Such are the general principles of the system.
The following provisions, although perhaps not essential to the system, will yet serve to keep the currency at a uniform value, and make the system operate without friction.
The original owners of the Productive Stock, and all who hold it through purchase from them, (instead of by transfer in redemption of bills,) may be called Primary Stockholders. Those, who hold Productive Stock, by transfer in redemption of bills, may be called Secondary Stockholders.
All the resources of the bank—that is, the interest on the mortgages, and the banking profits—should be pledged to pay the Secondary Stockholders precisely six per centum per annum (or such other per centum as the Articles of Association may fix for them to receive) on their Stock; no more, no less. After these dividends shall have been paid to the Secondary Stockholders, the remaining dividends should be divided among the Primary Stockholders—whether such dividends shall be more, or less, than those received by the Secondary Stockholders.
The effect of securing to the Secondary Stockholders precisely six per centum (or any other given per centum) on their Stock, will be to make the bills represent, to the public, either invested capital, yielding precisely six per centum per annum (or precisely any other per centum, which it may be designed to represent) or specie; because the bills may, at pleasure, be converted into such capital, unless the bankers prefer to redeem them with specie.
Whenever Productive Stock shall have been transferred, in redemption of bills, the bankers will have the right to buy it back, at pleasure, on paying its face in specie, with interest, (or dividends,) at the prescribed rate, for the time it shall have been in the hands of the Secondary Stockholders.2
It may be desirable, for various reasons, that the currency, representing the invested dollar, should, at all times, be, as nearly as may be, on a par with the specie dollar; neither rising above, nor falling below it, in value. This object, nearly enough for all practical purposes, can be accomplished in this way, to wit:
The rate of dividend, secured to be paid to the Secondary Stockholders, on their Productive Stock, should be fixed so high as to make that Stock worth, in their hands, par of specie. (Under an abundant currency, such as this system would furnish, six per centum would probably be sufficient for this purpose). This would keep the bills up to par with specie; because they could, at pleasure, be converted into either Productive Stock, or specie.
On the other hand, the facts, that the bankers may, if they please, redeem their bills with specie, rather than by Productive Stock, and that they will have the right, at any time, to buy back the Productive Stock, from the Secondary Stockholders, by paying its face in specie, will generally keep the bills down to par with specie.3
So long as the banking business shall yield sufficient profit to pay expenses, and the Productive Stock shall remain in the hands of the original owners, there will be no necessity for the interest on the mortgages being paid; because what would be paid in by each Stockholder as interest, would come directly back to him as dividend. The payment of the interest to the bank, and of the dividends (so far as they shall be made up of such interest) by the bank, will therefore be merely nominal transactions on the books of the bank, without either being actually made.
If an original Stockholder should sell his Productive Stock outright, it would then be necessary that he should pay his interest.
Although the banks make no absolute promise to pay specie on demand, the system nevertheless affords a much better practical guaranty for specie payments, than our present system; for these reasons, viz.:
1. The banks would be so universally solvent, and so universally known to be solvent, that no runs would ever be made upon them for specie, through fear of their insolvency. They could, therefore, maintain specie payments with much less amounts of specie, than our present banks can.
2. In ninety-nine times in a hundred, the alternative redemption would probably be preferred to specie, by the bill-holders. This would still further lessen the amount of specie necessary to be kept on hand.
3. The banks would probably find it for their interest, as promoting the circulation of their bills, to pay, at all times, such small amounts of specie, as the public convenience might require.
4. Whenever specie should not be paid on demand, no dividends could be paid to the bankers, until all claims for specie, with interest, should have been paid in full; that is to say, until all Circulating Stock, presented for redemption, and not redeemed by Productive Stock, should have been redeemed by specie; and all Productive Stock, that should have been transferred in redemption of circulation, should have been repurchased, by specie, and restored to the original holders. (For particulars on this point, see Articles of Association, especially Articles 13, 20, 23, 24, 25, 26, 27, 28, and 29.)
5. If there should be any suspensions of specie payments, they would be only temporary ones, by here and there a bank separately, and not by all the banks simultaneously, as now. No general public inconvenience would therefore be felt from that cause.
If, when any Productive Stock shall have been transferred, in redemption of the bills, the banking profits should not be sufficient to pay the dividends, to which such transferred Stock will always be entitled, it will be necessary for the original Stockholders to pay interest pro rata on their mortgages, sufficient, with the banking profits, to pay the dividends on such transferred Stock.
If any original Stockholder (mortgagor) should wish, at any time, to take his capital out of the bank—that is, release his estate from the mortgage—he has only to request the Trustees to cancel an equivalent amount of his own Productive Stock, and also an equivalent amount of Circulating Stock. They can then discharge his mortgage, without injustice to any one; and his rights in, and liabilities to, the bank are at an end; he having first paid all dues that may have previously accrued.
Minor details of the system will be seen in the Articles of Association.
N. B. In the Articles of Association, the system appears much more clear, simple, and exact, than it can be made to do in any brief description of it.
Chapter II.
Advantages of the System.
1. The system would furnish, at all times, an abundant currency. It would furnish currency equal to one third, or one half, the value of all the real estate in the country—if so much could be used.
2. The currency would be stable in value. The system is capable of furnishing so much currency, that a large demand could be supplied as easily as a small one, and without causing any variation in the market value of the currency, or raising the rate of interest.
The presence or absence of specie in the country, would have no effect, either upon the amount of currency, or upon the stability of its value.
The prices of property would be stable, so far as their stability should depend upon the stability of the currency.
3. The currency would be solvent. It would be absolutely incapable of insolvency; for there could never be a dollar of the currency in circulation, without an invested dollar (Productive Stock) in bank, which must be transferred in redemption of it, unless redemption be made in specie. All losses, therefore, fall upon the bankers, and not upon the bill holders. If the original Stockholders should all fail—that is to say, if they should be compelled to transfer all their Productive Stock in redemption of their circulation—the result would simply be, that the original capital (Productive Stock) would pass, undiminished, into the hands of a new set of holders, who would proceed to bank upon it (re-issue the bills, and redeem them, if necessary, by the transfer of Productive Stock) in the same way that their predecessors had done. And if they, too, should lose all their Productive Stock (capital) by the