This section is from the "The Science Of Wealth" book, by Amasa Walker.
The people of the United States, having a much larger proportion of the credit element in their currency, suffer still more.
The remedy for all these evils is a very simple one, and perfectly feasible whenever government sees fit to make the needful enactments. Not only so, but, from the nature of the case, there need be no violent change. The experiment may be made as cautiously as the most conservative can desire.
If it be assumed that the banks of the United States have usually twenty per cent of specie, then, if Congress should require an annual addition, to this proportion, of ten per cent, it would require a period of eight years to bring the amount up to the proposed limit. That it would secure one of the grandest results to all the great industrial and commercial interests of society ever known, there cannot be the slightest doubt.
If the principles we have previously laid down, and the practical results which follow, are such as we have stated, then no one nation need to hesitate in making this experiment for fear that other nations may not follow their example; for the community which has the soundest currency will, other things equal, have the most profitable industry and the most advantageous commerce.
With such a currency, as there will be no inducement to issue notes further than convenience demands, none of a less denomination than ten dollars will probably be issued.
The Bank of England issues, we must bear in mind, no notes less than five pounds (twenty-five dollars). In Scotland and Ireland, notes are circulated as low as one pound; and it is found that two-thirds of their circulation consists of these notes. Yet there is no more occasion for one-pound notes in Scotland and Ireland than England. The only result is, that the bankers make profits on their credit issued in those notes, which the people pay for, but for which they receive no benefit whatever; while all their industrial and trading interests are rendered more unstable and fluctuating by the more sensitive currency.
In Massachusetts, where notes are issued as low as one dollar, it has been found from statistical returns that more than twenty per cent of the whole circulation was of notes under five dollars. The exclusion of these notes alone would reduce the credit element one-fifth. If all under ten were excluded, the paper circulation would be reduced at least as much more. If such a result would follow, then, taking the whole currency of the United States as it was in 1857, when the circulation was largest, and amounted to two hundred and fourteen millions, if we deduct from that amount forty per cent, equal to eighty-five million and six hundred thousand dollars, we shall have near one hundred and twenty-eight millions as the paper currency of the country, and that would represent an equal amount of gold in the banks; while all the rest of the currency of the nation would be in specie, in the hands of the people. But there need be no legal restriction whatever upon the issue of such a currency, and it matters not how voluminous it may be; since it will be composed in fact of value money, will obey the laws of value, and, of course, will regulate itself. There would then be no expansions or contractions, except from the legitimate operations of trade; and the currency of the nation would be perfectly sound. Notes may be safely issued, of any denominations, and to any amount; still it would be desirable that no small notes should be put out, because it is better that the people should have the coin, so far as practicable and convenient, in their own possession, rather than that it should be needlessly accumulated in banks, where it would be more exposed to danger in case of a popular outbreak, or a financial coup d'état.
That legitimate banking may be made sufficiently profitable under such a system, we have seen in the case of the joint-stock banks of England. All banks, like them, should be authorized to receive deposits, and allow such an interest upon them as they might choose to pay. If there were no issue of promises as currency, which in the nature of the case it was impossible for them to make good, there would be no danger in allowing them to borrow and loan money on any terms they pleased. To attempt to control the operations of such banks would be as useless and absurd as to attempt to regulate the trade in flour or cotton.
There would be no occasion to enact that such a currency should be received in payment of dues. It would take care of its own reputation. It would be good as gold, and easier in use; and it therefore would circulate itself. Of such a currency it might be said, in the language of Mr. Burke, " It is of value in commerce, because in law it is of none."
The transition from an unreliable currency, like that of the United States and England, to a sound mercantile currency, can be made so gradually as not for a moment to retard or interrupt the. course of business. It would only be necessary to require that the proportion of specie to circulation shall be gradually increased from time to time, until the final exclusion of credit, as an element of the currency, shall be effected.
If, in carrying such a measure into practical operation, it should appear that there were banks which could not make good dividends, such institutions would be discontinued of their own choice, as not actually required by the wants of the business community. Their capital would be paid back without any essential loss to the stockholders. Those who were concerned in their management would of course be obliged to seek other employments, more beneficial to the country, and perhaps equally so to themselves. The amount of disturbance so produced would not exceed that occasioned, many times, by the invention of a new description of machinery.