Lyman E De Wolf.

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

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Lawnmarket is lower than the Reservoir on the Castle Hill ?'
'It is the nature of the water to come to a level. What title
have you to charge me money, when the element is only obeying
the laws of nature and descending to its level T ' Very true sir,'
replies the clerk, ' but then it was no law of nature brought it to
the Reservoir, at a height which was necessary to enable us to
disperse the supply over the city. On the contrary it was an
exertion of art, in despite of nature. It was forced hither by
much labor and ingenuity. Lakes were formed, aquaducts con-
structed, rivers dammed up, and pipes laid for many miles.
Without immense expense, the water could never have been


brought here ; and without your paying a rateable charge you
cannot have the benefit of it.

Scotland according to Sir Walter Scott's views, did not employ
a gold currency because it had to be purchased and paid for ;
and she had no iuducement to make so expensive a purchase, in
the lace of the fact which long experience had taught her that
she conld do better without it ; that her people preferred the
bank-paper to gold. The views of Sir Walter Scott, in his
celebrated pamphlet, were emphatically seconded by his country-
men ot every class, and they retained their well-tried paper
system, which though convertible by law as in England is so
wisely adjusted that a run upon banks for gold or silver, is an
event which has not occurred for a century in Scotland.

The position occupied by banks in England and Scotland, in
the eyes of the people are widely different. In England, the
people are taught to look to the test of convertibility of liabili-
ties into gold, or payment on demand, as the only right criterion
of the solvency of the banks ; they well know nevertheless, that
this convertibility is not possible, and never was. Every bank
is regarded as having undertaken what if called upon it could
not perform ; and every man is left to his own discretion about
the degree of forbearance he can safely exercise. In times of
commercial prosperity, the distrust which this view of the banks
generates, in a greater or less degree, in all minds may be latent
and unseen ; but the moment any cause of alarm arises, this dis-
trust is aroused to fearful energy and action. Every man's appre-
hensions are multiplied by his estimate of other people's fears,
and in England, as well as the United States, a run upon the
banks is inevitable in a time of commercial derangements, or
disturbance. When the banks sustain themselves upon such
occasions, it is often regarded as triumphant proof of their
solidity and strength, though the merciless process by which the
banks defend themselves, by contracting the currency, has
inflicted losses upon individuals to, many times the amount of the
coin in the banks. Under the English system, every attack
upon the banks is inevitably attended by an attack of the banks
upon their customers, and through them upon the whole com-
munity. To save a million of gold lying unemployed in their
vaults, the banks will diminish the active paper currency, two,
or three, or even ten millions. The banks of England are looked
upon then, by the people, as institutions exposed to great risk,


and as capable in times of commercial trouble, of inflicting ter-
rible losses upon the community in whicli they are placed ; they
are isolated, each is standing upon its own strength, and fre-
quently as prompt to sacrifice each other in averting the dreaded
suspension, as to fall upon their customers by the process of
contraction. In England and the United States, an unappeasable
jealousy of banks pervades a large portion of the people, which i
requires little special provocation to rouse into active enmity and

In Scotland there is no jealousy of the banks ; they are not
hated as monopolists nor distrusted as unsafe. They stand
together as one mass, prepared to uphold each other in eveiy
danger, and to sustain tht'r customers in time of trial. The
(jontractions of currency which in England 2:)rove such a . severe
scourge, the power of employing which the banks there regard
as one of their most important privileges are unknown in Scot-

The Scottish banks have from their commencement received
deposits as low as £10, and some even less, ujjon which tlitjy paid
interest at about one per cent, less than the current rate. The
deposits thus made for the sake of accumulation, ranging from
£10 upwards, have for a long period exceeded ten millions ster-
ling, perhaps they now exceed fifteen. There is the interest
which the masses have in the banks of Scotland. The confi-
dence of these depositors is so great, that since the introduction
of saving's banks in Scotland, the poor commence their savings
in them by shillings, and continue their economy, until they have
succeeded in accumulating £lO, which they carry to a bank for
a regular deposit receipt. The Scotch banks are the pride of the
people, all their spare money is at interest in them, and, never
hearing the language of distrust or opposition, no fear or appre-
hension crosses their minds. No one has ever heard of a dif-
ficulty in collecting either principal or interest, or in re-in-
vestuig them together. The people know that all the notes of
all the banks are good over all Scotland, and that if a suspicion -
were raised against any one bank, the others would make a point
of giving their own notes for those suspected. It would be
difficult to find a man in Scotland in whom a doubt existed, or
could be planted of the entire soundness of all their banks, now
and hereafter. The system of redemption semi-weekly between
all the banks, and their many local exchanges, give them such


an oversight of their respective operations, that they have less
fear of each other's solvency than the isolated banks of England.
The banks of Scotland, consisting mainly of branches of a small
number of banks situated in the chief towns, are governed by a
policy which is uniform, and equally designed for the benefit of
the whole people and the safety of the banks. This esprit diu
corps, which prevails among the banks of Scotland, has been
strongly censured in England as likely to lead to over-issues
relying on mutual aid ; but it must be noted that there is among
the banks there, not only a disposition to protect each other in
danger, but an equally strong tendency to watch each other at
all times. Their respective interests demand this, and their close
association makes this watchfulness effective. Whilst all, there-
fore are disposed to help each one that may need aid, all are
equally interested to restrain the tendency of any one to go

The comparative success of the Scottish banking system dur-
ing a century and half. While it commands the admiration of
those who study it with proper attention, does not always con-
vince them that it could with equal advantage, be transplanted
in another soil. It might be long before that confidence in
banks, which exists in Scotland, could be inspired elsewhere. A
popular writer referring to this, says : The credit of one estab-
lishment might be doubted for the time — that of the general
system was never brought into question. Even avarice, the
most suspicious of passions, has in no instance I ever heard of,
desired to compose her hands by an accumulation of the precious
metals. The confidence in the credit of our ordinary medium
has not been doubted, even in the dreams of the most veritable
and jealous of human passions. If this extraordinary faith in
bank currency is of long growth in Scotland, and therefore not
transferable elsewhere, there must at least be something in the
system which promoted that steady growth, and which headed
off all those accidents and commercial troubles which elsewhere
have not only destroyed confidence in banks, but through them
inflicted incalculable mischief upon the people. It is in this
aspect, that the history, constitution and practice of the Scottish
banks has not been properly studied out of Scotland nor even in
it. The value of the system is fully appreciated at home, but
no Scottish writer has yet shown what elements in the system
have given it such a large and firm growth.


We refer to one peculiarity in Scotland, without, however,
looking for its origin ; it is fixed in the minds of the Scottish
people, that whatever will fully perform the functions of money,
in purchase and payments, is as good as money for them, and,
if cheaper and more convenient, it is to be preferred and
employed. Such a substitute they find their bank-currency to
be. They see and know that it does not perform these ilmctions
in virtue of its being convertible, but that it answers the end
designed like a steam-engine, because it is properly devised for
the purpose. They know that men pay their debts by balancing
their books of account, and that the debts so paid are well and
fully paid, and they know equally well, that the debts paid by
the agency of their bank-notes are also fully and properly dis-
charged. They know that, in all this, there is no intervention of
money or the precious metals. In Scotland, they look, there-
fore, upon coined money as a thing to be obtained and employed
when there is need for it. They are so satisfied with their
present modes of payment, that they have no more desire of
replacing their one pound notes with sovereigns, than a man of
business has to wear buttons of gold, or to drink from vessels of
gold, because it is a substance of real value. In Scotland the
people have no fear of the banking-system breaking down, they
can see no possibility of that, so long as they continue their con-
fidence. They do not regard it as resting upon gold ; and if the
directors of the Scottish banks were to send their whole stock
of gold to London, reserving only what might be needful for
change and the supply of travellers to England, it would create
no panic, no run. They know that their banking-system is a
device to effect payments in their business. Those who have
bank-notes are sure that they can at any time buy as much gold
as they may require, but they no more think of turning their
bank-notes into gold, unless it is needed for a particular purpose,
than of turning them into precious stones. Such is the long and
deeply settled feeling and opinion of the Scottish people ; and it
is no doubt due to some element in their system, the influence of
which has not yet been sufficiently understood."

The vast superiority of the Scotch banking-system over the
English, and the strong attachment of the Scotch to it, will be
found to lie in the fact that it is an honest system, well adminis-
tered, based on a true theory as far as any system can be,
probably, where the power of the government is let out for
private gain.


t Its goiindness as well as cheapness may be illustrated by the
following example A. has a hundred loaves of bread, the avails
of which he desires to put into a pair of boots, he sells the bread
to B. for $6.00, who having a cash credit at the bank, draws a
check, and pays A, B. retains two loaves as profit, and sells
the balance to C, but C. having neither money, nor cash credit,
gives to B. his note for ninety days at five per cent, interest, and
C. in like manner takes out his two loaves profit and sells to D.
for $6.00, and the bread thus passes down through the whole
alphabet to Z., who buys the fifty loaves and pays 16.00, the
amount received from A. for a pair of boots. Z. pays this $6.00
to Y., and in a reversed order each party settling the interest, it
passes back to B. who balances the cash credit in the transaction.
In the mean time B. has been constantly making deposits, so that
his account would stand thus: he has drawn out $6.00, and has
had an average of $4.00 on deposit. B. therefore, for three
months pays 5 per cent, interest for $6.00, and is allowed four
per cent, interest on $4.00, or he pays the bank 7^ cents, and
receives four cents credit. The bank accommodation under the
Scotch system wouM have cost 3^ cents, on $6.00 for ninety days.
Under the English it would be thirty cents — a difierence of 14
cents, or the Scotch would be two and one-third per cent, per
annum interest, where the English would be five per cent. This
demonstrates that the Scotch system is much the most econom-
ical, and it would be difficult to conceive, how gold or silver
could have added anything to the efficiency of these exchanges,
or to the value of the money, if it could not, then coin would
have been a useless expense. But the English claim that as coin
and bullion are used in settling balances, that every paper dol-
lar requires a gold or silver dollar in the bank vault, that no
paper-money can be sound, whicii does not virtually rest on such
a coin or bullion base. It is very well understood, however,
that no paper-money ever had such a base in fact, that ninety-
nine dollars out of every hundred of business done, is by paper
money, or credit, without any reference whatever to either coin
or bullion. British statesmen and savans have therefi)re sagely *
concluded that a safe paper-money system requires, that there
should be idle, in the vaults of the bank, coin and bullion to the
amount of at least one-third of the paper-issue. This deposit is
not used for the purpose of redeeming the bank-money, to any
considerable extent, but principally to settle balances in the


foreign trade. Hence it is claimed, that the circulation should
fluctuate with the demand for coin and bullion, and not with the
demands for the pi-operty exchanged, which is the actual base
of the money. If therefore the natural demand for money
among the people to exchange their products were £500,000,000,
including bank-notes and cash credits, and A., B. and C. should
make an excessive importation of foreign goods, say some £5,
or £6,000,000, under the English theory and practise they would
curtail their circulation £15, or £20,000,000, if necessary, to
retain their precious gold-base. Whereas the Scotchman would
look upon this course as the height of absurdity and wrong. In
such case he would exclaim : " What ? shall we, when some
gambling stock-jobber, gold-gambler, or a foreign war, shall
have created an unusual demand for gold, must we regulate the
issues of our banks to reduce the currency as gold is candied off?
Rather should we increase our issue, and supply tlie place of the
currency that is exported."

From this property-base the Scotch have built up a cheap,
safe, banking and money-system, which is the wonder and admi-
ration of all, wherever it is known. Upon the opposite pre-
tended gold-base, the English government has been enabled to
erect and build up a money despotism whose power is felt in
every quarter of the globe; yet, never exercised but for the,
building up of the English aristocracy, and for the extinguish-
ment of liberty and progress among men.



The United States proper as is well known were once colonies
of Great Britain, and it was natural that the colonists who came
from that country, while protesting against despotism, should
from sheer habit adopt the forms of law to which they had been
accustomed ; although, in these laws were preserved, as in a
cabinet, the great essential powei's of despotism.

Among these, the coinmercial and financial laws are its main
pillar of support Banking, therefore, in the United States, is in
principle the same as in England. It is based on credit con-
tained in commercial securities, and not on gold or silver. It
consists in what is improperly termed, lending money, at the
legal rate of interest, frequently higher, sometimes lower. The
loans are called discounts, because the rent or interest of the
bank-note, is taken out of the customer's note in advance.

The object of banking too, in this country, as in England, " is
in making pecuniary gains for the stockholders by legal opera-
tions." Treatise on Banking, by A. B. Johnson, Banker, 1850,
p. 25.

Several of the colonies issued paper to pay debts. Massa-
chusetts made the first issue of this character in 1690. In 1702,
South Carolina made similar issues, and other colonies from time
to time, did the same.

But, Pennsylvania made the first and only paper-issue, which
can with any propriety be called money. This paper was issued
by, and kept entirely under the control of the Provincial Gov-

In March 1'723, £15,000 was issued. Its loans were to be
secured by lands, or by plate deposited in the loan-office. The
Act obliged borrowers to pay five per cent, for the sums they
took up ; made its bills a tender in all payments, on pain of


confiscating the debt, or forfeiting the commodity ; imposed suf-
ficient penalties on all persons, who presumed to make any
bargain or sale on cheaper terms in case of being paid in gold
or silver ; and provided for the general reduction of the bills, by
enacting that one-eighth of the principal, as well as the whole
interest should be annually paid. " Governor Pownell, in his
work on the Administration of the Colonies, bestows high praise
on the paper (money) system of Pennsylvania. " I will venture
to say," he declares " that there never was a wiser or better
measure, never one better calculated to serve the interests of an
increasing country, that there never was a measure more steadily
pursued, or more faithfully executed, for forty years together,
than the loan-office in Pennsylvania, founded and administered
by the Assembly of that Province." Dr. Franklin, also, bestowed
high commendation on the system, and Adam Smith, apparently
guided by Governor Pownell and Dr. Franklin, says: "Penn-
sylvania was always more moderate in its emission of paper-
money than any of our other colonies. Its paper currency
accordingly is said never to have sunk below the value of the
gold and silver which was current in the colony before the first
emission of its paper-money." Holmes, Vol. II. p. 110 — Wil-
liam M. Gouge, History of Banking in the United States, Part
II. p. 8.

All things go by comparison. The credit-bills of Pennsyl-
vania were so much better than those of the other Govern-
ments, that there was a demand for them throughout
the country, for use, in furnishing bills of exchange. It
is a mistake, however, that it was never at a discount; gold*
bore a premium of eleven per cent., and silver at seven,
over the currency. But this disproportion between the paper
and coin^ compared with other colonial currencies was so
slight, it does not impair the force of the lesson taught, that
under correct laws governmental paper-money has been uni-
formly good.

The Provincial issues of paper were only evidences of debt,
due at a future day issued as the exigencies of the Government
might require ; a species of governmental script, being neither
in form or design money. Though in some cases they were
made a legal tender for present use, not as money, but as a debt
which the state would at some future time pay. This, with the
exception before named, was the real character of the colonial


paper, but the people understood it in the light of a debt, they
knew the resources of the government, and the authority under
which it was issued. If they were injured, it was not by the
failure of a bank ; but by the government, for which each person
was taught to feel that he had some share' of the responsibility
in its issue, and should therefore take his chances in the losses
which might occur by such issue. Like their prototypes in the
European world ; these colonial governments came far short of
making anything like judicious laws for creating this govern-
mental paper, and they utterly failed to make any just provision,
either to absorb, by taking it up in taxes, or for its payment.

But as this paper was not in any proper sense of the term
money, we do not deem it 'advisable to pursue the history of
these paper-issues further than to show, that their true character
was in agreement with the ruling ideas of the British public, that
nothing was, or could be money, but gold and silver. England
had engraved this (jentral idea of her despotism, upon the very
brain of the colonists. It is not surprising then, that in all the
colonial legislation no change of this fundamental British idea
was made, or attempted to be made. The only move looking in
that direction, was the attempt to circulate the debt of the
colony, as a debt which at some future time should be paid in
gold and silver. Thus stood the financial legislation of the
colonies up to the time of the Revolution. When the colonies there-
fore declared their independence, and thereby absolved their
allegiance to the British crown, it was natural, that they should
continue the same course of legislation. Hence, it will be found
that the continental Congress made no change in this particular,
and in fact, the legislation and ideas of the commercial and
financial classes in this country from that period to the present
have been entirely controlled and shaped by this overshadowing
influence of the British despotism, made effective through customs,
habits and class laws, thence derived. Without further comment,
then, we may as well here present an outline of this Revolu-
tionary debt, and the facts as to its subsequent disrepute and

The first issue of paper was dated 10th of May, A. D. 1775,
but this paper was not actually put into circulation until August

The Register of the Treasury, in 1790, estimates that between
1776 and 1781, issues of this class of paper were as follows:


Old issue, $357,476,541 ; new issue, $2,070,485. The discount,
January, 1777, was 1^ per cent. 1778, 4, and 1779-'7-'8 and '9,
1780, it was 40 — and in January 1781, it was 100 per cent, dis-
count, and in May following, it went down to 200, and during
the month 500 per cent.

Palatiah Webster, a merchant of Philadelphia, and an uncle
of Noah Webster, the grammarian and lexicographer, has given
an elaborate account of this continental paper-issue, as viewed
from the commercial stand-point, and William M. Gouge, in his
history of banking in the United States, has made use of this
material to discredit all paper-issues.

Webster is profuse in his denunciation of this continental
paper-issue. He says : " If ii saved the State, it has also pol-
luted the equity of our laws ; turned them into engines of oppres-
sion and wrong; corrupted the justice of our public administra-
tion ; destroyed the fortunes of those who had the most confi-
dence in it ; enervated the trade, husbandi-y and manufactures of
our country, and gone far to destroy the morality of our people."
It seems, however, not to have occurred to Webster any more
than it has, to the commercial and banking class since his day,
that the evils described were not simply in the issue of the
paper, but in the unjust and class character of the whole money
and commercial system — the supreme selfishness which has
instituted money upon the principle that it shall answer not only
the legitimate purpose of an authentic and just mode of
exchange, but that it shall supply the financial and commercial
class, at the expense of the industrial classes, commodities and
gains, which can only honestly be obtained by labor and at more
than triple rates allowed to labor, could not otherwise tei'minate.

Upon the theory then, that gold and silver constituted the
only essential wealth, the continental Congress did not attempt to
institute any paper-money system, but issued an evidence of the
debt due by the Government ; and promised to pay it in gold
and silver. As this paper did not pretend to be based upon, or
to represent property exchanges, and no provision was made for
its payment, it very naturally fell into disrepute. Its decline in
value kept pace with the desperate fortunes of war. The dark
and gloomy period of 1780 and '81, extinguished whatever of
vitality had been infused, or could be galvanized into such a false
and dead foi'm by a legislative enactment.

Though this paper-issue has no bearing upon the subject of


governmental-paper-money, or any other paper-money — yet its
issue and management, was in principle a just reflex of the
British and American paper-money and gold-base systems, and
is one out of a thousand instances which have occurred within
the last hundred years, where the utter falsity, and downright
knavery of the whole system, has been demonstrated again and
again. Yet, the men who are the cause of these wrongs, will

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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 14 of 19)