Anarchism.net can thanks to Libertarian Labyrinth present a web version of William B. Greene’s classic 1870 Mutual Banking.
A series of meetings, in search of industrial equity, started in Worcester, Massachusetts,
August, 1867, disclosed a belief that the solution of the labor problem will not be found in
trades monopolies, special legislation to reduce the hours or increase the wages of service,
co-operation on present methods of ownership, exchange, and finance, or other expedients,
by restricting competition, to remove evils which natural forces would expel if allowed a
chance; but rather in opportunity and reciprocity, in the unrestricted liberty to create and
equitable exchange of values which only asks government to step out of the way. In the
progress of thought, service appeared to be the source of wealth, and the true basis of
exchange; while interest, rent and profit or dividends seemed inadmissible, except for work
done or risk incurred. The use of one's credit was found to be a natural right, antecedently
independent of human law, and free money the destined mediator between labor and capital.
After this faith was reaffirmed in the Boston Convention of January, 1869, we were
agreeably surprised to learn that substantially the same conclusions had been reached, by a
different line of argument, twenty years before, in a series of articles published in a
Worcester County newspaper over the signature of "Omega." Reprinted in 1850 and 1857,
these essays generously placed at our disposal by their author, we now have the pleasure of
reissuing for general circulation. The truths stated in them are as fresh and practicable today
as they were twenty years ago, and the public is better prepared to receive them,
Under the old slave system property in man held a sceptre more despotic than was ever
wielded by Napoleon or Caesar; its abolition brings us into a greater presence, which
overshadows president, courts and pulpits and is master of majorities and armies--Usury.
As a loyal representative of that perishable fruit of labor, property, money designates the
unadjusted balance in exchange, and serves all parties to the transaction. Enacted into a
monopoly, endowed with exclusive power, the servant becomes legal dictator over the
principal, renders workers dependent on idlers, exacts impoverishing tribute to its
centralizing power, and forces a progressive inequality of wealth. An exclusive currency,
especially if composed of a material naturally scarce and easily hoardable, enables the
privileged few in control to make interest and prices high, wages low, and failures frequent,
to suit their speculative purposes. Though the human conscience in all ages, nations and
religions, has protested against usury, though high rates of interest, now authorized and
enforced by Federal and State law, cripple and defraud productive capital, and take bread
from millions of tables in these States, still business men and other laborers submit to the
stupendous fraud as a "necessity." The Labor Reform League, aiming to destroy the
speculative power of money and of property, arraigns usury on its inherent sinfulness, and
enforces the consequent duty of its immediate abolition. As the best way to protect slaves
was to destroy mastership, so we would remove the necessity for usury laws by abolishing
despotic money. To this end we desire the withdrawal of the notes of the national banks, to
be replaced with treasury certificates of service, receivable for taxes and bearing no interest,
and the provision of free banking laws, whereby money may be furnished anywhere at cost.
Based on actual values; issued on principles of mutual insurance, by voluntary associations,
on their own responsibility, and at their own cost; individuals drawing against property
registered and guaranteed, as banks now draw against bonds deposited, money will be
backed by, and convertible into, the only thing it honestly represents, service in the concrete
form of commodities. To decree any kind of money legal tender, which is not natural tender,
receivable on its own merits, is, in the last degree, fraudulent and tyrannical.
The greenback we regard as mutual money, based on public credit; a treasury certificate of
service, of the nature of a check or draft on the whole amount of value in the country due the
government in taxes, and also on the amount due by contracts from citizens to each other.
As a measure of value it will serve practical purposes, provided the standard of value is some
product of labor, at least as definite as the old United States dollar, which consisted of 25
and 8-10 grains of gold, or 412 and 5-10 grains of silver. To allow the laws of supply and
demand free play, Congress should authorize at once (what should never have been
prohibited) gold contracts, and relieve business interests from the uncertain fluctuation and
speculative piracy which now invade them. The national bank scheme, based on debt, not on
credit, allowing private corporations to wield governmental power; forcing people to use and
pay exorbitant interest on notes "secured" by bonds which, in the impending crisis, may sell
for a song or be utterly worthless--is exceedingly treacherous, expensive and perilous.
While all concede that the price of money, like other commodities, should be regulated by
the cost of production still, the laws of Massachusetts, as of the nation, make free money a
penal offense. Thus our legislators have created a privileged class of credit-brokers, shielded
them from the competition to which productive business is properly exposed, and subjected
the whole material interests of the people to the plundering instincts of the stock exchange.
We make no war on gold, but insist it shall stand or fall on its own vaunted merits, and not
be the legalized spoliator of honest enterprise. Whatever may be its intrinsic utility--which
is far less than that of iron, and the world could much easier get on without it--its exclusive
use as money is born of fraud and unscientific confusion. In "panic" the assets of
manufacturers and merchants are more reliable than those of banks. Government coming to
the rescue of business by allowing banks to "suspend specie payments" is simply the
intervention of commodity credit, to save the sham credit of bullionists, when their "specie
basis" drops into the hoarder's strong box. It is high time governmental intrusion should
cease inflicting, misery by "antiquated prejudice for bits of yellow dross." Regulate wind
and tide, tornado and earthquake; limit breath to the lungs, and blood for the veins of forty
million people, but talk not of regulating money, which must obey the higher laws of
But we will not enlarge upon the issues of which our author presents a solution; granting
that usury is unjust, how it can be escaped, how a paper dollar more reliable, and with even
greater purchasing power than a gold dollar, can be furnished and loaned at cost--one per
cent. or less--are questions which borrowers would like to see answered. To such inquirers
and others we commend the following treatise. confident that, with intelligent and unbiased
readers, it will not only settle that issue, but clearly indicate what is not generally known, that
our reform is no class movement, but an utterance of primary wants of man in behalf of
universal interests, the battle of the merchant. the manufacturer, the farmer, of legitimate
enterprise, in all its manifold tendencies, to make inclination one with duty, liberty the bride
of order, and wealth coexistent with the benificent necessity of labor.
E. H. H..
Princeton, Mass., Jan. 20,1870.
The Usury Laws
ALL usury laws appear to be arbitrary and unjust. Rent paid for the use of lands and houses
is freely determined in the contract between the landlord and tenant; freight is settled by the
contract between the shipowner, and the person hiring of him; profit is determined in the
contract of purchase and sale. But, when we come to interest on money, principles suddenly
change: here the government intervenes, and says to the capitalist, "You shall in no case take
more than six per cent. interest on the amount of principal you loan. If competition among
capitalists brings down the rate of interest to three, two, or one per cent., you have no
remedy; but if, on the other hand, competition between borrowers forces that rate up to
seven, eight, or nine per cent., you are prohibited, under severe penalties, from taking any
advantage of the rise." Where is the morality of this restriction? So long as the competition
of the market is permitted to operate without legislative interference, the charge for the use
of capital in all or any of its forms will be properly determined by the contracts between
capitalists and the persons with whom they deal. If the capitalist charges too much, the
borrower obtains money at the proper rate from some other person: if the borrower is
unreasonable, the capitalist refuses to part with his money. If lands, houses, bridges, canals,
boats, wagons, are abundant in proportion to the demand for them, the charge for the use of
them will be proportionally low: if they are scarce, it will be proportionally high. Upon what
ground can you justify the legislature in making laws to restrict a particular class of
capitalists, depriving them invidiously of the benefit which they would naturally derive from
a system of unrestricted competition? If a man owns a sum of money. he must not lend it
for more than six per cent. interest: but he may buy houses, lands, ships, wagons, with it;
and these he may freely let out at fifty per cent., if he can find any person willing to pay that
rate! Is not the distinction drawn by the legislature arbitrary, and therefore unjust? A man
wishes to obtain certain lands, wagons, &c., and applies to you for money to buy them with:
you can lend the money for six per cent. interest, and no more; but you can purchase the
articles the man desires, and let them out to him at any rate of remuneration upon which you
mutually agree. Every sound argument in favor of the intervention of the legislature to fix by
law the charge for the use of money, bears with equal force in favor of legislative
intervention to fix by law the rent of lands and houses, the freight of ships, the hire of
horses and carriages. or the profit on merchandise sold. Legislative interference, fixing the
rate of interest by law, appears, therefore, to be both impolitic and unjust.
Effect of the Repeal of the Usury Laws.
But let logic have her perfect work. Suppose the usury laws were repealed to-day, would
justice prevail to-morrow? By no means. The government says to you, "I leave you and your
neighbor to compete with each other: fight out your battles among yourselves: I will have
nothing more to do with your quarrels." You act upon this hint of the legislature: you enter
into competition with your neighbor. But you find the government has lied to you: you find
the legislature has no intention of letting you and your neighbor settle your quarrels
between yourselves. Far from it: when the struggle attains its height, behold! the government
quietly steps up to your antagonist, and furnishes him with a bowie-knife and a revolver.
How can you, an unarmed man, contend with one to whom the legislature sees fit to furnish
bowie-knives and revolvers? In fact, you enter the market with your silver dollar, while
another man enters the market with his silver dollar. Your dollar is a plain silver dollar,
nothing more and nothing less: but his dollar is something very different; for, by permission
of the legislature, he can issue bank-bills to the amount of one dollar and twenty-five cents,
and loan money to the extent of double his or your capital. You tell your customer that you
can afford to lend your dollar, if he will return it after a certain time, with four cents for the
use of it; but that you cannot lend it for anything less. Your neighbor comes between you
and your customer, and says to him, "I can do better by you than that. Don't take his dollar
on any such terms; for I will lend you a dollar, and charge you only three cents for the use
of it." Thus he gets your customer away from you; and the worst of it is, that he still retains
another dollar to seduce away the next customer to whom you apply. Nay, more: when he
has loaned out his two dollars, he still has twenty-five cents in specie in his pocket to fall
back upon and carry to Texas, in case of accident; while you, if you succeed in lending your
dollar, must go without money until your debtor pays it back. Yet you and he entered the
market, each with a silver dollar: how is it that he thus obtains the advantage over you in
every transaction? The banking privilege which the government has given him, is a
murderous weapon against which you cannot contend.
The Usury Laws are necessary under present Circumstances.
A just balance and just weights! Very well; but, if we have an unjust balance, is it not
necessary that the weights should be unjust also? A just balance and unjust weights give
false measure, and just weights with an unjust balance give false measure in like manner; but
an unjust balance and unjust weights may be so adjusted as to give true measure. Under our
present system, the lender who is not connected with the banks may be oppressed; but the
usury laws (unjust as they are when considered without relation to the false system under
which we live) afford some protection, at least to the borrower. They are the unjust weights
which, to a certain extent, justifies the false balance. It would be well to have a just balance,
and just weights: that is, it would be well to repeal the usury laws, and to abolish, not only
the banking privilege, but also, as we shall proceed to show, the exclusively specie basis of
the currency; but it will not do to put new wine into old bottles, nor to mend old garments
with new cloth. When the bank lends two dollars, while it owns only one, it gets twice the
interest it is actually entitled to. Insist, if you will, upon retaining your peculiar privileges;
but consent, in the name of moderation and justice, to let me protect myself by the usury
laws; for they are not very severe against you after all. The usury laws confine you to six
per cent. interest on whatever you loan; but, as the banking laws enable you to loan twice as
much as you actually possess, you obtain twelve per cent. interest on all the capital you
really own. Yon cannot complain that in your case the usury laws violate, and without due
compensation, the right of property; for you own only one dollar, and yet receive interest,
and transact business, as though you owned two dollars. The usury laws are necessary, not
to interfere in your right to your own property, but to limit you in the abuse of the unjust
and exclusive privileges granted you by the legislature.
The antagonism between the usury
and the banking laws is like the division of Satan against Satan, and, through their internal
conflict and opposition, the modern: Hebrew, kingdom may one day be brought to
Argument in Favor of the Repeal of the Usury Laws.
But let us now examine the great argument in favor of the immediate repeal of the usury
laws,--an argument which, according to those who adduce it, is in every way unanswerable.
It is said that all the above considerations, though important and certainly to the point, ought
to have very little weight in our minds, and that for the following reason: Men do, notwithstanding the present laws, take
exorbitant interest; and, whatever usury laws may be passed, they will continue
so to do. If it be acknowledged that it is wrong to take too high
interest, that acknowledgment will not help the matter; for, though we acknowledge the
wrong, we are impotent to prevent it. The usury laws merely add a new evil to one; that was
bad enough when it was alone. Without a usury law, men will take too high interest; for they
have the power to do it as credit is now organized, and no legislation can prevent them: with a usury law, they will continue to take unjust interest, and will have recourse to expedients
of questionable morality to evade the law. If the taking of too high interest be an evil, is it
not a still greater evil for the community to demoralize itself by evading the laws; to
demoralize itself by allowing individuals to have recourse to subterranean methods to
accomplish ant end they are determined to accomplish at all events--an end which they
cannot accomplish in the light of day, because of the terror of the law? Thus argue the
advocates of immediate repeal, and with much show of reason. There are a hundred ways in
which the usury laws may be evaded.
Power of Capital in the Commonwealth of Massachusetts.
We think few persons are aware of the power of capital in this Commonwealth. According
to a pamphlet quoted by Mr. Kellogg, containing a list of the wealthy men of Boston, and an
estimate of the value of their property, there are 224 individuals in this city who are worth, in
the aggregate, $71,855,000: the average wealth of these individuals would be $321,781. In
this pamphlet, no estimate is made of the wealth of any individual whose property is
supposed to amount to less than $100,000. Let us be moderate in our estimates, and
suppose that there are, in all the towns and counties in the State (including Boston), 3,000
other individuals who are worth $30,000 each: their aggregate wealth would amount to
$90,000,000. Add this to the $71,855,000 owned by the 224 men, and we have
$161,855,000 These estimates are more or less incorrect; but they give the nearest
approximation to the truth that we can obtain at the present time. The assessors' valuation of
the property in the State of Massachusetts in 1840 was $299,880,338. We find, therefore,
by the above estimates, that 3,224 individuals own more than half of all the property in the
State. If we suppose each of these 3,224 persons to be the head of a family of five persons,
we shall have in all 16,120 individuals. In 1840, the State contained a population of 737,700.
Thus 16,120 persons own more property than the remaining 721,580; that is, three persons out of every
hundred own more than the remaining ninety-seven: to be certain that we are
within the truth, let us say that six out of every hundred own more property than the
remaining ninety-four. These wealthy persons are connected with each other, for the banks
are the organization of their mutual relation; and we think (human nature being what it is)
that their weight would be brought to bear still more powerfully upon the community if the
usury laws were repealed. These persons might easily obtain complete control over the
banks. They might easily so arrange matters as to allow very little money to be loaned by
the banks to any but themselves; and thus they would obtain the power over the money
market which a monopoly always gives to those who wield it,--that is, they would be able to
ask and obtain pretty much what interest they pleased for their money. There would then be
no remedy: the indignation of the community would be of no avail. What good would it do
you to be indignant? You would go indignantly, and pay exorbitant interest, because you
would be hard pushed for money. You would get no money at the bank, because it would be
all taken up by the heavy capitalists who control those institutions, or by their friends. These
would all get money at six per cent. interest, or less; and they would get from you precisely
that interest which your necessities might enable them to exact. The usury laws furnish you
with some remedy for these evils; for, under those laws, the power of demanding and
obtaining illegal interest will be possible only so long as public opinion sees fit to sanction
evasions of the statute. As long as the weight of the system is not intolerable to the
community, every thing will move quietly; but, as soon as the burthen of illegal interest
becomes intolerable, the laws will be put in force in obedience to the demand of the public,
and the evil will be abated to a certain extent. We confess that it is hard for the borrower to
be obliged to pay the broker; to pay also for the wear and tear of the lender's conscience: but
we think it would be worse for him if a few lenders should obtain a monopoly of the
market. And, when the usury laws are repealed, what earthly power will exist capable of
preventing them from exercising this monopoly? But here an interesting question presents itself,--What is the limit of the power of the lender over the
Actual Value and Legal Value.
Let us first explain the difference between legal value and actual value. It is evident, that, if
every bank-bill in the country should suddenly be destroyed, no actual value would be
destroyed, except perhaps to the extent of the value of so much waste paper. The holders of
the bills would lose their money; but the banks would gain the same amount, because they
would no longer be liable to be called upon to redeem their bills in specie. Legal value is the legal claim which one man
has upon property in the hands of another. No matter how
much legal value you destroy; you cannot by that process banish a single dollar's worth of
actual value, though you may do a great injustice to individuals. But, if you destroy the silver
dollars in the banks, you inflict a great loss on the community; for an importation of specie
would have to be made to meet the exigencies of the currency, and this importation would
have to be paid for in goods and commodities which are of actual value. When a ship goes
down at sea with her cargo on board, so much actual value is lost. But, on the other hand,
when an owner loses his ship in some unfortunate speculation, so that the ownership passes
from his hands into the hands of some other person, there may be no loss of actual value, as
in the case of shipwreck; for the loss may be a mere change of ownership.
'The national debt of England exceeds $4,000,000,000. If there were enough gold
sovereigns in the world to pay this debt, and these sovereigns should be laid beside each
other, touching each other, and in a straight line, the line thus formed would be much more
than long enough to furnish a belt of gold extending round the earth. Yet all this debt is
mere legal value. If all the obligations by which this debt is held were destroyed, the holders
of the debt would become poorer by the amount of legal value destroyed; but those who are
bound by the obligations (the tax-paying people of England) would gain to the same
amount. Destroy all this legal value, and England would be as rich after the destruction as it
was before, because no actual value would have been affected. The destruction of the legal
value would merely cause a vast change in the ownership of property; making some classes
richer. and, of course, others poorer to precisely the same extent: but, if you should destroy
actual value to the amount of this debt, you would destroy about thirteen times as much
actual value (machinery, houses, improvements, products, &c) as exists at present in the
State of Massachusetts. The sudden destruction of $4,000,000,000 worth of actual value
would turn the British Islands into a desert. Many persons are unable to account for the
vitality of the English government. The secret is partly as follows: The whole property of
England is taxed yearly, say three per cent., to pay the interest of the public debt. The
amount raised for this purpose is paid over to those who own the obligations which
constitute this legal value. The people of England are thus divided into classes: one class is
taxed, and pays the interest on the debt; the other class receives the interest, and lives upon
it. The class which receives the interest knows very well that a revolution would be followed
by either a repudiation of the national debt or its immediate payment by means of a ruinous
tax on property. This class knows that the nation would be no poorer if the debt were
repudiated or paid. It knows that a large portion of the people look upon the debt as being
the result of aristocratic obstinacy in carrying on aristocratic wars for the accomplishment of
aristocratic purposes. When, therefore, the government wants votes, it looks to this
privileged class; when it wants orators and writers, it looks to this same class; when it wants
special constables to put down insurrection, it applies to this same class. The people of
England pay yearly $120,000,000 (the interest of the debt) to strengthen the bands of a
conservative class, whose function it is to prevent all change, and therefore all improvement,
in the condition of the empire The owners of the public debt, the pensioners, the holders of
sinecure offices, the nobility, and the functionaries of the Established Church, are the
Spartans who rule over the English Laconians, Helots, and Slaves. When such powerful
support is enlisted in favor of an iniquitous social order' there is very little prospect left of
any amelioration in the condition of the people.
The Matter brought nearer Home.
But let us bring the matter nearer home. The assessors' valuation of the property in the State
of Massachusetts, in 1790, was $44,024,349. In 1840, it was $299,880,338. The increase,
therefore, during fifty years, was $255,855,989. This is the increase of actual value. If, now
the $44.024,349, which the State possessed in 1790, had been owned by a class, and had
been loaned to the community on six months' notes, regularly renewed, at six per cent.
interest per annum, and the interest. as it fell due, had itself been continually put out at
interest on the same terms, that accumulated interest would have amounted in fifty years to
$885,524,246 This is the increase of the legal value. A simple comparison will show us that
the legal value would have increased three times as fast as the actual value has increased.
Suppose 5,000 men to own $30,000 each; suppose these men to move, with their families, to
some desolate place in the State, where there is no opportunity for the profitable pursuit of
the occupations either of commerce, agriculture or manufacturing. The united capital of
these 5,000 men would be $150,000,000. Suppose, now, this capital to be safely invested in
different parts of the State, suppose these men to be, each of them, heads of families,
comprising, on an average, five persons each: this would give us, in all, 25,000 individuals. A
servant to each family would give us 5,000 persons more; and these, added to the above
number, would give us 30,000 in all. Suppose, now, that 5,000 mechanics--shoemakers,
bakers, butchers, &c.--should settle with their families in the neighborhood of these
capitalists, in order to avail themselves of their custom. Allowing five to a family, as before,
we have 25,000 to add to the above number. We have, therefore, in all, a city of 55,000
individuals, established in the most desolate part of the State. The people in the rest of the
State would have to pay to the capitalists of this city six per cent. on $150,000,000 every
year; for these capitalists have, by the supposition, this amount out at interest on bond and
mortgage, or otherwise. The yearly interest on $150,000,000, at six per cent. is $9,000,000.
These wealthy individuals may do no useful work whatever, and, nevertheless, they levy a
tax of $9,000,000 per annum on the industry of the State. The tax would be paid in this
way: Some money would be brought to the new city, and much produce; the produce would
be sold for money to the capitalists; and with the money thus obtained, added to the other,
the debtors would pay the interest due. The capitalists would have their choice of the best
the State produces; and the mechanics of the city, who receive money from the capitalists,
the next choice. Now, how would all this be looked upon by the people of the
There would be a general rejoicing over the excellent market for produce
which had grown up in so unexpected a place, and the people would suppose the existence
of this city of financial horse-leeches to be one of the main pillars of the prosperity of the
Each of these capitalists would receive yearly $1,800, the interest on $30,000, on which to
live. Suppose he lives on $900, the half of his income, and lays the other half by to portion
off his children as they come to marriageable age, that they may start also with $30,000
capital, even as he did. This $900, which he lays by every year, would have to be invested.
The men of business, the men of talent, in the State, would see it well invested for him.
Some intelligent man would discover that a new railroad, canal, or other public work, was
needed: he would survey the ground, draw a plan of the work, and make an estimate of the
expenses; then be would go to this new city, and interest the capitalists in the matter. The
capitalists would furnish money, the people of the State would furnish labor; the people
would dig the dirt, hew the wood. and draw the water. The intelligent man who devised the
plan would receive a salary for superintending the work, the people would receive day's
wages, and the capitalists would own the whole; for did they not furnish the money that paid
for the construction? Taking a scientific view of the matter, we may suppose the capitalists
not to work at all, for the mere fact of their controlling the money would insure all these
results. We suppose them, therefore, not to work at all; we suppose them to receive, each of
them, $1,800 a year; we suppose them to live on one-half of this, or $900, and to lay up the
other half for their children. We suppose new-married couples to spring up, in their proper
season, one of these families; and that these new couples start also each with a capital of
$30,000. We ask now, Is there no danger of this new city's absorbing into itself the greater
portion of the wealth of the State?
There is no city in this Commonwealth that comes fully up to this ideal of a fainéant and
parasite city; but there is no city in the State in which this ideal is not more or less
Suppose, when Virginia was settled in 1607, England had sold the whole territory of the
United States to the first settlers for $1,000, and had taken a mortgage for this sum on the
whole property: $1,000 at seven per cent. per annum, on half yearly notes, the interest
collected and reloaned as it fell due, would amount, in the interval between 1607 and 1850,
to $16,777,216,000. All the property in the United States, several times told, would not pay
If the reader is interested in this matter of the comparative rate of increase of actual and legal
value, let him consult the treatise of Edward Kellogg on "Labor and other Capital," where he
will find abundant information on all these points.
How many farmers are there who can give six per cent. interest, and ultimately pay for a
farm they have bought on credit?
What answer, then, shall we return to our question relating to the power of the lender over
the borrower? We are forced to answer, that the borrowing community is, under the existing
system of credit, virtually, according to appearances, in the complete control of the lending
community. A considerable time must elapse before this control is actually as well as
virtually established; but, as the ship in the eddy of the maelstrom is bound to be ultimately
ingulfed, so the producer of actual value (if no change is introduced in the system) is bound
to be brought into ultimate complete subjection to the holder of legal value.
GOLD and silver are peculiarly adapted to act as a circulating medium. They are, 1, admitted
by common consent to serve for that purpose; 2, They contain within themselves actual
intrinsic value, equivalent to the sum which they circulate, as security against the withdrawal
of this consent. or of the public estimation; 3, They lose less by wear and tear, and by the
effect of time, than almost any other commodities; and, 4, They are divisible into all and any
of the fractional parts into which value may be, or necessarily is, divided. There is no
occasion to notice particularly, in this place, the many other advantages possessed by the
But we must remember, that, when we exchange any thing for specie, we barter one
commodity for another. By the adoption of a circulating medium, we have facilitated barter;
but we have not done away with it, we have not destroyed it. Specie is a valuable commodity;
and its adoption by society, as a medium of exchange, does not destroy its character as a
purchasable and salable article.
Let Peter own a horse; let James own a cow and a pig; let James's cow and pig, taken
together. be worth precisely as much as Peter's horse; let Peter and James desire to make an
exchange: now, what shall prevent them from making the exchange by direct barter? Again:
let Peter own the horse; let James own the cow; and let John own the pig. Peter cannot
exchange his horse for the cow, because he would lose by the transaction; neither--and for
the same reason--can he exchange it for the pig. The division of the horse would result in
the destruction of its value. The hide, it is true, possesses an intrinsic value; and a dead horse
makes excellent manure for a grape-vine: nevertheless, the division of a horse results in the
destruction of its value as a living; animal. But, if Peter barters his horse with Paul for an
equivalent in wheat, what shall prevent him from so dividing his wheat as to qualify himself
to offer to James an equivalent for his cow, and to John an equivalent for his pig? If Peter
trades thus with James and John, the transaction is still barter, though the wheat serves as
currency, and obviates the difficulty in making change. Now, if Paul has gold and silver to
dispose of instead of wheat, the gold and silver are still commodities possessing intrinsic
value; and every exchange which Paul makes of these for other commodities is always a
transaction in barter. There is a great deal of mystification connected with the subject of the
currency; but if we remember, that, when we sell anything for specie, we buy
the specie, and that, when we buy anything with specie, we sell the specie, our ideas will grow wonderfully
The Disadvantages of a Specie Currency.
The governments of the different nations have made gold and silver a legal tender in the
payment of debts. Does this legislation change the nature of the transactions where gold and
silver are exchanged for other desirable commodities? Not at all. Does it transform the
exchange into something other than barter? By no means. But the exchangeable value of
any article depends upon its utility, and the difficulty of obtaining it. Now the legislatures,
by making the precious metals a legal tender, enhanced their utility in a remarkable manner.
It is not their absolute utility, indeed, that is enhanced, but their relative utility in the
transactions of trade. As soon as gold and silver are adopted as the legal tender, they are
invested with an altogether new utility. By means of this new utility, whoever monopolizes
the gold and silver of any country--and the currency, as we shall soon discover, is more
easily monopolized than any other commodity--obtains control, thenceforth, over the
business of that country; for no man can pay his debts without the permission of the party
who monopolizes the article of legal tender. Thus, since the courts recognize nothing as
money in the payment of debts except the article of legal tender, this party is enabled to levy
a tax on all transactions except such as take place without the intervention of credit.
When a man is obliged to barter his commodity for money, in order to have money to barter
for such other commodities as he may desire, he at once becomes subject to the impositions
which moneyed men know how to practice on one who wants, and must have, money for the
commodity he offers for sale. When a man is called upon suddenly to raise money to pay a
debt, the case is still harder. Men whose property far exceeds the amount of their debts in
value--men who have much more owing to them than they owe to others--are daily
distressed for the want of money, for the want of that intervening medium, which, even when
it is obtained in sufficient quantity for present purposes, acts only as a mere instrument of
By adopting the precious metals as the legal tender in the payment of debts, society confers
a new value upon them, which new value is not inherent in the metals themselves. This new
value becomes a marketable commodity. Thus gold and silver become a marketable
commodity as (quoad) a medium of exchange.
This ought not so to be. This new value has
no natural measure, because it is not a natural, but a social value. This new social value is
inestimable: it is incommensurable with any other known value whatever. This money,
instead of retaining its proper relative position, becomes a superior species of commodity,--
superior not in degree, but in kind. Thus money becomes the absolute king and the demigod
of commodities. Hence follow great social and political evils. The medium of exchange
was not established for the purpose of creating a new, inestimable, marketable commodity,
but for the single end or purpose of facilitating exchanges. Society established gold and
silver as an instrument to mediate between marketable commodities; but what new
instrument shall it create to mediate between the old marketable commodities, and the new
commodity which it has itself called into being? and, if it succeed creating such new
instrument, what mediator can it find for this new instrument itself, &c.? Here the gulf
yawns! No bridge, save that of usury, has been thrown, as yet, over this gulf. Our exposition
is evidently on the brink of the infinite series: we are marching rapidly toward the abyss of
absurdity. The logicians know well what the sudden appearance of the infinite series in an
investigation signifies: it signifies the recognition of a phenomenon, and the assigning to it
of a mere concomitant, to stand to it in the place of cause. The phenomenon we here
recognize is circulation or exchange; and we ignore its cause, for we endeavor to account for
it by the movement of specie; which movement is neither circulation nor the cause of
circulation. But more of this hereafter. let us return to the subject with which we are more
immediately concerned; noting, meanwhile, that a specie currency is an absurdity.
The Evils of a Specie Currency.--Usury.
Society established gold and silver as a circulating medium, in order that exchanges of
commodities might be facilitated: but society made a mistake in so doing; for, by this very
act, it gave to a certain class of men the power of saying what exchanges shall, and what
exchanges shall not, be facilitated by means of this very circulating medium. The
monopolizers of the precious metals have an undue power over the community: they can say
whether money shall, or shall not, be permitted to exercise its legitimate functions. These
men have a veto
on the action of money and therefore on exchanges of commodity; and they will not
take off their veto until they have received usury, or, as it is more politely termed,
interest on their money. Here is the great objection to the present currency. Behold the
manner in which the absurdity inherent in a specie currency--or, what is still worse, in a
currency of paper based upon specie--manifests itself in actual operation! The mediating
value which society hoped would facilitate exchanges becomes an absolute marketable
commodity, itself transcending all reach of mediation. The great natural difficulty which
originally stood in the way of exchanges is now the private property of a class; and this
class cultivate this difficulty, and make money out of it, even as a farmer cultivates his farm,
and makes money by his labor. But there is a difference between the farmer and the usurer;
for the farmer benefits the community as well as himself, while every dollar made by the
usurer is a dollar taken from the pocket of some other individual, since the usurer cultivates
nothing but an actual obstruction.
The Monopoly of the Currency.
The exigencies of our exposition render it necessary that we should state here three distinct
points, as a basis for certain remarks that we propose to submit to the reader:--
1. Let us suppose, in order to make a thorough estimate of the amount of money circulating
in Massachusetts, that each individual in the State--man, woman, or child--possesses ten
dollars in specie, or in the bills of specie-paying banks. The population of the State was, in
the year 1850, about l,000,000. Our estimate will give us, therefore, about $10,000,000 as
the total amount of the circulating medium of the State. This is, perhaps, a very extravagant
supposition; but we desire to make a high estimate, as, the greater the amount of the
circulating medium, the less will be the force of our objections against the existing currency.
Now, since children seldom control any money, our hypothesis apportions to each fullgrown
person an average of $20; for children constitute at least one-half of the community:
and since women, who constitute one-half of the grown population, generally leave their
money with their husbands or fathers, it apportions to each full-grown man an average of
$40. We feel confident that the reader will confess, after consulting his pocket-book, that
our estimate marks as high as the circumstances of the case will warrant. But, to be certain
that we do not fall below the truth, let us double the total sum, and say, that the amount of
money circulating in Massachusetts is, on the average, $20,000,000. This is our first point.
2. The valuation of the taxable property existing in the State of Massachusetts, was, for the
year 1850, about $600,000,000; or an average of about $600 for every man, woman, and
child in the State; or an average of about $2,400 for every family of four persons,--no
contemptible fortune for a working-man! Now, every person of ordinary observation will
recognize that this valuation is too high. We are willing to confess that the wealth of the
State is unjustly distributed; but we are not willing to confess that the distribution is of the
absolutely flagrant character indicated by the valuation: for if a man, possessing a mere
average amount of wealth, owns property to the value of $600, and a like amount in addition
for his wife and for each of his children, where is the immense mass of wealth which the
average would apportion to those who actually own less than $600; yea, to those who
actually own nothing? We conceive that it is not altogether impossible to penetrate the
motives which induced the Valuation Committee to mark the wealth of the State as high as
$600,000,000. Indeed, we may take occasion, as we proceed with our observations, to
indicate those motives: But let us grant, for the sake of argument. that the people of
Massachusetts, taken as a whole, do actually own property to the value of $600,000,000.
Estimating, as we have done, the total value of the circulating medium at $20,000 000, it
would follow, that there is one dollar of currency for every thirty dollars of taxable property.
This is our second point.
3. If Mr. Kellogg's statements are worthy of confidence, there are in the city of Boston, 224
individuals who are worth, in the aggregate, $7l,855,000, or property to the value of about
three and one-half times the amount of the whole circulating medium of the Commonwealth.
This is our third point.
Having stated the three points on which our reasoning is to turn, we will now suppose that
these individuals in Boston, or 224 other persons of equal wealth, residing either in Boston
or in other towns or cities in the State, see fit to combine together for the purpose of
bringing the whole property of the State ($600,000,000) into their own possession. They
may accomplish their object by the following simple process: Let them gradually buy up
desirable real estate situated in various parts of the Commonwealth, to the value of
$40,000,000,--double the total amount of the circulating medium. Then let them sell this
real estate to different persons, taking mortgages for half its value on the property, and
stipulating that the payments on the mortgages shall be made, all of them, on a certain
specified day. Here is the whole story; for mark the consequences! As the day for payment
on the mortgages approaches, money will grow scarce, for the reason that the purchasers of
the real estate will be preparing themselves to meet the claims upon them; money will, by
consequence, rise rapidly in value; trade will be gradually blocked up; and men of
undoubted wealth will be closely pressed. If--and they probably will not; but if--the
purchasers of the real estate actually pay their debts when the day comes round, then the
224 confederates will have all the money of the State in their hands. Meanwhile the other
ordinary debts of the community--debts which arise naturally--will have to be paid also;
and money, the only legal tender, will be required in order to their payment. But, as no
money will be obtainable, these last debtors will fail; and their property will be sold under
the hammer, at a fraction of its true value, to satisfy their creditors. But who will buy this
property? Who besides the 224 confederates will have any available funds? These 224
individuals, by their operation, notwithstanding the losses they will inevitably meet with, will
thus obtain control, by means of their $40,000,000,--a little less than one-half of their
aggregate property,--of the greater part of the property of the State. There is no danger that
so extensive an operation will ever take place; for transactions like this would convulse
society to its foundations, and would necessarily be accompanied by repudiation, revolution,
anarchy, and bloodshed. But similar operations, on a smaller scale, are taking place every
day. It is stated in the reports published by the Valuation Committee, that the money loaned
out at interest, and returned as such to the assessors for the year 1850, amounted, in the
single county of Worcester, to more than $5,000,000,--more than one-fourth of the whole
circulating medium of the Commonwealth. What must have been the consequence, if all
these debts had happened to fall due at nearly the same time?
You cannot monopolize corn, iron, and other commodities, as you can money; for, to do so,
you would be obliged to stipulate, in your sales, that
payment shall be made to you in those commodities. What a commotion would exist in the community, if a company of capitalists
should attempt permanently to monopolize all the corn! But money, by the nature of the case, SINCE IT 1S THE ONLY LEGAL TENDER, is ALWAYS monopolized. This fact is the
foundation of the right of society to limit the rate of interest.
We conclude, therefore, that gold and silver do not furnish a
perfect medium of circulation;
that they do not furnish facilities for the exchange of all commodities. Gold and silver have a value as money;
a value which is artificial, and created unintentionally by the act of society
establishing the precious metals as a legal tender. This new artificial value overrides all
intrinsic actual values, and suffers no mediation between itself and them. Now, money, so
far forth as it is mere money, ought to have NO VALUE; and the objection to the use of the
precious metals as currency is, that, as soon as they are adopted by society as a legal tender,
there is superadded to their natural value this new, artificial and unnatural value. Gold and
silver cannot facilitate the purchase of this new value which is added to themselves: "a
mediator is not a mediator of one." USURY is the characteristic fact of the present system
of civilization; and usury depends for its existence upon this superadded, social, unnatural
value, which is given artificially to the material of the circulating medium. Destroy the value
of this material as money (not its utility or availability in exchange), and you destroy the
possibility of usury, Can this be done so long as the material is gold and silver? No.
Whatever is adopted as the medium of exchange should be free from the above-indicated
objections. It should serve the purpose of facilitating
all exchanges; it should have no value as money; it should be of such a nature as to permit nothing marketable, nothing that can be
bought or sold, to transcend the sphere of its mediation. It should exist in such quantity as
to effect all exchanges which may be desirable. It should be co-existent in time and place
with such property as is destined for the market. It should be sufficiently abundant, and
easy of acquirement, to answer all the legitimate purposes of money. It should be capable of
being expanded to any extent that may be demanded by the wants of the community; for, if
the currency be not sufficiently abundant, it retards instead of facilitating exchanges. On the
other hand, this medium of exchange should be sufficiently difficult of acquirement to keep
it within just limits.
Can a currency be devised which shall fulfill all these conditions? Can a currency be
adopted which shall keep money always just plenty enough, without suffering it ever to
become too plenty? Can such a currency be established on a firm scientific foundation, so
that we may know beforehand that it will work well from the very first moment of its
establishment? Can a species of money be found which shall possess every quality which it
is desirable that money should have, while it possesses no quality which it is desirable that
money should not have? To all these questions, we answer emphatically, YES.
The Currency: Its Evils. And their Remedy.
BANK-BILLS are doubly guaranteed. On one side, there is the capital of the bank, which is
liable for the redemption of the bills in circulation: on the other side are the notes of the
debtors of the bank, which notes are (or ought to be, if the bank officers exercise due
caution and discretion) a sufficient guaranty for all the bills; for no bills are issued by any
bank, except upon notes whereby some responsible person is bound to restore to the bank.
after a certain lapse of time, money to the amount borne on the face of the bills. If the notes
given by the receivers of the bills are good, then the bills themselves are also good. If we
reflect a moment upon these facts, we shall see that a bank of discount and circulation is, in
reality, two banks in one. There is one bank which does business on the specie capital really
paid in: there is another, and a very different bank, which does business by issuing bills in
exchange for notes whereby the receivers of the bills give security that there shall be paid
back, by a certain time, money to the amount of the bills issued. Let us now investigate the
nature of these two different banks.
The Business of Banking.
Peter goes into the banking business with one dollar capital, and immediately issues bills to
the amount of one dollar and twenty-five cents. Let us say that he issues five bills, each of
which is to circulate for the amount of twenty-five cents James comes to the bank with four
of Peter's bills, and says, "Here are four of your new twenty-five-cent notes, which purport
to be payable on demand: and I will thank you to give me a silver dollar for them " Peter
redeems the bills. and, in so doing, pays on his whole capital. Afterward comes John, with
the fifth note, and makes a demand similar to that lately made by James. Peter answers,
slowly and hesitatingly, "I regret--exceedingly--the force of present circumstances; but--
I--just paid--out my whole capital--to James. I am--under--the painful necessity--of
requesting you--to wait a little longer for your money." John at once becomes indignant,
and says, "Your bills state on their face, that you will pay twenty-five cents upon each one of
them whenever they are presented. I present one now. Give me the money, therefore, without
more words; for my business is urgent this morning." Peter answers, "I shall be in a
condition to redeem my bills by the day after tomorrow; but, for the mean while, my regard
for the interest of the public forces me unwillingly to suspend specie payments."--
"Suspend specie payments!" says John. "What other kind of payment, under Heaven, could
you suspend? You agree to pay specie;
for specie is the only legal tender; and, when you don't pay that, you don't pay
any thing. When you don't pay that, you break. Why don't you
own up at once? But, while I am about it, I will give you a piece of my mind: this extra note,
which you have issued beyond your capital, is a vain phantom, a hollow humbug. and a
fraud. And, as for your bank, you had better take in your sign; for you have broken."--
"These be very bitter words," as said the hostess of the Boar's Head Tavern at Eastcheap.
John is right. Peter's capital is all gone; and the note for twenty-five cents, which professes
to represent specie in Peter's vaults, represents the tangibility of an empty vision, the shadow
of a vacuum. But which bank is it that is broken? Is it the bank that does business on a
specie capital or the bank which does business on the notes of the debtors to the bank?
Evidently it is the bank that does business on the specie capital that is broken: it is the
specie-paying bank that has ceased to exist.
John understands this very well, notwithstanding his violent language a moment since; he
knows that his is the only bill which Peter has in circulation, and that Peter owes,
consequently, only twenty-five cents; he knows also that the bank has owing to it one dollar
and twenty-five cents'. Peter owes twenty-five cents, and has owing to him a dollar and
twenty-five cents. John feels, therefore, perfectly safe. What is John's security? Is it the
specie capital? Not at all: James has taken the whole of that. He has for his security the
debts which are owing to the bank. Peter's bank begins now to be placed in a sound
philosophical condition. At first, he promised to pay one dollar and twenty-five cents in
specie; while he actually possessed only one dollar with which to meet the demands that
might be made upon him. How could he have made a more unreasonable promise, even if he
had tried? Now that he has suspended specie payments, he has escaped from the
unphilosophical situation in which he so rashly placed himself. Peter's bank is still in
operation,--it is by no means broken; his bills are good, guaranteed, and worthy of
considerable confidence: only his bank is now a simple and not a complex bank, being no
longer two banks in one; for the specie-paying element has vanished in infinite darkness.
And here we may notice, that Peter has solved, after a rough manner indeed, one of the most
difficult questions in political economy. His bill for twenty-five cents is currency; and yet it
is not based upon specie, nor directly connected in any way with specie. We would request
the reader to be patient with us, and not make up his mind in regard to our statements until
he has read to the end of the chapter: it shall not be very long. Light breaks on us here,
which we would endeavor to impart to the reader. The security for the bill is legal value, the
security in actual value having been carried away by James; that is, the security for the bill is
the legal claim which the bank has upon the property of its debtors. We see, therefore, that legal value may be made a basis for the issue of notes to serve as currency; we see,
therefore, the faint indication of a means whereby we may perhaps emancipate ourselves
from the bondage of hard money, and the worse bondage of paper which pretends to be a
representative of hard money.
Let the reader not be alarmed. We abominate banks that suspend specie payment, as much
as he does. The run of our argument leads us through this desolate valley; but we shall soon
emerge into the clear day. Good may come out of this dark region, although we never
expected to find it here. For our part, however, we will freely confess, in private, to the
reader, that we have lately been so accustomed to see good come out of Nazareth, that we
have acquired the habit of never expecting it from any other quarter. Let us spend a moment,
therefore, in exploring this banking Nazareth.
We may notice, in considering a bank that has suspended specie payments, 1. The bankofficers,
who are servants of the stockholders;
2. The bills which are issued by the bankofficers, and which circulate in the community
as money; and, 3. The notes of the debtors of
the bank, binding these debtors: which notes, deposited in the safe, are security for the bills
issued. Let us now take, for illustration, a non-specie-paying bank that shall be "perfect after
its kind;" that is, a bank whose capital shall be, in actual value, literally = 0. Suppose there
are 100 stockholders; suppose $100,000 worth of bills to be in circulation, and that
$100,000 legal value is secured to the bank by notes given by the bank's debtors. These
stockholders will be remarkable individuals, doing business after a very singular fashion.
For example: the stockholders own stock in this bank; but, as the whole joint stock equals
zero, each stockholder evidently owns only the one-hundredth part of nothing,--a species of
property that counts much or little, according to the skillfulness with which it is
administered. The stockholders, through the agency of the bank-officers, issue their paper, bearing
no interest; exchanging it for other paper, furnished by those who receive the bills, bearing interest at the rate of six per cent. per annum. The paper received by the bank
binds the debtor to the bank to pay interest; while the paper issued by the bank puts it under
no obligation to pay any interest at all. Thus the stockholders, doing business with no
capital whatever, make six per cent. per annum on a pretended $100,000 of actual value
which does not exist! Yet, meanwhile, these stockholders furnish the community with an
available currency: this fact ought always to be borne in mind. Non-specie-paying banks,
of course, make dividends. During the suspension of 1837 and 1838, all the banks of
Pennsylvania made dividends, although it was prohibited in the charters of most of them.
After the suspension which took place in Philadelphia in October, 1839, most of the banks
of that city resolved not to declare dividends until the pleasure of the legislature could be
known. By an act authorizing the continuance of the suspension until the 15th of January,
1841, permission was granted to make dividends, contrary to every principle of justice and
equity.--We do not know why we speak especially of the Pennsylvania banks in this
connection; as we have yet to hear of the first bank, either in Pennsylvania or in any other
State, that has had the delicacy to suspend the declaration of dividends merely because it
suspended specie payments.
The Mutual Bank.
Our non-specie-paying bank being in the interesting position described, let us inquire
whether it is not in the process of bringing forth something which shall be entirely different
from itself. We ask first, why a non-specie-paying bank should be permitted to make
dividends. Its bills are perfectly good, whether the bank have any capital or not, provided the
officers exercise due discretion in discounting notes; and it is evident that the stockholders
have no right to ask to be paid for the use of their capital, since the capital in question ought
to be specie, which they confess, by suspending specie payments, that they do not furnish
But, if no dividends are to be declared, what are we to do with the immense amount of
interest-money that will accumulate in the bank? Our answer to this question is so simple,
that we are almost ashamed to state it. Justice requires that all the interest-money
accumulated--so much only excepted as is required to pay the expenses of the institution,
and the average of loss by bad debts--should be paid back to the borrowers in the
proportion of the business which they have individually done with the bank. But, since it
would be by no means easy, practically, to thus pay the extra interest-money back, it would
be better for the bank to turn the difficulty by lending its money at precisely that rate of
interest, and. no more, say one per cent. per annum, which would suffice to pay the
expenses of the institution. including the average loss by bad debts. A bank of this character
would be a Mutual Bank. This is not the institution we advocate, and of which we propose
to submit a plan to the reader, but it will serve, in this. place, for the purposes of illustration.
A bank that suspends specie payments may present two evident advantages to the
community: 1st, It may furnish a currency; and. 2d, It may loan out its bills at one per cent.
interest per annum. 'That such a bank may furnish currency is proved by abundant
experience: for suspending banks go right on with their business; and that their money
circulates well is proved by the fact that such banks have hitherto seldom failed to declare
good dividends. That they may loan their money at one per cent. interest per annum is
shown by the fact that the old banks do not pay more than one per cent. per annum for their
expenses, including losses by bad debts, and that the guaranty of the new bills consists in
the excellence of the notes furnished by the borrower: so that, if there is any thing to be paid
for this guaranty, it ought to be paid to the borrower himself, and not to any other person.
We will not prolong this exposition, since a multiplicity of words would serve only to
darken the subject. We invite the reader to reflect for himself upon the matter and to form
his own conclusions. We repeat that we do not advocate a bank of the nature here described,
since we conceive that such an institution would be eminently unsafe and dangerous, and for
a hundred reasons, among which may be counted the inordinate power that would be
conferred on the bank's officers; but, as we said before, it may serve for illustration. Neither
do we propose this plan as a theoretical solution of the difficulties noticed in the preceding
chapters as inseparable from the existing currency. We reserve our own plan, and shall
submit it to the reader at the end of the next chapter.
IN the titlepage of a book on "Money and Banking," published at Cincinnati, the name of
WILLIAM BECK appears, not as author, but as publisher; yet there is internal evidence in the
book, sufficient to prove that Mr. Beck is the author. But who was or is Mr. Beck? What
were his experience and history? Is he still living? No one appears to know. He seems to
stand, like one of Ossian's heroes, surrounded with clouds, solitude, and mystery. In the
pages of Proudhon, Socialism appears as an avenging fury, clothed in garments dipped in
the sulphur of the bottomless pit, and armed for the punishment of imbeciles, liars,
scoundrels, cowards, and tyrants. In those of Mr. Beck, she presents herself as a
constructive and beneficent genius, the rays of her heavenly glory intercepted by a double
veil of simplicity and modesty. Mr. Beck's style has none of the infernal fire and profanity
which cause the reader of the "Contradictions Economiques" to shudder: you seek in vain in
his sentences for the vigor and intense self-consciousness of Proudhon; yet the thoughts of
Proudhon are there. One would suppose, from the naturalness of his manner, that he was
altogether ignorant of the novelty and true magnitude of his ideas.
Mr. Beck's Bank.
In Mr. Beck's plan for a Mutual Bank,--which consists in a simple generalization of the
system of credit in account that is well described in the following extract from J. Stuart
Mill's "Political Economy,"--there is one fault only; but that fault is fatal: it is that the
people can never be induced to adopt the complicated method of accounts which would be
"A mode of making credit answer the purposes of money, by which, when carried far
enough, money may be very completely superseded, consists in making payments by checks. The custom of keeping the spare cash, reserved for immediate use or against
contingent demands, in the hands of a banker, and making all payments, except small ones,
by orders on bankers, is in this country spreading to a continually larger portion of the
public. If the person making the payment and the person receiving it kept their money with
the same banker, the payment would take place, without any intervention of money, by the
mere transfer of its amount in the banker's books from the credit of the payer to that of the
If all persons in London kept their cash at the same banker's, and made all their
payments by means of checks, no money would be required or used for any transactions
beginning and terminating in London. This ideal limit is almost attained in fact, so far as
regards transactions between dealers. It is chiefly in the retail transactions between dealers
and consumers, and in the payment of wages, that money or bank-notes now pass, and then
only when the amounts are small. In London, even shopkeepers of any amount of capital, or
extent of business, have generally an account with a banker; which, beside the safety and
convenience of the practice, is to their advantage in another respect, by giving them an
understood claim to have their bills discounted in cases where they could not otherwise
expect it. As for the merchants and larger dealers, they habitually make all payments, in the
course of their business, by checks. They do not, however, all deal with the same banker;
and, when A gives a check to B, B usually pays it, not into the same, but into another bank.
But the convenience of business has given birth to an arrangement which makes all the
banking-houses of the city of London, for certain purposes, virtually one establishment. A
banker does not send the checks which are paid into his banking-house to the banks on
which they are drawn, and demand money for them. There is a building called the Clearing
House, to which every city banker sends, each afternoon, all the checks on other bankers
which he has received during the day; and they are there exchanged for the checks on him
which have come into the hands of other bankers, the balances only being paid in money.
By this contrivance, all the business transactions of the city of London during that day,
amounting often to millions of pounds, and a vast amount besides of country transactions,
represented by bills which country bankers have drawn upon their London corespondents,
are liquidated by payments not exceeding, on the average, £200,000.--Vol. ii. p. 47.
"Money," says Mr. Beck, "follows in the track of claim. Its progress is the discharge and
satisfaction of claim. The payment of money is effectually the discharge of the debtor; but it
is not equally effectual in satisfaction of the creditor. Though it release the debtor, it still
leaves the creditor to seek the real object of his desire. It does not put him in possession of
it, but of something which enables him to obtain it. He must exchange this money by
purchase for the article he wants before that object is attained In payment of debts, it passes
from claimant to claimant, discharging and paying claims as it goes. Money follows claim;
both continually revolving through all classes of society in repeated and perpetual circles,
constantly returning to their several-stations, drawn thither by operations of industry or of
"In the possession of money, every one has his turn. It comes to him in the shape of
payment for his sales or his industry, and passes from him in the shape of payment or of
expenditure, again to return at its proper time, and on a proper occasion, to serve the same
purposes as before.
"Now, I contend, that, as the progress of money lies in a circular route, a certain system of
account may be made to supply its place, where its track and extent can, in that circle, be
included and distinguished.
"By a circle, I mean that range of society which includes the whole circulating movement of
money, with the accompanying causes and effects of its progress; namely, claims, debts and
payments: so that, if we wish to trace its path, every point of that path will be contained
within it. SUCH IS THE GREAT CIRCLE OF SOCIETY. This contains the whole body of debtors and the whole body of creditors.
It contains all the debtors to the creditors, and all
the creditors to the debtors. All would be included in the jurisdiction of a power that by any
possibility could preside over the whole. Creditors are sellers; debtors are buyers. But no
man continually sells without sometimes buying, nor does any man continually buy without
sometimes selling. The creditor who receives money from his debtor, again expends this
money upon others, who thereby, in their turns, become creditors, and receive their money
back again. All these movements are within the range of the one circle of society. Now, it is
evident, that, if an account were kept by a presiding power, the good, which any person
receives, being of equal value, would pay for those which he had previously delivered; would
replace him in his original assets, and cancel the obligation to him without the aid of money.
Hence, after the whole process, it would seem that the intermediate passage and return of
money were superfluous. If the dealings are not directly backward and forward,--that is,
between one creditor and his debtor, and back again from the same debtor to the same
creditor,--the effect will be the same; for as this whole circle includes every creditor. every
debtor, and in fact every individual in that society, so it contains every account to which the
claims of any creditor would apply, and every account to which the same creditor would be
indebted. The agency of the presiding power would render it, pro forma,
to every creditor of his individual debtor; and to every debtor, the representative of his
individual creditor. It would form a common centre for all claims by every creditor on his
debtor. It would form the channel for the discharge of his debts, and the receipt of his
claims. It would show the state of his account with society; and the balance, if in favor,
would be available as so much cash.
"This is what is meant by a circle. Such is the great circle of society, the only one
which is complete and perfect; and such are the advantages contained in it.
"Hence the plan I propose is adapted to this circle, to exhibit the revolving track of
money within it; to contain the several points of its progress; and, at each of these points, to
perform its duty and supply its place by the revolution of debits and credits in account,
instead of the revolution of the actual material money."
There are many practical processes by which the business-world make credit perform
the functions of money, among which may be especially noticed, 1st, That by credit in
account; and, 2d, That by bills of exchange. Mr. Beck thought out a Mutual Bank by
generalizing credit in account; Proudhon, by generalizing the bill of exchange.
Bills of Exchange.
Let it be supposed that there are ten shoe-manufacturers in Lynn, who sell their shoes
to ten shopkeepers in Boston; let it be supposed, also, that there are ten wholesale grocers in
Boston, who furnish goods to ten retail grocers in Lynn. If the value of the shoes equals the
value of the groceries, the ten retail grocers in Lynn would have no occasion to send money
to Boston to pay their indebtedness to the wholesale grocers; neither would the ten
shopkeepers in Boston have occasion to send money to Lynn to discharge their debt to the
ten shoe-manufacturers: for the Lynn retail grocers might pay the money to the Lynn shoemanufacturers;
these shoe-manufacturers writing to the Boston shopkeepers who are their
debtors, requesting them to pay the Boston wholesale grocers, who are the creditors of the
Lynn retail grocers. It is very possible that the transactions of all these persons with each
other might be settled in this way without the transmission of any money either from
Boston to Lynn, or from Lynn to Boston. The transfer of debts, in the process here
indicated, gives rise to what are called, in mercantile language, drafts, or
bills of exchange;
though regular bills of exchange are seldom drawn in this country, except against foreign
account. A bill of exchange reads generally somewhat as follows: "To Mr. E. F. ----- days
after sight, on this my first
bill of exchange (second and third of the same date and tenor not
paid), pay to A. B., without further advice from me, ----- dollars, value received; and charge
the same to account of your obedient servant, C. D." This form evidently implies that the bill
is made out in triplicates. The bill must also, of course. be dated. A draft is a bill of
exchange drawn up with the omission of some of the solemnity and particularity of the
Bills of exchange are useful, not only for the payment of debts at distant places without
transportation of the precious metals, but also as a means by which a debt due from one
person may be made available for obtaining credit
from another. It is usual in every trade to
give a certain length of credit for goods bought,--ninety days, six months, eight months, or
a longer time, as may be determined by the convenience of the parties or by the custom of
the particular trade and place. If a man has sold goods to another on six months' credit. he
may draw a bill upon his debtor, payable in six months, get his bill discounted at the bank,
and thus qualify himself to purchase such things as he may require in his business, without
waiting for the six months to expire. But bills of exchange do more than this. They not only
obviate, upon occasions. the necessity for ready money.; they not only enable a man to
command ready money before the debts due to him arrive at maturity: they often actually
take the place, and perform the functions, of money itself. J. Stuart Mill, quoting from Mr.
Thornton, says "Let us imagine a farmer in the country to discharge a debt of £10 to his
neighboring grocer, by giving him a bill for that sum drawn on his corn-factor in London,
for grain sold in the metropolis; and the grocer to transmit the bill--he having previously
indorsed it--to a neighboring sugar-baker in discharge of a like debt; and the sugar-baker
to send it, when again indorsed, to a West-India merchant in an outpost; and the West-India
merchant to deliver it to his country banker. who also indorses it, and sends it into further
circulation. The bill will, in this case, have effected five payments, exactly as if it were a £10
note payable to bearer on demand. A multitude of bills pass between trader and trader in
the country in the manner which has been described; and they evidently form, in the
strictest sense, a part of the circulating medium of the kingdom." Mr. Mill adds, "Many
bills, both domestic and foreign, are at last presented for payment quite covered with
indorsements, each of which represents either a fresh discounting. or a pecuniary
transaction in which the bill has performed the functions of money. Up to twenty years ago,
the circulating medium of Lancashire, for sums above five pounds, was almost entirely
composed of such bills."
In our explanation of the system of banking which results from a generalization of the
bill of exchange, we will let the master speak for himself:--
"We must destroy the royalty of gold; we must republicanize specie, by making every
product of labor ready money.
"Let no one be frightened beforehand. I by no means propose to reproduce, under a
rejuvenated form, the old ideas of paper-money, money of paper, assignats. bank-bills, &c.,
&c.; for all these palliatives have been known, tried, and rejected long ago. These
representations on paper, by which men have believed themselves able to replace the absent
god, are, all of them. nothing other than a homage paid to metal,--an adoration of metal,
which has been always present to men's minds, and which bas always been taken by them as
the measure or evaluator of products.
"Everybody knows what a bill of exchange is. The creditor requests the debtor to pay,
to him or to his order, at such a house, at such a place, at such a date, such a sum of money.
"The promissory note is the bill of exchange inverted; the debtor promises the creditor
that he will pay, &c.
"'The bill of exchange,' says the statute, 'is drawn from one place on another. It is dated.
It announces the sum to be paid; the time and place where the payment is to be made; the
value to be furnished in specie, in merchandise, in account, or in other form. It is to the order
of a third person, or to the order of the drawer himself. If it is by 1st, 2d, 3d, 4th, &c, it must
be so stated.'
"The bill of exchange supposes, therefore, exchange, provision,
and acceptance: that is
to say, a value created and delivered by the drawer; the existence, in the hands of the drawee,
of the funds destined to acquit the bill; and the promise, on the part of the drawee, to acquit
it. When the bill of exchange is clothed with all these formalities; when it represents a real
service actually rendered, or merchandise delivered; when the drawer and drawee are known
and solvent; when, in a word, it is clothed with all the conditions necessary to guarantee the
accomplishment of the obligation, the bill of exchange is considered good:
it circulates in the mercantile world like bank-paper, like specie. No one objects to receiving it under pretext
that a bill of exchange is nothing but a piece of paper. Only--since, at the end of its
circulation, the bill of exchange, before being destroyed, must be exchanged for specie--it
pays to specie a sort of seigniorial duty, called discount.
"That which, in general, renders the bill of exchange insecure, is precisely this promise
of final conversion into specie; and thus the idea of metal, like a corrupting royalty, infects
even the bill of exchange, and takes from it its certainty.
"Now, the whole problem of the circulation consists in generalizing the bill of
exchange; that is to say, in making of it an anonymous title, exchangeable for ever, and
redeemable at sight, but only in merchandise and service.
"Or, to speak a language more comprehensible to financial adepts, the problem of the
circulation consists in basing bank-paper, not upon specie, nor bullion, nor immovable
property, which can never produce any thing but a miserable oscillation between usury and
bankruptcy, between the five-franc piece and the assignat; but by basing it upon products.
"I conceive this generalization of the bill of exchange as follows:--
"A hundred thousand manufacturers, miners, merchants, commissioners public carriers,
agriculturists, &c., throughout France, unite with each other in obedience to the summons of
the government and by simple authentic declaration, inserted in the 'Moniteur' newspaper,
bind themselves respectively and reciprocally to adhere to the statutes of the Bank of
Exchange; which shall be no other than the bank of France itself, with its constitution and
attributes modified on the following basis:--
"1st, The Bank of France, become Bank of Exchange, is an institution of public
interest. It is placed under the guardianship of the State, and is directed by delegates from all
the branches of industry.
"2d, Every subscriber shall have an account open at the Bank of Exchange for the
discount of his business paper; and he shall be served to the same extent as he would have
been under the conditions of discount in specie; that is, in the known measure of his
faculties, the business he does, the positive guaranties he offers, the real credit he might
reasonably have enjoyed under the old system.
"3d, The discount of ordinary commercial paper, whether of drafts, orders, bills of
exchange, notes on demand, will be made in bills of the Bank of Exchange, of
denominations of 25, 50, 100, and 1,000 francs.
"Specie will be used in making change only.
"4th, The rate of discount will be fixed at ---- per cent., commission included, no
matter how long the paper has to run. With the Bank of Exchange, all business will be
finished on the spot.
"5th, EVERY SUBSCRIBER BINDS HIMSELF TO RECEIVE IN ALL PAYMENTS, FROM
WHOMSOEVER IT MAY BY., AND AT PAR, THE PAPER OF THE BANK OF EXCHANGE.
"6th, Provisionally, and by way of transition, gold and silver coin will be received in
exchange for the paper of the bank, and at their nominal value.
"Is this a paper currency?
"I answer, unhesitatingly, No: it is neither paper-money, nor money of paper; it is
neither government-checks, nor even bank-bills; it is not of the nature of any thing that has
been hitherto invented to make up for the scarcity of specie. It is the bill of exchange generalized.
"The essence of the bill of exchange is constituted, 1st, By its being drawn from one
place on another; 2d, By its representing a real value equal to the sum it expresses; 3d, By
the promise or obligation on the part of the drawee to pay it when it falls due.
"In three words, that which constitutes the bill of exchange is exchange, provision, acceptance.
"As to the date of issue, or of falling due; as to the designation of the places, persons,
object,--these are particular circumstances which do not relate to the essence of the title, but
which serve merely to give it a determinate, personal, and local actuality.
"Now, what is the bank-paper I propose to create?
"It is the bill of exchange stripped of the circumstantial qualities of date, place, person,
object, term of maturity, and reduced to its essential qualities,--exchange,
"It is, to explain myself still more clearly, the bill of exchange, payable at sight and for
ever, drawn from every place in France upon every other place in France, made by 100,000
drawers, guaranteed by 100,000 indorsers, accepted by the 100,000 subscribers drawn
upon; having provision made for its payment in the 100,000 workshops, manufactories,
stores, &c., of the same 100,000 subscribers.
"I say, therefore, that such a title unites every condition of solidity and security, and that
it is susceptible of no depreciation.
"It is eminently solid; since, on one side, it represents the ordinary, local, personal,
actual paper of exchange, determined in its object, and representing a real value, a service
rendered, merchandise delivered or whose delivery is guaranteed and certain; while, on the
other side, it is guaranteed by the contract,
in solido, of 100,000 exchangers, who, by their
mass, their independence, and at the same time by the unity and connection of their
operations, offer millions of millions of probability of payment against one of non-payment.
Gold is a thousand times less sure.
"In fact, if, in the ordinary conditions of commerce, we may say that a bill of exchange
made by a known merchant offers two chances of payment against one of non-payment, the
same bill of exchange if it is indorsed by another known merchant, will offer four chances
of payment against one. If it is indorsed by three, four, or a greater number of merchants
equally well known there will be eight, sixteen, thirty-two, &c., to wager against one that
three, four, five, &c., known merchants will not fail at the same time, since the favorable
chances increase in geometrical proportion with the number of indorsers. What, then, ought
to be the certainty of a bill of exchange made by 100,000 well known subscribers, who are
all of them interested to promote its circulation?
"I add that this title is susceptible of no depreciation. The reason for than is found, first,
in the perfect solidity of a mass of 100,000 signers. But there exists another reason, more
direct, and, if possible, more reassuring: it is that the issues of the new paper can NEVER be
like those of ordinary bank-bills, treasury-notes, paper-money, assignats, &c.; for the
issues take place against good commercial paper only. and in the regular, necessarily
limited, measured, and proportionate process of discounting.
"In the combination I propose, the paper (at once sign of credit and instrument of
circulation) grows out of the best business-paper, which itself represents products delivered, and by no means merchandise unsold.
'This paper, I affirm, can never be refused in
payment, since it is subscribed beforehand by the mass of producers.
"This paper offers so much the more security and convenience, inasmuch as it may be
tried on a small scale, and with as few persons as you see fit, and that without the least
violence, without the least peril.
"Suppose the Bank of Exchange to start at first on a basis of 1,000 subscribers instead
of 100,000: the amount of paper it would issue would be in proportion to the business .of
these 1,000 subscribers, and negotiable only among themselves. Afterwards, according as
other persons should adhere to the bank, the proportion of bills would be as 5,000, 10,000,
50,000, &c.; and their circulation would grow with the number of subscribers, as a money
peculiar to them. Then, when the whole of France should have adhered to the statutes of the
new bank, the issue of paper would be equal, at every instant, to the totality of circulating
"I do not conceive it necessary to insist longer. Men acquainted with banking will
understand me without difficulty, and will supply from their own minds the details of
"As for the vulgar, who judge of all things by the material aspect, nothing for them is so
similar to an assignat as a bill of the Bank of Exchange. For the economist, who searches
the idea to the bottom, nothing is so different. They are two titles, which, under the same
matter, the same form, the same denomination, are diametrically opposed to each other."--
Organisation du Credit de la Circulation--Banque d'Echange, p. 23.
We have several objections to Proudhon's bank. We propose them with diffidence, as
Proudhon has undoubtedly prepared an adequate answer to them. Nevertheless, as he has
not given that answer in his writings, we have a right to state them. They are as follows:--
1st, We ask M. Proudhon how he would punish arbitrary conduct, partiality, favoritism,
and self-sufficiency, on the part of the officers of his bank. When we go to the .Mutual
Bank to borrow money, we desire to be treated politely, and to receive fair play.
2d, We ask him how he would prevent intriguing members from caballing to obtain
control of the direction; or how he would prevent such intrigues from bringing forth evil
3d, We ask him how he would prevent the same property, through the operation of
successive sales, from being represented, at the same time, by several different bills of
exchange, all of which are liable to be presented for discount. For example: Suppose Peter
sells John $100 worth of pork at six months' credit, and takes a bill at six months for it; and
that John sells afterward this same pork to James at a like credit, taking a like bill: what shall
prevent both Peter and John from presenting their bills for discount? Both bills are real bills,
resulting from sales actually effected. Neither of them can be characterized as fictitious
paper; and, meanwhile, only one represents actual property. The same barrel of pork, by
being sold and resold at credit one hundred times, will give rise to one hundred real bills.
But is it not absurd to say that the bank is safe in discounting all this paper, for the reason
that it is entirely composed of real bills, when we know that only one of them represents the
barrel of pork? It follows, therefore, that not every real bill is adequately guaranteed. How,
then, can Proudhon be certain that his issues of bank-paper "will never be exaggerated "?
4th, We ask him how he would cause his bank to operate to the DECENTRALIZATION of
For ourselves, we submit (and for the reason that it is necessary to have some system
that obviates the foregoing objections) that the issues of mutual money ought--at least, here
in New England, the theory of Proudhon to the contrary notwithstanding--to be related to a
basis of determinate actual property.
Our plan for a Mutual Bank is as follows:--
1st, Any person, by pledging actual property to the bank, may become a member of the
Mutual Banking Company.
2d, Any member may borrow the paper-money of the bank, on his own note running to
maturity (without indorsement), to an amount not to exceed one-half of the value of the
property by himself pledged.
3d, Each member binds himself in legal form, on admission, to
receive in all payments, from whomsoever it may be, and at par, the paper of the
4th, The rate of interest at which said money shall be loaned shall be determined by and
shall, if possible, just meet and cover, the bare expenses of the institution. As for interest in
the common acceptation of the word. its rate shall be, at the Mutual Bank, precisely 0.
5th, No money shall be loaned to any persons who are not members of the company;
that is, no money shall be loaned, except on a pledge of actual property.
6th, Any. member, by paying his debts to the bank, may have his property released
from pledge, and be himself released from all obligations to the bank, or to the holders of
the bank's money, as such.
7th, As for the bank, it shall never redeem any of its notes in specie; nor shall it ever
receive specie in payments, or the bills of specie-paying banks, except at a discount of onehalf
of one per cent.
Ships and houses that are insured, machinery, in short, any thing that may be sold
under the hammer, may be made a basis for the issue of mutual money. Mutual banking
opens the way to no monopoly; for it simply elevates every species of property to the rank
which has hitherto been exclusively occupied by gold and silver. It may be well (we think it
will be necessary) to begin with real estate: we do not say it would be well to end there!
Petition For a General Mutual Banking Law
To the Honorable the Senate and House of Representatives of the
Commonwealth of Massachusetts.
THIS prayer of your petitioners humbly showeth, that the farmers, mechanics, and
other actual producers, whose names are hereunto subscribed, believe the present
organization of the currency to be unjust and oppressive. They, therefore, respectfully
request your honorable body to republicanize gold, silver, and bank-bills, by the enactment
of a GENERAL MUTUAL BANKING LAW.
A law, embracing the following provisions, would be eminently satisfactory to your
1. The inhabitants. or any portion of the inhabitants, of any town or city in the
Commonwealth, may organize themselves into a Mutual Banking Company.
2. Any person may become a member of the Mutual Banking Company of any
particular town, by pledging REAL ESTATE situated in that town, or in its immediate
neighborhood, to the Mutual Bank of that town.
3. The Mutual Bank of any town may issue paper-money
to circulate as currency
among persons willing to employ it as such.
4. Every member of a Mutual Banking (Company shall bind himself, and be bound, in
due legal form, on admission, to receive in payment of debts, at par, and from all persons,
the bills issued. and to be issued, by the particular Mutual Bank to which he may belong;
but no member shall be obliged to receive, or have in possession, bills of said Mutual Bank
to an amount exceeding the whole value of the property pledged by him. .
5. Any member may borrow the paper-money of the bank to which he belongs, on his
own note running to maturity (without indorsement), to an amount not to exceed one half of
the value of the property pledged by him.
6. The rate of interest at which said money shall be loaned by the bank shall be
determined by, and shall, if possible, just meet and cover the bare expenses of the institution.
7. No money shall be loaned by the bank to persons who do not become members of
the company by pledging real estate to the bank.
8. Any member, by paying his debts to the Mutual Bank to which he belongs, may have
his property released from pledge, and be himself released from all obligations to said
Mutual Bank, and to holders of the Mutual-Bank money, as such.
9. No Mutual Bank shall receive other than Mutual-Bank paper-money in payment of
debts due to it, except at a discount of one-half of one per cent.
10. The Mutual Banks of the several counties in the Commonwealth shall be authorized
to enter into such arrangements with each other as
shall enable them to receive each other's bills in payments of debts; so that, for example,
a Fitchburg man may pay his debts to the Barre Bank in Oxford money, or in such other
Worcester-county money as may suit his convenience.
Let A, B, C, D, and E take a mortgage upon real estate owned by F, to cover a value of,
say, $600; in consideration of which mortgage, let A, B, C, D, and E, who are timber-dealers.
hardware-merchants, carpenters, masons. painters, etc., furnish planks, boards, shingles,
nails, hinges, locks, carpenters' and masons' labor, &c.. to the value of $600, to F, who is
building a house. Let the mortgage have six months to run. A, B, C, D, and E are perfectly
safe: for either F pays at the end of the six months, and then the whole transaction is closed;
or F does not pay, and then they sell the real estate mortgaged by him, which is worth much
more than $600, and pay themselves, thus closing the transaction. This transaction,
generalized, gives the Mutual Bank, and furnishes a currency based upon products and
services, entirely independent of hard money, or paper based on hard money. For A, B, C,
D, and E may give to F, instead of boards, nails, shingles, &c., 600 certificates of his
mortgage, said certificates being receivable by them for services and products, each one in lieu of a silver dollar; each certificate being therefore, in all purchases from them, equivalent
to a one-dollar bill. If A, B, C, D, and E agree to receive these certificates, each one in lieu of
a silver dollar, for the redemption of the mortgage; if, moreover, they agree to receive them,
each one in lieu of a silver dollar from whomsoever it may be, in all payments,--then A, B,
C, D, and E are a banking company that issues mutual money; and. as they never issue
money except upon a mortgage of property of double the value of the money issued, their
transactions are always absolutely safe, and their money is always absolutely good.
Any community that embraces members of all trades and professions may totally
abolish the use of hard money, and of paper based on bard money, substituting mutual
money in its stead; and they may always substitute mutual money in the stead of hard
money and bank bills, to the precise extent of their ability to live within themselves on their
The Rate of Interest.
As interest-money charged by Mutual Banks covers nothing but the expenses of the
institutions, such banks may lend money, at A RATE OF LESS THAN ONE PER CENT. PER
ANNUM, to persons offering good security.
Advantages of Mutual Banking.
It may be asked, What advantage does mutual banking hold out to individuals who have
no real estate to offer in pledge? We answer this question by another: What advantage do
the existing banks hold out to individuals who desire to borrow, but are unable to offer
adequate security? If we knew of a plan whereby, through an act of the legislature every
member of the community might be made rich, we would destroy this petition, and draw up
another embodying that plan. Meanwhile, we affirm that no system was ever devised So
beneficial to the poor as the system of mutual banking: for if a man, having nothing to offer
in pledge, has a friend who is a farmer, or other holder of real estate, and that friend is
willing to furnish security for him, he can borrow money at the Mutual Bank at a rate of one
per cent. interest per annum; whereas, if he should borrow at the existing banks, he would
be obliged to pay six per cent. Again: as mutual banking will make money exceedingly
plenty, it will cause a rise in the rate of wages, thus benefiting the man who has no property
but his bodily strength: and it will not cause a proportionate increase in the price of the
necessaries of life: for the price of provisions, &c., depends on supply and demand; and
mutual banking operates, not directly on supply and demand, but to the diminution of the
rate of interest on the medium of exchange. Mutual banking will indeed cause a certain rise
in the price of commodities by creating a new demand; for, with mutual money, the poorer
classes will be able to purchase articles which, under the present currency, they never dream
But certain mechanics and farmers say, "We borrow no money, and therefore pay no
interest. How, then, does this thing concern us?" Hearken, my friends! let us reason
together. I have an impression on my mind that it is precisely the class who have no
dealings with the banks, and derive no advantages from them, that ultimately pay all the
interest money that is paid. When a manufacturer borrows money to carry on his business,
he counts the interest he pays as a part of his expenses, and therefore adds the amount of
interest to the price of his goods. The consumer who buys the goods pays the interest when
he pays for the goods; and who is the consumer, if not the mechanic and the farmer? If a
manufacturer could borrow money at one per cent.. he could afford to undersell all his
competitors, to the manifest advantage of the farmer and mechanic. The manufacturer would
neither gain nor lose; the farmer and mechanic, who have no dealings with the bank, would
gain the whole difference; and the bank--which, were it not for the competition of the
Mutual Bank, would have loaned the money at six per cent. interest--would lose the whole
difference. It is the indirect relation of the bank to the farmer and mechanic, and not its
direct relation to the manufacturer and merchant, that enables it to make money. When
foreign competition prevents the manufacturer from keeping up the price of his goods, the
farmer and mechanic, who are consumers, do not pay the interest-money: but still the
interest is paid by the class that derive no benefit from the banks; for, in this case, the
manufacturer will save himself from loss by cutting down the wages of his workmen, who
are producers. Wages fluctuate, rising and falling (other things being equal) as the rate of
interest falls or rises. If the farmer, mechanic. and operative are not interested in the matter
of banking, we know not who is.
Mutual Money is generally competent to force its own Way into General Circulation.
Let us suppose the Mutual Bank to be at first established in a single town, and its
circulation to be confined within the limits of that town. The trader who sells the produce of
that town in the city, and buys there such commodities--tea, coffee, sugar, calico, &c.--as
are required for the consumption of his neighbors, sells and buys on credit. He does not
pay the farmer cash for his produce; he does not sell that produce for cash in the city;
neither does he buy his groceries, &c., for cash from the city merchant: but he buys of the
farmer at, say, eight months' credit; add he sells to the city merchant at, say, six months'
credit. He finds, moreover, as a general thing, that the exports of the town which pass
through his hands very nearly balance the imports that he brings into the town for sale; so
that, in reality, the exports--butter, cheese, pork, beef, eggs, &c.--pay for the imports,--
coffee, sugar, &c. And how, indeed, could it be otherwise? It is not to be supposed that the
town has silver mines and a mint; and, if the people pay for their imports in money, it will be
because they have become enabled so to do by selling their produce for money. It follows,
therefore, that the people in a country town do not make the money, whereby they pay for
store-goods. off each other, but that they make it by selling their produce out of the town.
There are, therefore, two kinds of trading going on at the same time in the town--one trade
of the inhabitants with each other; and another of the inhabitants, through the store, with
individuals living out of town. And these two kinds of trade are perfectly distinct from each
other. The mutual money would serve all the purposes of the internal trade; leaving the hard
money, and paper based on hard money, to serve exclusively for the purposes of trade that
reaches out of the town. The mutual money will not prevent a single dollar of hard money,
or paper based on hard money, from coming into the town; for such hard money comes into
the town, not in consequence of exchanges made between the inhabitants themselves, but in
consequence of produce sold abroad. So long as produce is sold out of the town, so long
will the inhabitants be able to buy commodities that are produced out of the town; and they
will be able to make purchases to the precise extent that they are able to make sales. The
mutual money will therefore prove to them an unmixed benefit: it will be entirely
independent of the old money, and will open to them a new trade entirely independent of the
old trade. So far as it can be made available, it will unquestionably prove itself to be a good
thing; and, where it cannot be made available, the inhabitants will only be deprived of n
benefit that they could not have enjoyed, mutual money, or no mutual money. Besides, the
comparative cost of the mutual money is almost nothing; for it can be issued to any amount
on good security, at the mere cost of printing, and the expense. of looking after the safety of
the mortgages. If the mutual money should happen, at any particular time, not to be issued
to any great extent, it would not be as though an immense mass of value was remaining idle;
for the interest on the mutual money is precisely 0. The mutual money is not itself actual
value, but a mere medium for the exchange of actual values,--a mere medium for the
facilitation of barter.
We have remarked, that when the trader, who does the out of town business of the
inhabitants. buys coffee, sugar, &c., he does not pay cash for them, but buys them at, say,
six months' credit. Now, the existing system of credit causes, by its very nature, periodical
crises in commercial affairs. When one of these crises occurs, the trader will say to the city
merchant, "I owe you so much for groceries; but I have no money, for times are hard: I will
give you, however, my note for the debt." Now, we leave it to the reader, would not the city
merchant prefer to take the mutual money of the town to which the trader belongs, money
that holds real estate and produce in that town, rather than the private note of a trader who
may fail within a week?
If, under the existing system, all transactions were settled on the spot in cash. things
might be different; but as almost all transactions are conducted on the credit-system, and as
the credit-system necessarily involves periodical commercial crises, the mutual money will
find very little difficulty in ultimately forcing itself into general circulation. The Mutual
Bank is like the stone e cut from the mountain without hands; for let it be once established
in a single village, no matter how obscure, and it will grow till it covers the whole earth.
Nevertheless, it would be better to obviate all difficulty by starting the Mutual Bank on a
sufficiently extensive scale at the very beginning.
The Measure of Value.
The bill of a Mutual Bank is not a standard of value, since it is itself measured and
determined in value by the silver dollar. If the dollar rises in value, the bill of the Mutual
Bank rises also, since it is receivable in lieu of a silver dollar. The bills of a Mutual Bank are
not standards of value but mere instruments of exchange; and as the value of mutual money;
is determined, not by the demand and supply of mutual money, but by the demand and
supply of the precious metals, the Mutual Bank may .issue bills to any extent, and those
bills will not be liable to any depreciation from excess of supply. And, for like reasons,
mutual money will not be liable to rise in value if it happens at any time to be scarce in the
market. The issues of mutual money are therefore susceptible of any contraction or
expansion which may be necessary to meet the wants of the community; and such
contraction or expansion cannot by any possibility be attended with any evil consequence
whatever: for the silver dollar, which is the standard of value, will remain throughout at the
natural valuation determined for it by the general demand and supply of gold and silver
through the whole world.
The bills of a Mutual Bank act merely as a medium of exchange: they do not and
cannot pretend to be measures or standards of value. The medium of exchange is one thing;
the measure of value is another; and the standard of value still another. 'The dollar is the
measure of value. Silver and gold. at a certain degree of fineness, are the standard of value.
The bill of a Mutual Bank is a bill of exchange, drawn by all the members of the banking
company upon themselves, indorsed and accepted by themselves, payable at sight, but only
in services and products. The members of the company bind themselves to receive their own
money at par; that is, in lieu of as many silver dollars as are denoted by the denomination
on the face of the bill. Services and products are to be estimated in dollars, and exchanged
for each other without the intervention of specie.
Mutual money, which neither is nor can be merchandise, escapes the law of supply and
demand, which is applicable to merchandise only.
The Regulator of Value.
The utility of an article is one thing; its exchangeable value is another; and the cost of
its production is still another. But the amount of labor expended in production, though not
the measure, is, in the long run, the regulator, of value; for every new invention which
abridges labor, and enables an individual or company to offer an increased supply of
valuable articles in the market, brings with it an increase of competition. For, supposing that
one dollar constitutes a fair day's wages, and that one man by a certain process can produce
an article valued in the market at one dollar in half a day's labor, other men will take
advantage of the same process, and undersell the first man, in order to get possession of the
market. Thus, by the effect of competition, the price of the article will probably be ultimately
reduced to fifty cents. Labor is the true regulator of value for every laboring-man who
comes into competition with others increases the supply of the products of labor, and thus
diminishes their value; while at the same time, and because he is a living man, he increases
the demand for those products to precisely the same extent, and thus restores the balance:
for the laborer must be housed, clothed, and subsisted by the products of his labor. Thus the
addition of a laboring-man, or of any number of laboring-men, to the mass of producers,
ought to have no effect either upon the price of labor or upon that of commodities; since, if
the laborer by his presence increases the productive power, he at the same time increases the
demand for consumption. We know that things do not always fall out thus in practice; but
the irregularity is explained by the fact that the laborer, who ought himself to have the
produce of his labor, or its equivalent in exchange, has, by the present false organization of
credit, his wages abstracted from him. Want and over production arise sometimes from
mistakes in the direction of labor. but generally from that false organization of credit which
now obtains throughout the civilized world. There is a market-price of commodities,
depending on supply and demand, and a natural price, depending on the cost of production;
and the market-price is in a state of continual oscillation, being sometimes above, and
sometimes below, the natural price: but in the long run, the average of a series of years being
taken, it coincides with it. It is probable, that, under a true organization of credit, the natural
price and market-price would coincide at every moment. Under the present system, there are
no articles whose market and natural prices coincide so nearly and so constantly as those of
the precious metals; and it is for this reason that they have been adopted by the various
nations as standards of value.
When Adam Smith and Malthus say that labor is a measure of value, they speak, not
of the labor which an article cost, or ought to have cost, in its production, but of the quantity
of labor which the article may purchase or command. It is very well, for those who mistake
the philosophy of speculation on human misfortune and necessities for social science, to
assume for measure of value the amount of labor which different commodities can
command. Considered from this point of view, the price of commodities is regulated, not by
the labor expended in their production, but by the distress and want of the laboring class.
There is no device of the political economists so infernal as the one which ranks labor as a
commodity, varying in value according to supply and demand. Neither is there any device so
unphilosophical; since the ratio of the supply of labor to the demand for it is unvarying: for
every producer is also a consumer, and rightfully, to the precise extent of the amount of his
products; the laborer who saves up his wages being, so far as society is concerned, and in
the long run, a consumer of those wages. The supply and demand for labor is virtually
unvarying; and its price ought, therefore, to be constant. Labor is said to be value, not
because it is itself merchandise, but because of the values it contains, as it were, in solution,
or, to use the correct metaphysical term, in potentia. The value
of labor is a figurative
expression, and a fiction, like the productiveness of capital. Labor, like liberty, love,
ambition, genius, is something vague and indeterminate in its nature, and is rendered definite
by its object only: misdirected labor produces no value. Labor is said to be valuable, not
because it can itself be valued, but because the products of labor may be truly valuable.
When we say, "John's labor is worth a dollar a day," it is as though we said, "The daily
product of John's labor is worth a dollar." To speak of labor as merchandise is treason; for
such speech denies the true dignity of man, who is the king of the earth. Where labor is
merchandise in fact (not by a mere inaccuracy of language), there man is merchandise also,
whether it be in England or South Carolina.
The Way in which the Affairs of the Mutual Bank may be closed.
When the company votes to issue no more money, the bills it has already issued will be
returned upon it; for, since the bills were issued in discounting notes running to maturity.
the debtors of the bank, as their notes mature, will pay in the bills they have received. When
the debtors have paid their debts to the bank, then the bills are all in, every debtor has
discharged his mortgage, and the affairs of the bank are CLOSED. If any debtor fails to pay,
the bank sells the property mortgaged, and pays itself. The bank loans at a rate of interest
that covers its bare expenses: it makes, therefore, no profits, and, consequently, can declare
no dividends. It is by its nature incapable of owing any thing: it has, therefore no debts to
settle. When the bank's debtors have paid their debts to the bank, then nobody owes any
thing to the bank, and the bank owes nothing to anybody.
In case some of the debtors of the bank redeem their notes, not in bills of the Mutual
Bank, but in bills of specie-paying banks, then those bills of specie-paying banks will be at
once presented for redemption at the institutions that issued them; and an amount of specie
will come into the hands of the Mutual Bank, precisely equal to the amount of its own bills
still in circulation: for since the Mutual Bank never issues money, except in discounting
notes running to maturity, the notes of the debtors to the bank precisely cover the amount of
the bank's money in circulation. When this specie comes into the hands of the bank, it
deposits it at once in some other institution; which institution assumes the responsibility of
redeeming at sight such of the bills of the closed bank as may be at any time thereafter
presented for redemption. And such institution will gladly assume this responsibility, since
it is probable that many of the bills will be lost or destroyed, and therefore never presented
for redemption; and such loss or destruction will be a clear gain to the institution assuming
the responsibility, since it has specie turned over to it for the redemption of every one of the
bills that remains out.
Finally: let us conceive, for a moment, of the manifold imperfections of the existing
system of banking. In Massachusetts, the banks had out, in the year 1849, nine and one-half
dollars of paper for every one dollar of specie in their vaults wherewith to redeem them.
Can any thing be more absurd than the solemn promise made by the banks to redeem nine
and one-half paper-dollars with one dollar in specie? They may get along very well with this
promise in a time of profound calm; but what would they do on occasions of panic?
The paper issued under the existing system is an article of merchandise, varying in
price with the variations of supply and demand: it is, therefore, unfit to serve as a medium of
The banks depend on the merchants; so that, when the merchant is poor, it falls out that
the bank is always still poorer. Of what use is the bank, if it culls in its issues in hard
times?--the very occasions when increased issues are demanded by the wants of the
The existing bank reproduces the aristocratic organizations; it has its Spartan element
of privileged stockholders, its Laconian element of obsequious speculators, and, on the
outside, a multitude of Helots who are excluded from its advantages. Answer us, reader: If
we are able, at this time, to bring forward the existing banking system as a new thing. and
should recommend its adoption, would you not laugh in our face, and characterize our
proposition as ridiculous? Yet the existing system has an actual and practical being, in spite
of all its imperfections: nay, more, it is the ruling element of the present civilization of the
Christian world; it has substituted itself, or is now substituting itself, in the place of
monarchies and nobilities. Who is the noble of the present day, if not the man who lends
money at interest? Who is the emperor, if not Pereire or Baron Rothschild? Now, if the
present system of banking is capable of actual existence, how much more capable of actual
existence is the system of mutual banking! Mutual banking combines all the good elements
of the method now in operation, and is capable of securing a thousand benefits which the
present method cannot compass, and is moreover free from all its disadvantages!
The Provincial Land-Bank
"In the year 1714," says Gov. Hutchinson, in his History of Massachusetts, a certain "
party had projected a private bank; or, rather, had taken up a project published in London in
the year 1684: but, this not being generally known in America, a merchant of Boston was
the reputed father of it. There was nothing more in it than issuing
bills of credit, which all the members of the company promised to receive as money,
but at no certain value compared with silver and gold; and REAL ESTATE
to a sufficient value were to be bound as a security that the company should perform
their engagements. They were soliciting the
Sanction of the General Court, and an act of government to incorporate them. This party
generally consisted of persons in difficult or involved circumstances in trade; or such as
were possessed of real estates, but had little or no ready money at command; or men of no
substance at all: and we may well enough suppose the party to be very numerous. Some, no
doubt, joined them from mistaken principles, and an apprehension that it was a scheme
beneficial to the public; and some for party's sake and popular applause.
"Three of the representatives from Boston--Mr. Cooke; Mr. Noyes, a gentleman in
great esteem with the inhabitants in general; and Mr. Payne--were the supporters of the
party. Mr. Hutchinson, the other (an attempt to leave him out of the house not succeeding),
was sent from the house to the council, where his opposition would be of less consequence.
The governor was no favorer of the scheme; but the lieutenant-governor--a gentleman of no
great fortune, and whose stipend from the government was trifling--engaged in the cause
with great zeal.
"A third party, though very opposite to the private bank yet were no enemies to bills of
credit. They were in favor of loan-bills from the government to any of the inhabitants who
would mortgage their estates as a security for the repayment of the bills, with interest in a
term of years: the interest to be paid annually, and applied to the support of government.
This was an easy way of paying public charges; which, no doubt, they wondered that in so
many ages the wisdom of other governments had never discovered. The principal men of the
council were in favor of it; and, it being thought by the first party the least of two evils, they
fell in with the scheme; and, after that, the country was divided between the public and
private bank:. The House of Representatives was near equally divided, but rather favorers of
the private bank, from the great influence of the Boston members in the house, and a great
number of persons of the town out of it. The controversy had an universal spread, and
divided towns, parishes, and particular families.
"At length after a long struggle, the party for the public bank prevailed in the General
Court for a loan of fifty thousand pounds in bills of credit, which were put into the hands of
trustees, and lent for five years only, to any of the inhabitants. at five per cent. interest, onefifth
part of the principal to be paid annually. This lessened the number of the party for the
private bank; but it increased the zeal, and raised B strong resentment, in those that remained."--Thomas
Hutchinson: History of Massachusetts, vol. ii p. 188.
It is utterly inconceivable that any company of sane men should have seriously
proposed to issue paper-money destitute of all fixed and determinate value as compared
with gold and silver, imagining that such money could circulate as currency. If paper-money
has "no certain value compared with silver and gold," it has no certain value compared with
any commodity whatever; that is, it has no certain value at all: for, since gold and silver have
a determinate value as compared with exchangeable commodities, all paper-money that may
be estimated in terms of marketable commodities may be estimated in terms of silver and
gold. Our author will permit us to suspect that his uncompromising hostility, not only to the
land-bank, but also to every thing else of a democratic tendency, blinded his eyes to the true
nature of the institution ,he de. scribes. Our suspicion is strengthened when we read that the
paper-money in question was to have a determinate value, since it was to have been secured
by a pledge of "real estate to a sufficient value." The projectors of the scheme probably
intended that the members of the company should redeem their bills from the bill-holders
by receiving them, in all payments,
in lieu of determinate and specified amounts of gold and
silver; and such a method of redemption would have given the bills "a certain value as
compared with silver and gold."
In view of this extract from Gov. Hutchinson's history, we abandon all claims to
novelty or originality as regards our own scheme for a Mutual Bank.
We think it very
probable that our theory dates back to "the project published in London in the year 1684;"
but we affirm nothing positively on this head, since we are altogether ignorant of the details,
not only of the provincial project, but also of the original London plan. We have no
information in regard to these makers, except that which is now submitted to the reader.
Our author says, on a subsequent page,--
"In 1739, a great part of the Province was disposed to favor what was called the landbank
or manufactory scheme; which was begun, or rather revived, in this year, and produced
such great and lasting mischiefs, that a particular relation of the rise, progress, and
overthrow of it may be of use to discourage any attempts of the like nature in future ages.--
Hist. Of Massachusetts,
vol. ii. p. 352.
It appears that, after an interval of twenty-five years, the land-bank scheme rose once
again above the surface of the political and financial waters. Gov. Hutchinson says that this
scheme produced "great and lasting mischiefs." Let us see what these "mischiefs" were:--
"The project of the bank of 1714 was revived. The projector of that bank now put
himself at the head of seven or eight hundred persons, some few of rank and good estate,
but generally of low condition among the plebeians, and of small estate, and many of them
perhaps insolvent. This notable company were to give credit to £150,000 lawful money, to
be issued in bills; each person
to mortgage a REAL ESTATE in proportion to the sums he subscribed and took
out, or to give bond with two sureties: but personal security was not to
be taken for more than £100 from any one person. Ten directors and a treasurer were to be
chosen by the company. Every subscriber or partner was to pay three per cent. interest [per
annum] for the sum taken out, and five per cent. Of the principal; and he that did not pay
bills might pay the produce and manufacture of the Province at such rates as the directors
from time to time should set; and they [the bills] should commonly pass in lawful money.
The pretense was, that, by thus furnishing a medium and instrument of trade, not only the
inhabitants in general would be better able to procure the Province bills of credit for their
taxes, but trade, foreign and inland, would revive and flourish. The fate of the project was
thought to depend on the opinion which the General Court should form of it. It was
necessary, therefore, to have a house of representatives well disposed. Besides the eight
hundred persons subscribers, the needy part of the Province in general favored the scheme.
One of their votes will go as far in elections as one of the most opulent. The former are
most numerous; and it appeared that as far the majority of representatives for 1740 were
subscribers to or favorers of the scheme, and they have ever since been distinguished by the
name of the Land-Bank House.
"Men of estates and the principal, merchants of the Province abhorred the project,
and refused to receive the bills; but great numbers of shopkeepers, who had lived for a long
time on the fraud of a depreciating currency, and many small traders, gave credit to the bills.
The directors, it was said, by a vote of the company, became traders, and issued just such
bills as they thought proper, without any fund or security for their ever being redeemed.
They purchased every sort of commodity, ever so much a drug, for the sake of pushing off
their bills: and, by one means or other, a large sum--perhaps fifty or sixty thousand
pounds--was abroad. To lessen the temptation to receive the bills, a company of merchants
agreed to issue their notes, or bills redeemable in silver and gold at distant periods, much
like the scheme in 1733, and attended with no better effect. The governor exerted himself to
blast this fraudulent undertaking,--the land-bank. Not only such civil and military officers
as were directors or partners, but all who received or paid any of the bills, were displaced.
The governor negatived the person chosen speaker of the house, being a director of the
bank; and afterwards negatived thirteen of the newly elected counsellors, who were
directors or partners in, or favorers of, the scheme. But all was insufficient to suppress it.
Perhaps the major part in number of the inhabitants of the Province, openly or secretly,
were well-wishers of it. One of the directors afterwards acknowledged to me, that,
although he entered into the company with a view to the public interest,
YET, WHEN HE
FOUND WHAT POWER AND INFLUENCE THEY HAD IN ALL PUBLIC CONCERNS, he was
convinced it was more than belonged to them, more than they could make a good use of,
and therefore unwarrantable. Many of the more sensible, discreet persons of the Province
saw a general confusion at hand. The authority of Parliament to control all public and
private persons and proceedings in the Colonies, was, at that day, questioned by nobody.
Application was therefore made to Parliament for an act TO SUPPRESS the company;
which, notwithstanding the opposition made by their agent, was very easily obtained: and
therein it was declared that the act of the sixth of King George I., chapter the eighteenth, did,
does, and shall extend to the colonies and plantations of America. It was said the act of
George I., when it was passed, had no relation to America; but another act, twenty years
after, gave it force, even from the passing it, which it never could have had without. THIS
WAS SAID TO BE AN INSTANCE OF THE TRANSCENDENT POWER OF PARLIAMENT.
Although the company was dissolved, yet the act of Parliament gave the possessors of the
bills a right of action against every partner or director for the sums expressed, WITH
INTEREST. The company were in a maze. At a general meeting, some, it is said, were for
running all hazards, although the act subjected them to a praemunire; but the directors had
more prudence, and advised them to declare that they considered themselves dissolved, and
met only to consult upon some method of re deeming their bills of the possessors, which
every man engaged to endeavor in proportion to his interest, and to pay in to the directors, or
some of them, to burn or destroy. Had the company issued their bills at the value expressed
in the face of them, they would have had no reason to complain at being obliged to redeem
them at the same rate: but as this was not the case in general, and many of the possessors of
the bills had acquired them for half their value, as expressed, equity could not be done; and,
so far as respected the company, perhaps, the Parliament was not very anxious; the loss
they sustained being but a just penalty for their unwarrantable undertaking, if it had been
properly applied. Had not the Parliament interposed, the Province would have been in the
utmost confusion, AND THE AUTHORITY OF GOVERNMENT ENTIRELY IN THE LAND BANK COMPANY.--Page 353.
The "mischiefs" occasioned by this land-bank seem to have been political, rather than
economical; for our author nowhere affirms that the bill-holders, not members of the
company, lost any thing by the institution. We would remark, that there are certain
"mischiefs" which are regarded not without indulgence by posterity. Gov. Hutchinson
ought to have explained more in detail the nature of the evils he complains of; and also to
have told us why, he, a declared enemy of popular institutions, opposed the advocates of the
bank so uncompromisingly. Mutualism operates, by its very nature, to render political
government, founded on arbitrary force, superfluous; that is, it operates to the
decentralization of the political power, and to the transformation of the State. by substituting
self-government in the stead of government ab extra. The land-bank of 1740, which
embodied the mutual principle, operated vigorously in opposition to the government. Can
we wonder that it had to be killed by an arbitrary stretch "of the supreme power of
Parliament," and by an ex post facto law bearing outrageously on the individual members of
the company? For our part, we admire the energy--the confidence in the principle of
mutualism--of those members who proposed to go on in spite of Parliament, "although the
act subjected them to a proemunire." If they had gone on, they would simply have
anticipated the American Revolution by some thirty years.
But where is the warning to future ages? According to Gov. Hutchinson's own
statement, the fault of the bank was, that it would have succeeded too well
if it had had a fair
trial; nay, that it would have succeeded in spite of all obstacles, had it not been for the
exertion of "the transcendent power of Parliament." Where is the bank of these degenerate
days that has shown any thing like the same power of endurance? Some of the existing,
banks find it difficult to live with the power of government exerted in their favor!
The attempt of the Land-Bank Company to republicanize gold and silver, and to make all commodities circulate as reads money, was, without question, premature. But our author
misapprehends the matter, mistaking a transformation of the circulating medium for a
mercantile scheme. The "vote of the company whereby the directors became traders," was an
act for transforming the currency. We do not justify it altogether; for it put the welfare of
the cause at too great hazard: but it was, nevertheless, not totally out of harmony with the
general system. We remark, in conclusion, that the depreciation in the provincial currency
was occasioned, not by land bank--that is, by mutual--paper, which the Parliament forced
the issuers, by an arbitrary vindictive, and tyrannical law, to redeem with interest; but it was
occasioned by government-paper professing to be ultimately redeemable in gold and
silver." All arguments, therefore, against mutual money, derived from the colonial
currency, are foreign to the purpose.
The main objections against mutual banking are as follows: 1st, It is a novelty, and
therefore a chimera of the inventor's brain; 2d, It is an old story, borrowed from provincial
history, and therefore of no account! How would you have us answer objections like these?
Things new or old may be either good or evil. Every financial scheme should stand or fall
by its own intrinsic merits, and not be judged from extraneous considerations.
THE most concise and expressive definition of the term "capital," which we have seen
in the writings of the political economists, is the one furnished by J. Stuart Mill, in his table
of contents. He says, "Capital is wealth appropriated to reproductive
is, indeed, a certain ambiguity attached to the word wealth; but let that pass: we accept the
definition. A tailor has five dollars in money, which he proposes to employ in his business.
This money is unquestionably capital, since it is wealth appropriated to reproductive
employment; but it may be expended in the purchase of cloth, in the payment of
journeymen's wages or in a hundred other ways: what kind of capital, then, is it? It is
disengaged capital. Let us say that the tailor takes his money, and expends it for
cloth: this cloth is also devoted to reproductive employment, and is therefore still capital; but
what kind of capital? Evidently, engaged capital. He makes this cloth into a coat; which coat
is more valuable than the cloth, since it is the result of human labor bestowed upon the cloth.
But the coat is no longer capital; for it is no longer (so far at least as the occupation of the
tailor is concerned) capable of being appropriated to reproductive employment: what is it,
then? It is that for the creation of which the capital was originally appropriated: it is product.
The tailor takes this coat. and sell. it in the market for eight dollars; which dollars become to
him a new disengaged capital. The circle is complete; the coat becomes engaged capital to
the purchaser; and the money is disengaged capital, with which the tailor may commence
another operation. Money is disengaged capital, and dis engaged capital is money. Capital
passes, therefore, through various forms: first it is disengaged capital, then it becomes
engaged capital, then it becomes product, afterwards it is transformed again into disengaged
capital, thus recommencing its circular progress.
The community is happy and prosperous when all professions of men easily exchange
with each other the products of their labor; that is, the community is happy and prosperous when money circulates freely, and man is able with facility to transform his product into disengaged capital: for with disengaged capital, or money, men may command such of the
products of labor as they desire, to the extent, at least, of the purchasing power of their
The community is unhappy, unprosperous, miserable, when money is scarce. when
exchanges are effected with difficulty. For notice, that, in the present state of the world, there
is never real over-production to any appreciable extent; for, whenever the baker has too
much bread, there are always laborers who could produce that of which the baker has too
little, and who are themselves in want of bread. It is when the tailor and baker cannot
exchange, that there is want
and over-production on both sides. Whatever, therefore, has
power to withdraw the currency from circulation, has power also to cause trade to stagnate;
power to overwhelm the community with misery; power to carry want, and its correlative.,
over-production, into every artisan's house and workshop. For the transformation of product
into disengaged capital is one of the regular steps of production;
and whatever withdraws
the disengaged capital, or money, from circulation, at once renders this step impossible, and
thus puts a drag on all production.
There are various Kinds of Money.
But all money is not the same money. There is one money of gold, another of silver,
another of brass, another of leather, and another of paper; and there is a difference in the
glory of these different kinds of money. There is one money that is a commodity, having its
exchangeable value determined by the law of supply and demand, which money may be
called (though somewhat barbarously) merchandise-money; as, for instance, gold, silver,
brass, bank-bills, &c.: there is another money, which is not a commodity. whose
exchangeable value is altogether independent of the law of supply and demand, and which
may be called mutual money.
Mr. Edward Kellogg says, "Money becomes worthless whenever it ceases to be
capable of accumulating an income which can be exchanged for articles of actual value. The
value of money as much depends upon its power of being loaned for an income, as the value
of a farm depends upon its natural power to produce." And again: "Money is valuable in
proportion to its power to accumulate value by interest." Mr. Kellogg is mistaken. Money is
a commodity in a twofold way, and has therefore a twofold value and a twofold price,--one
value as an article that can be exchanged for other commodities, and another value as an
article. that can be loaned out at interest; one price which is determined by the supply and
demand of the precious metals, and another price (the rate of interest) which is determined
by the distress of the borrowing community. Mr. Kellogg speaks as though this last value
and last price were the only ones deserving consideration: but this is by no means the case;
for this last value and price are so far from being essential to the nature of money, that the
Mutual Bank will one day utterly abolish them. The natural value of the silver dollar
depends upon the demand and supply]y of the metal of which it is composed, and not upon
its artificial power to accumulate value by interest. Legislation has created usury; and the
Mutual Bank can destroy it. Usury is a result of the legislation which establishes a
particular commodity as the sole article of legal tender; and, when all commodities are made
to be ready money through the operation of mutual banking, usury will vanish.
Convertible paper-money renders the Standard of Value uncertain.
To show the effect of variations in the volume of the existing circulating medium, not
only on foreign commerce, but also on the private interests of each individual member of the
community, we will, at the risk of being tedious, have recourse to an illustration. Let us
suppose that the whole number of dollars (either in specie or convertible paper) in
circulation, at a particular time, is equal to Y; and that the sum of all these dollars will buy a
certain determinate quantity of land, means of transportation, merchandise, &c., which may
be represented by $: for, if money may be taken as the measure and standard of value for
commodities, then, conversely, commodities may be taken as the standard and measure of
value for money. Let us say, therefore, that the whole mass of the circulating medium is
equal to Y; and that its value, estimated in terms of land, ships, houses, merchandise, &c., is
equal to x. If, now, the quantity of specie and convertible paper we have supposed to be in
circulation be suddenly doubled, so that the whole mass becomes equal in volume to 2 Y, the
value of the whole mass will undergo no change, but will still be equal to x, neither more nor
less. This is truly wonderful! Some young mathematician, fresh from his algebra, will
hasten to contradict us, and say that the value of the whole mass will be equal to 2x, or
perhaps to x divided by 2; but it is the young mathematician who is in error, as may easily
be made manifest. The multiplication of the whole number of dollars by 2 causes money to
be twice as easy to be obtained as it was before. Such multiplication causes, therefore, each
individual dollar to fall to one-half its former value; and this for the simple reason that the
price of silver dollars, or of their equivalents in convertible paper, depends upon the ratio of
the supply of such dollars to the demand for them, and that every increase in the supply
causes therefore a proportionate decrease in the price. The variation in the volume does not
cause a variation in the value of the volume, but causes a variation in the price of the
individual dollar. Again, if one-half the
money in circulation be suddenly withdrawn, so that
the whole volume shall equal 1/2 Y, the value of the new volume will be exactly equal to x,
for the reason that the difficulty in procuring money will be doubled, since the supply will
be diminished one-half, causing each individual dollar to rise to double its former value. The
value of the whole mass in circulation is independent of the variations of the volume; for
every increase in the volume causes a proportionate decrease
in the value of the individual dollar, and every decrease in the volume
causes a proportionate increase in the value of the individual dollar.
If the mass of our existing circulating medium were increased a hundredfold,
the multiplication would have no effect other than that of reducing the value of the
individual dollar to that of the existing individual cent. If gold were as plenty as iron, it
would command no higher price than iron. If our money were composed of iron. we should
be obliged to hire an ox-cart for the transportation of $100; and it would be as difficult,
under such conditions, to obtain a cart-load of iron, as it is now to obtain its value in our
A fall or rise in the price of money, and a rise or fall in the price of all other
commodities besides money, are precisely the same economical phenomenon
The effect of a change in the volume of the currency is therefore not a change in the
value of the whole volume, but a change in the value of the individual silver dollar, this
change being indicated by a variation in the price of commodities; a fall in the price of the
silver dollar being indicated by a rise in the price of commodities, and a rise in the price of
the dollar being indicated by a fall in the price of commodities. ~ The value of money," says
J. Stuart Mill, "other things being the same, varies inversely as its quantity; every increase of
quantity lowering its value, and every diminution raising it in a ratio exactly equivalent.
THAT AN INCREASE OF THE QUANTITY OF MONEY RAISES PRICES, AND A DIMINUTION
LOWERS THEM, IS THE MOST ELEMENTARY PROPOSITION IN THE. THEORY OF THE
CURRENCY; AND, WITHOUT IT, WE SHOULD HAVE NO KEY TO ANY OF THESE OTHERS.
Let us use this key for the purpose of unlocking the practical mysteries attached to
variations in the volume of the existing currency. The banks, since they exercise control over
the volume of the currency by means of the power they possess of increasing or
diminishing, at pleasure, the amount of paper-money in circulation, exercise control also
over the value of every. individual dollar in every private man's pocket. They make great
issues, and money becomes plenty; that is to say, every other commodity becomes dear.
The capitalist sells what he has to sell while prices are high. The banks draw in their issues,
and money becomes scarce; that is, all other commodities become cheap. The community is
distressed for money. Individuals are forced to sell property to raise money to pay their
debts, and to sell at a loss on account of the state of the market. Then the capitalist buys
what he desires to buy while prices are low. These operations are the upper and the nether
mill-stones, between which the hopes of the people are ground to powder.
The Evils of convertible Paper-money.
Paper professing to be convertible into silver and gold, by overstocking the homemarket
with money, makes specie to be in less demand in this country than it is abroad, and
renders profitable an undue exportation of gold and silver; thus occasioning a chronic drain
of the precious metals.
It increases the volume of the currency, and therefore decreases the value of the
individual silver dollar; thus causing an enhancement in the price of all domestic
commodities; giving an unnatural advantage in our own markets to foreign manufacturers,
who live in the enjoyment of a more valuable currency, and presenting irresistible
inducements to our own merchants to purchase abroad rather than at home.
It operates to give control over the currency to certain organized bodies of men,
enabling them to exercise partiality, and loan capital to their relatives and favorites; thus
encouraging incapacity, and depressing merit; and therefore demoralizing the people, who
are led to believe that legitimate business, which should be founded altogether upon capital,
industry, and talent, partakes of the nature of court favor and gambling.
It operates to encourage unwise speculation; and, by furnishing artificial facilities to
rash, scheming, and incompetent persons, induces the burying of immense masses of capital
in unremunerative enterprises.
It reduces the value of our own currency below the level of the value of money
throughout the world, rendering over-importation inevitable, causing our markets to be
overstocked with foreign goods, and thus making the ordinary production of the country to
present all the calamitous effects of over-production.
It operates inevitably to involve the country, and individuals doing business in the
country, in foreign debts. It operates also, by blinding the people to the true nature of
money, and encouraging them to raise funds for the commencement and completion of
hazardous enterprises by the sale of scrip and bonds abroad, to mortgage the country, and
the produce of its industry, to foreign holders of obligations against us, &c.
Advantages of a Mutual Currency.
Mutual Banks would furnish an ADEQUATE currency; for, whether money were hard or
easy, all legitimate paper would be discounted by them. At present, banks draw in their
issues when money is scarce (the very time when a large issue is desirable), because they
are afraid there will be a run upon them for specie; but Mutual Banks, having no fear of a
run upon them,--as they have no metallic capital, and never pretend to pay specie for their
bills,--can always discount good paper.
It may appear to some readers, notwithstanding the explanations already given, that
we go altogether farther than we are warranted when we affirm that the creation of an
immense mass of mutual money would produce no depreciation in the price of the silver
dollar. The difficulty experienced in understanding this matter results from incorrect notions
respecting the standard of value, the measure of value, and the nature of money. This may be
made evident by illustration. The yard is a measure
of length; and a piece of wood, or a rod
of glass or metal, is a corresponding standard
of length. The yard, or measure, being ideal,
is unvarying; but all the standards we have mentioned contract or expand by heat or cold, so
that they vary (to an almost imperceptible degree, perhaps) at every moment. It is almost
impossible to measure off a yard, or any other given length, with mathematical accuracy. The measure of
value is THE DOLLAR; the standard of value, as fixed by law, is silver
or gold at a certain degree of fineness. Corn, Land, or any other merchantable commodity,
might serve as a standard of value: but silver and gold form a more perfect standard, on
account of their being less liable to variation; and they have accordingly been adopted, by
the common consent of all nations, to serve as such: The dollar, as simple measure of value,
has--like the yard. which is a measure of length--an ideal existence only. In Naples, the
ducat is the measure of value; but the Neapolitans have no specific coin of that
denomination. Now, it is evident that the bill of a Mutual Bank is, like a note of hand, or like
an ordinary bank bill, neither a measure nor a standard of value. It is (1) not a measure; for,
unlike all measures, it has an actual, and not a merely ideal, existence. The bill of a Mutual
Bank, being receivable in lieu of a specified number of silver dollars, presupposes the
existence of the silver dollar as measure of value, and acknowledges itself amenable to that
measure. The silver dollar differs from a bill of a Mutual Bank receivable in lieu of a silver
dollar, as the measure differs from the thing measured. The bill of a Mutual Bank is (2) not
a standard of value, because it has in itself no intrinsic value, like silver and gold; its value
being legal, and not actual. A stick has actual length, and therefore may serve as a standard
of length; silver has actual intrinsic value, and may therefore serve as a standard of value: but
the bill of a Mutual Bank, having a legal value only, and not an actual one, cannot serve as a
standard of value, but is referred, on the contrary, to silver and gold as that standard, without
which it would itself be utterly unintelligible.
If ordinary bank-bills represented specie actually existing in the vaults of the banks, no
mere issue or withdrawal of them could effect a fall or rise in the value of money: for every
issue of a dollar-bill would correspond to the locking-up of a specie-dollar in the banks'
vaults; and every canceling of a dollar-bill would correspond to the issue by the banks of a
specie dollar. It is by the exercise of banking-privileges--that is, by the issue of bills
purporting to be, but which are not, convertible--that the banks effect a depreciation in the
price of the silver dollar. It is this FICTION (by which legal value is assimilated to, and
becomes, to all business intents and purposes, actual value) that enables bank-notes to
depreciate the silver dollar. Substitute VERITY in the place
of fiction, either by permitting the
banks to issue no more paper than they have specie in their vaults, or by effecting an entire
divorce between bank-paper and its pretended specie basis, and the power of paper to
depreciate specie ;s at an end. So long as the fiction is kept up, the silver dollar is
depreciated, and tends to emigrate for the purpose of traveling in foreign parts; but, the
moment the fiction is destroyed, the power of paper over metal ceases. By its intrinsic
nature, specie is merchandise, having its value determined, as such, by supply and demand;
but on the contrary, paper money is, by its intrinsic nature, not
merchandise, but the means
whereby merchandise is exchanged, and, as such, ought always to be commensurate in
quantity with the amount of merchandise to be exchanged, be that amount great or small.
MUTUAL MONEY IS MEASURED BY SPECIE, BUT IS IN NO WAY ASSIMILATED) TO IT; AND
THEREFORE ITS ISSUE CAN HAVE NO EFFECT WHATEVER TO CAUSE A RISE OR FALL IN
THE PRICE OF THE PRECIOUS METALS.
WE are obliged to make a supposition by no means flattering to the individual
presented to the reader. Let us suppose, therefore, that some miserable mortal, who is utterly
devoid of any personal good quality to recommend him makes his advent on the stage of
action, and demands credit. Are there circumstances under which he can obtain it? Most
certainly. Though he possesses neither energy, morality, nor business capacity, yet if he
own a farm worth $2,000, which he is willing to mortgage as security for $1,500 that he
desires to borrow, he will be con. sidered as eminently deserving of credit. He is neither
industrious punctual, capable, nor virtuous; but he owns a farm clear of debt, worth $2,000,
and verily he shall raise the $1,500!
Personal credit is one thing: real credit is another and a very different thing. In one
case, it is the man who receives credit; in the other, it is the property, the thing. Personal
credit is in the nature of partnership:
real credit is in the nature of a sale, with a reserved
right of repurchase under conditions. By personal credit, two or more men are brought into
voluntary mutual relations: by real credit, a certain amount of fixed property is transformed,
under certain conditions and for a certain time into circulating medium; that is,
a certain amount of engaged capital is temporarily transformed into disengaged capital.
The Usury Laws
We have already spoken of the absurdity of the usury laws. But let that pass: we will
speak of it again.
A young man goes to a capitalist, saying, "If you will lend me $100, I will go into a
certain business, and make $1,500 in the course of the present year; and my profits will thus
enable me to pay you back the money you lend me, and another $100 for the use of it.
Indeed, it is nothing more than fair that I should pay you as much as I offer; for, after all,
there is a great risk in the business, and you do me a greater favor than I do you." The
capitalist answers, "I cannot lend you money on such terms; for the transaction would be
illegal; nevertheless, I am willing to help you all I can, if I can devise a way. What do you
say to my buying such rooms and machinery as you require, and letting them to you on the
terms you propose? For, though I cannot charge more than six per cent. on money loaned, I
can let buildings whose total value is only $100, at a rate of $100 per annum, and violate no
law. Or, again, as I shall be obliged to furnish you with the raw material consumed in .your
business, what do you say to our entering into a partnership, so arranging the terms of
agreement that the profits will be divided in fact, as they would be in the case that I loaned
you $100 at 100 per cent. interest per annum?" The young man will probably permit the
capitalist to arrange the transaction in any form he pleases, provided the money is actually
forthcoming. If the usury laws speak any intelligible language to the capitalist, it is this:
"The legislature does not intend that you shall lend money to any young man, to help in his
business, where the insurance upon the money you trust in his hands, and which is
subjected to the risk of his transactions, amounts to more than six per cent. per annum on
the amount loaned." And, in this speech, the deep wisdom of the legislature is manifested!
Why six, rather than five or seven? Why any restriction at all?
Now for the other side; for we have thus far spoken of the usury laws as they bear on
mere personal credit. If a man borrows $1,500 on the mortgage of a farm, worth, in the
estimation of the creditor himself $2,000, why should he pay six per cent. interest on the
money borrowed? What does this interest cover? Insurance? Not at all; for the money is
perfectly safe, as the security given is confessedly ample: the insurance is 0. Does the
interest cover the damage which the creditor suffers by being kept out of his money for the
time specified in the contract? This cannot be the fact,--for the damage is also 0,--since a
man who lends out money at interest, on perfect security, counts the total amount of interest
as clear gain, and would much prefer letting the money at one-half per cent. to permitting it
to remain idle. The rate of interest upon money lent on perfect security is commensurate, not
with the risk the creditor runs of losing his money--for that risk is 0; not with the
inconvenience to which the creditor is put by letting the money go out of his hands,--for
that inconvenience is also 0, since the creditor lends only such money as he himself does
not wish to use: but it is commensurate with the distress of the borrower. One per cent. per
annum interest on money lent on perfect security, is, therefore, too high a rate; and all
levying of interest-money on perfect security is profoundly immoral, since such interestmoney
is the fruit of the speculation of one man upon the misfortune of another. Yet the
legislature permits one citizen to speculate upon the misfortune of another to the amount of
six-hundredths per annum of the extent to which he gets him into his power! This is the
morality of the usury laws in their bearing on real credit.
All the questions connected with credit, the usury laws, &c., may be forever set at rest
by the establishment of MUTUAL BANKS. Who ever goes to the mutual bank, and offers
real property in pledge, may always obtain money: for the Mutual Bank can issue money to
any extent; and that money will always be good, since it is all of it based on actual property,
that may be sold under the hammer. The interest will always be at a less rate than one per
cent. per annum, since it covers, not the insurance of the money loaned, there being no such
insurance required, as the risk is 0; since it covers, not the damage which is done the bank
by keeping it out of its money, as that damage is also 0, the bank having always an unlimited
supply remaining on hand, so long as it has a printing-press and paper; wince it covers,
plainly and simply, the mere' expenses of the institution,--clerk-hire, rent, paper, printing,
&c. And it is fair that such expenses should be paid under the form of a rate of interest; for
thus each one contributes to bear the expenses of the bank, and in the precise proportion of
the benefits he individually experiences from it. Thus the interest, properly so called, is 0:
and we venture to predict that the Mutual Bank will one day give all the real credit that will
be given; for, since this bank will give such at 0 per cent. interest per annum, it will be
difficult for other institutions to compete with it for any length of time. The day is coming
when every thing that is bought will be paid for on the spot, and in mutual money; when all
payments will be made, all wages settled, on the spot. The Mutual Bank will never, of
course, give personal credit; for it can issue bills only on real credit. It cannot enter into
partnership with anybody; for, if it issues bills where there is no real guaranty furnished for
their repayment, it vitiates the currency, and renders itself unstable. Personal credit will one
day be given by individuals only; that is, capitalists will one day enter into PARTNERSHIP
with enterprising and capable men who are without capital, and the profits will be divided
between the parties according as their contract of partnership may run. Whoever, in the
times of the Mutual Bank, has property, will have money also; and the laborer who has no
property will find it very easy to get it: for every capitalist will seek to secure him as a
partner. All services will then be paid for in ready money: and the demand for labor will be
increased three, four, and five fold.
As for credit of the kind that is idolized by the present generation, credit which
organizes society on feudal principles, confused credit, the Mutual Bank will obliterate it
from the face of the earth. Money furnished under the existing system to individuals and
corporations is principally applied to speculative purposes, advantageous perhaps to those
individuals and corporations, if the speculations answer; but generally disadvantageous to
the community, whether they answer or whether they fail. If they answer, they generally end
in a monopoly of trade, great or small, and in consequent high prices; if they fail, the loss
falls on the community. Under the existing system, there is little safety for the merchant.
The utmost degree of caution practicable in business has never yet enabled a company or
individual to proceed for any long time without incurring bad debts.
The existing organization of credit is the daughter of hard money, begotten upon it
incestuously by that insufficiency of circulating medium which results from laws making
specie the sole legal tender. The immediate consequences of confused credit are want of
confidence, loss of time, commercial frauds, fruitless and repeated applications for payment,
complicated with irregular and ruinous expanses. The ultimate consequences are
compositions, bad debts, expensive accommodation-loans, law-suits, insolvency, bankruptcy,
separation of classes, hostility, hunger, extravagance, distress, riots, civil war, and, finally,
revolution. The natural consequences of mutual banking are, first of all, the creation of
order, and the definitive establishment of due organization in the social body, and, ultimately,
the cure of all the evils. which flow from the present incoherence and disruption in the
relations of production and commerce.
THE expensive character of the existing circulating medium is evident on the most
superficial inspection. The assessors' valuation for 1830, of the total taxable property then
existing in the Commonwealth of Massachusetts, was $208,360,407: the valuation for 1840
was $299,878,329. We may safely estimate, that the valuation for 1850 will be to that of
1840 as that of 1840 was to that of 1830. Performing the calculations, we find that the total
amount of taxable property possessed by the people of Massachusetts, in the present year,
is about $431,588,724. The excess of this last valuation over that of 1840--i. e.,
$131,710,395--is the net gain, the clear profit, of the total labor of the people in the ten
years under consideration. The average profit for each year was, therefore, $13,171,039. In
the year 1849, the banks of Massachusetts paid their tax to the State, their losses on bad
debts, their rents, their officers and lawyers, and then made dividends of more than seven per
cent. on their capitals. The people must, therefore, in the course of that year (1849) have
paid interest-money to the banks to the amount of at least ten per cent. on the whole banking
capital of the State. At the close of the year 1848, the banking capital in the State amounted
to $32,683,330. Ten per cent. on $32,688,330 is $3,268,333,
the amount the people paid,
during the year 1849, for the use of a currency.
If the material of the currency had been
IRON, $3,268,333 would probably have paid the expenses of carting and counting. What,
then, is the utility of our present paper-money? We have estimated the total profits of the
whole labor of the people of the Commonwealth, for the year 1849, at $13,171,039. It appears, therefore,
that the total profits of nearly one-fourth part of the whole population of the
State were devoted to the single purpose of paying for the use of a currency.
Mutual banks would have furnished a better currency at less than one tenth of this
The bills of a Mutual Bank cannot reasonably pretend to be standards or measures of
value; and this fact is put forth as a recommendation of the mutual money to favorable
consideration. The SILVER DOLLAR is the measure and
standard of value; and the bills
of a Mutual Bank recognize the prior existence of this measure, since they are receivable in lieu of so many silver dollars.
The bill of a Mutual Bank is not a measure of value . since it
is itself measured and determined in value by the silver dollar If the dollar rises in value, the
bill of the Mutual Bank rises also, since it is receivable in lieu of a silver dollar. The bills of
a Mutual Bank are not measures of value, but mere instruments of exchange; and, as the
value of the mutual money is determined, not by the demand and supply of the mutual
money, but by the demand and supply of the precious metals, the Mutual Bank may issue
bills to any extent, and those bills will not be liable to any depreciation from excess of
supply. And, for like reasons, the mutual money will not be liable to rise in value if it
happens at any time to be scarce in the market. The issues of said mutual money are
therefore susceptible of any contraction or expansion which may be necessary to meet the
wants of the community; and such contraction or expansion cannot, by any possibility, be
attended with any evil consequence whatever: for the silver dollar, which is the standard of
value, will remain throughout at the natural valuation determined for it by the general
demand and supply of gold and silver through the whole world.
In order that the silver dollar, which is the standard and measure of value, may not be
driven out of circulation, the Mutual Bank--which has no vault for specie other than the
pockets of the people--ought to issue no bill of a denomination less than five dollars.
||Take the steelyard
for example. [back]
||This was written before the valuation for 1850 was taken. As the question is one of principles rather than
of figures. we have not conceived it necessary to rewrite the paragraph. [back]
||The reader is requested to notice this distinction between actual and legal value, as we shall have occasion
to refer to it again. [back]
||Money is merchandise just like any other merchandise, precisely as the TRUMP is a card just like any
other card. [back]
||Money and Banking, or their Nature and Effects considered; together with a Plan for the Universal
Diffusion of their Legitimate Benefits without their Evils. By Citizen of Ohio. Cincinnati: Published by
William Beck, 1839. 16mo, pp. 212. [back]
||These remarks may be generalized, and applied to the commerce which is carried on between nations. [back]
||I now undertake to affirm positively, and without the least fear that I can be answered, what heretofore I
have but suggested,--that a paper issued by the government, with the simple promise
to receive it in all its dues, leaving its creditors to take it or gold and silver at their option, would, to the extent that it would
circulate, form a perfect paper-circulation, which could not be abused by the government; that it would be as
steady and uniform in value as the metals themselves; and that, if, by possibility, it should depreciate, the
loss would fall not on the people. but on the government itself." &;e.--J. C. CALHOUN: Speech in reply
to Mr. Webster on the Sub-Treasury Bill, March 22, 1838. [back]
||Malthus says,--we quote the substance, and very possibly the exact words, though we have not the book
by us--"If a man is born into a world already occupied, and his family is not able to support him. or if
society has no demand for his labor, that man has no right to claim any nourishment whatever; he is really
one too many on the earth. At the great banquet of nature, there is no plate laid for him. Nature commands
him to take himself away; and she will by no means delay in putting her own order into execution." [back]
||Counting, of course, the certificates of deposit. which are convertible into specie on demand. [back]
||* "North Carolina, just after the Revolution. issued a large re amount of paper which was made
receivable in dues to her. It was also made a legal tender, which, of course, was not obligatory after the
adoption of the Federal Constitution. A large amount--say, between four and five hundred thousand
dollars--remained in circulation after that period, and continued to circulate for more than twenty years, at par with gold and silver
during the whole time, with no other advantage than being received in the revenue
of the State, which was much less than one hundred thousand dollars per annum."--JOHN C. CALHOUN: Speech on the bill authorizing an issue of treasury-notes,
Sept. 19, 1837. [back]
||Thus the whole principal would be paid up in twenty years. [back]
||See foregoing paragraph where it is said that debts to the bank might be paid in manufactures and
||"We are told that there is no instance of a government-paper that did not depreciate. In reply. I affirm
that there is none assuming the form I propose (notes receivable by government in payment of dues) that
ever did depreciate. Whenever a paper receivable in the dues of 'government had any thing, like a fair trial. it
has succeeded. Instance the ease of North Carolina referred to in my opening remarks. The drafts of the
treasury at this moment, with all their encumbrance. are nearly at a par with gold and silver; and I might add
the instance alluded to by the distinguished senator from Kentucky in which he admits, that, as soon as the
excess of the issues of the Commonwealth Bank of Kentucky were reduced to the proper point its notes rose
to par. The case of Russia might also be mentioned. In 1827 she had a fixed paper circulation in the form of
bank-notes, but which were inconvertible, of upward of $120,000.000. estimated in the metallic ruble. and
which had for years remained without fluctuation; having nothing to sustain it but that it was received in the dues of government. and that, too, with a revenue of only about $90,000,000 annually.''--JOHN C.
Speech on the amendment to separate the government from the banks, Oct. 3,1837.[back]
||Persons of little foresight rejoice in the high price of commodities,--that is, in the low price or
plentifulness of money,--not reflecting, that, when money is too plenty, the sap and vitality of the country
flow forth th in a constant stream to enrich foreign lands. An excessive supply of money causes a deceitful
appearance of prosperity, and favors temporarily a few manufacturers, traders, and mechanics but it is always
a source of unnumbered calamities to the whole country. [back]
||Perhaps on account of those explanations. As heat melts wax, and hardens clay. so the same general
principles as applied to merchandise money and to mutual money, give opposite results. [back]
||If however, the inconvenience is any thing, the lender ought to be indemnified; but such indemnification
is not properly interest. [back]
||Perhaps, we ought rather to say "would be profoundly immoral in a more perfect social order." We
suppose that must be considered right, in our present chaotic state, which is best on the whole, or which--
taking men's passion as they are--is unavoidable. [back]
||According to the report of the Valuation Committee, it appears to have been (in the year 1850)
$600,000,000--a much larger sum. [back]