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Lyman E De Wolf.

Money; its uses and abuses, coinage, national bonds, curency, and banking, illustrated and explained online

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Scotch do understand the English, and its grossly fraudulent and
despotic base. They have witnessed the terrible judgments
visited upon England in the form of revulsions for the impious



125

worship of thfir dagon of gold ; from all Avhich, Scotlimd has
been almost entirely exempt. This iutenneddlitig disposition of
English statesmen, to disturb, or displace the Scotch system by
their own, meets with the scorn and contempt of the Scotch,
which it so richly deserves, and they do not fail to reniind the
English that their system cannot be depended upon at home.

This contest in Pai'iianient, and out of it, has been long and
bitter; but the Scotch thus far, have come oft' victorious. Sir
Walter Scott compares these intermeddling efforts of the Eng-
lish, to an eccentric, but hospitable Scotch laird, who forced
every guest who sojourned with him, to follow his practice of
taking every night one of Anderson's pills, '' only one leetle
Andei-son," of the British Government. It would be well for the
American people if Congress could be induced to stop feeding
" leetle Andersons."

But not to digress further, the great efficiency of Scotch bank-
ing over the English and American, lies in cash credits in
account. This is peculiarly Scotch — it exists nowhere else. It
is not the amount of business done through this medium, but it
is the systeni itself, which has such a controlling influence over
every other branch of Scottish banking business and labor.

The immber of these cash accounts are not far from £5,000,000,
and the deposits are £30,000,000. The importance of the cash
credits does not consist in the amount, but in the functions they
perform, and the order and activity which has been thereby
introduced into the channels of business.

The following outline of the system will explain its uses: The
Bank opens an account with a customer from £100 to £1000,
which is at his disposal or use, but not placed to his credit. The
Bank is secured against loss by a bond. But the present
redemption, or the integrity of the credit depends upon the
avails of the property purchased from day to day. Hence the
business qualification, pecuniary ability, and the character of
the business are essential elements in determining the jjropriety,
or impropriety of opening an account. The following is the form
of the bond used.

" We, A. B., C. D. and E. F., considering, that tlie Bank has
agreed to allow us a standing credit to the extent of one thousand
pounds sterling, upon a cash credit account, to be kept in the
name of one of us, the said A. B., in the books of the said Bank,
and to be operated upon by him, and may also discount or pur-



126

chase bills, whereon the name of the said A. B., or the firm of
any company of which he is a partner, may stand as a drawer,
acceptor or indorser, and that upon condition of our granting
these presents : Therefore^ we, the said A. B., C. D. and E. F.^
hereby bind and oblige ourselves, as full debtors and co-obligants,
and our respective heirs, executors, and succsssors, and succes-
sors wliomsoever, all conjointly and severally, to content and
pay to the said part or parts thereof as the said A. B., or any
person or persons having his letter or other written authority,
shall value for, or draw out by orders or drafts on the said Bank,
or its manager, cashier, or any of its officers at Edinburgh, or of
any of its ngents, cashiers, or other officers elsewhere, in virtue
of the foresaid credit ; and also such sum or suras of money,a8 the
said A. B. shall stand engaged for, or be indebted, resting or
owing to the said Bank, on account of any bills discounted or
held by it, whereon his name as an individual, or the firm ol any
company of which he is a partner, shall stand as drawer,
acceptor, or endorser, or any sum or sums for which he, or tiiey
shall stand engaged, or indebted to the said Bank, by accept-
ances, endorsations, letters of credits, guarrantees, or in any
other manner of way whatsoever, and all or any of which
obligations, as aforesaid, the said Bank shall be entitled to place
to the debit of the said account, and of the obligants hereto, at any
time before this bond is discharged and delivered up, and that
without intimation to any of the said parlies, but not exceeding in
all the said principal sum of one thousand pounds sterling, and
interest due thereon ; and that at any time when the same shall
be demanded after three months from the date hereof, together
with the legal interest thereof, from the time or times of the
respective advances, until the same be repaid, with a fifth part
more of the said principal sum due, of penalty in case of
failure. And it is hereby specially conditioned and agreed to,
that a stated account, made out from the books of said Bank,
and signed by one of its accountants, shall be sufficient to con-
stitute a charge or balance against us, except on consignation
only of the sum due thereon. And it is hereby declared that
there is nothing hereby meant to supersede or vacate the
security, which the said Bank already holds, or may hold over
any shares of stock of the said Bank and profits thereon, belong-
ing or that may belong to any of us for any advances under this
bond or otherwise ; it being always in the power of the said



127

Bank to appropriate or allow of the disposal in any way whatever
of all or any of the shares of said stock, and the said i^arties to
this bond hereby declare that they have no lien over the said
shares, or any right to insist upon the application of the same to
payment of any debts to be hereby contracted. And further,
the said parties agree that the obligation hereby comes under,
sliall remain in full force in the same manner, and to the same
extent, as if such shares of stock had never belonged to any of
the parties' hereto, and it being hereby agreed that the said Bank
may allow credit on the said shares, or the same to be sold, and
the price to be paid to the seller, or may apply the same to any
other purpose, according as it shall deem expedient, being bound
in the latter case to account only to' the person or persons to
whom the shares belonged,

"And further declaring, as the said cash credit account is to
be in the name of the said A. B., and he is to conduct the trans-
actions thereon, it is hereby especially provided and agreed to,
that all communications on the part of the Bank, regarding
either the management by him of the accounts or repayment of
the balances, which may become due thereon, shall or may be
made to us, the other parties, through the said A. B., with whom
the said Bank shall be at liberty to make any arrangement of the
accounts according to the rules of the said Bank if deviated
from, or in any other way required, or by giving time for repay-
ment of the balance or balances thereof, without any direct
application to or concurrence by us, the said C. D. and E. F., on
the subject, until the said Bank shall consider this necessary for
a final settlement And it shall also have the power, without
any consultation with or consent by us, to compromise with, or
give time to any of tlie parties on the bills discounted orheld by
it as aforesaid, we, the said C. D. and E. F., having always full
opportunity afforded us by the said Bank, whenever we, or either
of us, wish and ajjply for the same, to see any of the transactions
and state of the said cash account, and other transactions of the
said A, B., in which we may be interested by the obligations of
this bond, and the said Bank shall only be bound to attend
to any instructions we may give on the subject in writ-
ing, and acknowledged in writing to have been received. It
being hereby expressly declared that all the parties to this bond
are joarijoassw co-obligants to the said Bank; and that all and
each of us are equally bound to it, and shall not be entitled to



128

plead that any of us are the cautk»ners for the other ; and we,
the said A. B. and E. F., consent to the registration hereof, and
of the foresaid stated accounts, in the books of council and
sess^ion, that letters of honoring on six days' charge, and, thereto
in form as officers, and for that purpose we constitute, etc.

" In Witness whei-eof, these presents, written upon this sheet of
stamped paper, by our procurators."

This cash credit accommodation, is only granted by the
directors of the principal Bank, and upon a strict examination of
the applicant, as to his business, means and prospects.

The bond as will be seen, covers all liabilities to the Bank,
whether as drawer or endorser. There is no limit to the use of
the credit — it is terminable at the pleasure of either party. But
such a termination seldom occurs, except where parties desire to
close business.

This credit is a mutual benefit, the holder of the credit has all
the benefit of having the cash on hand to make purchases, with-
out the risk of holding the cash, and the Bank gets its interest
for the sum drawn at one per cent, higher rate of interest than
it allows the customer for his deposits. The account is balanced
when convenient, generally twice a year at least. A credit
account under the Scotch system, is a loan of the Bank's credit
for present use, and a charge for as much of the credit as is
used and no more. Whereas, the English system the credit is
virtually a discount — it requires a transfer of the securities to
the Bank, and interest npon the whole credit from the moment
the transfer is made, whether that credit is used or not. The
theory of the English system is, that the credit must be had
only upon businei^s already finished up, and to be governed in
quantity by the amount done. The theory of the Scotch system
is, that men want cash to do business when the business is done-,
and that the business men having secured them for the ready
cash, must have it at such times, and in such amounts, as their
business demands, subject only to the supervision of the Bank,
that the business fulfills the reasonable requirements of the con-
tract between the Bank and customer. To an English banker
that would lead to over-trading ; he, like his government and
governmental principle, has no faith in the reason and discretion
of his customer, further, than he secures him absolutely and
unconditionally, and pays a big rate of interest. But the Scotch-
man knows by long experience that such fe.,rs are groundless



.^.,8 men under the guidance of their juu^merits
and the dn-ect supervision of sureties and tlie Bank, malce the
most sate and reliable business men in the workl. Under their
system tiiere is no one who has a greater interest in conducting
the business prudently than the man himself.

The difference then in doing business for one year on a
thousand pounds sterling would be this: In Englandj if a
£1000 was provided for, say for ninety days, at 5 per cent., and
this arrangement would cost in round numbers, say £50, and
whatever securities were pledged, would be in the hands of the
Bank and under its controh Whatever money was deposited
would have no effect in reducing the interest due to the Bank.
But under the Scotch system a customer might from the .ivails
of his business during the year, have an average of deposits,
amounting to eight hundred pounds sterling, and if his business
demands should require the use of £1000, then his account
would stand thus: Use of £1000, one year, £50; interest on
deposits, £800, at 4 per cent., £32 ; cost of the bank credit,
£18. On the score of cost then, the Scotch system is much the
most favorable, and on the score of a prudent, safe, and uniform
business, there is no comparison whatever to be instituted
between the two systems — the balance is largely in favor of the
Scotch system.

Under both systems, the merchandize purchased, and not
gold or silver, furnishes the fund for the redemption of the
money, and the amount paid is not strictly interest, or rent, but
merely so much is paid for managing the books of their custom-
ers, and the risk tliat the Bank runs of being eventually liable
if the parties themselves do not receive enough of their pur-
chases to redeem the banker's money or credit, and to pay him
for endorsing it, and keeping an account of the transaction.

The difference in the modes of transacting business between the
English and Scotch systenis as respects the effects v/hich bear
upon the efficiency of the institutions themselves, is in every
particular decidedly in favor of the Scotch, being far the most
reliable and efficient. To illustrate the practical workings of both
modes from the stand-point here presented ; let it be supposed
that the credit account in each case is £5,000,000, under the
English theory this sum is for business already done, and upon
the several parties own capital, (which like their bank-money
being based on gold, is equally false,)and yet the bank-money is



130

to pay debts then due, and this money is liable to be redeemed,
on demand in coin or bullion, while the actual funds for its
redemption are bills of exchange and promissory notes, due
at from sixty to ninety days after date. It is in this manner that
financial pressures are sure to arise. While under the Scottish
system this £5,000,000 credit, are only payable in bank-notes.
If the holders demand gold, the gold is refused, and the accounts
closed. The banks always hold as large a demand in paper
against the public as the public do against the banks, and the
bank's claims are at home, and payments can be demanded in a
few hours, whereas, the claims against them are scattered over
the country, and cannot all be made in many days.

The payment of debts in Scotland is not made as in England
and the United States, from paper discounted, but by means of
these cash credits — these credits are not based upon securities
for business done, but is in advance of the business — it leaves it
at the option of the owner of the credit to make the purchases
upon his own credit upon as long time as he can obtain, and
then to pay the avails of the sales in liquidating the debt, draw-
ing the balance from his credits, or he can pay his cash at once,
and rely upon his sales to reimburse the Bank, which cannot be
done by the English system, as the sales have already been
made, and the avails are turned out as collaterals for tlie security
of the money.

Hence, in Scotland, the money is drawn, or provided for in
advance, and it keeps up an equal circulation, whereas, in Eng-
land, a large refusal to discount notes to pay debts already due,
may oi itself produce a stringency in the money market, and
cause a panic from that source.

There is another advantage in the Scotch system, not to be
had under the English cash credits — the average amount of
money required in the Scotch mode of doing business, will not
generally much exceed £3,000,000, on credits of £5,000,000,
which takes a much less amount of interest from the customer,
and secures thereby the solvency and prompt payment of the
cash credit.

A witness testified before Parliament, in an examination made
in 1826: "I have hardly ever heard of a bad debt by cash
accounts. The Bank of Scotland, I am sure, lost hardly any-
thing in an amount of receipts and payments of hundreds of



131

millions. They may have lost a few hundred pounds in a
centm-y."

In 1797, when the Bank of England had to take shelter behind
an order of the Privy Council and Acts of Parliament, to
exempt it from the demands for specie — there was no demand for
specie by the Scotch Banks, nor was there any demand or any
order for their i-elief. In the Report of a Select Committee,
made to the House of Lords, in 1826, they say: "It is proved
by the evidence and by the documents, that the Banks of Scot-
land, whether chartered joint-stock companies, or private estab-
lishments, have for more than a century exhibited a stability,
which the committee believe to be unexampled in the history of
banking, that they supported themselves, from 1797 to 1812,
without any protection from the restriction by which the Bank
of England, and that of Ireland, were relieved from cash pay-
ments ; that there was little demand for gold during the late
embarrassments in the circulation, [in 1 825-'26], and that, in
the whole period of their establishment, there are not more than
two or three instances of bankruptcy, as, during the whole of
this period, a large portion of their issues consisted almost
entirely of notes not exceeding £\, or £l Is., there is the strong-
est reason for concluding that, as far as respects the Banks of
Scotlan


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Online LibraryLyman E De WolfMoney; its uses and abuses, coinage, national bonds, curency, and banking, illustrated and explained → online text (page 13 of 19)