Whether the value of specie would stand constantly above that of the paper, would depend upon the rate of dividend secured to the Secondary holders of the Productive Stock. If this rate should be six per centum, that would certainly be sufficient to make the currency worth as much as specie, at times; because there are times, when there is plenty of specie to be loaned at that rate.
The only remaining question, then, is, whether the specie would occasionally rise in value above the paper? The answer is, that it would very rarely, if ever; and for this reason, viz.: that the supply of paper would always be so abundant and constant, that it is probable, if not certain, that none of those scarcities or contractions, in the currency, which alone cause a rise in the price of specie, would ever occur. And if they never should occur, the paper would always be on a par with specie. If, however, the specie should ever stand above the paper, that would only prove, not that the paper had fallen, but that the specie had risen. In other words, it would prove that the fluctuation was in the specie, and not in the paper; and, consequently, that the paper was the least variable standard of value.
Under these circumstances, the paper would constitute nearly all the currency in circulation (unless for sums below one dollar). It would be the only currency loaned by the banks. It would be a legal tender in payment of all debts due the banks. And it would be sufficient for all cash purchases and sales between man and man. And if an individual should want specie for any extraordinary purpose—as, for exportation, for example—he would buy the specie as merchandize, paying the difference between that and the paper.
Still, specie would probably, at all times, be more abundant, as a currency, in proportion to the demand, than it is now; because it would be so much less needed. The supply would be greater, in proportion to the demand, than now, because the greater supply of paper would supersede the necessity for, and the use of, specie, as a currency.
If the proposed paper currency should be introduced throughout the world, (as it sooner or later would be, if found to be essentially better than any other system,) the coins would become superabundant, unless a greater proportion of them should be consumed in the arts, than now. And gold and silver, whether in coin or not, if they now stand above their value for uses in the arts, would fall to that value, and there remain, as they ought.
Fifthly.
Could the proposed system be introduced in competition with the existing system?
Yes, for various reasons, as follows:—
1. The proposed system would meet with no material opposition from any quarter, unless from the stockholders in the existing banks. Would it from them? No; because it would probably subserve the interests of four fifths, or nine tenths, of them, better even than the existing system. Let us see.
The stockholders of the present banks are made up of two classes, viz.: those who hold their stock in order to lend money, and those who hold it in order to borrow money.
Both of these classes would probably be benefitted, rather than injured, by the adoption of the new system.
Those, who have money to lend, could probably do better with it, by investing it first in a mortgage, and thus getting one income from it; and then using the mortgage as bank capital, and thus getting another income from it.
Their capital would thus be more safely invested than it is now; and would probably yield a larger income.
Those, who own bank stock, in order to borrow more than they lend, would probably do better than they do now, because, first, they would keep their own capital wholly in their own business; and, secondly, if they needed more, would easily borrow it (if worthy of credit) on account of the abundance of banks, that would be seeking borrowers. Thus they would be as well supplied with capital as now, and with less risk and trouble; because they would borrow only what they needed over and above their own capital; and this they would do directly, and without complicating their business, as now, with that of a bank, by becoming stockholders, and being compelled to look after, and take the risks of, all the business of the bank.
Another reason, why the stockholders in the present banks would be benefitted by the new system, is, that very many of these stockholders are large owners of real estate. The new system, by enabling the owners of real estate to get an income from it, as banking capital, and still more by furnishing increased facilities for agriculture, manufactures, and commerce, would greatly increase the value of real estate in general. This increased value, given to real estate, would be of more importance to the owners thereof, than any income or advantage, derived by them from the present system of banking, over those to be derived from the proposed system.
The opposition to the new system, then, (if any there should be,) on the part of stockholders in the present banks, would be an opposition of prejudice, and not of interest; for there are few or no stockholders in the present banks, who would not derive greater advantages from the new system, than from the present one.
2. The new currency could be introduced (brought into circulation) in competition with the existing paper currency, for the further reason, that, if the existing banks should receive the currency of the new banks, at par, the currency of the new banks would thus be enabled to circulate, in the community, on a par with that of the present banks. On the other hand, if the present banks should not receive, at par, the currency of the new banks, the new banks and their friends would systematically, and to the extent of their ability, run upon the existing banks for specie; and thus compel them to suspend payments in specie. And when the existing banks should have suspended payment in specie, the new banks would stand better than the present ones, in the estimation of the community; because the existing banks would then offer no redemption of their bills, except by receiving them in payment of debts; whereas the new banks would not only offer that redemption, but also a further redemption in Productive Stock.
If the new banks, and their friends, should systematically run upon the existing banks for specie, the existing banks could not retaliate; because the new banks could redeem with Productive Stock, instead of specie, if they should so choose.
Thus the new banks, by drawing specie from the existing banks, could pay specie, to the public, as long as the existing banks could pay it; and thus the new banks would put themselves on a par with the existing banks, so far as paying specie, to the public, should be concerned. But the difference between them would be, that the present banks would be compelled to pay specie to the new banks; but the new banks would not be compelled to pay specie to the existing banks.
This advantage, which the new banks would have over the existing ones, would enable the new banks to coerce the existing ones, either into a suspension of specie payments, (when the new ones would stand better than their rivals,) or else into receiving the currency of the new banks at par—in which case the new banks would stand at least as well as the existing ones.
3. The new banks would have an advantage over the existing ones, in introducing their currency into circulation, by reason of the fact that, inasmuch as their capital would cost them nothing, (they not being obliged to keep any considerable amount of specie on hand,) they would be able to lend money at a lower rate of interest.
4. The currency of the new banks would go into circulation, for the further reason, that every body would prefer it, (the currency,) on account of its superior safety, convenience, and merchantable character, to the credit of private persons. This preference would be sufficient to bring it into use in substantially all those purchases and sales, which are now made on credit. And if the currency were to go into use only to that extent, it would be a success. But if it were to go into use to that extent, it would obviously go into use to a still greater extent, and supersede, wholly or partially, the existing currency, even in those purchases and sales, which are now made for cash.
Doubtless nine tenths, and perhaps nineteen twentieths, of all the persons, who now get credit, get it elsewhere than at the banks; in fact, never go to a bank for credit. Yet these persons are worthy