An Easy Lesson in Money and Banking

A WELL - TRAINED accountant cannot fail to be often much amused at the inability of many persons, whom he knows to possess much greater intellectual power than he has himself, to comprehend what they are pleased to call the mysteries of book-keeping. A little observation at once indicates the reason: it is that they seek a mystery where none exists, and that they could not fail to understand the art of keeping accounts if they would but divest themselves of the idea that there is anything in it beyond the comprehension of an average pupil of a common grammar school.

So it is also in regard to money and banks: vast and arbitrary powers of oppression and wrong are imputed to money and to banks as necessary attributes, by a considerable portion of the community, especially to the banks; while on the other hand the possession of money in large amount and the mere establishment and existence of banks are regarded by another portion of the community as being the only things needed to secure abundance, comfort, and general wealth or welfare. Hence we have the strange anomaly of a great people, not ill-educated, not unintelligent, not unable or unwilling to work, capable and desirous of saving, eager to use none but the best tools and implements in their various callings, yet utterly confused as to the nature and function of two of the most necessary tools, and therefore placed at a great disadvantage and suffering a heavy waste and loss of labor. These two tools are money and banks.

Hence also we have the ignoble picture of a house divided against itself, — State against State, —jealousy and suspicion engendered, and the opportunity created for the venal and treacherous demagogue.

May it not therefore be well to give a little attention to the simplest problems of production and distribution, — to present anew the uses of money and of banks? In assuming this service the writer is moved by the belief that a tradesman or manufacturer who happens to have the faculty of making a tolerably clear statement may more easily remove the causes of confusion from the minds of his fellows than a more scientific writer, because being possessed of but a limited vocabulary he will use only the words that are common among his associates, while the scholar or the professional writer may use terms which to him are simple expressions of thought, but are yet Greek to the multitude.

When habits and customs become fixed, the process of thought by which they were evolved is lost or obscured. There was doubtless a time when the simplest problems in arithmetic, even that two and two make four, required an effort even of adult understanding; there was also a time when the exchange of one thing for another was nota habit and could only be accomplished with grave difficulty. The true idea that every such exchange of things is made because both parties gain by it, or because both parties expect to gain, and will not continue to make exchanges unless both do gain, is not yet accepted as an axiom by one person in a hundred, although this is as simple a proposition as that two and two make four.

There is an immense confusion of ideas growing out of the common misuse of words. It is said that A. B. is making money or that B. C. is worth a great deal of money, and that C. D. is very short of money; and this use of the word money, while it conveys the meaning of the speaker well enough, yet in a strict sense has no foundation in fact, and from such misuse of the word comes a vast deal of confusion of thought and of bad legislation.

The successful A. B. makes no money, but only with the use of money eonstructs railroads, works, warehouses, or dwellings, which he could not construct except by such use of money, to anything like the extent of his actual accomplishment. Money is to him merely a useful tool; he keeps the least possible quantity of it, and may himself never set eyes on it.

B. C., who is said to be worth a great deal of money, may have none at all; all that he is worth is simply measured in money, and except for the existence of money as such a measure his wealth could only be stated in a more complex form; he might be said to be worth so many flocks and herds, as in patriarchal days. But the very misuse of the word money as the measure of possession marks at least one step in the progress from barbarism to civilization, from tents to dwellings, from pastures to towns and cities, from nomadic life to fixed habitations, — from pecunia, the symbol of a flock, to money, the coin stamped in the temple of Juno Moneta, whence its name.

C. D., who is said to be short of money, wants it only to spend, and would not keep it an instant beyond the time needed to spend it in settlement of his debts; he really needs the means wherewith to obtain money, not the money itself.

These seem to be very simple propositions when stated, yet it is because they are not understood that only the recent veto of President Grant has saved the nation from the danger of bankruptcy and ultimate repudiation. It is because these apparently obvious axioms have not become habits of thought which none but a fool can gainsay, that men otherwise of more than average ability have, with an honest purpose, voted for an inflation of our vicious currency in the recent session of Congress. If these same men would but apply common-sense to a few elementary ideas, they will be struck with dismay at the danger to which their ignorance has exposed the country; and they would then gibbet the representatives of “ Butlerism” who have misled them for base and sinister motives.

They will find themselves in the position in which a large slave-holder told me he had found himself soon after the war ended. He said to me, “Neither my family nor myself ever sold a slave; ours were kindly treated and many of them are with me yet, but slavery is ended and I thank God for it. I look back now in utter amazement and horror at the things that were tolerated under it simply because habit and custom prevented our realizing the wrong that is now so obvious.”

The whole function of money is comprised in the simplest transaction.

The farmer who has raised some bushels of wheat wants a pair of boots, and the shoe-maker who has made the boots wants a barrel of flour. The farmer loads his wagon and carries his wheat to town. Suppose he takes it directly to the shoe-maker and asks him to exchange wheat for boots. The shoe-maker says, I want flour; take your wheat to the miller and get money, then come for the boots; the price is six dollars. The farmer takes the wheat to the miller and sells it for six dollars. Does he want the dollars? Only to spend for the boots. What quality does he want in the dollars? Only uniformity in their value or estimation. lie only wishes to be certain that dollar means the same thing to the shoe-maker that it does to the miller and to himself. He wishes the dollars to be sure tokens that he shall have the boots. What is a dollar? A certain quantity of gold which has a uniform value or estimation the world over. What gives it this uniform value or estimation? Nothing but. the effort or labor incurred in the production of the gold; in other words, its cost.

If the cost of the gold, that is to say, if the effort required to procure it from the mines, were reduced one half, while the cost or labor required to produce the wheat and the boots remained unchanged, of course the relation of gold to the other commodities would change in proportion; then the farmer would get twelve dollars for his wheat and the boot-maker would ask twelve dollars for the boots. Neither would be any better off after the adjustment had been reached.

Again. If a substitute for gold be forced into use as money, and prices become established upon the basis of a given quantity of legal tender notes or greenbacks, so that the price of six bushels of wheat is seven dollars, in broken promises miscalled dollars, and of the boots the same in this kind of currency, then any addition or inflation of the quantity will simply raise the prices of both, and do no good to either the farmer or the shoe-maker. The mischief comes in the process of adjustment; the price of the manufactured article is very sure to rise before that of the farm product; hence the farmer gets cheated every time there is such an expansion or inflation of the currency.

In the case cited the effort of the farmer has been an effort to procure a pair of boots by raising say six bushels of wheat, and the money or dollars have been tools used by him in procuring boots; tools precisely of the same kind as the seed-planter, the reaper, and the winnowing machine which were used in producing wheat. He has measured his wheat both by bushels and by dollars, and through the use of the two measures, the dollars and his two-bushel bags, he has moved his wheat to market and has procured the boots. But the bootmaker has not satisfied his want; true, he has procured six dollars from the farmer, but his need is not for dollars, it is for a barrel of flour. The miller has the wheat in possession and will take dollars, therefore the same six dollars which he first possessed come back to him from the shoe-maker, and he keeps in addition his toll of grain taken from the farmer’s wheat. Having added his labor to the wheat by grinding it, he keeps a part of the product and does not give the boot-maker the full product of the six bushels; but he gives him far more and better flour than the shoemaker could have obtained from the whole six bushels if he had attempted to grind it himself; therefore what he retains, while it is not at the shoemaker’s loss, is yet his gain, earned by saving the shoe-maker from the difficulty of grinding wheat for himself. If we analyze this transaction it is plain that each one of the three has gained what he wanted, and each one has saved the other from a useless waste of labor; in other words, each has gained at the other’s profit, — not at the other’s loss.

The money has been thus far only a tool, not a possession, and its necessary quality has been that it should be held at the same estimation or value by the three persons. In this example we have all commerce, and the only use and function of money. There is and can be no more in each or all the vast transactions of the world. The farmer, the shoe-maker, and the miller are but representatives of persons, towns, states, or nations.

We have traced the dollars from the miller to the farmer, then to the shoemaker and back to the miller; this is the circulation of money, and the miller is the capitalist who has moved the farmer’s crop to market, that is, to the shoe-maker, who constitutes the farmer’s market in this case. At the same time the miller’s money capital has moved the boots to their market, that is, to the farmer. The miller’s capital, which he had saved in the form of dollars before the farmer came to him to sell his crop, has been as necessary to the movement of the wheat and the boots as the farmer’s wagon. How could the transaction have taken place without the money? The answer will be, perhaps, By credit. Credit, to be sure, but how measured? Only in dollars; still the dollars must be even, just, and true, else the credit cannot be granted except with a large margin for the risk of the change in the value of false dollars, mock dollars, paper dollars, — in other words, of the greenbacks.

But we are now seeking the function of good money, not bad, and will not therefore treat this branch of the question. Let us return to our true dollars, which we left in the hands of the miller. We have supposed them to be gold or specie dollars; how did the miller get them ? We have observed that he took toll from the farmer’s wheat; before this he had put his own labor into the construction of his mill; by the use of the mill he had earned other tolls of wheat; these he had ground into flour, and with it had fed the miner whose product of gold came by exchange into his possession. The miller sold flour, and bought dollars; the miner sold dollars and bought flour: each gained what he wanted. A part of the cost of the very gold itself was the consumption of the miller’s tolls of wheat taken little by little from many farmers before. Therefore the gold itself was in part the product of the same farmer’s labor whose crops it afterwards served to move to the shoemaker and others. We are members one of another, and each works for all, with hand or brain ; the money was as needful to eaeh and all as the miner’s pick and pan, the farmer’s plow and 'wagon, or the miller’s stone, — and it works as much harm to each and all if the money be bad, a dishonored paper promise not fit for its purpose, as if the boots had been made of paper, the pick of cast-iron, or the mill-stone of hardened putty.

Money being the standard by which the variations in the value of all other things are gauged or measured, the one quality needed in it is that it shall be of uniform value itself. This constant, uniform estimation, the world over, is found only in the precious metals; therefore they have been chosen. Let it be considered that the value or relation of wheat to boots, of corn to clothing, of meat to iron, is constantly changing as the supply of each changes, year by year, and the only way by which the producer of each can test the variations and get value for what he gives is by having a uniform or common standard. If, then, not only the relation of these things to each other changes, but the standard itself also varies, will not luck and chance take the place of judgment? will not commerce change to gambling? Gambling is a treacherous game in which the few make gains at the loss of the many. Commerce is an honest exchange for mutual profit. All transactions in our vicious currency, even those of the most honest men, must partake in some sort of the nature of gambling. So it has ever been, is now, and ever will be, when false substitutes for money — lying promises that are not kept — are forced into use in place of true money, by the perversion of the powers of government.

But we must now return to the miller, whom we left in possession of six dollars. These with many other dollars he must have if he is to be ready to buy all the wheat that comes to market; even when there are no shoe-makers or miners ready at the moment to consume it. Then he must have worked long and saved much to become possessed not only of his mill, but of all the dollars needed wherewith to purchase grain; he must, like the merchants of olden time, have his strong box safely guarded, and in it must keep his gains idle through a large part of each year.

It was only when the care of gold became troublesome and even dangerous that merchants first began to deposit their gold with goldsmiths, who, on account of their trade in precious wares, had places of safe deposit; and presently the goldsmiths became bankers. What then happened ? They learned that the miller only needed his gold in the autumn, when the crops were harvested, but that the land owner or farmer needed money (that is, gold, for in those days no other money was known than gold and silver) in the spring, when he was planting his crop and paying for his labor; therefore, said the bankers, we will lend the miller’s money on interest to the farmer who is to grow the grain to supply the grist. Next it appeared useless to employ the gold itself; it was safer in the strong box, under lock and key, and well guarded, and the symbol or promise of it would serve the same purpose then; the banker issued notes, or paper money convertible into gold on demand. The farmer no longer borrowed the gold itself, but he borrowed the banker’s note. For what ? To pay his laborers; that is to say, by means of the banker’s note he borrowed labor to plant and raise his crops. He pays interest on the loan of the labor, not on the note or the money. No one is so foolish as to pay interest on money; interest is paid only for its use, and the thing bought is really the thing borrowed, be it labor or tools or a house or what not. The laborer needing flour next pays the banker’s note to the miller, and the miller, now needing his money to buy the wheat, which the farmer has raised by his borrowed labor, takes the note to the banker and asks for gold. No, says the banker, leave the gold here; the farmer whose wheat you mean to buy owes me money; give him the note again for his wheat. The farmer then, selling his wheat, pays his debt to the banker with the banker’s own notes. The gold itself has remained in the banker’s safe the whole time, and has served its purpose as a standard of value, while its symbol, the convertible note, has performed the work. Now the miller finds that the banker has lent his notes to the farmer, depending not only on his own gold but on the miller’s gold to pay them with; therefore he says to the banker, Share with me the interest which you obtain, not on the gold, but upon the power which my gold gives you to issue notes on which you get interest. The banker consents, and allows the miller interest on his deposit at a somewhat lower rate than he can get for it, making his profit on the difference.

Presently the banker finds out that what is needed is the sure standard of gold value, not the gold itself, and that he can safely issue more notes than he has gold on hand at one time, and that he will not be called upon to pay them all at once, because the people must always have some money in circulation. Therefore he issues more notes than he has gold; for which farmers, tradesmen, and manufacturers pay interest, because by means of them they can borrow labor or goods on which to work. The banker’s gold then becomes his reserve.

Presently even the note disappears in part; the miller, having made his deposit of gold, leaves it in the bank but takes no notes for it ; it is placed at his credit on the banker’s ledger, and against it he draws a check. The farmer takes the miller’s check for his wheat, and carrying it to the bank, instead of drawing bills or gold for it, pays with it the loan borrowed of the banker wherewith he paid the laborers who planted the very crop for which the miller gave him the check. In this ease the check performed the work that had been done by the banker’s note.

This is banking. It matters not who does the work, a bank or a banker, — that is a matter of detail. The transaction between the miller, the banker, the farmer, and the laborer constitutes the whole mystery of banking.

Where the millers or merchants are who have first saved the product of their labor and have become capitalists, there banks will first be established. Where farmers or tradesmen possess industry, integrity, and honor, they will borrow of the banks the miller’s or capitalist’s money. Where intelligence is, banks and credit will abound; where they are wanting, none will exist: in the latter place money will be scarce and each jealous and discontented man will be ready to affirm that his neighbor prospers at his expense, ignoring the fact that prosperity is only the result of economy and character, and that hanks and banking imply honesty, intelligence, and ability, for which no substitutes can be found either in national statutes for the establishment and regulation of banks, or in the issue of government promises of dollars without any provision for the redemption of the promise.

The rate of interest, which, as I have said, is never paid upon the money itself, but for the use of the thing bought with it, can only be made or kept low, first, by abundant savings of the things which men wish to buy with the money borrowed, and second, by the fact that the borrower is fit to be trusted. Citizens of States that are governed or represented by those who make no provision for the payment of the national promise, will not be very likely to secure a low rate of interest on what they themselves wish to borrow, because public dishonor and private integrity are not consistent with each other. The same voter who would vote to substitute one broken promise for another, under pretense of payment, cannot be expected to be governed by any higher rule in his own doings; hence money will be scarce in such States, because its citizens are not fit to be trusted; the scarcity exists for the want of character, industry, and intelligence, and for no other reason.

Even a sterile and barren country like Scotland can be made to become prosperous and productive, and the best and most useful system of banking can be there established and made to foster and promote abundance, if that country is inhabited by a thrifty, honest, and well-educated race like the Scotch.

In our example we have supposed that the bank or banker lends his own money, or that of his depositor, directly to the farmer to enable him to plant his crop. This is the practice to a considerable extent in Scotland, and in some other countries, but with us the loan is usually made to the tradesmen, who supply the farmers upon credit; and the farmers are thus indirectly aided by the capital of the same miller who will buy their crop, although the miller’s money may not be lent directly to them. Let us repeat the circuit and try to find out where the wrong and oppression come in.

The miller is our representative capitalist; he has saved dollars by economy and thrift; these dollars represent services that he has rendered to the farmers by saving them the excessive labor of grinding their own wheat. If he has been honest and true, the more dollars he has, the more service he must have rendered. His dollars arc the tokens of his well-doing, not of his oppression.

The miller deposits his dollars with the banker, knowing that he will lend them more prudently and safely than he can for himself. This trust imposed upon the banker implies character, capacity, prudence, and integrity.

The banker issues his notes because by such means he can lend more power to his customers, — the tradesmen and the shop-keepers, or perhaps the farmers. Are they obliged to borrow them or to take the notes? Not at all; they borrow for their own gain, not his, and they can have the gold on demand if they wish it.

For what do they borrow? To buy the tools and the goods needed by the farmer in order that be may plant his crop. What entitles them to borrow? Again it is probity and business capacity. We have found no wrong or oppression yet.

At length we reach the farmer, whose power is in his land and in his own labor; restrict him to this and his crop will be small, but let him also be possessed of character, capacity, and industry, and he may borrow tools, goods, wares, and groceries; he may hire those who are not possessed of land, and thus make two blades of grass or two bushels of grain grow where one grew before.

Thus each aids and serves the other, and the end is abundance and general welfare. All take part in production, and good money and sound banking are needful to the completion of the work.

Men who are jealous of those whom they call non-producers forget that they have come into existence because they were needed. Bankers existed before there were any statutes for their regulation or for the incorporation of banking companies, and the condition of their doing the most service is that they shall be as free as possible from meddlesome restrictions. The true factors in production and distribution — which is but another term for production or for the leading forth of the fruits of the earth to the use of man — are character, intelligence, and liberty.

Statute laws may prevent fraud to some extent by providing for the strict enforcement of contracts, but they cannot take the place of character and intelligence; and where they are seriously restrictive they tend to promote scarcity rather than abundance.

The National Bank system is based upon the same principles as those which I have attempted to illustrate, but it also attempts to regulate by statute many of the methods and details of the management of banks, most of which it would be far wiser to leave untrammeled and at the discretion of the bank officers. In regard to the national bank notes it needs to be said that the requisition for the deposit of United States bonds to secure their ultimate payment is a mere safeguard to the people. It simply compels the banker to possess a very much larger capital than he would otherwise require, a portion of which he lends to the government, whose bonds become security for the bank notes that he may issue; but this requisition does not alter the method by which the notes themselves are used or put into circulation. In one way this requisition limits the extension of banking by requiring a much larger capital; in another way it may possibly give the banks a somewhat larger circulation for their notes even when they are on a specie basis, as it will make the people less eager to present them or to test their solvency by requiring redemption.

It is a question yet undetermined, whether there is in the end any real gain by such legal provision for the ultimate security of the note-holder; whether it does not serve as a substitute for the high character, capacity, and integrity which would otherwise be more imperatively demanded of the managers of banks, as the condition of any circulation of their notes whatever. It can hardly be questioned, however, that it is a wise provision in all sparsely settled communities, where there are but few men able or competent to establish banks, and where the note circulation is therefore likely to be furnished from distant places, and by banks in regard to whose management the remote farmer or mechanic can have but little knowledge.

A grave error is implied in the statement often made that the government guarantees the national bank note, and might therefore as well secure to itself the profit of the circulation by substituting its own notes in place of the bank notes thus guaranteed, in the use of which the banks are alleged to earn a large profit.

As this statement is usually made, it would seem as if the government received no benefit. The fact is, the government practically forces the banks to lend it capital, for which it issues bonds, and these bonds it then holds as security to the note-holder. So far as the government is concerned, the benefit is in the capital borrowed; as a war measure the bank act practically worked a forced loan of the capital of the banks, and the government then derived great benefit from it.

It is a matter surely of some question, whether the capital thus loaned to the government and expended by it in the war, now represented by its bonds or evidences of debt, constitutes any better, if as good security as the actual capital itself would if left in the hands of prudent bank managers. On this capital they would issue notes secured only by their own good management, and by the commodities upon which they lent such notes.

Under a strict rule a bank deposit and a bank note ought each to be the symbol or representative of capital, — either of specie or of a substance on its way from the producer to the consumer. Let us take our example once more of the miller, the farmer, and the laborer; but we will vary it a little by supposing the farmer to have produced one hundred bushels of wheat. The farmer takes his wheat to the miller and sells it for one hundred dollars on three months’ credit.; the miller’s note is then the symbol, or, we might say, the shadow of one hundred bushels of wheat on its way to consumption; the farmer takes the note to the bank and it is discounted, the proceeds becoming a deposit in bank, which deposit again is the shadow of the wheat; the farmer draws out bank notes for the deposit, and the bank notes then represent the wheat and are secured by it. The miller has in the mean time converted the wheat into flour, and has it for sale; the farmer pays out the notes in wages, or for articles needed by him, and those to whom he pays them, needing flour for consumption. buy it of the miller, and with the bank notes the miller pays his own note at the bank that issued them. The bank thus redeems them. The production and sale of the wheat led to the creation of the miller’s note, the discount, the deposit, the issue of the bank note, its circulation, and finally its disappearance by redemption because of the final purchase for consumption of the flour made from the wheat. Each and all the notes issued and the credits granted have been the shadow or symbol of the wheat. No gold appeared in the whole transaction, yet the standard throughout was gold, and the bank stood ready with its reserve in its coffers to pay any note-holder in coin who might happen to want gold rather than flour. This reserve of gold was the test, throughout, by which each person, banker, miller, farmer, and laborer, was assured that the word dollar bore the same meaning or value to each and all; for whereas the value of the wheat varies from season to season in accordance with the law of supply and demand, the gold on the other hand is so restricted in supply, and in such universal demand, as to vary but slightly in estimation in the course of centuries.

Those who seek to displace it and to substitute paper tokens or other devices, simply invoke the force of law to make something else, or some shadow or promise of something else, a legal tender in place of the money of the world which mankind has freely chosen. The function of statute law in regard to money is to establish the weight and fineness of the coin, and guarantee it with its mint mark; next, to name it. In this country the name chosen for our coin is dollar. A true legal tender act is one which simply defines the method by which a contract to pay dollars may be enforced. Our false legal tender act compelled the acceptance of the shadow, not the substance. In other words, it was a statute for the breaking, not for the enforcement of contracts, justifiable, if at all, only under and during the stress of war.

Having thus attempted to define the necessary quality of true and just money and the beneficent function of banks and banking, it remains to be considered how far we have availed ourselves in this country of benefits which only require a reasonable amount of intelligence. In order to determine this point we must compare ourselves with a country whose banking system is the best and most useful in the world.

Scotland has eleven banks and over eight hundred branches, or a banking office for each four thousand of her 3,400,000 people; the capital of her banks is $45,500,000, and the average amount of deposits, all of which are upon interest, is $325,000,000 or nearly one hundred dollars for every man, woman, and child.

We had on the 1st of May, 1874, 1978 banks and no branches, or a bank for each twenty thousand of our forty million people, but our banks are much more concentrated in a few cities. The capital of our banks is $490,077,101, and the average deposit for the previous six months was $642,164,282, or only sixteen dollars per head. If our average deposit was in proportion to that of Scotland it would amount to $4,000,000,000, all of which would be employed in productive work.

If New England possessed as widely diffused a banking system as that of Scotland, it is not to be doubted that her hardy sons would be far more likely to remain at home and maintain the New England character upon her own hills and in her own valleys, rather than to emigrate to the fat but homesick prairies of the West.

The area of New England that might be used for cultivation and grazing, leaving out the forests and mountain country of Maine and New Hampshire, would not be very different from that of Scotland, 31,000 square miles; and the population of this habitable area is now about the same, or 3,400,000 people. It is doubtless true that the savings of the people of New England on deposit in banks are greater than those of the Scotch; the difference is in method. The deposits of the working people of New England are in savings-banks, those of the Scotch chiefly in commercial banks of deposit and discount.

The savings of New England are to a large extent represented by investments in fixed property, such as mortgages on real estate, or notes secured by bonds and stocks, which bonds and stocks represent fixed investments; the rest are in bank stocks or in loans of large amount to corporations, guarded from loss by every precaution that can be imposed by statute provision. As a rule the funds are very safely invested, and no exception can be taken to the method adopted as a measure of security. Hence, however, the benefit of the loans of savings-banks is much narrowed, and confined to the few instead of being diffused among the many; while the deposits of the Scotch, being in commercial banks, are used for business purposes and are lent far and near to farmers, tradesmen, manufacturers, and merchants. The security of the depositor in New England rests entirely upon the investment; it is a question, however, yet to be solved, whether the enormous sums now on deposit in savings-banks can be safely continued under the charge of unpaid trustees, who are not personally holden for losses or perversions of trust on the part of the officers. There are already signs that the business has outgrown methods which were adopted quite as much for a charitable purpose as for a business trust, and the time may not be far off when some radical changes in the administration of savings-banks will be demanded.

On the other hand, the security of the Scotch depositor lies first in the capital of the banks, all of which must be lost before the depositor is harmed, and second, in the banking skill of the managers, enforced as it is by the personal liability of all the partners or stockholders.

It cannot be doubted that if a widely diffused commercial bank system were adopted in New England, so that the habit of depositing became fixed in every small town, and the use of commercial banks of deposit as universal as in Scotland, a very large additional saving would be induced that would be of the utmost benefit, and yet would not impair the deposits of the savingsbanks in any manner.

Let us consider the probable effect in New England of a system similar to that of Scotland, to wit, that there should be over eight hundred banking offices scattered about the land, or one to each four thousand people, where deposits could be made and discounts obtained. The first effect would be that no one would keep money in the house or shop, but would daily deposit every dollar for the sake even of a small rate of interest on the deposit. That a large aggregate deposit could he thus gathered cannot be doubted.

Few persons are aware of the very large amount of railway bonds and other securities that are scattered in small sums throughout New England. Very many bonds have been placed in the rural districts that are never quoted or rather never sold in the general market; it is to be feared that many of them ought not to have been taken, and that the returns from them will be very uncertain,

A well-established system of banking on the Scotch method would not only have saved many losses on these poor investments, but would have been fruitful in great increase of production, and in preventing the decrease in farming industry. It is folly to talk of farming having ceased to be profitable in New England. The changes that have come call for more capital, and this the banks would have supplied; and more skill and intelligence, and these the habit of banking and the ensuing thrift would have called out.

The chief point gained would be that the farmer of good character, owning a moderate-sized farm, would have no difficulty in obtaining the means to plant his crop. Now, he must with great difficulty obtain money on mortgage and pay interest year in and year out, though he may only need the loan for half of each year. If the Scotch system existed, even if he had borrowed on mortgage, he would have a safe place of deposit on interest for the proceeds of his crop during the winter months, when his borrowed money might otherwise be idle, and the same money would then be lent to the store-keeper to buy and move the farmer’s crop.

It is true that we have five hundred and six banks in New England, with an aggregate capital of $159,559,132, and an average net deposit of $100,000,000, or about thirty dollars per head, but our banks are very much concentrated in large cities and towns, and under the bank act they are not permitted to establish branches. Hence the use of a bank is very much more limited than it need to be. A less number of banks with many branches would be cheaper and far more useful.

The New England farmer, owning his own land, would have a great advantage over the Scotch tenant farmer. The latter must find sureties if he asks a credit at bank; the former could pledge his farm as security for a bank credit to be used only when needed, thus saving the loss of interest during the winter months. He would be ready to pay his bank loan from the proceeds of his crop, leaving his mortgage on record for use again when needed, and at that very time the same capital would be called for by the country store-keeper, to enable him to buy the farmer’s produce and send it to the central market or to the shipping port. Thus the transfer of produce and the settlement of debts would all be accomplished by the use of banking offices near the people throughout the land. Banking would become well understood; business habits and thrift would be engendered; diversity of crops and of manufactures would ensue; and the capital which through our savings-bank system becomes concentrated, and fosters the tendency to large corporate enterprises and to a centralized population, would be diffused, and would benefit a far greater number.

The danger to New England now consists in the desertion of her hills and farms by the native population, and the concentration of an untrained operative class in a few cities. The great need of our day is to promote the smaller workshop under the personal control of the owner, rather than the larger corporate manufactory owned by absentee stock-holders, to whom the operative is only a well-cared-for machine.

It is not my intention to decry the factory system of New England. It has its place and is necessary; and it is also as well regulated as any in the worldIt is sometimes said that corporations have no souls, yet it, is probably true that the attention to the material welfare of the operative is better under the corporations than it is in most of the large factories under personal management. Yet the relation of stock-holders to operatives is not a very human relation, neither can there be the same harmony even between the individual owner and masses of operatives numbered by hundreds, that there is between the owner or manager of the smaller workshop and the workmen whom he supervises himself.

The tendency of many of the methods now in use is to concentrate workmen and take away their individuality. Let any one enter any large establishment, like a gun shop, a sewing machine factory, or the like, and while he will find that each workman will make his special portion of the machine as perfectly as possible, there is not one in fifty who could make a gun or a sewing machine.

It is not held that the diffusion of banking would change these conditions in many branches of occupation, yet there are very many employments and manufactures that can be as profitably conducted in small establishments as in large ones, and the diffusion of banking, and consequently of loans, would surely tend to promote the construction of such works.

The money of our savings-banks can seldom be obtained by the owners of the small works, because the safety of the depositor, and the law also, demands one strong name as principal, and at least two good sureties; therefore this fund is concentrated and helps build up the large establishments. But there are hundreds of men of intelligence and capacity, fit and safe borrowers from commercial banks, whose productive force is hampered and lessened for want of the facilities which such banks might give, or who must establish themselves in some large town or city in order to obtain them at all.

The centralization of power and of capital in these late days is a marked evil, and paradoxical as it may appear to some persons, nothing would be more apt to check this tendency than a more widely extended system of banking, and the multiplication of banking offices if not of banks themselves. That such a system would pay those who established it is proved by the simple fact that the dividends of the Scotch banks range from eight to fourteen per cent, per annum, and the market value of the shares, which represent a paid-up capital of forty-five and a half millions, is ninety million dollars, or one hundred per cent, premium. These dividends are earned mainly by the lending of the deposits, which average, as I have stated, three hundred and twenty-five million dollars, at a rate of interest from one to two per cent, higher than the rate allowed the depositors; the general rate of interest being considerably lower than with us.

We have thus considered banks and money as tools; what purpose do they serve with us, limited as our banks are? The answer to this question can only be given approximately, and will require the use of figures that may he very confusing to persons not accustomed to think of large suras.

The most competent railway authority of the country estimates the net annual tonnage of the railways of the United States at one hundred million tons, averaging in value not less than one hundred dollars per ton, or ten thousand million dollars. Of course this enormous mass of merchandise is in the process of exchange at wholesale; this exchange constitutes commerce; those who have charge of it are sometimes called middle-men, and classed as non-producers and therefore unworthy of their hire; the grangers and other reformers propose to get rid of them, and hope to save something by so doing; it is probable that they have entered on a hopeless task. This mass of exchanges is measured in money and settled in banks. Money and banks must exist, or it could not take place. Yet it is nothing but a farmer seeking boots, a miller seeking corn, and a shoe-maker seeking flour, or their counterparts, that set all these wheels in motion. When the millions of tons of merchandise they exchanged at wholesale reach their destination, the shop-keepers must break the packages and sell at retail, and here once more the money comes in as the tool whereby the work is done. Is it not patent that if the money used be gauged by no fixed standard,—if it fluctuates and changes, — every dealer must place an additional charge oh every price he asks from the beginning to the end, and the consumer must pay the extra charge? The fluctuations in our bad money, the use of which is still enforced by law, have been very great for many years, and even in the very last, in 1873, the legal tender notes varied from 106 1/8 gold to 119 1/8. In other words, the false standard of value forced into use by statute varied thirteen per cent, in this single year; for the sole reason that we are using a dishonored promise instead of true money.

All prices and all transactions must he affected by these changes. They work fraud and cheating—they pick the pockets of the poor and steal their earnings, transferring to the rich what they have not earned. They give to the shrewdness or the cunning of the few, great gains which must be at the loss of the many.

Until the government repeals the legal tender act which now prevents the restoration of the specie standard, it lends itself to every wrong that happens from a debased currency, and becomes the chief promoter of oppression and fraud.

These changes in the value of greenbacks have affected all the transactions, those represented in the year 1873 by the movement over railroads only being ten thousand million dollars in value if values are measured in paper dollars, or nine thousand million dollars in gold. We will not attempt to compute the rest of the exchanges by water, by carriage, and by hand.

Consumers have paid since 1861 the monstrous tax involved in the fluctuations of our vicious currency, in the additional price above the mere premium on gold which the risk of these changes has made imperative; and the enormous fortunes of a few men which on an honest specie basis no single life-time could ever have sufficed to accumulate, the extravagant and wasteful expenditures that mark our time, the gradual sorting into classes of very rich and very poor, the greater and greater difficulty for honest labor to secure a fit and abundant support, are the results and consequences of this subtle, dishonest, infamous tax.

Let us be thankful that the end can be seen, and that we have escaped the worst disasters which ensued from the issue of Continental money. Yet though we shall have avoided repudiation and its dire consequences, it may still be truly written of our legal tender note, as Pelatiah Webster wrote of the legal tender paper money of the Revolution:

“If it saved the state, it has also polluted the equity of our laws; turned them into engines of oppression and wrong; corrupted the justice of our administration; destroyed the fortunes of thousands who had the most confidence in it; enervated the trade, husbandry, and manufactures of our country, and gone far to destroy the morality of our people.”

Edward Atkinson.