Thirdly.
Would the mortgages, or Productive Stock, be so desirable a form of investment, as to invite capital into it, and thus create a demand for the currency, with a view to having it redeemed by Productive Stock?
The answer is, that the Productive Stock would be a desirable investment, for the various reasons of security, profit, and convenience.
1. As regards security, no kind of investment would exceed it.
2. As regards profit, the Productive Stock would pay two different dividends—one to Primary holders, and the other to Secondary holders.
The dividends to Primary Stockholders would be made up of the interest on the mortgages, and the profits of the banking. The rate of these dividends, therefore, will depend upon the rate of interest on the mortgages, and the amount of banking profits.
Probably the best rate of interest for the mortgages to bear, would be seven per centum. This would probably be sufficient to make the Productive Stock, in the hands of Primary holders, worth more than par of specie, even though there should be no profits at all from the banking business. But if there should be profits from the banking business, they would go to swell the dividends. So that the dividends to Primary Stockholders would never be less than seven per cent. so long as the banking business should simply pay expenses; and they would rise above that rate just in proportion to the banking profits. There can, therefore, be no doubt of the desirable character of the Productive Stock, as investments, in the hands of Primary holders.
In the hands of Secondary holders, the Productive Stock would pay an unvarying rate of dividend, fixed by the Articles of Association.
The currency would represent the Productive Stock, in the hands of Secondary holders, and not in the hands of Primary holders; because the holders of the currency, by returning it for redemption, could generally expect to make themselves only Secondary holders of the Productive Stock. They could rarely expect to become Primary holders; and, therefore, would not return the currency for redemption, with that view.
Probably six per centum would be the best rate of dividend, to be fixed for the Secondary Stockholders to receive; for that is probably the rate, that would put the currency most nearly on a par with specie. If the rate were fixed at seven per cent., the Productive Stock, in the hands of Secondary holders, would be worth more than par of specie; and the consequence would be, that the currency would be returned for redemption, in the hope to get Productive Stock, rather than specie. And thus the currency could not be kept in circulation. On the other hand, if the rate of dividend, for the Secondary Stockholders, were fixed at only five per cent., that might prove insufficient to make the currency worth par of specie. Therefore six per cent. is likely to prove a better rate than either five or seven.
Supposing, then, the rate of dividend, for Secondary Stockholders to receive, to be fixed at six per cent., the investment would be sufficiently inviting to make the currency worth par of specie. It would certainly be sufficient to attract much capital, as every day’s observation attests. As a six per cent. stock, it would stand on a par with United States stocks, and State stocks, (bearing six per cent. interest,) which are, at nearly all times, worth par of specie, and oftentimes more than par of specie, in the market.
3. As regards convenience, the Productive Stock would be equal to any in the market; especially in the hands of Secondary holders. It being in shares of, say, one hundred dollars each, and its income (in the hands of Secondary holders) being precisely fixed, its value is precisely known. The stock is, therefore, in as merchantable form as capital can be invested in. It is in as merchantable form as United States stocks, or State stocks, (bearing fixed rates of interest,) which are nearly or quite as merchantable as bank bills themselves.
The objections, heretofore entertained against mortgages, as an investment, have no application whatever to stocks of this kind. Those objections have been as follows:
1. The inconvenience of making the investment, owing to the necessity of investigating titles, making valuations, &c., all of which processes are attended with delay, and with some danger of mistakes or frauds. In these bank stock mortgages, these delays and dangers would all be avoided; because the soundness of the titles, and the moderation of the valuations, would be notorious. It would be a necessity, on the part of the banks, to make them so, as a condition precedent to the banks’ getting any circulation for their currency.
2. A second objection, to mortgages heretofore, has been, that each mortgage was in bulk, and could not be broken. It was, therefore, in a great degree, an unmerchantable article; because it was not always, nor even often, an easy thing to find a person wishing to make an investment of that particular amount. This objection, too, which was really a very serious one, is entirely obviated in the case of the Productive Stock; for here the mortgages are divided into shares of $100, or any other amount that may be desired; and thus put in as merchantable form, as any investment can possibly be in.
3. A third objection, to mortgages heretofore, has been, that neither the interest nor the principal of the investment could be realized from them (unless the debtor should choose to pay) without a tedious delay; taking possession of the premises; looking after rents and profits; giving the mortgagor time (perhaps a long time) for redemption; or incurring delay, expense, and trouble in advertising the premises, and selling them. In the case of the Secondary holders of Productive Stock, every objection of this kind is obviated, for substantially the whole resources of the bank (which are morally certain to be ample) are pledged to the payment of the dividends promptly. And even as to the Primary holders, they are not likely to be personally troubled in the matter, for the Trustees attend to all business matters in relation to the mortgages. The only one, of the inconveniences just mentioned, that the Primary Stockholders are ever likely to be subjected to, is a delay in receiving some portion of their dividends, if the mortgagors should not be prompt in the payment of interest. But this would so rarely occur as to prove a very slight objection, if any, to the investment.
The result, then, obviously would be, that these stocks would be of the very first class, as investments. Their safety, their profit, and their merchantable character, would all conspire to make them preëminently desirable. And the consequence would be that the demand for them would be sufficient to make the currency constantly in demand, as a means of obtaining them.
Under an abundant currency, such as the system would furnish, and under the low rates of interest that would follow, the Productive Stock would probably be much more in demand than stocks, paying similar dividends, now are; because now, a very large amount of loanable capital is kept invested in promissory notes, and other personal securities, on account of their paying a better interest than stocks. But under the system proposed, the banks would be so numerous, and the rate of interest at them so low, that temporary loans would all be obtained at the banks, rather than in the street; and the capital, which is now loaned in the street, would then, as the best alternative, seek investment in bank stocks.
Fourthly.
The next question is, would the paper currency proposed, maintain a par value with specie?
This question has already been discussed somewhat; but a few more words need to be said.
We have already seen that the paper would circulate, at its true value, whatever that might be. It is, nevertheless, an important question, whether its value, in the market, would be equal to that of specie?
The answer is, that if the rate of dividend, paid to Secondary holders of Productive Stock, should be six per cent., that would be sufficient to make the currency, at most times, if not at all times, worth par of specie. If it should not be at all times, it would be because the market value of specie would fluctuate more than that of the paper; thereby proving that the paper was the most uniform standard of value.
The paper currency could never rise above the value of specie; because the banks would have the right to redeem their circulation with specie, if they should so please.
If,