4. The solvency of the currency will be known by all, both in the neighborhood of the place of issue, and at a distance from it (if the bankers should choose to make its solvency known at a distance). These results will be accomplished in this way.
The mortgages, composing the capital of the bank, will be matter of public record, and every body, in the neighborhood, will have the means of judging for himself of the sufficiency of the property holden. If the property should be insufficient, the bank would be discredited at once; for the abundance of solvent currency would be so great, that no one would have any inducement to take that which was insolvent or doubtful. In this way the credit of a bank would be established at home.
Its credit abroad would be established in this way,—
Suppose a bank, at Chicago, should wish to establish the credit of its bills in New York. All that would need to be done would be to make arrangements with some bank in New York to redeem them.4 And to induce the New York bank to redeem them, it would not be necessary, as now, that the Chicago bank should keep a deposit of specie in New York. All that would be necessary would be to satisfy the New York bank of its (the Chicago bank’s) solvency—that is, of the sufficiency of the property holden. This could be done by the New York bank’s sending a commission to Chicago to investigate the question. And when the New York bank should have once become convinced of the solvency of the Chicago bank, the credit of the latter is established forever. The New York bank would not need to be continually investigating the condition of the Chicago bank; because, under this system, a bank, once solvent, is forever solvent.
It would, therefore, be perfectly easy for banks, in remote parts of the country, to make their bills redeemable in the great commercial centres, or any where else they might please, without keeping deposits of specie at those points.
One important result, among others, of this system would be, that when a merchant, from Chicago, for example, should come to New York to make purchases, he would not buy on his own credit; but would get his credit, at bank, in Chicago; bring Chicago bank bills to New York, and make his purchases with them. Or else the bills of New York banks would be so abundant at Chicago, that he would there exchange his Chicago bills for New York bills, and bring the latter home, and exchange them for goods. Thus all the jobbing business of the country would be done for cash, instead of on credit, as now.
5. The currency would be cheap (afforded at a low rate of interest) and for two reasons. 1. Because the capital costs nothing. That is, its use as banking capital costs nothing; because its use as banking capital, does not interfere with its use for other purposes. 2. The system admits of competition limited only by the real property of the country. These two facts would bring the rate of interest, at all times, down to the lowest point, at which the simple business of banking could be profitably done.
6. The basis of the currency could not, like specie, be carried out of the country, so as to leave our own people destitute of a currency.
7. The system stands wholly on common law principles; requiring no aid from the government, in the way of charters of incorporation; and (in the United States) constitutionally admits of no prohibition from the government.5
8. It gives the Stockholders all the benefits of an act of incorporation, so far as to shield them from individual liability. At the same time, it avoids all necessity for privileged legislation. It also avoids all injustice to, and all liability of throwing any losses upon, the bill holders, because they are certain to get the precise thing they bargained for; that being set apart, and made legally incapable of being applied to any other purpose.
9. The system would be a free one. That is, the right of furnishing currency, instead of being made a legalized monopoly, would be open equally to every man, who had the necessary property.
10. The system would be adapted to distribute credit equally as possible through the community.
11. Currency and bank credits would be so abundant, cheap, and generally diffused, as nearly or quite to supersede all other forms of temporary credit between man and man, and introduce a general system of cash payments. This would be the result, for this reason. The banks could generally, if not always, afford credit cheaper than individuals engaged in trade. The banks would be so numerous, that a man deserving of credit at all, could generally obtain it at bank. And the result would soon come about, that nearly all temporary credit would be obtained at bank, and cash payments would be made in nearly all transactions between individuals. The hazards of trade would thus be greatly diminished; every man’s business would stand on its own basis; his solvency or insolvency would be an independent matter, instead of being complicated, as now, with the solvency or insolvency of so many others.
12. It would tend to diversify industry to the greatest possible extent, by affording the best possible facilities, which a mere currency system can furnish, for engaging in the production of all new commodities as fast as they should be invented.
13. The system would liberate specie for the uses of international commerce.
14. The system would greatly enhance the value of real estate, not so much by reason of the banking profits derived from it, as of the activity it would give to agricultural, manufacturing, and commercial industry.
15. The proposed system would tend to graduate the prices of property throughout the country, according to one common standard. To illustrate this point, we will suppose that, in Massachusetts, an acre of land, which yields a net income of six dollars per annum, over all charges, is worth $100. Why is it worth $100? Because the rate of interest, in Massachusetts, is six per centum per annum. The acre of land, therefore, yields the same annual income as $100, at interest. But, in Illinois, we will suppose, an acre of land, that yields $12, or $18, net income per annum, (two or three times as much as the acre in Massachusetts,) is worth but $100, the same as the acre in Massachusetts. Why is it worth no more? Because the rate of interest, in Illinois, is twelve or eighteen per centum per annum; two or three times more than in Massachusetts. The acre of land, in Illinois, therefore, although it yields two or three times as much income as the acre in Massachusetts, brings only the same price in the market, because it will yield no more annual income than $100, at interest, in Illinois. But the proposed system, by making currency abundant, and reducing the rate of interest, in Illinois, to nearly or quite the same rate as in Massachusetts, would raise lands, in Illinois, to a price corresponding with the income they yield. It would raise them to substantially the same standard of price with the lands in Massachusetts; so that, if an acre of land yielded $12, or $18, net annual income, the market price of the land would be $200, or $300, instead of $100, as now.
In this way, this system, by making currency abundant, and the rate of interest low, throughout the country, would tend to graduate the prices of property by one common standard throughout the country, according to the net income, or real value, of the property.
16. It would benefit the condition of poor men in various ways, to wit: First,