and was fined 5,000,000 livres. Under the Regency and during the existence of Law’s system, he was kept in the background, and though, up to the time of his death, which occurred in 1739, he was often appealed to for assistance, he never regained his former prominence.

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It may be asked, What was the exact nature of the banking operations of Samuel Bernard and other bankers of the time? So far as we can judge, they consisted largely of speculations in the paper issues of France and foreign countries, in supplying funds for business enterprises, in opening credit accounts, and in discounting paper; but the chief business appears to have been that of making loans directly to the Government. That also was the most dangerous and aleatory of their ventures, and the one which most frequently resulted in their ruin; for the King’s minister never hesitated to break faith with financiers, assured as he was that his course would meet with the approval of the public. The people regarded the bankers as leeches living upon the blood of the State; the fact being, on the contrary, that they were always coming to its aid in the most disinterested manner and supplying it with means which it could not have secured from any other source. The farmers-general suffered most severely from popular ignorance and governmental dishonesty. On May 7, 1794, the Revolutionary Tribunal rendered the following judgment, which had previously been drawn up by the Committee of Public Safety:

“Inasmuch as it is incontestable that a plot has been formed against the French people tending to further the success of the enemies of France in every way, and especially by the practice of all manner of extortion and peculation; by mixing with the tobacco water and other adulterants dangerous to the health of those who use it; by taking six or seven per cent. of interest both upon the security which the revenue collectors must furnish to the State, and also upon the money needed to carry on their business; by robbery; by plundering the public treasury in all possible ways in order to deprive the nation of large sums needful to wage war with the despots now in arms against the French Republic: all so offending are condemned to death and their goods shall become the property of the Republic.”

Not one of these charges had any foundation in fact, yet it was under such a judgment as this that twenty-eight farmers-general were executed on May 8, 1794, one of them the creator of modern chemistry, the illustrious Lavoisier. Though French bankers strove in every way, during the Revolution, to avoid publicity, and though commerce was dead, speculation was carried on upon a very extensive scale, the dealings being most active in assignats, public securities, and army supplies.

GABRIEL JULIEN OUVRARD.

One of the most interesting characters of these times was the financier Gabriel Julien Ouvrard. Born in 1770, he received a good education and established at Nantes a business in colonial products. When the Revolution began and the liberty of the press was declared, he bought all the printing paper from the paper mills of Poitou and Angoumois, and sold it two months later to the editors at a profit of 300,000 livres, with which he enlarged his dealings in colonial products. In 1793, he was brought before Edition: current; Page: [9] the bar of Carrier, and in order to escape the fate reserved for all “suspects,” he enlisted in the army. He was aid-de-camp of several generals, and he exerted himself vigorously in behalf of the accused citizens of Nantes, many of whom he saved by securing a postponement of their appearance before the Revolutionary Tribunal until after the fall of Robespierre, when they were set at liberty. Upon his return to civil life, Ouvrard married the daughter of one of those he had befriended, and embarked in vast business enterprises. In 1797, he was appointed Commissary-General, in which capacity he procured supplies for the French and Spanish navies at a profit to himself of about 15,000,000 livres, of which he loaned 10,000,000 to the Directory. When Bonaparte had become First Consul he applied to Ouvrard for a loan of 12,000,000 francs, but was refused.

During the early days of the Empire, Ouvrard, in connection with one Desprez. a former bank messenger, and a grain merchant named Vanlerberghe, formed an association under the title of “The United Merchants’ Company,” for the purpose of supplying the needs of the army and navy. Spain, allied with France against England, had promised to Napoleon a sum of money, which she was unable to pay because the English cruisers prevented the arrival of the piastres from Mexico and Peru. Ouvrard proposed to Barbé-Marbois, the French Finance Minister, that he discount the Spanish debt and accept in payment of it supplies furnished by The United Merchants’ Company. His proposition was accepted. At the same time, he offered to furnish to Spain, then threatened with a famine, a full supply of grain, and to take in payment the piastres due from Mexico at the rate of 3.25 francs each, their value in Paris being at least 5 francs. This also was agreed to. As he had no hope of being able to elude the vigilance of the English cruisers, he completed the transaction in this manner: England herself being in need of coin, he sold the piastres to the banking house of Hope, in Amsterdam, who, in turn, transferred them to Baring, in London; the latter had no difficulty in getting the money from Mexico, and nothing remained except to remit from London to the Continent the amount to be paid for them, which was easily accomplished. That transaction was skillfully planned and ought to have redounded to the profit of all concerned; but, unfortunately, The United Merchants’ Company was not only heavily indebted to the Treasury, but it had other pressing obligations to meet before the arrival of the piastres. In this situation, Barbé-Marbois very unwisely turned over to the company certain Treasury claims, which the latter discounted at the Bank of France. These were not always honored at maturity, and by the close of 1805 a very serious crisis had arrivd, and the Bank, having practically exhausted its resources, was on the point of closing its doors. Desprez had put in circulation certain paper known as “notes of M. Desprez,” which were accepted as money by the Treasury and which depended for their value upon the rather doubtful solvency of The United Merchants’ Company; it was this paper that caused the most serious difficulty to the Treasury and the Bank.

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When Napoleon returned from the Campaign of 1805 and learned the true state of affairs, he was very angry with Barbé-Marbois and The United Merchants’ Company, which owed the Treasury more than 140,000,000 francs, represented by the “notes of M. Desprez.” He removed the minister and seized the assets of the company, amounting to about 80,000,000 francs in real estate and claims against the Treasury and against individuals. The remaining 60,000,000 francs he recovered in the form of debts due from Spain. The Emperor had a high appreciation of the services of Vanlerberghe, and retained him as commissary; but Desprez was forced into bankruptcy and died in poverty. As for Ouvrard, he also was declared a bankrupt, and in 1809 was arrested and imprisoned, but was afterward set at liberty on condition that he would not go beyond the boundaries of France. Having made a visit to Holland, he was again arrested and kept in prison until October, 1813. During the Restoration he once more entered into contracts on a large scale, but for certain irregularities he was imprisoned, for the third time, in 1825. He was released at the end of five years, but was never again a factor in the business world. He died in London in 1846, completely forgotten. Ouvrard was the last banker of the Treasury, and he marks the transition from the old state of things to the new. By this distinction he is entitled to a place in that series of financial notables the first member of which is Jacques Coeur and the last himself.

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CHAPTER II.: THE BANK AND “SYSTEM” OF LAW.

France at the Close of the Reign of Louis XIV.

BY his continual wars and the building of fortifications, Louis XIV. at his death left the finances of France in wretched disorder. “The manner in which fiscal affairs had been administered since the death of Colbert, in 1683.” writes Dutot, cashier of Law’s bank, “had perhaps wrought as much damage to the State as was caused by the enormous expenses of the last two wars. The sole object of the Administration, apparently, was to extort money from the people by any means; and no thought was taken of the harm that might result to real estate, to commerce, or to industry. This procedure produced results which had certainly not been foreseen. It gave an exaggerated value to the very money so sadly needed, and thus made it more difficult to procure; it deprived realty, commerce, and industry of those facilities by the aid of which they would always have been in position to furnish money to the State. In its paper issues, the State would have had a valuable resource and a salutary instrument of credit if it had not, soon after their emission, offered to pay interest upon them, thus depriving them of public confidence. The only use the Treasury had for these notes was to make payments with them; so far from being willing to accept them himself, the King expressly forbade their acceptance in payment of public dues. At the same time, he commanded that they be received as a legal tender between individuals, even in payment of letters of credit. But, in spite of these facts, the people had such confidence in the bills at first that the King was enabled to pay off part of the war debt with them, even while their interest-bearing quality and the fact that they were refused in public payments showed that it would be impossible to maintain their credit permanently. In the end, this credit disappeared entirely. Finally the bills were converted into rentes in this manner: on the occasion Edition: current; Page: [12] of the general recoinage of 1709, by virtue of which it was hoped to remedy the evils caused by the bills, rentes were issued and exchanged for the bills and gold and silver of the old coinage, the proportion being one-sixth bills and five-sixths specie.

“To complete the operation, the coinage was debased by a fictitious increase of twenty-three per cent. in its value. That difference at once aroused the enlightened cupidity of our neighbors, impelling them to gather up the old coins and carry them away in order to adjust their value to that of the debased new coins, and then return them to us. Thus France was placed at a great disadvantage relatively to the neighboring States, independently of the large sums the latter were enabled to gain at the expense of the King and the State. The Treasury was replenished by means of loans at a rate of interest beyond the means of the Government to pay. The greater the depreciation of the paper so issued, the more it was necessary to issue it in order to raise the amounts needed by the State; the Treasury continued in this way, ignoring the fact that every increase in the number of bills added to the distrust with which they were regarded and so decreased the demand for them; in this manner all the advantage was thrown away that might have been secured by a careful management of the nation’s credit. Among the bills so issued were bills from the tax departments and the Navy, supply bills, trust fund bills, and an enormous quantity of various other descriptions.”

By 1715, the arrears aggregated 711,000,000 livres, and the deficit for that year was 78,000,000, so that the debt due upon demand was 789,000,000 livres, equivalent to 1,420,000,000 francs of these times. Not only were the resources of the Treasury exhausted, but the citizens were reduced to such a state of poverty that they were no longer able to pay their taxes. It was this unskillful management of the finances that suggested to Vauban the composition of his famous “Dime Royale,” which brought him into disgrace with Louis XIV. In one of the first councils following the death of the Great Monarch the wretched state of the finances was revealed without reserve. Some of the councilors proposed that the State be simply declared bankrupt. The Regent strenuously dissented from that proposal, but only to advocate measures that were no better, if, indeed, they were not much worse. With a view to the reduction of the outstanding debt, it was determined that, inasmuch as the State bills had greatly depreciated, their nominal value should be reduced to their actual market price. An ordinance of December 7, 1715, directed all holders of State obligations to present them for “official inspection.” The debts thus inspected were scaled down and replaced by State bills bearing four per cent. interest, and payable at various intervals. By this process, the debt of 652,000,000 livres was exchanged for 250,000,000 livres in State bills.

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DOINGS OF THE CHAMBER OF JUSTICE.

But the needs of the State were too great to be fully met by such an act of bankruptcy; for while this procedure lessened the demand liabilities, it brought nothing into the Treasury. As a further step in this direction, recourse was had to a form of proceeding which was none the less odious because it happened to have numerous precedents in its favor. Financiers, and especially revenue farmers, having become extremely obnoxious to the people, who imputed to them misfortunes for which the rapacity of the Treasury should have been held accountable, the Regency determined upon an indiscriminate spoliation of this class, or, as the saying was, upon making them “disgorge.” To this end, they were forbidden to quit the country, under pain of death, and a Chamber of Justice was erected to take cognizance of their official extortions. The mode of procedure was most simple. All the accused were required to produce their books and accounts. for the past twenty-seven years, to prove affirmatively what they were worth at the beginning of that period, and to draw up a minute and detailed account of their possessions at the time of the investigation. Every false declaration was punishable by sentence to the galleys for life; a reward was offered to informers, and all persons were forbidden, under pain of death, to reproach those spies for their treachery. Whenever, by the use of these means, the Chamber of Justice was unable to prove any offence against the accused, it simply confiscated four-fifths of his earnings for the twenty-seven years, compelling him to acknowledge, at the same time, that he retained the remaining fifth at the bounty of the King. These intolerable measures, comparable only to the proscriptions of Marius and Sulla, brought in less than had been expected. About 6000 persons were brought to judgment, whose possessions, by their own showing, aggregated some 1,200,000,000 livres; 4410 of these were condemned to pay a total of 219,000,000 livres; but many of them were able to find powerful protectors, and by 1717 the Treasury had recovered only 70,000,000 livres, and barely half of the fines imposed were ever collected at all.

The Regency then resorted once more to a debasement of the coinage, and the piece of 3 livres 10 sous, which weighed an ounce at the death of Louis XIV., was reduced to less than half an ounce. The people of France had reached the lowest depths of wretchedness; the conspiracy of Cellamare had just obscured the political sky and threatened to bring back the evil days of the Fronde, when a stranger appeared upon the scene and promised to make all bright again.

JOHN LAW APPEARS.

“A Scotchman, I know not of what family,” writes the Duke of Saint-Simon in his memoirs, “a great gambler and schemer, who had gained much in the various countries he had visited, had come to Paris during the Edition: current; Page: [14] last days of the deceased King. His name was Law, but when he became better known, people grew so accustomed to call him Lass that his name of Law disappeared.* He was mentioned to M. le Duc d’Orleans as a man familiar with banking and commercial matters, with the movements of the precious metals, and with moneys and finance. From this description the Regent was desirous of seeing him.” John Law’s manner of life had been a most erratic one. Son of an Edinburgh goldsmith, of the upper middle or lower titled class, he had received a very thorough education. He traveled extensively over Europe, where his constant success and large gains at gambling caused him to be regarded with suspicion, though no case of cheating was ever proved against him. Having fought a duel in London and killed his antagonist, he was condemned to death, but succeeded in escaping. He fled to Paris, but being driven out of that city, he retired first to Italy, but finally took up his abode in Amsterdam, where he applied himself seriously to a study of credit. About 1700, he returned to Scotland and published, under the title “Money and Trade Considered,” a scheme of finance, which he summarizes thus: “It is proposed that Parliament shall appoint forty commissioners, who shall be accountable for their management of affairs; and that these commissioners shall be empowered to issue notes to be a legal tender for all purposes. The Parliament shall choose one of these three methods of issue: The first method is to authorize the Commission to loan its bills, at ordinary interest, on mortgage security, the loan in no case to exceed half the value of the realty mortgaged; the second mode is to give out in notes the full value of the land, estimated upon the basis of twenty years’ revenue, or more or less according to the valuation that may be placed upon it; the Commission, or its authorized agents, being empowered to enter into possession of the land by wadsett redeemable within a certain period; the third plan is to issue notes to the full value of the land upon sale of it irredeemably to the Commission or its representatives. These notes will always be as valuable as specie, because they will represent a mortgage value exactly equivalent to the coin it could be exchanged for. If there should be any losses, a fourth of the Commission’s income would suffice, in all probability, to cover them. This paper money will not depreciate as coin has depreciated in the past, and may again in the future, and we shall always have as much specie as we can use, but never any more.”

The theories of Law which we have here set forth are extremely dangerous, for he does not point out any method by which the paper is to be redeemed; there could, in fact, be but one method, a sale of the lands, and we may instance the assignats issued during the French Revolution as proof of the fact that real estate cannot be made to serve as the basis of paper money. For this purpose there is no reliable security but coin. The Scottish Edition: current; Page: [15] Parliament very wisely repudiated Law’s project, whereupon he set out once more upon his travels and was in France at the time of the unfortunate measures we have described.

LAW’S BANK SCHEME.

Law disapproved of these measures, saying that they would produce none of the expected results; that they would make the evil worse instead of curing it, and that he would guarantee to ameliorate the commerce and finances of the country without injuring anyone. It was at this time that he was presented to the Regent, whom he won over completely. His plan consisted in the establishment of a bank of issue, to be managed by the State, for its own profit, and at its own risk. The Council of Finance opposed the plan. Law, not in the least discouraged, next worked out a new scheme looking to the establishment of an independent bank, its capital to be furnished by shareholders and its affairs to be managed by them under the supervision of a committee composed of some of the principal officers of the State. In spite of vigorous opposition, letters patent were issued on May 2, 1716, and registered by the Parliament on the 23d of the same month, authorizing a general bank, in the following terms.

“The benefits that public banks have conferred upon various European States, sustaining their credit, building up their commerce, and supporting their manufactures, have made it clear to us that our people might secure the like advantages from similar institutions. Sieur Law having proposed to us, some months since, the establishment of a bank with our money, to be administered in our name and under our authority, the project was examined in our Council of Finance, where several bankers, merchants, and deputies from our trading cities being convened and required to give their advice, they were unanimous in the opinion that nothing could be more advantageous to our kingdom, which, through its situation and fertility, and the industry of its inhabitants, stood in need of nothing more than a solid credit for acquiring the most extensive and flourishing commerce. They thought, however, that the present time was not favorable for the undertaking, and that it would be better that such an institution should be founded and managed by a corporation. These reasons, added to some special clauses of the project, determined us to refuse it. But the said Sieur Law has prayed us to accord him the privilege of erecting another kind of bank, to be established and supported by his own money and that of his associates; and through its means he proposes to increase the circulation of money; to put an end to usury; to supply to travelers a simple means of remittance between Paris and the provinces; to furnish to foreigners a safe method of preserving and handling such capital as they have among us, and to facilitate for our own people the sale of their products and the payment of their taxes. * * * And, inasmuch as it seems to us that this institution, conducted according to his plans, can result in no harm, but is likely, on the other hand, so far as we can judge from the experience of neighboring States, to prove a successful enterprise and to produce very beneficial effects, we have been pleased to grant to the said Sieur Law, whose experience, knowledge, and ability are well known to us, the privilege he asks.”

This preamble was followed by the organic laws of the bank, in ten articles, which may be thus summarized: Exclusive authority is given to Law and his associates to maintain a general bank in the kingdom for a period of twenty years, beginning with the registry of his letters patent. The bank is authorized to keep its books and issue its bills upon a specie Edition: current; Page: [16] basis, in terms of “ecus de banque”; that is to say, coins of the weight and fineness constituting the standard on the day the bills are issued. Citizens of France and foreigners alike are privileged to contract in terms of “ecus de banque,” in order to avoid all difficulties arising from changes in the standard of weight and fineness between the date of the contract and the day of payment. The bank is exempt from all taxes and assessments. Shares belonging to aliens are not liable to droits d’aubaine, nor to confiscation even in time of war. The bank is compelled to give its notes in exchange for specie to all who demand them. Counterfeiting the bills of the bank is punishable by death. The last article provided that the privileges conferred upon Law should not be construed to the prejudice of the other bankers of the kingdom, who should be allowed to continue their business as usual.

The regulations of the bank, approved by letters patent of May 20, 1716, fixed the capital at 1,200,000 “ecus de banque” (equivalent to 6,000,000 livres in current money), divided into 1200 registered shares of 1000 “ecus” each. It was to begin business as soon as the 1200 shares were taken and a stockholders’ meeting had been held for choosing officers. The stated meetings of stockholders were to be on June 20th and December 20th. Stockholders were entitled to one vote for every five shares in their possession, and a balance-sheet was to be published every six months. The bills of the bank were to be signed by the manager and one stockholder chosen at a stockholders’ meeting, and were to be registered by number, date, and amount in a book kept for the purpose. The bank opened accounts current and made payments by transfers upon its books for a commission of 5 sous upon the 1000 livres; it discounted commercial paper and bills of exchange. It was forbidden to engage in any commercial transaction on its own account, or as agent, or to issue any bills not due on demand. These rules were all very reasonable, and if stock-jobbing and the needs of the Government had not impelled Law to misuse the instrument he had created, France would have anticipated by eighty-four years the possession of an establishment that would have shielded her from many misfortunes. The capital was payable in four installments, one-fourth in specie and three-fourths in State bills; the fact that these bills were worth at the most not over one-third of their face value, together with a general desire to stand well with the Regent, caused the shares to be rapidly subscribed. The bank began business toward the end of May, 1716. Its capital was so small that no jealousy was excited in any quarter, while the fact that its bills were payable in coins of a determinate weight and fineness, and the convenience of making payments through the bank—a method not common at that time in France—soon brought it a clientage. Every business man had his account at the bank, and the demand for its bills in exchange for coin was so great that the bank was soon in a position to exact a premium for its paper. It was of great value to the community from the day of its inception. The heavy losses sustained by all men of means had left the field free to usurers, and the best commercial paper could not be placed at less than thirty per Edition: current; Page: [17] cent. per annum. The bank announced its readiness to discount paper at six per cent., and in this way found an outlet for the deposits, which soon began to assume respectable proportions; it was not long before the rate of discount was reduced to four per cent. But Law was not long content with the modest rôle of a discounter; he anticipated the needs of commerce, offered his assistance to various manufacturing enterprises, advocated the undertaking of needful public works, and exerted himself so actively in all directions that commerce, which had appeared to be on the verge of extinction, took on new life.

LAW’S SUCCESS AROUSES COMPETITION.

Law was accomplishing even more than he had promised, and his success, while it confirmed his standing before the Regent, aroused the envy of certain other persons, the most powerful of whom was d’Argenson, head of the Council of Finance. He incited the brothers Paris to enter into competition with the famous Scotchman. The brothers Paris conceived the establishment of a company with a capital of 100,000,000 livres, divided into 100,000 shares of 1000 livres each, payable in State bills; it was to take over the lease of all the general taxes, its main object being, like that of Law’s company, to increase the value of State paper. They agreed to pay annually to the State 48,000,000 livres, and hoped to realize 100,000,000 from the revenue collections. Their security to the State was to consist of the 100,000,000 livres of paper making up their capital stock. A six years’ lease of the taxes was made to the company in the name of Aymard Lambert, valet of one of the brothers Paris. This scheme was known as the “Anti-System.”

THE ROYAL BANK SUPERSEDES THE GENERAL BANK.

Law had at this time a large number of projects on foot. He had won a signal victory over Parliament, which had strenuously opposed his proposition that the bills of his bank be received as money at all public treasuries. He next set to work to clear the field of the “Anti-System.” On December 4, 1718, a proclamation of the King converted the General Bank into the Royal Bank. This proclamation declares that the services rendered by the General Bank in quickening the circulation of money and reducing interest rates had led the King to make a re-examination of Law’s original proposition, which was (as we have noted above) the establishment of a bank to be conducted in the name and by the authority of the King; that in order to effect the change, all the shares of the General Bank had been bought up and the King had thus become sole proprietor of the institution, which had just become the Royal Bank. The bank retained its 6,000,000 livres of original capital, but it was no longer proposed to redeem its bills in coins of the weight and fineness prevailing on the day of their issue; holders of the Edition: current; Page: [18] bills could at their option demand payment in “ecus de banque” or in livres tournois. This arrangement was not altogether clear and it raised a question as to the future success of the bank. One privilege which was granted to the Royal Bank and which, unfortunately, is now secured to the Bank of France, proved to be an injury rather than a benefit—the complete exemption from garnishment of all funds held by it in accounts current, except when the depositor became a bankrupt. The transformation of the General Bank into the Royal Bank was an unfortunate change, because the former had a real capital, while the latter furnished no guaranty to those dealing with it except the responsibility of a government not over-scrupulous. Besides, the new institution was to be governed upon the principle of a State bank, and such establishments, with few exceptions, have always been a failure.

LAW’S COMPAGNIE D’OCCIDENT.

Meanwhile, Law had determined to establish under the title of the “Compagnie d’Occident” a vast enterprise having in view the colonization of Louisiana—not merely the State which now bears that name, but the whole immense valley of the Mississippi. Colonization, however, was a mere pretext, the real object being a transmutation of the State debt. To the Compagnie d’Occident was granted, for a period of twenty-five years, beginning with January 1, 1718, the right to manage for its own profit all the French colonies in North America, together with a monopoly of all their commerce, and sovereign power over them, the sole condition being that the company should render faith and homage to the King of France. The capital was fixed at 100,000,000 livres, divided into shares of 500 livres each, payable in State bills, then at a discount of seventy per cent. Law, therefore, had no effective capital for his Compagnie d’Occident; but he was little disturbed by this fact, claiming that he would have ample funds if the State paid regularly its four per cent. interest as it had agreed.

The capital, however, was readily subscribed, because it was payable in depreciated paper, but the “Anti-System” did its utmost to injure the shares of the Compagnie d’Occident, and forced them down fifty per cent. Law determined to support them by buying at par all the shares on the market, paying thirty or forty livres on account, and stipulating for delivery of the shares in six months. This bold device was successful, and the stock was soon selling at par.

LAW’S COMPAGNIE DES INDES.

This was a mere prelude to vaster schemes. There was in existence, at the time, a Guinea company controlling the trade of the eastern coast of Africa (the remnants of an India company established by Colbert), and the rudiments of a company having a monopoly of the Chinese trade. Law combined all these to form his famous “Compagnie des Indes,” deriving Edition: current; Page: [19] his authority from a Royal edict registered on June 17, 1719, of which the following are the most important provisions:

“Since our accession to the throne, we have been sedulous to devise some means of repairing the damage which long wars had brought upon the State, and to procure for our subjects the prosperity and happiness they deserve. It gives us pleasure to see that the circulation of money has become very active and that commerce is reviving, but the end we have in view includes far greater gains. The Compagnie d’Occident, though but recently organized, has already established so high a credit that we have been led to examine the standing of the older companies, and we have been pained to discover that, in spite of the assistance they have received from the liberality of the late King, our honored sovereign and great-grandfather, they have never become self-sustaining. The Compagnie des Indes Orientales, established by virtue of the edict of August, 1664, instead of devoting to the extension of commerce the fifty years’ exclusive privilege conferred upon it, and the frequent donations of money and vessels received from the late King, has contracted large debts at home and in India, has totally abandoned its shipping business, and has determined to transfer its monopoly to individuals, the consideration being ten per cent. of the proceeds of sales in France, five per cent. of all seizures, and the retention by the company of the fifty livres per ton on exports and seventy-five livres per ton on imports which had been granted to it as a gratuity. We are convinced that this failure has been due rather to mismanagement than to the unremunerative nature of the business, and that the company might have made its commerce highly remunerative, both to its shareholders and to the kingdom. The enterprise was established in the first place upon insufficient capital, and a portion even of this the directors paid out in unearned dividends and bonuses.

“The company borrowed money at excessive rates of interest, even as high as ten per cent., and that, too, when there was no profit in it, but simply to replenish its original capital; at other times it borrowed on bottomry bonds at five per cent. per month, so that all the profits of its commerce, and more, were swallowed up in the burdens thus placed upon it. Yet, notwithstanding this unskillful management, the late King, in furtherance of the protection he had already granted to the company, and in the hope that it would at least be able to pay its debts, by his proclamation of September 29, 1714, continued its privileges for a period of ten years, dating from April 1, 1715. But the company has fallen so far short of meeting his reasonable expectations that the inhabitants of India have frequently complained to us of its failure to pay them either interest or principal, and of the fact that during the last sixteen years it has not sent a single vessel to Surat. This branch of our commerce, then, which has been moribund for a number of years, must perish altogether if some adequate provision be not made for it. The individuals who have bought the company’s rights cannot pay it the ten per cent. agreed upon and still compete with foreigners Edition: current; Page: [20] engaged in that branch of commerce; besides, a fear of being held for the company’s debts restrains them from sending their vessels to Surat, the principal city of Mongolia, and the port from which are shipped raw cotton and cotton thread, and the drugs and spices of India and Arabia. The result is that our subjects are compelled to purchase abroad practically all of the Indian products they need, either for their own consumption or for carrying on their commerce with the Guinea coasts and Senegal; that these products cost at least three times as much as they ought, and that we are in all ways deprived of the advantages which would result from a domestic trade in them.

“With regard to the China company, a close corporation which was established by decree of our Council of November 28, 1712, and by letters patent issued in consequence on February 19, 1713, and which has hitherto held part of the concession originally granted the Compagnie des Indes, we are informed that it has made no use of the exclusive privilege conferred upon it, and that its special branch of commerce is in a worse state of confusion and neglect, if possible, than that of the Compagnie des Indes. We should be wanting alike in our duty to ourselves and to our subjects if we were to allow such a state of disorder longer to continue in one of the most important branches of the national commerce; and we hold it due to the well-being of our State that we re-establish and expand the French-India trade and preserve the good name of the State by paying to those peoples the debts contracted by the company. Toward this end, we have decided to annul the privileges conferred upon the India and China companies and to transfer them to the Compagnie d’Occident. The fact that this company has been in existence for some time and is already under our protection, the excellence of its management, the high credit it has established, the fact that the consolidation of these various companies will put it in possession of ample means, all of these considerations lead us to believe that we could not place the commerce of India and China in better hands. Moreover, as the Western and Senegal companies have already been combined, this consolidation will bring under a single company a commerce extending to the four quarters of the globe. The company will have under its control all the instruments necessary for the various branches of this commerce. It will bring into the kingdom an abundance of necessary, useful, and convenient articles, the surplus it will export to foreign countries; it will foster our shipping interests and will develop a body of seamen, pilots, and officers. The whole management being moved by the same spirit, there will result that union of force and economy of outlay on which success in any commercial undertaking depends.”

Thirteen articles annexed to this proclamation constitute the charter of the Compagnie des Indes. It had the sole privilege of trading, to the exclusion of all other French individuals or companies, from the Cape of Good Hope throughout all the seas of Eastern India, the islands of Madagascar, Bourbon, and France, the coasts of Sofala, the Red Sea, Persia, Mongolia, Edition: current; Page: [21] Siam, China, and Japan; from the straits of Magellan and Le Maire throughout all the southern seas. At a valuation to be determined by appraisement within a week after the registering of the edict, the new company came into full proprietorship of all the lands, islands, forts, dwelling-houses, store-houses, goods and chattels, real estate, claims, sources of revenue, ships, barks, munitions of war, provisions, negroes, cattle, articles of merchandise, and all other property and rights which the Compagnie des Indes Orientales and the Compagnie de la Chine had acquired, conquered, or purchased, whether in France or in the Indies and China. The new company was to assume all the valid debts of the old companies and to pay to them such balance as should appear upon the liquidation. It succeeded to all the gratuities of the companies it replaced; it had the privilege of importing all kinds of merchandise, even including such as were otherwise prohibited, on condition that it should place them in a bonded warehouse and re-export them. The privileges granted to the Compagnie des Indes amounted, in fact, to a monopoly of the whole foreign commerce of France.

The Compagnie d’Occident had sold all of its shares for State bills, having no actual and realizable value, and the utmost that could be hoped for from them was the regular payment of the four per cent. interest they bore.

It was imperative that the Compagnie des Indes should have more valuable resources; accordingly, Article IV of the edict incorporating that company fixed its capital at 25,000,000 livres, divided into shares of 500 livres each, to be had only in exchange for actual cash, and only on payment to the cashier of the Compagnie d’Occident of 550 livres for each share. The new shares were to be numbered consecutively after those of the Compagnie d’Occident already in existence, and were to confer upon their holders the same rights and privileges. The old shareholders were given a preference in the subscription for the new shares in the proportion of one of the latter for four of the former. The new shares were to be paid for in five per cent. installments, payable monthly for twenty months. The Parliament distrusted these schemes, which it did not understand, and it refused to register the edict; but its resistance was overcome and everything was arranged as Law had conceived and planned. The preference reserved to the old shares, called by the public “Mothers,” caused them to appreciate rapidly until they had mounted to 130 per cent. The new shares, known as “Daughters,” acquired a proportional premium, and not only was the subscription fully covered, but the shares became the subjects of the wildest speculation, which forced their price ever higher and higher. The company thus formed professedly as a simple trading and carrying corporation, soon deviated widely from its avowed purposes. On July 25, 1719, it purchased for 50,000,000 livres the management of the Mint and the issue of coin for a period of nine years. By a decree of the Council of State rendered on August 27, 1719, the farm of the revenues, which had been granted to Edition: current; Page: [22] Aymard Lambert, ostensible agent of the brothers Paris, was taken from them and given to the Compagnie des Indes until the year 1770. The latter also agreed to loan to the King 1200 million livres (an amount soon afterward raised to 1500 millions) to be used in paying the State debt. It obtained a lease of the salt taxes of Alsace and Franche Comté, and the tobacco monopoly; it undertook to pay the debts of the State for a commission of three per cent. and to collect all taxes paid directly to the Treasury, recompensing the receiving officers for their loss.

The profits expected to accrue from the management of the Mint carried the shares to 1000 livres, a premium of 100 per cent. In order to pay the 50,000,000 livres due for the Mint concession, Law put out another issue of shares known upon the market as “Granddaughters.” They were issued to those who were already stockholders in the proportion of one new to five old shares; they were sold at a premium of 100 per cent.—that is to say, for 1000 livres each—payable in bills of the bank. The shares were very soon quoted at 200 per cent. above par, and the State obligations, which Law was about to meet, rose to par. To raise the 1500 million livres promised to the Government, Law made a new issue of shares at a premium of 1000 per cent., so that the 150,000,000 of nominal capital produced 1,500,000,000 of funds; a supplementary issue of 24,000 shares, of 500 livres each, made on October 4, 1719, brought in 120,000,000 livres more. Taking account of all these issues, M. André Cochut* presents the following table:

Number and Value of the Shares Issued by the Compagnie des Indes.
VARIOUS ISSUES. No. of Shares Issued. Nominal Value. Total Nominal Value of Each Issue Subscription Price. Amount Produced by Each Issue.
LIVRES. LIVRES. LIVRES. LIVRES.
Original Fund 200,000 500 100,000,000 500 100,000,000
(Compagnie d’Occident.)
First Subscription 50,000 500 25,000,000 550 27,500,000
(“Daughters.”)
Second Subscription 50,000 500 25,000,000 1,000 50,000,000
(“Granddaughters”)
Third Subscription 300,000 500 150,000,000 5,000 1,500,000,000
(Loan to the State.)
Issue of Oct. 4, 1719. 24,000 500 12,000,000 5,000 120,000,000
Total 624,000 312,000,000 1,797,500,000
Edition: current; Page: [23]

M. André Cochut thus estimates the probable profits upon this enormous capital:

LIVRES.
Interest, three per cent., due from the State, to be taken out of the general revenue leases } 48,600,000
Profits of the company on said leases 8,000,000
Tobacco monopoly 6,000,000
Profits from collections made directly by the company, Alsace salt taxes, etc. } 1,400,000
Profits from the Mints 10,000,000
Income from commercial transactions 8,000,000
Total of the probable net receipts 82,000,000

This amount divided among the 624,000 shares would have given, losses aside, a dividend of 130 livres per share, or 26 per cent. on the nominal capital; but the average price of the shares had been 2720 livres, reducing the dividend rate to 4.75 per cent., and as the actual holders of the stock had taken it at a price of at least 5000 livres per share, their income upon the actual investment could not be greater than 2.6 per cent. The public appeared to regard the Scotchman as one endowed with magic power, and it did not stop to make this simple calculation. The crowd packed itself against the wickets in the rue Vivienne where the Compagnie des Indes had its offices, and fought for shares. After the stock was issued, the excitement was transferred to the rue Quincampoix, which became the scene of the most extraordinary transactions. Not only was the street crowded with Parisians, but multitudes came from the provinces as well, and finally the very stage-coach tickets became objects of speculation.

As the shares were sold for bills of the Royal Bank, the latter soon rose to a premium of ten per cent., and no one was any longer willing to accept gold or silver. Never before had such a wave of folly swept over France. Everybody was getting rich by speculation. Domestic servants and poor women gained enormous fortunes in a single day; and courtiers, deeply involved by the expenses of their residence at the Court of Louis XIV., won large sums and paid off their debts. Money gained by such easy means produced at least one beneficial result. Commerce and industry, and especially those industries engaged in the production of luxuries, increased with great rapidity; and, singularly enough, speculation in stocks effected a fusion among certain social classes that had previously dwelt apart; there were numerous marriages between poor girls of noble birth and low-born men suddenly enriched.

Before describing the disasters that finally overtook him, justice demands that we render homage to the generous intentions of Law. Inspired by the “Dime Royale” of Vauban, he conceived the idea of abolishing the expense and vexatiousness of the maltôte and establishing a degree of personal liberty which should encourage commerce by lightening the burdens of the Edition: current; Page: [24] people. He wished to substitute a single tax for the complicated system then in force. This was an economic fallacy, but it was one by which even a highly trained intellect might have been deceived. He caused the Compagnie des Indes to return the sums that had been paid for tax exemption. Paying an indemnity to the incumbents, he abolished a multitude of useless offices which had been created in time of need and sold for ready money, and which were a burden upon commerce. He secured a reduction of many taxes and the complete abolition of duties upon a large number of articles. We should add that he supplied necessary funds at low rates of interest to reputable manufacturers and merchants; that he obtained the release of many prisoners for debt; that he secured a reformation of many of the most crying abuses of the Chamber of Justice, and that he set aside a twenty-eighth part of the postal revenues toward the salaries of the professors at the University of Paris.

THE CULMINATION AND DECLINE OF LAW’S SCHEMES.

The enthusiasm continued from June, 1719, to February, 1720. By this latter date, the rise had carried the market value of the capital of the Compagnie des Indes to between 11,000,000,000 and 12,000,000,000 of livres. The profits of all the trade of France would hardly have sufficed to return a reasonable income on so large a capital. Cautious holders saw that it was time to realize their profits, and sales began. The Royal Bank was playing a very modest part in relation to the business of the Compagnie des Indes; its duty was simply to furnish the bills required by stock-dealers, and it had no serious guaranty back of the paper it issued. The depreciation of the shares of the company aroused the fears of bill-holders, and they demanded a redemption of their notes. Law’s economic ability being inferior to his genius as a financier, he suggested to the Regent the most unwise measures for compelling people to prefer the paper of the bank to coin. The only result of these measures was to drive specie into hiding, and the ruin of Law’s enterprises, or of the “System,” as they were collectively called, was assured. The Regent, however, upheld his protégé and made him Comptroller-General of the Finances. From that moment, Law’s whole existence was one continual battle against the depreciation of the shares in his companies. One of the objects of the Compagnie des Indes was the colonization of the Mississippi Valley. As his first colonists, Law sent out prostitutes and thieves from the Paris prisons, having first married them together. Then he seized upon the vagabonds of the kingdom and sent them to Louisiana, fondly supposing that a desirable colonial population could be made up of such elements, reinforced as they were afterward with invalids and professional beggars. Notwithstanding the friendless condition of the classes thus transported, the barbarity with which they were treated was universally condemned, and open riots followed later, when the company’s recruiters undertook to carry off artisans and even Edition: current; Page: [25] young boys and girls of the middle classes. As nearly all of the women sent out to Louisiana soon died, some of the men married native women and established families in the colony. While neither Law nor the Government ever made known the truth as to the result of the colonization scheme they had attempted to carry out in this remarkable fashion, the facts were finally exposed, and that was the end of the undertaking.

Beginning with the month of March, the bills of the Royal Bank, though they were regularly redeemed, lost thirty, forty, and fifty per cent. of their value, and in some cases were even refused altogether. Law debased the currency, forbade any individual to have in his possession more than 500 livres of gold or silver, either coin or bullion, and finally, on March 11th, an order was issued abolishing the use of coin altogether on and after May 1, 1720.

THE KING COMES TO LAW’S RESCUE.

Recourse was had once more to paid informers, to secret accusations, to domiciliary visits, in short, to all the worst practices of the so-called Chamber of Justice. The bank secured some help, but its credit was entirely gone. Dealing in stocks was held answerable for all these evils, and was forbidden; but the prohibition could not be made effective, because there was no way for preventing secret dealings. Finally, on May 21st, an edict was issued in these terms:

“The King, in his Council of State, having caused an examination to be made into the position to which his kingdom was reduced before the establishment of the bank, in order to compare it with the present situation, his Majesty has become convinced that the high rates of money have caused more damage to his realm than all the outlays the late King was compelled to make in order to carry on his various wars; avarice having impelled the lender to demand a greater interest per month than he could legally have charged for a year. This usury had impoverished the kingdom to such an extent that even his Majesty’s revenues could not be collected except by multiplying the penalties against delinquent tax-payers; prices of products barely sufficed to pay the costs of production and the taxes, leaving no surplus for the land-owner. This general state of poverty had compelled part of the nobility to sell their lands at a sacrifice, in order to maintain themselves in his Majesty’s service; and others of the nobility saw their property taken from them by force of law. The bounty of the King became their sole resource, and his Majesty was not in a position to extend such bounty, or even to pay the salaries of his officers and the pensions that had been granted as a reward for distinguished services. Manufactures, commerce, and navigation had almost perished. The merchant was reduced to bankruptcy and the laborer was compelled to abandon the land of his birth and seek service among strangers. Such was the condition to which King, nobility, merchant, and people had been reduced, while the money-lender alone was prosperous; and the whole kingdom would probably have fallen into a state of general disorder had not his Majesty applied prompt remedies to these evils.

“By the establishment of the bank and the Compagnie des Indes the King restored things to their normal state; in the increased value of its lands the nobility found means of paying its debts; manufactures, commerce, and navigation took on new life; the lands are cultivated and the laborer is busy. But in spite of the very evident amelioration which these establishments have brought about, some persons have been so evil-disposed as to attempt their destruction, thus compelling his Majesty to issue his edict of March 5th last intending by a debasement of the coinage to uphold the credit of establishments so useful and so necessary. By this edict, his Majesty reduced Edition: current; Page: [26] the different classes of paper of the Compagnie des Indes to one class and ordered that the shares should be convertible into bills of the bank, and bills into shares, at the valuation which then appeared most just according to their relative value in coin. This debasement of the currency and the great favor in which the stock was held furnished debtors with ample means for the payment of their debts. It remained for his Majesty to provide for the investment of those sums which are to be repaid to minors, hospitals, commonalties, and other privileged creditors, and at the same time to re-establish the value of the currency, fixing it at such a rate as should be most conducive to foreign commerce and the sale of our products. All these objects his Majesty has provided for by vatious edicts, and especially by his proclamation of March 11th last, ordaining a reduction in the value of the coinage.

“But, inasmuch as these reductions will necessarily be followed by a decrease in the value not only of all products and personal property, but also in that of lands and all property savoring of the realty, his Majesty has believed that the widest interests of his subjects demanded a reduction also in the price or money value of the shares of the Compagnie des Indes and the bills of the bank, the objects of this reduction being that these shares and bills may stand in their proper relation to specie and other things of value in the kingdom; that the disproportionate value of specie may not become a menace to the public credit; that privileged creditors may be enabled to employ profitably the payments to be made to them, and finally, that our subjects may not be placed at a disadvantage in foreign commerce. And his Majesty has determined upon this reduction the more willingly because it will redound to the advantage even of those who hold shares of the Compagnie des Indes or bills of the bank; holders of these shares will receive dividends at a higher rate and the shares themselves will be convertible into a greater amount of money or of uncoined silver after the reduction than at present.

“Wherefore, the report of Sieur Law having been heard, his Majesty has ordained,” etc.

We have thought it well to reproduce this preamble in spite of its length, because it shows to how great an extent Law was disturbed by the depreciation of the shares of the Compagnie des Indes and the discredit into which the paper of the bank had fallen.

MEASURES TO STAY THE COLLAPSE.

The measures decreed by that edict consisted in a reduction of the value of shares of the Compagnie des Indes to 8000 livres on the day of its publication, 7500 on July 1st, and so on down to 5000 livres on December 1st, and in an adjustment of the value of the bank bills, in the same manner. The bills, however, were to be received at their face value until the end of the year in payment of taxes and in the purchase of life annuities. Bills of exchange and other commercial debts were to be paid in bank bills at their actual value on the due dates.

Immediately upon the promulgation of this unfortunate decree, prices of all commodities began to rise so rapidly as to create serious alarm. The uppermost thought in every man’s mind was to save some remnants of his fortune. Public clamor against the decree of the 21st was so great that it was revoked on the 27th, and Law was compelled to resign his office of Superintendent of Finance. Still the Regent did not desert him. He furnished a bodyguard to protect him against the rage of the populace and continued to follow his advice. Meanwhile, the people besieged the offices of the Royal Bank, demanding cash for their bills. The bank resorted Edition: current; Page: [27] to the most barefaced subterfuges to escape prompt payment. It redeemed large bills with small; and, in redeeming the small bills with specie, it counted out the money very slowly, and paid in coins of a less denomination than ten livres. The rue Vivienne was constantly filled with a struggling mass of men, and every day some were killed and others wounded. Finally, the public patience was exhausted and stones were thrown at the windows of the bank; then the soldiers fired upon the crowd and several were killed; the people placed the corpses upon litters and paraded the streets of Paris, crying aloud for vengeance. The crowd met Law in his carriage, recognized him, heaped insults upon him, and tore his carriage to pieces.

Provisions continued to grow dearer as the bills of the bank depreciated, and when the exasperation of the public had reached its height, new financial measures, such as canceling of bank bills, creation of life annuities, and the like, followed one another with great rapidity. Finally, on October 10, 1720, a decree was issued giving to holders of the yet outstanding bills an option to invest them in two per cent. perpetual rentes, in four per cent. life annuities, or in shares of a new India company. According to data furnished by this decree, the bank had issued between January 5, 1719, and May 1, 1720—

LIVRES.
In bills of 10,000 livres 1,134,000,000
In bills of 1,000 livres 1,223,200,000
In bills of 100 livres 299,200,000
In bills of 10 livres 40,000,000
Total 2,696,400,000

According to the same authority, the face value of the bills destroyed had aggregated 707,327,460 livres, but the itemized statement does not agree with this total; assuming, however, that the total was correct, the bills remaining in circulation amounted to 1,989,072,540 livres, to which should be added a subsequent issue of 50,000,000 livres. The Bank of France had been in existence seventy years before it had in circulation bills to this amount. When it had been decided that the bills of the Royal Bank were soon to go out of circulation, merchants refused to accept them except at a discount of seventy-five or eighty per cent.; the Government interfered and many persons were condemned as forestallers; but violent measures are no cure for public destitution.

LAW’S FLIGHT AND END.

Law, being held accountable for all these misfortunes, found his liberty, and even his life, in danger, and determined to flee the country. He took refuge in Brussels, where he was well received; thence he went into Italy, taking up his abode in Venice, and seeking his livelihood at the gaming-table. Edition: current; Page: [28] He died, poor, in 1729, leaving only a few pictures and a ring worth 10,000 crowns, which he had been in the habit of pawning whenever luck at play went against him. Looking at him from this distance of time, we can see that Law had no systematic theory of finance. He was a man fertile in expedients, who often advocated wise methods, but always spoiled them in the execution. There can be no question of his honesty and good faith; the best evidence of these is the condition of comparative poverty in which he lived and died after leaving France. But his influence was to the last degree disastrous, and was thoroughly demoralizing to all classes of society. A certain Count Hoorn, of illustrious birth, robbed and murdered an unfortunate courtier named Lacroix, and expiated his crime upon the wheel; murders became far more numerous in Paris; people had acquired a habit of winning money without work; desires born of stock-jobbing did not die with it, and many turned to theft and to murder as a source of income. The very name of bank became so unpopular that seventy-nine years later it required all the authority of General Bonaparte, then First Consul, to make the name acceptable as the title of a credit establishment.

LIQUIDATION OF THE “SYSTEM.”

The people of Paris, always inclined to raillery, had a song which sums up with reasonable accuracy the history of Law’s enterprises, and may be thus roughly rendered:

  • Beelzebub begat Law,
  • Law begat the Mississippi scheme;
  • The Mississippi scheme begat the “System”;
  • The “System” begat paper;
  • Paper begat the bank;
  • The bank begat the bill;
  • The bill begat the share;
  • The share begat agiotage;
  • Agiotage begat the share-registry;
  • The registry begat the settlement;
  • Settlement begat the balance-sheet;
  • The balance-sheet begat zero;
  • And zero has no procreative power.

The liquidation of such a conglomeration of affairs presented considerable difficulties. The “System” was condemned in its entirety; the tax farmers resumed the collection of the revenues; the tolls and town dues which Law had abolished were reimposed, notwithstanding that these reforms, as well as his abolition of useless offices, had proved very beneficial to the commerce of the country.

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THE “BROTHERS PARIS” GATHER UP THE WRECK.

The brothers Paris, though without official authority, were the prime movers in all matters connected with the settlement, and all their suggestions were made in the most malignant spirit. Though the Compagnie des Indes had simply obeyed the orders of the Government, its shareholders were made liable for all its undertakings and even for the bills it had issued. Thus the whole population of France was involved, except those who were absolutely destitute, because every family held some of the company’s shares, acquired either in the way of speculation or in exchange for the Government’s own bills. The brothers Paris superintended a general revision of the State’s obligations, and all of them except the rentes were scaled down in proportions varying between one-sixth and nineteen-twentieths of their face value. The revision was rapidly carried on and was completed in June, 1722, but the liquidation was not finished until September, 1728. The funds to which the process of revision was applied amounted to 3,122,236,436 livres, and this was reduced to about 1,700,000,000 livres. This sum, converted into perpetual two per cent. rentes and four per cent. life annuities, made an interest charge of about 31,000,000 livres on the former, and about 16,000,000 on the latter; in all, a charge of 47,000,000 livres on the revenues. Fifty-six thousand shares of the Compagnie des Indes were left intact, and by a decree of March 22, 1723, the company was reorganized as a private corporation, with a monopoly of various commercial enterprises. After undergoing several other reorganizations, in the course of the eighteenth century, it was finally abolished altogether in 1793. Before that time several of its ships, insured in English companies, had been wrecked, but the insurance, amounting to about 400,000 francs, was not paid until after the fall of Napoleon. When payment was made, the money, at the request of certain persons interested in the old Compagnie des Indes, was turned over to the Bank of France. There it remained for a number of years, together with the books and papers of the company. Finally, the Bank made an effort to get rid of the money and the archives. The Tribunal of the Seine appointed a liquidator; he succeeded in finding some families having interests in the old Compagnie des Indes, but some money yet remained, the title to which was not established, and this was turned over to the deposit and consignment office to await an owner. As to the Royal Bank, it disappeared and left no trace.

A considerable burden had already been laid upon those who were called the newly enriched. They were once more heavily assessed, the demand this time being in the form of a per capita levy; and this they avoided, as far as possible, by marrying impecunious daughters of the nobility, and securing from the King, by virtue of this alliance, entire or partial immunity from the new assessment. The general poverty was more severe at this time than it had been at the death of Louis XIV., and the period has left in the memory of the French people a lasting impression of dread.

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AN IMPARTIAL ESTIMATE OF LAW.

Yet, again it may be repeated, all was not bad in the work of Law. One historian of his “System,” M. André Cochut, whom we have already had occasion to quote, sums up his estimate of the man and his schemes in these words: “Was the transit of the Scotch adventurer a benefit or an injury to France? To this question we can return no positive and unqualified answer. A movement so complex, an upheaval so thorough, and phenomena so extraordinary, produce upon us the most contradictory impressions. Our opinions vary with our point of view. If some individuals were crushed beneath the wreck, it is incontestable that the thorough agitation of productive wealth tended toward the enrichment of the people. Nearly all debtors, and especially mortgage-burdened owners of the soil, were enabled to pay off their debts. Many ancient estates were preserved from impending ruin and many new buildings were erected. Farming lands received permanent improvements; industry, unduly stimulated, built new factories; and a precedent in maritime ventures was established by the Compagnie des Indes. How is it that results so beneficial came out of such a woful calamity? The explanation is that Law’s conception, in spite of inherent faults, which rendered its success impossible, in spite of his own blind rashness and serious shortcomings, which made his fall so sudden and so violent, stamped its author, nevertheless, as a man of remarkable inventive genius, and as having a distinct perception of the three most prolific, and previously most neglected, of all the elements of national grandeur—maritime commerce, credit, and the spirit of association.”

In all candor, history must award to the men of those times their due share of blame for the calamitous failure of Law’s schemes. His main purposes, temperately pursued, would have greatly promoted the wealth and power of France. But their remarkably prompt success was responded to by a craze of speculation, in which Law seems to have taken little part, but which whelmed in ruin enterprises largely legitimate and highly profitable. For that, Law’s contemporaries, certainly as much as himself, if not more, must be held responsible. This is not the first instance in which the bold and beneficent plans of men of genius have been defeated through the excesses of speculations for which the schemes were not properly responsible.

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CHAPTER III.: THE DISCOUNT BANK—LA CAISSE D’ESCOMPTE.

THE failure of Law’s “System” left such a lasting impression upon the public mind that the creation of any new bank of issue was impossible in France for many years. These establishments, having no other earnest of success save the confidence of the people from whom they borrow by means of the bills they issue, cannot thrive in a country where the very name of bank arouses the most intense aversion. Yet the Bank of England, the Scottish banks, the Bank of Amsterdam, and a host of others make manifest the benefits a country may derive from an establishment which confines itself strictly to the banking business and is properly conducted.

“A man of genius,” says Mirabeau, “struck with the astonishing absurdity that Paris alone among the great cities of Europe had no discount bank, proposed to the Government in 1766 that he be allowed to establish such an institution, and he had no difficulty in proving that its necessary results would be an enlargement of commerce, an increase of industry, a quickening and expansion of monetary circulation. He was kept a suppliant for ten full years, and then his project was adopted in a mutilated shape; his plans were contracted to the narrowest limits, and the thing finally set in motion was a very small model of a very large machine. Even then, it was necessary to brave the clamors and persecutions of capitalists, who imagined they saw in the widely diffused relief promised by a discount bank a ruinous competition with that sold by themselves.”

The Discount Bank (La Caisse d’Escompte), to which reference is here made, was established on January 1, 1767. Its capital was fixed at 60,000,000 livres, divided into 60,000 shares of 1000 livres each, of which only 40,000 were offered to the public, the other 20,000 being reserved to the King. It was to discount commercial paper and State securities at four per cent. in time of peace, and in time of war at five per cent.; with a supplementary Edition: current; Page: [32] commission of two per cent.; it was to have also a monopoly of the coinage. This enterprise never developed into full activity; but, after a precarious existence of two years, it was abolished on March 21, 1769, by order of the Council. A second bank of the same kind was proposed during the Ministry of the Abbé Terray, but the attempt was abandoned.

AUTHORIZATION OF A BANK OF ISSUE—THE DISCOUNT BANK UNDER TURGOT’S MINISTRY.

In 1776, under the Ministry of Turgot and inspired by that illustrious economist, a Scotchman named Clonard, and Penchaud, a Genevan, drew up a plan of a bank of issue, which was incorporated under the name of the Discount Bank by a decree of the Council of March 24, 1776. The business of the bank consisted in discounting, at a rate which could in no case exceed four per cent. per annum, bills of exchange and such other commercial paper as the directors should choose to accept; in dealing in gold and silver; in gratuitously receiving and paying out public funds and deposits of individuals. The corporation was forbidden to borrow at interest or to contract any debt not payable on demand; it was expressly forbidden to engage in any commercial enterprise or maritime undertaking, or to enter into any contract of insurance. Its capital of 15,000,000 livres was divided into 5000 shares of 3000 livres each. Five million livres were to serve for its current needs and 10,000,000 to be turned over to the Treasury on June 1, 1776, to constitute a guaranty for all the undertakings of the bank. “His Majesty,” to quote from the regulations as set forth in the charter, “will be urged to accept the 10,000,000 livres as a loan and to give in exchange therefor receipts issued by the Warden of the Royal Treasury to the amount of 13,000,000 livres, payable in thirteen years, to cover principal and interest of the aforesaid sum of 10,000,000 livres; which Treasury receipts shall be redeemed in twenty-six equal installments of 500,000 livres each. And as security for these payments his Majesty will be requested to set apart the income from the postal leases and to direct the Warden of the Royal Treasury to deliver to the cashier of the Discount Bank in payment of the 500,000 livres of Treasury receipts to be redeemed each half-year, a draft on the holder of the said postal leases. The 13,000,000 livres forming the total of the Treasury receipts above mentioned, or such part of them as may remain after the payment of installments from time to time, shall be specifically pledged as security for all the operations of the bank, and that portion of the receipts not redeemed shall not be sold, alienated, assigned, or pledged.”

That part of the plan which proposed thus to tie up two-thirds of the capital was never carried into effect. A decree of the Council under date of September 22, 1776, announced that the shareholders had decided that it was better to have a capital of only 12,000,000 livres, all of it to be devoted to the business of discounting paper and dealing in gold and silver, and that Edition: current; Page: [33] in accordance with this decision the King had agreed to forego the loan of 10,000,000 livres and had authorized the issue of a capital of 12,000,000 livres, in 4000 shares of 3000 livres each. This change was a very important one, because it left the Discount Bank in full control of its capital, which in case of need could be used to repair the losses of its discount business; whereas in possession of the King, it would have been of no use to the bank either for the transaction of its business or as an offset against losses.

REGULATIONS OF THE BANK.

The by-laws of the bank, approved by a decision of the Council of State promulgated on March 7, 1779, fix the number of directors at thirteen, two of whom are to go out of office at the end of each year and to be ineligible during the two following years; each of them must be the owner of at least twenty-five shares, inalienable during his term of office; and the directors serve without pay. The bank was not expressly authorized to issue bills payable to bearer on demand, but this power followed as a necessary implication from that section of the law which forbade it to contract any debts not payable on demand. Aside from this, the bank enjoyed no special privilege or monopoly, and the circulation of its bills was a purely optional matter; anyone could accept or refuse them at pleasure.

THE BANK IN DIFFICULTIES.

This establishment, answering to a real need of the community, led a quiet existence for some years, gradually expanding and enjoying a fair degree of prosperity; but in 1783 it encountered serious difficulties. At this time, d’Ormesson, Comptroller-General of Finance, borrowed of it 6,000,000 livres, increasing its circulation by that amount. The fact of the loan was at first kept secret, but when it was inadvertently made known the public took alarm, demanded the redemption of their bills, and withdrew their deposits, so that the bank was soon unable to fulfill its engagements. The Government interfered by a decree of the Council of State under date of September 27, 1783, in these words:

“Inasmuch as it has been represented to the King in his Council, on the part of the directors of the Discount Bank,—That the scarcity of specie occasioned by the war, which has prevented the usual yearly imports of gold and silver—exports of specie continuing meanwhile—has compelled all our commerce, but especially that of the city of Paris, where this scarcity is felt with unusual severity, to take advantage of the resources which the Government vouchsafed to it by authorizing the establishment of the Discount Bank.

“That their eagerness to come to the aid of commerce has impelled them to discount all bills of exchange and good commercial paper presented to them, and that being authorized to exchange for these securities either coin or bills of the bank payable to bearer, the public confidence in the bank has given them power to increase the number of its bills in proportion to the needs of commerce, but that, owing to a failure of the resources upon which merchants had relied to put coin in circulation again, the Bank of Discount was liable to be temporarily hampered in its efforts to furnish discount facilities by reason of its inability to supply coin or even to redeem its bills in specie Edition: current; Page: [34] if they should be presented in too great quantities, unless his Majesty should make some provision in the premises.

“That to enable them to await the resources which a return of peace will make available, and to continue meanwhile the service that has been so beneficial to commerce, there is no surer means than that they be authorized until January 1st next, a date at which it is certain that the circulation of specie will be fully restored, to redeem with such bills of exchange and other good commercial paper bearing individual signatures as the bank now has in its possession, those bills of the bank whose holders are not willing to leave them in circulation, the directors offering to pay out such commercial paper with allowance for the discount, if the King, in view of this offer, will forbid until said January 1st, all suits against any person based upon the non-redemption of the bank’s bills, and will command that they be accepted as money in all transactions, public and private, in the city of Paris only. * * *

“Wishing to grant which prayer, the King has authorized, and hereby does authorize, the cashier of the Discount Bank to pay to those holders of the bills of said bank who are not willing to leave them in circulation, the amount of said bills in bills of exchange and good commercial paper bearing individual signatures, making due allowance for the discount. His Majesty commands that said bills of the bank payable to bearer continue to circulate and to be received and paid out as cash, as they have been in the past, in all transactions, public and private, in Paris only. His Majesty forbids all holders to institute any suit prior to January 1st next, to compel payment of said bills in coin.”

Shortly after this, De Calonne, who had succeeded to the Ministry, borrowed 24,000,000 livres in the form of a lottery loan and repaid to the bank the 6,000,000 livres due from the State; at the same time, an official report was issued showing that the bills in circulation aggregated 42,000,000 livres, and that the assets of the bank exceeded its liabilities by 14,140,473 livres.

RECOVERY OF CONFIDENCE AND INCREASE OF CAPITAL.

Acceptance of the bills had previously been made optional again by a decree of December 10, 1783, and confidence soon returned. In view of these facts, the regulations of the bank were amended, and the capital was increased to 15,000,000 livres by the creation of 1000 new shares of 3000 livres each, sold upon their issuance at a premium of 500 livres. In addition to the amount thus secured, the bank had a reserve of 2,500,000 livres, consisting of undistributed profits. The by-laws were altered and the proportion of hard cash on hand to circulation was fixed at twenty-five per cent. as a minimum. Paper accepted for discount was made payable within ninety days, at most, and discount rates are fixed at four per cent. for paper due within thirty days, and at 4½ per cent. for paper running from thirty-one to ninety days. All paper offered for discount was required to bear two good signatures. Two permanent directors were to be chosen by the stockholders to act as managers. Certain precautions provided by the by-laws show that the conditions of a rational distribution of credit facilities were not thoroughly understood by the founders of the institution; but they had at least a very clear conception of the necessity of maintaining a just proportion between resources and liabilities. Thus the amount of credit to be extended in the way of discounts was fixed weekly by the Administrative Council, and once fixed could not be exceeded; but whenever Edition: current; Page: [35] it came to the knowledge of the managers that the cash on hand was less than one-third of the circulation, they were required to curtail their discount operations, and to discontinue them altogether when the cash was reduced to one-fourth of the circulation. Permanent loans and all investments in any permanent form were absolutely forbidden. The capital being the normal security for the bank’s undertakings, it was forbidden to loan upon its own shares, because such loans would in effect amount to a diminution of the capital. Most of these regulations were wise and salutary. The bills of the bank were in denominations of 1000, 600, 300, and 200 livres.

The public very easily forgot the difficulties that had beset the Discount Bank; and, unfortunately, the Government forgot them also. The institution was wisely managed and its shares advanced rapidly in price. In 1784, certain speculators persuaded the public that increased dividends were to be paid, and sold a large number of shares at a premium. At the stockholders’ meeting of January 16, 1785, those who had bought at a premium proposed the declaration of a dividend, based, not upon the profits actually realized and collected, but upon those which were prospective and uncertain, and their proposition was carried. But the more prudent shareholders obtained from the Council of State an order under date of January 16, 1785, commanding that the dividend for the last six months of 1784 should consist only of the profits actually collected up to December 31st, and that from the total of profits carried on the books upon that day there should be deducted as not earned and not available for dividends those arising from the discount of all paper held by the bank at that time; these profits would not be due or payable till after December 31st, and they were to be reckoned as part of the income of the following half-year. In this difference with the stockholders the Government was clearly right; but those who had purchased shares at a premium took advantage of its ignorance to secure the adoption of an unjust measure, and a decree was issued on January 24, 1785, declaring null and void all sales made at a premium; thus, at the expense of the sellers, releasing the buyers from a losing speculation.

THE PROSPERITY OF THE BANK CAUSES ITS RUIN.

In spite of this incident, the affairs of the bank continued to prosper, and this prosperity proved its ruin. Its success was in such violent contrast with the wretched failure of the Government finances as to suggest to the Minister of Finance the advisability of seeking aid from a bank which was growing rich in the midst of the general decay. At a special meeting of the stockholders, held on February 5, 1787, a plan was outlined for furnishing greater facilities to trade and greater security to the public by making the bank useful to all classes of citizens, by providing for a circulation of its bills in the provinces, by dispersing its shares more widely, and by perfecting the details of its management. The basis of the plan was an increase of the Edition: current; Page: [36] capital to 100,000,000 livres, of which the State should hold 80,000,000 as security for the bank’s circulation. The stockholders fell into the trap, and drew up a petition to the King requesting such a change in the regulations of the bank as would produce the results outlined above. A decree of the Council, dated February 18, 1787, enacted into law the stockholders’ proposals. The Discount Bank was authorized to issue 20,000 new shares, of which 10,000 were offered to the old shareholders, in the proportion of two of the new shares to one of the old ones, at 3400 livres each; the remaining 10,000 shares were sold in the open market at 3600 livres each. The salutary rule limiting discounts to paper not having over 90 days to run was changed so as to allow discounts of paper due at any time within 180 days; the rates were 4 per cent. up to 60 days, 4½ per cent. for 61 to 120 days, and 5 per cent. for 121 to 180 days. The question of setting aside a reserve fund was left to the discretion of the directors, whose number was increased to eighteen. The privilege of issuing bills payable on demand was granted for fifty years. The bank was to pay 70,000,000 livres to the Treasury and receive interest upon it at the rate of five per cent.; the interest being made a charge upon the total revenues of the State, and specifically upon those arising from farms of the general revenues.

Under pretext of furnishing to the public a sufficient guaranty for the circulating notes, amounting to 98,000,000 livres, these provisions placed substantially the whole capital of the Discount Bank in the hands of the Government, thus offering as security to its note-holders and depositors nothing but a credit already seriously impaired. Naturally, the first effect of the scheme was to involve the bank from the beginning in the ruin of the public finances. In the month of August, 1787, there broke forth suddenly a panic, caused mainly by the distrust engendered by this arrangement. Holders of the bills demanded their redemption, and 33,000,000 livres were paid out. Then, unfortunately, the Government felt called upon to interfere, and it drew up a decree making the notes a legal tender. The administrative council of the bank, which had not even been consulted, vigorously opposed the issuance of this decree; it was in position to pay all the outstanding bills from the proceeds of its loans as they fell due, and it demanded a return of the 70,000,000 livres deposited with the State, to meet current demands. The Government so far yielded to the just demands of the bank as to forego the promulgation of the decree suspending specie payments. It also turned over to the bank from its various collection bureaus all the money it could spare, but it did not return the 70,000,000 livres, because the whole of that sum had been used up long before.

Inasmuch as the note redemptions had never ceased, the bank soon regained the confidence of the public, but it did not retain it long. We have now reached the period at which, to use Taine’s phrase, “spontaneous anarchy broke forth.” The desperate condition of public finance bred new distrust of the bank’s solvency; another panic began among its bill-holders in August, 1788, and its cash reserve was reduced from 50,000,000 livres to Edition: current; Page: [37] 25,000,000. The Government had recourse once more, and again without consulting the managers of the bank, to the legal-tender expedient. A decree of the Council, bearing date of August 18th, was posted at the entrances of the building authorizing redemption of the bills in discounted commercial paper. The Discount Bank then had 19,000,000 livres in specie, which was sufficient for its needs, but the twofold object of the Government in making its notes a legal tender was to prevent its demanding a repayment of its 70,000,000 livres and to deprive it of any excuse for curtailing its discount operations. The situation of the Treasury constantly grew worse. Necker, recalled to the Ministry, frankly made known the situation of affairs to the directors of the Discount Bank, and declared to them that the public service would be brought to a standstill unless he could raise a loan of 15,000,000 livres. The exigency left no room for discussion, and the loan was made in bills guaranteed by Treasury bonds and the personal pledge of the King. This loan was frequently renewed. At the stockholders’ meeting of January 8, 1789, it was decided that the bank should make a further advance to the King of 25,000,000 livres. One of the first matters to which the National Assembly turned its attention was the condition of the Discount Bank. Mirabeau made a violent attack upon it in a pamphlet distributed among his colleagues in the Assembly on September 21, 1789. The bank found an advocate in Lavoisier, who contented himself with simply setting forth the actual condition of its assets and liabilities.

NECKER PROPOSES TO MAKE THE DISCOUNT BANK A NATIONAL BANK.

On November 16th following, Necker proposed to transform it into a national bank and to fix the limit of its issues at 240,000,000 livres. He thus supported his proposal:

“This institution has rendered services of the highest value to commerce, and the assistance which the public finances have derived from it for a long time has been very great and very sorely needed. No harm would have befallen the Discount Bank if the State had been in position to reimburse it at the stipulated dates, but a serious distrust of the Treasury having taken the place of the resources which a new state of things emboldened us to hope for, it has become impossible, without an increase of revenue, for us to fulfill our engagements with the Discount Bank, engagements which form part of the extraordinary demands of the present year. The situation of the Discount Bank is critical, not merely by reason of the loans it has made to the Government; in common with the Royal Treasury, and all branches of trade, and the whole of France, it feels the very serious inconveniences resulting from the unwonted scarcity of coin. * * * Let us take, now, a brief survey of the appalling difficultes we have to overcome. We must raise a loan of 170,000,000 livres, partly to meet the pressing necessities of the present year and partly to maintain the public service during the coming year, and we must raise this amount at a time of unqualified distrust. Then, we must uphold the structure of the Discount Bank, a structure now shattered and likely to fall. We must, if possible, furnish it with some new means of support; or, if we are ready to abandon that institution in spite of the intimate relations existing between it and the State’s interests, financial and other, in spite of our gratitude for the services it has rendered, then we have an even more difficult task before us—that, namely, of doing exact justice to the holders of its shares and bills.

“We must also provide for paying the rentes issued against the Hôtel de Ville, and devise Edition: current; Page: [38] within a limited period some plan for paying the arrears up to the beginning of the last half-year, at least, and for making future payments with the greatest promptness. Another object we must keep steadily in view is that of providing some means of escape from the disastrous effects of the present unusual scarcity of coin. I have given some thought to the very simple plan advocated by many persons for extricating ourselves from all our difficulties, that of issuing in the form of paper money, redeemable or not redeemable, such number of State bills as may be required, not merely for the needs of this year and next, but also for the payment of all arrears of interest or rentes, all balances owing by the various departments, and all those overdue claims upon which we have agreed to pay interest at the rate of five per cent. It is proposed that with these bills we shall redeem all those issued by the Discount Bank and pay off the debt of the State to the shareholders of that institution. In short, by a very extensive series of operations carried out along these lines we are to solve all our financial difficulties in a moment.”

Necker’s plan was to convert the Discount Bank into a national bank; to confer upon that institution a monopoly for a longer or shorter period; to place it under the management of men chosen by the shareholders and subject to the supervision of commissioners appointed by the National Assembly; and to authorize it to issue 240,000,000 livres in bills guaranteed by the State. The capital was to be increased by 50,000,000 livres and would then amount to 150,000,000; a loan of 170,000,000 livres was to be made to the State at four per cent. interest. This scheme was opposed by Mirabeau, and defended by Dupont de Nemours. In order that it might be in a position to decide between these opposite opinions, the National Assembly called for a report upon the matter, and this was made by the Duc du Châtelet on December 4th. The report sets forth the facts to which we have already called attention and declares that having once begun to advance money to the State, the bank could not refuse to make further loans except at the risk of causing a panic, which would ruin the State and destroy the value of the guaranty on which the bank relied. There was the less ground upon which to criticise its conduct, because it had not neglected the interests of commerce, even when it was doing most to aid the State. The report then shows the condition of the bank’s affairs as of November 22, 1789; which, briefly, was as follows:

ASSETS. LIVRES.
Debts due from the State 88,799,000
Cash and commercial paper 53,220,083
Loans on pledge 8,300,000
Loans to shareholders, who had individually advanced 25,000,000 livres to the Government 4,000,000
Mint receipts 1,875,888
Total assets 156,194,971
LIABILITIES. LIVRES.
Notes in circulation 112,882,880
Accounts current 8,999,708
Balance of various accounts 3,134,672
Total liabilities 125,017,260
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Thus it appears that the assets exceeded the liabilities by 31,177,711 livres. Its available capital was intact, but the 70,000,000 livres turned over to the State as security were in a very precarious situation.

The Duc du Châtelet adds to his report the following statements:

“From the years 1783 and 1787, years from which its present constitution dates, down to August 18, 1788, the Discount Bank always paid at sight on demand. On August 14, 1788, it held nearly 20,000,000 livres in coin against a circulation of 76,500,000 livres. On August 18, 1788, the day on which was issued the decree suspending specie payments, its specie lacked only 100,000 crowns of being equal to one-fourth of its outstanding bills. On September 1st, its situation was this: in spite of the decree of suspension, it had redeemed in the last ten days bills amounting to 9,890,000 livres; yet its cash reserve had decreased only 975,000 livres, and was 1,000,000 livres more than one-fourth of the outstanding bills.

“At the beginning of September, the bank, yielding to the importunities of the Minister and the King, made advances to the Government; in doing so, it departed both from the letter of its regulations and from the spirit of its institution by accepting long-term obligations, and loaning to the State, on the faith of these, the money of creditors to whom the bank was already bound, and this, too, in spite of the fact that redemption of its bills was going on slowly, at the rate of about 8 or 10 millions per month.

“Up to the month of July of that year, its specie was always above the limit at which its rules require it to suspend discount operations. After that date it felt itself obliged, while curtailing its discounts more and more, to continue them to a certain extent in order to ward off the shock to which commerce and the money market would have been exposed by a total suspension of discounts. To this extent it has deviated from its statutory obligations.

“You are now in a position to pass judgment upon the establishment, its conduct, and its present situation. It is for you to determine whether this judgment should be based upon a strict interpretation of the laws governing the bank, some of which it has manifestly disobeyed, or upon a due consideration of the stress of circumstances under which it acted, and the conspicuous benefits its loans have conferred, and are conferring still, upon the commonweal.”

Upon the reception of this report, Talleyrand, Bishop of Autun, delivered a remarkable address in which the proper business of a bank of issue and the limitations with which it should be surrounded are set forth with the greatest clearness. The theories advanced by Talleyrand are so sound that they have now become universally accepted, but at that time they were practically unknown, and comparatively few persons were capable even of understanding them. Talleyrand proposed that the project of a national bank be abandoned, and that the Discount Bank be allowed to continue in business and be gradually brought back to the principles upon which it was founded. Its loans to the State were to be returned at the rate of ten per cent. per annum.

PLAN ADOPTED BY THE NATIONAL ASSEMBLY.

After a violent discussion, the National Assembly adopted a plan the basis of which was that the Discount Bank should advance 80,000,000 livres of its bills to the Government and that the Government should sell church lands to the extent of 400,000,000 livres in order to provide for all its debts to the bank. From the moment this decision became effective the doom of the Discount Bank was sealed. Decrees of December 19 and 21, 1789, provided for the issuance of “assignats” (a form of paper money issued against Edition: current; Page: [40] the lands of the clergy), and made them legal tender. The amount which the bank had advanced to the Treasury in the form of its own notes was repaid in these assignats, but this did not prevent the State from afterward borrowing of it 70,000,000 in three loans. The institution barely managed to keep itself alive in the midst of a general stagnation of business and the increasing anarchy in political affairs.

THE COMMITTEE OF PUBLIC SAFETY EXTINGUISHES THE BANK.

On June 13, 1793, when the French people had become a prey to unreasoning madness, a decree of the Committee of Public Safety directed a member of the Convention, clothed for this purpose with the most absolute powers, to seek out such frauds as might have been committed by the Discount Bank in its dealings with the public treasury. This, says Laffon Ladébat, was the odious prelude to its extinction; the custom then was first to brand with disgrace the thing to be destroyed. Finally, on August 4, 1793, the Convention voted the suppression of the Discount Bank, and ordered it to pay on demand the 19,000,000 livres held by it in accounts current; to pay, in several installments, 905 livres tournois in assignats upon each of its 29,000 shares, and the balance, if any, in State rentes. Thus the Discount Bank was destined to extinction amidst the throes of a popular uprising, as many another useful institution has perished; for demagogism has an instinctive hatred of all credit institutions, understanding none of them, and seeing in them all nothing but instruments of speculation and fraud. And yet the Discount Bank, while it was guilty of weakness in its dealings with the State, was never false to its true mission, and was managed with scrupulous honesty. The following is a statement of the accounts of the Discount Bank at the close of each year, in millions and hundreds of thousands of livres:

YEARS. Annual Discounts. Circulation. Accounts Current. Cash on Hand. Dividends Per Cent.
1777 20.0 0.3 0.5 0.5 5⅙
1778 58.0 3.8 3.4 2.4 5⅓
1779 81.1 5.3 4.3 1.6 5⅚
1780 94.0 13.4 2.8 5.3 6⅔
1781 151.5 20.6 4.5 6.9 7⅙
1782 204.1 27.0 6.3 10.6 8
1783 259.9 21.1 8.3 22.2 4⅕
1784 242.1 69.4 6.5 37.6 9⅓
1785 341.2 73.3 7.2 28.2 13⅓
1786 394.6 99.2 11.1 41.3 15⅓
1787 493.6 88.9 7.2 47.1 12⅓
1788 483.9 72.8 6.0 31.3
1789 503.3 128.1 8.7 5.2 5⅜
1790 248.3 102.3 3.8 6.1
1791 238.3 23.7 7.5 19.2 5⅓
1792 328.7 8.8 18.3 38.8 6
1793 58.5 2.0 19.5 24.9
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LA CAISSE DES COMPTES COURANTS.

When the revolutionary madness had abated, a need of credit institutions made itself felt once more. On the 11th Messidor, Year IV (June 29, 1796), Augustin Monneron, a merchant who had grown rich in the colonial trade, founded a share bank under the name of the “Caisse des Comptes Courants” (Bank of Accounts Current), to discount commercial paper, receive deposits, and issue bills. This bank suffered a very serious loss through the defalcation of Monneron. As soon as the theft became known, the company declared its dissolution, and then reorganized on the same day. Its existence was always precarious; it discounted hardly any paper except that of its shareholders; and it would have no interest for us except for the fact that it has been called, but erroneously, the original of the Bank of France. The truth is, that the Bank of France could very well have begun its business in competition with the Caisse des Comptes Courants, but a fear of unsettling the money markets by dividing up their resources moved the managers of the Bank to direct their best efforts toward a consolidation of the two institutions, whose rivalry might have been a source of danger. The advantages of consolidation were realized by the shareholders of the Caisse des Comptes Courants, and they voted for it. At the time of the consolidation, the Caisse des Comptes Courants had, either outstanding or held in reserve, bills aggregating 20,780,327.20 francs, the bills being expressed in terms of livres tournois. These constituted the circulation of the Bank until it could make arrangements to put out an issue of its own. The Bank established its offices in the building of the Caisse des Comptes Courants, and took over all of its employees.

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CHAPTER IV.: ASSIGNATS—THE BASIS OF THEIR ISSUE.

WHILE assignats have no immediate connection with questions of banking, they have played such a conspicuous part in the national economy of France, and their history is so full of instruction for any government that may be tempted to tamper with its monetary affairs, that it is impossible to omit all mention of them from a work intended to throw light upon problems of banking and credit.

In 1789, the clergy of France were in possession of immense estates granted to them as gratuities by princes, or demised to them by the faithful. The properties were devoted to the maintenance of religion and to institutions of charity and instruction. The National Assembly, on motion of Talleyrand, then Bishop of Autun, decided that it was the business of the State to attend to all those public duties to which the possessions of the clergy were devoted, and to employ the priests on salary, and that thereafter all ecclesiastical property should be placed at the disposal of the nation. It was, however, a very difficult matter to determine the best manner of realizing upon such an enormous mass of property. Evidently, to put it all on sale at once would be to destroy its market value. The venerable President of the Assembly, Bailly, destined to so sad an end, proposed, in behalf of the city of Paris, that the property be turned over to the municipalities, which should purchase it as a whole and then sell it from time to time in small lots. The municipalities would undertake to pay at fixed dates, and the creditors of the State could be paid with the communal bonds. This was the first suggestion of assignats. The National Assembly, very deeply impressed with the scarcity of money, ordered the sale of 400,000,000 francs’ worth of ecclesiastical and crown property, and in September (17-21), 1789, determined upon the formation of a special Treasury Department, under the auspices of which assignats were issued, bearing interest at five per cent.

The assignats were accepted in preference to other forms of money in the Edition: current; Page: [43] sale of the properties, and they were to be redeemed with the product of the sales and other extraordinary income at the rate of 120,000,000 francs in 1791, 100,000,000 francs in 1792, 80,000,000 francs in 1793 and 1794, and the remainder in 1795. On April 15, 1790, the interest rate was reduced to three per cent.; the assignats were made a legal tender between individuals, and all public departments were directed to accept them as the equivalent of specie. Interest was reckoned by the day, and, at the end of the year, the holder of the assignat could collect the whole of the interest at the special Treasury Department. As security for their payment, the assignats were made a lien upon all national property and the income derived from it. Up to this point, the assignat appears as a species of mortgage obligation such as are common in all countries, but very soon it became a regular form of paper money, the interest being suppressed and the paper made non-convertible.

OVER-ISSUES—THEN DEPRECIATION.

The first issue had been well received by the public; a second soon followed, and it, in turn, was succeeded by so many others that in a report to the Convention, made on February 3, 1793, Cambon places the total issue at 3,067,000,000 francs, of which 682,000,000 francs had been canceled, leaving 2,385,000,000 francs then outstanding.

Perverted from their original nature of mortgage bonds, and issued with extravagant frequency, the notes depreciated day by day. The Revolution, accustomed to violent methods, thought to sustain its paper money by forcible means. On April 11, 1793, in spite of the opposition of the Girondins, the Convention provided a penalty of six years’ imprisonment for all sellers of coin—for all persons, that is to say—who should exchange a given amount of gold or silver for a nominally greater amount of assignats. They were liable to the same penalty who should sell their goods at one price in assignats and at another in coin. “These measures,” says Thiers (“Histoire de la Révolution”), “did not prevent the difference between the values of the two forms of money from increasing with great rapidity. In June, 1793, a specie franc was worth three francs in assignats, and in August one silver franc was worth six francs in assignats.” In such a state of affairs, merchants refused to sell their goods at former prices; they locked them up and refused them to buyers. Of course, this depreciation of the assignats would have been a matter of no consequence if everybody, taking them at their current value, had accepted them and paid them out at the same rate; but capitalists living upon their income, and State creditors in receipt either of yearly interest or the salary of an office, were compelled to accept the paper at its nominal value. All debtors made haste to settle the claims against them, and creditors, forced to receive a fictitious form of money, got only a fourth, or a fifth, or a sixth part of what was due them. Finally, the working-people, unable to combine and force up their wages as assignats went Edition: current; Page: [44] down, found that they were not getting money enough to buy the actual necessaries of life. Capitalists were discontented and moody, and the common people, ignorant of the fact that all their troubles arose from a defective monetary system, rose against the merchants, calling them engrossers and demanding that they be sent to the guillotine.

“THE MAXIMUM.”

The Convention, finding itself overwhelmed with petitions, adopted the ridiculous measure known as the “Maximum.” On May 3, 1793, it issued a decree requiring every merchant or producer of grain or flour to declare how much he had on hand. All were forbidden to sell except in the public markets, and the administrative officers were authorized to see that the required amount was offered in each market. In order to fix the maximum price of grain, the directories of the various districts were required to send to the departmental directories the prices of grain from January 1 to May 17, 1793, and the average of the prices between these dates was to be the maximum at which sales could be made; this was to be decreased by one-tenth each month from June 1st to September 1st. As the maximum was not the same in different markets, and as those in which it was highest would naturally attract grain from the others, the Convention, on September 4, 1793, adopted for the whole of France a single maximum of fourteen livres per quintal of wheat. The adoption of a wheat maximum involved the necessity of fixing a maximum for all other articles of merchandise, and for wages. In spite of the fearful penalties denounced against all who should trade in disregard of the Maximum, the law seems never to have been fully executed. But its effects were none the less disastrous. Farmers sold their products stealthily to those who were willing to pay in specie; the amount of grain, flour, and provisions brought to market decreased day by day; shopkeepers were bankrupted and went out of business; manufacturing establishments closed down, and Cambon said—with some degree of exaggeration, however—“I regard the ‘Maximum’ law as the sole source of our misfortunes.”

By the beginning of 1794, the issues of assignats had aggregated nearly 8,000,000,000 francs, of which 2,464,000,000 francs had come back into the Treasury and been destroyed; nevertheless, the Convention voted an issue of another 1,000,000,000 francs, in denominations varying between 10 sous and 100 francs, making a net total of 5,536,000,000 francs. After the repeal of the law of maximum, and the cessation of the despotic measures to which it had given rise, prices, left to seek their proper level, rose to the most extraordinary quotations; the depreciation of paper money showed itself in a tremendous rise in exchange, and assignats became the subjects of the wildest speculation, which caused their value to fluctuate widely from moment to moment.

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ATTEMPTS TO RESTORE THE VALUE OF THE NOTES.

The Convention determined to increase the value of the paper money; there was no way to accomplish this except by reducing the quantity, and a number of schemes for making this reduction, each more visionary than the others, had been examined, when a member of the Convention, Bourdon (de l’Oise), though he was a man wholly ignorant of financial affairs, and notable chiefly for his drunkenness, hit upon a very feasible plan of escape from the trouble. He proposed to sell the national property; but instead of offering it at auction, which would have depreciated the paper money still more—for everyone would think himself fortunate to be able to exchange any quantity of worthless assignats for real estate having an actual value—he proposed that the lands be deeded to anyone who should offer for them in assignats three times as much as they were worth in 1790. This plan would inevitably have increased the value of the assignats, for as long as they were exchangeable on demand for a definite quantity of real estate they could not fall to zero. Under this plan, the national lands would have been sold at a very low price; but the Government had been paid in advance, since it had settled all the debts of the State with the paper money. If Burdon’s plan had been carried out in its entirety, all the assignats would have returned to the Treasury, and the national lands, delivered up to industrial uses, would have become productive. The scheme was tried upon a small scale, and the eagerness with which the public put in their bids showed how successful the project was likely to be; but, unfortunately, there were a large number of Deputies who could see nothing in it but a loss, and they declared that the property of the Republic was being squandered. A combination was formed among various members of the Convention and the law was repealed. After having caught a glimpse of a method by which the troubles might have been ended, they abandoned it and fell back again into the appalling misery from which they might so easily have escaped.

However, if no effort was to be made to raise the value of the assignats, it was impossible to maintain the ruinous fiction of nominal value, which was bankrupting all who accepted payment in paper. A scale was finally established in accordance with which the assignat was to be reduced to its actual value. Beginning with the time when there were only 2,000,000,000 francs in circulation, it was decided that the paper should lose one-fourth of its value for each 500,000,000 francs added thereto. The Government did not venture to make this reduction applicable in all transactions, but it was applied in all tax collections; thus there was a return to the financial methods of King John the Good, who debased the coinage but required that all royal revenues be paid in coins of full weight and fineness.

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ISSUES UNDER THE DIRECTORY.

The financial disorders were growing more serious. The Directory, successor of the Convention, was guilty of even greater abuses in its dealings with paper money. Between the 5th Brumaire and the 30th Pluviose, Year IV, there were issued more than 20,000,000,000 francs of new assignats. In Nivose, 1795, the issue reached 30,000,000,000 francs, and by February 19, 1796, it had risen to the ridiculous figure of 45,500,000,000 francs, not including the counterfeit assignats made by England on the Island of Jersey and introduced into France through La Vendée and Brittany. Out of this total issue, about 20,000,000,000 francs were in the hands of the public. A law of Nivose, Year IV, set a limit to the emission by providing that the plates should be destroyed whenever the circulation should amount to 40,000,000,000 francs.

THE ASSIGNATS CONVERTED INTO MANDATS.

As a result of various payments to the Treasury, the assignats were reduced to 36,000,000,000 francs, and later to 24,000,000,000 francs, and this latter amount was made convertible into 800,000,000 francs of land warrants (mandats territorians). These land warrants, the total issue of which amounted to 2,400,000,000 francs, were a new kind of paper money, constituting a mortgage and preferred claim against all the lands of the Republic, except national forests of greater extent than 300 arpents (about 275 acres), and buildings and other structures devoted to public use. The mandats were no better esteemed by the public than the assignats had been, and were at a discount of eighty-two per cent. on the day of their issue. Nevertheless, they were better than assignats, because the holder could acquire national property in exchange for them without bidding against other holders. Their issuance, accordingly, was a return to the plan formerly proposed by Bourdon. But the public took no note of the difference; and the new paper depreciated to such an extent that the Directory, to avoid the necessity of practically giving away the national lands, was compelled to order that the warrants be accepted in payments at their value on the day of the contract. By 1796 the warrants had lost ninety-nine per cent. of their value; they were withdrawn from circulation on March 21, 1797, and finally annulled a few months later.

State creditors had been receiving their dues in assignats and other warrants, and their income had now been reduced to zero; but they could still delude themselves with the belief that their capital was intact. In the year VI, the Directory shattered even this source of consolation. Under pretence of adjusting the debt to the State’s resources, they reduced the rentes inscribed in the great book of the public debt by two-thirds, and named the remainder the “Consolidated Third.”

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Thus, the issue of State paper money ended in bankruptcy after bringing untold evils upon the State. The memory of the assignats is not yet effaced from the minds of the French people, and “assignats” is the name they give to all irredeemable paper.

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CHAPTER V.: THE BANK OF FRANCE.

SECTION I.: ORIGIN OF THE BANK.

FRANCE has had a peculiar experience with banks of issue. On the one hand she has suffered from all that is worst, and on the other has enjoyed all that is very advantageous, in such institutions. The first French bank of issue was a creation of Law’s, and was established to dispose of all the financial embarrassments transmitted by Louis XIV. to his successor. It would undoubtedly have achieved its purpose had its founder possessed a better understanding of the nature of credit and its limitations. The lack of such understanding, and the lack, likewise, of that delicacy of management which is an indispensable requirement when matters of public confidence are at stake, caused Law’s bank—known as the Royal Bank—to go to pieces in circumstances of terrible catastrophe; and in consequence the very name bank came into such disrepute among Frenchmen that it needed the lapse of almost a century and the exercise of all the authority of the First Consul before another institution of like privileges, and styled the Bank of France, could be erected.

The absence of a central credit establishment had made itself severely felt during the closing years of the monarchy. The archives of the Ministry of the States-General show that, in 1788, much clamor had arisen for the introduction of banks on the plan of the Bank of England. But the Revolution supervened, concerns of greater moment absorbed attention, and neither the Constituent Assembly nor the Convention had leisure to take up the details of bank organization. Indeed, by an act of 1793, proposed by Cambon, a bank of issue, known as the “Discount Bank” (Caisse d’Escompte), which had been in existence since 1776, was extinguished. Edition: current; Page: [49] After the evil days of the Revolution, Government banking devices again received consideration.

PLANS FOR THE CREATION OF A GREAT BANK IN 1796.

In the archives of the Bank of France are preserved manuscript documents of the year 1796, comprising the carefully studied schemes of the most eminent financiers of the period for the creation of a solid and controlling institution. We reproduce below the complete text of the minutes of meetings held by the projectors, never before published. This scheme was without immediate issue, because of the financial difficulties of the times, but it was taken under consideration again in 1799 and 1800, and resulted in the creation of the Bank of France. It is therefore the genuine original plan of that institution. The following is a copy of the minutes of the committee having this effort in hand:

First Meeting, 11th Nivose, Year IV (January 1, 1796)—At a meeting of the subscribers having in contemplation the establishment of a bank, Citizen Laffon Ladébat stated the objects of their assembling, and proposed that a committee be appointed, with duties as follows:

“(1) To formulate by-laws for the bank and the plan of organization of its management and offices; (2) to obtain and expeditiously forward subscriptions; and (3) to select a suitable building for the establishment. At the suggestion of a subscriber, the question of choosing a name for the establishment was discussed. This question was committed for consideration to the committee to be formed. The subscribers assembled appointed, as the committee, Citizens Le Couteulx, Laffon, Terier, Fulchiron and Foacier, and instructed them as follows: (1) To deliberate as to the most suitable name for the establishment; (2) to prepare by-laws and the plan of organization of the offices; (3) to obtain and expeditiously forward subscriptions; (4) to select a suitable building and report whether it is preferable to purchase or to rent it; and (5) to write to the Minister of Finance and advise him of the formation of the committee and the measures taken to set the establishment on a working basis.

Second Meeting, 17th Pluviose, Year IV (February 6, 1796).—The subscribers contemplating the establishment of a bank, met in the house for the liquidation of the New India Company on the 17th Pluviose, Year IV, at six o’clock p. m. The meeting was presided over by Citizen Le Couteulx Couteleu. Citizen Laffon Ladébat, secretary of the committee appointed for the organization of the bank, submitted the following report: ‘Citizens—The committee appointed for the organization of the bank has not neglected the important matters intrusted to its care. Its first step was to inform the Minister of Finance of the proceedings of the meeting of the original subscribers. I submit the reply of the Minister:

Faypoult, M.
Faypoult, M.
12th Nivose, Year IV
Paris

“ ‘The Minister of Finance to the Citizen Laffon Ladébat, Member of the State Council:

“ ‘Citizen

I have received the letter wherein you advise me that the subscribers to the proposed bank met yesterday and formed a committee charged with the organization of the establishment. This morning I read your communication to the Directory. It expressed its satisfaction on learning that the banking and commercial houses join themselves in an association that will exercise a powerful influence on the public credit. It has explicitly directed me, Citizen, to write and assure the organizers of the bank that they may rely upon the most complete independence in its transactions; that this independence shall and can have no other restrictions than those prescribed by law with regard to all citizens; that the Directory will watch the progress of the establishment with interest, and that it entertains no doubt of the patriotism that animates the management. I shall be obliged to you, Citizen, if you will advise me at the time when the bank shall have completed Edition: current; Page: [50] its organization. It is important that it enter into activity without delay. The number of subscribers cannot but increase when the first transactions become known.

“ ‘Welfare and fraternity,
“ ‘Faypoult.

“This response left no doubt respecting the intentions of the Government, but the emergencies of the forced loan retarded subscriptions. It was, moreover, needful that public opinion, somewhat slow to shape itself, should take the proper attitude concerning certain particular opinions that have been publicly expressed in relation to banking associations. Such are the reasons that have prolonged the work of your committee. But now the advanced stage of the forced loan, the latest steps that have been taken to facilitate its payment, the very pronounced voice of public opinion and the Government in favor of the establishment of the bank, and the consideration of public welfare, demanding concurrence of all instrumentalities and all sympathies for the restoration of public credit, the reassertion of confidence and the reanimation of commerce and industry, are so many strenuous persuasives for putting the bank into operation. It is not in order for us, in this enterprise, to confine ourselves to a special association seeking mere special benefits. It is important for our country at the present juncture that a great association should bring into reciprocal relationship the interests of the nation and those of all good citizens. Individual interests, directed with experience, probity, and love of country, must work in unison with the public interests. Such national wealth as is still in existence must be wrenched from the clutches of speculative cupidity, and preserved from the extravagances of ignorance and the destructive influences of bad faith. We must make up for the dearth of coin, which enfeebles the circulation and raises the price of necessaries above the normal limits.

“These are a few suggestions of the high duties that the bank will have before it from the outset of the organization. The revolutionary anarchy designed to shatter the fabric of social order and do away with it. The terror of the danger agitates us still. Honesty, courage, true patriotism, and liberty must give us recovery from our misfortunes, strengthen our institutions, save the State.

“We have already indicated that banking establishments are the sole trustworthy agencies, after protracted political disorders, for imparting to commerce, manufactures, and the arts the impulse so necessary to promote anew the public prosperity and the individual welfare of the people. Banking establishments have been the cradle of all modern republics. They have laid the foundations of the wealth of Holland, of England, of Venice and Genoa, and they are now developing the riches of the United States of America. They have even rescued the finances of Denmark, Prussia, and Spain. Never could Holland, with her scant population of but two millions of souls and her sterile soil, have created in the two Indies those profitable colonies that give her so much weight in the political system of Europe; never could she have acquired her decided superiority over all other trading nations if she had not created a bank, which, in all circumstances of difficulty, has placed exhaustless resources at the disposal of both citizens and State. Three thousand merchants in the city of Amsterdam could never have been able, with all their collective wealth, to fulfill the requirements of the rapid movements of commerce, or even to effect its payments, if the bank had not provided them the resources by its ingenious operations. To their bank the Dutch are indebted for their astonishing activities; their enterprises, which border on the marvelous; their successes in the long and stubborn wars that they have waged; their naval victories, and, finally, their colonial possessions, which, when contrasted with the mediocre means that nature granted them, compel a high admiration for them and their energy; and consequently for a long time the balance of trade was directly in favor of the Dutch republic.

“A century ago, England was hardly able to sustain a population of ten millions, and produced few articles of export apart from metals. Suddenly, this ambitious nation, by the aid of a bank, rose above the obscure station to which she had apparently been assigned. A complication that plunged the Government into difficulty gave origin to that useful institution, the bank. During the reign of William III., a loan was proposed and rejected. Thereupon, a happy genius conceived a plan for a bank as a means of salvation. His scheme was approved and carried into execution, and during the first ten years the Government supplied to him the funds required to Edition: current; Page: [51] make it prosper. Since that time, England has advanced rapidly along the highway of national success. Her agricultural facilities have been perfected, enlarged, and made increasingly productive; her manufactures have multiplied; her industry has achieved wonders; her trade has taken prodigious strides, and in a brief period their country, which formerly played only a minor part, has come to be an exporter of all the products of the globe. She has covered the ocean with her merchant vessels, and her navies have obtained authority for her flag in the two hemispheres.

“Prussia offers very striking evidence of the benefits that come from a bank such as we recommend to you. After the long and exhausting wars that Frederick maintained single-handed against several powers, with a people at that time numbering only six millions and revenues of comparative meagreness, that prince, in 1763, found himself so distressed that he could no longer meet his obligations, although he employed the credit of his most responsible bankers and merchants. The painful situation caused a general disturbance in the fortunes of his subjects and of foreigners who had furnished them with capital and given them credit. Various projects were presented to Frederick—each as the sole practicable one. His piercing genius quickly selected from so many proposals that of a bank. He saw how far superior that plan was to all others suggested because of its simplicity, and above all, the advantages it offered for procuring ample and immediate resources for rebuilding individual fortunes and for putting a stop to the scandalous jobbings and speculations which demoralized all classes of society. It impressed him so much that, despite his reputation as an extremely parsimonious economist, he rewarded the author with a gratuity of 200,000 frederic d’or. He organized the bank, and his hopes were not deceived. The paralyzed finances recovered their vigor, trade revived, usury vanished, and the Treasury once more gave him the wherewithal to defend the rights of his people against the aggrandizements of his neighbors. The blessings that Italy, Denmark, Sweden, and Scotland have derived from banks are familiarly known; and it remains to develop the details for carrying out your purposes.

“The Caisse d’Escompte (Discount Bank) maintained the finances of France for a period of years, but its resources were continually deranged by the incapacity or despotism of the Ministers, and finally it fell under the Revolutionary axe. Its books are still extant, showing its transactions and its credit. Its success cannot be questioned; and only a larger sphere was required to assure for the Republic what the circumstances demanded. Your committee was already well acquainted with the methods and regulations of the Caisse d’Escompte, but has subjected them to renewed examination and consideration. We are of opinion that you should at this time confine yourselves to adopting them, and that experience justifies that view. The management which you will institute can very soon determine what modifications or changes will be expedient. We have pointed out that the bank will have for its fundamental function the rescue of public credit, whereupon the strength of the State depends. The Government, thoroughly recognizing this, contemplates assigning to the bank a large share of the national funds which the acts of the legislative body authorize it to dispose of, and even several departments of the revenues, provided the interests of the service justify that procedure.

“Thus equipped, the bank could undertake to supply the Government monthly with a volume of sight notes, or bills at successive maturities. In no event should the aggregate exceed half the values paid into the bank. The bank would be intrusted with sales of national domains transferred for a commission to be agreed upon, and would render account to the Treasury. The Government will, moreover, agree to furnish in assignats (scrip) or other values adequate funds for facilitating the transactions of the first months. Finally, the co-operation of all good citizens in its organization will be invited by a proclamation of the Directory decreeing the independence of the bank, and declaring that it is the firm resolve of the Government to have property respected and to re-establish credit, industry, and commerce.

“This, citizens, is an outline of the important institution that you are to found, and your conspicuous patriotism is a perfect guaranty of your eagerness and zeal for the realization of your aims. Your committee has considered a question arising from the fundamental plan submitted to you.

“It has been found that injury might be wrought to the interests of new subscriptions if the limited advantages conceded to the shareholders of the Caisse d’Escompte should be reproduced. The desire to bring into association in their establishment citizens with experience in banking, as Edition: current; Page: [52] well as citizens who have manifested much devotion to public affairs, indicated for us the proper conditions. But the committee has concluded that all interests would be served by allowing new subscribers at first an assured interest of two per cent. semi-annually. On the other hand, the shareholders of the Caisse d’Escompte received only interest at the Treasury rate. The dividends of extra profits should be distributed in common to the two classes [i. e., the old shareholders of the Caisse d’Escompte and the new subscribers], each share of the Caisse d’Escompte to be valued at five shares of the bank, and, in addition, the old shareholders to pay in 200 livres in coin for every Caisse d’Escompte share, or 40 livres for every share of the bank.*

“The building that has appeared to us most suitable for the establishment is that which the Quartier Général now occupies, but will shortly have to vacate. The property has the advantage of being adjacent to large plots, which may be purchased by the bank and will accommodate the buildings necessary for the manufacture of assignats and also of bank notes. The Minister of Finance will see that the edifice in question is placed at your disposal as soon as possible. All the large transactions of the bank will be conducted by the ingenious method of accounts current. Accordingly, the Government will be credited at the start with half the value of property that it transfers to the bank, and with the full value of everything readily disposable at current value. As sales progress, the full value of property sold by the bank will be credited to the Government, less the half value so credited already and a commission to be agreed upon. Every item of service done for the account of the Government will be carried on its account, or ledger, page, so that at any time the position of the bank in relation to the Government can be determined. Every individual will be given opportunity to obtain credit of the same character, and to draw upon his account with the bank in its entirety.

“The notes of the bank will be used only to balance differences or to pay for small transactions with citizens having no regular accounts in the bank. Thus, with a large issue of notes, we may put into circulation almost all private and public values which require a circulating medium for the interests of the public service or the trade of the nation. From the information gathered regarding some details of the manufacture of assignats, it may be stated that notes could be ready within fifteen to twenty days.

“The bank could undertake the creation of auxiliary institutions in the principal cities of the Republic, and act in concert with them as to ways for facilitating services for the Government and commerce. I can give only an indication of the chief objects of so vast an organization. We must rely upon the management to project and formulate the details, deliberate upon them, and put them into effective operation. You will realize the full importance of the duties intrusted to you; which, for their execution, demand experience, prudence, and conscientiousness on the part of your management. It is necessary that the very names of the persons to be identified with the management shall justify the confidence which you will require, that such confidence shall be complete and absolute, so that no obstacles shall stand in the way of the establishment. I should deem myself fortunate to be able to propose, for the responsible business of organization, the selection of citizens who have already rendered meritorious services to the Caisse d’Escompte, who have been constantly identified with its affairs, and who possess the public esteem and confidence. Never has an institution of this kind been inaugurated with more ample means, and never has confidence—which your enterprise certainly merits—been more requisite. The public welfare depends upon a new birth of credit, which you can bring to pass. Renewed enjoyment of the blessings of peace awaits only the restoration of order. Could larger inducements possibly be offered to engage your aspirations? Duly consider your own interests and those of the whole Republic in estimating Edition: current; Page: [53] the advantages derivable from your association, and there can be no doubt of its rapid development and success, and you will have valuably served the nation.”

After the report had been read, Citizen Laffon Ladébat submitted the following letter, which had just been received from the Minister of Finance:

Faypoult, M.
Faypoult, M.
17th Pluviose, Year IV
Paris

The Minister of Finance to the Citizen Laffon Ladébat, Representative of the People:

Citizen

I have read to the Executive Directory your letter of the day before yesterday.

“The Directory has with interest learned of your efforts to promote the organization of the bank. It recognizes how serviceable the proposed institution would be to the interests of the Republic in general and to the public credit in particular. Surely no one’s unmindful of the critical position to which commercial houses formerly holding the highest rank are now reduced, or of the untoward influence of our embarrassed circumstances, rendering the most delicate trade operations uncertain and profitless. No important enterprise can be attempted, even if entered upon courageously, without exposure to numberless vexations and perils. These are truths that cannot escape the observation of anyone with eyes to see. There is but one means of relief from such extraordinary troubles for a nation rich in territory, manufactures, industry, and personal property of every kind. We need harmonious co-operation by all citizens of note for the renewal of trade on a scale of some magnitude. It is essential that they give their credit and their strength a threefold power by aggregating them in an imposing association with a great volume of investments and shares. Your previous letters have informed me that the foundations for such an association have been laid. I desire to encourage you to give it all the scope possible.

“You have very properly suggested that a means for assuring the immediate brilliant success of the institution and placing its transactions on a solid basis, would be the assignment to its care of national property whose value would serve to lend it a great credit. I attach to this letter a statement of the properties that the Government has at its disposal, and that can be negotiated through the bank. This statement, which includes none of the taxes of the Republic and only 30,000,000 livres of forced loan assessments, shows a total of 883,000,000 livres (fiancs). You will not omit to notice, moreover, that it comprises none of the national property whose sale is suspended until the 1st Prairial, and whose value, based on information received from all the departments, was estimated at 2,600,000,000 in my last report to the Executive Directory. The list does not even take into account the Belgian properties. These two observations will suffice to demonstrate to your association what enormous values the Republic has in its possession.

“It would be desirable to have the bank perform a regular service for the Government, reaching monthly 25,000,000 livres in coin or in circulating media equivalent to coin. The bank would be authorized to effect all sales for a commission to be agreed upon, and would reimburse itself out of the products of sales in a measure corresponding to the amounts realized. It is my expectation that the building in the Rue Neuve des Capucines will be vacated in the next ten days. It will be necessary for the management of the bank to consider what arrangement should be effected between itself and the Government for that building. Finally, Citizen, a day may be appointed upon which we can go together to inspect the system of manufacture of the assignats at the printing establishment, with a view to the practical purposes of the bank.

“From the foregoing, Citizen, you will perceive that the Government has a genuine desire to have the bank occupy a broad sphere, since all that I communicate to you is on behalf of the Directory. You should adopt and publish by-laws for the establishment. You are authorized to utilize the particulars of the Directory’s sanction for strengthening the confidence of your shareholders and increasing their number. I trust your answer will inform me of the steps taken at to-night’s meeting. I shall communicate it promptly to the Directory.

“Welfare and fraternity,
Faypoult.

After this had been read, the president put to vote the following resolutions prepared by the committee:

Edition: current; Page: [54]

“The undersigned citizens, animated by a desire to re-establish public credit and to revive industry and trade, have resolved:

1. To form an association under the name of a bank, each engaging himself for the number of shares that he subscribes for personally.

2. That the bank’s shares shall be of 600 francs actual value, payable as follows: 200 francs when the establishment is opened for cash business, 200 francs in six months, 200 francs in a year.

“The 200 francs of the first installment may be paid in French money or foreign money reduced to the French standard, gold or silver, or in paper on foreign countries, or current scrip. The 400 francs on time shall be secured by written obligations signed by the holders of shares, to bear interest at five per cent. a year. The bank will allow a bonus of one per cent. to subscribers who wish to make immediate payment of their time obligations.

3. That the shareholders of the Caisse d’Escompte whose names are on the liquidation registers and who are still interested therein shall be admitted to this association on the basis of five shares for each share of the Caisse d’Escompte whose value shall be transferred to the bank, with six months’ running interest to be taken into account. In consideration of this advantage, the shareholders of the Caisse d’Escompte shall pay to the bank, upon its opening, 200 livres for each share of the Caisse d’Escompte.

4. That the division of profits shall take place as follows: The subscribers to the bank will receive a two-per-cent half-yearly interest, and the old shareholders of the Caisse d’Escompte will receive the six months’ interest paid by the National Treasury for account of their investments. The balance of the bank’s profits will form a dividend in which both classes will be entitled to share.

5. That the bank shall issue sight notes and notes to bearer or on terms such as may be necessary for its service; but these notes shall never be in excess of the realizable values corresponding to them when due.

6. That the council shall be composed of ten administrators and a director-general. The present meeting postpones nominations until the meeting to be held on the 19th of this month.

7. That the subscribers empower the council to enter into an arrangement with the Government prescribing that in no event shall the obligations of the bank exceed half the actual values that may be committed to it.

8. That the council be empowered to organize all the departments of the establishment and determine the form and mode of issue or registration of shares, the issuance of circulating notes, the opening of current accounts, and the details of cash service, discounts, bank credits on deposit (both general and special), and bookkeeping for each branch. The council is authorized to make all the rules relative to these different departments of the management, and to put them into effect. These rules shall be printed and sent to every shareholder having a deliberative vote.

9. That the ownership of twenty shares shall entitle the holder to a vote in the general meetings of the bank.

10. That the council shall call a general meeting every month, at which it shall render a report on the condition of the establishment. It may call other meetings when it deems them necessary.

11. That, upon demand of fifty shareholders entitled to deliberative votes, the council shall call a general meeting, to be held within ten days.

12. That each day a daily balance-sheet of the establishment shall be made up.

“The undersigned subscribers have adopted the above resolutions and the plan which has been read to them.”

The meeting ordered that the plan and the resolutions should be printed, and that at the next meeting all the citizens assembled at the present meeting should be entitled to cast deliberative votes.

Third Meeting, 19th Pluviose, Year IV (February 8, 1796.)—In conformity with resolutions adopted at the last meeting, the shareholders of the bank assembled. Citizen Le Conteulx de Canteleu presided.

“The minutes were read, and then a ballot was taken for the nomination of the council of Edition: current; Page: [55] administration. It showed the election of the following-named citizens: Falchiron, 64 votes; Le Couteulx Couteleu, 57; Augustin Monneron, 53; Perregaux, 49; Parat de Chalandry, 45; Marigneu père, 45; Le Boun, 40; Foacier, 39. Each received an absolute majority, 77 votes being cast. Citizen Laffon Labédat received 75 votes for director-general. Citizen Le Boun refused to serve as one of the administrators. The meeting then proceeded to select three more administrators to complete the council of ten, and to designate others who should replace any administrators already chosen who might decline. The second ballot resulted in the choice, as administrators, of: Maciet, 42 votes; Perier, 39; Johannot, 32. Those having the next largest votes were: Citizen Jean Baptiste Dangirard, 17 votes; Cannet, 16. In cases of resignation or non-acceptance these latter are to become administrators.

“Done and adopted at Paris, the 19th Pluviose, Year IV (February 8, 1796).”

Here follow thirty-six signatures.

BONAPARTE’S INITIATION OF A PLAN.

Soon after Bonaparte’s coup d’état of the 18th Brumaire, whereby he became First Consul, he devoted painstaking thought to the financial condition of France, and personally studied the mechanism of banking. He fortified himself with the counsels of the men who had contributed to the projects of 1796. His special adviser was M. Mollien, whom he afterward appointed Minister of the Public Treasury (Ministre du Trésor Public), and whom he retained in that office throughout the entire duration of the Empire. The practical result of these preparations was the compilation of the original constitution of the Bank of France, a most remarkable work. Its preface, edited by Bonaparte’s own hand, is as follows:

“The undersigned, having in consideration that, as an unavoidable consequence of the French Revolution and of a long and expensive war, the nation has suffered from the disorganization and scattering of capital which had sustained its commerce, from the derangement of public credit and from the reduction of the circulating media;

“That, under like circumstances, other nations have not only mitigated similar evils but secured for themselves great financial resources through the instrumentality of banking establishments;

“That the French nation, having familiarized itself with the most arduous requirements for the conquest of liberty, should not longer be hampered by conditions whereof the control lies in its own power;

“And that, finally, it is to be expected that private and public interests will unite, with promptitude and power, to assure the success of the proposed institution;—

“Do resolve upon and adopt the following articles as statutes for a bank.”

These resolutions are the perfection of simplicity. They confer upon the bank in process of formation the title of “Bank of France.” In view of the melancholy reminiscences of the Royal Bank, this was indeed a courageous disregard of violent prejudices; but it was consistent with the practical designs of the whole undertaking, for the name expressed precisely what was contemplated, as no artful substitute could have done.

The scope of operations of the proposed bank was indicated as follows:

1. “To discount bills of exchange and drafts to order, bearing the signatures of at least three French citizens or foreign merchants of acknowledged reputation and solvency.

2. “To undertake collections for the account of private citizens and public establishments, and to make advances in cases of such collections as may appear to be secure.

3. “To receive, on account, cash deposits and collections in behalf of private citizens and Edition: current; Page: [56] public establishments, and to honor checks and drafts drawn upon the bank against the amounts standing to the credit of account-holders.

4. “To issue notes payable to bearer at sight, and notes to order payable within a certain number of days after sight. These notes, as issued by the bank, shall be so proportioned to the reserve cash in the vaults of the bank, and with such regard for the maturing of negotiable paper held by the bank, that the bank can at no time be exposed to danger of delaying payment of its obligations when presented.

5. “To open a Department for Investments and Savings, wherein all sums offered in excess of fifty francs should be received for repayment at stated periods.”

All transactions other than in gold or silver were prohibited. With the exception of the provision concerning investments and savings, the original regulations are still in existence, and govern the operations of the Bank at this day. Adopted at a time when personal property, as distinguished from real estate, did not receive formal legal recognition, and when it was impossible to forecast the change in this respect that has since come to pass, the foregoing rules have shown themselves to be marvelously well adapted to new economic conditions; and only a few comparatively unimportant regulations have had to be added to them. The section concerning the issuance of notes (No. 4) merits particular notice. In most legislative acts, restraints more or less ingenious had been prescribed to limit the emission of paper currency. In the organization of the Bank of France, such restraints were left to the intelligence of the management; but an explicit rule was laid down for their governance. The Bank was always to be in condition to honor its obligations, and was always to have at command the means to do so—i. e., the combined amount of its coin reserve and of its negotiable paper as it matured. Experience has demonstrated the prudence of these provisions; and, leaving out of consideration great political crises for which it was not responsible, the Bank of France has invariably been able to redeem its notes on demand and settle its current obligations.

The administrative machinery arranged by the original regulations was very simple. A committee composed of two hundred principal shareholders who had held their shares for at least six months was to select fifteen administrators, called “Regents,” for a term of five years, and three inspectors, or comptrollers, called “Censors,” for a term of three years. Each year one-fifth part of the regents was to be renewed, and one-third part of the censors. Both regents and censors were eligible for re-election. At first, the regents chose from their own body a “central committee,” which was intrusted with the general management of the Bank’s affairs. This practice underwent modification later.

The capital of the new bank was fixed at 30,000,000 francs, divided into 30,000 shares, with a face value of 1000 francs each. Shares were offered for subscription at the beginning of the year 1800, but they were not sought with much eagerness by the public. Bonaparte, in order to set an example, individually took 100 shares, and caused the members of his family and the personages attached to him to subscribe for stock. Nor did he stop there. The receivers-general of the public taxes were required to convert one-half Edition: current; Page: [57] the amount of their official surety into shares of the Bank of France, and to pay the other half into the Bank on deposit. “This was probably the first time,” says Mollien, “that it occurred to a government whose treasury was exhausted to give money to a discount bank for the exploitation of its lucrative concession, instead of requiring the shareholders to pay a consideration for their privilege.” The word “privilege,” employed by Mollien, does not appear in the original regulations, but certainly is implied by their spirit; and before long it was apparent that the monopoly of issuing notes would become both a privilege and a duty of the Bank of France.

ADVANCES TOWARD NOTE MONOPOLY.

One of the first acts of the Bank was the absorption of an institution known as the “Caisse des Comptes Courants” (Bank of Open Accounts), which issued notes payable to bearer and made loans—principally to depositors. But some other note-emitting banks of slight importance were permitted to continue. The Bank of France was favored by circumstances at the beginning of its career. It profited by the hopes of peace inspired by the treaty of Amiens, and seemed to be in a position to tranquilly expand its business. But symptoms of a coming rupture between France and England were presently manifest. The renewal of hostilities would necessarily be unfortunate for the commerce of France. At the same time, the expedition was undertaken for the recovery of San Domingo. The bankers, and through them ultimately the Bank of France, had supplied the funds for the very important armaments which were destined for that colony, and which, if war should be resumed, would become prey to the English navy. The First Consul, thoroughly acquainted with the condition of affairs, expressed his disquietude to Mollien. “He asked me,” says Mollien, “whether the drafts drawn on the Bank would be paid in the event that the vessels sent out should be shipwrecked, and whether, on the other hand, if they should be protested, some calamity would not thereby befall the Bank. He also spoke apprehensively about the two side establishments, the Caisse d’Escompte de Commerce (Commercial Discount Bank) and the Comptoir Commercial (Bureau of Trade), which operated a joint discount office in Paris, and inquired whether, in case they should experience a shakeup, the Bank of France would not be in danger of overthrow from the countershock. This led him to ask, further, whether, according to normal principles of banking, the rivalry of several discount establishments in the capital might not involve peril for the banks individually as well as for the Government. ‘Moreover,’ pursued the First Consul, ‘I do not like this competition of the three banks in the making of paper money. If, for example, these three institutions, whose paper is accepted by all merchants and likewise in the Government offices should suddenly suspend payments, great embarrassment might result in every department of the public service, widespread confusion throughout the country, and, which would be the prime misfortune, Edition: current; Page: [58] a scandalous state of things in the foreign trade. Have you not told me that, in order to preserve credit, it is a general prerequisite that artificial money, like that of the Bank of France, shall issue from only one source? I adopt that idea. A single bank can be more easily watched than several concerns—both by the Government and the public. With a view to emergencies, I cannot see any virtue in competition of this kind.’ ”

The regent of the Bank, upon being consulted, manifested willingness to accept the monopoly offered them by the Government, at least for the city of Paris. The views of the First Consul were duly formulated by Prétet, Councillor of State, and submitted to the legislative body, which approved the Government project for a monopoly to the Bank of France. By a law promulgated the 24th Germinal of the year XI (April 14, 1803), the independent establishments in the capital that had bank notes in circulation were required to withdraw them and forbidden to put forth new ones; although, outside of Paris, banks of issue were permitted to operate independently of the Bank of France. The Government, in increasing the importance of the Bank of France, deemed it wise to give the Bank a broader basis, and prescribed that the capital should be raised from 30,000,000 francs to 45,000,000 francs. The shareholders were allowed a dividend of but six per cent. The surplus profits were to be devoted to the reserve and to purchasing five per cent. consols, the interest of which was to go to the shareholders pro rata. The other sections of the act confirmed the original regulations, but instituted two important innovations. First, a “discount council” was created, to be composed of twelve merchants selected by the censors; their function being to pass upon the commercial paper presented for discount. Second, it was specified that seven of the fifteen regents and all of the three censors should be chosen from among merchants and manufacturers, thus doing away with the undesirable circumstance of exclusive control by the professional financial class. In order to attract funds on open account, it was stipulated that no stoppage of payment should be allowed on deposits. This rather bizarre proviso, which is still in force, has at times been a cause of embarrassment alike to the Bank and the public. The period of the concession was made fifteen years, to expire September 24, 1818.

THE CRISIS OF 1805—LAW OF APRIL 22, 1806.

The Bank had already, in 1802, undergone a serious crisis. In 1805, it was to have a tempestuous experience of a far different kind. The preparations made at Boulogne by Bonaparte, who had then become Emperor, for the expedition against England, had absorbed very large sums. Meantime, the rate of interest was not uniform throughout France. Considerable and absolutely certain profits were realizable by making discounts in Paris at six per cent. and placing the proceeds of capital in the provinces at a much higher percentage. This gave rise to discomfort for the Bank, which was expected to bestow aid in all cases of need. The Bank might have Edition: current; Page: [59] mastered the difficulties of the situation with comparative ease had not its management been at loggerheads with the Minister of the Public Treasury, at that time the Count of Barbé-Marbois. The receivers-general of the public taxes were accustomed to give bills at the beginning of the year, falling due month by month, representing the estimated aggregates of the taxes they were to collect. These bills, secured by the sureties of the receivers-general, were turned into the Treasury, and from there were sent to the Bank for discount. But instead of reimbursing the Bank for the matured bills, which would have renewed the coin and bank notes taken away from its vaults, Barbé-Marbois replaced them with other bills maturing later; so that the Bank kept on paying out money without receiving any back. Consequently, on September 24, 1805, it found itself in debt to the amount of 61,000,000 francs in notes and 7,000,000 francs for open accounts—both items of liabilities payable on sight, with only 782,000 francs in specie to discharge these obligations. The conditions were so grave that the Bank, for the moment, considered whether it ought not to discontinue its service. Throngs of note-holders crowded at the wickets, and the irritation and defiance displayed by the mob were heightened by the clumsy measures of the management. The Bank had no more coin, but it had a solid basis of commercial paper and Government bonds, besides good credit. It utilized this credit to buy up specie wherever it could be procured, noteworthy in Spain, and received some from the Treasury. By a policy of discrimination, exchanging notes only for those who stood in real need of coin, it succeeded in re-establishing business, and was able to resume open payments on January 26, 1806.

In this crisis, the two parties concerned were both in the wrong; on the one hand the Bank, which had not understood how to properly regulate its discounting business and its circulation; and on the other the State, which had compelled the Bank to abuse its privilege of issuing currency whilst repudiating its own share of the responsibility, and ascribing to the detective organization of the Bank errors that lay at the Government’s own door. It was the Emperor’s opinion that the evil had come about largely because the Government lacked sufficient control over the Bank. He decided to reinforce that control, and to place at the head of the institution a manager vested with power to make its administrative machine run smoothly and without structural weakness. April 22, 1806, an act was passed installing in charge of the Bank a representative of the State with the title of Governor, who was to have two colleagues styled Under-Governors. These three new officials took the place of the original Central Committee, and were clothed with very comprehensive authority. The governor was given full executive power, with the right of veto against the Regents’ Council, no decision of which could be valid without his signature; he was to have the sole right to appoint and dismiss the employees of the Bank, and he was to represent the Bank in all its concerns and in its relations with the State. Another clause provided that three of the regents should be selected Edition: current; Page: [60] from among the receivers-general, as State functionaries. The Bank bowed to the will of the Emperor, but for a long time regarded the office of governor with distaste, and repeatedly attempted, though always unsuccessfully, to have it abolished.

This Act of April 22, 1806, also augmented the capital of the Bank from forty-five to ninety millions; gave larger recompense to shareholders by providing that in addition to the six per cent. legal dividend, they should receive two-thirds of the surplus annual profits (the other third going into the reserve); and, finally, the law extended the grant to September 24, 1843. All the clauses of the original regulations and of the Act of the 24th Germinal, Year XI, which did not conflict with these new arrangements, were retained without alteration.

PROVINCIAL BRANCHES CREATED.

After this troublous period, whose causes and results we have briefly considered, followed a time of calm, during which the Bank fixed definitely its status in the country. It established three branches—in Lille, Rouen, and Lyons—and rendered numerous services to the Treasury by making large advances on the obligations of the receivers-general. In 1810, notwithstanding the highly satisfactory political situation of France, and the pledge of peace seemingly vouchsafed by the marriage of Napoleon to an archduchess of Austria, the aspects of commerce were far from brilliant. The Continental blockade was so burdensome to trade that Napoleon had to institute expedients for relief by a system of licenses, and by going to the aid of certain embarrassed houses with the funds of the extraordinary Government demesnes. Such improvised methods, besides being inefficient, could not last long. By the end of 1810, France was in the throes of the crisis. The Bank had discounted 840,000,000 francs of paper, 800,000,000 of which was commercial paper. At the same time, the bank-note circulation had increased and the collections had decreased. The Bank, unwilling to raise the discount rate, refused all paper having longer than seventy days to run. Soon afterward, confidence returned, and as demands decreased the Bank rescinded the restrictions. During this stress the Emperor had been impressed by the services which the Bank was able to render. He resolved to require its management to cultivate their concession on a larger scale, and requested them to establish offices generally in the large business and manufacturing towns, his ultimate design being to bring about through such a system a reduction of the discount rate, which he desired should be uniformly adjusted at four per cent. The Bank showed a disposition to accept and even to claim the privilege of starting branches in localities which promised advantageous results, but exhibited a lively repugnance against operations in cities where conditions were likely to prove unfavorable. It took refuge behind the Act of the 24th Germinal of the year XI, providing for the creation of independent local banks. This reluctance of the Bank Edition: current; Page: [61] was well justified. At that early period, it lacked both experience and means to direct a considerable number of branches, having conducted only the three already mentioned; and these three, moreover, had been run at a loss. Tired of controversy, Napoleon authorized the foundation of several local banks, which played a modest though useful and honorable part.

ATTEMPTED REFORMS.

The last years of the Empire, signalized by terrible military disasters, rolled by amid public ruin. The Bank once more found it impossible to redeem its currency when presented, but its credit had enlarged and, relatively, its troubles hardly attracted notice, public attention being engrossed by the colossal political events.

After the fall of Napoleon the management of the Bank sought to have amendments made in certain legal provisions which they regarded as unjust and oppressive. Its grievances were threefold; touching, first, the exacting Government supervision; second, the excessive capital and reserve; and third, the compulsory maintenance of branch offices. Demands were made for the abolishment of the office of governor, for authority to reduce the capital to 67,900,000 francs (to which amount it had already been tentatively brought by buying up 22,100 shares), for permission to distribute amongst the shareholders a part of the reserve, and lastly for discontinuance of the branch offices at Lille, Rouen, and Lyons. The Government declined to do away with the governor’s office, but tolerated the reduction of the capital, approved the desired distribution of a portion of the reserve, and consented to the terminating of the branches.

SERVICES OF THE BANK TO THE STATE.

Although the Bank of France, as a creation of the Empire, naturally invited some suspicion from the Government of the Restoration, Louis XVIII. made several calls upon it and obtained important services. Liquidation of the obligations of the Imperial régime had occasioned a heavy public debt. As questions were raised concerning the solvency of the French Government, and the probable regularity of interest payments, the Minister of Finance, Count Corvetto, assigned to the Bank responsibility for the bonded indebtedness. He abandoned to it the revenues from the registry tax, the stamp duty, the “door tax,” the lottery, and the public domains, to enable it to make the interest payments; and also granted to it a bond issue of four millions income, of which the Bank might sell part or the whole, should the other resources prove inadequate. The Bank, on its part, was to pay the interest coupons on presentation, and make advances if necessary. This arrangement reassured the bondholders as to the security of their income, and contributed in a powerful manner to restore public credit. The Bank continued to discharge this function for the State from 1817 to Edition: current; Page: [62] 1827. During the early career of the Restoration, the Bank had to pass through a dangerous crisis (1818), produced by excessive speculations in the numerous Government loans. But it weathered the storm with ease, and was scarcely affected by the crisis of 1825.

REVOLUTION OF 1830—THE DISCOUNT BUREAU.

The year 1830 opened under favorable auspices. Then came the revolution that was to put an end to the Bourbon rule. This was followed by profound business complications. In view of the absolute impossibility of collecting on bills of exchange, maturities had to be extended for ten days in Paris. The Bank displayed complete devotion to the public welfare in this critical position. It extended every facility and convenience to debtors in distress, and took the first steps toward a formal programme for the relief of trade. The Government, as a means of manifesting its solicitude in a practical way, set apart 30,000,000 francs for the purpose of advances to houses in difficulties. Some loans were made direct. To the Bank, however, belongs the credit of inaugurating a device immeasurably more efficacious than this State aid. It has been pointed out that the Bank of France, according to its regulations, was debarred from discounting any paper except that maturing within three months and bearing at least three signatures. During the emergency of 1830, there was in circulation much commercial paper at longer dates and bearing only two signatures, which, consequently, could not legally pass through the Bank. The management conceived the idea of establishing, under the name of a Discount Bureau, a temporary concern which, utilizing funds to be paid in by the State out of the thirty millions voted for the relief of commerce, should discount paper that could not be accepted by the Bank of France. The Bureau was to retain all such paper until it came within the three months limit, and then indorse it so as to supply the required third signature, whereupon the Bank would accept it. Thanks to this plan, in a period of less than one year, 450 firms, giving employment to more than 80,000 workmen, were helped decisively and placed in a condition to continue in business. The Bureau was instituted only as a provisional affair, and finished its career on the 30th of September, 1832.

ESTABLISHMENT OF BRANCH BANKS.

The valuable services performed by the Bank in this memorable crisis earned for it a true popularity. Having now acquired experience in using its credit, the Bank began to recognize the advantage of enlarging its sphere, so as to become in reality the Bank of France instead of a mere bank of Paris. There were in existence several Department banks of issue, whose notes had little circulation outside their immediate territory, but which enjoyed an honorable reputation and did serviceable work, restricted, but real. Their example was encouraging to the Bank of France in its new Edition: current; Page: [63] project; so, in 1836, permission was applied for and obtained to start a branch at Reims. As the venture proved satisfactory, other branches were introduced in rapid succession. At the beginning of 1840, five were in operation. Thus was inaugurated the first step toward the absolute bank-note monopoly which prevails to-day.

EXTENSION OF THE BANK’S PRIVILEGE.

The law of April 22, 1806, had indicated September 24, 1843, as the date of expiration of the concession. Since the end of 1839, the Government had been petitioned for a renewal of the charter. The great majority manifested a favorable disposition respecting the proposal to give the institution a monopoly of note-issuing. The famous Rossi was commissioned to prepare the report on the subject to the Chamber of Peers; and he demonstrated the advantages of the contemplated monopoly in an essay whose cogency of argument has never been surpassed. He said:

“We take it for granted, gentlemen, that in view of the history of financial crises which have at various times convulsed the two worlds and which we have endeavored to bring back to your recollection, it would be almost superfluous to here enter upon a detailed consideration of the evil consequences of competition in the uttering of paper currency. Competition, the rivalry of the banks, appears conspicuously as one of the fundamental instrumentalities of those crises. Among the attendant evils of such competition, as shown by all experience, are the disposition to grant credit inconsiderately, eagerness to lower the discount rate as a makeshift for attracting borrowers, tendency to accept the most foolhardy engagements as perfectly sound, and readiness to encourage the most hazardous enterprises in order to invite fresh customers, augment the business, multiply the notes, and inflate the profits of the bank. Things must be called by their right names. Whenever currency has been forced into circulation, currency which, instead of being guaranteed by equivalents of earned profits, has been secured only by what we have self-deceivingly accepted as equivalents of values—then public confidence has been abused and fictitious money has been fabricated, reproducing, upon an enormous scale (to speak moderately), all the ills and alarming symptoms that are developed on a small scale by counterfeit coinage. With slight exceptions, competition is a prodigiously useful, and, indeed, an indispensable factor of all production properly so styled—production whereof the legitimate end is to procure for mankind a larger quantity of products, or better products, or better utility for the same products. But a bank, correctly speaking, is no producer. A bank is only a guarantor, a faithful, solvent debtor, always ready to pay. It seconds national production, but only in an indirect manner, by aiding in the distribution and the diverse applications of productive capital. If this proposition is admitted, what reasonable benefit is to be looked for from the competition of several banks? Is it pretended that the means of credit will be improved through new banks? But a well-organized bank is able to expand the established limits of its business and thereby to satisfy within its own scope all the genuine requirements of trade. Is it desirable to have a second or third bank, which will probably be more substantial than the first and merit greater confidence? In that case the first is only a shaky, dangerous concern, which ought to be suppressed forthwith. As regards credit and confidence, whatever is not perfect is vitiated; whatever does not afford complete security is perilous. These considerations, gentlemen, will, we trust, persuade you to believe with us that free competition in the matter of banking is a risk which the laws of a civilized people should not tolerate. It would be quite as fitting to allow the first comers to open in the centre of our cities poison-shops or gunpowder factories. A condition of unrestrained competition in banking is not the vigor, not the prime of credit; it is its infancy, or, if you prefer, its decrepitude.”

On June 30, 1840, an act sanctioned by Thiers, as President of the Ministerial Edition: current; Page: [64] Council, was adopted, granting to the Bank the privilege of continuing to issue its notes until December 31, 1867, but with the condition that either the grantor or the grantee could withdraw from the agreement in 1855. The capital was officially fixed at 67,900,000 francs, and could not be increased or decreased except by legislative consent. Subordinate offices were not to be established or abolished without special decree by the Executive. All former legal provisions and regulations were retained in their integrity.

THE CRISIS OF 1847.

After these changes, nothing of special interest transpired in the course of the Bank until 1846, when there was a failure of crops in France and the neighboring countries. Grain had to be imported from Russia at a high price, and gold payment was demanded for it. The Bank of France had been supplying large sums for railroad construction, and its cash was at a low ebb, while its note circulation had expanded. To procure coin, it borrowed from Baring Brothers, of London, 25,000,000 francs, by lombarding its bonds, and bought with this amount bullion and coin at the Bank of England. Even these resources soon began to disappear, when, just at the opportune time, a most fortunate proposal was received. The Russian Government had accumulated a very considerable metallic reserve to guarantee its paper money. As this reserve yielded no interest, and in practice was not needed for the redemption of the credit-rouble, it was deemed desirable to put part of the fund into the form of an investment bearing interest. Consequently, by a ukase of March 21 and April 12, 1847, it was decreed that 30,000,000 roubles should be applied to the purchase of foreign government bonds of the highest order. Russia, necessarily, could not make a negotiation of such magnitude on the open market without occasioning an artificial advance in prices, and, consequently, she made overtures to the Bank of France, offering to buy the consols in its vaults to the amount of fifty millions. The Bank saw in this proffer a means of establishing an exchange on Russia that was non-existent, and accepted eagerly. Thanks to this lucky circumstance, the trouble, which had looked very ominous for a time, was dissipated without much difficulty.

THE REVOLUTION OF 1848, AND MORE BANK MONOPOLY.

The Bank had hardly got well out of these embarrassments when it was confronted by a new crisis, both political and financial. The Revolution of 1848, which burst forth in a manner wholly unforeseen, excited profound alarm. Holders of the Bank’s bills were seized with fear, and hastened to present them for payment. Simultaneously, demands for discounts became more and more pressing. It was manifest that the Bank could not endure this double strain, and would be obliged to come to a standstill unless the Government should make its notes legal tender. Accordingly, by a Provisional Edition: current; Page: [65] Government decree of March 24, 1848, the Bank of France and the Departmental banks were released from obligation to pay coin for their notes, and individuals and public officials were required to receive them as legal money. The currency of the Bank was not to exceed 350,000,000 francs, and that of the Departmental banks, 102,000,000 francs. The forced circulation thus accorded to the notes of the various banks of issue gave rise to grave complications. The Government was condemned on the score that it would be impossible to compel the acceptance of the paper of local banks outside their own sections of the country, and consequently that uniformity in the paper currency of the nation had become a necessity. An agreement was entered into on the part of the Government, the Bank of France, and the local banks, whereby the local banks were to consolidate with the Bank of France. The Bank of France took over the assets and liabilities of nine institutions, which were transformed into subordinate offices and designated as branches, on the plan of the branch establishments already existing. It gave to the share-owners of the local banks shares of its own stock equal in number to those that they surrendered. The capital of the Bank thus grew in consequence to 91,250,000 francs, divided into 91,250 shares of 1000 francs each. Since May 2, 1848, there has been only this one bank of issue in France, holding a complete monopoly. In the prevailing commercial distress the Government remembered the experience of 1830, and proceeded to open branch guaranty establishments in the cities where the Bank had branches, in order that paper might become discountable by providing the third signature. Several of those concerns, although designed only for temporary purposes, remain in existence to this day. Despite the troubles of the period and unjustified attacks, the Bank did valuable work, on a large scale, alike for the Government and for trade. It was instrumental in bringing out of their hiding-places large quantities of coin which had been secreted during the Revolution, and on August 6, 1850, it resumed the cashing of its notes over the counter.

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SECTION II.: THE BANK UNDER THE SECOND EMPIRE.

CRISIS OF 1857—RENEWAL OF THE BANK’S CONCESSION.

THE Second Empire succeeded the Republic. In consideration of the help that had been obtained from the Bank, the Imperial Government waived the right conferred by the Act of June 30, 1840, to terminate the concession in 1855, and went so far as to pay off the State’s indebtedness to the Bank. The first years of the Empire were marked by vast development in the way of public enterprises. Immense sums were raised for the construction of railway, then in its infancy, for Government loans, and for the prosecution of the Crimean War, and the Bank supplied a goodly share of the money thus absorbed. The dwindling of its cash soon caused disquietude. Repeating its former mistakes, the Bank bought a great deal of gold and silver at high premiums. The coin thus expensively acquired was frequently withdrawn to-morrow by the seller of to-day, and so merely passed rapidly through the Bank. The Bank did not yet comprehend, or rather had not the courage to employ the only effective agency for the defence of its reserve—namely, an increase of the discount rate. Consequently it carried alone the burden of embarrassments that were not of its making. It resolved to ask the Government, by way of compensation, for a renewal of the concession ten years in advance of the date of its expiration. The request was well received by the Government, which characteristically found in this application a convenient opportunity to contract for a loan. The extension proposal was submitted to the Legislature and agreed to without serious discussion. It became law on June 9, 1857. This measure conferred real boons on the Bank. First, it was given an assured existence of thirty years, in addition to the ten years it still had to run. Second, it was granted the right to charge in excess of the six per cent. rate in its operations, if the circumstances should make such a course necessary. The Bank’s failure previously to apply that remedy had left it no other alternative Edition: current; Page: [67] in critical circumstances than the refusal of loans with somewhat remote periods of maturity, which was an intolerable inconvenience to the mercantile public. On the other hand, these advantages were purchased rather dearly. The Bank’s capital was doubled, amounting to 182,500,000 francs (at which figure it stands to-day). The price for new shares (preference subscription rights being reserved to existing shareholders) was made 1100 francs—1000 francs principal and 100 francs premium, the premium to go into the reserve. The subscription yielded 101,375,000 francs, of which 100,000,000 francs were handed over to the State for three per cent. consols, disposed of to the Bank at seventy-five, although consols of the same issue then sold in the open market at seventy-one. All profits accruing from increases of the discount rate above six per cent. were to be deducted from the surplusage intended for division amongst shareholders, and to be added to the reserve fund. The Government claimed the right to require the Bank to establish at least one branch for each Department, dating from June 30, 1867. Finally, the Treasury obtained a loan of sixty millions on terms which will be recited in another chapter. By the workings of the new rule concerning the discount rate, the Bank was able to furnish great assistance to business establishments during the terrible cataclysm of 1857, and exercised a powerful influence for the abatement of that panic.

THE BANK HELPS RAILROAD BUILDING.

In 1858 the Bank afforded valuable service to the country, adding much to the general resources and prosperity, although the facts are little known.

The railways had made heavy drains upon the hoardings of the people for original construction purposes and for the completion of their system. The public was not very well instructed about the merits of the three per cent. bonds, and subscribed for them but meagerly and at low prices. To prevent sacrifices of value on bonds which the railway companies were obliged, by the immediate need of money for continuing work, to offer at any price, the Bank guaranteed the current expenses of the companies, and undertook to negotiate the bonds on its own responsibility. By its co-operation in the matter, the Bank of France (whose prudence was understood by everybody) was instrumental in inspiring confidence among capitalists and inducing them to take the railway bonds with greater alacrity. From 1858 to 1861, the Bank sold 3,419,919 lots at figures estimated to aggregate 1,028,900,000 francs above what the railway companies could have obtained independently.

THE BANK’S TRIALS IN 1860-1864.

The Bank again had to pass through times of trial in 1860 and 1864. The annoyances of the latter year were brought about by the American Civil War and the disorganization of the cotton market. On the authority of the Act of 1857, the Bank did not hesitate to give the discount rate a wide Edition: current; Page: [68] range, according to circumstances. This caused great discontent among borrowers. The press started a controversy on the subject, alleging that the Bank, if not chargeable with deliberately bringing about financial crises for its own profit, at least made itself a party to them by its incapacity. A singular theory, which still is advanced from time to time, found considerable advocacy. It was argued that the Bank could, if willing to do so, give credit gratuitously, or almost so; that improvising its own money by manufacturing notes which have no intrinsic value, it could grant credit at one-half, one-quarter, or one-eighth per cent., or even less, and still do a magnificent business. The discussion went so far that the management of the Bank demanded a Government inquiry in relation to the credit question. The opinions of all classes were consulted in this investigation. The representatives of the Bank found no trouble in demonstrating that it had nothing to do with the causes of such disasters; that they always resulted from perfectly well indicated economic conditions; that it was not the province of a credit institution to seek to prevent them—which was beyond every power—but to help abate them and ameliorate their severe consequences as much as possible, and that the theory of gratuitous, or almost gratuitous, credit was Utopian. Another thing conclusively shown was, that the bank did not exercise, and could not safely exercise, any option of issuing paper currency except with strict regard to its coin funds; and that any attempt to arbitrarily put forth notes inconvertible into metal would plunge the nation into the pit of paper money whose depreciation knows no limit. These arguments made an impression upon the enlightened portion of the public; and the inquiry not only ended in full justice to the Bank but also proved permanently useful in spreading throughout France sound principles respecting credit. The entire movement thus counteracted was really, in its fundamentals, an assault on the Bank of France.

In 1860, when Savoy was annexed to the French Empire, there existed an institution styled the Bank of Savoy, which had the right to issue notes payable to bearer in all the cities of the State of Sardinia. The agreement of August 23, 1860, between France and Italy, included the following stipulation: “The bank established at Annecy shall continue to enjoy in Savoy those rights and privileges which have been conceded to it, on condition that it fulfills all the obligations that have been imposed upon it.” On the basis of this understanding, the Bank of Savoy, on September 6, 1860, addressed to the Emperor a petition asking for formal sanction of the rights acquired under Sardinian rule, and adding that the position of the bank had become strengthened in view of the superior importance of France as compared with Piedmont. The matter remained in abeyance. In reality, the Bank of Savoy desired consolidation with the Bank of France, on terms similar to those which had been conceded to the Departmental banks, and it hoped to bring the Bank of France to a favorable attitude by the threat of opposition. The undertaking failed, and in 1863 the Bank of Savoy resolved to increase its capital from four to forty millions. Immediately the Government Edition: current; Page: [69] Commissioner protested against the vote of the Assembly. Solution of the difficulty became urgent, and, finally, the Bank of France decided to buy up the institution for four millions. In place of the Bank of Savoy, two branches of the Bank of France were created—at Annecy and Chambéry. The last years of the Empire were particularly calm from the economic point of view, and the history of the Bank offers nothing specially noteworthy in that period. Its sphere was constantly enlarging, and now a solidity and a might were to be revealed of which the Bank itself was not conscious.

THE BANK AND THE FRANCO-GERMAN WAR.

The Franco-Prussian War broke out with suddenness on July 15, 1870. From the beginning of hostilities, coin was in great demand, partly for the requirements of the army and partly for Treasury replenishment. The discount rate, which stood at two and a half, rose in rapid stages to six per cent. Rumors were bruited about that the money-changers and bankers were shipping gold to Prussia. The populace was incensed by these reports, and compelled the Government to put a stop, by police measures, to all exportations of the precious metals. The financial journalists demanded a forced bank-note currency, to prevent the outflow of gold. These extravagances operated to check the circulation of money of every kind and to precipitate the calamity. Unfortunately, the forced currency of the journalists became reality. As a consequence of the German army’s invasion of French territory, collections on commercial paper in the occupied districts became impossible. By an Act of August 11, 1870, the time in which unpaid notes were to go to protest was extended thirty days. As this measure was not capable of merely partial application, its provisions were extended to cover the whole of France. As the Bank could no longer rely upon collections on commercial paper held to secure the redemption of its currency, it came under the régime of forced currency, which it had not asked for, but which was indispensable alike for commerce and the State. The law of August 12, 1870, discharged the Bank from the obligation to redeem its notes, and ordered that they should be accepted by citizens and in the public offices as legal tender. The maximum paper issued was fixed at 1,800,000,000 francs. Two days later this limit was raised to 2,400,000,000 francs. The German army pursued its victorious march on Paris, which was to sustain a siege. A portion of the Government of the National Defence left the capital, in order to place itself in position for keeping in communication with the country at large. The Bank deputized one of its under-governors, M. Cuvier, to manage the branches and to conduct the necessary intercourse with the Government. This latter function, it was apparent, would become extremely delicate and onerous. Before the closing up of Paris, the Bank had granted to the Treasury, independently of the permanent loan of sixty millions, a first loan of fifty millions, a second of Edition: current; Page: [70] seventy-five millions, and a third of forty millions for the savings-bank service.

The delegation of the Government of the National Defence, harassed by the most critical circumstances, needed financial help. It applied to M. Cuvier, who responded with memorable firmness: “I do not misconceive your terrible situation. I know that you require money. But consider that to-day the Bank is the only and the last resource; if you exhaust it there will be nothing left. Notwithstanding our misfortunes, the signature of the Bank of France is still honored abroad. Make use of it. Undoubtedly you will have to pay exorbitantly, but that is preferable to the ruin of the Bank.” These counsels, so full of good sense, were listened to by Gambetta with scant patience; but they appealed to the other members of the Government. The result was that a loan known as the Morgan loan was contracted in London (October 24, 1870), for 250,000,000 francs, which yielded a net amount of 204,000,000 francs. The Morgan loan was soon consumed, and the calls upon the Bank became increasingly urgent. They were accompanied, moreover, with the most violent threats. The Bank defended every foot of ground, granting only the most unavoidable demands. Yet, when the armistice was concluded, the State owed the Bank four hundred and seventy-five millions. Then it was realized how characterized by foresight and profound patriotism M. Cuvier’s resistance had been. All the resources of France had been paralyzed. Taxes were forthcoming from only half the country. The public needs were distressing. Yet the Bank had satisfied all, placing at the disposal of the nation fifteen hundred and thirty millions, without failing for one moment in its special duty to succor and sustain trade. It emerged, with credit intact, from the most formidable test that any institution of its kind had ever been forced to endure. The resolution displayed by M. Cuvier in his dealings with the Government of the National Defence was well matched by the vigor with which his colleague, the Marquis de Ploeüc, maintained his position against the Commune in Paris.

THE BANK AND THE COMMUNE.

On March 18, 1871, the Bank was left isolated and without any means of protection amidst the most desperate insurrection of history. It had in its vaults in bonds and cash, more than three milliards (3,000,000,000) belonging to the public. Everything was to be feared from an unrestrainable mob, given over to the worst passions. The Marquis de Ploeüc took a bold stand in this emergency. The attachés of the Bank, who had been organized in accordance with military discipline during the siege of Paris, kept guard night and day, with absolute devotion, over the institution and the wealth confided to its honor. It is just to mention that relations of some satisfactoriness between the Bank and the Commune were singularly facilitated by the course of one Citizen Beslay, whom the Commune had placed at the Bank as its representative. This Beslay, an erratic and visionary Edition: current; Page: [71] individual, but an honest man, foresaw the fearful consequences of a pillage of the Bank, and opposed himself energetically to all the attempts that the Commune made to introduce its men into the establishment. The Communistic Government, which was without resources, extracted from the Bank several millions, and used the money to provide for its pressing wants. It comprehended that if the Bank should be emptied there would be no funds obtainable to feed the insurrectionary hordes, which would thereupon hold its leaders responsible for their distress. Accordingly, the Bank was spared. The withdrawals made by the Commune aggregate, in round numbers, only seventeen millions.

The period whose history we have briefly traced was the culminating stage of the career of the Bank of France. Never before, in any country, had there been afforded a like example of an institution exercising such power, inspiring such implicit confidence, contributing so decisively to the recovery of a people that seemed crushed, performing more than its duty with impressive grandeur and simplicity. “The Bank,” said M. Thiers, in a memorable speech, “has saved the country because it is not a State bank.” This remark was eminently true. In that supreme struggle a State bank would not have been able to resist the exactions of the Government, and its credit would have become confused with the credit of the State. When the Bank of France issued notes secured by Treasury obligations, it added its own guaranty to that of the State, and the paper circulated consequently at par. If the Bank and the Government had been one and the same, the Bank’s signature would have been no reinforcement of the State’s, and the paper intended to have been taken on trust would have been valued at just what the State’s credit was worth. The experience gained by the Bank of France in 1870 and 1871 is conclusive demonstration of the absolute necessity of assigning the responsibility for issuing paper money to independent institutions, subject to such conditions of supervision and regulation as should incontestably be administered by the Government. This experience has not been without important practical results. On the occasion of the latest renewal of the concession of the German Imperial Bank, it was especially invoked by the German Government. The French may rightly take pride in that signal display of appreciation by their former foes for their chief financial institution.

CALM AND RECUPERATION—THEN SPECULATION AND CRISIS.

After the Bank had recovered from the awful shock, it entered upon another era of calm, during which it reorganized its cash reserve and made preparations to put an end to the forced currency—preparations that were brought to final success on January 1, 1878. Meantime, the Bank completed its network of branches by introducing sub-offices in all Departments not already provided. This tranquil era lasted until 1882.

In consequence of the great accumulations of capital during that period Edition: current; Page: [72] of relative quiet, speculation became rife. It was at first particularly directed toward the values of insurance companies; but in that narrow market exhaustion was soon reached and another field had to be sought. Innumerable credit societies were founded. The most conspicuous was the Union Générale, which made ultra-religious pretensions and found most willing clients among the Catholics. Managed with extreme boldness, it established branches everywhere, and quickly became the central attraction of the market. All values rose with astounding rapidity, and France was brought back to the memories of Law’s bank. The first symptoms of the collapse manifested themselves toward the end of 1881. In the beginning of January, 1882, the unchanged market showed signs of reaction, and the highly feverish conditions became plainly apparent. Nevertheless, the public retained its illusions until February. On the first day of that month the directors of the Union Générale were arrested, and on the next the institution failed. Panic took the place of confidence, everything depreciated, the majority of the banks were shaken, and the animation of the previous years was replaced by absolute torpor. The Bank of France, faithful to its traditions, came to the rescue of the cities where ruin was imminent. In Paris, it advanced eighty millions, and in Lyons one hundred millions, enabling the business public to meet their obligations.

THE BANK AND THE COPPER “CORNER.”

It was not until the spring of 1889 that the next notable episode occurred in the history of the Bank. In 1888 a financier had conceived the project of “cornering” the copper market. He had concluded contracts with the principal mines of the world, by which they had engaged to limit their production in consideration of his agreement to buy their total output. This speculation was similar to the one undertaken in relation to cotton, 1836-39, by Biddle, Director of the Bank of the United States, which brought about the destruction of that institution. An old and honorable Paris banking house, the Comptoir d’Escompte, supplied the funds necessary for the operations by discounting copper warrants. The prices of the metal rose swiftly, but the mines that were not interested in the contract, and those that had suspended work on account of unremunerativeness, took advantage of the new state of affairs and threw large quantities of copper on the market. This led to a decline in prices. The Comptoir d’Escompte, deeply involved in the enterprise because of the warrants that it held and the direct advances made, found itself seriously menaced. Its chief, M. Denfort Rocherau, appalled by his responsibilities, killed himself. At once panic seized the numerous depositors of the Comptoir d’Escompte, and they rushed to withdraw their deposits. The assets of the bank were of a solid kind, but they could not be converted into cash, and no one knew their amount. Refusal of payments to depositors would have caused the greatest misfortunes and paralyzed the business of Paris. The Minister of Finance recognized Edition: current; Page: [73] the danger, and called on the Bank of France for aid; whereupon the Bank consented to make an advance of two hundred millions upon the guaranty of the principal banking and credit establishments of Paris. The conditions of this arrangement provided for repayment of deposits and for taking the assets and realizing on them to the best advantage. A precipitate liquidation would have seriously compromised matters. Finally, the Comptoir d’Escompte was put in position to pay all its creditors, and even to return to its shareholders part of their capital.

For the valuable and discreet services thus volunteered and executed by the Bank, due gratitude was publicly manifested. The various Chambers of Commerce voted thanks to the Bank; and the Government, in 1889, seconding the expressions of public appreciation, announced that it would proceed to consider the subject of extending the Bank’s concession, which was to expire on the 31st of December, 1897. After a rather protracted delay, a bill was brought in by the Government continuing the privileges of the Bank to December 31, 1920. For this solitary advantage, the Bank was to pay to the State a rental, or “gratification,” of 1,700,000 francs per annum, which was to be increased in 1898 to 2,500,000 francs; was to place at the Treasury’s disposal, without interest, the sum of 180,000,000 francs; was to perform, free of charge, all that the State might require in the way of handling its funds; was to give its services (likewise without charge) in disposing of all issues of Government consols; and was finally to establish new and additional branches. The Bank accepted all these terms, which were made still more exacting by the commission charged with the duty of reviewing the proposed contract. At last, June 21, 1892, the measure came up for discussion in the Chamber of Deputies. There, it was violently attacked by the Socialist orators, who especially found the specified yearly rental to be inadequate. They demanded the instituting of a State bank, which should vouchsafe credit free, or substantially free.

Amid the plaudits of the majority of the Chamber, M. Bardeau (who had charge of the bill), supported by M. Léon Say, demonstrated that the burdens imposed upon the Bank by the plan under debate represented the maximum of what could be reasonably asked, and went as far toward the Utopia of a gratuitous or almost gratuitous credit as could be tolerated. The general debate lasted until July 6, 1892. On that day it was interrupted, and ever since the measure has remained in abeyance, neither the Chamber nor the Government showing any indication to take it up anew. Meantime, the Bank has not suffered itself to become enfeebled in view of the uncertainties of the morrow, and has pursued the even tenor of its way, developing steadily its service and its strength. Even in the event that a State bank should take its place, it will remain none the less the oldest credit establishment in France, and will continue, with its deposits and its cheques, the work that it has known so well how to perform with its currency during nearly a century, to the great advantage of the country.

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SECTION III.: ADMINISTRATIVE ORGANIZATION OF THE BANK.

IN our historical survey of the Bank of France we have made incidental reference to its organization; that feature of the institution, however, demands more detailed treatment.

The Bank is a private institution, whose capital is contributed by shareholders. The capital consists of 182,500 shares, of a par value of 1000 francs each. Taking into account its reserve fund and real estate, each share has an intrinsic value of about 2000 francs. The shares are registered in the names of certain individuals, who acquire proprietary title by transfer on the books of the Bank. Shares may be applied for pupillary investments (i. e., for minors and orphans), for investment in behalf of persons under guardianship, for the benefit of married women under separate dowry arrangements, and may even receive the qualifications of real estate. Dividends are payable semi-annually. The shareholders are formally represented by a body consisting of the two hundred largest owners of shares, all of whom must be French citizens, and be registered in the shareholders’ lists for upwards of six months. This body constitutes a General Assembly, which meets in Paris annually on the last Thursday of January. Each shareholder has only one vote, regardless of the number of shares he possesses. Every person belonging to the General Assembly must appear and vote individually, without proxy privileges. Women are not admitted to these privileges. The Assembly listens to the report of the operations for the year, and selects the regents and censors.

REGENTS AND CENSORS.

There are fifteen regents and three censors. Five regents and all the censors are from the manufacturing and commercial classes, and three of the regents must be chosen from among the officials of the Treasury General Disbursement office. The regents are elected for five years, the censors for three years. Both may be re-elected at the expiration of their terms of Edition: current; Page: [75] office. Each of the regents and censors must own not less than thirty shares, which are non-transferable during their official incumbency. They receive no remuneration, aside from vouchers certifying their attendance, which entitle each of them to twenty-four francs.

GOVERNOR AND SUB-GOVERNORS.

The general direction of all the affairs of the Bank is intrusted to a governor and two assistants called under-governors. The governor and under-governors are appointed by the chief of the State. Before assuming his functions the governor must prove his possession of one hundred shares, and each under-governor must verify in fifty shares. They take their oath of office from the President of the Republic, swearing that they will direct the affairs of the Bank well and faithfully, according to the laws and regulations of the institution. The governor has a yearly salary of 60,000 francs; the under-governors 30,000 francs each. These salaries are paid by the Bank, which also provides residences and their furnishings. The governor and under-governors are prohibited from presenting for discount at the Bank any paper belonging to them or bearing their signatures. No paper can be discounted unless approved by the governor. He also appoints and dismisses the employees; has the sole power to sign drafts in the name of the Bank; signs contracts and correspondence; and appears in behalf of the regents in all matters at law against or for the Bank.

THE GENERAL COUNCIL.

The General Council is composed of the governor, the under-governors, the regents, and the censors, the governor being the presiding officer. The governor, under-governors, and regents have authority to vote on all questions; the censors, acting as comptrollers of the Bank, have only advisory votes. The General Council has regular meetings every Thursday. It receives information respecting all the affairs of the Bank; investigates all departments of the establishment; decides upon agreements and contracts; determines questions concerning the issuance or withdrawal of bank notes; fixes the rate of discount, and annually votes the budget of the Bank and submits the required statement to the shareholders. No action of the General Council can be put into effect unless bearing the governor’s signature. No question can be put to vote unless ten members of the Council having full voting power, together with one censor, are present. All proposed issues of paper money must be with the approval of the censors. The censors have the right to call extraordinary meetings of the General Assembly of the shareholders; but such calls can only take effect when approved by the regents. Other rights and duties of the censors are to make any proposals which they deem useful for the interests of the Bank, to watch over the execution of the laws and regulations, and to give an account of such supervision to the General Assembly.

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COMMITTEES.

The fifteen regents and three censors are constituted into seven committees to exercise the details of supervision over the transactions of the Bank, as follows: Discount Committee, Bank-note Committee, Committee on Books and Commercial Paper, Cash Committee, Committee on Relations with the Public Treasury, Committee on Branch Establishments, and Committee on Verification of Bond Deposits. The Discount Committee is changed every fortnight, the Cash Committee each month. All the other committees are reorganized at the end of six months by a process of rotation among the regents. The censors participate in the proceedings of the committees on bank notes and on books and commercial paper.

DISCOUNT COUNCIL.

In order to pass upon the merits of paper presented for discount, there is a Discount Council of twelve members, selected from among the merchants of Paris. They are nominated for a term of three years, by the censors, from a list of thirty-six presented by the regents. These twelve members are, each in his turn, designated to serve in connection with the Discount Committee, wherein they have deliberative votes. Their office is unsalaried, except that each member receives a fee of twenty-four francs for attendance at meetings. No one can be eligible to membership unless he owns ten shares in the Bank, which he cannot sell during his tenure of office.

BRANCH BANKS AND SUBSIDIARY OFFICES.

The Bank, in compliance with the provisions of the Act of June 9, 1857, possesses at least one branch in every Department of France. Besides its branches, the Bank has, on its own initiative, created subsidiary offices in towns where it would prove too costly to operate regular branches. These subsidiary offices serve the same purposes as the branches, whereto they are simply attachments. In certain towns, where the Bank maintains neither branches nor subsidiary establishments, it conducts “collection bureaus,” dependent upon the nearest branches or subsidiary offices. The collection bureaus are intended for the discounting of paper in the town in question, and are open each fifth day. The towns to which such accommodations are furnished are called “attached towns.” When the collection bureau does business for several towns jointly, the latter are styled “associated towns.” The branches are under the immediate direction of the Bank, and may be regarded as duplicates of the Bank in miniature. Their accounts are consolidated with those of the Bank, their budget is fixed by the General Council, and their staff is appointed and subject to removal by the governor. Their transactions are identical with those of the Bank of France. The director of each branch is designated by decree by the President of Edition: current; Page: [77] the Republic, upon the report of the Minister of Finance, from a list of three candidates nominated to the President by the governor of the Bank. Every director must verify in fifteen shares of the Bank, which cannot be transferred while he remains in office. The director carries out the decisions of the General Council, and acts in accordance with instructions received from the governor. He signs the correspondence of the branch and its other instruments, and he appears in court proceedings in the name of the regents at the request of the governor. The director is assisted by an Administrative Council, composed of six members at least and twelve at most, besides three censors. The administrators are nominated by the governor from a list of double the number presented by the regents. The censors are appointed by the regents. The duration of office of administrators and censors is three years, and they may be re-elected. They have no salary, but are paid twelve francs apiece for each attendance. Each administrator and censor must own four shares of the Bank. The director, administrators, and censors form a Council of Administration, in which the director is the presiding officer. This council keeps under supervision all the departments of the branch, proposes the annual budget of expenses, and sees to the execution of the laws and regulations. No paper can be discounted except on the recommendation of the administrators and the approval of the director. The council meets twice a month, and receives reports concerning all the business of the branch. Its doings cannot become of effect unless signed by the director. The administrators form three committees, namely, the Cash Committee, the Committee on Books and Commercial Paper, and the Discount Committee. The Minister of Finance may instruct the Inspectors of the Finances to verify matters in connection with the branches.

The subsidiary offices, which have been established without express statutory provisions, have a most simple organization. Each is directed by a chief of the subsidiary office, assisted by a cash clerk. These agents are appointed by the governor, and are placed under the immediate authority of the director of the branch of which the subsidiary office is a dependency. All paper presented for discount at a subsidiary office is at once forwarded to the corresponding branch, which throws out whatever is to be rejected. Such is the administrative machinery of the Bank of France. It should be added that all cases of violations of the laws and regulations applying to the Bank, and cases of dispute between the Bank management and its staff, are subject to the decision of the Council of State.

STAFF OF THE BANK.

The staff of the Bank, appointed by the governor, consists, so far as the main establishment in Paris is concerned, of four principal chiefs—a secretary-general, comptroller-general, chief cashier and secretary of the General Council; to whose number are added the chief individuals intrusted with Edition: current; Page: [78] the management of the different offices. These various heads of departments have under their authority assistants, besides chief clerks and accountants of four classes, graded according to salary. The Bank also employs a large number of collection messengers, cash messengers, office factotums, guards, porters, and men and women workpeople engaged in the manufacture and handling of the bank notes and the cash and other property on deposit.

In the branches of the Bank the staff embraces a director, cashier, bookkeeper, clerks and messenger, according to the requirements of the service. The branches are under the supervision of inspectors chosen from the staff. The regular staff of both Bank and branches is recruited, principally in a competitive way, from candidates not younger than nineteen nor older than thirty. Those who have successfully stood the examinations are appointed to vacancies according to merit. Each employee is entitled, after thirty years of service, to a pension equivalent to one-half the salary received during the last three years of service, which reverts to his widow or minor children. The pension service is provided for partly by a reserve of two per cent. deducted from salaries, and partly by the liberality of the Bank.

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SECTION IV.: OPERATIONS OF THE BANK.

OPEN ACCOUNTS.

THE operations of the Bank have a quality of extreme simplicity. They may be stated under two heads; services obtainable by certain persons only, and services available for the public at large. The Bank receives, on open account, without interest, such sums as may be paid in by individuals and private or public establishments. Certain of these accounts entitle the Bank’s clients to the privilege of discounting paper; others allow nothing more than the depositing of funds and incidental conveniences. The deposits on open account are not subject to “stoppage of payment.” The Bank inquires respecting the solvency and reputation of everyone wishing to open an account. It requires that an application be addressed to the governor, which must be accompanied with the signatures of three known persons, from whom its representatives thereupon seek information. If the inquiry proves satisfactory, the petition is submitted to the General Council, which rejects the application or pronounces the account open. No minimum deposit or minimum balance is exacted. With the opening of the account, privileges are conceded as follows: Funds deposited in the Bank may be drawn upon by drafts or cheques payable in Paris, or at the branches or subsidiary offices. The service of cheques and drafts from place to place is free, if they are intended to transfer money on which the Bank has already charged a commission, and if they are drawn within five days after such profitable transaction by the Bank. Otherwise a commission of .05 per cent. is charged, with a minimum of fifty centimes. The next privileges are to make notes and acceptances payable at the Bank; to pay by cheques or transfers for notes presented by the Bank messengers at maturity; to be credited for transfer vouchers obtained from other accounts or even from third parties having no open accounts; to be credited with advances on Edition: current; Page: [80] stocks, etc.; with dividends on stocks deposited at the Bank, and with dividends on the Bank’s shares, and to have paper collected or discounted. The following is a statement of the open accounts of the Bank in each of a series of years from 1810 to 1894, inclusive:

Statistics of Open Accounts, in Millions and Hundred Thousands of Francs.
YEARS. Paid In on Open Account. Paid Out on Open Account. BALANCES.
Maximum. Minimum. Average.
1810 1,794.5 1,766.3 59.3 19.0 37.2
1820 3,105.3 3,087.9 77.6 40.5 56.6
1830 4,635.5 4,612.3 87.4 38.0 58.7
1840 4,914.8 4,909.3 87.8 45.7 56.5
1850 5,665.7 5,667.0 127.2 87.4 103.5
1860 18,464.3 18,462.4 256.0 174.5 209.2
1870 27,141.9 27,194.1 625.2 322.1 402.6
1880 43,775.0 43,768.9 482.8 321.7 411.5
1885 40,486.3 40,522.0 507.6 288.9 378.2
1886 45,527.9 45,505.8 1,461.6 197.6 462.9
1887 42,766.2 42,762.8 556.5 287.0 371.5
1888 47,358.8 47,702.4 457.8 298.8 378.5
1889 52,255.1 52,270.7 645.3 343.1 461.3
1890 50,306.5 54,329.8 492.3 311.5 401.9
1891 60,189.3 60,198.2 1,442.6 252.5 433.1
1892 48,736.7 48,693.3 536.3 323.7 419.5
1893 48,822.2 48,795.2 501.5 329.8 405.3
1894 56,783.9 56,950.5 1,083.5 351.9 445.1

OPEN DISCOUNT ACCOUNTS.

In addition, the Bank opens current discount accounts, for persons who do not reside in localities having a branch or subsidiary office. These accounts are operated like the regular ones above described, excepting that all transactions are made by correspondence. The holders of open accounts having the privilege of discount may present commercial paper, merchandise warrants, and cheques on cities where the Bank has branches or subsidiary offices, and on “attached towns”; but in the case of “attached towns” only paper maturing on the 5th, 10th, 15th, 20th, or last day of the month is admitted. Notes and warrants must not have more than three months to run; the former must bear three signatures, the latter, two at least. The rate of discount is uniform for all paper and at all places. It is charged for a minimum of five days’ interest for paper drawn on Paris and the branch towns, and eight days’ for paper payable at places other than the place of presentation. The following are the statistics of the Bank’s discount Edition: current; Page: [81] operations for each year of the eighteen enumerated, extending from 1810 to 1894:

Statistics of Commercial Discounts, in Millions and Hundred Thousands of Francs.
YEARS. Single Pieces. Amount. PAPER ON HAND.
Maximum. Minimum. Average.
1810 792.9 187.6 137.7 162.3
1820 114,977 303.7 67.6 26.2 38.9
1830 274,912 617.5 196.1 113.7 144.4
1840 676,676 1,105.8 211.1 152.9 174.7
1850 816,657 1,171.1 149.6 98.3 114.3
1860 3,684,852 4,964.8 582.6 428.6 493.3
1870 4,687,762 6,627.4 1,380.7 494.7 738.1
1880 9,185,577 8,696.9 1,018.2 579.3 758.5
1885 11,660,589 9,250.1 1,116.4 582.7 784.3
1886 11,377,405 8,302.9 1,125.6 413.7 620.8
1887 11,579,661 8,268.7 792.2 430.6 577.9
1888 11,958,137 8,585.4 816.7 495.1 621.1
1889 12,368,431 9,180.4 1,076.7 491.0 713.8
1890 12,583,222 9,534.6 984.6 493.2 669.6
1891 13,277,234 9,968.8 1,437.0 533.3 760.7
1892 13,089,468 8,415.8 870.7 409.7 550.4
1893 13,353,912 8,837.0 802.4 475.9 579.3
1894 13,489,506 8,725.0 1,030.7 360.0 564.6

The discount rate of the Bank of France has been distinguished from that of all other great banks by its stability and moderateness. The following comparison shows its fluctuations during the past ten years:

YEARS. Number of Changes Maximum Rate. Minimum Rate. Average Rate.
1885 None. 3 per cent. 3 per cent. 3 per cent.
1886 None. 3 per cent. 3 per cent. 3 per cent.
1887 None. 3 per cent. 3 per cent. 3 per cent.
1888 3 4½ per cent. 2½ per cent. 3.07 per cent.
1889 3 4½ per cent. 3 per cent. 3.16 per cent.
1890 None. 3 per cent. 3 per cent. 3 per cent.
1891 None. 3 per cent. 3 per cent. 3 per cent.
1892 1 3 per cent. 2½ per cent. 2.70 per cent.
1893 None. 2½ per cent. 2½ per cent. 2.50 per cent.
1894 None. 2½ per cent. 2½ per cent. 2.50 per cent.

Account-holders may deliver to the Bank for collection paper of any description which has no more than five days to run, and have its proceeds placed to their credit after the deduction of a slight commission. For many years Edition: current; Page: [82] the Bank performed this service free, but the business in connection with it developed to such an extent as to be burdensome, and so it was needful to institute a certain collection rate. Since the beginning of the year 1895, it has permitted the opening of deposit accounts, without investigation, by all persons making requests in writing. Such deposit accounts are treated the same as the ordinary open accounts, with the exceptions that they cannot be used for transfers, and that the amounts carried to the credit of depositors become liable to the stoppage-of-payments clause. The rule prohibiting transfers (from one account to another) has for its object to distinguish deposit accounts from open accounts, and to bring the former within the pale of the common law. If the legal provision making open accounts non-seizable should be abrogated, the Bank would have no further reason to retain the restrictions that it has been obliged to adopt.

LOANS AGAINST COLLATERAL SECURITY.

The Bank makes advances upon stocks free of commission. The only formality upon which loans depend is that the applicant’s signature must be certified to by a person of known standing. The properties recognized as legitimate guarantys for advances are determined upon by the General Council; but its determinations must be approved by a decree of the President of the Republic. Advances are allowable only on certain French properties, or such as are of a dependent nature—for example, the Tunis bonds. The rates of advance to deposited security vary according to the character of the bonds. etc., amounting to eighty per cent. for State funds and seventy-five per cent. for Department bonds or for municipal or Chamber of Commerce obligations. Railway bonds and shares are pledgeable for sixty per cent. in cases where they earn income. All the percentages, however, depend upon the current quotations. The minimum loan is 250 francs, and no loans are made for less than a fortnight or longer than three months. At the expiration of three months, the loan can be renewed by simply paying interest, and the process may be repeated indefinitely. The rate for loans is higher than that for discounts, ranging from one-half to one per cent. higher. This is to prevent borrowers from speculating on the difference between the rate of the Bank of France and the exchange reports. The Bank keeps and gratuitously looks after the securities which it holds against loans. It opens special accounts for advances without any formality except written request. When these accounts show a credit in favor of the individuals, they may draw on them by transfer and cheque; they may repay the loans at any time, but a minimum interest of five days is charged on all sums advanced. The provisions as to character of securities acceptable and rates of valuation allowed are the same as in the cases of simple loans. While the Bank undertakes to keep and take charge of stocks gratuitously, accounts that have not previously been profitable to the institution are required to pay for such service.

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The statement following shows the yearly amounts of the loans of the Bank, excluding those to the State, for a series of years extending from 1835 to 1894:

Statistics of Loan Advances, in Millions and Hundred Thousands of Francs.
YEARS. Amounts Loaned. STOCKS PLEDGED.
Maximum. Minimum. Average.
1835 53.4 29.1 6.8 16.2
1840 70.5 22.1 6.4 10.5
1850 76.7 22.0 10.9 18.8
1860 651.6 131.5 116.8 122.8
1870 542.9 163.2 97.1 121.6
1880 325.8 168.9 131.8 143.3
1885 584.6 312.4 273.9 285.2
1886 993.5 728.3 254.1 276.0
1887 589.7 298.2 258.3 270.6
1888 634.5 276.7 250.0 258.7
1889 712.6 288.6 240.2 255.0
1890 811.5 280.3 236.5 248.9
1891 1,980.0 1,294.4 264.1 298.4
1892 751.4 333.1 278.9 296.9
1893 807.1 344.8 283.5 302.8
1894 1,001.8 423.6 273.5 290.8

MISCELLANEOUS FUNCTIONS OF THE BANK.

In Paris and at several of its branches the Bank gives advances on foreign moneys and on gold and silver bullion at the rate of one per cent. annually. The minimum term of such loans is for thirty-six days, with interest, which is at once deducted from the sum advanced. Loans may be continued beyond that period, but after the thirty-six days interest is due only per diem. The smallest loan given is 10,000 francs. These loans on bullion and money constitute a rather important item in the transactions of the Bank.

The Bank receives on free deposit values of every nature, charging trust fees. Stocks and like instruments are received at the windows of the Bank and all its branches and subsidiary offices, but are retained for safe-keeping only at Paris, Bordeaux, Lille, or Marseilles, these being the only cities that have a system of safes adapted for the purpose. The depositor is given a receipt for each delivery. Deposit receipts are not transferable by indorsement.

The Bank collects the dividends and interest coupons on the instruments on deposit. The accrued income is credited to the account of the owner; it may be paid to him at any branch or subsidiary office, and may even be mailed to him. The Bank also cares for collections of income on foreign Edition: current; Page: [84] bonds deposited at Paris; undertakes to collect bonds called in; makes payments on assessed stocks; exchanges stock certificates, and attends to stamping formalities on securities.

Agreeably to an arrangement with the Russian Government, any holder of Russian public funds may deposit them without charge at the Bank, and the certificates of such deposit will be valid for the value of the stocks represented. This arrangement is designed to neutralize the inconvenience resulting from Russian laws on the subject of lost or stolen negotiable property. The Bank also engages to sell and purchase stocks on ’Change for cash, or on the security of a deposit of stocks, or on a margin.

Statistics of Deposits of Stocks in the Bank of France on December 24th of Each Year.
YEARS. Number of Depositors. Number of Transactions. Number of Shares. Value at Daily Quotations Millions and 100,000 Francs.
1855 6,182 23,783 608,667 495.7
1860 18,226 66,562 1,634,109 916.1
1865 27,976 110,154 2,764,595 1,338.2
1870 22,024 86,695 2,243,517 987.6
1875 24,690 110,057 2,564,068 1,456.2
1880 27,168 130,353 2,601,467 1,901.2
1885 39,899 255,932 4,513,104 3,113.5
1886 40,776 267,960 4,599,959 3,203.8
1887 41,933 274,683 4,614,614 3,265.1
1888 42,738 283,249 4,682,658 3,333.3
1889 45,034 301,589 5,277,035 3,642.3
1890 46,558 323,917 5,795,157 3,988.5
1891 48,977 352,317 6,262,449 4,214.6
1892 50,294 354,131 6,234,822 4,281.1
1893 51,272 359,006 6,269,908 4,281.2
1894 51,955 376,666 6,634,650 4,525.4

The Bank receives coin on deposit from any person, and gives a receipt payable on presentation, but not transferable by indorsement, the coin being returnable only to the depositor individually or to the person holding his power of attorney. It also receives in trust diamonds, and accepts in transit packages of the precious metals coming from abroad, which it surrenders to the consignees on bills of lading. At Paris, at the branches, and at the subsidiary offices, bills of exchange to order are signed, which the Bank sells at a commission of five centimes per 100 francs to those who wish to make transfers of accounts to towns having affiliated establishments. Finally, it buys and sells the precious metals. All transactions not authorized by the laws and regulations are prohibited.

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SECTION V.: RELATIONS BETWEEN THE BANK AND THE STATE.

OBLIGATIONS TO THE STATE.

THE Bank is required to issue paper money; it is its duty to keep such issues under constant control, and it must see that the privilege is not abused. These general provisions are thoroughly recognized, but the means of safeguarding them vary. So far as the administration of the institution of the Bank of France is concerned, the State contents itself with reserving the right to appoint the governor and under-governors. The governor, by refusing to sign decisions of the General Council, can prevent their taking effect. This is a practical veto power. He cannot make decisions, but can unmake them. The same result could be obtained if the Government should name the censors and confer on them the right of veto, leaving the shareholders, or rather the regents, free to select at pleasure the persons charged with the executive management. The adoption of this alternative plan was urged by the Bank upon the Government from 1814 to 1820. However, the various factors interested in a wise direction of the Bank have been pretty evenly balanced up to the present time; and, although the State’s influence has occasionally appeared to be unduly predominant, neither injury nor abuse has resulted.

THE TREASURY ACCOUNT OF THE BANK.

Aside from the function of control, the State’s relations with the Bank are not different from those of individuals. The Bank carries an open account with the Treasury, which is in nowise distinguishable in form from the ordinary open accounts of merchants. The Treasury pays into the Bank the funds at its disposal and draws against them as required. The Bank, without charge, receives at its branches State funds, and transfers them to such places as the Minister of Finance may indicate. Lately, all these transactions have been performed gratuitously.

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Statistics of the Treasury’s Account, in Millions and Hundred Thousands of Francs, for a Series of Years from 1810 to 1894.
YEARS. Paid In by the Treasury. Payments on Behalf of the Treasury. BALANCES.
Maximum. Minimum. Average.
1810 296.4 274.4 49.7 6.4
1820 251.4 234.5 31.2 0.3
1830 354.6 364.0 22.7 0.2
1840 310.1 360.1 193.9 105.5
1850 554.5 550.6 90.7 34.7
1860 1,180.8 1,371.8 293.7 118.7
1870 1,537.3 1,703.5 227.9 8.4
1880 2,179.6 2,313.1 347.9 146.2
1885 2,857.6 2,852.4 243.7 70.9 155.0
1886 4,384.8 4,588.4 1,451.0 45.3 288.8
1887 2,646.0 2,584.8 327.9 134.9 170.6
1888 2,578.0 2,686.0 399.6 95.1 280.5
1889 2,556.8 2,588.8 352.2 61.4 315.5
1890 2,951.9 2,831.2 360.3 87.3 188.0
1891 4,758.4 4,877.9 1,834.2 68.1 290.5
1892 3,037.6 2,972.2 459.6 138.9 315.5
1893 3,732.2 3,662.2 311.7 36.5 164.7
1894 3,664.1 3,673.6 264.6 74.4 189.8

Besides its account current, the Treasury, by a contract of the date June 10, 1857, which is a quasi-adjunct of the act renewing the Bank’s charter, reserves to itself a permanent loan of 60,000,000 francs. The mechanism of that particular loan is rather complicated, and we will explain it somewhat in detail. The Treasury has an open credit of 60,000,000 francs, which it can use at its convenience, in whole or in part, and at any times desired. The Bank holds security for the loan in the shape of vouchers. The rate of interest on that loan is based on the rate for commercial paper, but must not be in excess of three per cent. The Treasury, consequently, enjoys the benefit of all reductions of discount below the three per cent. rate. Moreover, the Treasury’s current discount is regulated by the showing of its credit balance, under the arrangement that, if the Treasury’s credit at the Bank exceeds, or is equal to the advances made by the Bank, the Treasury owes no interest; otherwise, it owes interest on the difference. In 1878, the original loan of 60,000,000 francs was increased by 80,000,000 francs, so that the Treasury has a credit of 140,000,000 francs at its disposal, under conditions that will be explained. The amounts drawn from the additional eighty millions are liable to a maximum interest rate of one per cent. per annum. In order to clear up whatever may be obscure in the foregoing, let us suppose that, on a certain date, the loan account shows a debit of 140,000,000 francs and the current account a credit of 220,000,000 francs; Edition: current; Page: [87] in that case, the Treasury would owe no interest. On the other hand, suppose that, on some other date, there is a loan account debit of 140,000,000 francs and a current account credit of 60,000,000 francs, then the Treasury would owe interest, but only at the rate of one per cent. for the difference of 80,000,000 francs, since the original loan of 60,000,000 francs has not been encroached upon at all. If, however, the Treasury’s debit on its loan account should be 140,000,000 francs, and its credit on its current account only 50,000,000 francs, the difference of 90,000,000 francs would be subdivided into two categories for interest purposes, 80,000,000 francs being chargeable with one per cent. interest and 10,000,000 francs (on account of the original item of 60,000,000 francs credit) with the current interest rate of commercial paper, not to exceed three per cent.

It is probable that when the Bank’s concession is renewed the interest on the 140,000,000 francs will be stopped. This will involve but slight sacrifice for the Bank; for, with the system of compensation as adopted, the interest paid by the State, in the aggregate, is quite insignificant.

CONTRACTS BETWEEN THE TREASURY AND BANK.

The Bank is obliged to render to the State all services which may reasonably be demanded of it. These services, running through the entire period of the Bank’s existence, have been innumerable, and nearly all of them have led to special agreements or contracts. In general, such understandings have been in relation to discounts of Treasury vouchers or loans for more or less extended periods. The proposals of the Government are submitted to the General Council, which accepts them with such modifications as are deemed proper. The most important of all the contracts thus entered into was the one of July 3, 1871, establishing the method of reimbursement for the advances allowed during the war and the insurrection of the Commune. The open credits amounted to 1,530,000,000 francs. They were canceled by annual payments of 200,000,000 francs, interest being fixed at one per cent. Up to the present, the Bank has never been subjected to the necessity of sharing profits with the State or paying a royalty for its concession. Former governments have always taken the position that the privilege of issuing notes was not granted to the Bank in its own interest, but for the advantage of commerce and the State, and that ample recompense for the monopoly was afforded by the undivided responsibility of the privileged institution and the valuable services which it is required to render.

TAXATION OF THE BANK.

The Bank is liable to all taxes that are imposed upon ordinary banking institutions or houses; but it pays no others, unless the stamp duty on the note circulation be considered a special tax. That duty is calculated in the following manner: Each year the Bank determines the average daily amount Edition: current; Page: [88] of its productive transactions (discounts, loans, etc.). The share of average circulation corresponding to the productive operations is taxed at the rate of fifty centimes for each 1000 francs; on all above that figure the tax is only twenty centimes per 1000. The yearly payments of taxes by the Bank, from 1860 to 1894, have been as follows:

FRANCS.
1860 567,534
1870 922,200
1880 2,057,149
1885 2,487,210
1886 2,268,327
1887 2,222,897
1888 2,198,986
1889 2,270,038
1890 2,384,621
1891 2,769,135
1892 2,497,789
1893 2,531,943
1894 2,532,481
Edition: current; Page: [89]

SECTION VI.: ADMINISTRATION OF THE CASH FUND AND THE CIRCULATION.

BASIS OF NOTE ISSUES.

A BANK of issue, whatever its functions, has for its first duty the regulation of the paper and coin circulations—the maintenance of the two on a footing of perfect equality. The Bank of France maintains such an equality by a very simple process. It issues notes only as equivalents for commercial paper, or loans on securities or on gold or silver. It is careful in accepting the commercial paper offered, which must be hedged about by all kinds of guarantees; so that it has only small losses to apprehend on this account. Consequently, if the Bank should cease to exist, the liquidation of its affairs could be effected within three months at the outside. It would begin by redeeming its notes with the coin in its vaults; then the commercial paper falling due daily would provide for the redemption of notes issued on the strength of such resources, and, finally, at the end of three months, the supply of coin and the supply of commercial paper would be exhausted, so that not a single bank note would remain in circulation. Of course, it will be answered that, while this is the theory, things would work differently in practice—that, for instance, the signers of commercial paper would not pay at maturity. That case has been foreseen, and in order to provide for such an eventuality, the Bank possesses a capital and a reserve. The capital of the Bank is not carried in the business in cash. It consists of consols. This plan has often been criticised; but it is rational enough. The Bank operates by the means of its notes, which constitute a loan, without interest, given to those who accept them. The security offered is the value of what the Bank has received in exchange for the notes; if that security is sound, the bills are good; but if bad, the Bank must suffer the consequences of its lack of discernment and pay its bills out of its private resources—i. e., by drawing at first upon its reserves and then upon its capital. In this order of things, the capital and reserve are to be regarded as a mere guaranty, and Edition: current; Page: [90] it is but natural to place them in the form of consols, which is the mode of procedure used everywhere in the investment of guaranty funds.

MECHANISM OF THE DOUBLE STANDARD.

The capital and the reserves constitute, in a manner, the invisible security for the bank notes; but the visible security is the coin of the Bank in the first place, and the stock of commercial paper in the second place. The hard cash of the Bank comprises the coin paid in against notes, coin collected on commercial paper, and purchases of gold, which purchases are always effected at par, or at less. The Bank’s coin consists of both gold and silver, which are received by the Bank on precisely the same footing, and serve equally well for payments. Silver is preserved on an exact par with gold in French circulation, and four five-franc silver pieces may be exchanged at any time for a twenty-franc gold piece, notwithstanding the considerable decline in the market value of silver bullion. This phenomenon is easily explained. The quantity of silver in existence in France does not increase, because, since 1878, the coining of silver has been suspended entirely. Thus the actual supply of five-franc silver pieces—which M. Foville estimates at the probable maximum of two milliards (2,000,000,000) of francs—cannot increase, but can only be diminished, in consequence of use and loss, and also in view of the contingency that the Latin Union may be dissolved by giving back to Belgium and Italy their silver coins. These two milliards of silver money are really in excess of the country’s needs. What is not required by the people flows back into the Bank, whose balances show an almost uniform amount of twelve hundred to thirteen hundred millions of silver. It is impossible that the country, with such a disbursing institution as the Bank of France at its service, can ever suffer from either an excessive or an insufficient silver circulation. Silver money has its fixed place in the economy of the country, and although its intrinsic value is at the very best only half its conventional value, it certainly would acquire a premium if it should become disproportionately scarce; in other words, one would, in that event, be obliged to give one twenty-france gold piece and some centimes for four five-franc silver coins. It is really impossible to do without the five-franc silver piece, which is the preferred coin of the country-folk; and neither the five-franc gold piece, which is too light, nor the five-franc bank bill, which is too perishable, could supplant it. Thanks to the limitation which has been placed upon the coinage of silver, and to the protection which the Bank thus enjoys against an over-supply, the silver money easily preserves its standard value. The ability to freely use silver at par relieves the Bank from the necessity of raising its discount rate, as the Bank of England does, when a demand for gold is manifested abroad. As it has the option of redeeming its notes and settling its standing accounts in five-franc silver pieces, it simply exacts a premium for the delivery of gold. Persons who desire to make a profit on gold are the only ones who have to pay in such instances; whereas an increase of the discount rate would affect Edition: current; Page: [91] merchants whose transactions are in notes or credits, the same as bullion-dealers who derive advantage from exportation. This practice of the Bank’s, to be sure, has something arbitrary about it, which is rather offensive at first thought. But when it is considered that a high and permanent premium on gold would be equivalent to a depreciation of paper currency, it will be recognized that while the Bank may counteract certain exchange operations by a defensive premium, it could not, without great injury to itself, and even at the risk of its credit, proclaim the inferiority of its own paper in relation to gold. To sum up: This mechanism of the double standard works to perfection, and has successfully stood the test of a long experience, despite all the criticisms of theorists, because in practice it gives rise to no embarrassment or inconvenience.

MAXIMUM OF THE CIRCULATION.

We cannot say so much about the operations of a legislative programme of comparatively recent enactment. When the forced currency was authorized in 1870, the issues were at first limited to eighteen hundred millions, then twenty-four hundred millions, then twenty-eight hundred millions, and, finally, thirty-two hundred millions. Upon the abolition, in 1878, of the forced currency measure, the Government retained the legal limit of 3,200,000,000 francs, which was afterward raised to thirty-five hundred millions, and later to four thousand millions. In times of forced currency a maximum limit of issue, based on the circumstances of the coin on hand and the probable needs of the public, is absolutely indispensable, since the Bank cannot rely upon the indications of plethoric issue afforded by the return of notes and the exit of coin, but obtains its sole information from the depreciation of notes on the exchanges, and when such intelligence is received the mischief has already been done. For this reason, a limitation, within narrow bounds, of the amount of bank notes that can be thrown into circulation, is needful whenever a forced currency prevails. On the other hand, during normal periods, the notes issued in excess return to the Bank, and the circulation regulates itself automatically without legislative intervention. Accordingly, a provision for a maximum issue of three and one-half or four milliards lacks practical significance and serves no definite purpose. And when the Bank finds itself held to such a limit it can no longer issue notes instead of paying gold, and the public, willy-nilly, has to take metal, to its great discontent, as happened several years ago. Projects for limiting circulation have engaged the imaginations of legislators of all countries—projects to ensure artificially what is brought about naturally. The circulation is always at its natural level when the bank which created it is in condition to redeem its notes; in other words, when the liabilities exactable on demand are covered by available assets.

The legal-tender quality of the notes, or obligation of individuals and public officers to accept them in payment as actual money, dates only from Edition: current; Page: [92] 1870. This is a provision that the Bank has more reason to complain of than to regard with satisfaction, since it gives root, in the public mind, to the idea that if a bank note cannot be refused, the Bank, on the other hand, cannot decline to redeem a counterfeit bill. It would be more advantageous to leave everybody at liberty to take or reject the Bank’s paper, as may appear convenient.

Statistics of Coin on Hand and the Bank’s Circulation, in Millions and Hundred Thousands of Francs, 1810 to 1894.
YEARS. COIN ON HAND NOTE CIRCULATION
Maximum. Minimum. Average Maximum. Minimum. Average.
1810 50.8 34.1 42.0 104.1 92.2 101.2
1820 218.3 161.8 194.9 171.9 122.2 153.8
1830 172.5 104.3 145.0 238.6 201.5 223.6
1840 261.2 216.3 246.9 255.3 203.8 223.4
1850 482.1 427.0 457.8 515.5 436.3 485.6
1860 573.0 411.4 513.5 805.8 703.6 749.6
1870 1,318.5 505.3 1,130.7 1,814.4 1,359.0 1,544.3
1880 2,103.6 1,763.7 1,974.1 2,481.3 2,206.8 2,305.4
1885 2,281.5 2,019.9 2,176.4 3,063.9 2,719.4 2,846.0
1886 2,525.8 2,220.5 2,422.7 2,973.7 2,658.1 2,789.2
1887 2,401.8 2,316.0 2,361.5 2,929.8 2,551.4 2,719.3
1888 2,347.1 2,242.1 2,301.0 2,891.3 2,516.8 2,676.4
1889 2,598.6 2,223.7 2,398.4 3,123.1 2,616.8 2,876.1
1890 2,592.8 2,360.6 2,513.2 3,259.8 2,893.4 3,060.4
1891 2,641.8 2,358.2 2,553.8 3,288.8 2,922.9 3,084.6
1892 2,983.5 2,587.2 2,826.5 3,335.7 3,037.0 3,151.3
1893 3,004.6 2,786.1 2,956.0 3,589.7 3,255.9 3,445.5
1894 3,304.6 2,951.1 3,083.7 3,675.1 3,314.7 3,476.5
Classification of the Coin on Hand in the Bank of France at the end of each Year, in Millions and Hundred Thousands of Francs, 1870 to 1894.
YEARS. Gold. Silver. Total.
1870 428.8 68.4 497.2
1880 552.4 1,221.8 1,774.2
1885 1,155.2 1,083.6 2,238.8
1886 1,233.1 1,140.0 2,373.1
1887 1,105.6 1,190.0 2,295.6
1888 1,006.0 1,228.0 2,234.0
1889 1,261.7 1,242.0 2,503.9
1890 1,120.2 1,240.8 2,361.0
1891 1,336.8 1,252.7 2,589.5
1892 1,704.9 1,267.0 2,971.9
1893 1,702.5 1,261.3 2,963.8
1894 2,060.8 1,238.0 3,298.8
Edition: current; Page: [93]
Circulation by Denominations (in francs) of Notes of the Bank of France on the last Thursday in January, 1885, 1890, 1894.
NOTES OF 1885. 1890. 1894.
5,000 25,000 25,000 25,000
1,000 1,160,976,000 1,221,176,000 1,339,502,000
500 290,587,500 238,106,500 262,821,000
200 524,800 490,200 474,400
100 1,281,976,600 1,518,194,100 1,765,716,300
50 162,734,450 191,655,000 378,059,600
25 505,825 448,300 422,975
20 2,698,980 1,835,280 1,550,160
5 820,130 750,375 721,040
Old notes 423,175 431,175 429,175

The term “old notes” in the preceding table signifies all notes issued and never returned, which, whatever their age and the probability of their having been destroyed, are always considered to be still in existence. In no case are they declared out of circulation. The Bank does not profit from destroyed or lost notes. If the Bank should be compelled to wind up its business, some period of time would be fixed for the withdrawal of its currency from circulation, and those notes which had not been returned at the expiration of that time would be pronounced void and their value accredited to the State. Everybody’s mind is made up in favor of such a course, although as yet no law exists directing any disposition of the old notes, either for the benefit of the State or that of the Bank. The last plan of renewal of the Bank’s charter prescribed that the amount of the notes of old issues which had not been returned should be paid over to the State, and that in case of presentation of these bills they should be redeemed for the account of the State.

PROFITS ON CIRCULATION.

In looking at the imposing aggregates of the coin and circulation of banks of issue, the thought readily occurs to inexperienced minds that the privilege to make bank notes is something akin to the Philosopher’s stone, and there is temptation to repeat the expression of an Italian economist, that the domain of the ideal and miraculous knows no bounds. The reality, however, is much more prosaic. The bank note is not a creation of wealth, but merely a medium for the representation of values previously established; and unfortunate is the country that loses sight of this elementary truth. A bank’s credit bears no relation to its circulation, except in so far as the individual accepting the note has confidence that the institution has something at its disposal, or which will be ready at short notice, wherewith it can give coin for paper. Taking into consideration all the restrictions, legitimate and Edition: current; Page: [94] necessary, although troublesome, which are placed upon banks of issue, the profits accruing from the power to emit paper currency are, in truth, decidedly unimportant. Estimates of these profits have been made in various countries and by various processes. A correct calculation may be arrived at in the following manner: The circulation of a bank of issue is composed of two distinctive parts—(1) that part with which the bank performs its discount operations, makes its loans and advances, and otherwise transacts business that yields a gain; (2) that part which simply serves the purposes of exchange for coin, and consequently affords no profit. The paper money of the first variety may be styled productive circulation, and that of the second variety unproductive circulation. Let us suppose the average circulation to be three and one-half billions, and the average of discounted paper, advances, etc., eight hundred millions. The bank therefore needs eight hundred millions of notes to transact its business, while twenty-seven hundred millions of notes are passed to the public, not for the bank’s advantage, but for the accommodation of those who prefer paper to coin—an exchange proceeding which brings nothing to the bank, but is, on the other hand, burdensome to it. If the bank had only its own interest in view, it would, by this showing, have only eight hundred millions of notes in circulation. If we suppose the right of note-issuance to be withdrawn, the bank could, instead of using notes, do the same amount of business by attracting deposits of funds and paying therefor a consideration, say of ½ per cent.—the rate that for more than fifteen years has been allowed in France on open accounts repayable at demand. Under such a policy the bank would have to pay ½ per cent. of 800,000,000 francs, or 4,000,000 francs. This figure represents the amount that is saved by notes, and is accordingly the gross profit obtained from the right of issue—from which the cost of manufacturing the notes and the stamp tax on the notes must be deducted.

The following table shows the profits of the Bank of France on its circulation during the last five years, reckoned on the basis of the preceding demonstration:

Profits on the Note Circulation of the Bank.
YEARS. Productive Circulation, in Millions and Hundred Thousands of Francs. Gross Profit at One-half Per Cent. Francs. Cost, etc. Francs. Net Profit Francs.
1890 951.9 4,759,000 2,035,000 2,724,000
1891 1,082.4 5,412,000 2,236,000 3,176,000
1892 1,880.6 4,403,000 2,170,000 2,233,000
1893 916.5 4,082,000 2,217,000 1,865,000
1894 870.2 4,351,000 2,145,000 2,206,000
Edition: current; Page: [95]

Thus the value of the privilege amounts to comparatively little in France, and it might even be extinguished completely if the private banks, as the tendency runs, should succeed in doing away with interest on open accounts. Moreover, the profits on circulation are only a minor item of the Bank’s gross profits, as the following figures show:

YEARS. Profits on Transactions. Francs. Profits on Investments, etc. Francs. Total of Gross Profits. Francs.
1885 37,990,706 13,667,451 51,658,157
1886 32,677,526 12,620,192 45,297,718
1887 30,801,441 13,336,403 44,137,844
1888 31,688,323 12,158,421 43,846,744
1889 36,060,887 12,974,935 49,035,822
1890 33,029,688 13,809,736 46,839,424
1891 36,368,775 12,621,275 48,990,050
1892 28,705,864 12,618,691 41,324,555
1893 28,406,170 11,915,725 40,321,895
1894 27,371,399 11,418,093 38,789,492

EXPENSES AND DIVIDENDS.

The running expenses of the Bank are very considerable. It has a numerous staff; it pays, aside from the stamp tax on circulation, all the ordinary taxes to which banks are liable, and it is compelled to maintain branches at a loss; so that when the expenses are placed against the profits, the net results for the shareholders come within tolerable bounds.

YEARS. Taxes and General Expenses. Francs. Net Dividend per Share. Francs. Value per Share at End of Year. Francs.
1885 15,529,718 185 4,690.00
1886 15,643,284 155 4,300.00
1887 15,371,732 150 4,280.00
1888 15,801,427 142 3,932.50
1889 15,588,588 152 4,067.50
1890 15,931,446 157 4,320.00
1891 16,202,509 159 4,580.00
1892 16,279,661 130 3,875.00
1893 16,438,878 124 4,160.00
1894 17,292,792 113 3,645.00

ACCOUNTS OF THE BANK.

Aside from the annual report of its transactions, the Bank publishes weekly a balance-sheet, of which the following is a specimen:

Edition: current; Page: [96]
PARIS AND BRANCHES. September 5, 1895.
ASSETS.
Coin in hand at the Bank and branches, September 5th: FRANCS.
Gold 2,048,201,341
Silver 1,259,082,302
3,307,283,643
Bills receivable over due 42,694
Comm. bills receivable discounted in Paris, not yet due 231,602,694
Treasury vouchers
Bills receivable of the branches 264,242,269
Advances on bullion in Paris 878,000
Advances on bullion in the branches 129,300
Advances on public securities in Paris 136,732,905
Advances on public securities at branches 166,843,618
Advances to the State 140,000,000
Income bonds of reserve fund 10,000,000
Income bonds of reserve fund (absorbed banks) 2,980,750
Convertible income bonds 99,626,975
Inconvertible income bonds 100,000,000
Building and furniture of the Bank 4,000,000
Real estate of the branches 15,476,959
Expenses of the management of the Bank and its branches 3,274,291
Use of the special reserve 8,407,444
Divers accounts 86,757,105
Total 4,578,278,682
LIABILITIES.
Capital of the Bank 182,500,000
Profits added to the capital 8,002,313
Convertible reserves { Law of May 17, 1834 10,000,000
{ Former Department banks 2,980,750
{ Law of June 9, 1857 9,125,000
Permanent reserve of the Bank 4,000,000
Special reserve 8,407,444
Bank notes in circulation 3,374,312,930
Back interest on securities on deposit 20,882,695
Notes to order and demand receipts 26,180,711
Account with the Treasury, creditor 271,135,625
Paris accounts 520,831,395
Accounts in branches 69,022,226
Dividends due 2,449,663
Discounts and divers interests 3,596,772
Back discounts of last six months 635,022
Divers accounts 64,216,132
Total 4,578,278,682
Edition: current; Page: [97]

Most of the items in this statement are perfectly comprehensible, but a few explanatory remarks may not be superfluous. “Coin in hand” is the total amount of gold and silver specie and gold bullion held by the Bank; it has no silver bullion. The silver of the Bank comprises French, Belgian, Italian, Swiss, and Greek five-franc pieces, and the fractional pieces of the same countries, excepting Italy—Italian small coins having been returned.

“Bills receivable, matured yesterday, payable to-day,” are bills that have not been presented on the day of maturity to the parties having to pay them, and which will be either paid or protested on the day of the statement.

“Paris bills receivable” signifies commercial paper held by the Bank on the day of publication of the balance-sheet. As the regulations of the Bank do not forbid the discounting of paper payable abroad, the Bank, in order to provide for such transactions, has a separate department for “bills receivable, foreign,” which, however, is of importance only in exceptional cases.

The term “Treasury vouchers” will be understood by recalling what we have said in Section V on the relations between the Bank and the State concerning advances made by the Bank to the Treasury for discounts of vouchers. When such discounts are effected, the vouchers on hand constitute the item “Treasury vouchers.”

“Bills receivable of the branches” are the commercial paper of the Bank payable at the branches, subsidiary offices, and attached towns.

“Advances on bullion” are the loans allowed by the Bank on gold bullion and foreign moneys, enabling the holders to take advantage of fluctuations in the market. Such transactions are of little consequence.

“Advances on securities” are the aggregate of current loans, either direct or on open account.

“Advances to the State” figure constantly in the balance-sheet as 140,000,000 francs, representing the permanent loans of sixty and eighty millions already alluded to.

“Income bonds of the reserve fund.”—The Bank, by the provisions of the laws of the 24th Germinal, Year XI, and April 22, 1806, had established a very considerable reserve out of its profits. Various subsequent laws have authorized the distribution of a portion of this, and the statutory reserve has been fixed at ten millions. It is unnecessary to point out that all the income bonds of the Bank figure in the statement at their purchase price, which at times is fifty per cent. below their actual value.

The item “Convertible income” represents the amount of the capital of the Bank, 91,250,000 francs before its doubling, to which are added the profits on that capital yielded by the increase of the discount rate above six per cent. and the remainder of account left at the doubling of the capital in 1857—the latter item being 375,000 francs.

“Inconvertible income.”—The 100,000,000 francs carried in the balance-sheet under this head is the amount placed in income bonds in 1857 in consequence of the doubling of the capital. This item is not to be considered Edition: current; Page: [98] among the available assets, because there has never been any legislative act designating the bonds in question as negotiable.

The “Building and furniture of the Bank” and “Real estate of the branches” are estimated in the statement at much less than their real value on account of allowances made in the sinking fund. It is probable that 40,000,000 francs could be realized by their sale.

The “Expenses of the management of the Bank and branches” are the aggregate of general expenses since the beginning of the year.

“Use of the special reserve.”—This is a special item, originated at the end of 1871, to comprise the exceptional profits of the years following the war, these profits being applied to provide for extraordinary charges that may be cumbersome, and to make up for any insufficiency of dividends.

The item “Divers accounts” represents customers’ accounts not otherwise classified.

The “Liabilities” side of the balance-sheet is headed by “Capital of the Bank.” We have already traced the history of the Bank’s capital and its variations, and shown what part it plays. There is no need to recur to this subject.

“Profits added to the capital” are the profits made out of the increase of the discount rate above six per cent. They have been invested in income bonds, which figure among the convertible income bonds.

“Convertible reserves and special reserves” form the counterpart to the income bonds of the assets. They have served for the old reserves and the reserve established at the end of 1871.

The “Permanent reserve of the Bank” represents the value of the Paris building and its furniture, according to an estimate made in 1834.

“Bank notes in circulation.”—This is the largest item in the liabilities. The maximum aggregate of the notes is fixed by law at four milliards (billions).

“Back interest on transferred or deposited securities.”—The Bank collects gratuitously dividends on securities, and retains the proceeds on account of loans or on deposit, crediting the corresponding accounts accordingly.

“Notes to order and demand receipts, payable in Paris or at the branches.”—The Bank, for a previous consideration and commission, issues notes to order in favor of anybody asking for the privilege, and receives cash on deposit. These transactions are represented by the above item.

The “Treasury account” embraces the remittances or payments made to the credit of the Treasury, either by the Treasury direct or by third parties. The sums carried on that account are always at the Treasury’s disposal, and can be withdrawn in Paris at once or in the provinces after notice.

“Open accounts in Paris and the branches”—the credits of account-holders, whereof they can dispose either by transfers or by cheque without previous notice.

Edition: current; Page: [99]

“Dividends due” are dividends on shares of the Bank which have not yet been cashed by the owners.

“Discounts and divers interests” in Paris and the branches are profits realized since the beginning, not taking into account the dividends on income bonds belonging to the Bank.

“Bank discounts of the last six months” stand for a portion of the income during the previous half-year from discounted paper maturing in the current half-year, which income belongs to the profits of the current half-year.

The “Divers accounts” are miscellaneous accounts of comparative unimportance.

ECONOMIC IMPORTANCE OF THE BANK’S BALANCE-SHEET.

The conspicuous rôle of the Bank as a medium of credit in France makes its balance-sheet a document of primary significance. Its varying holdings of commercial paper are more or less indicative of the activity of business. But a study of its accounts as a whole admits of widely different conclusions, which have been discussed with clearness by an economic writer, M. Clément Juglar, and for which the special name of economic meteorology might not inappropriately be coined. M. Juglar has demonstrated, by painstaking observations, (1) that discounts reach their maximum during years of crisis, and are at the minimum in years following the terminations of crises, which he styles years of liquidation; (2) that the coin of the Bank is of minimum amount in years of crisis and of maximum in years of settlement. The author of this treatise has added his observations to M. Juglar’s, and has found that the celerity with which deposited funds of open accounts change hands is at the maximum in years of crisis and at the minimum in years of settlement.

A representation by a system of curved lines of the varying statistics of discounts, coin on hand, and open account transactions gives a very interesting exhibit, exactly similar to barometric charts, from which the prevailing conditions of business may be seen and the probabilities of the future may be forecast as the weather is indicated and prophesied by the barometer. These estimates are general, and are applicable to all countries.

CONCLUSION.

While the Bank of France continues to be by far the most important of French financial institutions, it is not the sole arbiter or the sole dispenser of credit in France. Side by side with it and competing with it, always ready to discount paper as credit institutions, are other banks that have grown and attracted large deposits, which they procure on extremely low terms, thanks to the liberty that they enjoy under quite different conditions than those by which the Bank of France is restricted. They offer a formidable Edition: current; Page: [100] opposition to the Bank, demonstrating that the bank cheque is able to contend victoriously against the bank note, at least in normal times. But when periods of trouble supervene and depositors withdraw their money from the ordinary banks, the Bank of France comes to the front, with its inexhaustible resources, to supply all needs. Its operations, commonplace enough in commonplace eras, become energetic and decisive in emergencies of economic and political distress. Then the Bank is the rock to which all the nation clings. The bank note is accepted in France the same as gold, and even as, in some respects, better than gold. Yet this marvelous instrument is not without its faults. The absolute security that the Bank gives to the holders of its notes, and the aid that it lends liberally to other banks and trade in general, have lulled the public into a kind of sleepy routine. Capital is no longer sought, but flows into the savings-banks, which are managed by the State. Capital, thus diverted, not only takes certain risks, but assumes great responsibilities, instead of fertilizing the country for commerce and industry. Certainly, the Bank of France cannot be reproached with having fulfilled its mission too well; but one may, nevertheless, regret that it operates too much to exempt commerce and banking from the struggle for life. This criticism is not addressed to the Bank, but to public spirit. For the rest, it may well be wished that France might preserve forever the old institution that has served her so long and so beneficially.

Edition: current; Page: [101]

CHAPTER VI.: BANKS AND BANKERS AFTER THE REVOLUTION.

SECTION I.: THE GREAT DISCOUNT BANKS OF PARIS.

NAPOLEON 1. had little liking for speculation. Under his reign the bankers played only a minor part. After the Ouvrard affair, the Government ceased to ask them for special contributions, and, indeed, no longer applied to them at all. As, moreover, the Imperial Government contracted no loan and made no issue of consols, the influence of the bankers was almost nil. Meantime important houses in Paris, whose existence antedated the Revolution, continued to do a large and prosperous business. Several of these are still at the forefront of French finance.

Conditions underwent a complete change with the return of the Bourbons. The indemnities exacted from France by the Allied Powers, and the reimbursements granted to the émigrés for their confiscated estates, required large issues of consols, which were negotiated through the agency of the bankers. Throughout Europe, the governments entered upon an era of loans, and a vast field of activity was opened up to banking institutions, which was continually enlarged until it became necessary to bring together capital for the creation of railroads.

The relations of bankers to commerce in France consist chiefly of discount operations. Banks discount paper with three signatures, but refuse to discount direct for original parties to such instruments. The third signature is ordinarily a banker’s indorsement. It may properly be said that, at the outset, one of the principal aims of the Bank of France was to act as a counterpoise against the bankers and their stock of discount paper.

With the object of rendering access to the privileges of the Bank of France more practicable for ordinary tradesmen, a temporary establishment Edition: current; Page: [102] was founded in 1830, called the Comptoir d’Escompte (Discount Bureau), mentioned in the chapter on the History of the Bank of France. At the time of the Revolution of 1848, the experience of 1830 was put to advantage, and discount bureaus were set up in many places. These concerns, designed as only temporary offices, became permanent in various instances, and several of them are now important banking institutions. The best known is the one in Paris. A decree of March 8, 1848, authorized the formation of the Comptoir d’Escompte de Paris (Discount Bank of Paris), with a capital of 20,000,000 francs, one-third to be supplied by shareholders, and the other two-thirds by the State and the city of Paris. The profits were to accrue exclusively to the shareholders, the State and the city waiving all gains on their investment. This extraordinary arrangement is accounted for by the exceptional circumstances under which the bank originated. The raising of capital in France during that revolutionary period was necessarily attended by great difficulties, and, in fact, could be successfully brought about, for the purpose in view, only by the co-operative action of the Chamber of Notaries and the charitable societies. The Government emphasized its proceedings by setting apart a fund of 60,000,000 francs “for the interests of small trade,” which it advanced to the different discount bureaus, repayable at the end of three years. On the 18th of March, 1848, the Comptoir d’Escompte de Paris began its career with a paid-in shareholders’ capital of 1,587,021 francs in coin—all that had been subscribed up to that date of the 6,666,500 francs capital required to be found by shareholders. In addition, it received one million from the Treasury as a share of the sixty millions fund. With these feeble resources the Discount Bank undertook to come to the rescue of the trade of Paris. In twelve days, from the 18th to the 31st of March, 30,087 commercial instruments bearing two signatures, presented by more than 5000 persons, and amounting to 13,402,167 francs, were admitted to discount. The soundness of the paper offered was passed upon by a Discount Council, or advisory board, of sixty members, selected from all departments of commerce and industry. On each discount transaction five per cent. was retained by the bank, and its equivalent in shares was credited to the individuals having recourse to the services of the institution. The regulations of the bank were narrowly restricted. Its business was confined to the discounting of paper bearing two signatures. Paris discountable paper was limited to 105 days, and provincial paper to sixty days, except such as was payable in cities where the Bank of France had branches, in which cases ninety days’ maturity was allowed. These restrictions soon underwent change. Storage warehouses were established in France, which issued warrants modeled upon the ones that for a long time had been in vogue in England. The Discount Bank received authority to make loans on such warrants as collateral. Sub-Treasury bureaus were created, which deposited their funds in the Comptoir d’Escompte, accepted collateral from their clients, and caused them to sign notes that in turn were discounted at the bank. These Sub-Treasury Edition: current; Page: [103] bureaus proved to be quite superfluous. They were discontinued, and the Comptoir d’Escompte dealt directly with borrowers.

From the beginning of the institution, on March 18th, until July (1848), its total discounts amounted to ninety-three millions and its collections to sixteen millions. The paper rediscounted at the Bank of France showed a total of fifty-nine millions, and the provincial paper sent for collection twenty-two millions. In the second half of 1848, and during the whole of 1849, the bank continued to develop and to render the most valuable aid to the business community of Paris. It gradually lost its special character as a bureau, and took on more and more the aspect of a true bank. It asked for and readily obtained an extension of its charter for six years, from March 18, 1851. Thus assured, for a certain period, of an active existence, the Comptoir d’Escompte broadened the scope of its operations. In February, 1850, it negotiated the loan of the civil list, designed to liquidate the debts of the old civil list and of the private estate of Louis Philippe. In December of the same year, it put in a bid for two millions of consols, which, however, were not awarded to it. In 1851, it opened a subscription for the capital of the Bank of Algeria, and in the month of August it had charge of the subscription lists for fifty millions to the city of Paris.

Its discount business, meantime, showed as follows:

In 1848-49, 124,000 notes for 98 millions of francs.*

In 1849-50, 237,000 notes for 145 millions of francs.*

In 1850-51, 319,000 notes for 215 millions of francs.*

In 1851-52, 382,000 notes for 273 millions of francs.*

THE COMPTOIR’S CAPITAL DOUBLED AND QUADRUPLED AND ITS REGULATIONS CHANGED.

In 1853, the Comptoir d’Escompte’s transactions had reached such magnitude that the inadequacy of the capital was recognized, and it was accordingly increased to twenty millions. This was apart from the original funds contributed to the capital by the State and the city of Paris, which, it was now arranged, should be gradually repaid, the concession being extended to March 18, 1887. At the same time, the regulations were modified. Aside from discounts and the taking up and collecting of commercial paper, the bank was authorized to make loans on securities and to undertake subscriptions to issues of securities for the accounts of third parties. The business still expanded, and the Discount Bank acquired a genuine character of comprehensive public usefulness.

In 1860, the Government inaugurated a free-trade policy, and as the throwing open of the French markets naturally led to sympathetic treatment of French commerce in foreign markets, the Comptoir instituted agencies Edition: current; Page: [104] in France, in the French colonies, and in other countries. In order to provide for the requirements of this enlarged field, it now doubled its capital by the issuance of 40,000 new shares of 500 francs each, which were offered to the public at 580 francs, making its capital stock 40,000,000 francs. A contract was made with the banks of the French colonies, allowing the latter to draw on the Comptoir so as to procure for themselves remittances on France. Prominent among the foreign agencies was that at Shanghai, created in 1860. Through its instrumentality the collection of the war indemnity which the Chinese Government owed to France was effected. This agency had made itself a powerful promoter of direct relations between France and China. Shortly afterward, the Calcutta, Réunion, Bombay, Hong Kong, and Saïgon agencies were founded.

In 1866, the Comptoir, though operating under a capital of 40,000,000 francs, with ten millions of reserve, again found its means utterly insufficient for its vast business, and the shareholders decided on another doubling of capital, which brought the total up to eighty millions. The new shares were sold at 625 francs. Under the provisions of an act relating to joint-stock companies, promulgated in 1867, credit associations increased in number. To keep abreast of the competition, the Comptoir d’Escompte still further extended its organization, opening agencies at Nantes, Lyons, and Marseilles in France, and abroad at London, Alexandria, and Yokohama. At the same time, several other agencies were seen to be unprofitable experiments and were abandoned.

UNFAVORABLE CONDITIONS AFTER THE WAR OF 1870.

After the Franco-Prussian war of 1870, the institution found itself in a difficult position. The circumstances of its agencies in the Orient had been considerably affected by new conditions, such as the opening of the Suez Canal, rapid steamship service, and the construction of telegraph lines, which gave to England marked advantages. The management of the bank, having to struggle against these quite novel embarrassments, devoted itself to plans for recuperating its strength. The Alexandria agency was discontinued in consequence of the dangers occasioned by the financial disorders of Egypt. From 1873 to 1875, every effort was made to develop strength without attempting to grow. In 1876, the bank received substantial reward for this sagacious course. It was intrusted by the French Government with the duty of consolidating and converting the Egyptian debt. In 1877, it lent its services to the Government of Russia in the negotiation of a loan of three hundred and seventy-five millions. But, whilst the affairs of the central office improved, those of the remote Oriental agencies constantly became more troubled. The Saïgon agency was turned over to an independent bank; the Bank of Indo-China, and the agencies at Hong Kong, Yokohama and Réunion, were dissolved. On the other hand, agencies were opened at San Francisco, Melbourne, and Sydney. Although the Comptoir took an Edition: current; Page: [105] active part in the business movement of 1879-81, it managed to avoid the entanglements of excessive speculation, and was not seriously disturbed by the distressing crisis of 1882.

The Comptoir’s concession ran out in 1887, but had been renewed in its original form for an additional term of twenty years. The management now displayed much activity, seeking opportunities everywhere to counteract the diminishing tendency of its discount transactions. Discount business had become a subject of warm rivalry on the part of all credit associations, and, in consequence of the abundance of capital and the low rates for capital, was growing less and less remunerative.

THE COMPTOIR’S COMMITMENT TO THE SOCIÉTÉ DES MÉTEAUX.

Unfortunately, the Comptoir d’Escompte lent its support to a concern styled the Metals Company (Société des Méteaux), which, at its beginning, was a purely commercial enterprise, but was soon drawn into the whirlpool of speculation. The Metals Company had cornered a large stock of copper and tin; and its first purchases, although within reasonable bounds, had exercised a strengthening influence upon the market. Allured by this success, M. Secretan, the head of the company, set out to achieve a colossal operation, analogous to the famous cotton deal of Mr. Biddle, president of the Bank of the United States, in 1839. He entered into contract with a great number of copper mines to force a general rise in prices by a limitation of production. The chief of the Comptoir d’Escompte, without the knowledge of the administrative council of the institution, was a party to several of these contracts, guaranteeing their execution. When the Administrative Council became aware of this, heavy advances had already been made to the Metals Company on copper which, at forced sale, would have occasioned disastrous losses. Throughout the whole of 1888, copper production increased largely as a result of the energy of mines not in the pool; and as consumers refused to pay the prices demanded by the Metals Company, the stock of the company grew alarmingly. Consequently, the Comptoir was obliged to allow enormous advances. Several combinations intended to facilitate the settlement of the Metals Company’s engagements were without favorable issue, and the liabilities soon reached such proportions that the chief of the bank, M. Denfort Rochereau, crushed under the responsibilities he had assumed, committed suicide. A panic ensued, and a terrific run was made upon the Comptoir d’Escompte. The Government, viewing with much concern the probable effects, upon the Paris market and the Comptoir’s commercial clientage, of a discontinuance of payments by so important a house, caused the governor of the Bank of France, the principal bankers, and the heads of the great credit establishments to meet in conference. The outcome was that the Bank of France agreed to advance 140,000,000 francs to the Comptoir, in consideration of guarantys by numerous banking concerns Edition: current; Page: [106] that they would permit it to settle matters amicably. The French and English courts annulled some of these pledges on the score that they were contrary to the by-laws of the bank, and thereupon the Comptoir’s trustees, who had consented to such breaches of the regulations, had to make good a portion of the losses incurred by their fault, and paid in a total of 25,000,000 francs. The settlement was conducted with prudence and skill, and yielded results that the public had hardly dared to hope for. The entire liabilities were wiped out, the loan of the Bank of France was repaid without having recourse to those who had guaranteed it, and almost the entire capital was ultimately recovered.

Statistics of Transactions of the Comptoir d’Escompte, in Millions and Hundred Thousands of Francs.
YEARS. DISCOUNTS. PAPER ON HAND DEC. 31. ADVANCES.
Number of Pieces. Amounts. Francs. Number of Pieces. Amounts. Francs. Amounts. Francs. Outstanding Dec. 31. Francs.
1880 2,924,215 2,344.1 172,819 136.0 207.7 39.1
1881 3,073,632 2,197.6 148,028 111.4 264.9 26.1
1882 2,727,825 2,120.3 113,145 97.9 235.5 25.6
1883 2,722,872 2,087.2 115,026 102.2 216.0 31.5
1884 2,869,445 1,983.9 124,353 86.6 285.1 25.9
1885 2,766,275 1,860.1 121,349 129.2 235.7 17.2
1886 2,661,920 1,735.2 106,967 99.8 202.1 27.3
1887 2,573,039 1,566.9 108,231 93.7 237.5 16.6
1888 2,444,272 1,783.0 95,843 121.5 258.8 11.0
Current Accounts and Deposits.
YEARS. Paid in by Depositors Francs. Drawn by Depositors Francs. Balance on Dec. 31. Francs. Subscriptions, Sales, and Purchases of Public Funds. Francs.
1880 810.7 801.1 103.5 2,959.4
1881 804.6 825.7 82.4 4,168.1
1882 762.9 757.6 87.7 3,326.3
1883 762.2 757.0 92.9 2,412.8
1884 788.7 773.8 107.8 3,833.8
1885 764.6 767.3 105.1 2,435.5
1886 763.5 767.7 100.9 2,485.2
1887 673.4 675.1 99.2 2,778.1
1888 673.6 664.9 107.9 2,482.8
Edition: current; Page: [107]
Transactions of the Agencies.
YEARS. In the Colonies and Abroad. In France. PROFIT AND LOSS. Market Price of Shares on Dec. 31.
Profits. Expenses. Dividends per Share.
FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS.
1880 2,936.7 626.6 14,820,398 8,374,235 46 1002.50
1881 3,443.9 629.1 18,100,013 10,922,424 48 1045.00
1882 3,517.8 681.7 19,401,249 12,193,970 48 990.00
1883 3,561.0 663.4 17,062,504 9,726,300 48 920.00
1884 3,743.0 668.7 18,147,144 10,818,125 48 980.00
1885 3,517.4 710.7 16,808,467 9,522,979 48 997.50
1886 4,210.3 805.1 16,636,928 9,440,989 48 1030.00
1887 4,107.5 746.0 17,726,605 10,295,235 48 1048.75
1888 4,509.0 702.9 18,206,996 10,412,966 50 1055.00

THE NATIONAL DISCOUNT BANK OF PARIS TAKES OVER THE COMPTOIR D’ESCOMPTE.

The downfall of the Comptoir d’Escompte de Paris was a real national calamity, for this institution had been very successful in organizing and serving numerous French interests, principally in foreign countries and the far East. Encouraged by the Government, a new financial combination, comprising representatives of the banking, commercial, and manufacturing interests, undertook its reconstruction, under the general advice and supervision of M. Denormandie, former governor of the Bank of France. M. Denormandie, on April 26, 1889, concluded a negotiation with the liquidators of the Comptoir, whereby its charter and goodwill, together with its real estate and other effects, were acquired. To the old shareholders was reserved preferred right of subscription for the new shares; and, besides, they were to enjoy exceptional benefits in the division of the profits. The capital was fixed at 40,000,000 francs, and a call for an immediate subscription of half the amount was made, which had great success. The new company, adopting the name of Comptoir National d’Escompte de Paris (National Discount Bank of Paris), recovered quickly the ground that had been lost. Its business advanced with such rapidity that on November 5, 1889, it became necessary to provide for more capital; which, accordingly, was raised to 80,000,000 francs, by the issue of 80,000 shares of 500 francs each, at 30 francs premium, 250 francs per share being paid up. In 1891, the company absorbed the Banque de Dépôts et Comptes Courant (Deposit and Account Bank), which had an intact capital of 15,000,000 francs and a splendid establishment in the heart of Paris. It called 125 francs per share of the new issue of stock, exchanging the shares of the Banque de Dépôts et Comptes Courant for absolutely non-assessable new shares, which increased the paidup capital to 75,000,000 francs. The National Discount Bank has since that Edition: current; Page: [108] time continued its successful operations, steadily enlarging the working sphere of the old concern. Besides agencies in France, it has opened offices in Chicago and Madagascar. The Comptoir stands to-day in the first rank of French finance.*

Statistics of the Comptoir National d’Escompte de Paris, in Millions and Hundred Thousands of Francs.
YEARS. DISCOUNTS. BILLS RECEIVABLE ON HAND DECEMBER 31st. DEPOSITS. PROFIT AND LOSS. Market Price of Shares on Dec. 31st.
French Paper. Foreign Paper.
Number of Pieces. Amounts. Number of Pieces. Amounts. French. Foreign. Paid In. Drawn. Balance Dec. 31st. Profits. Expenses. Dividends per Share. Reserve.
1889 1,111,777 620.6 66,634 501.4 61.7 35.9 638.7 548.6 90.1 3,041,250 2,607,633 4.00 643.75
1890 2,444,069 1,616.1 229,823 1,805.3 96.0 43.9 1,533.3 1,500.5 122.9 10,605,714 7,681,873 10.00 2,480,223 638.75
1891 3,018,792 1,781.5 278,624 1,602.1 88.6 28.4 1,852.3 1,866.2 109.0 10,277,505 8,041,913 12.50 3,784,444 520.00
1892 3,461,455 2,391.1 315,310 1,389.2 107.4 41.0 1,941.6 1,913.7 136.9 6,231,634 3,206,316 18.75 4,934,335 493.00
1893 4,110,220 2,947.9 354,528 1,606.4 107.0 46.1 2,043.3 2,032.8 147.4 7,211,772 3,247,736 25.00 5,150,972 502.50
1894 5,231,845 3,738.4 340,355 1,335.8 138.4 33.6 3,053.1 3,007.8 94.7 7,344,565 3,319,508 25.00 5,425,304 564.50
Statement of November 30, 1895.
ASSETS.
FRANCS.
Cash on hand 36,317,562.71
Bills receivable and commercial paper 223,868,965.16
Loans on margin settlements of securities in pledge 24,238,690.14
French colonial banks 11,896,255.12
Correspondents’ collections 23,333,482.30
Customers’ accounts—Debtors 29,082,042.26
Consols, bonds, and securities, inclusive of the use of the reserve fund 11,853,483.95
Agencies out of Europe 21,179,052.46
Advances on collateral 43,266,468.66
Financial engagements 3,207,280.85
Drafts against non-European agencies 23,448,114.95
Debtors by acceptations 35,892,328.59
Credits by guaranteed acceptations 44,431,074.95
Order and miscellaneous accounts 12,901,714.50
Real estate 7,250,000.00
Stock payments not called, after deducting the called assessments 2,228,250.00
Total 554,394,766.60
LIABILITIES.
FRANCS.
Capital 100,000,000.00
Reserves 7,626,557.70
Cheque and discount account 197,898,200.12
Customer’s accounts—Creditors 88,528,403.19
Scrip and deposits with declared maturity 37,987,774.92
Coupons and dividends payable 4,681,012.27
French colonial banks 854,838.99
Paper out for collection 10,350,409.54
Acceptations for account of the non-European agencies 15,234,203.80
Acceptations and bills payable for account of third parties 75,664,538.32
Order and miscellaneous accounts 9,946,521.40
Real estate—yearly obligations 5,622,306.35
Total 554,394,766.60

THE CRÉDIT FONCIER—MORTGAGE BANKING.

In the early career of the Second Empire the landed proprietors became quite strenuous in urging the construction of a special credit institution as a remedy for the “mortgage leprosy,” as it was then styled. Since 1770, Germany had possessed a system of so-called land credit companies that had performed important services. Acquaintance with German methods had been spread in France by the illustrious economist Walowski. Several plans were formulated between 1835 and 1852, but none was considered practical. Some of these devices went so far as to propose a species of mortgage paper money, which meant practically a renewal of the assignat fiat scrip. A decree of February 28, 1852, laid the foundations of the mortgage banking scheme. It provided for loans repayable in yearly installments, with long maturities, secured by mortgage bonds (which, in turn, were secured by mortgages), bearing interest and negotiable without cost. These mortgage bonds had to be issued in each case by a broker, whose function it was to verify the securities, collect the yearly installments from the borrowers, and pay the interest to the lenders. As soon as the decree became law, a company with a capital of 25,000,000 francs was formed in Edition: current; Page: [110] Paris at the initiative of Walowski, entitled the Banque Foncière de Paris (Mortgage Bank of Paris). Among its promoters were some of the most eminent men in France. Its establishment was authorized by decree of July 3. 1852. Other companies on the same plan were formed in the Departments.

The independent action of these different mortagage banks proved prejudicial to their common welfare. There was much clashing of interests. The Government resolved to bring about a fusion, and to make the Paris Banque Foncière a central agency for all land credit transactions. The consolidation was accomplished on December 10, 1852, and the central bank, extending its scope throughout the whole country, took the name of Crédit Foncier de France (Mortgage Bank of France). It received a subvention of 10,000,000 francs from the State, and its capital was swelled to 60,000,000 francs, half of which had to be forthcoming immediately. The bank engaged to loan, within a brief period, 200,000,000 francs on landed estates, at a rate of five per cent., which was to provide for both interest and sinking fund. These two hundred millions were to be distributed among the Departments pro rata, according to their mortgage debts. In order to raise the required 200,000,000 francs, the company set out to issue a loan, consisting of mortgage bonds of 1000 francs each, “to bearer,” with interest at three per cent. This loan did not realize what was contemplated, and the conditions had to be modified. By a decree of November 21, 1853, the bank’s original rate of five per cent. (including interest and sinking fund) was replaced by a sliding scale calculated on the basis of the consol rate of three per cent. The new plan worked admirably, yet the loans of the Crédit Foncier aggregated only about 50,000,000 francs. Another decree (July 6, 1854) gave rise to a complete reorganization. The direction of the business was assigned to a governor and two under-governors, appointed by the Chief of the State. The administration was vested in an Administrative Council, chosen by the Shareholders’ Assembly, and the control was confided to censors, also selected by the shareholders. It will be noticed that this organization is copied from that of the Bank of France. Having acquired its final constitution, the Crédit Foncier made another effort for resources through the sale of bonds, but it was necessary first to enlist the special favor of the public. The management addressed itself to the general tax collectors, who were authorized to lend their co-operation. Still, the bond sales showed only slow progress. Finally, it was decided to profit by the example of the German companies, and instead of borrowing cash from the public on loans, to pay its own borrowers with mortgage bonds, which were to be taken at par and which the Crédit Foncier also agreed to receive at par in settlement. This method has various advantages, on the principle that issues of bonds and loans granted are always on the same level; but it involves the serious inconvenience of leaving the borrower to speculate on the mortgage bank’s bonds, first when he negotiates them at the time of effecting the loan, and second when he needs them again for settlement. Despite these difficulties, the Crédit Foncier saw the quotations of its mortgage bonds go up rapidly, so that it was Edition: current; Page: [111] induced to discontinue the paper loan system and resume cash loans, for which it issued premium (prize) bonds.

The theory of these bonds is very simple. They are repayable in fifty or sixty years, and bear fifteen francs interest (three per cent.). A certain number of them receive, at each drawing, prizes ranging from 1000 to 100,000 francs. The fascination of the prize tempts the public to pay much more for such bonds than for similar ones having no premium feature. Notwithstanding the necessity of paying prizes, the Crédit Foncier borrows money at cheaper rates than other companies which issue bonds payable strictly at par—for instance, railway companies. The Crédit Foncier is but a broker between proprietors and capitalists, and therefore can issue bonds only for the amount of the loans made. The loans must not exceed half the value of the real estate pledged, upon which a first mortgage is placed in favor of the institution. As special security to the public, the capital of the bank must be equivalent to at least five per cent. of the bonds outstanding. Apart from long loans, the Crédit Foncier grants loans at short maturity—to run not less than ten years. Finally, the company is authorized to make advances at long or short maturity, with or without mortgage, to Department administrations, communities, and agricultural associations, in the shape of prize bonds, and to loan to landed proprietors for drainage and improvement of lands.

Statistics of Mortgage Loans of the Crédit Foncier (in Millions and Hundred Thousands of Francs). REAL-ESTATE LOANS.
YEARS. Number of Loans. Amounts Loaned. Loans in Force on Dec. 31st. Bonds in Circulation on Dec. 31st. Loans Made from Capital and Reserve. Loans Made by Issue of Scrip.
1853 306 26.7 26.7 22.1
1855 293 12.6 66.9 61.1
1860 719 48.2 179.4 176.4
1865 1,705 97.8 582.1 571.0
1870 1,225 51.8 868.3 846.8
1875 839 46.2 865.8 848.4
1880 3,660 219.0 945.9 928.9 10.3
1885 4,271 147.0 1,991.3 1,872.9 85.3
1886 4,322 168.8 2,022.6 1,954.1 104.0
1887 3,696 115.3 2,029.1 2,038.1 83.0
1888 4,093 111.7 2,032.7 2,138.8 87.4
1889 3,515 102.0 2,053.5 2,040.0 87.0 26.3
1890 2,925 82.7 2,002.0 2,011.3 62.3 25.6
1891 3,305 123.2 1,998.9 1,926.3 62.9 25.2
1892 3,780 125.4 1,899.8 1,858.3 62.4 25.2
1893 3,497 120.3 1,862.3 1,793.9 71.0 25.6
1894 3,510 98.3 1,817.3 1,689.2 70.8 26.0
Edition: current; Page: [112]
Progress of Capital.
FRANCS.
In 1853 30,000,000
In 1862 60,000,000
In 1869 90,000,000
In 1877 130,000,000
In 1882 155,000,000
In 1888 170,500,000
Loans to Communities (in Millions and Hundred Thousands of Francs).
YEARS. Number of Loans. Amounts Loaned. Loans in Force Dec. 31st. Community Securities Dec. 31st. Loans Made from Capital and Reserves.
1859 6 19.2 19.2 14.9
1860 56 24.9 48.8 45.6
1865 140 105.3 231.5 215.0
1870 26 18.6 482.5 443.0
1875 32 100.8 578.2 551.9
1880 469 238.6 636.5 497.4
1885 722 53.0 859.7 801.3
1886 2,088 92.0 937.0 897.9 4.9
1887 3,135 86.9 999.0 994.8 4.8
1888 2,552 68.9 1,040.5 982.4 4.8
1889 2,300 115.4 1,000.8 955.6 4.7
1890 1,575 77.4 1,138.0 1,000.5 4.6
1891 1,238 98.7 1,156.9 1,033.1 5.5
1892 793 80.0 1,151.1 1,040.1 5.6
1893 1,287 85.1 1,176.2 1,117.9 3.5
1894 1,438 132.7 1,223.4 1,127.0 3.4

In addition, the Crédit Foncier does a regular banking business, discounts commercial paper, makes loans on securities, negotiates issues of securities for third parties, and runs current accounts—to each of which the following tabular statement (in millions and hundred thousands of francs) relates:

*Year 1862.
Year 1865.
YEARS. Bills Receivable on Hand on Dec. 31st. Loans on Securities in Force Dec. 31st. CURRENT ACCOUNTS AND CASH VOUCHERS.
Paid In Drawn Out. Balance Dec. 31st.
*316.4 *298.1 *75.4
1868 103.9 39.0 355.7 327.9 94.1
1870 53.8 23.6 143.2 193.7 20.6
1875 176.9 10.7 247.1 241.6 71.6
1880 126.5 32.9 224.3 223.5 63.5
1885 227.7 30.9 273.4 265.7 78.7
1886 264.6 23.3 274.9 275.6 78.0
1887 387.5 24.1 259.8 261.4 76.4
1888 438.8 23.3 259.8 262.0 74.2
1889 275.0 21.4 325.2 312.2 87.2
1890 303.1 21.8 268.2 277.7 77.7
1891 291.5 20.1 330.5 323.0 85.2
1892 202.8 16.5 315.4 319.4 81.2
1893 181.7 20.5 292.9 290.5 83.6
1894 159.0 18.5 292.6 292.1 84.1
Edition: current; Page: [113]
Profit and Loss, Dividends, Capital, and Reserve.
YEARS. Gross Profits. Expenses and Sinking Fund. Dividends. Reserves Millions and Hundred Thousands Francs. Market Price of Shares.
FRANCS. FRANCS. FRANCS. FRANCS.
1853 2,536,963 588,417 17.50 0.9 590.00
1855 4,402,270 3,035,950 17.50 1.4 415.00
1860 12,637,615 8,525,607 30.00 3.7 950.00
1865 44,529,673 36,695,578 52.50 9.5 1,325.00
1870 75,152,916 66,675,650 42.50 17.7 885.00
1875 79,155,780 71,709,145 36.25 23.2 910.00
1880 72,053,516 60,518,750 42.50 65.2 1,443.25
1885 130,672,181 110,826,574 60.00 115.4 1,345.75
1886 135,374,731 115,232,942 60.00 121.7 1,422.50
1887 140,763,911 120,266,753 62.00 129.1 1,397.50
1888 145,379,373 123,453,214 62.00 137.2 1,362.50
1889 148,274,379 125,970,861 63.00 145.1 1,331.75
1890 149,632,291 127,428,279 63.00 153.2 1,300.75
1891 148,288,645 127,183,047 60.00 155.3 1,245.00
1892 145,729,904 127,721,113 50.00 139.2 1,015.00
1893 140,646,783 123,629,680 45.00 142.9 1,037.50
1894 136,689,909 120,960,928 44.00 138.3 915.50

The Crédit Foncier, by virtue of the very important volume of its capital and reserves, and of the distribution of its premium bonds (which are the preferred securities of small investors), is intimately connected with the economy of the country; yet at the present day it has to contend against embarrassments that were not foreseen when it abandoned its bond loan system for cash loans. The rate of interest has declined steadily during the last years, and the repayments of loans have in consequence grown to proportions that have upset all calculations. Loans repayable in a term of fifty to sixty years are accordingly paid back in twenty-nine or thirty years. The Crédit Foncier, by its regulations, must diminish the circulation of its bonds in an even ratio with repaid loans. Now, as the regular market price of its bonds is rather above that at which they were issued, and as at special times (in proximity to drawings) special values are added in consequence of the prize feature, the buying up process means decided loss for the bank. Some counteractive efforts have been made in the way of conversions of several series of bonds, but it is necessary to move with much prudence so as not to disturb the public holding the premium bonds. The Crédit Foncier, in view of this situation, has increased its sinking fund reserves at the expense of dividends, which declined for some years, and so occasioned a fall in shares without affecting the solidity of the company or its credit. With these exceptions, the bank has worked in a manner that cannot be regarded with unreserved satisfaction.

By the mortgage loan system a great impetus has been given to the Edition: current; Page: [114] building of cities, and the loans to communities have largely encouraged the prodigality of municipalities. As the capital of the whole of France, drained by the premium bonds, has been thrown into the cities and principally into Paris, it has come to pass that the country population has flocked to the towns. There, during the progress of great public works, they have found high wages; but they have remained notwithstanding the loss of employment. The Crédit Foncier has consequently contributed, more than any other responsible agency, to the growth of the city proletariat, which affords the most favorable soil for the seeds of Socialism. This institution, however, has not been able to realize in any large way the hope that it would cause the rural mortgages to vanish. Its scope hardly reaches the agricultural acres at all, and its influence there is almost nothing. For the purposes of loans to cultivators of the soil the Crédit Foncier formerly conducted a distinct branch, the Crédit Agricole, which completely failed to perform what was expected of it. The following balance-sheet contains some instructive particulars on this point:

CRÉDIT FONCIER DE FRANCE.

Situation au 30 Novembre 1895.

Situation au 30 Novembre 1895.
ACTIF. FRANCS.
Espèces en caisse et à la Banque de France 5,354,412.20
Effets et valeurs diverses 153,930,964.90
Trésor public 22,392,973.60
Avances sur dépôts de titres 18,922,978.19
Correspondants 5,740,627.11
Banque hypothécaire en liquidation 16,093,199.86
Emprunteurs:
Prêts hypothécaires 1,758,198,911.49
Prêts communaux 1,263,660,727.41
Prêts réalisés avec les fonds provenant des Bons à lots 26,263,114.13
Prêts réalisés avec les fonds du capital social et des réserves 73,505,671.05
Semestres d’annuités échus 30,054,001.82
Obligations retirées de la circulation, soit par tirages spéciaux soit par rachats en Bourse (art. 63 et 87 des sts.):
Obligations Foncières 122,798,181.50
Obligations Communales 145,120,770.86
Immeubles acquis à la suite d’expropriations 29,162,791.21
Hôtels et mobilier:
Prix d’estimation des hôtels 12,933,709.25
Frais d’appropriation et mobilier 788,489.60
Divers 8,926,145.80
Intérêts acquis, mais non échus 51,510,835.10
Dépenses d’administration 3,911,105.09
Total 3,749,269,610.77
Edition: current; Page: [115]
PASSIF. FRANCS.
Capital social 170,500,000.00
Réserve obligatoire 19,579,362.02
Provision pour l’amortissement des emprunts:
Provision ordinaire 49,922,862.06
Provision extraordinaire 57,254,974.53
Réserves et provisions diverses:
Réserves pour l’amortissement des immeubles du siège social 7,296,592.75
Réserve spéciale provenant de la Banque Hypothécaire 1,500,000.00
Réserve commune avec le Crédit Foncier et Agricole d’Algérie 983,160.16
Réserves sans affectation 251,138.72
Provision pour faire face à l’excédent des créances hypothécaires sur la valeur estimative des immeubles acquis par la Société 5,501,710.86
Provision pour créances douteuses 2,532,931.95
Dépôts en compte courant 71,036,680.77
Correspondants 24,716,417.61
Sous-Comptoir des Entrepreneurs 4,000,186.48
Versements différés:
Sur Prêts Hypothécaires 21,258,926.11
Sur Prêts Communaux 92,838,534.59
Obligations Foncières—Montant au pair:
Des obligations en circulation 2,308,947,800.00
Des obligations retirées de la circulation 157,739,100.00
A déduire: 1,777,901,345.05
Versements à recevoir des obligataires 201,893,580.00
Prime à amortir à recouvrer des emprunteurs 486,891,972.95
Obligations Communales—Montant au pair:
Des obligations en circulation 1,300,518,200.00
Des obligations retirées de la circulation 146,998,300.00
A déduire: 1,300,996,880.06
Versements à recevoir des obligataires 12,825,185.00
Prime à amortir à recouvrer des emprunteurs 13,437,929.00
Bons à lots en circulation 26,263,114.13
Obligations à rembourser et intérêts échus à payer 35,155,130.33
Semestres d’annuités reçus par anticipation 6,844,402.15
Divers 26,312,633.63
Intérêts dus, mais non échus 32,044,727.43
Profits et pertes:
Reliquat de l’exercice 1894 117,403.23
Exercice 1895 14,604,494.15
Total 3,749,269,610.77
Certifié conforme aux écritures:
Le Gouverneur, LABEYRIE.
Edition: current; Page: [116]

THE CRÉDIT AGRICOLE.

In 1856 the crops failed, and the distress in the rural districts engaged the solicitous attention of the Government. All competent authorities concurred in the opinion that one of the chief causes of inadequate agricultural production was the lack of sufficient capital and credit to enable the farmers to procure the requisite equipment and fertilizing material. The projects conceived were numerous, but none solved the problem. The Government, urged by the people to take some definite steps. addressed itself to the Crédit Foncier, and asked that institution to complete its work of establishing a department having for its especial object the furnishing to agriculture of the credit so much needed. Accordingly, the Crédit Foncier, July 28, 1860, organized the Société de Crédit Agricole (Farmers’ Credit Company), with a capital of 20,000,000 francs, which was increased to 40,000,000 on April 22, 1865. The new concern proposed to procure capital and credit for agricultural and kindred industries, and to assume, with the Government’s sanction, all transactions necessary for affording means for clearing and improving the soil, for stimulating and preserving its productiveness, and for generally developing the farming interests. It was authorized to undertake, or to facilitate by its guaranty, the discounting or negotiation of notes; to open credits or allow loans on collateral or other special securities; to receive deposits, with or without interest; to open current accounts; to make collections, and to issue and place securities corresponding to loans and credits granted. The company discounted and guaranteed paper having at least two signatures, one of the signers being entitled to the privilege of discount. Discounted paper could not run longer than ninety days. In the cases of advances and credits, the company was not permitted to issue either bonds or scrip having longer than five years or less than forty-five days to run. No scrip for less than 100 francs could be given out. The business management of the Crédit Agricole was placed in the hands of the governor and under-governors of the Crédit Foncier, but it had a separate administrative council and censors. In spite of all endeavors, the Crédit Agricole did but little for agriculture. The Government, disappointed in its expectations, conducted an exhaustive investigation in 1866, the result of which, so far as the company was concerned, demonstrated that hardly anything had been accomplished. Some practical reforms were hinted at, but, on account of the Franco-Prussian War, they could not be put into execution. As the Crédit Agricole was unable to find employment for its resources in the field originally prescribed, it went into enterprises quite alien to its mission. Noteworthily, from 1873 to 1876 it made advances to the Egyptian Government amounting to 168,000,000 francs. It had procured this enormous sum by opening credits through the Crédit Foncier and handing over to that company the securities received from the Egyptian Government. When Egypt declared her insolvency, the Crédit Agricole, at its own application, Edition: current; Page: [117] in order to escape bankruptcy, went into liquidation. The Crédit Foncier incidentally suffered seriously. In order to recover, it asked the governor and under-governors for a sum of 16,000,000 francs. The 300 francs per share still due on the stock of the Crédit Agricole was called, and 24,000,000 francs was thereby netted. The share-owners of the Crédit Agricole, by paying a complementary assessment of fifty francs per share, received full-paid stock of the Crédit Foncier. Meantime the financial situation of Egypt had improved, and the settlement of loans, far from leaving a loss, showed a profit for the Crédit Foncier. The marked failure of the Crédit Agricole affords a fresh demonstration of the impracticability of experiments for applying to agriculture the methods of credit employed for commerce.

THE CRÉDIT INDUSTRIEL ET COMMERCIAL.

When France, by the commercial treaties of 1860, abandoned the system of Protection and adopted a more liberal trade policy, the need for a financial machinery to correspond to the new circumstances was much felt. The English joint-stock banks, with whose organization and methods the Continent had never been much acquainted, served as a model to those who desired to furnish France with institutions that she lacked. A decree of date May 7, 1859, authorized the creation of a company designated the Société Générale du Crédit Industriel et Commercial (General Industrial and Commercial Company), to be capitalized at 60,000,000 francs, with 120,000 shares at 500 francs each, one-quarter to be paid in. Eighty thousand shares were issued at par, upon the company’s organization, and the balance of 40,000 were sold at 600 francs in June, 1864. The forms of business included in the company’s transactions were: to discount commercial paper in France and foreign countries; to allow advances on warehouse vouchers, and all kinds of obligations with fixed maturity transferable by indorsement; to make advances on pledges or collateral; to open current accounts; to perform for the account of its clients payments and collections; to issue and accept drafts and bills of exchange; to negotiate securities on the Bourse; to receive deposits of securities from individuals; to undertake issues of public loans, stocks, and all other securities; to make conveyances—in brief, to conduct all the operations of banking houses. The company has had a relatively placid existence. It possesses a substantial clientage, which has always remained faithful to it, and for which it does very numerous services. It conducts ten branch offices in Paris. The following statement affords a record of its operations:

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Statistics of the Crédit Industriel et Commercial (in Millions and Hundred Thousands of Francs). CURRENT ACCOUNTS AND DEPOSITS.
YEARS. Paid In Drawn. Balance on Dec. 31st. Deposits on time on Dec. 31st.
1859 100.4 97.8 2.6
1860 332.1 303.3 31.4 1.0
1865 766.5 755.0 38.9 0.2
1870 319.2 369.3 19.1 1.7
1875 1,616.3 1,597.5 59.4 3.9
1880 1,877.1 1,875.3 63.7
1885 2,753.5 2,755.3 76.7
1886 3,384.6 3,364.6 96.7 32.7
1887 2,929.6 2,948.5 77.8 17.2
1888 2,937.5 2,922.0 93.3 33.3
1889 2,805.0 2,805.1 93.2 27.6
1890 2,936.9 2,952.9 104.2 25.7
1891 2,266.0 2,273.8 96.4 20.6
1892 2,930.2 2,928.9 97.7 13.0
1893 2,386.7 2,407.9 76.5 13.4
1894 2,664.7 2,661.7 79.5 9.7
DISCOUNTS.
YEARS. FRENCH PAPER. FOREIGN PAPER. ON HAND ON DEC. 31st. BOURSE ORDERS EXECUTED.
Number of Pieces. Amounts. Number of Pieces. Amounts. French Paper. Foreign Paper.
1859 8,604 61.8 3,987 17.8 10.9 1.1
1860 33,028 231.8 4,465 39.2 35.9 1.7 3.0
1865 33,689 367.2 2,607 28.0 54.3 1.7 46.1
1870 16,600 200.7 656 3.2 34.2 0.1 12.2
1875 64,807 495.2 3,923 43.7 75.0 2.8 40.4
1880 143,607 789.3 2,684 33.5 73.3 2.4 60.6
1885 244,058 1,242.7 6,378 94.0 71.2 11.8 134.0
1886 229,989 1,166.0 7,852 116.7 73.5 6.4 158.1
1887 215,685 1,005.1 9,462 152.5 69.6 8.4 181.3
1888 215,158 1,043.8 6,115 85.2 90.9 3.4 266.5
1889 301,666 1,175.3 7,520 92.3 78.5 8.8 293.0
1890 322,475 1,078.0 9,003 127.5 77.2 10.8 349.0
1891 558,422 1,067.0 11,734 77.1 71.6 7.2 414.5
1892 751,365 1,070.5 14,952 64.7 71.7 2.3 356.6
1893 802,066 1,076.8 15,323 41.1 58.8 3.6 329.2
1894 759,482 998.4 16,303 64.3 59.2 3.8 400.2
Edition: current; Page: [119]
Statistics of the Crédit Industriel et Commercial (in Millions and Hundred Thousands of Francs). PROFIT AND LOSS.
YEARS. Gross Profits. Francs. Expenses. Francs. Dividends. Francs. Market Price of Shares Dec. 31st. Francs. Reserves. Francs.
1859 532,956 282,920 21.50
1860 2,801,023 1,355,180 11.00 565.00 107,384
1865 4,004,681 1,148,265 23.75 687.50 6,000,000
1870 2,803,337 1,124,633 12.50 615.00 6,000,000
1875 4,670,859 1,726,069 24.00 735.00 7,000,000
1880 3,863,013 1,504,349 18.56 736.25 7,000,000
1885 3,455,582 1,960,545 11.60 650.00 7,000,000
1886 3,836,328 1,798,453 12.37 591.25 3,500,000
1887 5,156,845 2,755,483 13.40 576.25 4,000,000
1888 6,437,961 4,049,819 13.40 605.00 4,620,068
1889 5,894,027 3,319,335 14.43 590.00 5,239,475
1890 6,250,298 3,546,025 15.57 635.00 6,500,000
1891 5,087,204 3,049,394 15.63 575.00 6,500,000
1892 5,287,182 2,750,462 15.62 550.00 7,000,000
1893 4,735,330 2,838,747 14.58 560.00 7,000,000
1894 4,076,922 2,476,685 12.50 552.00 7,000,000
Balance-sheet, November 30, 1895. ASSETS.
FRANCS.
Cash { Coin in Bank (of France) 611,243.29
{ Coin on hand 6,230,833.69
Ready funds at Bank 4,580,052.89
Bills receivable { France 52,192,980.67
{ Foreign 2,077,273.29
Current accounts 23,653,714.18
Consols, stocks, and bonds 4,817,176.90
Advances on securities 14,530,962.94
Margin loans on pledged stock 8,832,100.80
Acceptances, credits 5,608,021.30
Coupons to collect 1,067,663.37
Brokers, sale and purchases for account of third parties
Company’s real estate 3,213,543.96
General expenses { Old
{ New 634,645.94
Assessment on shares not called 45,000,000.00
Total 173,050,213.22
LIABILITIES.
FRANCS.
Capital, issued 60,000,000.00
Statutory reserve 6,000,000.00
Extraordinary reserve 1,000,000.00
Deposit accounts for cheques at one-half per cent. 40,838,280.36
Deposit accounts on notice 14,066,928.49
Current accounts { France 38,777,347.85
{ Foreign 2,798,128.28
Miscellaneous
Bills payable 6,433,871.00
Brokers, sale and purchase for account of third parties 982,201.95
Interests and Dividends:
Former items remaining 33,450.00
Balance of 1895 81,080.00
Rediscount of bills receivable 121,722.05
Profit and loss { Old 291,936.66
{ New 1,625,266.58
Total 173,050,213.22
Bills receivable on hand, to mature 54,270,253.96
Paper in circulation, bearing the company’s indorsement 19,075,000.00

COMPANY FOR THE ENCOURAGEMENT OF TRADE AND INDUSTRY.

Like the Industrial and Commercial Credit Company, the Société Générale pour favoriser le développement du Commerce et de l’Industrie en France (General Company for the Encouragement of Commerce and Industry in France) was originated on the plan of the English joint-stock companies. It obtained its authorization by a decree of May 4, 1864, and its incorporation was effected on the same day. Its purposes are to help companies in existence or to be established which seek to promote manufacturing or commercial enterprises or are connected with public works; to dispose of their stock and bonds; to accept on behalf of shareholders commissions to watch and control them; to take shares in such companies up to half their stock capital; to open credits for companies, merchants, and manufacturers; to discount commercial paper on France and abroad; also to discount vouchers of the Treasury, of public departments and municipalities, having at most six months to run; to undertake collections and other cash services for customers; to make advances on securities; to receive voluntary deposits, and to afford accounts current. The company is not permitted to speculate in public securities on time transactions, but is allowed to make advances on speculative continuations (contangos). The stock capital is 120,000,000 francs, in 240,000 shares of a face value of 500 francs, on which 250 francs Edition: current; Page: [121] have been paid in. The operations of the Société Générale are on a vast scale. It has manifested great activity in fulfilling its aims, and has opened numerous branches in France. There are thirty-eight in Paris alone, and 145 in the provinces. An agency also is maintained in London. The offices are run with a strict regard for economy, and by intelligent management the whole system has attracted a splendid business. The history of the company is one of animated enterprise. Large interests have been taken in a great many undertakings, like Paris Guano, Port of Callao, etc.; which have given rise to numerous lawsuits and tied up a considerable part of the capital. In recent years, the company has given its principal attention to ordinary banking business, for which it is perfectly equipped and which it prosecutes with large success.

Statistics of the Société Générale (in Millions and Hundred Thousands of Francs).
YEARS. CURRENT ACCOUNTS Participation in Financial and Industrial Concerns. Securities on Hand on Dec. 31st. DISCOUNTS. Paper Payable Dec. 31st Loans and Advances on Collection on Dec. 31st. BOURSE TRANSACTIONS FOR THIRD PARTIES. Profits. General Expenses. Dividends Market Price of Shares on December 31st. Reserves. COMMERCIAL PAPER. COUPONS.
Payments. Drawn. Balance on Dec. 31st. Situation of Deposits on Time, on Dec. 31. Amount of Discount. PAPER ON HAND ON DEC. 31st Number of Transactions. Amounts. Pieces. Amounts
Paris. Provinces. Foreign.
MILLIONS. MILLIONS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS.
1864 172.8 151.9 20.9 3.2 15.9 123.2 17.5 1.8 2.7 0.3 8.9 2,036,157 338,525 6.00 577.50 5.5
1865 895.4 886.7 29.6 49.1 7.8 493.2 11.0 2.2 12.4 0.5 56.3 5,579,636 975,688 16.12 608.25 169,763 65.1
1871 1,099.9 1,038.7 85.2 30.9 54.1 20.3 735.9 27.8 12.5 20.5 5.0 17.0 127.7 15,704,469 3,067,784 45.00 575.00 5,922,085 152.8
1875 2,080.8 2,079.6 123.1 87.6 55.3 33.5 1,906.9 37.4 29.4 35.6 23.6 48.3 177,971 462.9 702,176 320.4 211.1
1880 2,052.1 2,034.8 145.8 114.1 64.0 15.0 2,483.2 56.7 28.7 16.6 23.4 83.7 195,247 832.7 8,028,827 2,281,854 20.61 610.75 13,390,502 733,096 474.2 230.2
1885 1,816.1 1,804.2 158.3 89.8 65.9 58.7 3,067.7 43.2 57.9 17.4 22.5 56.6 219,821 648.2 5,669,531 2,517,359 12.88 447.50 15,500,000 1,375,527 544.6 239.8
1886 1,998.9 1,981.5 175.7 86.2 65.1 52.4 3,358.9 41.3 59.0 15.3 23.6 88.0 235,149 781.5 6,031,440 2,527,264 12.88 475.00 12,000,000 1,418,452 549.4 230.3
1887 1,827.6 1,830.9 172.4 94.7 65.0 61.7 3,475.1 47.1 56.3 21.5 24.5 81.5 231,954 756.7 5,573,827 2,552,498 12.50 453.75 12,333,370 1,404,421 526.6 253.0
1888 1,874.7 1,892.5 154.6 92.8 84.2 57.5 3,626.0 63.2 62.3 30.2 31.1 62.5 271,843 948.7 6,064,029 2,596,458 12.88 465.00 12,333,370 1,394,754 531.6 273.7
1889 1,887.0 1,865.5 155.5 88.7 70.9 48.1 3,647.0 42.8 58.4 30.3 23.1 54.3 279,873 1,057.7 6,208,897 2,691,164 12.88 456.75 12,677,994 1,437,939 605.3 338.4
1890 1,872.2 1,811.2 162.1 94.7 69.5 36.6 3,547.8 51.2 53.1 16.5 29.5 86.7 323,900 1,054.6 6,358,513 2,776,107 12.95 497.25 13,027,768 1,439,025 559.0 293.2
1891 1,793.3 1,676.9 144.2 96.3 66.0 33.4 3,161.3 46.8 73.7 13.1 15.7 67.4 279,049 943.5 6,308,529 2,741,853 13.02 475.00 13,379,970 1,344,273 485.6 296.2
1892 1,683.2 1,564.0 150.5 101.5 66.1 62.7 2,935.4 34.3 80.6 6.4 16.5 77.8 234,728 855.1 5,882,053 2,678,728 12.50 469.50 13,726,253 1,308,831 443.5 282.3
1893 1,570.9 1,650.9 157.4 97.0 64.6 63.7 2,703.8 29.0 81.9 8.7 17.6 71.9 231,491 840.7 5,765,300 2,729,615 12.50 461.50 13,726,253 1,369,122 440.7 277.7
1894 1,657.8 164.3 93.3 68.8 46.4 2,930.5 30.4 97.2 13.7 42.3 101.1 255,509 897.4 6,910,642 2,853,396 12.50 462.50 13,726,253 1,548,352 500.6 284.4
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Statement of November 30, 1895.
ASSETS.
FRANCS.
Cash on hand and in bank 28,897,755.97
Bills receivable on hand 131,553,336.45
Paper out for collection 21,442,981.05
Margin loans on pledged stocks 22,968,898.26
Coupons for collection 1,617,981.33
Consols, shares, scrip, and bonds 64,911,536.12
Advances on collateral 88,560,324.53
Interests in industrial and commercial enterprises 4,244,454.98
Interests in financial enterprises 68,207,331.72
Real estate of the company 4,307,434.06
Bank accounts abroad and various accounts 111,003,065.49
Assessments on shares, not called 60,000,000.00
Interest on shares (coupon of October 1, 1895) 1,500,000.00
609,215,099.96
LIABILITIES.
Capital 120,000,000.00
Statutory reserve 7,726,253.07
Special reserve 6,000,000.00
Cheque account 155,819,464.99
Deposits at fixed maturity 98,039,100.00
Call accounts 1,241,032.06
Bills payable 50,197,698.10
Bank account abroad and various accounts 166,466,618.77
Interest and dividends 236,648.25
Balance of last statement 104,238.81
Profit and loss (less general expenses) 3,404,045.91
609,215,099.96
Paper in circulation, bearing the company’s indorsement, 69,333,716.88

THE CRÉDIT LYONNAIS.

The Crédit Lyonnais stands to-day at the head of French financial establishments, both for the magnitude of its capital and the volume of its business. It was inaugurated in Lyons as a limited company on July 6, 1863, and changed into a stock company on April 25, 1872. It discounts commercial paper, issues and indorses bills of exchange, makes advances on listed stocks and other collateral, transacts every kind of cash service for customers by means of current accounts, buys and sells securities for clients, takes charge of subscriptions for public funds and other securities, negotiates loans for governments, Departments, and public and commercial establishments, receives securities on free deposit and takes care of them, engages in real-estate transactions, and does a general banking business in France and abroad. Conducted with remarkable tact and a perfect understanding of the needs of its clientage, the Crédit Lyonnais has grown rapidly. It makes a chief specialty of discounts. In order to keep fully informed about conditions in the various countries from which applications for its services may be received, it has a separate department, under the direction of experts, for the collection and analysis of documents, etc., relating to every country and its business affairs. The records and compilations of this branch of the Crédit Lyonnais are not in any general manner available to the public; but all who have ever had access to its archives, embracing the financial history of the whole world for the past twenty years, have found added reason for admiration of its magnificent equipments. There are twenty-six agencies of the Crédit Lyonnais in Paris and the suburbs, one hundred and sixteen in the Departments, and sixteen abroad. The subjoined statistics will set forth the essential facts of its vast business better than any descriptive account.

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Statistics of the Crédit Lyonnais (in Millions and Hundred Thousands of Francs).
YEARS. Deposits on Call, Dec. 31st. Deposits on Time, Dec. 31st. Amounts Discounted. Paper on Hand on Dec. 31st.
1863 6.4 3.4 5.8
1865 26.0 14.6 23.1
1870 22.1 20.6 16.0
1875 140.7 73.6 99.6
1880 272.0 111.2 138.3
1885 320.5 39.9 3,555.1 227.8
1886 415.8 45.2 4,079.4 244.2
1887 470.1 46.9 4,757.8 265.1
1888 537.0 48.7 5,406.9 323.7
1889 565.5 50.1 5,983.0 412.3
1890 611.2 66.5 6,237.1 459.9
1891 667.5 117.1 6,799.6 544.1
1892 687.4 124.1 6,957.5 503.5
1893 705.7 127.9 7,187.6 527.4
1894 859.6 122.8 7,266.7 585.4
Acceptances, Advances, Securities Held, Coupons.
YEARS. Acceptances Payable, Dec. 31st. Advances on Collateral, Dec. 31st. Securities on Hand, Dec. 31st. Coupons Paid for Account of Third Parties.
1863 1,200,000 5,300,000 1,500,000
1865 17,000,000 31,600,000 6,400,000
1870 3,600,000 18,800,000 6,200,000
1875 24,100,000 117,300,000 5,600,000
1880 37,300,000 170,700,000 37,700,000
1885 32,600,000 83,400,000 60,900,000 337,800,000
1886 52,300,000 159,400,000 57,800,000 349,400,000
1887 72,800,000 154,000,000 53,200,000 418,800,000
1888 106,800,000 173,800,000 47,900,000 492,600,000
1889 115,500,000 129,100,000 19,900,000 733,200,000
1890 142,400,000 138,800,000 20,100,000 719,500,000
1891 82,800,000 120,900,000 20,800,000 790,000,000
1892 115,100,000 178,100,000 12,200,000 820,000,000
1893 134,900,000 178,600,000 15,700,000 846,900,000
1894 136,100,000 242,800,000 18,800,000 853,600,000
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Profits and Reserve.
YEARS. Net Profits. Francs. Dividends. Francs. Average Quotations of Shares. Reserve.
1863 198,072 4.00 9,904
1865 1,957,260 35.00 502.50 190,737
1870 1,457,220 25.00 516.75 1,676,641
1875 3,100,224 20.00 677.68 13,666,518
1880 7,389,458 35.00 944.94 70,000,000
1885 10,035,342 15.00 534.87 60,000,000
1886 6,059,747 15.00 540.18 60,000,000
1887 7,023,250 17.50 560.27 60,000,000
1888 10,588,679 25.00 592.51 50,000,000
1889 11,512,693 27.50 681.28 50,000,000
1890 12,589,338 30.00 755.62 50,000,000
1891 14,179,679 30.00 791.71 50,000,000
1892 12,104,959 30.00 785.44 40,000,000
1893 12,329,776 30.00 770.00 40,000,000
1894 12,428,200 30.50 760.40 40,000,000
Growth of Capital.
1863 20 millions, fully paid in.
1872 50 millions, 250 francs paid in.
1875 75 millions, 250 francs paid in.
1875 75 millions, 250 francs paid in.
1879 100 millions, 250 francs paid in.
1881 200 millions, fully paid in in 1894.

CRÉDIT LYONNAIS.

Stock Company—Capital, 200,000,000 francs.

Statement of November 30, 1895.
ASSETS. FRANCS.
Coin on hand and in banks 95,014,744.86
Bills receivable (commercial paper) 527,146,746.12
Margin loans on pledged stocks 95,987,622.80
Current accounts 320,833,438.82
Advances and credits on collateral 122,709,128.94
Shares, vouchers, bonds, and consols 22,715,074.10
Real estate 30,000,000.00
Order and miscellaneous accounts 30,733,992.65
Assessments not called (less anticipated payments) 31,578,450.00
1,276,719,198.29
LIABILITIES. FRANCS.
Deposits and sight orders 324,526,935.07
Current accounts 415,555,474.29
Acceptances 145,765,859.68
Time orders 95,471,127.70
Order and miscellaneous accounts 55,399,801.55
Reserves 40,000,000.00
Capital 200,000,000.00
1,276,719,198.29

THE BANK OF PARIS AND THE NETHERLANDS.

The establishments hitherto considered are the principal French banking and financial concerns, and represent well the aspects of modern French banking. It remains for us to glance at an institution which is rather different, but which, by its standard and its connections, has an important place in the affairs of France. We refer to the Banque de Paris et des Pays Bas (Bank of Paris and the Netherlands). It began its existence on January 27, 1872, as a result of the consolidation of the Société de la Banque de Paris (Paris Banking Company) and the Société de Crédit et des Dépôts des Pays Bas (The Netherlands Credit and Deposit Company). Its objects are to perform financial, industrial, and commercial transactions, including real-estate business and public works contracts, in France and abroad, for its own account or for third parties. Its capital, which was originally 125,000,000 francs, divided into 125,000 shares of 1000 francs each, with 500 francs paid up, was reduced to 62,500,000 francs of 125,000 shares at 500 francs each, fully paid. The Bank of Paris and the Netherlands receives no deposits for current accounts, and admits comparatively little paper to discount. It operates with its capital and reserves, and exercises its activities specially for the emission of stocks and securities. Besides the central office in Paris, there are branches in Amsterdam, Brussels, and Geneva, where extensive relations are enjoyed and a very faithful clientele is possessed. Alliances are maintained with the principal French and foreign banks, so that the influence of this house may be said to extend throughout the world. Its statistics are not very comprehensive, for only one balance-sheet is issued each year, and the profit and loss account is not itemized in much detail. Information respecting the development of its business is chiefly to be sought in the accounts of its correspondents and in those relating to its securities. Subjoined are the figures of principal interest, stated in millions and hundred thousands of francs:

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YEARS. Commercial Paper on Hand on Dec. 31st. Divers Advances on Dec. 31st. CORRESPONDENTS ON DECEMBER 31ST. Securities on Hand Dec. 31st. Profits. Expenses. Dividends. Average Quotations of Shares. Reserve.
Dr. Cr.
FRANCS. FRANCS. FRANCS. FRANCS. FRANCS.
1872 50.9 79.0 75.0 87.8 16.7 16,454,453 2,371,365 60 1,253
1875 70.6 41.4 26.9 56.1 38.1 8,923,650 1,081,890 50 1,146 9,400,000
1880 5.4 70.0 25.2 58.5 47.2 13,696,994 1,475,773 60 1,048 13,300,000
1885 25.4 29.8 24.5 46.3 50.7 5,055,405 1,025,269 30 689 18,600,000
1886 12.3 60.1 30.4 71.3 47.7 5,919,598 1,009,366 35 677 18,800,000
1887 20.7 28.5 34.3 66.4 55.9 6,623,175 1,060,720 40 741 19,000,000
1888 31.2 67.8 38.5 156.3 66.7 7,398,729 1,040,281 40 799 19,300,000
1889 37.9 68.5 41.2 95.3 51.7 6,513,992 1,120,291 40 796 19,200,000
1890 25.3 22.3 51.4 83.9 54.5 7,934,494 1,276,442 45 822 19,100,000
1891 32.5 42.9 46.5 55.6 34.9 2,135,597 1,196,020 30 785 19,100,000
1892 20.7 37.8 31.2 63.3 26.2 5,055,979 1,225,159 30 656 19,100,000
1893 13.0 42.2 37.5 54.2 33.0 4,651,066 1,181,590 30 644 19,200,000
1894 18.9 70.8 32.5 96.5 35.4 6,646,506 1,259,334 35 669 19,200,000

PRIVATE BANKS.

Aside from the incorporated banking institutions, France has a great number of private banks. In the large cities the bankers have clienteles made up, in general, of merchants and manufacturers pursuing kindred lines of business. For instance, certain houses discount paper specially for the hardware trade, others for the wine and liquor traffic, others for grocers. By this system the banks are able to keep well informed about their customers. The transactions of the private banks are usually very simple, embracing discounts, credits, current accounts (generally entitled to interest), transfers, and collections, advances on securities, and finally Bourse operations.

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SECTION II.: THE BOURSE, CLEARING-HOUSE, AND FINANCIAL OPERATIONS AT LARGE.

STOCK Exchange bankers, or rather coulissiers (stock-jobbers), are intermediaries whose functions are to execute time or cash orders on securities which are not handled by licensed brokers. The latter are styled agents de change (exchange agents), and their guild enjoys the monopoly of negotiating “parquet” securities—i. e., those listed and dealt in on the floor of the Bourse. The Bourse bankers do not, however, content themselves with transactions in stocks non-listed in the official bulletins of the Bourse brokers, but frequently encroach upon the prerogatives of the latter; whereby numerous difficulties arise between the brokers and the jobbers. Several plans have been under discussion for doing away with the exchange brokers’ monopoly and substituting a free body of brokers in securities.

CLEARING-HOUSE OF PARIS.

In conclusion of our survey of the financial machinery of France, some words require to be said about an organization that has held forth great hopes, which have hardly been realized, the Chambre de Compensation des Banquiers de Paris (Clearing-House of the Paris Banks). It was created in 1872, as an exact counterpart of the Clearing-House of London. As the English regulations were reproduced without alteration, it is unnecessary to make any explanations. The Bank of France has lent its most cordial support to the Clearing-House, but unfortunately the French public makes but a limited use of cheques, and the clearings reach only a comparatively insignificant total. Practically, clearings are done through the Bank of France, and consist of transfers on the part of account-holders. The following are the statistics of Clearing-House transactions from the beginning, expressed in millions and hundred thousands of francs:

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YEARS. Paper Presented for Clearing. Paper Cleared. Paper Not Cleared but Settled by Orders.
1872-73 1,602.6 1,056.8 545.7
1873-74 2,142.3 1,397.1 745.2
1874-75 2,009.7 1,417.5 592.2
1875-76 2,213.7 1,569.0 644.7
1876-77 2,598.6 1,881.7 716.9
1877-78 2,199.6 1,626.7 572.9
1878-79 2,628.2 2,000.8 627.4
1879-80 3,222.7 2,440.1 782.6
1880-81 4,084.5 3,091.8 992.7
1881-82 4,545.1 3,391.1 1,154.0
1882-83 4,158.8 3,101.4 1,057.4
1883-84 4,218.8 3,188.0 1,030.8
1884-85 4,142.6 3,195.3 947.3
1885-86 3,923.9 3,128.5 795.4
1886-87 4,391.6 3,524.3 867.3
1887-88 4,696.4 3,831.6 864.8
1888-89 5,418.2 4,379.4 1,038.8
1889-90 5,140.9 4,136.2 1,004.7
1890-91 6,003.9 4,721.8 1,282.0
1891-92 4,868.8 3,889.6 979.2
1892-93 4,715.2 3,823.8 891.4
1893-94 5,379.3 4,360.2 1,019.1
1894-95 6,143.5 5,527.6 615.9

In illustration of the above statement that cheques are but little employed in France, the figures below are interesting. They are taken from an exhibit compiled by the Ministry of Finance, which, regrettably, stops with 1891:

YEARS. Cheques on Paris. Francs. Out of Town Cheques. Francs.
1880 2,758,098 1,638,832
1881 3,683,301 1,891,423
1882 2,953,880 1,597,650
1883 2,925,290 1,541,150
1884 2,924,410 1,510,635
1885 3,175,350 1,459,105
1886 3,216,390 1,522,055
1887 3,317,320 1,599,675
1888 3,441,940 1,549,865
1889 3,703,250 1,689,960
1890 3,747,090 1,615,625
1891 4,019,400 1,682,260

CHANGES IN BANKING METHODS—COMPETITION FOR PAPER.

The French credit and deposit institutions have adopted, in their business, methods resembling those that are in successful operation in the great Parisian stores, like the Louvre and Bon Marché. Trade is attracted by performing cheaply and even gratuitously all kinds of cash and transfer services, and charging light fees only when occasion requires. The active rivalry that characterizes their operations has been advantageous to the public in a certain measure, but it has had the serious consequence of so reducing the rate of interest that there is no longer any elasticity, while margins for profits have disappeared and losses have become hard to support. The ruin of the Comptoir d’Escompte, soon followed by the fall of the Société des Dépôts et Comptes Courants—both of which disasters were largely brought about by the stagnant condition of deposits on demand or short terms—made a profound impression on the minds of managers of credit Edition: current; Page: [131] institutions. They resolved to confine their investments of deposits first to commercial paper which, in case of necessity, could be rediscounted at the Bank of France, and second to advances and to margins which had to be settled within fifteen days, or a month at farthest. Therefore examination of the balance-sheets of the credit companies easily shows that liabilities due are covered by ready assets, and that, from this point of view, the situation is entirely free from menace. But in order to arrive at such security, the financial concerns are constantly prosecuting what has been picturesquely styled a “discount chase.” Everybody likely to have commercial paper for disposal is canvassed by the brokers, who place it not only with the banks but with railway and insurance companies, which always have on hand a goodly supply of bank bills with a view to earning income for their surplus cash. The quantity of discountable paper annually made in France can be calculated with ease. The stamp duties from commercial paper indicate the gross apparent amount on which the tax is assessed. The tax is 5 centimes per 100 francs, or 1/2000 part of the total. But as 5 centimes is the minimum tax, each fraction of 100 francs being counted as a full 100 francs, the figure obtained from this percentage would be too large. An investigation based on the books of the Bank of France demonstrates that ten per cent. should be deducted. The following table gives the aggregate yearly valuation of commercial paper:

Paper Discounted in France Annually.
YEARS. Stamp Duty. Gross Amount of Paper. Net Amount of Paper.
FRANCS. FRANCS. FRANCS.
1881 15,104,600 30,209,200,000 27,188,300,000
1882 15,050,400 30,100,800,000 27,090,800,000
1883 15,182,400 30,364,800,000 27,328,400,000
1884 14,397,900 28,795,800,000 25,916,300,000
1885 13,585,800 27,171,600,000 24,454,500,000
1886 13,220,800 26,441,600,000 23,797,500,000
1887 13,220,000 26,440,000,000 23,796,000,000
1888 13,445,800 26,891,600,000 24,202,500,000
1889 13,588,900 27,177,800,000 24,460,100,000
1890 13,943,200 27,886,400,000 25,097,800,000
1891 14,272,200 28,545,100,000 25,690,600,000
1892 11,482,200 22,964,400,000 20,668,000,000
1893 11,552,000 23,104,000,000 20,793,600,000
1894 11,197,000 22,394,000,000 20,154,600,000

The volume of discountable paper has sensibly decreased in recent years. At present, assuming that the making of notes is a constant matter and that the average time to run is forty-five days, the amount outstanding at a given time may be reckoned at about 2,500,000,000 francs. But not all this paper is admissible to discount; and deducting in the ratio of refusals at Edition: current; Page: [132] well-conducted banks, it may be considered that two billions is an approximately correct estimate. Of this two billions of discountable paper, the Bank of France carried during 1894, according to the statement of December 31st, 497,700,000 francs; the Comptoir National d’Escompte 172,000,000 francs; the Crédit Industriel et Commercial, 63,000,000 francs; the Société Générale, 141,300,000 francs, and the Crédit Lyonnais, 585,400,000 francs—showing a total for the five institutions of 1,459,400,000 francs. There remains at most only six hundred millions to divide among other banks and bankers and the railway and insurance companies—not taking into consideration that a good many merchants and manufacturers retain their own commercial paper. The Bank of France receives, generally, more than a third, but less than one-half of the notes drawn, and probably fully half of the really discountable paper; but much of this reaches the Bank only at maturity, so that the profits derived from this source do not always compensate for the cost of handling and collection.

In view of the diminution of the mass of commercial paper and the continual fall in the rate of exchange, the banks will, in all probability, be compelled soon to look for profits in other directions. Up to the present they have dispensed genuine credit almost entirely—credit on the strength of substantial property—and have rarely granted personal credit. But the innovation of personal credit, if practised according to the methods in use in the banks of Scotland, by the process of “cash credit” (as the English term runs) would offer no more serious risks than the discounting of paper. Such a system would admit of solving a problem hitherto considered unsolvable—the problem of credit for farmers and artisans.

AGRICULTURAL AND POPULAR LOANS.

This problem has always been regarded as a rather whimsical one in France. Most of those interesting themselves in it have been guided more by philanthropic and charitable sentiments than by matter-of-fact and economic ideas. The signal failure of the Société de Crédit Agricole, which has already been considered, proved that a great institution cannot make loans to agriculture the fundamental basis of its operations. In reality, there can no more be a special agricultural credit than a special maritime credit or mercantile credit. The one thing in existence is credit, without any specialization—meaning the confidence manifested in the borrower by the lender. The law, under the guise protecting the farmer, has occasioned for him all kinds of drawbacks. It sets aside all his assets as a guaranty for the landlord’s rent for a period of three years (including the running year). It declares that the farmer who buys in order to resell is not a merchant and cannot be pronounced a bankrupt; and it allows him the privilege of declining to be tried before the Tribunals of Commerce, so that his creditors are reduced to the necessity of suing him in interminable and ruinous civil proceedings. The consequence is that, in France, with few exceptions, Edition: current; Page: [133] farmers find it well-nigh impossible to obtain credit. Those who consent to loan to the farmer, taking the perilous risks involved, make him pay a large bonus. Thus, while credit is easily procurable for the merchant, it is ruinous for the farmer. One of the chief grievances of the French rural population is the usury which is the natural product of the murderous so-called protection inflicted by law on agriculture.

Nevertheless, in certain special cases the Bank of France has been able to place its services at the disposal of agriculture. M. Giraud, director of the Nevers branch, originated a novel plan. In the Nièvre the cattle-growers buy lean cattle in the spring, fatten them on their grazing lands, and at the end of nine months sell them to the butchers. M. Giraud concluded that, if the Bank of France should lend these individuals money for the purchase of lean cattle, it would certainly be paid back at the end of the fattening season. In order to make the required advances conform to the regulations of the Bank, the cattle-men were to execute notes with three signatures, which the Bank would discount, allowing two renewals, so that after nine months the advances would be regularly wiped out. The Bank, applying in this instance its rule to accept directly only paper with three first-class signatures, required a banker’s surety in case the signer and first indorser were not persons of strong standing. At the same time, it demanded the production of rent receipts, so as to avoid the danger of being forestalled by the landlord’s lien. Thanks to the co-operation of the Bank of France, the cattle industry has been developed materially. It has been taken hold of successfully in many Departments; and one of the poorest, the Department of Lozère, has experienced a very considerable growth of wealth and prosperity as the fruits of a branch of the Bank of France introduced there on the plan inaugurated by M. Giraud in the Nièvre.

But this contribution by the Bank of France to a solution of the problem of agricultural credit was merely to meet the circumstances of a most exceptional case. Projects for discounts of farmers’ paper in general, for loans on growing crops, etc., are still unmatured.

RAIFFEISEN INSTITUTIONS.

Many people whose views merit consideration have proposed the introduction in France of Schulze-Delitsch banks and Raiffeisen institutions. The latter, which do not require the organization of actual capital, have generally been regarded with preference, and to-day there are a number of Raiffeisen establishments operating in France, although no details as to the amount of business done by them are accessible. They have, as a rule, been instituted by agricultural syndicates (co-operative societies) in conformity with a law of November 5, 1894—which statute, by the way, is perfectly superfluous. That law authorizes all or part of the members of an agricultural syndicate to form an agricultural credit association, having for its exclusive object to facilitate and extend the agricultural business undertaken by the syndicate Edition: current; Page: [134] or those belonging to it. The associations may receive deposits on current account, with or without interest, and they may assume the duty of making collections and payments for the syndicate and its members so far as agricultural matters are concerned. They are permitted to contract necessary loans to establish or increase capital. The capital cannot take the form of shares, but only of such subscriptions as the associated persons choose to make, which subscriptions may be of unequal amount, must be registered, and are transferable only among the members and with their joint consent. The profits that the association is to make on its transactions are stipulated by the regulations; and, after deducting for general expenses and for interest due on loans contracted, at least three-fourths of them is to be applied toward the creation of a reserve fund, which must amount to at least half the capital. The surplus is to be divided pro rata among the members of the syndicate, according to the business done by them. There are no dividends to parcel out. In the event of dissolution, the reserve fund and the excess of assets over liabilities go to the members pro rata according to their subscriptions. The credit associations so established are commercial bodies, but must keep accounts in conformity with the provisions of the Commercial Code. They are exempt from license fees and from the tax on personal property. The individuals intrusted with the administration are personally responsible for violations of the regulations and for breaches of the law. It may be doubted whether the associations started under the act are to be taken very seriously. The French people, with their spirit of equality, find it rather galling to be bossed and to have their affairs discussed by men with whom they are in daily contact. It appears to the Author that the Scotch “cash credit” system, under the auspices of important credit associations, would work much more efficaciously for the interests of both agricultural and popular credit.

POPULAR CREDIT INSTITUTIONS.

“Popular credit” is a term at present no better adapted for favorable acceptation than “agricultural credit.” A pioneer “People’s Credit Association,” founded during the Second Empire by men of consequence, was an absolute failure. A society christened “The Prince Imperial,” for which collections were made, exerted only an insignificant influence. In the early years of the Third Republic, a Caisse Centrale de Crédit Populaire (People’s Central Credit Institution) was attempted by one of the great credit associations, with the patronage of the chief men of the Republican party—Gambetta, Paul Pert, and others; but it had only an ephemeral life and rendered no services. Finally, a so-styled “People’s Credit Society,” started by a venerable friar, Father Ludovic de Besse, recently went into liquidation after suffering heavy losses. Several small mutual loan associations exist, but credit for artisans seems even more remote—if that is possible—than credit for farmers. In France everything still remains to be done along such lines.

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CHAPTER VII.: BANKING IN THE FRENCH COLONIES.

SECTION I.: THE BANK OF ALGERIA.

FIFTEEN years after the conquest of Algeria, the need of a bank became felt in that colony. Application was made to the Bank of France. The management deemed it indispensable to interest Algeria in the French institution, but disapproved the idea of a branch pure and simple. By the plan which was accordingly formulated, the Algerian establishment was to be separate, and to have an independent capital of ten millions—two millions to be furnished by the Bank of France and eight millions to be raised by issuing 8000 shares of 1000 francs each. The bank was to have exclusive privilege to put forth notes to bearer payable at sight, under the immediate supervision of the Bank of France, and its operations were to constitute a distinct system of accounts. The Bank of France, however, made haste slowly in the practical work of organizing the Algiers institution. This was due to decided misgivings. The Government, taking cognizance of the reluctance thus displayed, resolved to create a wholly independent bank, to be named the Banque d’Algérie (Bank of Algeria). The law for its foundation was enacted August 4, 1851, and specified a capital of 3,000,000 francs, divided into 6000 shares of 500 francs each. The charter was for twenty years, to expire April 4, 1871. The same measure authorized the Bank to issue notes of 1000, 500, 100, and 50 francs, with the proviso that the note circulation should not be more than three times the amount of coin on hand. The original regulations have been variously modified. A decree of March 30, 1861, increased the capital to 10,000,000 francs, adding 14,000 new shares. The question of renewal of charter came up in 1867. The law of January 15, 1868, extended the duration of the Bank to November 1, 1881, without change of capital.

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During the Franco-Prussian War several legislative dispositions were made affecting the circulation of the Bank of Algeria. A statute enacted August 12, 1870, decreed a forced currency for the notes, limiting their amount to 18,000,000 francs. By the law of March 26, 1878, this limit was advanced to 48,000,000 francs, and the use of notes of twenty and five franc denomination was authorized. In 1876, the Bank applied for a further extension of its concession and for the privileges of doubling its capital and making advances on securities. The question of renewing the concession brought up another—whether it would not be expedient to merge the Bank of Algeria into the Bank of France. This was determined in the negative, for the opinion prevailed that such a fusion would add undesirably to the actual and moral responsibilities of the Bank of France, since it would be difficult for the latter to keep the proceedings of the Algerian bank and its twenty-four branches under effective surveillance; and since, on the other hand, the Algerian population would not readily accommodate itself to the rules and practices of the Bank of France. One of the objections urged on the latter score was that the Bank of Algeria had been accustomed to discount paper bearing only two signatures, whereas the Bank of France required three signatures. These considerations dispelled for the time being the whole consolidation idea. But in order that there might be opportunity for full liberty of action in the future, it was deemed wise to fix the same date (December 31, 1897) for the expiration of the two concessions. A law adopted April 3, 1880, again doubled the capital stock, bringing it up from ten to twenty millions. It now consists of 40,000 shares of 500 francs each.

As a result of the successive increases in the value of shares, the surplus was swelled to 11,000,000 francs, of which 1,000,000 was taken to reimburse the State for its loan to the Bank at the outset. The remaining 10,000,000 was applied to the reserve fund.

The notes of the Bank of Algeria are legal tender. The maximum of issue is 75,000,000 francs. The Bank discounts bills of exchange and similar paper to order, including Treasury and other public drafts and warehouse receipts;* makes advances on public securities and Algerian railway bonds upon the same terms as the Bank of France; receives on current account, without interest, sums deposited by individuals, and does cash services for depositors; carries on current account, at interest, funds of large financial institutions and others which are intended for Algerian public works; allowing open credit for such funds in consideration of orders on France; sustains relations with the Bank of France for transactions of collection and discount; takes on free deposit securities, money, and gold and silver bullion, and issues drafts or orders against payments of specie or bank notes at ten days’ sight or fifteen or more days from date. The shareholders are represented Edition: current; Page: [137] by a General Assembly, comprised of owners of at least ten shares. Every shareholder has a vote for each ten shares, with the proviso that no one shall have more than five votes. The General Assembly nominates the administrators to the number of nine, and three censors. The Disbursing Treasurer-General of Algeria is delegated by the Minister of Finance to serve as Government Commissioner in the Administrative Council. The administrators and censors hold office for three years, and perform duty successively in groups of three. They are re-electible. The director of the Bank is named by the Chief of the State on the recommendation of the Minister of Finance, and the assistant-director is appointed by the Minister of Finance.

The administration is complicated. Algeria is a country which exports raw material and imports manufactures. Most of the time the balance of trade is against her, and she has to pay more than she receives. In addition, considerable debts have been contracted to Paris for the building of railways, and exchange is generally unfavorable to Algeria. To supply remittances on France the Treasury sells to the merchants African Treasury orders, and pays its receipts for their account into the Bank of Algeria, which allows interest. This mode of exchange is costly, and the expense is enlarged by the advance account current which the Bank of Algeria carries at the Bank of France in order to maintain a fund for drawing direct on the metropolis. Besides the main office in Algiers, the Bank has branches at Bona, Constantine, Oran, Philippeville and Tlemcen, which promote usefully the commerce and agriculture of the colony. It has tried the experiment of numerous agricultural loans, not all of which have had lucky results. By its co-operation Algerian viticulture has risen to its present importance; but loans allowed somewhat broadly have ultimately had oppressive consequences for the farmers, who have been unable to repay the Bank at the day of reckoning. Thus to-day the Bank owns an enormous acreage, greatly to its embarrassment. The present market price of shares indicates that, granting that the Bank is not seriously crippled and that its capital remains whole, it nevertheless has in a measure lost public confidence.

Edition: current; Page: [138]
Coin and Circulation of the Bank of Algeria (in Millions and Hundred Thousands of Francs).
YEARS. COIN ON HAND. CIRCULATION OF NOTES.
Maximum. Minimum. Average. Maximum. Minimum. Average.
1851-52 1.0 0.2 0.8 1.3 0.1 0.8
1854-55 2.0 0.8 1.6 2.8 2.4 2.6
1859-60 2.3 2.0 2.1 4.6 3.1 4.1
1864-65 9.2 4.5 6.7 7.1 5.4 6.2
1869-70 11.8 7.3 22.3 14.0 16.2
1874-75 29.2 16.9 23.7 37.3 25.8 30.3
1879-80 27.6 24.8 25.8 59.5 42.5 48.7
1884-85 33.2 25.2 30.0 70.3 55.2 63.5
1885-86 30.5 22.4 27.3 67.4 54.4 60.7
1886-87 26.1 21.0 24.1 72.4 56.1 62.8
1887-88 28.7 23.2 26.0 77.5 58.8 66.6
1888-89 37.3 30.2 34.0 75.2 61.4 67.7
1889-90 34.5 25.9 31.9 88.0 65.3 73.3
1890-91 29.5 25.3 27.5 88.1 72.2 79.5
1891-92 34.3 27.5 31.7 81.0 68.1 75.1
1892-93 40.1 32.8 37.5 74.8 66.3 71.0
1893-94 43.3 34.3 40.0 82.9 60.3 70.0
1894-95 36.0 28.1 33.4 90.5 70.4 80.0
Profits, Expenses, etc.
YEARS. Profits. Expenses Dividends. Average Price of Shares.
FRANCS. FRANCS. FRANCS. FRANCS.
1851-52 113,200 52,700 21.60
1854-55 220,200 94,600 36.50
1859-60 539,600 141,500 46.50
1864-65 870,300 175,200 60.00 934.33
1869-70 1,365,700 343,500 66.00 1,159.69
1874-75 2,239,300 495,000 80.00 1,389.27
1879-80 2,572,800 749,600 71.00 1,502.08
1884-85 6,297,500 703,400 92.00 2,203.43
1885-86 6,152,100 778,600 80.00 2,113.05
1886-87 5,553,400 765,600 80.00 1,970.39
1887-88 5,856,800 751,000 80.00 1,687.47
1888-89 6,161,800 779,200 80.00 1,495.83
1889-90 6,157,400 798,200 80.00 1,475.70
1890-91 5,456,000 826,500 70.00 1,620.46
1891-92 6,032,209 817,267 60.00 1,400.00
1892-93 5,700,563 835,030 50.00 1,060.00
1893-94 5,886,761 873,424 38.00 734.30
1894-95 5,789,830 889,972 30.00 770.40
Edition: current; Page: [139]
Individual and Treasury Current Accounts (in Millions and Hundred Thousands of Francs).
YEARS. Maximum. Minimum. Average. Maximum. Minimum. Average.
1851-52 0.3 0.1 0.2
1854-55 0.7 0.5 0.6
1859-60 1.4 0.8 1.1
1864-65 2.5 1.6 2.1
1869-70 4.7 3.1 3.9
1874-75 3.9 2.5 3.1
1879-80 10.2 7.1 8.0
1884-85 5.3 3.2 4.2 43.9 25.4 33.9
1885-86 5.9 3.7 4.7 41.1 24.3 32.2
1886-87 6.5 4.7 5.4 29.7 9.1 19.8
1887-88 6.5 4.9 5.7 21.2 5.4 13.2
1888-89 9.6 4.3 6.1 38.6 14.4 32.5
1889-90 6.9 4.1 5.9 33.6 14.3 23.6
1890-91 8.4 4.7 6.0 26.3 8.9 17.4
1891-92 5.3 3.5 4.6 44.3 27.3 38.8
1892-93 7.2 3.0 5.0 50.8 42.1 45.7
1893-94 3.7 1.9 2.8 75.5 53.9 61.6
1894-95 6.1 1.7 4.2 60.1 27.8 62.9
Commercial Discounts (in Millions and Hundred Thousands of Francs). PAPER ON HAND.
YEARS. Number of Pieces. Sums Discounted Maximum. Minimum. Average.
1851-52 8.8 7.5 0.1 1.1
1854-55 20.5 2.4 1.6 1.9
1859-60 62.0 8.6 6.6 7.2
1864-65 73.8 11.7 7.2 9.1
1869-70 153.2 22.3 14.7 17.3
1874-75 249,691 185.7 25.2 19.2 21.8
1879-80 423,535 351.1 49.9 38.4 42.4
1884-85 538,851 523.4 86.8 78.4 83.8
1885-86 512,971 525.3 89.3 80.3 85.4
1886-87 430,819 465.9 86.2 74.4 79.8
1887-88 378,707 415.0 73.1 67.7 70.2
1888-89 386,375 430.3 81.0 66.5 73.9
1889-90 382,911 420.5 79.6 65.8 72.2
1890-91 311,835 418.6 73.8 62.3 66.9
1891-92 340,795 425.6 89.4 72.8 79.9
1892-93 322,489 396.6 93.2 79.2 84.3
1893-94 353,112 442.4 97.0 87.6 92.5
1894-95 343,249 434.5 97.0 87.7 92.0
Edition: current; Page: [140]
Landed Property Acquired by the Bank by Foreclosures.
FRANCS.
1873-74 7,000,000
1874-75 13,100,000
1879-80 6,600,000
1884-85 5,200,000
1885-86 5,100,000
1886-87 5,100,000
1887-88 5,600,000
1888-89 12,000,000
1889-90 23,100,000
1890-91 20,400,000
1891-92 8,000,000
1892-93 8,500,000
1893-94 8,400,000
1894-95 10,900,000

The Bank of Algeria publishes an annual statement of its transactions. These statements are rather incomplete, and it is vain to search in them for details such as are given by the Bank of France. It issues a monthly balance-sheet, of which the following is a reproduction:

Condition of the Bank of Algeria on November 30, 1895.
ASSETS.
FRANCS.
Cash on hand 33,771,330.82
Consols 11,866,010.00
Bills receivable on hand 92,360,005.14
Bills receivable out for collection 1,902,925.30
Loans on securities 319,734.40
94,582,664.84
Correspondents 6,884,441.25
Liquidations (accounts settled according to Article 35 of the Regulations) 6,412,780.48
Buildings of the Bank 2,311,179.14
Landed property 10,909,774.87
Running expenses 62,257.14
Branches (in account with the Bank) 91,380,743.45
Advances to the Government (Chambers of Commerce). 1,389,661.96
Miscellaneous accounts 2,518,891.55
262,089,465.50
LIABILITIES.
Capital 20,000,000.00
Bank notes in circulation 84,781,205.00
Bills payable 22,665.55
Accounts current 6,228,116.61
Disbursing treasurers (their current account) 3,090,000.00
Public Treasury 33,616,444.19
Dividends due 587,934.41
Bonuses and commissions 427,157.73
Profit and loss 47,970.63
Rediscounts 440,271.12
Statutory reserve 6,666,666.66
Extraordinary reserve 1,980,357.48
Real-estate reserve 2,311,179.14
Bank of Algeria in account with branches 90,914,172.18
Miscellaneous accounts 10,975,324.80
262,089,465.50

To sum up: The Bank of Algeria has pursued a very liberal policy in its loans, and has contributed energetically to the development of the great French colony; but the methods it has employed are not above criticism. The vast landed property that it owns has absorbed part of its reserves, but, on the other hand, is well administered, and adequately corresponds in value to the figures reported in its statements. Yet the experience of all times, especially illustrated by the recent crisis in Australia, demonstrates the danger of investments in land. Although the condition of the Bank of Algeria excites no alarm, it is infinitely less satisfactory than it would have been if the Bank had kept clear of farm loans, which offer bad security in comparison with obligations on demand, like the bank note. The function of lender on long terms is, indeed, not properly within the sphere of the bank, but belongs rather to establishments that make a special business of engagements at stated maturity. The Bank of Algeria does not stand alone in this matter, however, for some of the French colonial banks have suffered from similar mistakes.

Edition: current; Page: [142]

SECTION II.: OTHER COLONIAL BANKS.

AT the time of the abolition of slavery in the French colonies, an income of 6,000,000 francs was provided for the slaveowners. To make their position less painful, a plan was also devised to procure for them advantages of credit which had not existed up to that time. With that object in view, Article 7 of the same act stipulated that one-eighth part of the indemnity for Guadeloupe, Martinique, and Réunion should be applied to establish a loan and discount bank in each of those colonies. The income bonds so set apart were to be deposited in the bank as collateral for the bank notes which it was authorized to issue. Each colonist entitled to indemnity, excepting those whose claims were under 1000 francs, had a right to receive shares of the bank equivalent to the damage suffered. It was not within the original purview to have private capital participate in the organization of the banks in the three colonies. Shortly after the creation of the Banks of Guadeloupe, Martinique, and Réunion, like establishments were founded in Guiana and Senegal. Later, banks were set up in Indo-China and New Caledonia. The Bank of New Caledonia had only a brief career, failing after a few years.

The capitals of the colonial banks at present are as follows, all paid up except that of the Bank of Indo-China:

* Three million francs paid up.
FRANCS
Bank of Martinique 3,000,000
Bank of Guadeloupe 3,000,000
Bank of Réunion 4,000,000
Bank of Guiana 600,000
Bank of Senegal 600,000
Bank of Indo-China *12,000,000

The capital in each case can be increased or decreased only by shareholders’ assessments approved by the Governor of the colony and sanctioned by decree. The colonial banks have the sole right to issue bank notes in their respective colonies. The duration of the various privileges, excepting that of the Bank of Indo-China, fixed at twenty years, was provisionally Edition: current; Page: [143] extended upon expiration, and then renewed until 1894. Provisional re-extensions were made for 1895 and 1896. The Bank of Indo-China, which was established later than the others, has not yet completed the term of its concession. The colonial banks are conducted as joint-stock companies. Their shares are 500 francs, par value. The shareholders are represented by 100 principal owners of shares that have been registered at least six months on the books. Each member of the Assembly has but one vote. The Assembly considers and, when desirable, approves the statement of transactions for the year, and elects the administrators and censors. The treasurer of the colony is ex-officio one of the administrators. The administrators (trustees) selected by the bank are three in number, and serve for three years, one retiring each year, although re-election is allowed. The censor acts for two years, and likewise may be re-elected. The Assembly nominates an assistant-censor, who may take the place of his chief when the latter is absent or unable to perform his duties. The Minister of the Colonies also appoints a censor.

The Administrative Council deliberates and votes on all questions affecting the bank. The censors keep all departments of the institution under surveillance, and also see that the laws and regulations are executed. The director is appointed by the President of the Republic from a list of three candidates presented by the Banking Inspection Commission for the Colonies upon the recommendation of the Ministers of the Colonies and the Finances. The director acts as president of the Administrative Council, and is responsible for the enforcement of its resolves. No resolve is valid unless signed by the director. No discount or advance transaction can take place without his approval. He directs the offices, appoints the employees, and receipts for and indorses documents. He is not permitted to pursue any private business, and must possess as security twenty shares of the bank. In the event of absence or incapacity his place is filled by a director ad interim appointed by the Privy Council of the colony.

By a decree of November 17, 1852, it was determined, as an indispensably necessary measure for properly controlling the colonial banks so far as their European business was concerned, to create in Paris a “Central Agency of Colonial Banks.” The central agent is selected by the Minister of the Colonies. He represents all these banks in their transactions with Paris, attending to the taking up of notes and to purchases for the banks. He also has charge of the transfer of shares in France, and is the legal representative of the establishments in court proceedings before the tribunals of Paris. The expenses of the agency are borne by the banks pro rata according to their capital. The Minister of the Colonies designates some credit house (at present the Comptoir d’Escompte) to carry current accounts for the colonial banks. The amount of collections of the commercial paper on Europe of the colonial banks is credited to them; also the amount of such paper as has to be negotiated in Europe; the amount of back interest on consols belonging to them or intrusted to them, and all other sums which may be received for Edition: current; Page: [144] their account. On the debit side are charged drafts or orders issued in favor of third parties by the banks on the Paris credit house and paid by them, the dividends of their shares, and all expenses on their account. All collections and payments are subject to the approval of the central agent. The colonial banks, further, are kept under inspection by a commission in connection with the Ministry of the Colonies, composed of nine members—a State Councillor chosen by the Council of State, four persons appointed by the Minister of the Colonies, who must reside in Paris and of whom at least two must be shareholders, two persons named by the Minister of Finance, and two selected by the General Council of the Bank of France. The commission elects its president. All documents sent to the Ministry appertaining to the colonial banks are communicated to it. Its advice is asked concerning all acts of the Government that affect them. It recommends such measures of examination and control as seem expedient. Annually it reports to the Parliament and the President of the Republic upon the results of its administration. These reports are published in the “Journal Officiel,” and in at least one newspaper of each colony.

The agency of the colonial banks is from time to time brought under examination by the Inspectors of Finance, who inspect all the current accounts of the banks, report upon the manner in which the central agent fulfills his duties, and recommend any changes of method that may be called for. The transactions of the colonial banks comprehend discounts of notes to order and home commercial paper provided with the signatures of two solvent persons; negotiations, discounts, and the sale of drafts or orders on the metropolis or abroad; and advances on negotiable securities or on non-negotiable engagements secured variously by warehouse receipts for goods in storage, growing crops, bills of lading, transfers of bonds, or shares of the bank, and deposits of bullion, moneys, or gold and silver of every kind. The most remarkable transactions of the colonial banks—or, at least, some of them—are those on growing crops, which seem to constitute, indeed, the chief purpose of their existence. Any proprietor, farmer, or lessee of a farm, or planter, who wishes to borrow on his growing crop gives notice in writing a month ahead. This notice is entered in the book kept for that purpose by the Registrar. Everyone who is not actual owner of the soil must exhibit the consent of the proprietor, which is inscribed in the register at the same time that the declaration relating to the loan is made. Any creditor holding a mortgage on the buildings or a claim on the crop, or upon the proprietor, may remonstrate against the granting of the loan. The remonstrance is filed with the Registrar, who notes it on the margin of the application. The Registrar is obliged to furnish abstracts of such records to all asking for them. At the end of a month after the would-be borrower’s declaration, the loan may be made by the bank. By virtue of procedure which the bank takes in the same connection, it acquires a lien on the crop and is considered the owner thereof. Its lien takes precedence over the rights of all who have not entered protest. If the debtor neglects to gather Edition: current; Page: [145] his crop in sufficient time, or omits to do anything needful in the premises, the bank, after summoning him, and by a simple order from a justice of the peace, can be authorized to harvest and care for the crop in the stead of such negligent debtor, the bank advancing the required sums for expenses, which it receives back, together with the principal of the capital, out of the crop and its money product.

STATISTICS OF THE COLONIAL BANKS.*

(In Millions and Thousands of Francs).

Discounts.
YEARS. MARTINIQUE. GUADELOUPE. RÉUNION. SENEGAL. GUIANA. INDO-CHINA.
Discounts. On Hand June 30th. Discounts. On Hand June 30th. Discounts. On Hand June 30th. Discounts. On Hand June 30th. Discounts. On Hand June 30th. Discounts. On Hand Dec. 31st.
1880-81 24,176 7,998 2,003 8,506 769 2,367 731 24,128
1881-82 22,762 5,958 8,197 1,902 8,219 869 2,538 903 10,374
1882-83 22,486 5,307 9,199 2,483 7,674 2,097 924 295 3,510 1,143 12,326
1883-84 22,295 5,744 10,258 2,714 7,057 2,579 1,067 368 3,866 1,099 13,071
1884-85 18,188 4,330 9,127 2,650 6,506 2,617 1,390 634 4,076 1,178 23,994
1885-86 12,672 3,874 6,442 2,034 8,124 1,722 1,950 774 3,594 1,115 26,050 11,335
1886-87 12,376 3,522 5,506 1,533 6,498 1,534 2,687 780 3,811 1,177 49,611 11,364
1887-88 11,781 3,039 4,234 1,060 6,570 1,800 2,301 808 3,593 1,070 60,910 13,919
1888-89 10,190 3,217 3,423 1,009 10,333 2,976 3,658 1,473 3,558 1,157 52,837 9,124
1889-90 11,745 3,542 3,170 1,114 16,779 5,194 4,883 1,177 3,769 1,110 31,526 9,887
1890-91 16,593 5,233 3,334 1,013 21,715 5,406 4,273 1,103 3,950 1,160 45,481 13,634
1891-92 23,388 7,925 3,604 1,067 21,509 6,027 4,373 1,019 4,339 1,261 66,022 10,556
1892-93 26,855 7,662 3,645 1,265 21,839 4,283 4,056 1,008 4,700 1,314 51,127 13,112
1893-94 23,669 8,268 3,772 1,353 9,610 4,035 4,112 1,067 5,236 1,435
Edition: current; Page: [146]
Advances on Growing Crops.
YEARS. MARTINIQUE. GUADELOUPE. RÉUNION. INDO-CHINA.
Sums Advanced. No. of Loans in Force on June 30. Sums Advanced. No. of Loans in Force on June 30. Sums Advanced. No. of Loans in Force on June 30. Sums Advanced. No. of Loans in Force on June 30.
1880-81 2,868 7,233 138 3,247
1881-82 3,326 20 8,132 80 3,137 320
1882-83 3,324 37 8,387 332 2,747 3,228 272
1883-84 4,548 387 9,249 1,220 3,055 3,441 189
1884-85 2,871 97 8,677 797 2,634 3,081 194
1885-86 2,703 68 7,820 1,391 2,100 1,951 402 388
1886-87 3,070 397 7,843 751 1,505 1,542 458 454
1887-88 3,630 74 8,171 346 1,211 1,136 936 931
1888-89 2,769 73 7,579 78 1,543 1,196 525 1,456
1889-90 3,612 363 8,040 773 1,753 1,354 273 447
1890-91 2,958 306 8,403 280 1,281 1,091 212 591
1891-92 4,352 1,811 9,347 157 1,519 1,291 178 208
1892-93 3,816 820 8,788 117 1,782 1,420 185 218
1893-94 4,995 971 8,563 183 1,127 1,057

The Banks of Senegal and Guiana make no loans on crops, as those colonies are not agricultural. These very important transactions in Martinique, Guadeloupe, and Réunion have become dangerous because of the fall in sugar. The Bank of Réunion, particularly, is in a most precarious position, owing to the large loans that have not been repaid.

The advances on goods in storage are of importance only in the Banks of Réunion and Indo-China.

Loans on Merchandise.
YEARS. RÉUNION. INDO-CHINA.
Amounts Loaned. Situation on June 30th. Amounts Loaned. Situation on Dec. 31st.
1880-81 13,146
1881-82 9,947 9,162
1882-83 11,955 2,990 12,534
1883-84 13,798 3,485 20,998
1884-85 11,605 3,967 28,307
1885-86 10,709 3,250 29,588 3,158
1886-87 4,977 1,771 29,044 3,609
1887-88 4,666 812 21,095 4,874
1888-89 4,722 657 30,785 5,104
1889-90 7,674 968 27,559 6,139
1890-91 5,712 1,027 32,354 6,449
1891-92 6,836 1,374 33,287 4,713
1892-93 5,964 1,039 37,910 4,032
1893-94 3,959 813
Edition: current; Page: [147]
Rates of Interest in 1893-94.
Advances on Crops. Per Cent. Loans on Merchandise Loans on Precious Metals. Per Cent. Other Transactions. Per Cent.
Discounts. Per Cent. Imported. Per Cent. Colonial. Per Cent.
Martinique 8 3 8 8 6 6
Guadeloupe 6 6 6 6 6 6
Réunion 7½ to 8½ 6 9 6 4 to 8 7½ to 9
Senegal 6 to 8 6 to 8 9 6 to 8
Guiana 8 8 8 8 6
Indo-China 8 to 12 7 to 9 7 to 9 7 to 9 8 to 12 4 to 7
Open Current Accounts Without Interest.
YEARS. MARTINIQUE. GUADELOUPE. RÉUNION. GUIANA. SENEGAL. INDO-CHINA.
Paid In. Drawn. Balance June 30. Paid In. Drawn. Balance June 30. Paid In. Drawn. Balance June 30. Paid In. Drawn. Balance June 30. Paid In. Drawn. Balance June 30. Paid In. Drawn. Balance June 30.
1880-81 58,649 1,070 63,776 1,774 8,174 7,384 4,117 3,527 494 302
1881-82 64,331 63,236 2,164 72,085 69,462 3,397 12,285 12,595 818 3,527 3,731 290 877 22,941 968
1882-83 71,423 71,704 1,883 72,125 73,658 1,864 11,013 11,227 604 3,487 3,551 226 1,564 131 23,950 23,822 1,096
1883-84 67,298 67,785 1,396 72,814 72,465 2,213 7,689 7,844 449 2,791 2,854 163 2,423 2,341 213 44,149 43,043 2,202
1884-85 39,838 39,236 1,498 56,286 56,371 2,128 10,187 10,057 579 2,711 2,705 169 2,923 2,894 243 36,289 37,098 1,393
1885-86 31,071 31,480 1,089 45,587 45,830 1,885 1,572 8,392 759 2,625 2,604 190 1,903 2,052 93 29,265 28,310 2,348
1886-87 32,749 32,248 1,590 52,476 52,064 2,297 7,347 7,437 669 3,700 3,639 251 2,193 2,090 196 35,009 34,809 2,548
1887-88 38,154 37,935 1,809 57,061 56,772 2,586 8,924 9,146 447 4,592 4,544 299 1,577 1,190 583 45,520 45,114 2,954
1888-89 42,935 42,370 2,374 50,338 49,432 3,492 9,548 9,481 514 5,178 5,016 461 1,264 1,631 215 39,449 39,848 2,555
1889-90 43,608 44,564 1,418 51,656 52,020 3,128 19,438 18,204 1,748 4,074 4,213 322 1,115 1,209 121 49,686 49,331 2,910
1890-91 37,199 37,070 1,547 49,040 49,411 2,757 31,634 32,340 1,642 2,745 2,736 331 1,142 1,149 114 65,352 62,556 5,706
1891-92 31,427 31,722 1,252 45,042 45,483 2,316 28,086 27,673 1,455 2,886 2,900 317 1,192 871 435 63,555 64,920 4,341
1892-93 31,448 31,512 1,188 48,180 48,240 2,256 27,417 27,233 1,640 3,751 3,686 382 1,167 1,099 503 64,666 65,679 3,328
1893-94 29,386 29,904 670 49,371 49,546 2,081 18,192 18,602 1,230 4,711 4,445 648 552 613 492
Edition: current; Page: [148]
Movement of Exchanges with France.
YEARS. MARTINIQUE. GUADELOUPE. RÉUNION. GUIANA. SENEGAL. INDO-CHINA.
Drawn on France. Sent to France. Drawn on France. Sent to France. Drawn on France. Sent to France. Drawn on France. Sent to France. Drawn on France. Sent to France. Drawn on France. Sent to France
1880-81 11,454 9,848 14,251 17,537 4,833 5,898 4,645 4,973 3,033 3,598 18,770 17,233
1881-82 11,031 12,018 16,075 20,208 8,569 7,672 4,395 4,155 3,431 3,992 20,374 25,536
1882-83 16,731 16,340 18,095 20,197 9,887 9,067 4,844 4,842 4,788 4,529 23,927 31,410
1883-84 15,985 16,245 22,425 23,172 9,995 8,191 5,018 5,425 3,990 4,661 38,128 52,472
1884-85 6,193 8,443 17,871 18,841 3,485 7,632 5,082 5,101 4,756 5,116 38,359 53,850
1885-86 4,997 4,030 13,332 13,440 4,534 5,483 4,754 4,600 4,509 4,509 40,307 64,206
1886-87 4,700 5,586 10,550 14,679 3,603 3,014 4,962 5,285 3,639 5,355 25,852 45,363
1887-88 4,970 6,424 12,675 17,716 4,882 5,761 5,791 6,564 3,673 6,659 37,582 49,543
1888-89 4,464 5,010 13,319 16,744 4,309 3,947 5,710 5,866 2,795 3,188 40,036 62,110
1889-90 6,640 6,287 14,136 14,633 2,230 2,977 4,496 5,269 2,323 3,103 29,358 49,388
1890-91 9,236 6,718 16,383 12,181 2,296 3,302 5,283 5,587 2,121 3,793 48,127 59,500
1891-92 9,876 2,917 14,249 15,302 3,265 3,247 5,165 5,762 1,943 4,530 52,645 65,250
1892-93 6,244 7,010 15,200 16,685 1,915 2,225 5,645 6,259 2,462 4,219 45,086 59,455
1893-94 6,244 6,809 15,900 17,107 2,904 3,098 5,652 6,674 2,802 4,194
Edition: current; Page: [149]
Coin on Hand at End of Business Year.
YEARS. Martinique Guadeloupe. Réunion. Senegal. Guiana. Indo-China.
1880-81 2,547 2,079 3,561 2,743
1881-82 2,525 2,295 4,063 808 703 4,115
1882-83 2,867 2,311 4,016 790 581 1,940
1883-84 2,187 2,536 3,868 518 499 4,814
1884-85 2,523 2,379 4,170 554 685 6,388
1885-86 2,360 2,324 3,905 455 923 4,910
1886-87 2,417 2,670 3,759 458 782 5,224
1887-88 2,482 3,111 3,297 694 634 5,956
1888-89 2,313 3,722 2,783 531 1,108 6,047
1889-90 2,830 2,907 2,527 522 784 6,049
1890-91 2,203 3,178 2,646 482 670 8,322
1891-92 2,912 2,953 2,844 745 688 8,149
1892-93 2,196 2,974 2,778 1,298 685 9,572
1893-94 2,581 3,200 2,651 564 926 10,470
Bank Note Circulation.*
* The proportionately high figure of the coin on hand and the bank note circulation of the Bank of Indo-China is explained by the wide reach of that Bank’s influence. It has establishments at Saīgon, Hanoī, Tourane, Haiphong, Pnam Penh, Pondichéry, Hong Kong, and Nouméa. It is even proposed to establish a branch at Réunion in case the bank of that colony goes into liquidation.
YEARS. Martinique. Guadeloupe. Réunion. Senegal. Guiana. Indo-China.
1880-81 1,584 550 9,855 4,717
1881-82 5,546 6,329 9,121 426 1,513 6,558
1882-83 5,843 6,582 7,619 807 1,289 7,783
1883-84 6,010 6,431 7,247 755 1,452 8,138
1884-85 6,851 6,095 9,777 751 1,438 10,572
1885-86 5,107 5,910 7,608 823 1,388 11,777
1886-87 5,345 7,120 5,526 758 1,453 12,293
1887-88 6,190 7,624 5,026 847 1,656 13,047
1888-89 6,058 7,335 5,176 779 1,409 11,949
1889-90 6,517 6,890 6,343 928 1,421 15,974
1890-91 6,005 6,576 7,455 1,086 1,519 15,911
1891-92 5,432 7,034 7,409 919 1,546 18,696
1892-93 5,126 7,932 7,623 987 1,639 20,926
1893-94 7,007 8,376 9,416 912 1,923 22,077
Edition: current; Page: [150]
Profit and Loss.
YEARS. MARTINIQUE. GUADELOUPE. RÉUNION. GUIANA. SENEGAL. INDO-CHINA
Net Profits. Dividends. Net Profits. Dividends. Net Profits. Dividends. Net Profits. Dividends. Net Profits. Dividends. Net Profits. Dividends.
FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS. FRANCS.
1880-81 88.05 487,659 75.50 100.00 76.25 24,909 26.00 12.50
1881-82 74.95 501,719 77.50 671,044 83.00 114,227 81.05 36,310 40.00 291,164 13.50
1882-83 483,333 75.00 555,666 85.50 617,902 85.00 141,751 99.40 73,754 72.00 270,920 14.00
1883-84 614,003 70.00 511,678 78.00 627,240 80.00 133,726 94.05 63,418 63.00 313,966 16.00
1884-85 154,807 25.00 322,135 37.00 12.50 128,029 90.30 96,780 92.00 393,654 20.00
1885-86 472,162 65.00 299,255 40.00 116,112 82.30 82,643 80.00 427,625 22.00
1886-87 448,772 60.00 431,270 62.50 120,176 85.05 82,809 80.00 423,866 22.00
1887-88 536,354 62.50 664,624 95.00 135,303 95.00 82,922 81.00 701,250 30.00
1888-89 518,694 70.00 789,896 115.00 75,618 36.20 84,821 45.00 583,670 20.00
1889-90 474,497 70.00 819,260 122.50 341,623 45.50 125,018 62.00 117,676 50.00 585,561 20.00
1890-91 494,114 65.00 712,793 95.00 640,291 49.50 156,068 88.00 124,051 52.50 583,294 20.00
1891-92 765,021 70.00 691,507 95.00 284,000 35.00 158,812 110.00 150,426 50.00 594,776 20.00
1892-93 664,560 60.00 660,116 100.00 149,710 103.90 190,322 57.50 583,556 20.00
1893-94 649,013 65.00 723,982 105.00 140,114 96.20 172,860 65.00 584,749 20.00

We reproduce below, as a sample, the balance-sheet of the Bank of Martinique for June 30, 1894, as published by the Inspection Commission of the Colonial Banks. The various items of assets and liabilities are self-explanatory, and call for no remarks. All balance-sheets of the colonial banks are made up on the same form, and we deem it proper to call attention to the good arrangement of this statement, which might well serve as a model for banking summaries.

Edition: current; Page: [151]
Condition of the Bank of Martinique, on June 30, 1894.
ASSETS.
FRANCS. FRANCS.
Coin on hand 2,581,022.09
Bills to take up to-morrow, stamped paper, etc. 78,014.42
2,659,036.51
Local bills receivable 8,268,199.41
Bills receivable with bank-stock collateral 269,592.50
Bills receivable with consols collateral 2,485.00
Bills receivable with merchandise collateral 17,500.00
Bills receivable with crop collateral 971,236.00
Loans on gold and silver 583,804.00
Loans by communities 496,402.73
Total of loans and discounts 10,609,219.64
Registered consols 4,504,544.03
Western R. R. bonds, guaranteed by the State 32,943.65
Buildings 246,199.90
Movable property 35,983.60
Income of sinking fund 43,262.60
Central agency 130.93
Bank of Guiana 55,381.83
Miscellaneous 8,042.75
Pension fund securities 74,795.00
Total 18,209,540.44
LIABILITIES.
Bank notes in circulation 7,007,550.00
Current accounts 670,585.70
Deposit receipts payable at sight 47,824.04
Bills payable 13,724.16
Current dividends 4,922.10
Back dividends 6,737.20
Bank of Guadeloupe 170.00
Comptoir d’Escompte (current account) 3,369,292.27
Balance of orders drawn on the Comptoir 3,614,512.10
Total 6,983,804.37
Less remittances in favor of the Comptoir 1,511,475.10
Balance due the Comptoir by the bank 5,472,329.27
Debts exactable under deduction of ready coin* 13,223,842.47
Capital 3,000,000.00
Reserve and sinking funds 1,548,047.50
Reserve for paper in suspense and for interest to the Comptoir 112,910.81
Employees’ pension fund 75,544.50
Profit and loss 367,361.20
Less running expenses 58,166.04
Leaves 309,195.16
18,269,540.44
*Bank notes in circulation 7,007,550.00
One-third in coin would be 2,355,850.00
Coin on hand 2,581,022.09
Surplus of metallic stock 245,172.09
Edition: current; Page: [152] Edition: current; Page: [153]

PART II.: BANKING IN ITALY.

CHAPTER I.: PRIMITIVE BANKS.

THAT Italy is the native country of banks is amply evidenced by the common acceptance of Italian terms in banking parlance. It is highly interesting that two of the primitive Italian banks are still in existence, though much modified, the Banco di Napoli and the Banco di Sicilia. The objects of the first banks are perfectly indicated in distichs inscribed beneath two statues by Bernino adorning the front of the Monte di Pietà at Naples (the Bank of Naples):

  • Forsan abest misero signata pecunia civi
  • Atque illum interea tempora sæva premunt,
  • Nummorum huic operi ingentes cumulamus acervas,
  • Pignore deposito, quod petit inde damus.
  • Si quis amat brevibus cante persolvere chartis
  • Aut timet insidias furis et arma domi
  • Congerite huc aurum, placidas et carpite somnos
  • Per me stcuros civibus esse licet.

THE MONTE VECCHIO.

In 1156, the Venetian Treasury found itself exhausted, and the Doge Vital Michel proposed to levy a forced loan on the wealthiest citizens, assuring four per cent. interest to the creditors. This was the first instance of a public debt. The lenders were given a kind of semi-official status and, under the guaranty of the State, were authorized to open a deposit establishment Edition: current; Page: [154] which issued orders payable in ready ducats of a fixed standard. This institution was called the Monte Vecchio.

Loan and pledge establishments, or Monts de Piété and deposit offices, were the original banks of Italy. The oldest appears to have been the Bank of Venice, or Bank of St. Mark’s. The Mont, says the celebrated historian Cesare Conti, was one of the instrumentalities wherewith the Italian republics sought to provide for urgent needs by establishing State debts. The credits issued by the Mont offered their holders more safety than even the metallic moneys, which could always be debased, and they circulated freely. The Government used them exclusively for its payments. The transactions attained larger dimensions in the course of time, and the Monte Vecchio had the distinction of making transfers of funds by signature (giro)—a species of modern banking instrument. To this ancient Mont, the Venetians added, in 1580, the Monte Nuovo, as an aid for carrying on the war with Ferrara, and later (after the Seven Years’ War) the Mont Nuovissimo. The remains of these concerns served for the construction of the Bank of Venice, which endured until the fall of the Republic.

THE BANK OF ST. GEORGE.

The creation of the Bank of St. George is a very remarkable landmark in history. Genoa, says C. Conti, was formerly accustomed to cede certain revenues to the State’s creditors. In 1345, a “Chapter” was formed, with the necessary employees, and the debt was divided into shares of 100 livres which could be sold and transferred. As the collection of the different taxes was intrusted to different officers, the expenses consumed the profits. To simplify matters, the various branches of the service were consolidated into a single “College,” composed of eight members, which adopted the name of Bank of St. George. The members of the college were appointed by the creditors of the State, and were to render their accounts to one hundred selected creditors. Each administrator of the bank had the title of Consul. Every credit of 100 livres was called a lieu+̆ (place). Each creditor was a locataire (holder), and a certain number of credits united under a single head constituted a column. Purchases, or writings, were the total of lieu+̆s, which were styled Monts at Florence, Rome, and Venice. The taxes set apart for the payment of lieu+̆s produced seven per cent. net. The lieu+̆s were recorded in eight registers, corresponding to the eight departments or wards of the city, subdivided for the palaces of the nobles and the lodgings of the bourgeois.

When this separation was abolished, in the 17th century, the records were made up without distinction of classes, and the creditors received coupons bearing their names and the notary’s signature. No bills could be put into circulation unless their value was represented by coin, and all paper was payable at sight out of money kept in the sacristies, where many Edition: current; Page: [155] people deposited their savings, and also out of the sums intended for public charities.

The supreme direction of the Bank of St. George was assigned to eight protectors, who, when necessary, associated with themselves eight procurators, eight members of the office of the forty-four, and four syndics, or comptrollers. The protectors summoned annually a Grand Council of 480 holders, half of whom were designated by lot and half selected by ballot. The magistrates of the Republic were required to take an oath to maintain the inviolability of the bank. This society prospered, being less corrupt than others. It was regarded as a promoter and conservator of peace. Its credit grew steadily, especially from the time when the Republic, unable to maintain the defence of Caffa against the Turks and Corsica, ceded those possessions to it. Thus the establishment of St. George was at once a commercial bank, a State depository for the revenues, a contractor for the taxes, and a political custodian. The large increase of State indebtedness caused the Government to pledge to the bank the sovereignty of St. George in Genoa and of Justiniania in Chios. The bank was pillaged by the Austrians in 1746; but it recovered and continued in existence until 1800, when it was destroyed by the French.

THE MONTE DE PIÉTÉ OF NAPLES.

The Bank of Naples is a credit institution formed by the consolidation of several charitable establishments, the oldest of which was founded in 1540. Up to that date, says Eugenio Tortora,* money loans were made only by the Jews, for they came under the condemnation of the Catholic Church as usurious. An edict issued by the Emperor Frederick (13th century) authorized the Jews to take ten per cent. interest, but in 1507 Ferdinand the Catholic deprived them of all right to institute legal action against borrowers, so that as these lenders could rely no longer upon the security of written instruments, they were brought to the necessity of insisting on personal property as pledges.

On the occasion of a visit by Charles V. to Naples, the Grand Seigneurs, desiring to tender him a magnificent reception, pledged all their personal property and silverware to the Jews. The latter made very hard conditions and realized exorbitantly. After the King’s departure, the borrowers complained of the extortions they had suffered. Their clamors were so loud, and public opinion sided with them so decidedly, that the Viceroy, Don Pedro de Toledo, promulgated in 1540 a stringent edict commanding the Jews to quit the city and kingdom at once. The edict was carried out to the letter. But, after the expulsion of the Jews, it became necessary, in order to obtain loans, to apply to rich Christians, who did not scruple to exact an interest even higher than that charged by the Jews. As a corrective for this state Edition: current; Page: [156] of things, two philanthropic men, Aurelio Paparo and Leonardo di Palma, instituted, in 1539 or 1540, with their own capital, a house called the Sacro Monte della Pietà. They made loans on pledges by individuals, opening an office where free loans were granted on values below ten ducats, with very moderate rates for higher amounts. Soon, the house of the two founders was unable to accommodate the business done, and the Mont de Piété had to be transferred to the Foundling Asylum, or Santa Annunziata. The directors of the asylum became protectors of the Mont de Piété. During the first years of its existence the Mont de Piété was supported by small sums raised by collections and by gifts from persons taking an interest in the good work. Gradually these sums accumulated. Countess Carrafa and Cardinal Acquaviva made fine donations which enabled the concern to enlarge its loan transactions and to engage in charitable enterprises, such as the releasing of persons imprisoned for debt, the granting of dowries to poor children, the ransoming of captives taken by the Berbers, etc. Wills drawn in favor of the Mont de Piété specified that the legacies should be devoted to these and similar uses.

APODISSARY ACCOUNTS.

In 1573, the Mont de Piété inaugurated quite a novel system, the apodissary service (from the Greek αποδεικτος, demonstrative, meaning that the books were so kept as to clearly exhibit the nature and state of the account). This service consisted in the opening of current accounts (madrefidi), in transfers of funds by drafts (giro) and instruments resembling cheques (fédi di credito), and in issuing orders for money payable at sight (polizze di credito), etc. The Mont de Piété had become a bank with a circulation, and acquired considerable importance in the economic organization of Naples.

Its success stimulated imitation; and, in 1563, an association named the Santa Maria del Monte dei Poveri was started by a lawyer with the object of liberating imprisoned debtors. Its capital, very meagre at the beginning, was made up by subscriptions and by alms gatherings. As late as 1860, its representative, wearing a hood that hid his face, could be seen soliciting alms in the churches and streets. He cast the moneys given him into the peculiarly constructed boxes in the churches, for which he had no key. In 1583, twenty-nine noblemen, at the instance of Brother Paolino da Lucca, organized an association for the relief of prisoners and the modest poor. It called itself the Compagnia del Santo Nome di Dio (Society of the Sacred Name of God). It had for some years much competition with the Monte dei Poveri. The two united in 1599, taking the name of Monte dei Poveri del Santo Nome di Dio. This establishment gradually became one of the richest of Naples. The Annunziata Asylum, which had sheltered the Mont de Piété in its early career, sought in turn to engage in banking enterprises, and at a date that cannot be determined exactly, between 1577 and 1587, began operations as the Banco Ave Gratia Plena, or della Santissima Annunziata. Edition: current; Page: [157] In 1589, the Asylum for Incurables opened a bank known as the Banco Santa Maria del Papolo. Later, on the same model, there were the Banco del Espiritu Santo, the Banco Sant’ Eligio, the Banco San Giacomo, and the Banco del Santissimo Salvatore, conducted on a partly charitable, partly financial basis. All this appears strange to modern economists; but such institutions nevertheless played an important part and are the legitimate ancestors of the banks of issue.

Their practical functions were of wider range than those of our present banks. They had a royal official capacity and discharged the duties of exchange agents, auctioneers, commissioners, and, in a large way, notaries. The “apodissary” service, which has been alluded to, comprehended current accounts and the issuing of bills payable in specie held by the bank; which was an advantageous improvement on the old plan of giving back the identical coins received. The banks of Naples—and this is an important fact in the history of credit—never acknowledged themselves to be depositories of money in the narrow sense of the word—i. e., under obligation to return the specie as it was delivered to them—but claimed to have the mere character of debtors for certain amounts of money of determined weight and standard taken into common deposit. The loan service was substantially confined to advances on articles of gold and silver, on merchandise, and finally on clothing and household effects.

A BANKING MONOPOLY ESTABLISHED.

In 1580, the Viceregal Government devised a banking monopoly, to be granted for twenty years to four merchants, who should have exclusive right to establish houses and offices for money transactions. By this scheme, the Mont de Piété alone was to continue. The object of the Government was to draw a large sum out of the monopoly. As soon as the law was made known, all the bankers who were not admitted into the monopoly, and whose business had to cease, entered protest, and their complaints reached the ears of Philip II. He had given his consent to the monopoly with reluctance, and he accordingly suppressed it in 1583—but without returning the 600,000 ducats that he had received for it.

DEBASEMENT OF MONEY STANDARDS.

In the history of these old banks it is interesting to note their struggles against difficulties resulting from the continual alterings of moneys. Their fédi and polizze di credito specified that repayments should be made in money of a determined weight and standard; but usually weight and standard underwent change when the day of reckoning came. They received from their borrowers money of changed character in repayment of advances, and had to give out unexceptionable money to their book (apodissary) creditors. In 1622, they suspended payments, and their offices remained closed until Edition: current; Page: [158] an order from the Viceroy forced them to open again. The terms of this order reduced the amount of credits by one-third, and directed the payment of the two-thirds in bonds bearing five per cent. interest, while the moneys forming the cash stock of the banks had to be reduced to the new standard. To compensate the banks for the losses they had sustained from the alterations of coins, the Viceroy allowed them, in 1623, an income from the taxes amounting to 46,430 ducats out of a total of 773,871 ducats. This income, added to the assets left in the banks, was to be employed for settling the credits that had been reduced to two-thirds. The banks not only had to suffer from the ignorance and bad faith of the Government, but, notwithstanding their charitable objects, they were sacked by the mob. In 1647, in Masaniello’s insurrection, only the Mont de Piété was spared. In consequence of these robberies, the non-payment of the tax income and the misdeeds of the Duke de Guise, captain of the people, who seized the largest part of the coin remaining, all the banks ceased their service. In 1656-57, a public calamity brought them relief. The pest attacked Naples and raged with great fury. The personal effects of the sick and dead were burned without discrimination; and thus large amounts of fédi di credito were destroyed, which the banks, consequently, were never called on to redeem.

ANOTHER CRISIS IN NAPLES.

The death of Charles II., in 1701, precipitated another economic crisis in Naples, which imperiled the banks and completely ruined the Annunziata Bank. Charles II., who was childless, had left his vast possessions to a French Bourbon prince, Philippe, a nephew of Louis XIV., and it was known that the House of Austria would not quietly submit to this disregard of the Spanish succession. A war between France and Austria was imminent, in which the Kingdom of Naples, as a Spanish possession, could not fail to be involved. All the holders of fédi and polizze demanded their exchange in gold and silver. The banks took various steps to delay payments, and succeeded in calming the panic. But the necessity of definitely determining their available resources led to discoveries of great defalcations in the Annunziata, the Bank del Salvatore, the Bank of San Giacomo, and the Monte dei Poveri. The Annunziata’s deficit was too large to be covered, and the establishment failed and passed out of existence. The institutions surviving the trouble regained strength, and in 1793 they had on deposit sums equivalent to more than 100,000,000 francs, and their capital aggregated 60,000,000 francs.

MISFORTUNES TO THE OLD BANKS.

But in 1794 began sad misfortunes for the old banks. Ferdinand IV. allied himself with Austria in the war with France, and as he lacked means for armaments, he laid hands on the money deposited in the banking houses. He then consolidated them under a syndicate arrangement controlled by the Edition: current; Page: [159] Government, and compelled them to issue more than 140,000,000 francs of paper currency. The banks were unable to recover from this shock, despite all the measures taken to reassure the public. French rule took the place of the Bourbon in 1805. As it was not within the province of the new government to restore to the banks what the old dynasty had taken away, plans were considered for re-establishing confidence, but without successful issue. All the banks were brought under a common régime, and discount business was added to that of loans on pledges. Next, it was attempted to create a discount bank on a joint-stock basis. Murat, to furnish an example, subscribed for the first shares; but the undertaking was a failure. When the downfall of Napoleon permitted the Bourbons to return to Naples, one of the first efforts of Medici, Minister of Finance of the reinstated dynasty, was directed to bank reorganization. The bank now became an institution for affording the Government the use of private money.

THE BANK OF THE TWO SICILIES.

A decree of December 12, 1816, created the Bank of the Two Sicilies, with two divisions, one for individuals and the other for the Court. The first division was organized by six of the old banks, and the second was a successor to the Bank of San Giacomo. The Government had returned to the banks the property sequestrated by the French administration so far as it had not been sold. The “Individual Division” received private deposits and used them to make loans on pledges, such as articles of gold or silver, metals for manufacturing purposes, jewels, clothing and stuffs. The “Court Division” was a depository for all the receipts of the Treasury, and conducted the Treasury’s payments. Connected with it was a special department for the discounting of Treasury certificates and commercial paper of individuals. Individuals had the privilege of depositing their funds in the Court Division. The Individual Division was under the supervision of the Government as a whole, and the Court Division was controlled by the Minister of Finance. The bank was conducted by a regent and presidents, and by governors appointed by the King. No guaranty was given to private persons for their deposits. The permission granted them to place their funds in the Court Division gave rise to confusion between private interests and those of the Treasury, which was increased when, in 1824, a second Court Bank was established to receive deposits and make loans on the collateral of gold and silver articles, and also to operate the Individual department of the Court Division. A decree of June 25, 1818, was a further instance of the State’s meddling. It contemplated bringing into activity the discount bank that had been promised for two years, and authorized the Treasury to loan 1,000,000 ducats (4,250,000 francs) to this bank at nine per cent. which, later, was reduced to six per cent., on condition that the loan should be redeemed out of the profits. It was natural Edition: current; Page: [160] that the Government should wish to control the bank’s management, but the decree of 1818 had nothing less in view than to give the Minister of Finance absolute power over that institution. He had authority to fix the rate of discount, and was to be informed weekly as to transactions; he was privileged to allow discounts above the credits provided for in the regulations, and he could change the regulations at will. But it was not mere caprice that actuated the Minister of Finance in making these provisions. He sought in the discount bank a means for sustaining the floating debt of the State, and of avoiding the negotiation of Treasury certificates in the open market. These certificates were discounted by the bank at scarcely two per cent. The Treasury often issued bonds and sold them to the bank to escape the need of placing them on the Bourse. Besides, the bank discounted large quantities of mercantile bills of exchange, which were given it in payment for customs duties. It was, in short, a credit institution at the service of the Treasury, using the moneys of private individuals for the purpose. To review all the successive requirements to which it was subjected would be superfluous; they were amplifications of the decrees of 1816 and 1818.

The bank, having become distinctly transformed into an annex of the Treasury, subsequently lost entirely the character of a deposit and loan institution for the public. Private deposits were in a large measure absorbed for State operations. The paper issued by the Discount Bank had the same offices as the receipts that had already been issued to individuals for deposits and that circulated in the whole kingdom. It no longer could be doubted that the bank was a Government institution when the management of the Mint was intrusted to it. It did not, however, lose public confidence, and private deposits continued to flow in. The faith thus displayed, which appears unaccountable, was due to various causes. The deposit certificates (fédi di credito) enjoyed quite special privileges. When indorsed, all kinds of transactions could be effected with them, even sales and purchases of real estate—whatever the value—without obligation to use stamped paper or to make them of record. The day of the return to the bank of the fédi di credito was the absolute date for completion of the transaction. These bank vouchers were regarded by the Naples people as extremely useful. The bank also rendered gratuitous services to depositors in connection with their current accounts. Commercial houses, speculators, and all public offices made their payments through the bank, and so dispensed with keeping cash on hand. The State offices were required to receive the certificates the same as coin, and in the provinces the State officials had to pay coin for them. In a country having no other credit institution, such privileges were of great importance. The circulating medium in the Neapolitan provinces was almost entirely silver. Gold money had never been abundant, and for large amounts the bank’s paper was preferred. Moreover, there was no other establishment to receive deposits of funds, as the Government had not permitted any opposition bank to be created. Last of all, Edition: current; Page: [161] the State practically guaranteed the debts of the bank. These were the conditions that enabled the bank to preserve its credit.

THE BANK OF SICILY.

The Bank of the Two Sicilies had offices, or departments, at Messina and Palermo. The Revolution of 1848, which began at Palermo, interrupted for a time the relations between the Naples and the Sicily institutions, which compelled the latter to suspend payments after having exhausted the metallic reserve and issued a large volume of fédi di credito with a forced currency. When the absolute power of King Ferdinand II. was restored, a commission was appointed to verify the accounts of the Bank of Palermo, and it found assets amounting to 25,924 ducats and liabilities reaching 3,854,107 ducats. The deficit was provided for by sales of income bonds; but the Neapolitan banks remained unprotected for heavy amounts owing by the Sicilian bankers. The events of 1848 led to the separation of Sicily, administratively, from the Continent. The two offices of Palermo and Messina became known as the “Royal Bank of the King’s dominions beyond the Straits.” The general management of this bank was assigned to a college, composed of one director, three governors and a president, and the president and governors of the old Messina Bank. The State engaged to pay an annual subvention of 36,813 ducats, to be raised to 39,668 ducats if the bank would, as promised to the King, add discount transactions to the open account service. Therefore, out of the old Bank of the Two Sicilies came two new institutions, the Bank of Naples and the Bank of Sicily.

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CHAPTER II.: BANKING UNDER THE UNIFICATION OF THE KINGDOM.

NATIONAL BANK OF THE KINGDOM OF ITALY.

WE have now arrived at the period of the unification of the Kingdom of Italy. For this period, we take, as our principal sources of information, the work of Signor G. B. Salvioni, the Report on Banking Inspection, and Parliamentary documents.

From the beginning of the unification of Italy, one bank took a commanding position—the Banco Nazionale del Regno d’Italie (National Bank of the Kingdom of Italy). It had its origin in the fusion of two banks created by letters patent of March 16, 1844, and October 18, 1847, at Genoa and Turin. They were chartered for twenty years, and were authorized to operate as banks of issue and to perform discounting transactions, take deposits, and transact current accounts. They had each the same by-laws and regulations. In 1849, they agreed to unite. The Government consented, and the resulting institution took the name of National Bank of the Sardinian States. Its privilege was to run thirty years, and its main office was at Genoa, with a branch at Turin. On July 11, 1852, its capital was raised from 4,000,000 to 32,000,000 lire, and it was empowered to introduce branches in the whole of Sardinia. After the Conquest of Lombardy, in 1859, the Sardinian National Bank was granted authority to extend its business to that country. It opened a branch at Milan and expanded the capital to 40,000,000 lire. Presently, the Duchies of Parma and Modena, and the Papal States, were annexed to the new Kingdom of Italy. In the State of Parma there was in existence a bank of issue of quite modest pretensions, and in the Papal States the Bank of the Four Legations, established in 1857. These two banks readily permitted themselves to be absorbed by the National Bank, which, by a decree of February 24, 1861, had its scope Edition: current; Page: [163] extended to Central Italy. Upon the annexation of the Neapolitan States it opened branches in Naples and Palermo, with the right to start others in the Neapolitan and Sicilian provinces. In 1865, it inaugurated a branch in Florence; but, in spite of all endeavors, it could not persuade the National Bank of Tuscany to join with it. At that time, the National Bank of the Sardinian States, which had changed its name to National Bank of the Kingdom of Italy, had 100,000,000 lire capital. The triumphant war of Prussia against Austria gave Italy possession of Venetia in 1866. The National Bank immediately established itself in Venice, taking over a chartered bank, the Stabilimento Mercantile Veneto, which had existed since 1853. Thus the National Bank reached out for a monopoly; but two credit institutions, the National Bank of Tuscany and the Tuscan Bank of Credit for the Industry and Commerce of Italy, still refused to succumb to it.

THE BANKS OF TUSCANY.

Tuscany was always a hospitable region for the growth of banking. The oldest Tuscan bank of issue at the time of Italy’s unification was the National Bank of Tuscany, founded in 1816 by an act of manu propria of the Grand Duke. Dissolved in 1826, it was replaced by a stock company, which obtained the right of issue for ten years on a tripled capital. The new capital of 1,000,000 Tuscan livres increased later to 1,125,000 livres. The concession was renewed at the end of each ten years until 1858. Besides this Florentine concern, there was a Leghorn Bank, created in 1837, that possessed a capital of 2,000,000 Tuscan livres and had power to issue bank notes for thrice that amount, on the condition that they should not be more than thrice the metallic coin stock. The right of issue was to expire December 31, 1858, at the same time with that of the Bank of Florence, so that the Government might effect a consolidation of the two if it so desired. Less important banks had sprung up—the Bank of Sienna in 1841, Arezzo in 1846, Pisa in 1847, and Lucca in 1850; and at the beginning of 1859 Tuscany consequently had six banks. The Tuscan Government deemed it useful to have a more powerful institution by merging together the Banks of Florence and Leghorn and giving the new bank authority to conduct branches throughout the Duchy. Permission was accorded the other existing banks to become branches of the new establishment, but they were not required to do so. Before this arrangement could take effect, the Grand Duchy was overturned and Tuscany became an Italian province. A decree of the Provisional Government, in 1860, ordered a fusion of the Banks of Florence and Leghorn under the new title of National Bank of Tuscany, and designated the smaller banks as branches. The National Bank of Tuscany did not, however, have the field to itself. On March 12, 1860, a competitor appeared, taking the rather formal name of Tuscan Bank of Credit for the Industry and Commerce of Italy. It nominally had 40,000,000 lire of capital, but really only 5,000,000. The wide range of its by-laws indicated that it purposed Edition: current; Page: [164] engaging in great undertakings, but it had little development and opened no branches. Therefore, at the period of Italian unity there were five banks of issue—the National Bank, the two Tuscan banks, the Bank of Naples, and the Bank of Sicily.

THE BANKS AND THE UNIFICATION DRAMA—FORCED CURRENCY.

The banks were soon to play an important part in the unification drama. On May 1, 1866, a royal decree provided for the forced circulation of the notes of the National Bank of the Kingdom of Italy, and imposed upon the bank obligation to loan the State 250,000,000 lire, to meet the expenses of the impending campaign against Austria. The bank notes, cash certificates, orders, etc., of the other banks of issue were to be received as legal tender by individuals and the public offices, and their redemption was to be accomplished in National Bank paper. As the War of 1866 had given Italy possession of Venetia, so the Franco-Prussian War gave her the residue of the Papal States and terminated the work of unification. In Rome, the Italian Government found in operation a Bank of the Pontifical States, created in 1833, and holding an absolute monopoly of the right of issue and of all banking business. Reorganized in 1850, its capital had been fixed at 1,000,000 Roman écus (5,375,000 francs); but it began business with a subscribed capital of 600,000 écus, in the hope that the remaining 400,000 écus would be taken up later. Its affairs were badly conducted. It did not redeem its paper at sight, and gave only time obligations for it. On November 4, 1866, an investigation demonstrated that the bank’s capital was gone, and that the difference between assets and liabilities was more than 7,000,000. A decree by the Papal Government declaring the bank notes to be under State guaranty became necessary, but repayments were made only at the rate of 6000 écus per day, and no holder of bank notes could receive more than twenty écus. At the end of 1869, the circulation amounted to 30,000,000 and the coin stock 11,000,000. The Italian Government, upon entering Rome, recognized the legal currency of the Papal State Bank’s notes within the province of Rome, reformed the by-laws by decree of December 2, 1870, and gave the institution the name of Roman Bank, which has since acquired such unenviable notoriety.

SYNDICATE OF BANKS OF ISSUE.

For the sake of chronological order, we have interrupted our recital touching the forced currency, in order to explain the appearance of a sixth bank of issue. We now proceed to consider the consequences of the paper money régime.

By the decree of May 1, 1866, a peculiar and favored position was made for the National Bank of the Kingdom of Italy, since the other banks had to redeem their notes with the notes of the National Bank. This arrangement Edition: current; Page: [165] was oppressive for the other establishments, because the National Bank was not bound to redeem its own paper in coin, and acrimonious reflections were called forth, especially on the part of the Bank of Naples. Conditions remained on that basis for eight years, until modified by the law of April 30, 1874. The Government, which had borrowed 300,000,000 lire in notes from the National Bank on April 19, 1872, sought, in 1874, to borrow an additional amount of 1,000,000,000 lire. Not being able to raise such a sum from the National Bank alone, it organized a syndicate of banks of issue, composed of the National Bank of the Kingdom of Italy, National Bank of Tuscany, Tuscan Bank of Credit, Roman Bank, Bank of Naples, and Bank of Sicily. The six banks were to put at the disposal of the Treasury 1,000,000,000 lire in syndicate bank notes, which should have forced currency, be printed on white ground, and be of the denominations of ½, 1, 2, 5, 10, 20, 100, 250 and 1000 lire. The syndicate banks were to be jointly responsible for the total of the syndicate bank notes, and individually in proportion to their capital and patrimoine. The State was to give the banks a sufficient amount in registered consols to guarantee the syndicate bank notes. Independently of the syndicate paper, each bank could issue its own notes to an amount not exceeding thrice its metallic coin stock, or thrice its capital. The separate notes of each bank were to be legal tender in the provinces where the bank, its branches, and its exchange bureaus were located. Redemption had to be made either in specie or syndicate notes. With regard to the notes of other banks held by each bank, they were to be settled by exchange and clearings (Riscon strata). For this purpose, on every Thursday all the banks, their branches, and their agencies remitted to one another the bank notes, cleared them, and made good the balances in syndicate paper, or acknowledged them by receipts in duplicate. The exchange vouchers and one of the originals of each receipt were sent to Rome, so as to arrive there on Monday, or Rome was advised by telegraph. By this process, the agents of the banks in Rome were kept informed of the condition of each establishment. After verifications and clearings, the balances were made good on Monday, with four days’ interest, or by means of seven days’ orders, bearing interest from the previous Thursday, the interest being figured in each case at the discount rate of the creditor bank. If, accidentally, there should be an accumulation of notes, the debtor bank could make special arrangements for clearance.

The forced currency of the notes was to endure two years, expiring May 22, 1876. But on March 18, 1876, Signor Depretis and Signor Majorana Calatabiano proposed to Parliament an extension to 1877; and further postponements were made up to June 30, 1881.

DISSOLUTION OF THE SYNDICATE.

The law of April 7, 1881, which provided for abolishing the forced currency after June 30th, dissolved the bank syndicate. The syndicate notes Edition: current; Page: [166] in circulation were considered a Government debt and remained legal tender in the whole kingdom, but were redeemable in coin on presentation. Such notes as reached the public offices were canceled, excepting the five-lire scrip, which were withdrawn only to the amount of 105,400,000 lire, and the ten-lire, which were kept in circulation. The excepted notes were to be redeemed from the surplus of the budgets. In order to compass the re-establishment of free currency, the Government contracted a loan of 644,000,000 lire, of which 400,000,000 lire at least was payable in gold. Of this amount 340,000,000 lire was deposited with the Department of Deposits and Consignments to guarantee the State’s paper. The Act of April 7, 1881, specified December 31, 1889, as the date of expiration of the privilege of issue, and retained the legal-tender quality, which lasted until the expiration of the charters.

A NEW SOURCE OF TROUBLE.

We now come to an unfortunate period in the history of the Italian banks. The rupture of the commercial treaty with France and the settlements for Italian securities held in great quantities in France gave Italy much embarrassment. Up to that time, the balances of her exports into France had permitted her to settle without remittances of cash for the coupons of her bonds held in that country. But after the French holders had disposed of the Italian bonds (which were largely bought up in Germany), and the two countries had enacted prohibitive customs tariffs against each other, Italy could no longer adjust her debts by such methods. Profiting by the stipulations of the Latin Monetary Union, she sent to the French bankers five-franc pieces and drew bills of exchange on them, which she forwarded to the German creditors. These bills of exchange were drafts on Germany, or gold drafts. As long as Italy had five-franc pieces she suffered no serious difficulties; but this resource was finally exhausted, whereupon her fractional coins disappeared into France. In the course of time, therefore, the Italian circulation was deprived entirely of metallic money, even of ordinary coin needed for every-day trade. Italy found herself reduced to the necessity of buying back and paying in gold for the coin that had gone to her monetary allies. At the same time, when Italy was distressed by these various troubles arising from unfavorable foreign balances, she had to pass through one of the worst of crises, the consequences of which still burden her severely.

A BUILDING CRISIS.

The Government, anxious to cultivate a high estimate of the country’s vitality, had given marked encouragement to building operations in Naples, Rome, and other cities that were being rehabilitated. Several important associations had been set on foot for real-estate enterprises. The National Bank of the Kingdom had added to its ordinary business the real-estate mortgage service, which was also practised by other banks, particularly Edition: current; Page: [167] those of Naples and Sicily. These undertakings had appealed extensively to foreign capital. As matters grew more involved, and Italian credit became a subject of criticism, lenders became apprehensive and withdrew their money. A conspicuous Roman real-estate association, the Squilino Enterprise, found itself, by the end of 1887, in threatening circumstances. Its obligations, to the amount of 37,500,000 lire, were in the portfolios of public and private banks. Perceiving itself on the verge of ruin, it applied to its creditors, who, under the auspices of the Bank of Naples, formed a syndicate to supply it for one year with a sum equivalent to its indebtedness. The National Bank, as a creditor of the Enterprise for 4,000,000 lire, agreed, at the urgent solicitation of the Government, to loan an additional 10,000,000 lire. After the Squilino Enterprise had been saved, the National Bank had to come to the relief of the Tiber Bank, whose assets and liabilities it took in charge for liquidation under pressure from the Government. This was in 1889. The advances aggregated more than 59,000,000 lire. Next it went to the rescue of the Italian Mortgage Bank Society with an advance of 28,000,000 lire, the Naples Building Association, which consumed 16,000,000 lire more, and some other concerns of lesser consequence. The equivalents given for these various advances consisted chiefly of houses that were hard to sell or even to rent, and, at the present time, the indebtedness owing to the former National Bank, which has passed to the Bank of Italy, is far from settlement. Finally, as a further example of how little the Government cared for sparing the resources of the banks, Signor Crispi forced the National Bank to make a loan of 4,000,000 lire to the Negus of Abyssinia on the simple signature of his envoy, Makonen. A single statistical instance will suffice to illustrate the great gravity of the situation of the banks: On January 10, 1893, the amount of their outstanding doubtful debts reached 60,000,000 lire.

EXTENSIONS OF THE BANKS’ CONCESSIONS.

According to the Act of April 7, 1881, the concessions of all the banks were to expire on December 31, 1889. The Government was disinclined to attract attention to the subject—the more so because Italy was still practically under the forced currency system, disguised by the euphemism of legal tender. It permitted the privileges to run out, and extended the legal tender until the close of 1889; then, December 25, 1889, another law made a further extension to the end of 1891, impliedly involving prolongation of the bank charters for the same period.

Meanwhile Signor Crispi elaborated a plan of bank reorganization, which was given to committee in the Chamber on May 28, 1890, without being debated upon. Notwithstanding the rumors that began to spread as to serious irregularities in the conduct of the Roman Bank, which led to a Government inquiry, whose findings have never been made public, the concessions of the banks were renewed for 1892.

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INVESTIGATION AND STRANGE DISCOVERIES.

On December 20, 1892, the Government proposed another extension for three months. An Opposition Deputy, Signor Colajonni, embraced the occasion to charge the Roman Bank with malfeasance. He declared, specifically, that a bond of 4,000,000 lire had disappeared from the bank’s portfolio; that the bank had a surreptitious circulation of 25,000,000 lire; that the most of the discounted paper was in the form of renewals, and that the administrators of the bank had abused the privileges of their position to obtain for themselves large loans. He concluded by demanding that his accusations be referred to a Parliamentary commission for investigation. The President of the Ministerial Council, Signor Giolitti, remonstrated energetically against the proposal, which he declared was insulting to the Ministry, and promised to have a thorough and searching executive examination made. The Chamber sided with the Ministry by a large majority. On January 10, 1893, the six banks were visited by inspectors. Very damaging disclosures followed. At the Bank of Naples it was discovered that there was a deficit of 2,450,000 lire in the coin stock. The Roman Bank had fraudulently issued bank notes bearing the old series. The report of Senator Finali, president of the inspecting commission, placed the fraudulent circulation of the Roman Bank at 41,000,000 lire, and the amount proved finally to be much more. The management attempted to cover up the frauds by jugglings of the debits and credits of accounts current. Besides the revelations about the Roman Bank, it was shown that all the banks had invested a considerable portion of their resources in mortgages, real estate, and the like. The amounts thus tied up were:

LIRE.
National Bank 142,000,000
Bank of Naples 28,000,000
National Bank of Tuscany 7,000,000
Tuscan Bank of Credit 1,000,000
Roman Bank 18,000,000
Bank of Sicily 3,000,000
Total 199,000,000

Senator Finali’s report concluded with these words: “Very bad and disastrous is the condition of the Roman Bank. The best of all is the situation of the Tuscan Bank of Credit, which has limited itself to a narrower sphere, although according to the programme of its organization it could, and even should, have branched out through the whole of Italy. The other four institutions—the National Bank of Tuscany, the National Bank of the Kingdom of Italy, the Bank of Sicily, and the Bank of Naples—are more or less affected by immediate needs, tying-up of funds, doubtful debts, and losses.” A feature of Senator Finali’s report that was regarded with general Edition: current; Page: [169] incredulity was the declaration that little or no evidence had been found to connect public men with the interests of the banks. At the session of March 21st, the Chamber voted to appoint an inquiry commission, consisting of seven members, to determine political and moral responsibilities. Prosecutions were begun against the director of the Roman Bank, Tanlongo, and a Deputy, De Zerbi. The latter committed suicide in prison. A storm of indignation was raised by the bank scandals and the accumulated proofs that the foremost men in politics had been corrupted by the banks. At this day, after the lapse of two years, Italy still suffers from the misdeeds of the banking institutions.

REORGANIZATION OF THE BANKS.

The Roman Bank, as soon as its frauds were disclosed, was put into liquidation and the Government assumed responsibility for its bank notes. The legal-tender function of the paper was extended to June 30th, and afterward to December 31, 1893, and a plan of thorough reorganization for the banks was prepared, which was adopted on March 22, 1893. This plan directed that there should be a consolidation of the National Bank of the Kingdom, the National Bank of Tuscany, and the Tuscan Bank of Credit, and that the new establishment should be designated the Bank of Italy.

The Bank of Italy was to take over all the liabilities of the Roman Bank as established by the inspection of January 10th, and also profit by all the assets. The privilege of issue was granted to the Bank of Italy and the Banks of Naples and of Sicily for a term of twenty years, to date from the promulgation of the act. The notes of the Bank of Italy and the Bank of Sicily were to be legal tender in the provinces where these institutions had offices; the notes of the Bank of Naples enjoying only private currency. The banks were required to dispose, within ten years, of all their existing real estate and mortgage loans, at the rate of one-fifth every two years. If they should be unable to effect the conversion of such assets into cash as provided, they were to apply resources to the purpose as follows: the Banks of Naples and of Sicily all their profits, and the Bank of Italy the non-called-in portion of its capital. The Bank of Italy was to annually set apart from its profits 2,500,000 lire as a sinking fund to settle the losses occasioned by the liquidation of the Roman Bank. These losses, estimated at 50,000,000 lire, were covered by a deposit of consols. Each year the Bank had to diminish the 50,000,000 lire total by the application of 2,500,000 lire from its profits.

Signor Cocco Ortà reported to the Chamber on June 20, 1893, upon the project. He approved the plans of the Government. The report said: “Although your committee has among its members men who are partisans of the free-banking idea and also men who believe in the principle of a single privileged and carefully controlled bank, and although the proposed solution does not conform to the ideal of either side, the committee nevertheless, by a large majority, recognizes the expediency and advantage of respecting Edition: current; Page: [170] accomplished facts and modifying as little as possible, and only in a manner compatible with the general interest, the existing status. The prevailing motive of the bill being thus approved, it remains only to fix upon such improvements as may be necessary or possible. It must be borne in mind, however, that any improvements are to make their way slowly and gradually, like all progress; and while it is never difficult to benefit definitely by experience, it is not always given to legislators to put into practice scientific theories.”

The debate was protracted, tempestuous, and rather confused. Numerous amendments to the bill were offered, some of which were adopted and others rejected.

THE CONSOLIDATED “BANK OF ITALY”

Finally, August 10, 1893, the bill was passed and became law. We present an analysis of the provisions of the act.

The National Bank of the Kingdom of Italy, the National Bank of Tuscany, and the Tuscan Bank of Credit were consolidated under the name of “The Bank of Italy,” which was to preserve all the offices of the old establishments as branches. The authorized capital of the Bank of Italy was limited to 300,000,000 lire, divided into 300,000 shares of a face value of 1000 lire. The paid-up capital of the three banks, 176,000,000 lire, was to be raised to 210,000,000 lire within six months after the taking effect of the law. The right to issue bank notes was granted to the Bank of Italy, and also the Banks of Naples and of Sicily, for a period of twenty years from the taking effect of the law.

The maximum circulations were to be:

The Bank of Italy 800,000,000 lire.
The Bank of Naples 242,000,000 lire.
The Bank of Sicily 55,000,000 lire.
Total 1,097,000,000 lire.

Each year the circulation was to be proportionately reduced so as to bring it down in fourteen years to 864,000,000, thus distributed:

Bank of Italy 630,000,000 lire.
Bank of Naples 190,000,000 lire.
Bank of Sicily 44,000,000 lire.
Total 864,000,000

Any bank having, at the end of fourteen years, a circulation in excess of its legal limitation, was required to reduce it to the proper limit within three months thereafter. The circulation might, however, surpass the prescribed limit if represented by metallic values in gold bullion and advances made to the State. The notes were to be redeemable at sight in Rome and certain other named cities. They were to be legal tender for five years in provinces having bureaus charged with their redemption. Throughout the legal-tender period, the rate of discount was to be the same at all the banks, not to be changed without authority from the Government. The banks were permitted to do discounting at one per cent below the official rate on all paper presented by the popular banks, discount banks, and mortgage banks; but these specially favored discounts were not to exceed—

70,000,000 lire in the Bank of Italy.

21,000,000 lire in the Bank of Naples.

4,500,000 lire in the Bank of Sicily.

The banks were obliged to mutually receive in payment their several bank notes. The metallic Edition: current; Page: [171] reserve of the banks was to be brought up to 40 per cent. of the circulation, 33 per cent. of the reserve was to be in metallic money, and the balance in bills of exchange on foreign countries bearing first-class signatures; at least three-fourths of the metallic part of the reserve was to be in gold. The State was to print the bank notes, and the banks were to sign them, so that neither the State nor the banks could produce a completed bill. The circulation tax was fixed at one per cent., calculated on the average sum by which the circulation should exceed the reserve. At the end of two years it was to be adjusted at one-fifth the discount rate, but in no case was to go above one per cent. The excess of bills above the fixed limit or the prescribed proportion was then to be liable to a tax of double the rate of discount. The liabilities of the banks, represented by bills to order, cheques, letters of credit, etc., were to be secured by a special reserve of forty per cent of their total, to be constituted the same as the reserve securing the circulation. The transactions of the banks were confined to discounts and advances on securities, precious metals, silks, and warrants on liquors in storage. The Bank of Naples was authorized to operate as a Mont de Piété (doing a pawn business).

They were authorized to buy and sell, for cash, commercial paper on foreign countries, and to open current accounts at interest or without interest; but the interest-bearing accounts were not to exceed 130,000,000 lire at the Bank of Italy, 40,000,000 lire at the Bank of Naples, 12,000,000 lire at the Bank of Sicily.

The rate of interest allowed on deposited funds was not to be more than half the discount rate. The banks could undertake the provincial collections of the direct tax. They were obliged to make to the Treasury ordinary and extraordinary advances in the same manner as the old institutions. The Bank of Italy, Bank of Naples, and Bank of Sicily were bound to settle within ten years, at the rate of one-fifth yearly, the various accounts of absorbed banks. Transactions balanced by the reserves were considered as settled. The Banks of Naples and of Sicily were to keep all their reserves for this liquidation, except a sum not to exceed ten per cent. of the profits, which was to be applied to works of charity. As for the Bank of Italy, if at the end of two years the settlements should not have been according to the required proportion, it was to call on its shareholders for funds sufficient to make up the necessary amount of settlement; but the increase of capital was not to give rise to an increase of circulation. Any establishment not accomplishing settlements on the specified basis was to lose in circulation four times the sum not settled.

LIQUIDATION OF THE ROMAN BANK.

The principal question for solution was the liquidation of the Roman Bank. It was manifest that the Government was under very serious responsibility to the holders of the bank notes and the other creditors of that institution. The public knew that there had been a Government inspection of the bank, whose findings had never been published, and that the Government had appointed Senator Tanlongo as its director, notwithstanding information about his conduct. Added to this moral responsibility, was an actual responsibility. It was, of course, impossible to impose a loss of 60,000,000 lire upon the holders of the Roman Bank’s fraudulent paper, and it was imperative that this loss should be borne by others than the people, who, under the legal-tender law, had been obliged to take the paper without having any means of assuring themselves as to its value. The Government, unwilling to take the burden upon itself, conceived the idea of shifting it to the new Bank of Italy. Although the State undertook the liquidation of the Roman Bank, the work was delegated to the Bank of Italy, which was charged with the duty of retiring the Roman Bank’s paper and substituting its own. The Treasury deposited 40,000,000 lire of bonds to cover Edition: current; Page: [172] the circulation which the Bank of Italy would have to issue for the redemption of the notes of the Roman Bank. These bonds from the Treasury were by no means a guaranty for the Bank, but they served to circumvent the law fixing the amount of circulation with reference to the reserve. The Bank of Italy was required to appropriate from its profits yearly 2,000,000 lire to go toward the liquidation of the Roman Bank in order to wipe out gradually the losses. If the yearly quota of 2,000,000 lire should make up a total larger than the amount of the losses, the surplus (which the State at first designed to enjoy for itself) was to be added to the reserve fund of the Bank.

THE BANKS SINCE THE CONSOLIDATION.

The act which we have analyzed was very severely criticised in Italy. In their picturesque language, the people said that the Government had bound the Bank of Italy to the corpse of the Roman Bank, and that the dead would poison the living. Up to the present, these pessimistic opinions have not been justified. Yet it cannot be said that the financial situation has really improved. The restrictions placed on paper circulation were unable to survive the first effort for their removal. On January 23, 1894, Signor Sonnino, Minister of the Treasury, in a report to the King, said that the legislators, in fixing a limit for the circulation and imposing severe penalties upon the banks overstepping it, did not take into consideration that, in times of panic among the depositors of savings-banks, those establishments, holders of first-class securities, would be unable to find any help at the banks of issue, since the latter would have their hands tied by the prohibitions of the law. The Minister added that it was needful to repeal the provisions of the law limiting interest-bearing deposits and circulation. He therefore proposed that the section of the act indicating the legal relation between the metallic reserve and the circulation should be changed so as to allow an increased circulation of 90,000,000 lire for the Bank of Italy, 28,000,000 lire for the Bank of Naples, and 7,000,000 lire for the Bank of Sicily. The section obligating the banks to reduce their circulation by three-fourths of the interest-bearing current accounts in excess of 136,000,000 lire for the Bank of Italy, 40,000,000 for the Bank of Naples, and 12,000,000 for the Bank of Sicily, should be repealed. The extraordinary tax levied on banks of issue should be reduced, as well as the normal tax of two-thirds the discount rate for the bank notes above the limits fixed by law. The proposals of Signor Sonnino were sanctioned by a royal decree issued January 23, 1894. It thus happened that less than a month after the taking effect of a law which had been in course of evolution for seven years, it became necessary to modify it in one of its most essential points—i. e., to enlarge the maximum of circulation, for the restriction of which such strenuous efforts had been made. Circumstances naturally brought about other alterations in a measure which had been adopted without adequate regard for fundamentals. The requirement that the banks should dispose of their real-estate investments at the rate of one-fifth every Edition: current; Page: [173] two years was ruinous in its practical workings; for these investments consisted, for the most part, of houses and lots that would have suffered in price if precipitately sold. Accordingly, the Minister sought to render this feature less troublesome by prolonging the term of settlement from ten to fifteen years. He entered into a contract with the Bank of Italy which, as communicated to the King on October 30, 1894, provided as follows: “The Bank of Italy has engaged itself to set aside from its profits a sufficient sum each year—4,000,000 lire in 1894, 5,000,000 lire in 1895, and 6,000,000 lire each year thereafter—to provide, by the compound interest on these sums, for the settlement of real-estate investments and the liquidation of the Roman Bank. It has agreed not to distribute any dividend higher than 40 lire per year, and all profits above the dividend shall go to the reserve. It has also engaged to call on the shareholders for an assessment of 100 lire per share, and to write off 30,000,000 lire of the paid-up capital, in order to provide for eventual losses and for the taking out of an amount corresponding to the aggregate of real estate and to the transactions not in conformity with the law of 1893.”

To these requirements, so very onerous for the Bank, but quite justifiable and tending to good management, was added another heavy obligation. The Bank of Italy was charged with the task of conducting the complete liquidation of the Roman Bank at its own risk and peril. “This liquidation,” said Signor Sonnino, “must of necessity leave a loss of some 10,000,000 lire, which would fall, directly or indirectly, on the State if the Bank of Italy were not charged therewith.” By way of compensation for this burden, the Minister undertook to give to the Bank special advantages. “The Government,” said he, “considers that a recompense for the Bank would be provided, and at the same time an organic reform of great importance would be accomplished, by committing to the Bank of Italy the service of the Treasury in the provinces. The transfer of that service to our great credit institution, and the consequent extension of its organization through all the provinces, would not only lend it larger strength and procure for it sure profits, but would also save for the State 1,200,000 lire; which is not to be lost sight of in the present position of our finances.” It is rather difficult to understand how the provincial revenue service done to-day gratuitously for the State by the Bank of Italy, whose management formerly cost the State 1,200,000 lire a year, can be advantageous to the Bank; and, taking everything into account, it appears to be but a price paid, and paid dearly, for the right of issue.

The embarrassments of Italy in 1893 and 1894 were considerable. They were especially due to the rise in exchange, which, after the disappearance of the five-franc pieces, had caused the drainage of the small coin. Italy had to buy back her fractional coins from France, Switzerland, and Belgium, lock them in the Treasury vaults, and issue upon their security scrip of small denominations. This transaction will be referred to again in another place.

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THE STATE AGAIN EMBARRASSES THE BANKS.

Signor Sonnino, Minister of the Treasury, reported to the King on February 24, 1894, that the monetary situation was getting worse; that the exchange of notes at the banks had almost entirely ceased; that the Treasury exchanged very few; and that it was requisite to effect a reorganization of the circulation. For that purpose, he advocated a new issue of scrip to the amount of 600,000,000 lire in denominations of five, ten, and twenty-five lire. As security, 200,000,000 lire of gold, belonging to the banks, was placed at the State’s disposal, and held in the vaults as reserve. The 200,000,000 thus taken from the banks was replaced by State notes. The State notes were to be reckoned in the cash stock of the banks the same as metallic funds; and the banks were permitted to issue the same amount of notes as before. Again, the State was debtor to the banks for a sum of 68,000,000 lire, loaned at the time of the creation of the tobacco monopoly to enable it to buy up the merchandise. The State paid interest on this 68,000,000. For returning to the Bank its own scrip in exchange for this advance, the State claimed the right to cease paying interest on this account. The banks were required by the Minister to furnish 22,500,000 of gold to provide for the advance of 68,000,000. The foregoing extremely complicated plan will be understood from the following explanations. It is the rule in Italy that the circulation shall not exceed thrice the gold on hand. Therefore, if the Government takes 200,000,000 lire in gold out of the banks, it can issue 600,000,000 of paper, and remain within the rule. But it goes entirely outside the rule when it authorizes the banks to count the State’s scrip as metallic value. The State’s paper, in the latter case, represents one-third the amount in gold; and the banks’ notes stand for one-third the value of the State’s notes: consequently, the notes of the banks are worth only their ninth part in gold. Signor Sonnino, the author of this combination, has had the courage to tell the truth, and to plainly proclaim the forced currency of the State’s scrip. “In view of the considerations that I have pointed out,” said he, “it is incumbent on us to dismiss fiction for truth. It cannot but be permitted that the Treasury administration shall be exposed to protests because of non-observance of the law relating to the exchange of bank notes.” And he formally asked for the suppression of the redemption requirement so far as State paper was concerned.

Such peculiar arrangements show how extremely difficult are the economic conditions in which Italy is placed—conditions that improve but slowly. The exchange remains high, and public distrust of the banks of issue has by no means been extinguished. It is fair to add, however, that up to date, the Government has not put into practice the plan of levying upon the coin stock of the banks.

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ORGANIZATION OF THE BANK OF ITALY.

The Bank of Italy is a stock company founded entirely with capital furnished by stockholders. The Banks of Naples and of Sicily have a capital that they style “patrimony”; that is, the property of nobody. It is a unique fact in the world’s economy that there exist two establishments which play an important part in the country which they serve, and yet are res nullius.

The present organization of the Bank of Italy is derived from the by-laws of December 19, 1893. The objects of the institution are to transact banking business and to issue bank notes under conditions prescribed by law. The main office is at Rome. There are branches in all the chief places of the provinces. The duration of the company is for twenty years, running from January 1, 1894. The stock capital, as previously explained, is 300,000,000 lire, in shares 300,000 in number, and of 1000 lire par value, of which 700 lire have been paid in. In reality, 800 lire per share have been called; but the capital is undervalued by 30,000,000 lire, as already explained, 100 lire per share having been devoted to make up for losses. The shares are registered. Ownership is acquired by transfer upon the books of the Bank. The Bank recognizes but one owner for each share. The shareholders, in general, are represented by the owners of twenty shares, who have possessed them for upwards of three months. Shareholders have one vote for every twenty shares up to 200; above 200 an additional vote is allowed for every fifty. No single shareholder can have or accumulate more than twenty votes. The members of the Bank Assembly may be represented by proxies. The Assembly meets annually, in the month of March. Extraordinary sessions may be called by resolution of the Superior Council or at the demand of the Comptrollers or shareholders. Shareholders demanding the calling of the Assembly must own, in the aggregate, at least 20,000 shares. The Assembly receives the report of the year’s transactions, and appoints the Comptrollers (of whom we shall speak farther on), the administrators of the branches (who are called Regents), and the Censors (who are intrusted with the supervision).

The Regents elect the Superior Council, and each district seat annually delegates for that purpose three of its Regents. The Superior Council chooses its officers, consisting of a President, Vice-President, and Secretary. It holds its meetings at least once a month, in Rome. All matters affecting the Bank are submitted to this Council, especially those appertaining to the issue and withdrawal of bank notes, the fixing of the rate for discounts and loans, the declaring of dividends, the verification of balance-sheets, appointments and dismissals of employees, etc. The Superior Council selects a committee of six members, which, in co-operation with the President of the Council and the Director-General, exercises a more direct supervision over the Bank’s business, particularly touching subjects of dispute and extraordinary discounts.

The Comptrollers, designated by the Assembly of Shareholders, exercise, either directly or through the Censors, control over the administration, with a view to having the rules and regulations faithfully observed. They examine the balance-sheets and give their advice as to the amount of the dividends. The Censors supervise the district seats, and exact from the Directors such information as they deem useful for the discharge of their duties. They enter the results of their observations in a special book and communicate to the Censors a report upon their supervision. The General Management is thus constituted: One Director-General, two Vice-Directors-General, one Secretary. All are appointed by the Superior Council, but the nominations of the Director-General and Vice-Directors-General must be approved by the Government. The Director and the two Vice-Directors form a Directing Committee, which considers all concerns. The Director sits in the Superior Council and has a consulting vote in that body. He has the management of the Bank’s affairs subject to the authority of the Superior Council.

The administration of the District Seats has great importance in the Bank of Italy, as these establishments supply the members of the Superior Council. Each district seat is managed by a council of at least eight Regents, and at most twelve Censors, with a Director in executive control. The Regents and Censors are appointed by the General Assembly of Shareholders for a term of six Edition: current; Page: [176] years. Half the number is renewed each three years. The Regents’ Council has charge of the administration of the seat, and sees that the orders of the Superior Council are carried out. For the examination of commercial paper it employs the assistance of a Discount Council of ten or twenty members, chosen from a double list presented by the Director. Those branches that are less important than the district seats are administered each by a Director and supervised by five Censors. A Discount Council gives advice regarding the paper to be admitted at the branch.

The Bank, besides, has Correspondents, who undertake to transmit to the nearest office paper presented for discount, and to attend to the collection of matured paper.

ORGANIZATION OF THE BANK OF NAPLES.

The organization of the Banks of Naples and of Sicily differs widely from that of the Bank of Italy. Often remodeled, it was changed to its present form by a decree of October 15, 1895, whereby the new by-laws were confirmed. As these establishments have no shareholders, but only creditors, it was necessary, in each instance, to intrust their interests to a combination of local elements. We append a brief statement of the constitution of the Bank of Naples:

The administration of the Bank of Naples is under the management of a Director-General and a Council of Administration, subject to the supervision of the General Council.

The Director-General is appointed by royal decree, upon the nomination of the Minister of the Treasury, who advises with the Ministerial Council. He represents the Bank in dealings with third parties, and sees to the carrying out of the rules and decisions of the General Council and the Council of Administration. He has a consulting vote in these councils. He manages the general affairs of the Bank; proposes to the Council of Administration the appointment and discharge of the employees and representatives of the Bank; examines and approves the Bank’s accounts; signs the correspondence and cheques; indorses commercial paper, and proposes all measures that he deems useful for the welfare of the institution. In general, he performs all the duties of current administration that are not expressly reserved for the General Council and the Council of Administration. He is, however, formally prohibited from granting discounts or advances.

The General Council consists of the Syndic (Mayor) of Naples, the President of the Provincial Council of Naples, the President of the Chamber of Commerce of Naples, and of three delegates, one selected by the Commercial Council, one by the Provincial Council, and one by the Chamber of Commerce of Naples. Besides, there are two delegates from Bari (one representing the Chamber of Commerce and one the Provincial Council), delegates from each of the Provincial Councils of the Neapolitan provinces to the number of fourteen, and delegates from the chambers of commerce of all the provinces where the Bank has offices.

Two Councillors of Administration are appointed by the King. The elective members of the General Council are renewed each two years. Members of the General Council receive no pay, excepting allowance for actual expenses.

The General Council meets at Naples annually, some time during the first three months. The session cannot last longer than fifteen days, but on the request of eight members it may be prolonged ten days. It may be summoned in extraordinary session by the Minister of the Treasury, or in compliance with a demand addressed to the Minister of the Treasury by the Council of Administration, or by the President of the General Council, with the approval of eight members of that body. This Council has supervision over the Bank’s management. It examines and passes upon the accounts of the preceding business year, upon the report of the two auditors chosen from among the members of the Council. It discusses and passes upon the report as to the Bank’s transactions, votes on questions regarding the establishment or abolition of branches, approves the office regulations, and deliberates upon operations and upon the sale or exchange of the patrimonial Edition: current; Page: [177] possessions of the Bank. It votes on proposed applications to the Government for modifications of the by-laws. Annually, it selects from its membership three delegates and one alternate to sit in the Council of Administration.

The Council of Administration is made up of the Director-General, who presides; the three elected delegates and their alternates, and two Councillors of Administration appointed by the King. The latter receive a fixed salary of 6000 lire. The delegates from the General Council hold office for one year, and may be re-elected. They are paid traveling expenses and a daily recompense of twenty lire. This Council meets weekly in regular session. It deliberates as to the notes and cheques of the Bank, determines the conditions under which transactions shall be conducted, and fixes the rate of discount and of interest on loans, subject to Government approval. It regulates the employment of ready funds and the investment of the reserve, and decides about the open credits at each office and their use in the various branches of the business. It prepares the matters to be submitted to the Government in keeping with the resolutions of the General Council. It proposes to the latter the regulations of the service, amounts of salary to be paid employees, appoints and discharges these, and determines upon the creation or abandonment of branches. It approves contracts and authorizes the various transactions in the patrimonial property, provided the sales do not exceed 30,000 lire; others being referred to the General Council, except in urgent cases, when the Council of Administration may decide by unanimous action, subject to subsequent approval by the General Council.

The Director-General is assisted by a Secretary-General named by the Minister of the Treasury, upon the recommendation of the Council of Administration. The Secretary-General is specially charged with the office management.

Each Branch Office of the Bank has a Discount Council, consisting of eight members at least and twelve at most, who are named by the Council of Administration upon recommendation by the local Directors. Two of the Discount Councillors, acting with the Director, form a Discount Committee, which decides as to the admission of proffered paper, and is also intrusted with the duty of opening and closing the vaults.

Members of the Chamber of Deputies and Senate are forbidden to occupy any office in connection with the Bank, either salaried or unsalaried.

The District Branches of the Bank are opened or abolished by royal decree, rendered at the instance of the Minister of the Treasury, after deliberation by the Council of Administration and approval by the General Council. They are managed by Directors under the supervision of the central administration. The Directors of the District Branches receive their appointments from the Minister of the Treasury, upon nomination by the Council of Administration. The Directors of the Minor Branches are appointed by the Council of Administration. The Directors represent their bureaus in transactions with third parties, sign the correspondence and cheques, and execute the instructions of the general management so far as the sums placed at their disposal are concerned. They hold the keys to the vaults and exercise supervision over the cash and commercial paper, rendering accounts concerning the same to the general management. They also control the employees.

The administrative organization of the Bank of Sicily is entirely similar to that of the Bank of Naples. As a matter of course, the delegates from the councils and chambers of commerce of the Sicilian provinces have functions analogous to those of the Neapolitan provincial delegates at the Bank of Naples. The only differences between the two banks are in their respective transactions.

TRANSACTIONS OF THE ISSUE BANKS.

The transactions of the Italian banks of issue were narrowly regulated by the Act of August 10, 1893. Aside from certain special transactions reserved for the Banks of Naples and of Sicily, the chief departments of business are Edition: current; Page: [178] identical in the three establishments. The present regulations for the banks of issue have been in effect only since January 1, 1894. So far as the matter is of pertinent interest, we shall give the statistics for the last ten years of the old banks and the 1894 statistics of the Bank of Italy, Bank of Naples, and Bank of Sicily.

Discounts.—The banks are authorized to discount paper having no longer than four months to run, as follows: (a) Bills of exchange and drafts to order bearing at least two signatures of persons of well-known solvency; (b) Treasury bonds; (c) merchandise warrants issued by general warehouse companies legally incorporated; (d) coupons of securities that have been taken as guaranty for advances.

Discounts of the Banks of Issue (in Millions and Hundred Thousands of Lire).
YEARS. National Bank. Bank of Naples. National Bank of Tuscany. Tuscan Bank of Credit. Roman Bank. Bank of Sicily. Total.
1884 1,620.2 342.5 164.6 15.6 114.2 89.3 2,355.4
1885 2,206.6 597.3 264.8 16.2 151.9 194.0 3,430.8
1886 2,702.8 736.7 260.1 21.1 222.8 296.2 4,239.7
1887 2,996.3 978.7 381.3 23.1 270.7 300.9 4,951.0
1888 2,738.6 926.1 342.5 30.6 249.7 262.6 4,550.1
1889 2,829.8 878.2 336.2 30.0 220.4 205.6 4,500.2
1890 2,613.5 799.7 347.0 29.1 200.1 181.5 4,170.9
1891 2,107.2 801.1 414.2 20.1 226.7 215.9 3,785.2
1892 1,947.2 598.1 447.2 13.2 268.3 189.0 3,463.0
1893 2,200.4 580.1 458.1 11.7 83.3 206.9 3,540.5

In 1894 the discounts amounted—

LIRE.
At the Bank of Italy to 1,578,900,000
At the Bank of Naples to 511,000,000
At the Bank of Sicily to 244,800,000
Total 2,334,700,000

As the Italian banks do not redeem their notes in metallic values, they are at no pains to protect their coin stock by raising the discount rate. They require only to keep an eye on their circulation, and see that it does not go above the legal limit. The rate of discount is not so high as might be looked for in view of the bad state of exchange. It is remarkably stable—as will be seen from the following comparisons—and is uniform for all the banks:

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Bank Rates of Interest.
Number of Variations. Maximum. Minimum. Average.
1890 0 6 6 6.00
1891 1 6 5.78
1892 1 5 5.20
1893 1 6 5 5.18
1894 2 6 5 5.74

We have seen that by the Act of August 10, 1893, the banks may make discounts at one per cent. below the official rate—provided the yearly total shall not exceed 95,500,000 lire—on paper presented by the popular banks and the mortgage banks, and also on warehouse certificates. A decree issued in the beginning of November, 1895, authorized banks whose circulation did not surpass the legal limit to discount, at one and one-half per cent. below the official figure, paper having no longer than three months to run, on condition that these transactions shall not embrace renewals. Such paper must be kept on separate account.

Advances.—The banks have the right to make advances, for six months at most: (a) On Italian consols and Treasury bonds, and on securities guaranteed by the State; (b) on bonds of the mortgage banks; (c) on securities, payable in gold, issued or guaranteed by foreign governments. Advances on consols and Treasury bonds at long maturity may be made up to four-fifths of their current market value. Treasury bonds at short maturity may be taken at their face value. The advances on other securities cannot exceed three-fourths of their value on ’change, and in no case three-fourths of their face value. In addition, the following may be accepted as collateral for advances: (a) National and foreign gold and silver moneys for their legal value, and gold bullion; silver bars for two-thirds of their current price; (b) raw and worked silk in twist and woof; warehouse warrants on sulphur and other merchandise for two-thirds the value; (c) warrants on liquors for half their value.

Advances (in Millions and Hundred Thousands of Lire).
YEARS. National Bank. Bank of Naples. National Bank of Tuscany. Tuscan Bank of Credit. Roman Bank. Bank of Sicily. Total.
1884 78.3 68.1 2.1 31.7 1.1 11.5 192.8
1885 83.0 96.6 1.9 11.1 5.0 11.1 207.7
1886 94.2 64.5 0.9 14.5 1.2 22.9 198.2
1887 117.1 58.9 0.9 26.0 1.3 26.0 230.2
1888 79.7 63.8 1.3 18.7 0.5 22.2 186.2
1889 75.1 58.3 1.1 15.3 0.1 21.1 171.0
1890 84.2 57.9 1.1 9.5 0.4 20.2 173.3
1891 84.3 58.2 15.0 11.4 2.6 36.3 207.8
1892 75.8 50.7 13.5 6.8 0.3 30.4 177.5
1893 81.6 53.4 6.5 2.7 0.2 15.5 159.9
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In 1894 the advances amounted to the following:

LIRE.
At the Bank of Italy 126,900,000
At the Bank of Naples 65,900,000
At the Bank of Sicily 16,300,000
Total 209,100,000

The Bank of Naples is privileged to operate as a Mont de Piété and to loan on gold and silver bullion, diamonds, precious stones and pearls, metals, and articles of merchandise for which the Council of Administration makes up a list each year. The acknowledgments are made to bearer, even if a name or any other indication of ownership appears. The rate of advances on securities is generally the same as the discount rate. The rate of advances on silk is rather changeable and depends on the amount of the yield. In general the Bank of Sicily charges a higher interest than the Bank of Italy. The Bank of Naples makes few advances on silk. The rate for other advances is the same, or one-half to one per cent. above the discount rate.

Current Accounts.—The banks open current accounts. Some are interest-bearing, others are not. If the interest-bearing accounts exceed 130,000,000 lire for the Bank of Italy, 40,000,000 lire for the Bank of Naples, and 12,000,000 lire for the Bank of Sicily, the bank note circulation must be reduced three-fourths of the excess, although, as we have shown, the limit has been enlarged by the decree of January 23, 1894. The maximum of interest allowable on current accounts is half the discount rate. From January 1, 1897, the maximum will be lowered to one-third the rate of discount. Independently of current accounts, the southern banks continue the old apodissary service and issue against security orders and certificates thus designated: (1) Vaglia cambiari and assegni bancari, transferable by indorsement, and used principally to make transfers of funds from one place to another; (2) fédi di credito, receipts for sums above 50 lire, transferable by indorsement; (3) polizzini, receipts for sums under 50 lire, transferable by indorsement; (4) polizze notatc, receipts which by successive payments have become current accounts (madre fédi); (5) lastly, drafts on foreign countries to the order of third parties.

The Bank of Naples maintains a savings-bank, which has a patrimony of its own, distinct from that of the Bank, which the creditors of the Bank have no claim to. The entire patrimony of the Bank is a guaranty of the obligations of the savings institution to third parties. The sums deposited are invested in securities of the State or guaranteed by the State, but the savings-bank can invest one-fifth of its funds on interest-bearing accounts current, upon condition that the rate of such interest be no lower than half of the rate allowed the depositors of the savings-bank.

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Deposits and Withdrawals of Savings at the Bank of Naples.
Deposits. Withdrawals.
LIRE. LIRE.
1884 14,500,000 11,800,000
1885 15,900,000 13,300,000
1886 17,000,000 13,100,000
1887 15,500,000 14,400,000
1888 17,800,000 15,700,000
1889 14,900,000 15,900,000
1890 16,000,000 16,600,000
1891 15,700,000 15,500,000
1892 15,200,000 15,000,000
1893 14,400,000 16,600,000
Movement of Current Accounts Without Interest (in Millions and Hundred Thousands of Lire).
YEARS. NATIONAL BANK. BANK OF NAPLES. BANK OF SICILY.
Paid in. Paid Out. Paid In. Paid Out. Paid In. Paid Out.
1884 2,997.8 2,998.1 174.9 174.6 24.5 24.6
1885 2,822.7 2,828.5 193.6 195.2 25.0 25.0
1886 3,079.2 3,077.4 194.6 194.8 26.2 26.4
1887 3,168.0 3,170.0 201.0 202.1 21.8 22.1
1888 2,952.6 2,952.2 165.8 163.8 17.5 17.5
1889 2,881.0 2,880.8 220.3 220.5 26.0 26.3
1890 2,549.2 2,550.9 161.5 161.3 22.0 21.9
1891 2,094.2 2,095.8 153.5 155.4 21.9 22.0
1892 1,899.2 1,900.7 140.8 134.8 27.2 27.1
1893 2,263.7 2,255.2 135.0 140.9 22.0 22.1

The movement of current accounts without interest was, in 1894:

Paid In. Paid Out.
At the Bank of Italy 2,494,500,000 2,496,100,000
At the Bank of Naples 161,300,000 160,300,000
At the Bank of Sicily 16,800,000 16,700,000

The Bank of Italy does not furnish statistics of current accounts at interest. The following are the statistics of such accounts for the Banks of Naples and of Sicily:

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Movement of Interest-bearing Current Accounts (in Millions and Hundred Thousands of Lire).
YEARS. BANK OF NAPLES. BANK OF SICILY.
Paid In. Paid Out. Paid In. Paid Out.
1885 122.3 109.9 0.7 0.6
1886 173.4 176.6 16.7 10.7
1887 136.8 136.4 55.1 52.8
1888 128.6 125.4 52.7 51.5
1889 172.6 163.2 49.8 47.9
1890 131.0 138.6 66.6 65.8
1891 159.0 151.8 70.9 70.2
1892 169.6 168.6 60.5 61.0
1893 156.0 156.1 44.6 46.0
1894 258.8 246.8 64.7 61.8

The apodissary service of the Banks of Naples and of Sicily, as just pointed out, consists in the issue of registered receipts, which are transferable by indorsement, and constitute a special circulation. The statement below shows the issues and payments of these orders:

In Millions and Hundred Thousands of Lire.
YEARS. BANK OF NAPLES. BANK OF SICILY.
Issued. Paid. Issued. Paid.
1884 900.0 887.0 206.5 201.3
1885 1,035.2 1,010.4 209.5 212.7
1886 1,165.2 1,164.5 195.4 198.8
1887 1,235.4 1,215.2 151.0 155.8
1888 1,210.3 1,225.4 135.6 138.4
1889 1,603.7 1,588.3 139.7 139.2
1890 1,356.5 1,395.2 123.8 122.4
1891 1,276.8 1,277.8 118.7 120.3
1892 1,130.6 1,135.1 115.7 116.0
1893 983.7 1,016.8 104.1 105.1
1894 940.8 934.2 97.3 98.1
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Transactions of the Mont de Piété operated by the Bank of Naples.
YEARS. Engagements of Pledges. Renewals. Disengagements. Unredeemed Pledges.
LIRE. LIRE. LIRE. LIRE.
1884 8,800,000 7,500,000 8,300,000 500,000
1885 9,400,000 7,300,000 9,100,000 600,000
1886 9,600,000 5,800,000 10,000,000 600,000
1887 8,800,000 6,300,000 8,600,000 500,000
1888 10,300,000 6,600,000 8,900,000 300,000
1889 11,000,000 7,300,000 9,300,000 400,000
1890 11,200,000 8,400,000 18,100,000 500,000
1891 10,500,000 8,800,000 18,600,000 700,000
1892 9,900,000 9,000,000 18,100,000 700,000
1893 9,600,000 8,600,000 18,100,000 600,000
1894 16,600,000 8,100,000 21,100,000 600,000

Exchange Operations.—The banks buy and sell for cash, and for their own account, drafts, bills of exchange, and cheques on foreign countries; and they undertake for third parties the collection of commercial paper where they have offices or correspondents. The Bank of Sicily, in addition, conducts an accident insurance business.

Exchange Operations of National Bank.
Sent abroad. LIRE. Drawn on abroad. LIRE.
1884 69,800,000 87,700,000
1885 168,100,000 188,700,000
1886 123,200,000 131,700,000
1887 247,900,000 250,900,000
1888 138,100,000 136,800,000
1889 234,300,000 231,900,000
1890 238,800,000 224,400,000
1891 285,900,000 286,900,000
1892 309,700,000 292,100,000
1893 513,800,000 525,400,000
Condition of Deposits, December 31st (in Millions and Thousands of Lire).
YEARS. National Bank. Bank of Naples. National Bank of Tuscany. Tuscan Bank of Credit. Roman Bank. Bank of Sicily. Total.
1884 329.7 87.5 18.5 15.3 6.6 12.3 469.9
1885 386.1 111.0 22.8 17.3 6.2 16.9 564.3
1886 412.2 102.1 33.0 9.5 7.3 14.7 578.8
1887 461.5 119.5 29.0 11.2 15.5 16.8 650.5
1888 498.1 145.7 32.9 4.8 11.3 16.1 713.9
1889 638.3 157.1 33.9 7.1 17.5 15.4 869.3
1890 556.9 163.1 50.5 8.2 22.5 21.7 822.9
1891 638.3 177.1 72.3 7.9 22.1 36.4 954.1
1892 713.1 182.6 83.0 6.6 34.1 38.0 1,057.4
1893 738.6 146.3 66.9 6.5 13.4 34.0 1,005.7
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On December 31, 1894, the free deposits amounted—

LIRE.
At the Bank of Italy to 782,200,000
At the Bank of Naples to 168,600,000
At the Bank of Sicily to 37,500,000
Total 988,300,000

In 1894, the Bank of Italy sent abroad 330,800,000 lire, and drew on foreign countries for 326,500,000 lire. The banks accept on trust voluntary deposits of securities and documents, bullion, gold and silver money, jewels, and other valuables.

MANAGEMENT OF CIRCULATION AND COIN.

Italy was under a forced currency régime from May 1, 1866, to April 7, 1881, which, indeed, has never been really abandoned, as there has never been any redemption, in specie over the counters, of either the bank or the State note issues. This compulsory feature of the currency is cloaked under the disguise of legal tender, but it operates to-day as actively as ever.

The Act of August 10, 1893, intended as a preventive of frauds like those perpetrated by the Roman Bank, subjected the circulation of the banks to most stringent regulations. The note issues cannot exceed thrice the capital, and must be protected by a metallic reserve of forty per cent. whereof three-fourths must be in gold.

This latter proviso runs counter to the spirit of the Latin Monetary Union, which was established to secure an equal treatment for gold and silver in the contracting States. Moreover, it is difficult of enforcement; and, at various times, the banks have been obliged to refuse deposits of silver five-franc pieces and fractional coins—which, however, have legal circulation in France—and to accept them only in payment. Like other nations of the Latin Union, Italy has sent into France large amounts of silver of her own coinage, and has felt the embarrassment of the rise in exchange only after the exhaustion of her silver supply. But if the Latin Union was able to delay the rise in exchange, it has equally created difficulties for Italy, in the matter of her fractional coinage, by preventing her from minting according to her needs, and by depriving her of profits that she would have realized by purchasing silver at the market price, and putting it in circulation for double value. At present, by virtue of the decree of February 24, 1894, the banks stand in peril of having but a very scant coin stock, since the Treasury (as before related) has power to lay hands on 200,000,000 of their gold; in the event of which their notes would be secured not by metal but by State scrip.

The Government has, rather fictitiously, redeemed certain loans made to it by the banks, and rid itself of interest obligations on that account. It may, in view of the circumstances, be questioned, whether the bank paper Edition: current; Page: [185] offers any advantages over a system of State scrip, and whether it would not be simpler and more logical for the State to issue the bulk of the paper currency, assuming the responsibility for the mistakes that may be committed, than to shield itself behind the banks, which can offer no resistance. We subjoin statistics relating to the currency issues of the banks.

Metallic Stock of the Italian Banks on December 31st (in Millions and Hundred Thousands of Lire).
YEARS. National Bank. Bank of Naples. National Bank of Tuscany. Tuscan Bank of Credit. Roman Bank. Bank of Sicily.
1884 196.0 66.1 18.5 5.0 17.9 23.9
1885 290.6 74.5 21.2 5.0 15.2 22.6
1886 340.3 77.1 20.9 5.0 14.7 22.0
1887 348.3 85.9 26.1 5.1 20.6 22.0
1888 322.2 115.5 31.7 5.2 20.1 30.0
1889 335.9 114.7 40.2 5.0 24.9 34.5
1890 354.3 103.1 42.4 5.1 22.7 39.1
1891 225.5 103.2 44.8 6.1 25.2 37.0
1892 222.4 103.8 44.8 6.1 25.5 36.7
1893 230.1 100.7 44.0 6.1 36.7

On December 30, 1894, the coin stock of the banks of issue was:

LIRE.
At the Bank of Italy 360,600,000
At the Bank of Naples 116,000,000
At the Bank of Sicily 36,700,000

composed of the following elements:

Gold. Silver. Total.
LIRE. LIRE. LIRE.
Bank of Italy 292,700,000 67,900,000 360,600,000
Bank of Naples 105,500,000 10,500,000 116,000,000
Bank of Sicily 35,200,000 1,500,000 36,700,000
Total 433,400,000 79,900,000 513,300,000

To this reserve must be added 22,500,000 lire of foreign securities payable in gold, which the Bank of Italy held. But as 200,000,000 lire of these stocks could be tied up by the Treasury, the ready gold stock is reduced to 183,100,000 lire. The circulation is, as we have stated, rigorously limited by law. It was natural that legislation should take the most elaborate precautions to avoid recurrence of the conditions that led to the destruction of the Roman Bank. However, there is great difficulty in undertaking to Edition: current; Page: [186] confine a circulation within arbitrary bounds; since in practice the bounds are not determined by the capital or by the metallic reserve, but by the needs of the public. At first, the Government was compelled to relax the restrictions, whereby it had intended to keep the circulation within control. This was made necessary by the circumstances of the savings-banks, threatened by unforeseen withdrawals. What is of most serious import in this connection is that the State has deemed it proper to decide in principle in favor of an issue of 600,000,000 lire of scrip with forced currency, whereof 200,000,000 lire are to become a substitute for the metallic reserve of the banks, and 400,000,000 lire are to be thrown into circulation—an arrangement which, if carried out, cannot fail to terribly confuse the credit of the banks with the credit of the State. The circulation of the issuing banks, from 1884 to 1893, compares as follows:

Circulation of the Banks on December 31st (in Millions and Hundred Thousands of Lire).
YEARS. National Bank. Bank of Naples. National Bank of Tuscany. Tuscan Bank of Credit. Roman Bank. Bank of Sicily.
1884 554.1 178.8 66.1 14.3 47.5 38.2
1885 569.5 207.0 71.0 14.8 43.6 42.6
1886 611.4 231.9 81.7 13.5 44.9 48.4
1887 626.4 210.6 84.7 13.4 60.7 49.0
1888 599.1 259.4 89.2 13.1 67.9 46.1
1889 602.3 273.9 91.8 14.9 73.4 50.8
1890 630.6 275.2 91.2 14.8 64.8 49.8
1891 601.5 265.6 101.5 16.1 72.7 64.2
1892 573.1 265.8 105.0 17.1 111.7 65.8
1893 768.4 261.2 104.5 16.5 61.9

On December 31, 1894, the circulation of the three banks was as follows:

Bank of Italy. Bank of Naples. Bank of Sicily.
50 lire notes 225,469,750 76,354,600.00 10,725,400
100 lire notes 281,715,500 86,139,400.00 11,931,700
200 lire notes 1,580,600 4,766,200.00 6,272,800
500 lire notes 149,030,000 40,047,000.00 13,378,000
1000 lire notes 168,494,000 38,832,000.00 10,761,000
Bank notes to withdraw from circulation 167,044 345,182.50 142,481
Totals 826,456,894 246,484,382.50 53,211,381

In Italy, as well as in the majority of European countries, the 100 and 1000 lire notes (or their equivalents) are in preponderance.

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CLEARINGS OF BANK NOTES.

In our historical account of the Italian banks, we have shown how the clearances of the notes of the different banks of issue were effected. The decree of February 27, 1894, modified the former mode of procedure. The clearances of the bank notes and the apodissary notes now take place on the 10th, 20th, and last day of each month. Each office establishes, on those dates, the amount of its holdings of the paper of the other banks, and notifies their representatives accordingly. The notes and other values are exchanged between the offices and correspondents of the different banks. Balance statements are forwarded to the central establishments, and carried on interest-bearing account at a rate which cannot exceed three-fifths of the discount rate. The current accounts are settled on June 30th and December 31st. The balances are paid part in cash or Government scrip and part in commercial paper at fifteen days’ maturity, taken out of the paper held by the debtor banks; or else in Italian consols on the basis of the average quotation of five days following the settlement.

CRÉDIT FONCIER OPERATIONS OF THE BANKS.

The Italian banks did a land loan business up to the enactment of the law of August 10, 1893. An act of December 21, 1884, authorized the Government to grant, by royal decree, to companies or institutions having a paid-in capital of at least 10,000,000 lire the privilege of doing a land loan business. Such companies or institutions had the right to issue, corresponding to loans made, mortgage bonds equal to ten times the capital paid in. The National Bank of the Kingdom laid claim to the benefits of the law, instancing the precedents of the Bank of Austro-Hungary, the Bank of Greece, the Scandinavian banks, and the Banks of Naples and of Sicily, which latter were empowered by the Act of June 14, 1866, confirmed by the Act of December 21, 1884, to carry on transactions in land loans. These transactions were intended to grant loans, repayable gradually, on the security of first mortgages on buildings up to half their value; to acquire by transfer or subrogation mortgages or liens under the same conditions, and to transform them into loans redeemable in installments; to make advances on current account, secured by mortgages on the above-stated terms, and to issue mortgage bonds for an amount corresponding to the sums loaned. The interest of the bonds, or mortgage certificates, was fixed at 4, 4½, or 5 per cent. The direct loans made were in bonds, and the loans for current account were in specie. The redeemable loans could not run for less than ten years or longer than for fifty years. To conduct these crédit foncier operations the National Bank established a special section on the plan of the Bank of Austro-Hungary and assigned to this division a capital of 25,000,000 lire. The Banks of Naples and of Sicily made direct mortgage loans.

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Yearly Amounts of Mortgage Loans on December 31st of the National Bank.
LIRE.
1885 3,000,000
1886 56,100,000
1887 123,000,000
1888 165,700,000
1889 218,600,000
1890 250,200,000
1891 245,100,000
1892 280,400,000
1893 284,200,000

No statistics of mortgage loans in force have been issued by the Banks of Naples and Sicily, and the aggregate amounts (180,900,000 and 29,000,000 lire, respectively, on December 31, 1892) were made known only by means of the inspection of 1893. We give below the condition, on December 31st, of the mortgage bonds issued as counterpart of the mortgage loans, for the National Bank and the Bank of Naples. The Bank of Sicily affords no information.

National Bank. Bank of Naples.
LIRE. LIRE.
1886 41,700,000 97,500,000
1887 108,200,000 107,000,000
1888 152,100,000 149,700,000
1889 208,900,000 183,900,000
1890 236,700,000 186,200,000
1891 244,600,000 181,900,000
1892 280,400,000 169,000,000
1893 301,200,000 162,300,000

The Act of August 10, 1893, explicitly forbade the banks of issue to continue their mortgage loan dealings, and very wisely; for it always is dangerous to give an establishment whose life depends on the ready availability of its resources temptation to tie them up in long obligations.

COMPULSORY LIQUIDATIONS.

The Act of August 10, 1893, besides prohibiting further mortgage loans by the banks, decreed that the unauthorized real-estate transactions and investments should be liquidated within ten years. In the case of the Bank of Italy, the period was extended to fifteen years. The investigation of 1893 showed the investments to have been as follows:

LIRE.
Available assets 172,342,936
Immobile assets 199,756,620
Running paper 133,390,567
Mortgage loans (in current account) 55,032,057
Total 560,522,180
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This statement shows the amount of obligations to be realized upon by the banks; and to it must be added the 60,000,000 of fraudulent paper issued by the Roman Bank. It is certain that these figures represent important assets, and that the banks will recover a considerable share of the sums tied up in these items; but it is nevertheless a heavy load they have to carry, which must hamper them greatly. According to the balance-sheet of October 20, 1895, the settlements on immobile accounts still to be made were:

LIRE.
Bank of Italy 355,702,112
Bank of Naples 145,590,705
Bank of Sicily 18,347,205
Total 519,640,022

It is difficult to foresee how the banks may come out of this embarrassing situation and what losses they may finally have to suffer. Their capital appears to be seriously compromised.

RELATIONS BETWEEN THE BANKS AND THE STATE.

The Italian banks are under very exacting legal supervision. The State subjects them to both ordinary and extraordinary inspection. By a decree of October 1, 1859, approving the by-laws of the National Bank, that institution was required to put at the disposal of the State 18,000,000 lire, of which 6,000,000 was payable on demand and the remainder after a month. Interest on advances was fixed at three per cent. Upon the increase of the Bank’s capital to 60,000,000 lire, on June 29, 1865, the decree sanctioning the increase directed that the Bank should be prepared to advance to the State the difference between the 18,000,000 lire and two-fifths of the value of the shares issued. In a preceding chapter, it has been related how the National Bank granted a loan of 250,000,000 lire to the State in 1866, when the forced currency was established, and how that loan was raised to 300,000,000 by the agreement of March 4, 1872. It was distributed among the six banks of issue by the formation of the syndicate of 1874. At present the State reserves the right to claim from the three banks advances defined as statutory, which may amount to 125,000,000 lire, at a maximum interest rate of three per cent. per annum. The Bank of Italy must furnish an aggregate of 90,000,000 lire, the Bank of Naples 28,000,000 lire, and the Bank of Sicily 7,000,000. On December 31, 1894, the indebtedness of the State to the banks on account of statutory loans amounted to—

LIRE.
Bank of Italy 59,500,000
Bank of Naples 14,000,000
Bank of Sicily 2,000,000
Total 75,500,000
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The banks act for the account of the State in the matter of provincial collections. They amass the funds of the tax receivers, issuing receipts to them and to the tax-payers. The local directors or sub-directors represent the banks in this service. The bank representatives cannot permit delays in the payment of dues and taxes. They are required to superintend the bookkeeping. They must proceed peremptorily against receivers in arrear. If a demand for funds remains uncomplied with, the securities of the derelict receiver must be sold within five days after the notification; and if the amount raised does not suffice to cover his debt, the director of the bank must employ against him all the resources provided by the law. The non-compliance with the bank’s demand must be communicated to the prefect, who issues an order of execution, the only formality that is necessary for the bank to observe. The banks receive for the collection service remuneration fixed by the Minister of the Treasury. In 1894, the following amounts of tax funds were handled by the banks:

Receipts. LIRE. Payments. LIRE.
At the Bank of Italy 243,594,754 242,754,590
At the Bank of Naples 80,922,010 80,805,870
At the Bank of Sicily 26,046,822 25,957,111
Total 350,563,586 349,517,571

The Bank of Italy has had charge of the State’s Treasury service since February 1, 1895. In all the provinces, it receives the payments for account of the State and its departments, and makes the payments to its creditors.

This service is gratuitous. As a guaranty for its faithfulness, the Bank has deposited a security of 50,000,000 lire in Government bonds, and bonds guaranteed by the Government, which is to be increased to 90,000,000 lire in six years. The State agrees, except in extraordinary cases, to leave in the Bank a permanent balance of 30,000,000 lire. When the balance goes above 40,000,000 lire, the Bank pays interest on the excess at 1½ per cent. If it goes below 10,000,000 lire, the State pays interest on the shortage at the same rate, and the Treasury must furnish the Bank, on the 10th, 20th, or last day of the month, a sum sufficient to make up the 30,000,000 lire. The Bank must hold for the disposal of the Treasury the gold and silver received for the Treasury’s account. No statistics relating to the Treasury service have yet been published. Finally, the banks pay the coupons of the Italian Government debt.

The taxes levied on the banks are very heavy. We give them in detail.

On the Bank of Italy.
LIRE.
Tax on general property 1,575,296
Tax on the circulation 5,536,397
Tax on the negotiation of the shares 288,505
Tax on the verification of weights and measures 9,655
Stamp tax 19,297
State control 57,600
Tax on factories and lots 116,688
Tax for the Chambers of Commerce and the Communal Chambers 7,764
Total 7,611,202
On the Bank of Naples, Total 2,029,767
On the Bank of Sicily, Total 538,482
Total for the three banks 10,179,451

ANNUAL STATEMENTS.

Annually, the Italian banks publish the statements of their operations, going conscientiously into detail, and with accompanying tables that in many cases might well serve as statistical models to other banks. Also, a condensed balance-sheet is published every ten days in the “Gazzetta Ufficial del Regno.” The table on page 192 is a specimen of these ten-day reports.

The explanations we have given of the transactions of the bank facilitate an understanding of the foregoing balance-sheet. Nevertheless, a few additional remarks may be useful. The first item giving the maximum circulation as regulated by the law of August 10, 1893, is simply a matter of record.

Reserve and cash.—The reserve embodies the lawful gold coins except those which are tied up for account of the Treasury; the gold bullion and the gold coins which are not legal tender, always excepting the amounts tied up for account of the Treasury; the State scrip, which represents the gold tied up for the Treasury, commercial paper on foreign countries, payable in gold; five-franc pieces and fractional coin. The cash item includes the State scrip and cash certificates of the State issued against fractional coin, the bank notes and certificates of the other banks, and nickel and copper coin.

Portfolio (bills receivable).—Includes stock of bills of exchange and other commercial paper held by the bank, also coupons of securities which have been admitted to discount.

Advances.—Current loans on securities and merchandise.

Ordinary Treasury advance.—Drafts by the Treasury upon the sums which the banks must hold at its disposal.

Securities.—This item includes the securities owned by the bank; (a) for their reserve fund; (b) for the extraordinary reserve for which the law of August 10, 1893, provides; (c) for the reserve to provide against the final

Edition: current; Page: [192]
BANK OF ITALY. Situation October 10th. BANK OF NAPLES. Situation October 10th. BANK OF SICILY. Situation October 10th.
Maximum circulation for commercial purposes allowed by law 800,000,000 242,000,000 55,000,000
ASSETS.
Reserve and cash { Reserve LIRE. 368,091,751 52 116,045,993 50 36,695,278 00
{ Total cash and reserve 383,165,536 65 126,623,539 17 38,800,177 53
Portfolio. { Commercial paper and bank orders 183,347,713 48 } 184,549,293 57 52,672,157 76 } 53,655,768 66 25,530,098 12 } 25,536,120 12
{ Other discounts 1,201,580 09 } 983,610 90 } 6,022 00 }
Advances 21,844,948 94 26,420,256 52 5,108,067 58
Ordinary Treasury advance 58,000,000 00 2,000,000 00
Securities. { Government securities, or securities guaranteed by the State directly { in possession of the bank on account of the limitation of Article 12 of the Law of August 10, 1893, modified by Article 32 of the Law of August 8, 1895, No. 486 75,000,000 00 } 99,695,253 80 16,454,881 30 } 16,454,881 30 4,800,000 00 } 7,821,688 19
{ General security for use in case of overstepping the above-mentioned limitations 12,742,577 88 } } 2,290,020 20 }
{ For employment of the sums set aside for the liquidations, according to Articles 2 and 3 of the agreement of October 30, 1894, confirmed in conjunction with Article 28 of the Law of August 8, 1895, as mentioned above 6,588,150 00 } } 731,667 99 }
{ Public funds and securities for the Pension or Provident Fund. 5,364,525 92 } } }
Credits 21,909,631 99 14,505,076 58 10,339,771 30
Shareholders (not paid in) 60,000,000 00
Investments, disallowed by the Law of August 10, 1893 (Immobilizations to be liquidated) 355,370,113 85 145,237,210 42 18,362,475 46
Doubtful accounts of the running year (profit and loss) 1,679,859 19 1,231,994 95 402,385 07
Office buildings 15,883,951 04 3,071,262 68 651,353 51
Miscellaneous accounts 213,719,915 07 10,957,075 52 14,507,010 52
State service 137,270 83 325,691 28 9,486,348 90
General expenses of the current year, to be settled at the end of the year 9,449,164 83 4,190,874 91 1,321,216 74
Total 1,425,404,939 76 402,673,631 99 134,336,614 92
Mortgage bond service of the institution 214,819,500 00 158,125,000 00 30,592,000 00
Deposits 1,265,069,132 83 213,145,152 83 32,720,094 18
Grand total 2,905,293,572 59 773,943,784 82 197,648,709 10
LIABILITIES.
Capital and Reserve Fund. { Capital Reserve Fund. 270,000,000 00 } 312,742,591 18 65,000,000 00 } 71,500,000 00 12,000,000 00 } 18,100,000 00
{ Ordinary 42,742,591 18 } 6,500,000 00 } 6,100,000 00 }
{ Extraordinary } } }
Circulation. { For commercial purposes (Article 2 of the Law of Aug. 10, ’93). 714,269,236 24 } 808,365,838 50 228,920,905 96 } 239,224,658 00 35,644,743 17 } 50,564,095 00
{ For commercial purposes as per the ratio, according to the codicil to the Law of July 22, 1894, No. 339 } } }
{ For Treasury account 58,000,000 00 } } 2,000,000 00 }
{ Covered entirely by reserve 36,096,602 26 } 10,303,752 04 } 12,919,351 83 }
{ Uncovered. { Within the limits of Art. 2 of the Law of Aug. 10, 1893 } } }
{ Exceeding the above limits } } }
Current accounts and other accounts payable on demand 67,385,303 56 35,434,697 70 22,728,405 58
Current accounts and other accounts payable on term 150,843,231 40 43,519,781 26 15,964,556 57
Miscellaneous accounts 23,014,165 20 5,486,007 62 13,221,240 93
State service 41,580,995 98 2,406,059 31 11,789,361 70
Fund set aside in accordance with the terms of Art. 2 of the agreement of Oct. 30, 1894, confirmed by Art. 28 of the Law of Aug. 8, 1895, No. 486 6,588,150 00 753,621 43
Profits of the current year, to be settled at the end of the year 14,884,663 94 5,102,428 07 1,815,333 71
Total 1,425,404,939 76 402,673,631 99 134,336,614 92
Mortgage bond service of the institution 214,819,500 00 158,125,000 00 30,592,000 00
Deposits 1,265,069,132 83 213,145,152 83 32,720,094 18
Grand total 2,905,293,572 59 773,943,784 82 197,648,709 10
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losses of the Bank of Italy in the liquidation of the Roman Bank and for the losses which all banks will have to incur on the settlement of their tied-up investments; (d) the pension fund for the employees of the bank.

Credits.—Items of regular account current.

Shareholders.—Sums due by the shareholders on their shares.

Immobilizations.—This item comprises all sums which must either be converted into current funds, or paid off according to the terms of the law of August 10, 1893.

Profit and loss for the year.—The law of August 10, 1893, prescribes that doubtful accounts of each six months shall be carried on profit and loss account; they figure there until December 31st of the current year, when they are balanced out of the profits of the year.

Office buildings.—The houses belonging to the banks, and used for their own accommodation.

Miscellaneous accounts.—Various items and the liquidation account of the Roman Bank.

State service—Amounts owed by the State for transfers of funds.

General expenses of the current year.—The two following items represent the current account of the crédit foncier service and open deposits. The banks of issue cannot any longer make mortgage loans, but they have not been in a position to draw out their funds immediately, and therefore this item is carried as a running account on the debit and credit side. The open deposits are carried only as a memorandum on the balance-sheet; they appear for the same figure both in the assets and liabilities.

Among the liabilities we see:

Capital and reserve fund.—This item calls for no comment; the capital of the Bank of Italy has been supplied by shareholders and is their property, while the so-called capital of the Banks of Naples and of Sicily is the product of gifts, alms, and the accumulated profits, and legally belongs to nobody, truly a unique situation in the world of banking.

Circulation.—This item has four subdivisions; circulation for commercial account means the bank notes issued to satisfy discounts, advances on securities, etc., and their amount must not exceed 800 millions. The supplementary circulation authorized by royal decree of January 23, 1894, which became law on July 22, 1894, comes under the same head. The next item comprises the paper money issued for advances to the Treasury, which is exempt from circulation tax by virtue of the law of August 10, 1893. The entirely covered circulation is the issue which the banks are authorized to put out above the legal limitation, on condition that the issue be entirely represented by hard money or gold bullion on hand. The law of August 10, 1893, fixes the relation of the capital and metallic reserve to the circulation, and it taxes the bank notes above the limit at the double of the rate of discount, but as the circulation may surpass one of the two limits, or both, a distinction is made.

Accounts current and Accounts payable at sight.—This item groups the Edition: current; Page: [194] drafts and cheques to order, the “apodissary” documents, and the current accounts at interest and without interest, payable on demand.

Accounts current and Accounts payable on term.—Current accounts at interest and savings accounts payable after notice of withdrawal to the banks.

Miscellaneous accounts.—Minor accounts, containing dividends due, residue of profits of former business years, etc.

Divers services for State account.—This is the current account and other credit accounts of the Treasury; it will be remembered that this account must not fall permanently below 30,000,000 lire.

Fund set aside according to Article 2 of the agreement of October 30, 1894, is the counterpart of the item of securities figuring in the assets, and which provides for losses to arise in the liquidations.

Profits of the current year.—This item shows the profits since the beginning of the half-year up to the date of the balance-sheet.

Finally, we have the two accounts of the mortgage service and deposits, which we commented upon in our allusions to the assets.

CONCLUSION.

The Italian banks of issue have reorganized under the most discouraging circumstances. They have to contend with general distrust. Italy must certainly calculate upon having to encounter most difficult obstacles. She has abused the facilities of the credit establishments to the point of extreme danger, and undoubtedly she would have found it of the greatest advantage to have established a new bank, independent of the State, yet under its strict supervision; instead of leaving the right of issue in the hands of suspected establishments, which bear the brunt of faults of which they are perhaps not entirely guilty, but which they had not the courage to avoid. The very groundwork of the banks shows often a strange lack of understanding of the problems to be treated. The restrictions imposed upon the circulation and the extravagant taxes with which it is burdened weaken the banks and thwart the beneficial effect which they exercise in other countries. The legal-tender quality of the paper money is a mere euphemism, as Italy is under a forced currency rule, which means that the notes are a non-convertible paper money like the scrip of Greece or of the Argentine Republic.

The State has not as yet made use of its prerogative to levy upon the gold of the banks and to give them its own scrip therefor. This State scrip would allow the banks to issue bank notes of their own to triple the sum of the State’s paper; but this license is a very grave one. It is inflation pure and simple; an amplification of paper money issued by banks which, at this day, have neither capital nor reserves left, at least not in readiness to be used or to be realized upon. The banks struggle as best they can against the situation which faces them; but they are overwhelmed by taxes and entangled in the limitations of a too narrow circulation; they have allowed Edition: current; Page: [195] their own credit to be merged with the Government’s credit; and, above all, enfeebled and demoralized by their past, they cannot exercise that regulatory action upon the coin and scrip circulation which is the fundamental mission of banks of issue.

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CHAPTER III.: ITALIAN CO-OPERATIVE BANKS.

EMBODIMENT OF THE POPULAR IDEAL OF BANKING.

THOUGH Italy has not solved happily the problem of banks of issue, she has at least comprehended the ideal of popular organization for banking purposes. In this, she is largely indebted to the energetic and persevering initiative of Sig. Luigi Luzzatti. Sig. Ettore Levi, in his “Manual of Popular Banks,” traces the history of popular credit in Italy as follows: “Popular credit and usury are two terms which for a long time have marched side by side. Credit granted upon the sole guaranty of honesty and labor had seemed to be an impossibility. Credit for the artisan or the merchant on a small scale, however honest and intelligent he might be, existed only in the form of pawn business at the Mont de Piété. Some attempts at personal credit were made in former days.” Sig. Luzzatti cites some remarkable attempts at popular credit made by mediæval guilds—above all, by the English guilds; but their rates of interest were so usurious that the loan was more of a drag than an advantage. The “cassiére” of Venice are another form of co-operative credit; but they also smack more of usury than providence. To Germany really belongs the credit of having first established popular credit on scientific principles. Socialists always and everywhere preach ardently the theory of gratuitous credit; and the Parliament of Frankfort O. M., in 1848, had to take up this question which the workingmen, incited by the Socialists, agitated in numerous meetings. The dissolution of the Parliament interrupted the work of the commission appointed for the study of the question; but it did not stop the Socialistic clamor under the leadership of the famous Lassalle.

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THE SCHULZE MOVEMENT.

Against the Socialistic hue and cry arose an antagonist in the person of a humble and obscure justice of the peace of Delitzsch, Herr Schulze; and he became the founder of popular credit. Excluding, from the start, the help from the State and private charity, which would have made the honest workman the recipient of alms, two solutions were left for Schulze’s choice; association of capitalists to make loans to small manufacturers and artisans, or association of the very parties who needed to borrow. Capitalistic association would have had a tendency to transform itself either into a charitable institution or fall into the groove of an ordinary bank. Schulze wanted to avoid both these possibilities. What he aimed at was that the workingman should be the instrument of his own elevation. Before obtaining credit the artisan had to show that he deserved it; and Schulze built his system on the assumption that in legal and peaceful alliance of all minor forces lay the potency of co-operation and the solution of the problem. By associating men who alone could have offered no guaranties of confidence, Schulze made up a fraternal union which would receive savings and easily obtain credit. The association itself is not dependent upon the results obtained for the participants; it gives loans to them upon the surety of a union of individuals—workers and honest men; and this moral guaranty is backed by a capital formed out of the savings of the parties associated. “The capital so created,” said Schulze, “is the only one to protect the artisan. It would be absolutely vain to grant him loans or give him the means of work, such as some reformers have in view; such gifts, like the inheritance left to a prodigal, would soon vanish. Above all, workingmen must be imbued with the sentiment of order, providence, and good administration; this alone can preserve and increase the acquired capital, be it loaned or given. The co-operative societies which have prospered are those that have made up their own capital by the heroic setting aside of part of their daily wages. Those to whom the Government made loans in 1848 have soon broken up.”

The initiative of Schulze has produced marvelous results; Lassalle’s ideas have fallen to the ground by the non-success of the Utopia of gratuitous credit. The popular banks have met with success and are continually extending. Loans under the patronage of the Government, of communities, or from public charity lack success and prove themselves vastly inferior to the popular banks of Schulze. The ideas of the illustrious German economist found in Sig. Luzzatti an indefatigable champion; and he justly deserves the title of founder of the popular banks of Italy.

The question of workingmen’s credit was agitated in Italy at the Congress of the Workingmen’s Societies held at Vercelli in 1858 and at the Congress of Novi in 1859. The Congress of Milan, in 1859, voted upon certain propositions of Boldrini, the advocate. He, while keeping gratuitous credit service Edition: current; Page: [198] out of the question, adopted on a large scale Lassalle’s ideas. Lassalle held that the workingman could not establish associations of credit by his savings and that the sole guaranty which he could give was his honesty. Boldrini’s plan, on the contrary, was to establish a bank with a capital of registered shares or shares to bearer; a bank with the power to make loans to workingmen for 100 lire and upwards. He sustained the principle that labor and probity were sufficient to obtain credit; that it was a cruel irony to ask borrowers for a savings fund which they could not obtain, that credit should be granted largely by the banks to all who were the step-children of fortune and whose only wealth was honesty. According to Boldrini, the German banks which exacted savings besides honesty were too timid and could not go to the core of the question by reaching those who possessed nothing and could not possess anything. Boldrini and some others began to put their ideas into practice by elaborating, in 1863, the regulations of the Labor Credit Society of Milan, and the municipality of that city appointed a Commission of Inquiry relating to the project. At that time, Sig. Luzzatti, a man of but 23 years, but who had already made a name for himself by an important book, “The Diffusion of Credit in Italy,” in which he explained and commented upon Schulze-Delitzsch’s doctrine, gave a series of lectures in contradiction of Boldrini’s ideas. He maintained co-operation and mutuality and pleaded for popular banks on the German plan. Sig. Luzzatti kept up a vigorous campaign, and in May, 1865, at the Turin Congress, he could not only declare victory in the disputed territory, but he had also achieved success in Lombardy by the aid of some friends. The Lodi Bank was in operation; the Milan Bank began transactions with the support of the Associazione Generále degli Operai (General Workingmen’s Association) after the Municipal Council of Milan had declared that Boldrini’s plan was practically not feasible. The good work of Sig. Luzzatti has been energetically carried on. Since 1865, the popular banks multiplied in Lombardy, Venetia, the Romagna, and Piedmont, and to-day these institutions are numerous and flourishing.

PROGRESS OF THE POPULAR BANKS.

In the first years of their existence the popular banks had to fight a stubborn battle against an institution which was far removed from their scope. The Banco del Popolo of Florence had been established in 1865 with the intention to give credit to the classes which were less favored by fortune. The Banco del Popolo wanted to cover the whole of Italy, by means of numerous branches and agencies, and, to use the words of Alvisi, its founder, “the association should not be divided into workingmen and employers; for all workers were part and parcel of the people, and the bank should open the fountains of credit to all workers, from workingman to banker.” With this purpose in view, the Banco del Popolo, organized on the same plan as all other credit associations, took in a variety of transactions, such as deposits, savings, loans, and life insurance. Thus it had nothing in common with the Edition: current; Page: [199] German and Italian popular banks, which are simply associations by which artisans, farmers, small manufacturers, and all who have no access to the great banking establishments join forces and invest their savings for the foundation of a local and autonomous credit institution which provides for their own needs. The Banco del Popolo bore the germs of ruin in its bosom, as soon as it started to develop its programme, which was badly adapted to popular credit; Sig. Luzzatti had foreseen that the development and downfall of this bank would be a complete and very grave disaster. By its untimely rivalry it had delayed the spread of the popular banks.

ORGANIZATION OF POPULAR BANKS.

The popular banks are independent establishments, each having its own by-laws, which are adapted to local circumstances, although a common spirit pervades all of them. Sig. Ettore Levi has suggested the following model, to be modified to meet special cases.

At — a co-operative joint credit association is established under the firm name of Popular Co-operative Bank of —.

The purpose of the bank is to supply credit to its associates on the basis of mutual responsibility and of savings. It is established for ninety-nine years from the date of the constituting act, subject to extension. Its business office will be at —. By resolution of its General Assembly, agencies may be established in the immediate province and in neighboring provinces. The establishment and administration of the branches will be conducted with a view to transforming them into independent banks. The ground capital of the association will consist of (a) — shares, subscribed by the associates, of the value of — each; (b) reserve, — lire; (c) special funds to be procured for specific transactions.

The association may take up loans, to be guaranteed by the association’s capital for the purpose of increasing transactions. Parties wishing to join the association must make written application to the Council of Administration and declare their willingness to submit to the rules and regulations, by-laws, and resolutions of the society. For the transfer of shares application must be made by either the heir or assignee, even if they be members of the society. If such applications are made by parties who are not yet members, they must be signed by two members, who attest to the honor of the petitioner. Co-operative and mutual aid societies can become members of the association as a body, and as such they are to have all the rights and duties of the other associates, but their delegates are not eligible to offices in the association. Parties under guardianship, or otherwise incapacitated by law, also bankrupts, are excluded from membership. No transfer of shares can be effected in favor of such parties, except by court adjudication; and, in such case, the holder enjoys no rights but participation in the profits. The Council deliberates upon the admission of applications of new associates and of old members who buy new shares. A Council of Experts (probiviri) acts as appellate tribunal from the decisions of the Council of Administration.

New members incur the following obligations: (a) They must pay up their shares within three months in fixed assessments and pay an initiation fee; (b) they must acquire at least one share; (c) they must be responsible to the amount of their shares for all obligations of the society. They enjoy the following rights: (a) To obtain loans within the limits and according to the rules of the by-laws; (b) they can vote in the General Assemblies if they have paid the initiation fee, if they have been members of the association for three months, and if they have paid up at least half of one share; (c) they become part owners in the ground capital, and participate in the profits in the proportion of their holdings of shares. No one can own more shares than the amount provided for in the by-laws. However, if such excess should come about through inheritance or court adjudication, the holder would only become a beneficiary in the profits on the excess of shares, and Edition: current; Page: [200] would have to dispose of such surplus within a year. If the shareholder refuses to carry out this rule, payment of dividend is suspended, the association sells the shares ex-officio, and holds the proceeds at the disposal of the interested party.

The Council can debar the following parties from the society: (a) Those who, without valid excuse, are in arrear by three assessments on the shares for which they subscribed; (b) those against whom the society had to proceed in law to compel them to fulfill their obligations; (c) parties convicted of felony; (d) parties who have committed acts which the Council deems dishonorable. Against all such decisions appeal can be made to the Council of Experts (probiviri). Shares of parties debarred under the terms of articles b, c, and d are repaid. If a member dies, it is within the province of the society to compel the heir to sell his shares, if he is not himself a member or has not made application to become one. The society recognizes only one owner for each share. The shares are registered and personal; they can only be transferred, or given as collateral with the consent of the Council of Administration. The Council can grant loans on the shares; and may sell the shares of members who are delinquent in their obligations to the society.

The following statement shows the progress of the popular banks from 1876 to 1893:

Number of Popular Banks and Members; Amount of Capital and Reserves.
YEARS. No. of Banks. No. of Members. PATRIMONY. Capital and Reserve.
LIRE.
1876 82 77,340 45,138,000
1878 97 88,959 49,093,000
1880 123 102,279 50,610,000
1882 139 114,072 57,852,000
1883 250 139,949 64,172,000
1886 516 259,204 91,847,000
1887 608 318,979 104,109,000
1893 730 405,341 118,228,000
Social Status of the Members of Popular Banks.
1876 Per cent. 1893 Per cent.
Farmers on a large scale 6.40 6.56
Farmers on a small scale 16.80 24.12
Farm hands 3.20 4.66
Large manufacturers and merchants 4.40 4.77
Small manufacturers and merchants 32.15 25.25
Artisans 7.25 8.11
Schoolmasters and clerks 16.65 18.66
Miscellaneous 13.15 7.67

The associations are worked: (a) By meetings of the members; (b) by the Council of Administration; (c) by the director and the employees; (d) by the Auditing Committee; (e) by the Discount Committee; (f) by the Committee of Experts (probiviri).

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The members hold ordinary and extraordinary meetings, which, if legally constituted, represent the members; the resolutions of these meetings are binding for all business provided for in the by-laws. The meetings approve the annual balance, and elect the officers. The Council of Administration consists of a president, vice-president, and a certain number of councilors, one-third of whom alternate each year. The members of the Council are unsalaried, and the president can obtain no loans from the society. The Council votes the expenses of the administration, establishes the formal balances and the profit and loss account, and fixes the rate of interest for assets and liabilities. It attends to all details of the general management. For special business it can delegate its powers to one or several members of the Council, or to the bank’s employees. The Council appoints a director, who has charge of the general administration under the supervision of the Council. There are five comptrollers—three regulars and two deputies; their services are unsalaried. They see that the by-laws, regulations, and resolutions are carried out.

The Discount Committee consists of the Council of Administration and associate members, whom the Assembly appoints; they alternate in their functions. While they are on duty, they can neither obtain discounts nor vote upon business in which they are personally interested. No loan or discount can be granted without the approval of the Discount Committee. The Expert Committee consists of three members whom the General Assembly appoints. They act as umpires in all differences which may arise in the association, and in all cases where friendly conciliation is required.

TRANSACTIONS OF THE POPULAR BANKS.

The popular credit associations discount commercial paper, warehouse warrants, workingmen’s liens, invoices, public works vouchers, Treasury checks, and pay vouchers of provinces and cities. The discount is deducted in advance; it is charged for five days at least on home paper, and ten days for out-of-town paper. The associations give loans on honor, without collateral. These loans are made to persons of either sex who have no resources whatever, but whose reputation for honesty and thrift is good. Such parties must have a trade or shop; they are presumed to be able to repay the loan, and, as a rule, the condition is made that they must be able to write. Such loans must not be above 100 lire, and are made for sixty weeks as the utmost limit. The repayments are made in weekly installments, although in some cases monthly payments may be allowed by the administration, which fixes the date at which repayment must begin. The loans are granted upon the recommendation of two persons who are acquainted with the borrower, and who vouch for his honesty and ability to repay the loan. Loans on honor originate an account current. The amount of the loan is carried on the debit, and the payments on the credit side.

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Such is the method of the Popular Bank of Bologna; the rules of the other banks vary only in minor points from these.

The banks operate also farm loans; i. e., loans on collateral of products of the soil (grain, fodder, etc.), which are stored in its own warehouses, or in places which it designates. The borrower must pay the storage charges for keep and insurance, etc., besides the interest on the loan. Loans on standing crops are made by means of bills of exchange, but the borrower must prove that he is insured against hail and fire. In no case can these loans run for more than one year. The banks also make loans on Government bonds, or securities guaranteed by the State, also on mortgage bonds up to four-fifths of their value. These loans are made for six months; they can be renewed. If the market value of the collateral should fall ten per cent., the borrower must either repay a part of the advance or increase the collateral. The loans may also lead to the opening of current accounts, and, in such case, the borrowers draw against the credit opened in their favor by means of cheques. Open loan credits are allowed to stand for two years.

The following statistics will illustrate the status and operations of this class of banks.

Amounts of Loans and Discounts.
LIRE.
1880 422,830,892
1881 515,813,987
1882 609,768,120
1886 1,147,570,915
1893 992,448,400

The loans and advances made in 1893 amounted to 432,723,905 lire; discounts to 559,724,495 lire. The loans were of the following categories:

Up to 100 lire 6.74 per cent.
From 101 to 200 lire 10.30 per cent.
From 201 to 500 lire 19.37 per cent.
From 501 to 1,000 lire 21.14 per cent.
From 1001 to 5,000 lire 29.00 per cent.
From 5001 to 10,000 lire 7.90 per cent.
Above 10,000 lire 5.55 per cent.
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Commercial Paper and Loans and Advances at the end of Year.
YEARS. Commercial Paper. Loans and Advances.
LIRE. LIRE.
1870 25,534,000 6,299,000
1875 85,730,000 18,096,000
1880 121,539,000 21,149,000
1885 209,130,000 29,518,000
1886 266,926,000 30,753,000
1887 285,312,000 36,008,000
1888 281,714,000 39,473,000
1889 272,988,000 35,224,000
1890 257,652,000 38,472,000
1891 253,748,000 31,413,000
1892 246,973,000 27,770,000
1893 236,976,000 31,700,000
1894 214,490,000 29,423,000
Loans “on honor” in 1893.
Amount.
Number. LIRE.
Loans running on January 1, 1893 6,423 for 354,177
Loans granted during the year 8,149 for 621,471
Total 14,572 for 975,648
Loans settled during the year 8,512 for 621,426
Situation on December 31, 1893 6,060 for 354,222
Rates of Discount and Interest for 1893.
Maximum. Minimum.
Discounts 4½-10 per cent. 4½-10 per cent.
Loans 1⅘-16 per cent. 1⅘-10 per cent.
Advances 4½-12 per cent. 4½-12 per cent.
Interest on debits of current accounts in force 2-10 per cent. 1½-9 per cent.
Interest on credits of current accounts in force 2-9 per cent. 1½-9 per cent.

Discounts, farm loans, and open advance accounts are granted only to members of the associations; commercial paper offered for discount must bear at least two signatures of persons well known to be solvent. The notes must not have above six months to run. In the case of warehouse warrants, the merchandise acts in lieu of the second signature.

The banks receive deposits of cash on open account. The depositor can draw upon his credit by cheques; they give out savings-bank books in the Edition: current; Page: [204] names of individuals, and to bearer, and issue interest-bearing bonds. They can make payments and receive moneys free of charge for their members, and charge a commission to non-members; they can issue drafts on the various places of the kingdom and undertake the collection of commercial paper. In certain cases, they even undertake the collection of municipal taxes.

CURRENT ACCOUNTS, SAVINGS DEPOSITS, AND INTEREST-BEARING BONDS ON DECEMBER 31ST.

LIRE.
1871 49,472,000
1875 113,565,000
1880 179,898,000
1885 326,923,000
1886 398,515,000
1887 427,617,000
1888 439,030,000
1889 425,100,000
1890 422,089,000
1891 416,531,000
1892 421,391,000
1893 357,723,000
1894 372,164,000

On December 31, 1894, the deposits in force were distributed as follows:

LIRE.
Current accounts 123,028,000
Savings deposits 206,825,000
Interest-bearing bonds 42,311,000
Total 372,164,000

The banks receive for safe-keeping securities, jewelry, and documents, for which they are not responsible in cases of force majeure. They attend to collection of interest and dividends on securities which are payable in the kingdom, and undertake to have matured securities redeemed. On December 31, 1893, the free deposits amounted to 112,235,011 lire. The net profits are distributed as follows: 70 per cent. to the associates pro rata of the shares which they own; 20 per cent. into the reserve fund, and 10 per cent. left at the disposal of the Council of Administration for gratuities to employees and for charitable purposes. The reserve fund is made up by the assessment on the profits which we just mentioned, further from initiation fees, from the payments of new shareholders in order to acquire a share in the reserve, and from extraordinary profits.

When the reserve reaches one-half of the stock capital, assessments on the profits cease; if it falls below half of the capital, assessments are made anew until the proposed level is again attained.

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Profit and Loss Account, per 1000 Lire.
YEARS. Gross Profits. Interest on Debits. Staff. Miscellaneous Expenses. Tax on Personal Property. Miscellaneous Taxes. Losses Charged Out. Total of Expenses. Net Profits.
1880 7,320 984 770 964 135 217 3,070 4,250
1881 13,416 5,225 997 797 846 195 1,036 9,096 4,320
1882 14,487 6,264 1,131 884 997 202 287 9,765 4,722
1886 25,090 11,159 2,314 1,866 1,648 178 437 17,602 7,488
1893 30,744 13,908 3,357 2,815 2,397 419 1,334 24,230 6,514
Proportion of Net Profits to the Paid-in Capital and the Patrimony.
YEARS. Net Profit on Each 100 Lire of Paid-in Capital. Net Profit on Each 100 Lire of Patrimony (Capital and Reserve).
1880 11.53 8.88
1881 11.66 9.00
1882 11.80 9.04
1886 11.32 8.81
1893 8.28 6.27
Proportion of Dividends to Paid-in Capital and Patrimony.
YEARS. Dividends per 100 Lire of Paid-in Capital. Dividends per 100 Lire of Patrimony (Capital and Reserve).
1880 9.49 7.30
1881 9.48 7.31
1882 9.44 7.23
1886 8.26 6.40
1893 6.63 4.97

The popular banks carry a relatively large amount of public bonds and industrial securities, as shown by the following figures: In 1870, 3,474,000; 1875, 29,783,000; 1880, 50,323,000; 1885, 87,514,000; 1890, 115,997,000; 1894, 136,002,000.

The balance-sheet of the popular banks for December 31, 1893, has been summarized in the statistics published by the Ministry of Agriculture, Industry, and Commerce, and we give it below:

ASSETS.
LIRE.
Cash on hand 18,571,230
Loans (ordinary, on honor and farm) 120,851,252
Discounts 116,645,425
Advances on securities, merchandise, etc. 31,759,858
Loans on mortgages 15,152,642
Doubtful commercial paper and credits 15,390,134
Credits in account current 28,152,727
Credits with popular banks and correspondents 21,061,446
Miscellaneous credits 28,453,936
Public bonds and industrial securities 139,551,363
Furniture and general expenses 2,234,338
Buildings 11,827,562
Commercial paper for collection from third parties 7,462,313
Safe deposits 112,235,011
Sureties held 50,740,138
Discount of interest-bearing bonds in circulation 697,116
Total 720,789,491
LIABILITIES.
LIRE.
Paid-in capital 89,949,527
Reserve fund 28,278,349
Current accounts, at interest and without interest 91,150,985
Savings deposits 218,237,166
Interest-bearing bonds in circulation 48,334,708
Acceptances 6,133,220
Debts owed to corresponding banks 37,698,838
Dividends payable 1,360,822
Miscellaneous debts 21,101,204
Commercial paper held for collection from other banks 2,446,581
Sureties held 50,740,138
Employees’ Provident Fund 1,578,781
Rediscounts 5,030,501
Profit and loss 6,513,660
Total 720,789,491

This statement may be condensed into a few lines.

ASSETS.
LIRE.
Cash on hand 18,571,230
Loans, discounts, and advances 269,259,535
Public bonds and industrial securities 139,551,363
Miscellaneous 293,407,363
LIABILITIES.
LIRE.
Patrimony (capital and reserve) 118,227,876
Deposits of all kinds 357,722,859
Miscellaneous 238,325,096

The preceding statistics prove that the popular banks’ service is rather costly. Being obliged to pay a high rate of interest on their current accounts Edition: current; Page: [207] as well as on savings deposits, and also being subject to very heavy taxes, they must necessarily charge borrowers high rates of interest. Nevertheless, they have been a powerful agency in the extermination of usury, at least in Upper Italy. The term “usury” is not applied to the loaning at heavy interest, but to the system in which the debtor cannot free himself by any means; when by a skillful game of renewals and costs the borrower is held for long years in the grip of his creditor.

The popular banks are not charitable institutions; only in their loans on honor do they appear to approach that purpose. Yet it must be considered that even these loans without collateral are made to workingmen who, although poor, can obtain the loan only after serious investigation. Seldom are professional charity-seekers or dishonest parties able to obtain money through imposition; and it may safely be said that these loans may be regarded in the light of a regular business form of personal credit. In brief, they are loans against character.

We have explained how the banks grant credit on farm interests. There they meet with serious difficulties; not so much in their current loans, but in advances for soil improvements, for purchases of agricultural implements, seeds and fertilizers, etc. According to the statistics of 1893, this form of operations is handled by fourteen banks and their amount has been insignificant.

LIRE.
The loans in force on January 1, 1893, were 169,801
During the year advances were granted to the amount of 65,934
Total 235,735
Loans paid back 66,723
Leaving a balance on December 31, 1893, of 169,012

Although the agricultural loans generally enjoy a favored rate of interest, yet the conditions for obtaining capital were hard in 1893; the rate was seven and one-half per cent. in one bank; one only lent at from three to five per cent.; in the others the rate was four and one-half, five, and six per cent. The drawback on agricultural loans lies in the length of the term which must be allowed for repayment and in the fact that the banks can only convert their demand loans into long-term investments after previous notice of a few days. This would throw them into the error which cost the Australian banks so dearly. They can only bring their capital and reserves into play, or employ the procedure at the banks of the province of Treviso; i. e., issue special bonds at fixed maturity, in order to raise the means necessary for long-term loans. Long-term bonds, though, offer but slight temptation to capitalists unless a remunerative interest is offered; and naturally the borrower must pay this interest, and somewhat more, for running business expense, for insurance of risk, and for the bank’s profit. The perpetual cry Edition: current; Page: [208] is that, for the so inappropriately styled agricultural credit, capital cannot be found at the low rates charged merchants and manufacturers, and that the cultivation of the soil becomes less lucrative from year to year. These difficulties have been overcome rather satisfactorily by the Scotch banks; and the Italian popular banks have made meritorious efforts to reach a solution of the problem; but complete success has apparently not yet been attained.

COLLAPSE OF THE ITALIAN CRÉDIT MOBILIER.

In our treatment of banks of issue, we spoke of the rescue of the banks which had to be undertaken by the National Bank of the Kingdom of Italy, and which caused so much embarrassment. At the moment when the new Bank Act was to take effect, two establishments of the first rank suspended payments; namely, the Società Generale di Credito Mobiliare Italiano and the Banca Generale. This was a considerable event, which affected the whole of Italy. It is therefore proper to consider in fuller detail its circumstances. The facts that follow are based upon an excellent paper in the “Giornale degli Economisti,” by Professor Maffeo Pantaleoni, who had the direction of the Credito Mobiliare liquidation.

The Credito Mobiliare, established in 1863, had a capital of 75,000,000 lire subscribed, of which 60,000,000 lire had been paid in. It conducted ten branches, or agencies, had absorbed seven banks, and was more intimately identified than any other credit institution with the political and financial interests of Italy. It was, indeed, at the forefront of banks, and ranked with the National Bank. The Banca Generale was a house of more modest pretensions, with a capital of 30,000,000 lire, wholly paid in. It had three branches, and four other banks had been consolidated with it. Its reputation in Italy and abroad was of a high order. Both the Credito Mobiliare and the Banca Generale were organized with a view to creating and fostering private industrial and commercial enterprises, and to placing securities on the market. They were originally neither deposit nor discount banks. The Banca Generale had launched the branch railways, the San Giovanni iron-works, the metallic construction enterprise of Naples, the Builders’ Aid Society, the Venetian Company, the Building Society for the streets of Giulia and Picca in Genoa, and the Agricultural Credit Institution of Latium. Jointly with the Credito Mobiliare, it was interested in the sanitary improvement enterprise in Naples and the steel-works of Terni, and it bore the same relation to the Mediterranean railway system as the Credito Mobiliare sustained to the Adriatic. The Credito Mobiliare, besides its connection with the sanitary improvements in Naples, the Terni steel-works, the Builders’ Aid Society, and the Adriatic railways, had under its special charge the Company for the Purchase and Sale of Real Estate, the Piambono iron-works, the Cirio Agricultural Export Company, the storage warehouses of Bari and Pouilles, several branch railways, etc.

According to its by-laws, the objects of the Credito Mobiliare were: (1) Edition: current; Page: [209] To subscribe to Government, provincial, and municipal loans; (2) to subscribe to foreign government loans; (3) to buy and sell, for cash and on time, public securities, shares and bonds of all kinds issued by industrial and credit concerns; margin operations, however, were prohibited; (4) to promote all kinds of enterprises, such as railways, roads, canals, factories, mines, docks, illumination, development of the soil, improvements, irrigation, draining, and, in general, everything appertaining to the public utility; (5) to undertake the consolidation and transformation into stock companies of commercial concerns, and to issue their shares and bonds; (6) to bid for the privileges of collecting all kinds of public revenues and undertaking public works, and to carry out the resulting contracts and sublet them subject to the approval of the Government; (7) to issue, under authority from the Government, bonds for an amount equal to the values on hand representative of the above-enumerated transactions; (8) to sell, carry on time, and hold in trust public obligations, shares, and bonds, and to make advances on such securities; (9) To sell and buy merchandise and provisions for its own account and for third parties, to make advances on merchandise. provisions, crops, real estate, buildings, and other objects of value, and to open credits on current account; (10) to undertake for other companies and individuals payments, collections, and all other transactions; (11) to receive metallic deposits and securities, and to open current accounts in this connection; (12) to discount bills of exchange or drafts to order provided with two signatures at six months’ maturity or longer.

Although the regulations authorized the Credito Mobiliare to take deposits, the management showed little inclination for such business, but discreetly preferred to operate in a sort of trust capacity, issuing bonds secured by collateral of good quality; the former to mature at the same time as the latter. Thus the character of a deposit bank, whose resources might disappear with the smallest panic, was measurably avoided. This conservative policy enabled the Credito Mobiliare to pass safely through the crisis of 1866, during which it had to pay out 16,000,000 lire on 23,000,000 lire of deposits. But, when the management changed, the bank sought actively to recover its deposits. This was not due to any deterioration of the management, but to a conviction that it was needful to convert the institution into an ordinary bank. Unfortunately, the Credito Mobiliare was not successful in employing its call deposits; and soon after the beginning of 1892 it found itself in a perilous position. It had to choose between two courses—first, to go into liquidation, or second, to continue the business with the deposits, the resources that could be raised abroad, and its great credit, until it could recover out of it profits the capital that had been impaired, mainly by the losses in the sanitary improvements of Naples. It preferred the latter way, although it was the more hazardous. As steps toward relief from its troubles, the Credito Mobiliare increased its capital by 25,000,000 lire, with 20,000,000 lire to be paid in (which yielded about 13,000,000 lire), made new appeals for deposits, had contracts awarded to it for collecting the taxes in a great Edition: current; Page: [210] number of localities, and added to its agencies. Tax collection, as managed in Italy, is very risky business for a bank, since it involves hypothecation to the Government of all the collector’s property and the advancing of past due taxes. The latter requirement compels the collecting establishment to keep a portion of its resources inactive, and no use can be made of the ready funds derived from the services, lest they may not be at hand when they have to be paid into the Treasury. These dangers did not cause the Credito Mobiliare to pause; for it found an opportunity to create, by means of its tax-gathering department, a clientage of depositors for itself, whereof it stood in need. But it did not long enjoy the benefits of the new deposits clientele. When the people came to know of the scandals of the banks of issue they were panic-stricken, and hastened to withdraw their deposits from the private banks. After three months of endeavor to outlast the “run,” the Credit Mobiliare, on November 29, 1893, stopped its payments. The banks of issue did not even attempt to avert the calamity, and this establishment, which had done so much honor to Italian finance, was permanently ruined. Italy has seldom sustained a harder blow, and she is still far from recovery. We copy from Professor Maffeo Pantaleoni’s paper the most interesting figures of the balance-sheet of the Credito Mobiliare.

Statistics of the Credito Mobiliare (in Thousands of Lire).
YEARS. Values on Hand, Bills Receivable, etc. Securities on Hand. Coin on Hand. Debtors’ Account. Current Accounts. Creditors. Reserve. Gross Profits. Net Profits. Market Price of Shares on Dec. 31st.
lire. lire. lire.
1863 26,083 6,337 2,184 13,142,000 259,000 6,178,000 2,049,000
1865 42,829 4,460 1,973 12,313 22,325,000 366,000 4,413,000 2,512,000 413.00
1870 54,766 4,546 7,240 29,732 54,302,000 6,697,000 673,000 7,615,000 4,816,000 436.00
1875 58,162 8,256 7,642 50,320 94,220,000 7,349,000 4,639,000 8,480,000 4,557,000 662.00
1880 53,874 13,648 12,371 44,551 79,907,000 20,094,000 7,733,000 6,542,000 4,883,000 861.00
1885 72,905 5,412 12,033 29,502 81,150,000 3,111,000 11,725,000 7,220,000 5,587,000 935.00
1886 76,543 8,685 4,258 26,998 93,461,000 4,518,000 12,680,000 7,537,000 5,587,000 1,059.00
1887 90,668 21,543 3,389 31,819 103,694,000 111,986,000 13,687,000 7,646,000 5,483,000 1,020.00
1888 89,683 14,392 13,197 37,235 113,221,000 30,876,000 13,748,000 7,047,000 4,576,000 875.00
1889 78,254 14,320 7,744 33,929 92,965,000 30,052,000 13,811,000 7,041,000 4,666,000 587.50
1890 74,009 7,157 10,186 35,161 65,897,000 39,215,000 7,065,000 4,777,000 2,630,000 548.00
1891 82,438 16,190 9,228 53,272 94,400,000 6,514,000 205,000 8,660,000 2,400,000 394.00
1892 87,940 18,004 7,507 70,840 107,492,000 6,680,000 210,000 7,876,000 2,877,000 488.00
Edition: current; Page: [211]
Variations in Capital.
1863 50 millions; 28,000,000 paid in.
1864 50 millions; 36,423,000 paid in.
1865 50 millions; 39,820,000 paid in.
1866 50 millions; 39,875,000 paid in.
1867 50 millions; 39,874,000 paid in.
1868 50 millions; 39,882,000 paid in.
1869 40 millions; all paid in.
1892 75 millions; 59,404,000 paid in.
Edition: current; Page: [212]

CHAPTER IV.: THE BANKERS OF FLORENCE.

ORIGIN OF FLORENTINE BANKING.

COMMANDATORE PERUZZI, descendant of an illustrious family of Florentine bankers, in an excellent book (unfortunately become exceedingly scarce), from which we shall borrow frequently in the following pages, alludes to the period of the thirteenth and fourteenth centuries when Florence was under a democratic form of government as the “Guelph century.” That era extended from 1266 to 1328. During those sixty-three years, the Tuscan language and literature were brought to their acme by Dante, Petrarch, and Boccaccio, and painting was advanced to high development by Cimabue and Giotto. The activities of the Republic were not confined to literature and the fine arts. This was equally the Golden Age of commerce and banking. The spinning and weaving of wool and silk, ancient Tuscan industries, engaged at that time two hundred shops, which gave work to 30,000 people. In the economy of the Republic, the trades had a very significant place. They were divided into seven “major trades,” allied to the liberal arts, and fourteen minor trades, or new professions and avocations. Each trade had its own chiefs, administration, banner, and tribunal. The trade tribunals sat in judgment with entire independence of one another. Among the major trades were those of money-changer and banker. The Florentine money-changers seem to have practised their calling at first in Rome; which, as a place of pilgrimage, received moneys of all the countries of the world. The changers bought these moneys and dealt in them. They became, later, bankers of the Holy See, had correspondents in various nations, and acquired large fortunes by gathering the Peter’s pence and transmitting them to their destination. With them originated the genuine exchange business; for it is easy to comprehend what facilities were enjoyed by the Pope’s bankers everywhere, and what opportunities they accordingly had for profitable traffic.

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FLORENTINE BANKERS IN ENGLAND.

The agents of the Florentine bankers appeared in England during the reign of John (1199), where they were intrusted with the collection of money for the Pope. As they transacted their business with great probity, they were regarded with much consideration by all classes, and, to their misfortune, they attracted kingly favor. Henry II. had recourse to them when the English barons refused him the funds necessary for equipping an army to assert the rights of his son Edward to the crown of Sicily and Apulia. But the expedition was not dispatched, and it was not until 1266 that the enterprise was taken up again, under the auspices of the French and the house of Anjou. It does not appear that the Italian bankers charged interest for this loan to the King of England. They were to be recompensed out of the seignorage of the Royal Mint, and by recommendations of them to other sovereigns. In 1306, Edward I. gave to the Company Frescobaldi £10,000 sterling as compensation for the delay in repaying a sum borrowed long before, and appointed Amerigo Frescobaldi English Commissioner at Bordeaux. Edward II., in 1315, requested the favor of the Pope for two brothers of Amerigo Frescobaldi in an important trial that they had pending before the Roman tribunal. Everywhere in the history of those times are found traces of the business done by the Florentine bankers with the English monarchs. By the end of the twelfth century, sixty-nine banking houses of Florence were operating in England. These concerns did not limit their dealings to money matters, but bought for the accounts of Florence mercantile firms English wool to supply the Italian industries.

Edward I. was succeeded in 1307 by his son Edward II. The new king was much distressed by the claims of his father’s creditors and by the obligations that he himself had contracted—the whole amounting to £118,000 sterling. The most of this large indebtedness was paid back to the Florentine bankers—the Frescobaldis, Bardis, Ballandis, and others. The English people viewed with great exasperation the delivery of so much money into the hands of foreigners, and in consequence the bankers ran serious risks. Time failed to appease the popular hatred, and several years later the house of Bardi in London was pillaged and burned by the mob. This violent spirit excited decided distrust and fear among the bankers, who showed themselves far less willing to loan to Edward II. than they had been to his predecessor. Gradually the number of Italian houses doing business in England was reduced, until under Edward III. only the Bardis and the Peruzzis remained to represent the sixty-nine institutions of the reign of Edward I.

FLORENTINE BANKERS IN FRANCE.

France also sustained close and friendly connections with the Florentine Republic. About the end of the eleventh century, the merchants of Florence began to participate in the fairs of the Champagne, buying raw wool and Edition: current; Page: [214] selling stuffs. Settlements were made through the bankers, who were alternately well treated and persecuted by the French kings. In 1277, Philip III., under pretext of obeying the condemnation of usury promulgated by Pope Gregory X. at the Council of Lyons, threatened to expel the Italian lenders and merchants from his dominions, but the majority of them obtained permission to remain in consideration of the payment of 120,000 gold florins. In 1291, Philip the Handsome caused all the Italian merchants to be arrested, giving as his reason that he wished to extirpate usury from his kingdom. Again a compounding arrangement restored to them the liberty of their profession. In 1337, Philip IV., requiring means to maintain the war against Edward III. of England, resorted to the same tactics, and would not release the prisoners until they had agreed to pay a huge ransom. Subsequently, in 1334, this same king granted to the famous Duke of Athens, who had been exiled from Florence, the right to visit reprisals upon the Florentines resident in France, which were to be continued until they should pay him what he claimed from the Republic. All the representations and protests made by Florence were without avail, and the Tuscans, having no right of citizenship in France, left the country, losing all they owned.

THE BANKERS OF FLORENCE.

The broad scope of relations with foreign countries naturally called into being numerous banks in Florence. They were directed by skillful and experienced men, whose ability and wealth, as a matter of course, gave them important influence upon public affairs. The bankers not only excelled in the art of providing for the needs of the Treasury, but understood how to negotiate alliances, and became, in emergencies, excellent generals. With the growing activity of commerce and industry, the revenues of Florence did not suffice for public needs, and, at the advice of the bankers, resort was had to loans. These were introduced in 1336 as a result of expensive wars, and were greatly enlarged after the terrible plague of 1348. The first loans were granted by the associated Peruzzis, Bardis, Scalis, and Acciajolis. To secure them, the Government designated certain merchants or members of the principal banking houses as collectors of the salt tax—a process that certainly minimized the risks incurred by the lenders under the previous system of forced loans. In 1348, all the old and new indebtedness of the Republic was consolidated into a general debt, with perpetual interest at five per cent. Here we have the earliest example of attempts at consolidation of the public debt. The investment served chiefly for the dowry of daughters. Careful parents bought income bonds and left them to capitalize at compound interest for fifteen years or more, so as to have resources of some magnitude when the children should be ready to marry.

After the downfall of the democratic government, Florence had to pay fifteen per cent. for money, and on condition that thrice the capital received should be paid back. The Republic, apparently, had not legislated on the Edition: current; Page: [215] rate of interest, but had held to the rules laid down by the Emperor Justinian, who fixed rates of four per cent. for persons of rank, eight per cent. for merchants, eleven per cent. for grain-dealers and sellers of provisions, and six per cent. for the people at large. The preaching friars were at pains to demonstrate that usury, so prevalent in all nations, was illicit gain, not sanctioned by the Church. They succeeded only too well, and interest, which before the tyranny of the Duke of Athens was at eight per cent., and toward 1340 had fallen to five per cent., rose in 1359 to twenty per cent. About 1495, Florence, as a means of coming to the relief of the less fortunate classes, opened a Mont de Piété, or establishment for loans on pledges, authorized by Papal decree. The Mont de Piété charged interest representing its general expenses, and sold the pledges in case of non-redemption. Operations were begun with the insignificant capital of 2891 crowns, which was augmented rapidly by charitable gifts and deposits. In 1530 it had reached 38,000 crowns. If the Mont de Piété did not stop usury, it rendered its effects less hurtful to the poor. The institution experienced numerous vicissitudes. Public authority intervened several times to regulate its capital—that is, to plunder it of a portion of its resources.

COMMERCIAL ASSOCIATIONS.

One of the most remarkable examples of Florentine genius, after the recovery of liberty, was the system of commercial associations; which, by uniting intellectual forces and by their activity, achieved grand results. They were originally recruited from the families and kin of merchants; but other citizens were not slow to perceive their advantages and join in them. The association spirit showed such progress that, according to Villani, 80 companies were in existence in 1338, and 108 some years later. The associated merchants earned vast wealth, and their prosperity enabled them to lay out money for expenses on an enormous scale to advance the national interests everywhere, and to establish relations with the most remote countries.

Signor Peruzzi has found in the archives of his family various association documents of the Peruzzi Company. The oldest bears the date of 1300. It provides for the creation of the banking house of “Filippo d’Amideo Peruzzi and Associates,” composed of Giotto, Tommaso, Arnoldo, Rinieri, and Filippo, paying in 45,000 florins; Filippo d’Amideo, who for his sons Guido, Amideo, and Peruzzo, paid in 26,000 florins; Ranco Raugi, 10,000 florins; Gherardo Barancelli, 13,000 florins; Catalino di Mangia degl’Infangati, 7000 florins; Gianni di Manetto Ponci, 5000 florins; Bencivenni Folchi, 4000 florins; Cione dei Bonaccorsi, 3000 florins; Gieri Lottieri Silimanni, 3000 florins; Giovanni Villani Stoldi, 2000 florins—altogether, 124,000 florins, or about 3,500,000 francs. Of this capital 1000 florins was set aside to be used in charity. The profits were to be distributed pro rata on the basis of investment, and each partner paying in funds to the company in addition to capital was entitled to interest at eight per cent. The company was to liquidate Edition: current; Page: [216] every two years, but after each liquidation was to be reconstituted. The records show that, in 1308, it was dissolved with a loss of 40,000 florins on loans made to the Courts of France, England, and Rome, and to the Order of St. John of Jerusalem. But upon reorganization better business was done, and from 1308 to 1310, forty per cent. profit was realized.

MANAGEMENT OF THE COMPANIES.

It is probable that one or several of the associates had authority to sign jointly for all and directed the affairs of the house. The two persons mentioned as directors of the Peruzzi bank are Filippo d’Amideo (who appears to have been the chief) and Tommaso d’Arnoldo, his nephew or cousin. The concern had sixteen branches—in London, Avignon, Rhodes, Cyprus, Tunis, and different cities of Italy, most of which were managed by associates or relatives of its heads. The intercommunication of the various establishments was maintained by factors, or couriers, who were constantly traveling from one to the other. These representatives were provided by the bank with funds and recommendations, and as proof of identity each wore a bronze medal displaying the company’s coat of arms.

Owing to this branch business, the bankers of Florence had very curious and most exhaustive compilations of information respecting the usages and conditions of foreign lands. A certain Balducci Pegoletti, in a “Merchants’ Manual,” details precise rules for exchanges, and indicates particular periods of expectable rise and fall in the money standard in foreign parts. Thus, he says, money is dear in Venice from May to September, because the galleys go to the Levant then; in Florence it is cheap from September to January, because the country people pay their land rents during that time. Similar data are given concerning weights and measures. For instance, a contaro of Cyprus equals 660 Florentine pounds, and the equivalent of a Florentine pound of silver at Cyprus is one marc four ounces and three sterlins.

The costs of merchandise transportation are carefully set forth. To transport wool bought in London cost twelve pence the bale; the cargo charge to Libourne, in France, was two sous sterling, and from Libourne to Montpellier, by wagon, about two pounds fifteen sous. At Montpellier the charge for hostelry and for forwarding to Aigues-Mortes was two sous one penny per bale, or four sous one penny per load. At Aigues-Mortes the consignment and shipping charges, including duty and gratuities, were one sou four pence per bale, or two sous eight pence per load. So it was calculated that the cost of sending a cargo of wool from London to Aigues-Mortes was nine gold florins.

The courier routes were marked out in most painstaking detail. The following is the itinerary for a journey to China: “First, from Tana to Azov and Gitracan (Astrakhan) by ox-cart takes twenty-five days. On the route are found many gendarmes, and it needs some money for them. From there, it requires ten or twelve days of wagon ride with horse teams Edition: current; Page: [217] to reach Sara, or Sarai (Saraïtchikowskaïa). From Sara to Saraconco, a town on the Jaik, or Ural, River, eight days by water. From there to Urgenzi, or Urguenz, twenty days by wagon drawn by camels. This town is on the Ghien River, or Oxus of the ancients. Thence to Oltrav, thirty-eight to forty days. From Oltrav to Armalecco (probably Tashkend), forty-five days. From Armalecco to Camexu, seventy days with asses. From there to the Kara Muren (Hoang-Ho), fifty days on horseback. Leaving the Kara Muren, the traders may go to Cassai, to exchange the silver money that they have brought for paper money. From Cassai to Cambalu, or Cambalecco, which is the capital of Catoy, thirty days.”

The instructions to travelers specify with minuteness the kinds and quantities of provisions that should be taken, the expenses that would have to be paid, the charges for hiring boats, horses, donkeys, and camels, the values of moneys, and the dangers of the routes. The manual reads like a modern travelers’ guide. Their exact knowledge of foreign countries gave the Italian merchants and bankers an indisputable superiority over those of other nations. Even at the present day, few houses are equipped to furnish their agents with such complete and exact information.

DOWNFALL OF THE FLORENTINE BANKERS.

The good fortune of the bankers of Florence came to an end by 1340. In 1330, Edward III. ascended the throne of England. He manifested a favorable disposition toward the foreign merchants. The two Italian houses of Bardi and Peruzzi, with branches in London, became bankers to Edward III., succeeding the Frescobaldis, who had performed the same offices for Edward II. They filled the royal coffers with generous hands, and although repayments did not take place with perfect regularity, the noble character of the English sovereign reassured the lenders against all anxiety.

England was then waging a war with France, which absorbed all the resources of the State, and left nothing for its creditors. King Edward, on May 6, 1339, issued an edict suspending all settlements of indebtedness, including that owing to his well-beloved Bardis and Peruzzis. It can readily be conceived what a terrible consequence this action had in a commercial city, and in a mercantile republic. The two companies stricken were the wealthiest of Florence, and were known as the mercantile pillars of Christendom. Villani states that the King of England owed them 900,000 florins, and that the King of Sicily was indebted to each in the amount of 100,000 florins. This money was worth a kingdom. The Peruzzi archives say that in 1339 Bonifazio di Tommaso Peruzzi went to London on the company’s business, but could obtain no satisfaction, and that he died (probably from grief) in October, 1340. The entire mercantile community of the city suffered from the disaster, and the decadence of the Republic began.

After the English naval victory of Ecluse the spirits of the Florentine bankers revived. They hoped that in the joy of triumph Edward III. would Edition: current; Page: [218] remember that he owed his successes to the financial assistance which had been given him. The King was willing to repay the loans, but Parliament resisted. The bankers attempted to struggle against ill fortune, but in the existing position of their affairs were unable to support commerce and industry on the former scale. Usury reappeared. The democratic government was naturally blamed by the populace for the public calamities, and, moreover, it had lost all energy. Accordingly, in 1342, Gauthier de Brienne, Duke of Athens, who had conducted himself well as lieutenant to the Duke of Calabria in 1326, was called to the head of the State. This was the immediate outcome of the commercial crisis, and it precipitated incalculable ills. All classes had reposed great expectations in the new government. The aristocracy relied on it to sustain them against the people, the bankers hoped that it would aid in renewing their prosperity, the masses welcomed it as the long-awaited instrumentality for shaking off the yokes of the rich bourgeois that weighed heavily upon them. These pleasing expectations were mere illusions. A crushing and pitiless despotism affected Florence, and when, by a vigorous impulse, she reconquered her liberty, it was only to become a prey to civil discord and a victim of catastrophes of every kind.

The Florentine Republic had fallen from the summit of affluence to the depths of distress. During the administration of the Duke of Athens bankruptcies had multiplied. In the month of January, 1345, the Bardis and Peruzzis, who had stood their ground until then, stopped payments, dragging down in their ruin their fellow-citizens and the foreigners who had trusted them with the money wherewith the loans to the English and Sicilian kings were made. The failures also wrought destruction to numerous other companies and individual merchants. Among the more important concerns whose extinction history records were the houses of Acciajoli, Bonaccorsi, Cocchi, Antellesi, Corsini, Uzzano, and Perendoli. This period is one of the darkest in the annals of Florence. The Bardis paid seventy per cent. to their creditors, the Peruzzis much less. The bankrupts were treated with severity. All their property was taken away and turned over to the creditors, but in 1347 the Bardis and Peruzzis obtained a settlement. This cataclysm did not, however, exterminate all the bankers of Florence. A banker was destined to erect the monarchy in Tuscany a century later.

THE MEDICI.

Giovanno di Bicci dei Medici had made large profits in banking transactions, principally during the Council of Constance. His bank was in the service of the Pope, on which score he enjoyed immense business credit throughout the world. His alacrity in aiding with his purse those who needed relief, his caressing ways with the people, and his moderate bearing in times of partisan excitement, won for him general esteem, and his reputation grew apace. When the people revolted on account of oppressive taxation, his intervention brought about a lessening of the burdens. The Edition: current; Page: [219] rich and the citizens conferred upon him the dignity of Gonfaloniére, and he discharged the duties of this station in the most honorable manner. Both his credit and his authority were inherited by his two sons, Cosmo and Lorenzo. Cosmo interested himself in public affairs with ardor, and obtained a numerous following. He was very popular with the exiles, to whom he sent, through bills of exchange, the succor that they required for their families and friends; and also with the condottiéri (leaders of mercenaries), who deposited their savings with him or asked him for advances.

His great influence aroused the jealousy of the Albizzi family, who had him condemned to banishment, but he was recalled a year afterward, and, in turn, the Albizzis were exiled. From that time Cosmo became the real master of Florence, although he did not abandon his commercial and financial business. He was the proprietor of all the alum mines of Italy; he prosecuted trade with India by way of Alexandria; and there was no city in which he did not have a banking office. He loaned important sums to the King of England and the Duke of Burgundy, and died after having exercised for thirty years an enlightened dictatorship over his country that contributed to its greatness. His son, Pietro de Medici, succeeded him, receiving the cordial support of the great families of Florence, which were under obligations to the father. But as his fortune was cut in two by bad management, excessive expenses, and his inability to attend personally to his business, he called in his moneys from borrowers, designing to invest them in lands. An acute crisis ensued, and the failures attending it were laid at the door of Pietro de Medici. He was deprived of the title of Gonfaloniére, which was bestowed upon Nicolas Soderini. The fortunes of the Medicis were not, however, at an end. Pietro’s sons, Lorenzo and Guiliano, seized the reigns of power. A conspiracy was plotted by the Pozzis, bankers of the Holy See, and related to the Medicis by blood, and Guiliano was assassinated. Lorenzo de Medici thereupon became sole ruler of Florence. He gave up all his commercial and banking interests, and with him terminates the financial history of the family. On the other hand, the Medicis did not at all lose their business shrewdness, and they still knew quite well how to lay out their money remuneratively. Fernando de Medici, Grand Duke of Tuscany, in 1596 loaned 300,000 crowns to Henry IV. of France, in exchange for the privilege of collecting certain taxes. Sully repaid the 300,000 crowns and annulled the lease. From the facts given, the general character of Florentine banking will be pretty well understood.

Thanks to the offices that they operated in most of the large cities, the bankers had a monopoly of exchange transactions, which were rather mysterious and hardly comprehensible to persons not versed in trade economy. Money exchange is but a phase of business in coinage. They opened credits for merchants and manufacturers, and despite the ecclesiastical disapprobation, they took exorbitant interest. They received funds on deposit and made them thrive. Keeping this end in view, they were not Edition: current; Page: [220] afraid to lend the deposits to sovereigns. But in that epoch public debt and negotiable securities were almost unknown, so that depositors in the banks were not aware how their funds were employed. They kept watch only on the bank that had received their savings, and were not creditors of the borrowing State. In these circumstances of what may be termed confidential responsibility we must look for the causes of the downfall of the powerful Bardi and Peruzzi houses. The mistakes made in the fourteenth century, with the excuse of ignorance, have been reproduced in our time, and even at a quite recent date. The collapse of the Crédit Agricole in France, and that of the house of Baring Brothers in England, were superinduced by a cause absolutely analogous to that which ruined the Florentine bankers—the insolvency of the States to which loans were given.

Edition: current; Page: [221]

CHAPTER V.: BANKS AND BANKERS IN SICILY.

THE MONEY-CHANGERS.

CONSCIENTIOUS researches among the archives of the Sicilian banks have been made by Professor Vito Cusumano, and from his thorough knowledge of the subject, especially in its older aspects, he has compiled an admirable “History of the Banks of Sicily,” to which we shall be indebted for some of the facts presented in this section of the treatise on Italian banking.

Money-changing in Sicily appears to date back to very early times. The Arabian geographer Ibn Hawqual saw the money-changers’ industry in full operation in Palermo in 977 ad “The most of the markets,” he says, “are between the Mosque of Ibn Siglab and the new quarter. The changers and druggists are established outside the city.” From that period the word bankerius, as synonymous with campsor or cambiator, has been in use in Sicily. In the fourteenth century the two professions of changer and banker were always united, as, indeed, they were in continental Italy. The changers or bankers were subject to special regulation. They were public officials, and in their capacity as such were required to certify, free of charge, the weights of moneys. They made charges only on exchange transactions.

The oldest law relating to bankers appears in the “Customs of Palermo,” under the head “Jura Municipalia,” and is entitled “De forma et modo distributionis novæ denarorium monetæ.” It prohibits the sale of old moneys except by changers, who are licensed to exchange, weigh, and distribute the new money in the entire kingdom. The most frequent transactions were exchanges of new for old, good for mutilated, and domestic for foreign coin, and vice versâ.

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“THE KING’S EXCHANGE.”

The high profits yielded by this trade engaged the attention of the kings. The business of money-changing was made a royal right, and an institution styled the “King’s Exchange” was in operation during the thirteenth and fourteenth centuries, which soon found imitation in England and Piedmont. The King’s Exchange was not, however, an absolute monopoly, for in certain cities private persons were permitted to exchange moneys on condition of procuring a license and paying a tax. In others, on the contrary, the privilege was sold to the highest bidder for the benefit of the Crown. By severe restrictions, the money-changers were kept within bounds. A decree of 1351 provided heavy penalties for all guilty of clipping, scratching, or otherwise mutilating coins, required the changers and bankers to use exact scales and make just weights, and prohibited the employment of defective weights. It instructed bankers to take out no more than three pence commission for light-weight carolins exchanged for fractional pieces, but allowed four pence in case customers desired full-weight silver carolins. Bankers were forbidden to keep on their premises any counterfeit money or coin not bearing the royal stamp. This decree is curious because of its expressed toleration of coins that had suffered loss of weight from use. Carolins that had not lost much were accepted by the changers, but if their value had been considerably reduced they were cut up. The limit of weight-loss allowed was about 6½ per cent. There is no reference in this measure to exchanges of foreign moneys. It is probable, however, that much foreign coin came to Sicily for exchange in the thirteenth and fourteenth centuries through the merchants of Genoa, Pisa, Venice, and Florence. Until 1438 no law existed regulating the exchange rate for foreign money. In that year, it was provided that the bankers should not retain more than one grain for a pistole or more than eight pence for a half-pistole. The decree of 1351 was followed by many other laws intended to control the money-changing traffic. All the measures of the fifteenth and sixteenth centuries that fixed the values of new coinages specified at the same time the legal rate of exchange for foreign silver money with the Sicilian. The frequency of variations in the values of coin, the large volume of counterfeit money, and the necessity for withdrawing light-weight circulation gave the changers an indispensable status in the economy of the country.

BANKING PROPER IN SICILY.

The large number of banks founded in Sicily in the thirteenth, fourteenth, and fifteenth centuries is accounted for by various favoring circumstances—such as the liberty granted every citizen or foreigner to open a public bank in Palermo or elsewhere, the privileges enjoyed by the inhabitants of Palermo, the permission given aliens to acquire full rights and all consequent advantages in the city after a year’s residence, the favors and immunities Edition: current; Page: [223] conceded to foreign merchants, and the commercial prosperity of Sicily. Data concerning the bankers of the thirteenth century are meagre, but information is very much more satisfactory for the fourteenth century, when the deposit system was introduced. During that period, seventeen banks existed, thirteen of them in Palermo, not counting the branches of the bankers of Italy, some of which—especially those of the Bardis and Peruzzis—were important. The bankers and changers of Palermo had their establishments in the street now known as de la Loggia. The notaries were in the same quarter, and notarial documents were legalized and attested by the bankers.

The bankers were much in favor. Their profession was deemed most honorable, and they held the principal offices in the cities where they lived. Like the bankers of Florence, they had among their clients the sovereigns of Europe, who often manifested gratitude for services rendered by granting them rewards and privileges. The province of banker had an official character. The opening of a bank was attended with much solemnity. To engage in the business a royal license was necessary, and the banker had to pay a sum as security to the chief magistrate and furnish the pretorian court with a solvent bondsman (frequently another banker). No bank could be established with less than 15,000 crowns of capital, called “the bank’s column” or “pillar”; and a supplementary guaranty of 15,000 crowns by a bondsman not associated in the bank was required. After these formalities had been complied with, the municipal magistrate opened the bank, the ceremonial being heralded by the trumpet of the town-crier. The following is the official notification of the installation of the Bank Innocenzo Rizzo at Trapani, September 14, 1577: “Notice is given to each and every citizen and stranger, residing in the kingdom or out of the kingdom, that the most High and Excellent Lord Viceroy has granted license, by virtue of his Vice-regal powers, to the worthy Innocenzo Rizzo to open and to keep a public bank in this city, and to transact business the same as other bankers of the kingdom. Upon receiving this authorization the worthy Rizzo has given security of 10,000 crowns and the additional bond in conformity to the decree of the Viceroy, as appears in the records of the Honorable Lord Sheriff of this city. Be it known to all that the worthy Rizzo at present keeps a public bank, with which all who wish may do business, as with other banks that the worthy Rizzo may see fit to open. And for universal instruction this proclamation is made.” In a similar manner, the municipal authority announced the dissolution or failure of a bank.

LEGAL REGULATION OF BANKING.

The law governing banking was very exacting. It indicated with particularity the amount of gold, silver, or copper coin that could be given in each payment. Such precautions show that the banks and the changers did substantially the same kinds of business, dealing principally in money. Edition: current; Page: [224] The accounts of the Sicilian banks were kept in “double entry,” and with high intelligence. In this connection, it may be remarked that double-entry bookkeeping, familiarity with which was spread in the seventeenth century by the celebrated Bruges mathematician Simon Stevin, was invented in 1348 by the Benedictine monk Angelo Senisio, of the Monastery of St. Martino della Scala, in Palermo. In the municipal library of Palermo is preserved a manuscript of 1398, entitled “Book of Commercial Arithmetic and of Geometry,” by an anonymous author, who demonstrates that the technique of exchange, commerce, and banking was quite well developed at that period. A chapter of this volume is devoted to the keeping of current accounts by single and double entry. The bankers’ books were authoritative in judicial proceedings, and were accepted the same as notarial documents. The accounts of liquidated or failed banks were scrupulously kept by conservators, or administrators, appointed by the authorities; and from this circumstance our knowledge of Italian banking is much more complete than that of French.

THE BANKS AND THE GRAIN TRADE.

We have already considered the trade in precious metals. The bankers had another line of business much more important—that in grain. They seem to have acted principally for the account of the authorities, who in times of dearth called on the banks to facilitate the importation of cereal products. In 1479, the banker Giovanni Costanzo bought 6000 measures of wheat on the order and for the account of the Senate. He rendered incalculable services to that body in grain dealings. There are numerous records of security furnished by the bankers for grain purchases in behalf of the city of Palermo. Independently of such enterprises for the public welfare, the bankers carried on a grain business with individuals. They had agents and representatives in the interior of the island, who bought, sold, imported, and exported cereals. To this traffic they subsequently added transactions in silk, linen, and woolen materials, maintaining for that purpose offices throughout the world. The bankers of Venice operated in the same manner in drugs and spices. This merchandising department of the banks, as will be readily understood, was but an accessory branch. Their specialty was really the purchase and sale of bills of exchange—a most complicated branch of business. The banker had to calculate the relative worth of Sicilian and foreign moneys, the higher value of the best money which determined the exchange rate, and finally the interest on capital. To indicate the profits realized, it is sufficient to say that the gains made by a Sicilian banker from his drafts on a Naples banker did not fall below thirteen per cent.

DEPOSITS AND ACCOUNTS CURRENT.

The most important office of the bankers, distinguishing them sharply from the money-changers, was the reception of deposits of funds. Incidentally Edition: current; Page: [225] to their deposit business, the banks made transfers and issued trust certificates, deposit and credit vouchers, and call orders. Bank deposits in Sicily go back to the first half of the fourteenth century. The banks not only took personal deposits, but had the keeping of the funds of the courts. The deposits of various kinds increased in the fifteenth century, as a result of the ever-growing number of bankers and the safety that they offered to depositors. Even the lower classes kept bank accounts. In 1513, when the failure of the bank of the Battista Lombardi heirs occurred, the municipality devoted a rather important amount for payment of deposits less than ten ounces (127.50 francs), to soothe the common people, who threatened to rebel. Like steps were taken in 1530 at the time of the downfall of the banks of Giovanni Sanchez and Benedetto Ram.

The deposits that flowed into the banks came from widely varied sources. The funds of minors and widows were received; sums in litigation; guaranty funds of the accepted bidders for public contracts; duties; revenues from the purchase of domains; inheritances through testamentary disposition or by judicial decision; the current cash of merchants and manufacturers, etc. The bankers kept current accounts in other banks. The Public Treasury deposited its receipts with them, and they disbursed the sums due the State’s creditors. In 1550 the city of Palermo created a municipal bank, called the Tavola, but gave it no preference in the matter of deposits of public money. The State revenues were placed in the banks, which served as Government receiving and disbursing institutions, the same as cash agencies for individuals, and the deposits were drawn upon by orders—exactly the procedure observed to-day in nearly all countries.

NATURE OF THE DEPOSITS.

The bank deposits may be classified as follows: Deposits of valuables in trust, deposits of court funds in trust, conditional deposits, and open deposits on current account—the last-mentioned being the most important. It does not appear that interest was allowed at the first, for such a practice would have incurred the censure of the Church; while, on the other hand, it cannot be asserted that interest was not in vogue by the end of the sixteenth and the beginning of the seventeenth centuries; for certain documents of that time allude to an interest of five per cent. granted on deposits. Deposits were seizable, excepting those in the Tavola of Palermo. The banks employed the deposits for their own business; only taking care to keep on hand sufficient resources to cover withdrawals. Moreover, they were not required to return to depositors the identical coins paid in, but only their equivalent. Bank payments and payments through banks had their origin in Sicily in the same era when deposits began. Such transactions were probably the chief services rendered by the credit institutions. To take the place of the manifold moneys in circulation they substituted for transfer purposes a unique fiat money, whose face value and quality were unquestioned. By such Edition: current; Page: [226] transfers they economized the use of metallic money and imparted great security to transactions, since the remnants of payments were attested by their books, which were court records.

USES MADE OF DEPOSITS.

The funds on deposit were used for loans to individuals, to the royal court, to the Senate of Palermo, and other administrations, on short or long terms, with or without collateral or mortgage. The interest forthcoming from these transactions ranged from five to fifteen per cent. Civil loans, which were very common in the fourteenth century, were contracted before a notary, and were always made of record with the words, gratis et pro bono amore (gratuitously and for good will), in order to comply with the requirements of the Church; but commercial loans, variously secured, gave rise at times to very high interest charges. Loans to the royal court and the Senate of Palermo were numerous in the fifteenth century. Certain advances were made direct by the bankers to the State and municipal treasuries. They were at long maturity and were protected by mortgages on buildings or by the assignment of some departments of the public revenues. The interest was between a minimum of five per cent. and a maximum of fifteen per cent. Other loans were contracted on bills of exchange signed by the city or the State, with privilege of renewal. These were simple discounts. Finally, credits were opened for merchants, usually secured by collateral or mortgages.

CERTIFICATES OF DEPOSIT—THEIR IMPORTANT USE AS CURRENCY.

In connection with the banks of Naples, we shall speak of the famous open-credit business, which was as common in Sicily as in continental Italy. It led to the issuance of securities of diverse character.

At the beginning of banking, the bankers gave no receipts to depositors. They contented themselves with inscribing the amounts of deposits in their books, and the confidence they enjoyed was such that these book records were satisfactory to the public. In the first years of the fifteenth century, however, the bankers began to issue deposit receipts, called apodixa, wherefrom, by corruption, are derived the words podisa, polisa, and polizza (policy). This was the origin of the “policy” of insurance vernacular. The receipts were repayable on call and “to bearer.” They were consequently equivalents of the modern bank notes, and circulated like the paper money of to-day.

Another form of bank orders was the certificatio banci, a receipt certifying the existence of a deposit in a bank. It was issued chiefly to certify deposits made or held by order of court. The certificatio banci was followed by the féde di partita di banco (trust certificate), which may be regarded as an improvement. It was employed exclusively for deposits for the courts. Edition: current; Page: [227] These different receipts and certificates of the fifteenth century were issued on loose paper, bearing neither the signature nor the stamp of the bank, nor even the date, but indicating merely the book and folio where the deposit was entered. In the sixteenth century such papers were always signed by the bankers. They were of large importance, having a notarial character, since the banker noted upon them the purpose of the deposit and cited all public acts applicable to it. The partita di banco was the original and the féde was the duplicate.

From the féde di partita di banco was evolved, naturally, the certificate of deposit (féde di deposito); and from it the credit certificate (féde di credito), whereby the banker declared his books to show a fixed amount for the account of a depositor. All these undated and unsigned instruments apparently served principally in lawsuits as proof of facts alleged by one or the other party. They were based in every case upon the madre féde, or account current kept with the banker. Most of them were used in lieu of money, and were accepted as ready cash. In addition to such more or less perfect substitutes for coin, we find the ditta di banco (literally, “the word of the bank”), which was a promise to pay at stated maturity. Sometimes this was issued upon a deposit; sometimes the party in whose favor it was drawn provided for its redemption only at the time of maturity. Thus it was a near analogue of the certified acceptances of modern banks. It was extensively used in Sicily. In most of the money marts, a banker was intrusted with the payment, and the creditor received the ditta di banco as a voucher. Often, too, the ditta di banco served for advances to muicipalities in exchange for the transfer to the bank of branches of the revenues. The bankers gave cities time engagements that could be utilized for raising funds by discount. Occasionally they signed bills for the benefit of the lessees of the salt revenue, who paid over to them the receipts. These orders, although not payable at sight, passed as money in discharge of debt.

People have tried to perceive in them the rudimentary bank note; but that is going too far. The characteristic of the bank note is its payability at sight, whereas the ditta di banco was expressly redeemable at maturity. The circulating power of this paper was manifestly due to the nearness of maturity and to the advantages that it offered over the current hard money. If there had been a circulation of good quality it could not have lasted. The much-admired circumstance of the facility with which paper equivalents of money circulated in Italy is the most convincing proof of the badness of the money.

THE POLIZZA.

Among the numerous varieties of paper in vogue among the Italian banks, the polizza, or trust certificate, deserves special attention, for it was the embryo of the cheque. The first polizze are found at the beginning of the fifteenth century in the form of orders to pay, issued by competent authority Edition: current; Page: [228] against deposits that had been placed in the bank in trust by decision of the court. Later, the Senate of Palermo, having determined to deposit the tax receipts with the banks, drew on the bankers by pay orders. The Viceroys often employed the polizze, and found in them an excellent remedy for delays in payments; for in the event that a bank lacked wherewithal to conveniently pay at the time, accommodation for the beneficiary of the order was obtained at some other bank. Bankers used polizze for transactions among themselves, to settle their debts in various parts of the island, and to make clearances. These orders were seemingly not transferable by indorsement at the start, but an instance is recorded of a polizza transferred by that method in 1560. To draw a polizza it was necessary to have funds at the banker’s, who refused to honor orders if the drawer had not sufficient credit.

DECADENCE OF SICILIAN BANKING.

We have traced the origin and development of the banks of Sicily. Their fate proved to be no better than that of the great Florentine institutions of the Peruzzis and Bardis. In the fifteenth century, two important banks went down. In the second half of the sixteenth century those in existence disappeared almost completely. On January 28, 1514, the bank of the heirs of Battista Lombardi stopped payments. The pretor and aldermen immediately communicated with the Viceroy, who was absent from Palermo. The panic was such, and the mob that besieged the bank was so large, that a revolt was feared. The pretor (mayor) and aldermen made personal efforts to calm the people, promising that all deposits below two ounces should be paid back within a few days. They seized the books and furniture of the bankrupts and summoned experts to examine the accounts; who, having made up the balance-sheet for February 1st, showed that there was a deficit of 70,000 florins. The Viceroy ordered the appointment of receivers. They announced that the proprietors, to pacify the needy people, had handed them 1000 ounces for the payment of deposits less than ten ounces. From that time failures of banks multiplied, and, unfortunately, a number of fraudulent bankrupts appeared. The causes of the failures, although various, may be reduced to the following: the exorbitant taxes on the import and export trade; the total loss of Sicily’s sphere of influence in Africa; a defective financial system; and above all, varied reasons of misgovernment, including the insatiable rapacity of the Viceroys, who had accepted innumerable bribes; and, as a still further cause, may be cited the almost absolute ruin of municipal finances and the generally bad monetary condition of Sicily. The bankers, to whom eventually all public and private business came, were doubly injured. At first, like all other citizens, they were able to bear the heavy burden of public charges; but later, from the nature of their trade, they had more to suffer than the rest of the community because of the impoverishment and falling away of their clients.

Signor Cusumano, whose work on the banks of Sicily must always be Edition: current; Page: [229] consulted, is inclined to attribute the commercial disorders that broke out in Sicily in the sixteenth century to a general cause—the disturbance of values occasioned by the abundant inflow of gold and silver from the New World; although he says that he has discovered no immediate instances in Sicily that permit him to establish the connection. It appears to us that Signor Cusumano is right; for that was an era of inflation, and it is well known that inflation is invariably attended by great excesses in speculation, which infallibly bring catastrophes. This period may be compared to the one following the discovery of the Australian and Californian gold-fields, which brought on the terrible crisis of 1857, that paralyzed finance throughout the entire world.

In Sicily, stringent penalties were specified for persons going into bankruptcy on false pretences. Even the death penalty could be enforced. Similar punishments were visited upon all assisting bankrupts to secrete their books, moneys, chattels, etc. The laws, on the other hand, were lenient toward honest bankrupts, who could obtain the benefits of assignment. By voluntarily abandoning all their assets to creditors, unfortunate debtors could escape imprisonment. At first this clemency could be accorded only by special grace of the sovereign, but afterward the courts were authorized to bestow it. Sicily never had in force the harsh practice that prevailed in other Italian countries, known as the “stone of reproach” (pietra del Vitupero), whereby the bankrupt was placed upon a stone scaffold and a public reproof was addressed to him. Honest bankrupts, moreover, could secure a settlement by license from the Viceroy. But the advantages of these laws were withheld from bankers who failed after the beginning of the seventeenth century.

From the history of the Sicilian banks it is shown that their transactions and scope closely resembled those of the banks in the various parts of Italy, notably in Tuscany. In both countries we have perceived the operation of unwholesome influences, which were responsible in those ages, as they are still, for the destruction of credit establishments—the bad faith of governments and ignorance of the economic laws governing money circulation and the distribution of credit.

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PART III.: BANKING IN SPAIN.

CHAPTER I.: THE EARLIEST BANKS.

SPAIN shares with Italy the honor of having established the earliest banks of deposit and circulation. The Bank of Barcelona was certainly in existence in 1401, and probably at a very much earlier date. Originating from causes similar to those to which the Italian banks owe their existence, and called upon to meet the same requirements, the Bank of Barcelona must have resembled those institutions very closely; on this point, however, we are confined to conjecture, for we have no really trustworthy information concerning this bank.

From the experience of the Netherlands, Spaniards were enabled to appreciate the value of banks of issue; and, in 1617, the Cortes demanded the establishment of such an institution. Accordingly, in 1621, Philip IV. issued letters patent authorizing it; but political events intervened to prevent its establishment at that time.

THE BANK OF ST. CHARLES.

It was a Frenchman, François Cabarrus, who furnished to Spain her first bank of issue. Consulted by the Spanish Minister of Finance, in 1779, as to the best means of ending a monetary crisis caused by the war which France and Spain were then waging against England, Cabarrus advised the issue of State bills, to be made a legal tender, to bear interest at four per cent., and to be redeemable in twenty years. The tobacco and salt duties Edition: current; Page: [232] were pledged as a guaranty for payment of the interest and for final redemption of the bills. These notes were fairly well received by the public, but they never reached par. The idea then occurred to Cabarrus of establishing at Madrid a national bank of discount and issue. In a memorial addressed to the King, under date of October 22, 1781, he thus sets forth his plans:

“It appears to me, in the first place, that in a country in which a large part of the lands are inalienable it is expedient, and even necessary, to furnish to the wealthy a means of investment to take the place of the real estate they lack. It seems to me also that they ought to be partners in the enterprise, and not mere lenders to it, that is to say, that they ought to be allowed to reap the full benefit of their investment. I think, furthermore, that inasmuch as the aim of this company and bank is to encourage and assist the commerce and industry of the nation, it ought to scrupulously abstain from all commercial undertakings on its own behalf, so as not to injure any individual merchant. In order to identify the interests of his Majesty’s treasury with those of the bank, and at the same time to furnish to shareholders a sufficient inducement for making the investment, the new institution ought to have the privilege of furnishing all army and navy supplies at a commission of ten per cent. The supplies would then be procured more economically and with greater certainty and promptness, and the profits, which are now shared by only three or four contractors, would be divided among a large number of citizens, thus furnishing a reasonable support for many persons without unduly enriching any. The bank must be hampered by as few restrictions as possible, for otherwise it will not gain the confidence of the public. Upon the basis of these fundamental principles, I propose to his Majesty the foundation of an institution which shall do a banking and general discount business; which shall advance money against bills of exchange, State bills, etc., at an interest of four per cent. per annum; which shall furnish all the supplies required for his Majesty’s fleets and armies, or for any other branch of his service at home or abroad, at a commission of ten per cent.; which, finally, shall pay all claims against the Crown at a commission of one per cent.”

This document contains some views that are very sound, especially that relating to the independence of the bank; but it takes too little account of the proper division of labor; and the proposition that the new institution furnish supplies for the army and navy was a morbid germ destined to develop. Likewise, the confusion of State affairs and the banking business involved in the proposed method of paying the debts of the Crown was a reversion to the scheme of Law, and tended to an unfortunate interdependence between the credit of the bank and that of the State. The regulations of the bank, in details covering forty articles, drafted by Cabarrus, contain little that is of interest. The royal memorandum of June 2, 1782, establishing a national bank, with general powers, under the title of the Bank of St. Charles, adopted all the propositions of Cabarrus.

Though the royal memorandum makes no mention of the circulating Edition: current; Page: [233] notes of the Bank, the right to issue such is assumed in a prospectus addressed to those whom it was desired to interest in the new institution. In this prospectus we read: “The outstanding State bills, whose existence makes the Bank necessary, have increased the difficulty of establishing it, for how can we put its notes in circulation and keep them at par like those of the Bank of England and the Discount Bank of Paris, while interest-bearing bills of the State are in circulation? How can we hope to exchange the barren notes of the Bank for the productive bills of the State?” It was to compensate for this restraint upon the circulation that Cabarrus demanded a monopoly in furnishing army and navy supplies. This bank, against which Mirabeau wrote a violent pamphlet, did not succeed in establishing a circulation, and could not find in Madrid a supply of commercial paper commensurate with its discount facilities, but it did succeed in one direction. It raised to par the State bills, or váles, from a discount of twenty per cent. Its capital, however, was immediately locked up by the redemption of this paper and by the purchase of shares of the Compagnie des Philippines, a sort of copy of Law’s Compagnie des Indes in France. At the same time, it launched out into all kinds of undertakings contrary to its powers, including the canalization of Spain, beginning with the Guadarrama. The affairs of the Bank fell into the greatest confusion; but, by leaning upon the Treasury, which was as badly disorganized as itself, it managed to survive, and was even able in 1807 to announce, not only that its capital was intact, but that its resources were very much greater than its liabilities. This was true on the assumption that it could realize upon its assets; but such was far from being the fact. They consisted of loans upon its own shares and upon depreciated securities, which could not be collected; of foreign credits of very doubtful value; of debts due from the State, now insolvent; of State paper, and of a small specie reserve and a few good commercial securities.

At this time the French had invaded Spain, and the whole country was one vast field of battle. At one time there were two banks, one at Madrid with King Joseph, and the other at Seville and later at Cadiz. On the return of peace, in 1814, the Bank demanded of the State repayment of 320,000,000 reals; but a decree of the Cortes, rendered on November 9, 1820, made the claim of the Bank part of the ordinary public debt. Fortunately for the Bank, the restoration of absolute power annulled all the acts of the Cortes. A report was demanded of the Bank setting forth its history and actual situation, and when this had been furnished a royal decree was issued, on February 4, 1824, ordering a liquidation of all the State debt not represented by Crown bonds. A second royal decree of the 8th of the March following ordered a reopening of the great book of the public debt, and that there be entered therein, in addition to the debt of 600,000,000 reals, a further sum of 200,000,000, half of which should be immediately delivered to the Bank, at an interest of five per cent., on condition that it could show an equal amount of interest-bearing claims in its own possession. This condition the Edition: current; Page: [234] Bank could not fulfill, and finally, in 1829, it received a subsidy of 40,000,000 reals. If there was any loss involved in this transaction the State was the victim, but the unfortunate situation of the Bank was generally attributed to the Government, and this grant of 40,000,000 reals was no more than a just indemnity.

“The Bank of St. Charles,” says Don Ramon Santillan, “created for certain purposes, some of which were foreign and others diametrically opposed to the elementary principles upon which institutions of this kind should be based, found itself from the very first involved in a network of difficulties and hindrances, which was merely drawn tighter by the efforts of the managers of the Bank to escape from it. The losses naturally resulting from a discount of Crown obligations and from the complications involved in furnishing army and navy supplies, could not fail to be further increased by speculation in the public funds of France, then in the throes of a woful revolution. The participation of the Bank, as a very heavy stockholder, in the affairs of the Compagnie des Philippines, and its losses through worthless securities, completed its ruin. Its capital of 300,000,000 reals was far too great, and it had been able to employ only a small part of it in commercial loans. An attempt was made to secure a profit out of the capital by placing it at the disposal of a treasury whose condition was growing worse every day, and, as a matter of fact, the Government kept the Bank alive until a common shipwreck, in the early part of the present century, overwhelmed all institutions, public as well as private. Since 1814, the Bank had really been dead, and it required a mighty effort of the Government to resuscitate it.”

THE BANK OF ST. FERDINAND.

On July 19, 1829, with its indemnity of 40,000,000 reals and a right to issue new shares to the extent of 20,000,000 reals whenever it should need to do so, the Bank was reorganized. It gave up its old name, “Bank of St. Charles,” and became the “Bank of St. Ferdinand.” The business of the new bank was small at first, being largely confined to speculation in public funds; but a few notes were put in circulation in Madrid, where alone the Bank was permitted to issue; though it was authorized to open offices and establish agencies wherever it chose to do so. The sluggishness of commerce and industry in Spain, and more especially the narrowness of the Bank’s sphere of activity arising from its inability to circulate its notes beyond the limits of Madrid, made it impossible for the institution to gain any valuable result from its own proper business; and it could not survive except as an essentially governmental enterprise. During the first three years of the Bank’s existence no special attention was paid to commercial discounts, and in its reports it groups together under one heading that important branch of its business and its dealings with the Treasury. As a matter of fact, the Bank was merely speculating in rentes and in its own shares. One peculiar fact in the situation was the reluctance of the Bank to Edition: current; Page: [235] issue notes; the Government was constantly urging it to make such issues, and it was constantly refusing. Its wish was to act merely as agent of the Treasury; to make advances to it on good security, and to utilize its capital in speculation; it did not even comprehend the utility of loans on collateral, and against being compelled to publish reports it protested in the following language, which merits a reproduction: “The vaults of the Bank ought to conceal the mystery of credit, which its books reveal alone to the initiated. To publish this mystery is to destroy its value.” And yet, though it fulfilled but imperfectly the duties of a bank of issue, the Bank of St. Ferdinand rendered valuable services to Spain. The scarcity of its bills and the care with which it watched over them kept them at par with specie; moreover, it maintained correspondents abroad, through whom it negotiated the drafts of the Government upon its colonies, thus furnishing to Spain available funds in Paris and London, with which to replenish her gold supply and conduct her exchange operations.

Meanwhile the King, Ferdinand VII., had died, leaving his throne to his daughter Isabella, in derogation of the Salic law and to the prejudice of his brother, Don Carlos. The latter, supported by the Absolutists, began a war which ravaged Spain for the next six years. The Bank was compelled to make many large advances to the Government to enable it to withstand the insurrection. These loans were constantly renewed and never repaid, and the Bank of St. Ferdinand followed precisely in the footsteps of the Bank of St. Charles. Foreseeing the danger to which it was exposed, the Bank began to scrutinize the security offered by the Treasury and to restrict its credit. The Government retaliated by disowning the Bank of St. Ferdinand and raising up a formidable rival against it.

BANK OF ISABELLA II.

A decree of January 25, 1844, established a new bank of issue, to be known as the Bank of Isabella II. The Bank of St. Ferdinand then recognized the necessity of abandoning its ancient methods and appealing to the public. It offered to discount paper and to loan more freely than in the past, and solicited the opening of accounts current. At the same time, it managed to have the limit of its circulation increased from 24,000,000 reals to 60,000,000, and it refused to accept the notes of the Bank of Isabella II. It aimed a more dangerous blow at the new institution by establishing a clearing-house for bourse operations; a device from which the Bank of Isabella II. had hoped to reap some advantage. Two years later, however, the Bank of St. Ferdinand closed its clearing-house, because it had resulted in serious losses. The rivalry of the two banks gave a decided impetus to speculation. The Bank of Isabella II. placed all of its resources at the disposition of a small number of speculators; one of them in the course of three years obtained loans aggregating 188,000,000 reals, and another 116,000,000. Of the 1,019,000,000 reals loaned during that time, 786,000,000 were borrowed Edition: current; Page: [236] by thirty-two persons. The natural effects of such management soon made themselves felt. The crisis of 1847, which was so severe in France and England, did not leave Spain unscathed. The two banks, which had been mutually harmful, had fallen into the most deplorable condition; and the Minister of Finance, Don Ramon Santillan, was upon the point of compelling them both to go into liquidation when he quitted the Ministry.

THE TWO BANKS CONSOLIDATED—REPEATED RECONSTRUCTIONS OF THE CONSOLIDATED INSTITUTION.

The new Minister, M. Salamanca, thought that a more convenient and speedy remedy was to be found in consolidating the two institutions. By a royal decree of February 25, 1847, the two banks were made into one, bearing the name of the older. The fusion was an act of gross injustice toward the Bank of St. Ferdinand. True, its resources were not available; but at least it had the State for chief debtor, while the assets of the Bank of Isabella II. consisted of a mere confused jumble of credits, most of them worthless. The Bank of St. Ferdinand was so completely at the mercy of the State, to which it had delivered up practically the whole of its possessions, that it did not dare to protest against the combination, but was constrained to acquiesce.

The capital of the new bank was fixed at 400,000,000 reals, half of it to be paid in in cash. It was empowered to issue notes to an amount equal to its capital, and to establish branches wherever there was no local bank of issue. Its charter was to run for twenty-five years; it was required to publish a balance-sheet at stated intervals, and was forbidden to issue any note of a less denomination than 500 reals. According to the report of the commission appointed to appraise the securities held by each bank, the assets of the Bank of St. Ferdinand amounted to 372,413,342 reals, and those of the Bank of Isabella II. to 197,197,424 reals. There was not much to be deducted from the assets of the Bank of St. Ferdinand, but against those of the other there were very considerable offsets, the result being that the new institution found itself heavily incumbered from the very first, and that, too, at a time when commercial affairs were steadily becoming more serious. The crisis which began in 1847 had been followed in France by the Revolution of 1848, which disturbed the greater part of Europe. The consequences were distinctly felt in Spain, and her financial embarrassment was greatly increased by it. The cash reserve of the Bank was growing smaller, while its circulation was increasing and the Government was demanding further loans. To complete the Bank’s misfortunes, an investigation showed that it had been a victim of thefts and embezzlements to the extent of 60,000,000 reals. At this juncture, a new Finance Minister, M. Mon, determined to reorganize the Bank upon the model of the Bank of England. By a decree of September 8, 1848, a special issue department was created, distinct from the banking department, to be managed by a council composed of officers Edition: current; Page: [237] of the State, of the Treasury, and of the Bank itself, and two merchants of Madrid. This department was empowered to issue notes to the extent of 100,000,000 reals, guaranteed by State securities and a metallic reserve of 33,000,000 reals. The Bank was required to publish a balance-sheet every week. The new department withdrew about half of the outstanding circulation and thus raised the credit of the notes. But, unfortunately, it soon began to encroach upon the banking department, and each of the two branches of the institution interfered seriously with the work of the other. Nevertheless, some progress had been realized. A monopoly of future circulation had been secured and the practice of allowing the establishment of local banks of issue in the different cities of the kingdom was abandoned in favor of a single bank.

M. Ramon Santillan, appointed governor of the Bank, made it his first duty to look carefully into its actual situation. It was not promising. The assets consisted of 53,726,922 reals in specie and collectible securities, 82,052,885 reals of Government debts, 51,613,451 reals of contested claims, and 205,083,476 reals recovery of which was extremely doubtful, the greater part of this item consisting of loans made by the Bank of Isabella II. To sum up, of a capital of 200,000,000 reals, 110,500,000 might be considered as practically lost. As a first step toward reform, M. Santillan carefully separated the collectible securities from those of doubtful value; he collected all those that were recoverable, and with the 80,000,000 reals thus secured he reduced the capital to 120,000,000 reals; the two departments of the Bank were then united. On February 18, 1852, all of these reforms were enacted into law. Shortly afterward, the Finance Minister determined to take away from the Bank the management of the public debt and the collection of provincial taxes. To this end, he established a deposit office, which undertook to pay interest to depositors, and was required to accept all moneys in the hands of the courts and all bail moneys. This bureau established branches and opened accounts current, but it never paid the interest it promised, and soon fell into discredit. It thus became necessary to have recourse again to the Bank, which advanced money to pay the arrears of interest on the foreign debt, and guaranteed various State loans. From this time forth the Bank accumulated State securities with great profit to itself, if we look merely to the gains appearing upon the face of the transaction, but greatly to the dissatisfaction of its note-holders. A day of settlement was fast approaching, and the Government, having no means with which to meet the demands of the Bank, determined to reorganize it.

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CHAPTER II.: THE BANK OF SPAIN.

ITS ORIGIN.

IN pursuance of the conditions above recited, and the determination to reorganize the embarrassed Bank, on January 28, 1856, a law was enacted providing that the institution should thenceforth be known as the “Bank of Spain”; that the franchises of the Banks of Barcelona and Cadiz should be continued for the term for which they were originally granted, and that the Bank of Spain, at the expiration of one year, should establish branches in the capital cities of nine provinces. Notwithstanding the Government’s intention to confer an exclusive franchise upon the Bank, a Deputy secured the adoption of an amendment by the terms of which private banks might be established with the same privileges granted by the law to the Bank of Spain. The effect of that amendment was to confine the business of the Bank of Spain to the city of Madrid. Nevertheless, the scope of its operations was somewhat enlarged, inasmuch as it obtained permission to make loans upon the shares of manufacturing and trading corporations.

The year 1857, which was signalized by a very severe and general crisis, was a critical time for the Bank. It was fairly successful in meeting the difficulties of the year, though for a brief interval it was compelled to suspend the redemption of its notes. During the following years, periods of tranquillity and of anxiety alternated, but there is nothing of special note to be recorded, except a constant increase of the State’s indebtedness to the Bank, and a gradual disappearance of Spanish silver coin; which was melted and exported in consequence of the appreciation of the white metal; which afterwards equally happened to the coins of the countries composing the Latin Union. In its embarrassment, the Government had induced the Bank to discount the obligations incurred through purchases of national property; but these assets had not a high degree of availability, and they did not constitute a strong element of the Bank’s resources. In 1862, the Government Edition: current; Page: [239] conceived the plan of issuing interest-bearing mortgage notes, due at fixed dates, and payable from the proceeds of past and future sales of national property. In 1864, the Government proposed to the Bank that it undertake the issue of these mortgage notes, the payment of interest upon them, and their final redemption; it was to receive as security all the obligations of purchasers of national property, and to enforce payment of them, at a commission of one per cent. The amounts recovered, it was to hold as security for future issues of mortgage notes. The Bank agreed to undertake this service, and as a result of the contract thus formed, a statute of June 26, 1864, provided: (1) That the obligations of the purchasers of national property arising out of mortmain should be delivered to the Bank on and after July 1, 1865, to the extent of 17,000,000 reals; (2) that the Bank should issue 1,300,000,000 reals of mortgage notes, payable to bearer, transferable by indorsement, bearing interest at six per cent., to be drawn for redemption, by lot or otherwise, at the option of the Government. A fund of 200,000,000 reals was to be set apart as security for interest payments and a semi-annual redemption; (3) that the mortgage notes should have the quality of public securities, and after their due dates should be accepted, at their face value, in all payments to public departments; (4) that the Treasury should make good to the Bank all defaulted obligations of purchasers of national property. The Bank received in settlement of its claims against the State 500,000,000 reals in mortgage notes.

In view of the closer relations thus established between the State and the Bank, the capital of the institution was thought to be too small, and, accordingly, it was increased to 200,000,000 reals. In spite of the fact that the union of Bank and State was constantly becoming closer, the Minister of Finance, on April 4, 1866, proposed, in behalf of certain English capitalists, that a bank of issue and discount be established under the name of the Banque Nationale Espagnole. The Bank, seconded by a vigorous public opinion, stoutly opposed this project, and it was abandoned; but the incident furnishes a good example of the dangers and contests to which the Bank was constantly exposed. Once assured of its franchise, however, the Bank showed itself more and more disposed to enter into closer relations with the State; accordingly, by a law of June 29, 1867, to go into effect on July 1, 1868, it was intrusted with the collection of taxes in all provinces and places where the office was vacant, and as fast as other collectorships fell vacant they were to be turned over to the Bank. The original term of the agreement was eight years, but it might be extended or renewed.

In 1868, Queen Isabella II. was dethroned. The new government evinced a friendly disposition toward the Bank, which, on its part, had been of considerable service to the Government. They maintained amicable relations, but the Bank was constantly called upon to furnish supplies to the State under one form or another.

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GRANT OF EXCLUSIVE PRIVILEGES TO THE BANK.

The year 1874 marks the starting-point of a thorough transformation and reorganization of the Bank. In a report made to President Serrano on March 19, 1874, the Minister of Finance, M. José Echegaray, expressed himself thus:

“Credit has been destroyed by misuse, the tax revenues are exhausted by mismanagement, the sale of mortmain property is at a standstill for the time being, and we must devise some new method of consolidating the floating debt, and of meeting the enormous expense of the Carlist war, which for the last two years has ravaged the greater part of our provinces. In view of this critical situation, yielding to the existing demands and immediate necessities of the strife, the undersigned minister, with the concurrence of the Council of Ministers, proposes to establish on the basis of the Bank of Spain, and with the assistance of the provincial banks, a national bank, which shall come to the rescue of the public finances without neglecting its true functions as a bank of issue. These are the three main requirements that the new institution should fulfill: (1) It should bring together the great mass of securities which, like the remnants of a national inheritance, are now scattered and placed here and there as a pledge for vanous undertakings, and make them a desirable investment for new and substantial capital; (2) it should establish a single system of note circulation, which, however, should be optional, and always secured by a metallic reserve; (3) it should come effectually to the aid of commerce by immediately dispensing, as widely as possible, the advantages to be derived from its discount operations and note circulation, and by securing these advantages to the whole country as soon as the restoration of settled conditions will allow.

“It is only by such a consolidation of funds that we can hope to set in operation such forces as shall meet the demands of the existing situation and provide for the heavy burdens we are called upon to bear. A circulating medium which shall be uniform throughout the Peninsula is the sole instrument by which this end can be attained. While accomplishing the two great governmental aims to which reference has been made, we must not leave entirely out of view the third objective point, which is a very important part of the business of every bank of issue, namely, the discounting of commercial paper. If the undersigned minister proposes to substitute a uniform system of note circulation for the existing system, which may be described as provincial, he does it with no intention of establishing a compulsory note circulation, which is a very serious misfortune and the greatest of all economic calamities. He recognizes the fact that there is an irresistible law by which the demands of each market fix a limit to the number of notes to be circulated therein, and that this limit is once exceeded the inevitable result is a monetary crisis if the notes are redeemable upon demand; or, if a legal-tender law keeps them in circulation, then the general unsettlement of values will produce a crisis all the more serious, from which no branch of business will escape. Since we can neither disprove these conclusions nor leave them out of view, it follows that we must exercise the highest degree of care and prudence in demanding of the national bank the loans aggregating 500,000,000 reals, for which provision is made in Article 17 of the law hereto annexed.

“The notes of the Bank of Spain circulate to-day only in Madrid, and that city marks the limit of their issue; the undersigned minister maintains that the notes of the national bank ought to circulate throughout the Peninsula, that the uses to which they are put will be multiplied, and that provision must be made for supplying these increased demands. On the other hand, we must take care that the proposed circulation, though much larger than that we now have, be kept within proper bounds, lest we endanger the credit and the very existence of the new institution. Nevertheless, the Treasury, when occasion demands, will require of the bank advances from the 500,000,000 reals to which reference has already been made; but it will use great care in calling for the loans, and for the notes issued from time to time in pursuance of this object it will furnish securities readily convertible into cash, securities to run, not for the usual term of ninety days, but for a much shorter time, which cannot now be definitely fixed.

“In this way the new bank will prove at critical moments a valuable auxiliary in our financial affairs; it will give new life and increased rapidity of circulation to funds now unproductive. By Edition: current; Page: [241] restoring the credit of the Treasury, by undertaking with renewed energy and by novel means to put in circulation the funds accruing under the statues of mortmain, it will restore our former revenues, and will increase the power and resources of all those from whom our taxes are collected; this it will do prudently, without distinction of person, and without favor; and inasmuch as it will form a solid and substantial foundation for our financial system, there is no fear that the Treasury will ever place its existence in jeopardy, as it has heretofore done with the Bank of Spain. This discreet alliance between the Treasury and the bank will be highly advantageous to our public finances and very profitable for the bank, and it will be most helpful to them both in time of greatest need. The extraordinary powers with which the Government is clothed as a result of the peculiar political conditions to which it owes its existence, enables it to replace the existing manifold note circulation by a uniform circulation. This is a reform of the greatest value, and one which the future will justify; but it is a general reform, and all banks of issue must yield to it. They owe their existence to a local law; another law of national application now amends the former, without repealing it, and reorganizes the banking business under the pressure of our present necessities. The undersigned minister, knowing the patriotism of the provincial banks, is confident that they will loyally accept the union into which he incites them to enter, and which may prove to be of great advantage to them. It will be his aim to devise compensations for any loss they may sustain, and to use great care in avoiding all such disturbances of the money markets as might naturally attend reforms so important and so radical. The charters of the provincial banks have now an average duration of five or six years: united with the national bank, they will have a charter of thirty years’ duration. If they refuse to unite, they will certainly lose their privilege of issue, but they will not be forced into immediate liquidation; they may still exist as credit institutions, retaining the whole or a part of their capital, under one of the many authorized forms of association. If they accept the union it will be perfected slowly and cautiously, in accordance with the wish of each bank, and there will be no outside liquidating commission to disarrange the mechanism of its business or pass judgment upon its loans and securities. The provincial banks will be privileged to exchange at par all or part of their shares for those of the new bank, and also to purchase the latter for cash or take them in exchange for their outstanding claims.

“During the first four months, the national bank will reserve all of its remaining shares for such provincial banks as may elect to take more of them either in exchange for part of their specie reserve, or for valid claims belonging to them, or new funds collected for the purpose. Finally, when a total or partial union shall have been effected, each provincial bank will receive such a proportion of the profits as its shares in the new bank entitle it to. As to the liquidation mentioned in Article 4 of the decree, it must not be understood as requiring a collection of all outstanding accounts and a final winding up of the establishment, nor as preventing a renewal of any accounts then in hand. All those banks which become provincial branches of the national bank will preserve such a degree of independence as may be demanded by the peculiar commercial needs and conditions of each province, and they will be subject to no other constraint than such as may be naturally involved in their dependence upon the central bank and its supervision over them, and in the fact that it will lay down general rules for their guidance, and see that they obey the regulations and by-laws of the bank. This slight degree of subjection will be the best protection that the branch establishments could have.

“Thus, an extension of their charter, authority to reorganize as new credit institutions without the power of issuing notes; fusion without enforced liquidation, permission to renew any accounts they may have on hand; a right to exchange their shares at par; a very large and carefully guarded measure of independence for each in its own sphere of action—such are the privileges which the State tenders to the provincial banks, demanding in return, not an abandonment of their present powers, but an exchange of them for others more general.

“The undersigned minister has thought it wise to furnish early information concerning these details (all of which are definitely agreed upon, though some of them may not be expressly set forth in the decree annexed) in order to reassure the provincial banks and the commerce depending upon them. It is settled that a national bank shall be established and a uniform circulation introduced, in spite of all obstacles; but it is also settled that this is to be done without detriment to any interest worthy of respect. If the dangers through which our native land has just passed and those which Edition: current; Page: [242] still threaten it demand a centralization of all political powers, the economic situation of the country and its finances equally demand a centralization of all our financial resources; it is only by these means that we can preserve the honor of our country and its modern ideals, now placed in serious jeopardy by an unjust and bloody war.”

This statement ws accompanied by a document containing the proposed regulations of the bank, in eighteen articles, all of which were enacted into law on July 17, 1876. Unfortunately, the new bank, which, as the report of the Finance Minister shows, was founded upon national principles, was not long in becoming a mere servant of the Government. By an agreement made on August 4, 1876, it undertook, for a period of twelve years, the collection of all direct taxes, and during the first year after its organization it came into possession of 200,000,000 reals of State obligations. From this time forth, the confusion of Treasury affairs with the business of the bank constantly increased and became more harmful. In 1882, the bank was intrusted with the payment of arrearages of the public debt in Spain and abroad. Another step much more open to criticism was that which consisted in farming out to the Bank of Spain the revenues arising from the Tobacco Monopoly. True, the bank organized for this purpose a lessee company, the “Compañia Arrendataria de Tabacos”; but the bank itself was the largest shareholder in that company; it held stock of the value of 12,270,000 pesetas, paying for them not out of its capital, but with its circulating notes.

The contract between the Treasury and the bank by which the bank undertook the collection of taxes expired by limitation on June 30, 1888. It had frequently been a source of loss to the bank and it was not renewed. A law of May 12, 1888, placed the seal of approval upon another contract, in accordance with which the bank, through its main office at Madrid and its branches, was to have the custody of all the revenues under control of the Finance Minister and the Treasury; upon the security of these revenues the bank undertook to pay all claims against the Treasury. These receipts and payments made on behalf of the State formed an account current, productive of interest in favor of the bank, but not in favor of the State. By the terms of the same contract, the bank bound itself to purchase gold bullion to the value of 300,000,000 pesetas and to have it coined, the expense being shared equally between the bank and the State.

In 1891 there was a sudden change for the worse in the financial condition of Spain. The Government, heavily in debt as usual, turned once more to the bank, granting in return for the assistance it demanded, an extension of the charter (originally expiring in 1904) to 1921, and an increase of the bank’s circulation to 1,500,000,000 pesetas; on its part the State demanded a permanent loan of 150,000,000 pesetas, without interest, of which 50,000,000 pesetas was to be forthcoming on July 1, 1891, 50,000,000 pesetas on July 1, 1892, and 50,000,000 pesetas on July 1, 1893. The effect of these measures was instantaneous. There was an immediate fall in Spanish exchange, not only as a result of an adverse balance in international demands, but also by Edition: current; Page: [243] reason of an intrinsic depreciation of Spanish paper; and from that date to this, Spanish exchange on foreign countries has remained below par; but this is a subject to which we shall have occasion to return farther on.

ORGANIZATION OF THE BANK.

The Bank of Spain, whose franchise was originally granted for thirty years from March 19, 1874, now has a charter extending to December 31, 1921. It exercises its powers not only upon the Continent, but throughout the neighboring islands, including the Canaries. Its franchise is an exclusive one, for of the eighteen provincial banks in existence in 1874, eleven were absorbed by the Bank of Spain and the other seven have gone into liquidation. Though the Bank of Spain is a private institution, any theft or embezzlement of which it may be the victim is punished as a crime against the State.

Its main office is at Madrid, and throughout the provinces it is represented by branches, subsidiary offices, or correspondents, according to the commercial importance of the place.

Capital.—The capital, fixed at 100,000,000 pesetas by the decree of March 19, 1874, was increased to 150,000,000 pesetas by vote of a shareholders’ meeting of December 17, 1882, approved by royal decree on the 23d of the same month. The capital is divided into 300,000 registered shares of 500 pesetas each; a share being indivisible in its relations with the Bank, which refuses to recognize more than one person as having an interest in any share. The shares may be invested with all the properties of real estate.

Stockholders’ Meetings.—Ordinary meetings of stockholders are composed of those who have been recorded for three months as having legal or equitable title to at least fifty shares. Stockholders cannot be represented by proxy, with these exceptions: Married women, minors, corporations, and public and private associations may appear through their usual representatives, and widows and unmarried women of legal age may be represented by agents appointed for the purpose. Each member of the meeting has only one vote, without regard to the number of shares he may own or represent. Stated meetings are held at some time within the first fifteen days of March, the precise date being announced before the first of February each year by publication in the “Madrid Gazette.” A report of the year’s business is submitted to the meeting, accompanied by a balance-sheet and an account of profits and losses, and the members may inspect the books and documents upon which these reports are based. The meeting passes upon the management of the Bank, chooses the members of its Administrative Council, and votes upon such propositions as may be submitted to it by the Council or by one of its own members. A special meeting of the stockholders may be convened at the request of the Administrative Council, or upon a petition setting forth the grounds upon which it is issued and signed Edition: current; Page: [244] by 100 stockholders who have been in possession of fifteen per cent. of the capital stock for more than three months last past.

The Governor.—The affairs of the Bank are managed by a governor, two under-governors, and the Administrative Council (Conséjo de Gobiérno). The governor is appointed by the King, and is at the same time head of the administration and representative of the State in its relations with the Bank. The duties of the governor are: (1) To preside over meetings of the stockholders and of the Administrative Council, and, when he so elects, over the deliberations of standing and special committees; (2) to supervise all dealings of the Bank, subject to the laws of the State, the regulations and by-laws of the Bank, and the advice of the Administrative Council; (3) to sign, in the name of the Bank, all contracts and agreements, and to manage all judicial and extrajudicial controversies to which it may be a party; (4) to sign all the correspondence of the Bank, or to authorize an under-governor to sign it; (5) to appoint, with the advice of the Administrative Council, all employees of the Bank, and to revoke any appointment, reporting the facts to the Council; (6) to nominate to the Council candidates for heads of departments; (7) to veto all discounts, loans, and other transactions determined upon by the Council or by any committee, when they appear to be contrary to law or to the rules and regulations of the Bank. If the Council persists in its view, it becomes the duty of the governor to refer the whole matter immediately to the Minister of Finance. The governor supervises and directs the work of all employees of the Bank. He acquaints himself with the standing of all business houses, and passes upon the question of loans to them. The governor and under-governors have a deliberative voice in the discussions of the Council and in those of the committees, except when their own acts are under investigation. The governor has a casting vote in the Council and in all committees except the Executive Committee. The governor cannot dispose of the funds of the Bank by drafts, discounts, loans, payments, or any other means. He cannot bind the Bank by any signature given without the consent of the Council or a committee. It is his duty to advise the Council as to the progress of the general business of the Bank, and the final result of all transactions that require to be kept secret until their completion.

The Under-governors are appointed by the King from names submitted by the Administrative Council. They sit in the Council under title of First and Second Under-governor, and succeed to the duties of the governor in the order of their seniority. The governor intrusts to them such of his duties as do not seem to demand his personal attention. In case of the absence or impeachment of the governor and under-governors, they are replaced by members of the Executive Committee in the order of their seniority. The governor and under-governors take an oath of office before the Administrative Council, in the usual form; promising to execute the duties of their office faithfully and loyally, to enforce the law and the rules and regulations of the Bank, and to devote their best efforts toward ensuring its prosperity. The under-governors can be removed from office upon motion of the Edition: current; Page: [245] Council or by the Minister of Finance, acting in his official capacity, with the concurrence of the Administrative Council of the Bank and the Council of State, the accused being always entitled to a preliminary hearing. The governor must be a resident of Madrid, and he cannot leave the city without permission of the King. The governor and under-governors cannot offer bills to the Bank for discount, nor borrow of it upon collateral, nor be accepted as personal security for any debt due to it. The governor is not required to furnish a bond. The under-governors, before entering upon the duties of their office, are required to deposit fifty shares registered in their names. These are not returned to them until all of their official acts have been passed upon and approved by a stockholders’ meeting.

The salary of the governor is 25,000 pesetas at least, and that of an under-governor is 12,500 pesetas, all paid by the Bank.

The Administrative Council is chosen by the shareholders, subject to approval of the King. No one is eligible to the Council except residents of Madrid who have owned 100 shares of the Bank’s stock for three months before the date of their election. These shares are inalienable during their continuance in office and until their administration has been approved by a stockholders’ meeting. The following are not eligible to the Council: Aliens, insolvents, bankrupts who have not been rehabilitated, persons who have been condemned to imprisonment or any corporal punishment, and those who owe any overdue debt to the Bank. The Council cannot contain more than one member of the same firm or special partnership, or more than one director of the same corporation, the single exception being that in favor of the directors of the Compañia Arrendataria de Tabacos. Neither can there sit in the same Council those related within the fourth degree by consanguinity or marriage. The councilors are eighteen in number, of whom twelve are regular and six alternate members. The latter are called upon, in the order of their seniority, to replace any regular members who may be absent. The term of office is four years; one-fourth of the members go out of office each year, but they are re-eligible.

Attendance Fees.—The governor, the under-governors, and the councilors are entitled to attendance fees, the total amount so payable being fixed at 375 pesetas per meeting, to be divided among those who are present. There is no other remuneration except such as may be voted by a meeting of the shareholders.

The duties of the Administrative Council are: (1) To determine the order and form in which the books of the Bank are to be kept; (2) to fix the amount, the number, the denomination, and the form of notes to be issued; (3) to decide how much money is to be devoted to discounts and loans, the rate of interest, and the formalities to be required of borrowers; (4) to establish branches and subsidiary bureaus and appoint their managers; (5) to supervise all the business of the Bank and its branches, and especially transfers of funds; (6) to examine the semi-annual accounts of the Bank, and determine the dividends to be paid and the amount to be added to the Edition: current; Page: [246] reserve; (7) to see that the rules and regulations of the Bank are enforced; (8) to determine the number, classification, and salaries of the employees engaged by the governor, and to nominate candidates to the places to be filled by appointment of the King; (9) to fix the dates for the regular stockholders’ meetings and for such special meetings as the by-laws provide for; (10) to appoint provincial and foreign agents and correspondents; (11) to approve the report and the statement of profits and losses submitted to the stockholders at their stated meetings; (12) to bring before those meetings all questions requiring their attention; (13) to draft the Bank’s by-laws, and to amend them in such manner as may meet the approbation of the Government.

Aside from their duty as a body, the councilors may, individually, proffer such advice and make such suggestions as seem to them likely to further the interests of the Bank. The Council holds a stated meeting each week, and may be called together in special meeting by the governor as often as necessary. The Council is divided into four committees—an Executive Committee, a Committee on Branches, an Administrative Committee, and an Auditing Committee. The Executive Committee and the Committee on Branches consist of three members each, chosen by the Council, renewable by thirds every four months, and indefinitely re-eligible. The Council also appoints an alternate to replace any absent member of these committees. The other committees consist of three members each, chosen from month to month. It is the duty of the Executive Committee to examine paper offered for discount, pass upon requests for loans on collateral, and to supervise all contracts and undertakings directly connected with transfers of specie or securities. The Committee on Branches superintends the management and the transactions of the various branches of the Bank. The Administrative Committee attends to the management of the different departments of the Bank, the printing of the notes, the expenditures of the Bank, and its suits at law. The Auditing Committee inspects all the accounts of the Bank, and looks to the safe-keeping of its funds and securities. The Administrative Council is empowered to appoint special committees in case of need. The committees are heard upon all questions coming before the Council, except in matters requiring haste, and they give advice upon all propositions submitted to them by the governor; they may also initiate such measures as seem to them expedient or for the best interests of the Bank.

Branches and Subordinate Offices.—The Bank, with the approval of the Government, may establish branches or subordinate offices wherever the needs of commerce or industry seem to require them. They are an integral part of the Bank itself, and can only undertake such business and establish such relations among themselves as are authorized by the Council. The administration of each branch includes a manager and a number of directors to be fixed by the Administrative Council, provided, however, that there shall in no case be more than eight regular directors and four alternates. The Edition: current; Page: [247] number, classification, and salaries of all employees are also determined by the Administrative Council.

The Manager is appointed for three years by the Council, subject to approval of the King, and is re-eligible; he furnishes security for the proper performance of his duties, consisting of shares of the Bank. The manager is the chief executive officer of the branch; he opens the correspondence and executes the orders of the governor.

The Directors are appointed for three years by the Administrative Council, are re-eligible, and are required to furnish security. Whenever any branch has at least thirty registered stockholders, each having been in possession for more than three months of at least ten shares, they are called together in a stockholders’ meeting, the manager of the branch presiding, and they draw up a list of candidates for the directorship, containing three times as many names as there are directors to be chosen; this list is submitted to the Administrative Council, which chooses directors from among the names upon it.

The manager and the directors make up the Governing Council of the branch, determining all questions over which the regulations of the Bank give them jurisdiction and all such as are submitted to them by the Administrative Council. The Governing Council appoints an Executive Commission, having the same duties with regard to the business of the branch that the Executive Committee has in matters affecting the central bank.

Agents.—From nominations made by the Committee on Branches, the Administrative Council appoints agents (comisionádos) to represent the Bank in Spain or abroad. The agents attend to such business as the governor may intrust them with. They furnish security consisting of shares of the Bank, and they are personally responsible for all paper they accept in behalf of the institution; they are paid by commissions fixed by mutual agreement.

BUSINESS OF THE BANK.

Accounts Current.—The governor opens accounts current with all individuals and associations who demand the privilege and fulfill the conditions required by the Council. The first deposit, in Madrid, must be of at least 2500 pesetas, or 1000 pesetas at any of the branches; subsequent deposits must not be less than 250 pesetas each. No interest is paid upon accounts current. Holders of accounts current dispose of the amounts standing to their credit by means of cheques or transfer slips, and can make their notes payable at the Bank. The Bank furnishes to them gratuitously blank cheques, with stubs attached, which can be made payable to any person by name, or to bearer. No cheque can be drawn for less than 125 pesetas, except to close an account. Anyone who makes an overdraft may be required to withdraw his account. Deposits and withdrawals in accounts current may be made by correspondence. The following statement, Edition: current; Page: [248] expressed in millions and hundreds of thousands of pesetas, will be found of interest:

YEARS. CHANGES OF ACCOUNTS CURRENT. STATE OF ACCOUNTS CURRENT.
Deposits. Withdrawals. Maximum. Minimum. Average.
1875 1,374.3 1,355.1 111.7 69.6
1880 2,216.6 2,169.4 257.2 144.4
1885 4,534.5 3,502.2 286.3 190.1 243.6
1886 4,094.2 4,055.5 337.3 238.7 273.2
1887 4,247.9 4,228.4 401.2 251.8 325.7
1888 4,270.3 4,231.2 402.8 300.0 342.8
1889 5,169.7 5,163.9 380.1 343.4 361.1
1890 6,147.1 6,137.1 401.9 334.6 365.3
1891 5,841.5 5,724.2 443.6 399.5 413.1
1892 5,170.8 5,243.8 437.6 361.8 387.7
1893 4,874.4 4,894.6 372.9 311.3 336.0
1894 4,797.3 4,859.3 373.4 267.3 319.5

Discounts.—The Bank draws up a list of those to whom it is willing to grant discounts, and indicates upon it the maximum credit to be allowed to each. It discounts notes payable to order and bills of exchange drawn in legal form, provided they bear the signatures of two persons, of whom one at least must be upon its credit list and must live in the neighborhood of the place of presentation. It discounts also coupons of the public debt and bonds drawn for redemption. Usually the term for which the paper is to run must not exceed ninety days, and the amount must not exceed that shown upon the credit list; but if the paper bears three signatures, two of which are upon the Bank’s credit list, it may be accepted though not due for 120 days, and though the amount is greater than that inscribed upon the list. The total of these latter discounts must not exceed the funds remaining available to the Bank after covering with its cash and ninety-day bills all of its demand liabilities; that is to say, its circulation, accounts current, and specie deposits. Public securities taken as collateral for a loan may replace one of the required signatures. The Bank is sole judge as to the acceptance or refusal of paper offered for discount, and it is not bound to state the grounds of its decision.

The Discount Rate.—The discount rate is fixed monthly or oftener; it is the same for all persons, but not necessarily the same at Madrid and at the branches. Spain, being a country with no large accumulations of capital, maintains a rate of discount distinctly higher than that of France, Belgium, or Switzerland; but it has a double standard, the Bank will not pay out its gold, and silver pesetas cannot be exported; and from these facts it results that the rate of discount, notwithstanding the unfavorable situation of exchange and the premium on gold, remains within reasonably moderate limits.

Edition: current; Page: [249]
Rate of Discount, 1874 to 1894.
Number of Changes. Maximum. Minimum. Average.
1874 0 6 6 6
1875 0 6 6 6
1880 0 4 4 4
1885 1 4 4.16
1890 0 4 4 4
1891 0 4 4 4
1892 1 5 4 4.95
1893 0 5 5 5
1894 0 5 5 5
Total Discounts, etc. (in Millions and Hundreds of Thousands of Pesetas).
YEARS. TOTAL DISCOUNTS. AMOUNT OF BILLS ON HAND.
Number of Bills. Amounts. Maximum. Minimum. Average.
1874 49.8
1875 135.0
1880 177.5
1885 618.0
1886 1,048.4
1887 1,337.7
1888 1,631.2
1889 1,778.8 214.7 148.0 173.4
1890 315,681 2,155.9 198.3 157.9 179.2
1891 366,782 1,815.8 192.6 156.6 172.4
1892 396,460 1,679.8 161.2 143.5 142.2
1893 415,798 1,366.5 145.3 127.3 135.2
1894 468,181 1,058.8 171.1 122.2 134.8

Collections.—The Bank undertakes the collection of any paper left with it ten days before the due date. Those having accounts current with the Bank, but not living in its vicinity or in that of any of its branches, may forward by mail any paper they wish to have collected. The Bank will present the paper for acceptance or for payment, and will protest it if necessary. Proceeds of collections cannot be withdrawn until a week after the due date of the paper.

Exchange Operations.—The Bank is authorized to deal in exchange, either for the purpose of transferring to the central office any funds it may have in the provinces, or in foreign countries, or for the purpose of transferring funds from the main office to any place where they may be needed. The rates of exchange are fixed daily, and a list of them is made, to which the public has free access. Bills of exchange signed by the governor and payable wherever the Bank has funds are sold to all who ask for them. In order to make a transfer of funds upon its own account, the Bank is authorized to purchase domestic or foreign bills.

Edition: current; Page: [250]
Foreign Bills Purchased, 1880 to 1894.
YEARS. Francs. Pounds Sterling. Marks.
1880 27,274,399 527,707
1885 25,444,546 1,181,487
1890 55,288,186 2,918,163 6,814,893
1891 74,301,744 1,901,559 18,059,328
1892 48,800,916 2,011,617 5,058,825
1893 35,221,004 2,182,493 6,951,238
1894 21,968,495 1,339,617 761,205

Loans.—The Bank makes loans on public securities, exchequer bills, mortgage bonds, railroad bonds, and other industrial and commercial securities; but it cannot loan upon its own shares. The maximum amount of a loan is eighty per cent. of the value of the security on the day the money is advanced; the minimum term is ten days, and the maximum ninety, except that loans may be made for 120 days under the same conditions that would justify the discount of paper having that number of days to run. The least loan made by the Bank is 500 pesetas; if the collateral loses ten per cent. of its value the borrower must deposit additional collateral or reduce his loan proportionately. The loaning rate is usually the same as the discount rate.

Ordinary Loans and Loans in Account Current.
YEARS. Amount of Loans. STATE OF LOANS.
Maximum Minimum. Average.
PESETAS. PESETAS. PESETAS. PESETAS.
1874 77,300,000
1875 256,800,000
1880 486,700,000
1885 918,700,000
1886 823,800,000
1887 737,000,000
1888 759,900,000
1889 788,500,000 203,100,000 167,000,000 183,100,000
1890 845,900,000 251,300,000 197,000,000 214,400,000
1891 931,400,000 286,800,000 233,000,000 257,700,000
1892 760,400,000 268,600,000 169,400,000 203,200,000
1893 519,700,000 171,400,000 132,900,000 144,000,000
1894 360,400,000 135,100,000 98,100,000 110,100,000

Loans on Bills of Lading.—To persons whose names are upon its credit list the Bank makes loans on bills of lading accompanied by invoices, and upon storage receipts issued by legally authorized warehouses. The merchandise Edition: current; Page: [251] must be insured, and the loan cannot exceed fifty per cent. of its current market value.

Special Deposits.—The Bank accepts on special deposit Spanish and foreign coin, gold and silver bars, precious stones, State funds, and all securities quoted on the Bourse. The receipts delivered by the Bank are or are not transferable by indorsement, at the will of the depositor. The minimum deposit of gold or silver or precious stones is of the value of 250 pesetas, and the maximum 75,000 pesetas. The commission for the first year is one-half of one per cent. per quarter, or two per cent. for the year; for the following years it is one per cent.; a whole quarter’s commission is charged for any period less than a quarter. The only obligation assumed by the Bank is that of returning the deposit intact. It undertakes to collect coupons of bonds deposited. No commission is charged upon deposits of specie unless the depositor demands a return of the identical coin deposited.

Accounts Current of Securities.—We find at the Bank of Spain one very interesting class of business (though it is there transacted in a somewhat rudimentary manner), the counterpart of which is not to be found elsewhere, except in Germany and Austria in those private establishments known as “Giro und Kassen Verein.” We refer to accounts current of securities. Any depositor who wishes may open such an account; he can withdraw his securities by means of cheques or drafts, but a separate account current must be opened for each different kind of security, and this necessitates a very complicated system of bookkeeping.

Specie Deposits (in Millions and Hundreds of Thousands of Pesetas).
YEARS. DEPOSITS. WITHDRAWALS. STATE OF THE ACCOUNTS.
Number. Amount. Number. Amount. Maximum. Minimum. Average.
1875 50.5 45.9
1880 106.3 97.5
1885 7,617 90.2 6,992 87.6
1886 8,199 99.3 7,320 88.8
1887 8,548 105.5 9,240 101.6
1888 9,654 120.7 8,943 116.1
1889 9,389 107.7 9,142 113,6
1890 10,031 93.8 9,908 108.4 54.0 40.8 51.0
1891 8,438 75.6 9,021 80.0 44.7 34.5 40.6
1892 7,129 55.9 7,309 58.8 36.3 32.8 34.3
1893 6,883 56.8 8,817 60.1 34.9 26.4 32.2
1894 6,248 54.7 6,426 57.9 30.7 24.4 27.0
Edition: current; Page: [252]
Deposits of Securities.
YEARS. DEPOSITS. WITHDRAWALS.
Number. Value. Number. Value.
PESETAS. PESETAS.
1875 2,020,400 2,957,200
1880 3,736,700 3,913,000
1885 22,043 3,396,900 17,419 3,469,900
1886 28,120 4,706,800 28,497 4,745,000
1887 32,750 3,218,400 29,200 2,677,100
1888 29,709 1,979,800 23,919 2,046,400
1889 28,987 1,877,400 22,611 1,720,700
1890 31,122 2,018,900 24,973 1,830,900
1891 37,627 3,204,500 30,220 2,206,100
1892 48,991 5,283,200 33,201 4,215,700
1893 42,471 2,718,800 34,569 2,093,900
1894 40,875 2,730,000 36,090 2,837,500

On December 31, 1894, the Bank had in its possession, including special deposits, pledges, securities belonging to the State and those in the custody of the courts, a mass of securities estimated to be worth 5,651,848,503 pesetas. This is one of the largest amounts, if not the very largest, to be found in any European bank of issue.

The Bank also deals in gold and silver.

ADMINISTRATION OF THE COIN AND PAPER CIRCULATION.

By decree of 1874, the Bank of Spain acquired the right to issue paper money to five times the amount of its capital; but its metallic reserve had to represent one-fourth the outstanding sum of the circulation. The law of July 14, 1891, modified those regulations. It authorized the Bank to carry its circulation to 1,500,000,000 pesetas upon a metallic reserve equal to one-third of that issue; the reserve must be at least fifty per cent. in gold, whilst the remainder or any part of it may be in silver. In no case can the amount of the circulation, together with the current accounts and deposits of securities, exceed the total of the coin on hand together with the aggregate of advances and commercial paper; included in the latter item there must be no bills receivable which have more than ninety days to run. Bonds of the four per cent. Public Debt, shares of the Tobacco Monopoly, Treasury bonds which are issued upon the security of the Tobacco Monopoly, and also bills of exchange and Treasury bonds of the floating debt are constituents in the guaranty fund for the issue of circulating notes.

In authorizing the increase of the circulation, the State had its eye primarily upon a permanent loan of 150 million pesetas, and it looked forward to advances which grew gradually upon the security of Treasury pay orders. Edition: current; Page: [253] The public was not deceived; it became convinced that the scrip was badly guaranteed, and the provisions of the law brought about a considerable increase in the rate of exchange. The premium on gold had remained, in 1890, between a maximum of 4½ and a minimum of 1½ per cent.; the variations of 1891 were significant, as will appear from the following comparison of the fluctuations in the gold premium.

1891 Maximum. Minimum.
January 3½ per cent. 2½ per cent.
February 3½ per cent. 2½ per cent.
March 3 per cent. 2½ per cent.
April 3 per cent. 2½ per cent.
May 8 per cent. 2½ per cent.
June 6¼ per cent. 4½ per cent.
July 7½ per cent. 5 per cent.
August 8¼ per cent. 7 per cent.
September 9 per cent. 7½ per cent.
October 13 per cent. 8 per cent.
November 14 per cent. 11½ per cent.
December 14 per cent. 11 per cent.
In 1892 the premium varied from 22 per cent. to 12 per cent.
In 1893 the premium varied from 24 per cent. to 15 per cent.
In 1894 the premium varied from 23 per cent. to 11 per cent.

The deterioration of exchange was too closely parallel with the working of the new law to preclude the conclusion that it was the simple relation of cause and effect. The protective measures which France took against Spanish exportations, and vice versâ, have still further aggravated the evil, as Spain is heavily indebted to France, through her having constructed the larger part of the Peninsular railroads with French capital, while France, moreover, holds a considerable amount of Spanish Government bonds. There is no doubt that the credit of the bank notes has suffered thoroughly from these commitments. Meanwhile, the Bank’s metallic reserve has grown continually, as the following statement of the metallic coin stock on hand on December 31st will show:

PESETAS.
1874 54,100,000
1875 129,100,000
1880 200,600,000
1885 127,200,000
1886 193,900,000
1887 283,300,000
1888 298,700,000
1889 231,900,000
1890 234,000,000
1891 274,000,000
1892 321,100,000
1893 372,600,000
1894 475,700,000

The coin stock consists of gold and silver, the latter being on an equal legal status with gold; but as Spain is not in the Latin Union, she cannot export her white metal. Consequently, she has a large store of money Edition: current; Page: [254] which is absolutely deceptive; for the duro, the 5-pesetas piece, is intrinsically lower in value than the paper money at the present price of silver. The Bank is always ready to pay out the duro, but refuses, absolutely, to pay in gold, as the paper is preferred to silver, which is not as much in use as the paper. Spain, although theoretically a free-currency country, is practically under the régime of forced currency. Besides, the legal prescription that the metallic reserve should consist of at least fifty per cent. in gold is not observed.

We give the composition of the coin stock of the Bank on December 31st, for seven recent years:

Gold.—Pesetas. Silver.—Pesetas.
1888 77,000,000 221,700,000
1889 102,900,000 129,000,000
1890 151,800,000 82,000,000
1891 160,000,000 114,000,000
1892 190,300,000 130,800,000
1893 197,900,000 174,700,000
1894 200,100,000 275,600,000

The variations of the metallic stock are not of wide range, as virtually only silver is to be found in circulation.

The fluctuations in the Bank’s stock of coin are not abnormally wide, as will appear from the following comparison:

YEARS. Maximum. Minimum. Average.
PESETAS. PESETAS. PESETAS.
1886 245,000,000 143,900,000 194,200,000
1887 326,600,000 237,600,000 295,500,000
1888 358,000,000 297,600,000 328,900,000
1889 326,400,000 231,400,000 287,800,000
1890 290,300,000 234,800,000 261,800,000
1891 274,000,000 225,800,000 243,800,000
1892 321,800,000 285,000,000 308,900,000
1893 372,600,000 315,900,000 349,200,000
1894 475,700,000 375,000,000 420,900,000

THE CIRCULATION OF THE BANK.

The amount of the circulation of paper swells from year to year, on account of the incessant wants of the Government. Each business year means to the Bank an added weight to the burden which it carries in the paper of the State; which is the principal, if not the veritable guarantor, of the Bank’s notes. The following statement shows the steady augmentation of the issues for the twenty years ending with 1894:

Edition: current; Page: [255]
YEARS. Maximum. Minimum. Average.
PESETAS. PESETAS. PESETAS.
1874 72,100,000 58,100,000 65,900,000
1875 139,700,000 73,300,000 111,100,000
1880 269,000,000 185,100,000 227,500,000
1885 469,000,000 388,900,000 424,400,000
1886 526,600,000 473,100,000 493,700,000
1887 612,100,000 529,600,000 582,900,000
1888 722,700,000 609,600,000 658,000,000
1889 749,900,000 705,300,000 724,100,000
1890 748,700,000 726,300,000 740,900,000
1891 811,700,000 728,600,000 750,400,000
1892 894,600,000 805,600,000 846,400,000
1893 944,400,000 877,900,000 911,900,000
1894 947,500,000 900,900,000 931,500,000

DENOMINATIONS OF THE NOTES.

The denominations are of 25, 50, 100, 125, 250, 500, and 1000 pesetas. The distribution of the circulation, as to denominations, stood, in December, 1894, as follows:

PESETAS.
Notes of 1000 pesetas 257,660,000
Notes of 500 pesetas 118,801,500
Notes of 250 pesetas 302,000
Notes of 125 pesetas 141,000
Notes of 100 pesetas 297,873,800
Notes of 50 pesetas 142,903,650
Notes of 25 pesetas 91,881,350
Total 909,563,300

A peculiar circumstance is that the only denominations which are virtually useful in Spain are those of 1000 and 100 pesetas.

LIABILITIES VERSUS ASSETS.

Spain may be taken as a type of the countries “whose exchange is wrecked,” to use an expression of M. Leroy Beaulieu. The bad condition of the exchange is easily understood, if we consider that the credit of the Bank and of the State are merged into one. An examination of the balancesheet of December 29, 1894, will show that the Bank has neither capital nor reserves; thus—

PESETAS.
Formal capital 150,000,000
Formal reserves 15,000,000
Total 165,000,000
Edition: current; Page: [256]

These are absorbed by

PESETAS.
The permanent Treasury advance 150,000,000
And by the Bank buildings 17,755,694
Total 167,755,694

On the other hand, the debts payable on demand consist of:

PESETAS.
Circulation 909,435,800
Current accounts 282,121,074
Deposits 24,536,827
Dividends and interest due 34,738,986
Total 1,250,832,687

To meet these obligations, the Bank owns the following assets, which are, indeed, realizable funds, or supposably so:

PESETAS.
Gold 200,105,026
Silver 275,550,960
Foreign credits 56,228,176
Foreign commercial paper 1,000,735
Discounts 171,089,645
Advances 106,451,577
Commercial paper to collect 2,384,046
Total 812,810,165

Consequently, the Bank owes demand debts to the amount of 438,022,522 pesetas, which are represented purely by State scrip, which is rather difficult to turn into cash. The State securities so held are:

PESETAS.
Shares of the Tobacco Monopoly 12,270,000
Other stock 5,485,235
Four per cent. funded debt 413,489,302
Four per cent. funded debt 5,421,831
Treasury bonds 45,728,086
Total 482,394,454

There is no doubt that if Spain had not its system of bimetallism, which allows it to pay its debts in silver which nobody wants, she would have been long ago under a forced currency régime. The 482,400,000 pesetas of Treasury securities which the Bank holds are a genuine asset; but they represent obligations of a State heavily in debt; and it can hardly be considered that a bank note which is secured by 275,000,000 of silver worth fifty per cent. of its face value and by 482,000,000 of securities whose value Edition: current; Page: [257] is far from being unquestionable, is equal to its face value in gold. The public understand the situation; and therein lies the principal cause of the unfortunate condition of the paper and coin circulation and of the Spanish rate of exchange.

RELATIONS BETWEEN THE BANK AND STATE.

The law of March 19, 1874, stipulates that the Bank can only negotiate public securities or make advances to the State upon substantial guaranties which can be readily turned into funds. This principle has been clearly violated by the law of July 14, 1891, by which the Bank was compelled to loan the Treasury 150,000,000 pesetas without interest. Reimbursement of this loan cannot be demanded before the expiration of the Bank’s privilege. The payment of debts owed to the Bank by the State, the provinces, and municipalities cannot be delayed in any case and the debtors cannot refuse settlement. Originally, the Bank had charge of the tax collections; but now it is released from this service. According to a law of May 12, 1888, however, it must undertake the State Treasury business for five years upon the following terms: It must gather the product from all sources of revenue of the State and centralize it at Madrid and the provincial branches. For this purpose, all administrations under the Ministry of Finance, who are in charge of the management and collection of revenues, must pay their receipts into the Bank. As in former contracts, the Bank paid the interest and assessments for the redemption of the four per cent. debt, and for the foreign two per cent. debt, by taking the necessary funds out of the taxes and revenue paid in. If necessary, the Bank may make advances, and if a balance in its favor appears it is entitled to interest at one per cent. less than the discount rate; this rate of interest, though, cannot exceed three per cent. The debit balance of the Treasury is guaranteed by three months’ paper which can be renewed until expiration of the agreement. In case of grave, exceptional events, the maximum of interest is subject to change. The Treasury has a current account at the Bank, in which payments are credited and drafts by the Treasury debited. This account is settled every three months. The Treasury pays interest on debit balances as stated above; the Bank pays no interest on credits in favor of the Treasury. Such credits serve for the settlement of disbursements made by the Bank. If the balance due the Bank exceeds 165,000,000 pesetas, the Treasury must issue certificates at three, six, or nine months’ maturity and hand them over to the Bank, which can negotiate them in order to reduce the open debt of the Treasury to 165,000,000 pesetas. The Bank redeems these certificates for account of the Treasury and charges them to its debit. It also collects funds due the Treasury in foreign places, and supplies the funds for the payment of the public debt and other obligations of the State wherever this may be necessary. The Treasury is charged with the expense of such transactions. The agreement, which expired on June 30, 1893, was Edition: current; Page: [258] extended until June 30, 1894, since when it runs on from year to year by tacitly implied acknowledgment.

Current Account of the Treasury with the Bank.
Paid In.—Pesetas. Paid Out.—Pesetas.
1888 439,500,000 476,600,000
1889 818,800,000 875,400,000
1890 962,600,000 944,500,000
1891 904,200,000 927,400,000
1892 988,500,000 924,500,000
1893 1,122,100,000 1,077,100,000
1894 1,159,600,000 1,204,900,000

In order to meet a deficit of about 750,000,000 pesetas, and the extraordinary expenses of the Carlist War in 1876, the Minister of Finance transferred to the Bank the proceeds of the ground and manufacturing taxes, as guaranty of an issue of 580,000,000 pesetas in pagarés (promissory notes), and a reserve fund of 70,000,000 pesetas set aside to ensure the payment of interest, and the gradual redemption of these obligations. This agreement was made by virtue of a law dated June 3, 1876. This issue was made at eighty-five per cent., which netted only 493,000,000 pesetas, and the Government entered into a new arrangement with the Bank, by which the Treasury certificates which were paid and returned to the Treasury were again applied to guaranty the floating debt, which, consequently, cannot decrease.

In order to regulate the service of the floating debt the Bank has had a current account with the Treasury since July 1, 1888. All remittances of Treasury certificates are placed to its credit, and negotiations of these securities by the Bank for State account are charged to the debit of this account.

Account of Securities.
YEARS. Received. Disposed of. Balance on Dec. 31st.
PESETAS. PESETAS. PESETAS.
1888 1,183,300,000 828,600,000 354,700,000
1889 421,800,000 543,100,000 233,400,000
1890 474,200,000 459,400,000 248,200,000
1891 840,100,000 814,300,000 292,000,000
1892 1,405,100,000 1,084,400,000 612,600,000
1893 735,600,000 993,700,000 354,400,000
1894 1,715,600,000 1,302,000,000 767,100,000

It is interesting to watch the distribution of the Spanish debt abroad. Edition: current; Page: [259] The places of payment, as judged by the currency, are scarcely a precise guide in the matter, but they help to give a fair estimate:

Payments.
YEARS. Francs. Marks. Pounds Sterling. Lire. Reis. Total in Pesetas.
From July 1, 1888, to Dec. 31, 1890 15,487,990 1,548,910 526,639 465,301 1,026,730,675 38,784,626
1891 2,623,248 243,902 194,103 338,780 149,182,849 9,734,866
1892 4,131,617 264,037 379,781 199,203,181 13,571,046
1893 5,040,657 348,686 329,090 181,162,145 17,541,040
1894 2,823,768 15,942 238,792 340,337 130,432,345 12,090,244

The above table shows very clearly the effect of the deterioration of exchange on Spanish finances. The expenses caused by increased rate of exchange may be estimated at about 2,000,000 pesetas, for the period of July 1, 1888, to December 31, 1890. In 1891, they amounted to 800,000 pesetas; in 1892 they were 1,200,000 pesetas; in 1893, the cost was 2,400,000 pesetas; and the expenses of 1894 amounted to 2,200,000 pesetas. Still, it must be noted that, through the circumstance of the high Italian and Portuguese exchanges, Spain’s chances were essentially favorable for the payment of interest due in those countries. We speak here only of payments made for Government account, but, if we consider that the bonds of Spanish railroads are principally held in France, it becomes evident what a formidable increase in expenses these enterprises have to pay in consequence of the depreciation of the Spanish circulating medium. Hence, we can understand how certain railway companies considered French money too dear, and paid their interest obligations in depreciated pesetas, in violation of contract.

It is rather difficult to determine the amount of taxes which the Bank pays. The statements mention the following: First, ground tax and stamp duty; second, the tax on the profits, which seems to amount to about 16.50 per cent. of the dividends.

PROFITS AND EXPENSES OF THE BANK.

If the Bank of Spain is seriously embarrassed by the defective credit of its notes, which is due to its too intimate relations with a Treasury whose administration is utterly faulty, it makes, nevertheless, very considerable profits. We know of no other establishment which earns such an income for its shareholders.

The statistics of the profit and loss account can be established in a positive manner only since 1881.

Edition: current; Page: [260]
Annual Profits.
YEARS. Working Profits. Carned from former Business Years. Profits from Investments. Total.
PESETAS. PESETAS. PESETAS. PESETAS.
1881 22,321,788 3,067,598 10,542,182 35,931,568
1882 37,837,794 3,177,277 23,482,482 64,497,553
1883 19,466,004 801,594 22,823,550 43,091,148
1884 16,577,852 1,781,739 22,678,900 41,038,491
1885 17,730,819 855,291 22,883,830 41,469,940
1886 22,113,824 2,105,972 23,449,430 47,669,226
1887 22,018,778 2,503,215 23,352,000 47,873,993
1888 19,628,535 6,243,519 23,344,165 49,216,219
1889 22,573,918 5,706,077 23,111,623 51,391,618
1890 25,236,777 5,686,961 23,175,396 54,099,134
1891 28,893,526 5,840,622 22,064,022 56,798,170
1892 27,994,508 3,984,692 22,639,706 54,618,906
1893 28,317,372 3,146,973 22,740,350 54,204,695
1894 24,883,961 2,474,852 22,046,857 49,405,670

The high proportion of the profits accruing on investments is the most palpable proof of the bad condition of Spain’s finances. A similar situation prevails in the Bank of Portugal and the National Bank of Greece. All States with “wrecked” finances use their principal credit establishment for the marketing of their signature, and pay very dearly for this dangerous service. The country suffers not only from the exorbitant sums which it pays to the banks, but still more so from the increased rate of exchange. A candid examination of these conditions warrants the conclusion that it would have been better to establish a State bank pure and simple. Such a bank would at least show merit in lending its signature gratis. A bank whose credit depends absolutely upon the State, and which stands responsible while it cannot offer opposition to the Government’s prodigality and bad management, has all the drawbacks of a State bank, with hypocrisy added.

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RUNNING EXPENSES.

The running expenses of the Bank are considerable, as will appear from the subjoined statement covering fourteen years:

YEARS. Taxes. Business Expenses. Miscellaneous Charges. Total.
PESETAS. PESETAS. PESETAS. PESETAS.
1881 3,561,600 2,955,953 1,468,434 7,985,987
1882 6,223,221 4,402,128 6,444,599 17,069,948
1883 3,526,371 3,617,554 8,746,506 15,890,431
1884 4,588,721 3,417,857 921,094 8,927,672
1885 3,837,253 4,448,776 1,823,372 10,109,401
1886 4,515,187 4,221,837 2,587,389 11,324,413
1887 5,085,425 5,020,931 2,210,408 12,316,764
1888 5,981,940 4,866,194 1,706,956 12,555,090
1889 5,352,449 6,311,366 2,001,331 13,665,146
1890 5,378,776 6,266,597 3,639,569 15,284,942
1891 5,124,922 6,711,743 5,640,863 17,477,528
1892 5,451,803 6,491,893 8,949,992 20,893,688
1893 6,702,913 6,278,159 5,748,410 18,729,482
1894 6,315,291 6,172,735 3,078,789 15,566,115

DIVIDENDS.

The dividends of the Bank are very favorable, and the Bank’s shares are quoted high, as will appear from the subjoined data:

Dividends. Market Value of Shares on December 31st.
PESETAS. PESETAS.
1881 120 per share. 2470
1882 90 per share. 1995
1883 80 per share. 1317
1884 95 per share. 1512
1885 95 per share. 1675
1886 110 per share. 1950
1887 110 per share. 2090
1888 100 per share. 2095
1889 100 per share. 2097
1890 100 per share. 2000
1891 100 per share. 1920
1892 100 per share. 1870
1893 110 per share. 1880
1894 100 per share. 1957

REPORTS AND BALANCE-SHEET.

The Bank of Spain publishes annually a statement of its transactions. That document is rather explicit and well arranged; it contains numerous figures, some of which, though, are not sufficiently explained. The statement is a valuable source of information, which is extensively sought. Moreover, an abridged balance-sheet is published weekly, one of which we here reproduce:

Edition: current; Page: [262]
ASSETS. November 30, 1895.
PESETAS.
1. Gold 200,111,092.71
2. Silver 270,104,865.81
3. Foreign correspondents 45,067,323.01
4. Foreign paper 8,481,219.75
5. Discounts 137,454,506.44
6. Loans 198,041,009.97
7. Commercial paper due 2,254,497.34
8. Tobacco stock 12,270,000.00
9. Other securities on hand 31,186,886.47
10. Redeemable 4 per cent. debt 405,341,958.75
11. Redeemable 4 per cent. debt (law of July 14, 1891) 4,072,895.98
12. Treasury certificates (law of June 26, 1894) 61,453,000.00
13. Negotiable Treasury notes 87,685,645.75
14. Copper coin for the Ministry of Finance 6,385,599.20
15. Treasury fund for payment of interest on the floating debt 10,196,836.36
16. Foreign transactions for Treasury account 589,891.23
17. Advance to the Treasury (law of July 14, 1891) 150,000,000.00
18. Real estate 17,673,952.05
19. Miscellaneous accounts 84,237,426.33
1,732,608,607.15
LIABILITIES.
PESETAS.
20. Capital of the Bank 150,000,000.00
21. Reserve fund 15,000,000.00
22. Profit and loss, { Realized 11,198,005.34
{ Not realized 1,119,273.42
23. Bank note circulation 987,691,375.00
24. Current accounts 366,388,472.77
25. Deposits in coin 25,296,715.61
26. Dividends, interest, and other obligations to pay 27,135,715.33
27. Tax reserves 30,570,068.57
28. Current account of cash for the Public Treasury 15,191,775.63
29. Credits granted on public securities 103,017,205.48
1,732,608,607.15

The two first items of the assets give the amount of gold and silver which constitute the metallic reserve of the Bank. The third item represents outstanding debts of the Bank owed by foreign correspondents who buy exchange for the Bank and pay the interest on the public debt. In item 4 we have the foreign paper owned by the Bank. The fifth item represents Edition: current; Page: [263] the stock of commercial paper, and the sixth shows the loans made. Item 7 concerns commercial paper out for collection. From 8 to 13 the statement recapitulates the securities held by the Bank; we have already spoken of these in detail. Item 14 shows the amount of copper coin; the Bank receives this for Treasury account and does not carry it under the head of coin on hand. Item 15 gives the amount of the loans granted by the Bank for payment of interest on the floating debt; and No. 16 shows the expenses which the Treasury has to pay back to the Bank. The permanent loan of 150,000,000 pesetas, which resulted from the stipulations of the law of July 14, 1891, appears as the seventeenth item; while No. 18 declares the value of the Bank’s buildings. Finally, No. 19 consolidates the accounts of the Bank, which are not mentioned in detail.

In the liabilities, items 20 and 21 correspond to capital and reserve. The profit and loss account which follows indicates the profits of the running year, and the statement distinguishes between profits actually made and those which will be realized only after maturity of the engagements from which the profits are derived. Item 23 gives the paper circulation; next come current accounts and deposits in coin; then dividends of the Bank and interest on the public debt which has matured but not been called for as yet. Under item 27 we find the reserves made up from taxes which are set aside for the payment of the public debt; we explained this in detail before. Item 28 represents the current account of the Treasury; and the statement closes with the balances of open credits which the Bank has established against deposit of public securities.

CONCLUSION.

The Bank of Spain is one of the strangest institutions of issue in Europe. On the ground of the amount of its business and the high figure of its profits, it occupies one of the first places among banking establishments of its class; but this apparent prosperity conceals an incurable weakness. The Spanish financial administration leaves much to be desired. The budget is never made up in a thorough and responsible manner; deficits are the rule, and the floating debt, which widens the chasm between expenses and receipts, grows steadily. The Bank absorbs all Treasury certificates and orders for the redemption of its own notes, and so sells its credit very dearly to the State. The public is not duped by this transaction, and its misgivings find expression in the fact that the people are always ready to give 117 or 118 pesetas paper for 100 pesetas in gold. The old traditions of the Bank of San Carlos and the Bank of San Fernando are still extant, and the same faults cause the same calamities.

Of course, Spain has formally no forced currency; but while she boasts of exchanging her paper for hard money over the counter, she only bandies words. She proposes to pay for bank notes in a clumsy money which does not circulate abroad and which, instead of being preferable to paper, offers Edition: current; Page: [264] only drawbacks; she neither takes in nor pays out gold. According to the Gresham law, bad silver and paper have systematically driven away good money, and to-day not a single twenty-peseta gold piece can be found in Spanish circulation. Consequently, the Bank gives only the choice between paper or money which is worth still less, and yet forced currency is not acknowledged.

Nevertheless, the Bank’s signature lends a certain additional value to its paper money. Although the bank note is only redeemed in silver which has lost fifty per cent. of its metallic value, the paper is worth eighteen to twenty per cent. below par. In calculating the loss, two elements must be taken into consideration. First, the absolute depreciation of the paper money on account of the insufficient guaranty which it offers; and then the increased exchange owing to the ugly situation of Spain’s balance of trade. The country has no large capital and has to place Government loans with its neighbors. Spain depends upon them for her railroads, port and canal improvements, etc. The extremely large amount of interest which she owes abroad could only be counterbalanced by large exports of merchandise and products of the soil, and she needs a very severe control over her imports. Yet, in spite of an almost prohibitive customs tariff, which is often intensified by harsh interpretations of the officers in charge, Spain’s imports are constantly higher than her exports. Again, Spain’s wines, which constituted the main staple for export, are kept out of France, as the French vineyards which were destroyed by the phylloxera have recovered; and, moreover, France inaugurated a protective tariff in 1892. Thus there seems to be little hope for an improvement in Spanish exchange.

The bimetallist school has built quite a framework of theories to demonstrate that a high exchange against a country is favorable to the sufferer; that it develops its industries and foreign commerce; but such reasoning has scarcely been applicable in the case of Spain. She struggles with genuine courage against all kinds of difficulties caused by her bad economic conditions. The high exchange against her is its most striking symptom, and credit, which plays such an important part in the capital of a nation, is seriously compromised to the detriment of Spain. The Bank is accused—we think wrongly—of aggravating the evil by squeezing the Government.

If Spain does not resolve to issue paper money on her own account—which would seem to be advisable—and if she has not the wisdom or rather the opportunity to bring her expenses upon a level with her revenues, she is compelled to call upon the principal credit establishment of the country for discounts and for the disposal of Treasury bonds. It is natural, and even necessary, that the Bank should demand good compensation; for therein lies the only means for moderating the Government’s exactions. Spain suffers from the mistake which economists fight in vain—the error that the Government can do as it pleases with the money and credit of the country. Laws do not change the nature of affairs, and if matters are handled contrary Edition: current; Page: [265] to nature, immediate and sudden countershocks show that mistakes have been made, and those who danced must pay the piper.

Virtually, Spain is under forced currency rule. She has misused her Bank; she has deflected the bank note from its natural purpose; she has harvested as she has sown, and suffers from her errors the same as Italy, Portugal, Greece, and many others in the past and present. The decline of credit and the depreciation of the national money are the natural disastrous consequences which result from her course.

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PART IV.: BANKING IN BELGIUM.

THE BANK OF BELGIUM.

ITS EARLY VICISSITUDES.

THE National Bank of Belgium is of comparatively recent origin. It was founded under an act of May 5, 1850, the first article of which provided: “A bank which shall be known as the National Bank is established.” Its purpose was declared to be to regulate the issue of paper currency, and secure uniformity in the bank note circulation of Belgium.

Four banks had previously been in competition—the Société Générale, the Bank of Belgium, the Bank of Flanders, and the Bank of Liege. The last two were local institutions; the first two had charge of the Government service. The Société Générale, founded in the beginning of the century, was a powerful establishment, which, under the Dutch régime, attended to the collection of public revenues. In 1830, when Belgian independence was proclaimed, the new government could not dispense with the co-operation of the Société Générale. The latter, taking advantage of the circumstances, caused the State much embarrassment by refusing to agree to any supervision over its administration of public moneys. The Government, deciding to put an end to the vexation, authorized in 1835 a new bank of issue, and gave it the name of Bank of Belgium. The privilege of performing cash transactions for the State was taken away from the Société Générale and conferred upon it. The two banks did not get on well together. The Société Générale even endeavored to force the Bank of Belgium into bankruptcy, by suddenly demanding the redemption of a large amount of currency. This rivalry weakened and greatly embarrassed both, when the crisis of 1836 came on. Neither the Société Générale nor the Edition: current; Page: [268] Bank of Belgium had obtained the experience necessary for properly regulating the paper circulation. Both had done a large business in commercial and industrial transactions at long maturity. The public holding the notes of the Bank of Belgium took fright, and to avoid a suspension of payments the Bank was obliged to appeal to the Treasury for assistance. The years 1837, 1838, and 1839 were disastrous for the Belgian banks. The Société Générale was able to retrieve its position, but the Bank of Belgium was so distressed that, in 1842, it had to resign its function of State depository, which reverted to the Société Générale. The Government, however, did not forgive the Société Générale. It felt keenly the humiliation of being obliged to return to that institution after striving to do without its services, and devised a plan for a new bank of issue which it purposed carrying into execution at the earliest opportunity. In 1843, the concession of the Société Générale as a chartered company expired. The shareholders desired to prolong their agreement for twenty-five years, but the Government reserved the right to require changes in the regulations before the end of 1849. In 1848, the shock of the revolution that had just broken out in Paris was felt in Belgium, and the Société Générale suspended payments. The Government embraced this opportunity to carry out its project. At the beginning of 1849, the President of the Ministry demanded various reforms and modifications which, if accepted, would have compelled the Société Générale to wind up its affairs at the sacrifice of very important business. The Société Générale declined to preserve at such a price the right of issue, which was thereupon transferred to the new National Bank of Belgium.

The National Bank is not formally granted a monopoly of issue, but possesses it in practice. The law appears to permit the coexistence of several banks, prescribing that “no bank of issue can be established on shares except under the form of a stock company and by a statute.” Out of this proviso arises the monopoly of issue. M. Pirmez, referring to this subject in his report to the Chamber, said: “De facto, we have in Belgium only one bank of issue. De jure, liberty to create banks of issue is accorded to individuals, partnership concerns, and companies which have no stock on the market; but there is no such liberty for open and joint-stock companies. The latter owe their existence to law, which can enforce its own terms. By stipulating that banks of issue must be stock companies the Government reserves the right to grant or refuse authority to issue paper money.”

The Bank had a struggling beginning, and the support of the Government did not strengthen it much. To offset the somewhat dubious advantages bestowed, the State had imposed upon it exceedingly heavy burdens, which will be considered in detail under the head of the relations of the Bank with the Treasury. Moreover, the Bank had to contend against the antagonism of the Société Générale, which, with the experience of age, understood better the art of distributing credit. But it gradually obtained education, and its transactions grew. During the crises of 1857 and 1863, it rendered all the services naturally to be expected of a well-regulated bank of issue. Edition: current; Page: [269] The year 1870 was a time of trial for the Bank of Belgium, as for the Bank of France; and the difficulties in store for banks of issue having too intimate connection with the State received ample illustration. Belgium, contiguous to both France and Germany, was obliged to equip her army to assure respect for her neutrality, and became at the same time a market in which the two belligerent countries procured a part of the financial resources requisite for maintaining their armaments. The discounts of the Bank swelled rapidly, and, as always happens in troublous periods, the merchants and bankers made extraordinary calls, while the holders of bank notes, seized with apprehension, clamored for their redemption. The State itself had demanded the transfer to Antwerp of an amount in coin equal to the account current of the Treasury, and meantime had instructed its officers not to pay anything but paper to the Bank. The Minister of War went so far as to observe to the Chief of Corps that the military treasurers would do well to exchange the bank notes in their possession for gold and silver. As a matter of course, all these State performances intensified the fear of the public. The Bank had only one recourse for reassuring the people—to keep right on paying over the counter. In order to be able to do that, it raised the discount rate and placed restrictions upon the acceptance of commercial paper. These measures cost much both to commerce and the Bank, but payments were not suspended even for a day.

RENEWAL OF THE BANK’S CHARTER.

Upon emerging from this crisis the Bank moved for a reaffirmation of its charter, which, granted in 1850 for twenty-five years, was to run out in 1875. The negotiations with the Minister began in the first months of 1872, and they were speedily brought to conclusion. An act was framed extending the privilege for thirty years from 1873; but on very hard terms for the Bank, aggravating those of the 1850 contract, which had been considered sufficiently oppressive. The act was voted by the Chamber after much fulmination about monopoly and the unwisdom of giving over rights belonging to the State into the keeping of a private concern; which are always favorite themes when the subject of privileged banks is under debate. The law was promulgated May 20, 1872. Since that date, the history of the Bank of Belgium has had no very conspicuous aspects. There were bad days in 1873; and, more recently, the Bank has felt the effects of crises that have disturbed Europe, but it has never found itself in very serious straits.

ORGANIZATION OF THE BANK.

As has already been indicated, the Bank operates under no formal monopoly, but it has a substantial one, which will expire in 1903. The capital, which was fixed at 25,000,000 francs by the Act of May 5, 1850, was advanced to fifty millions by that of May 20, 1872. It comprises 50,000 shares of 1000 francs each. The shares provided for by the law of 1872 Edition: current; Page: [270] were allotted preferentially to the old shareholders, and were issued at 1100 francs, 1000 francs to go into the capital of the Bank and 100 francs into the reserve. The reserve is formed by a levy of fifteen per cent. on the net yearly profits above six per cent., and is intended to make good any losses that the Bank may suffer, and to complete, if necessary, the amount required for a 2½ per cent. half-yearly dividend to the shareholders. The capital and reserve are invested in consols; but that mode of investment is not obligatory. The Bank is prohibited from acquiring any real estate except what is strictly needful for its own business. The shares, of 1000 francs par value, 50,000 in number, are registered or to bearer, according to the preference of the holder. Changes from one form to the other are made free of charge. The Bank recognizes but one sole owner for each share. Dividends are payable every six months. The shareholders are liable only for the amount of their shares. They exercise their rights through the findings and decisions of the Shareholders’ Assembly.

The Shareholders’ Assembly represents the total body of shareholders. All persons owning at least ten shares are entitled to take part in its proceedings. Every member of the Assembly may be represented through the proxy of any other member of the Assembly. Ten shares entitle the owner to one vote. No person may cast more than five votes, either as a shareholder or a proxy. The ordinary meetings of the Assembly are held on the last Monday of February and the last Monday of August. Extraordinary meetings may be called upon the demand of the censors whenever the Council judges it useful to hold them. The February meeting receives the statement of transactions for the year, and certifies the balance-sheet. The August meeting selects persons to take the places of retiring members of the Council. Every proposition signed by five shareholders who are members of the Assembly is communicated to the Council ten days before the meeting and brought under deliberation. The regulations of the Bank cannot be modified except by General Assembly meetings called for the purpose.

MANAGEMENT OF THE BANK.

The management of the Bank is in the hands of a governor and six directors, who form the Administrative Council. A council of censors, consisting of seven members, acts as the body of comptrollers. The governor is nominated, suspended, or discharged by the King. He is appointed for five years, and may be reappointed indefinitely. His regular salary, fixed by the King, is paid by the Bank, which also provides him with a residence and furnishes it. He cannot be a member of the legislative body or draw a State pension. He presides in all councils and meetings, executes their decisions, and looks to the enforcement of the laws and regulations. He has the right to suspend the taking effect of decisions made by the Administrative Council, in order to submit them to the General Council, which he calls for urgent emergencies. It is his duty to suspend and denounce to the Government every act of the Council that is contrary to the statutes or Edition: current; Page: [271] adverse to the interests of the State. If the Government, having considered the conclusions reached by the governor, fails to come to a decision within a fortnight after his protest, the act can be carried out. The governor has the casting vote in meetings of the Administrative Council. He signs all documents making engagements for the Bank after they have received the signatures of the secretary and treasurer, or one director in lieu of either. He represents the Administrative Council in the courts, and also has authority over all the agents of the Bank, and can suspend them without reference to the Administrative Council. He must own fifty shares of the Bank’s stock, as security for his administration of the Bank. The King selects a vice-governor from among the directors, who acts instead of the governor in case of the latter’s absence, incapacity, or suspension. The General Assembly chooses the six directors, who must be Belgian citizens (native-born or naturalized), and reside in Brussels. They are appointed for six years, and may be re-elected. Each director must own at least twenty-five shares, and none of them can belong to the Administrative Council of any other bank. Besides their general functions, each is intrusted with the control of one department or more of the Bank, and has authority over the employees under him. Every director receives a salary of 6000 francs, and has a share in the profits. The director filling the office of vice-governor has an extra allowance of 3000 francs. The Administrative Council, consisting of the governor and directors, holds regular meetings three times a week, and special meetings whenever necessary. It considers all the concerns of the Bank, especially the rate on credits and advances, and discount affairs in general, and gives particular attention also to the purchasing of securities and to cases at law. Finally, it appoints and discharges the employees, and determines their salaries. In all matters it advises with the censors. The censors are named by the Shareholders’ Assembly for terms of three years. They retire in different years—three going out the first year, two the second, and two the third. Each censor must have ten shares. They get also a portion of the profits. The Censors’ Council meets at the call of the governor whenever the business makes it desirable, and at least once a month. It cannot adopt any decisions unless at least four members are present. It has control over all transactions, audits the books, and votes the budget of expenses prepared by the Administrative Council. It is responsible for all plans of modification affecting discounts and advances.

The governor, directors, and censors constitute the General Council, which meets on the last Saturday of each month. The General Council keeps under its cognizance the situation of the Bank, and acts on all questions submitted to it which relate to its laws and routine regulations. It apportions the divisions of profits, and passes upon everything affecting the production and issuance of the Bank’s notes. It selects a Discount Council from among the merchants, or old clients, which examines the paper presented for discount, and determines what to accept and what to reject. The State designates a Government Commissioner (whose salary the Bank Edition: current; Page: [272] pays), to exercise the functions of a comptroller, especially with regard to discounts and the note circulation. He has the right to look into the business condition of the Bank, and to inspect its books. In cases where he deems it proper, he has an advisory vote in the assemblies and councils.

BRANCHES, AGENCIES, AND BUREAUS.

Under the provisions of an act of July 17, 1872, the Bank has branches and discount offices in the principal cities of the provinces, and in other localities, where the usefulness of such establishments has become manifest. Article 3 of the same act obliges it to conduct agencies in all the principal judiciary districts, and in other places where the Government considers it convenient for the interests of the public and the Treasury to have them maintained. The branches are operated for the account and at the expense and risk of the Bank, under the general direction of three administrators, named by the Administrative Council. The officers and agents of the branches are nominated by the administrators, subject to the approval of the Administrative Council. The transactions of the branches are the same as those of the Bank, excepting that the former are under restrictions established by the General Council, with the sanction of the Minister of Finance. There is only one branch proper, that at Antwerp; but a great many agencies are in existence; which make advances on securities, lend cash services, open current accounts, issue trust orders, etc. The principal object of the agencies is the accommodation of the Treasury. The agents have also the character of State receivers and disbursers, and, consequently, are appointed by the King from a double list presented by the Administrative Council. They are also dismissible by the King; but the Bank may suspend them from office for the term of one month. Their salaries range from 5000 to 15,000 francs, according to class. The agents have power to choose their employees. Though dependent upon the State, the agents have extra-official relations with the officers of the Government. They keep regular accounts, which are inspected by the representatives of the Bank.

The Bank discounts only paper with three signatures. To perform its discount transactions, and bring them reach of all, it has adopted a most ingenious machinery, which, in many respects, might be advantageously imitated in other countries. Under the name of Comptoirs d’Escompte (Discount Bureaus), associations of persons are permitted by the General Council, which discount such paper as is specified by the regulations of the Bank, at rates and under conditions prescribed by the General Council. The paper admitted by the comptoirs is indorsed to the Bank direct.