it that it is imposible to apply safeguards to the currency, without applying prudence and reason is able restrictions to the business of lending. If a bank pledges its capital by the deposit of bon for the redemption of its circulation, it must so use that circulation as not to lose it; so inves as to have it coming back with a profit; must use it judiciously, and fely so that it will protect itself. The government, in delegating the power to issue notes, has the right to prescribe the conditions upon which they shall be issued. If harsh or unnecessary conditions are imposed, they should be abrogated. If the conditions are wise and wholesome, they should be honestly observed. In prescribing rules, reference should be had to the object to be attained by the organization or incorporation of banking insututions. A charter to carry on the business of banking does not give power to buy and sell real estate, to ship goods to a foreign port, or to engage in, or promote, any specu lative operation. The business or banking, properly conducted, is just as sure, and just as safe, as any other business; but it must be confined to its proper and legitimare sphere. In the case of an incorporated banking association, is powers are prescribed in its charter. The law for the organization of national banks defines their powers with precision. They are empow ered to exercise, under the act, "all such incidental powers as shall be necessary to carry on the bus iness of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and Lullion; by loaning money on personal security; by obtaining, issuing, and circulating notes," &c.-trom which it will be seen that national banks are authorized, among other things, "to receive deposits;" that is, when money is brought tothem, they are authorized to receive it. They are not, however, authorized to hire deposits, and the law does not contemplate that they should solicit loans, under the guise of deposits, by the offer to pay interest on them. This practice, however, prevails extensively; and although, by implication, the law forbids it, the prohibition is not sufficiently explicit or positive to prevent it. The evil of the practice is this: All the banks in the leading cities, and nearly all the country banks, keep balances in New York, which by law con stitute a portion of their reserve. The offer of interest on these balances is an inducement to keep as large a portion of their reserve on deposit in New York as the law will allow. Banks in the leading cities-which are named in section thirty-one of the act-are permitted to keep one-half their reserve in New York; and all other banks are permitted to keep three-fifths of their reserve there. If then, New York banks pay interest on these deposits, they must, of course, use them; and, as they are payable on demand, they must be loaned on call. Callloans, as a rule, are made to brokers and operators in stocks and gold. Men engaged in trade cannot ordnarily afford to borrow money which they may be called upon to refund at an hour's notice. It is, moreover a prevalent opinion in the large cities that a large call loan is a good thing for a bank to have-that it makes a bank strong; and bank officers exhibit with evident satisfaction a large proportion of their loan payable on demand. And why? Money loaned on call is loaned at a lower rate of interest than when time is specified, and therefore) cannot be more profitable. The truth is, they have a large deposit, upon which they are paying interest, that may be checked out at any moment. They are obliged to get something for the use of their money, but are afraid to give time, and so have to lend on call at low rates. They know their weakness in this respect, and feel obliged to fortify. The fortifications are, perhaps, the best possible; but if there were no weak points, there would be no danger to guard against. Perfect immunity from danger is better than the stronges: fortifications against an ever impending danger. The most objectionable feature of the whole transaction, however, lies in the fact that the facility with which large loans can be effected, payable on call at low rates of interest, while commercial paper is only done at high rates, or is declined altogether, fosters speculation. Paragraphs like the following may be found in the money ar icles of the New York papers almost every day:-"Money was fairly active on call at six to seven per cent.; commercial paper very dull; prime names ten per cent. to fif een per cent. ;" which means, money for speculation, six to seven per cent; money for trade, ten to fifteen per cent, Call loans are a necessity, when interest is paid on deposits. Competition for the accounts of country banks has led to the payment of interest. The New York banks see and deprecate the evils of the practice. They have several times attempted to put an end to it; but there will always be one or more banks which see their opportunity in such an effort, and will refuse to come into any arrangement intended to put a stop to it. The fact that the reserves of the country are hawked on the street, and are tendered and used for speculation, is sufficient ground for an interference of the law. INTEREST, TAXES, AND PROFIT. A bank that has its capital invested in interest-bearing securities, upon deposit of which it obtains an issue of circulating notes-which notes are to be used in its banking operations as money-can afford to lend its money at lower rates of interest than a bank that issues no notes for circulation, but lends its capital directly to its customers. The bank with circulation derives a portion of its profit from the interest on its securities, and a portion from its customers; while the bank without circulation derives all its profit from its customers. The delegation by the government to banking associations of the power to issue notes to circulate as money, therefore, has a tendency to lower the rate of interest, and so to furnish cheap money to the business community. That this is actually the case will appear upon investigation. Tae incorporated bank doing business, and issuing circulation under the authority of the goverment is unitormly regarded as the most reliable and reasonable source of accommodation by the business community. The private banker, depending upon the active use of his capital for bis profit, must charge a much higher rate of interst to realize the same relative profit, supposing, of course, that the deposits of the two institutions are equal. A bank with $100,000 capital invested in securities bearing six per cent. interest, upon which it has received $90,000 in circulation, can lend that $90,000 at seven per cent., and yet realize a profit of $12,300 on its capital. The private banker, lending his capital of $100,000 directly, must charge his customers twelve per cent. to realize the same profit as the bank. The merchant and the tradesman know this, and expect to pay about that difference for the use of money when their necessities compel them to resort to private bankers or brokers. The government, therefore, confers a greater boon upon the business public, by enabling it to borrow money at moderate rates of interest, than is generally realized or admitted. If all the banks were deprived of their circulation during the coming year, by act of Congress, the rates at which money could borrowed in most sections of the country would be nearly doubled. The assumption by the government of the sole power to issue circulating notes would in no wise furnish relief. The United States can get its notes into circulation by paying them out for its expenses, and in payment of its debts. Not being able to do a banking business, however, it cannot lend them as a bank can, but would have to pay them out to its creditors, and, in the end, the notes would come into the hands of capitalists, who would lend them to the people at high rates of in terest. Taking the country as a whole, government and people as one, the profit gained by the government on the issue of its own notes-or, to use an expression in common use, the amount saved by the use of its own notes as a loan without interest-would not compensate for the additional tax upon the business of the country, caused by the advance in the rates of interest which would be likely to follow such a change in the circuation. The amount loaned by the national banks to the business interests of the country will average about seven hundred millions; and for every addition of one per cent. to the rite of interest, a tax of not less than seven millions would be imposed on the business of the country. Au increase of five per cent. to the rate of interest would make the tax not less than $35,000,000. This would be the actual money tax. But the depression caused by this additional burden, while it would be a very serious drawback to the prosperity of the country, could not well be estimated in money. As a general thing, national banks lend money to their customers at about the legal rates, though, of course, there are exceptional cases. Heavy taxation, also, is a burden on the business of the country; and like every other item that enters into the expense of conducting any business, the burden is borne in the end by the customer, or consumer. The tax upon gas companies, for instance, is added to the monthly bill of every con sumer; and the tax upon banks is merely the addition of something to the rate of interest. Within a certain limit the tax is proper and legitimate. Every business should bear its share of the public burden; and if the rates are equitably and wisely adjusted, no complaint can be made. But in many sections the local taxation growing out of the expenses of the war is so high, as, when added to the United States taxes, to absorb a large proportion of the profits of the banks. Limited by law to the legal rate of interest, the bank must wind up, or its shareholders must be confeat with meagre dividends. Some banks in this predicament have actually taken the necessary steps to close up their affairs. Others, probably, have resorted to usury to increase their profits to the paying point. Banking systems had been in operation in several of the States for a number of years before the war, that issued circulation based upon a deposit of State or United States bonds: and there was no limitation to the numberot such banks, or to the amount of circulation they might issue. The deposit of United States bonds required as security for circulation of national banks is nothing new, either in theory or practice. The fact that the United States paid the interest on its bonds in go'd, which gold was sold by the banks at a premium, enabled them to make larger profits than were accustomed to be realized by State banks formerly doing business under similar circnur stances. And the additional fact that the amount of circulation that could be issued by national banks was limited to $300,000,000-giving to the system the semblance of a monopoly-operated to producn impression in the public mind that national banks were mines of wealth, rea izing to the stockholders fabulous dividends. Some of the earlier banks which sold their gold interest at from 100.. 180 per cent. premium, and which sold five-twenty bonds for the agents of the government to the amount of millions, probably did realize very large profits. Eut that day has passed. The average dividends made by the banks during the last year will probably not exceed ten per cent. upon their capital, after deducting taxes and expenses. And as the premium on gold shal diminish, and the national banking system shall be male free to all who are able and choose to comply with its condi ions, the average profit will conform to the law which governs all business. It will be a fair livingprofit, and no more. SOUND CURRENCY. The currency constitutes a very important part of the financial system of any country. Without a sound currency, a healthy financial condition is impossible. There are two requisites to a Bound currency; convertibility and elasticity, and either of the two involves the other. The present currency of the United States possesses neither of these requisites. During the past year it has neither increased nor diminished, but stands about as it did this time last year* $390,000,000 issued by the government, and $300,000,000 issued by the banks-neither redeemable nor convertible into anything more valuable, and therefore Lot susceptible of reduction by any ordinary process; each issued to the full limit allowed by law, with no power of expansion. The whole amount must be employed, whether it is wanted or not, and the limit cannot be exceeded no matter how urgently more may be required. During the summer months, when there is rest in almost all branches of trade, the whole circulation was in market seeking employment; and now that autumn has come, with its bounteous harves's, when the farmer seks to realize in money the reward of his labor and the interest of his capital for the whole year, when hundreds of millions must be distribu ed throughout the length and breadth of the land, we have the same unvarying amount of arrency to use. There are two kinds of currency in use: one issued directly by the government, the other issued by the banks One kind would seem to be enough. The best should be preserved and perfected; the other withdrawn. Applying the test first to the government issues, it is noted at once that they are not redeemable, and that no provision has ever been made for that purpose. The very moment that they are made redeemable thy will cease to answer the purposes of currency; for, alter they are re seemed, they are in the treasury and cann t again be paid out except upon appropriation made by law, in accordance with the constitutional provision, and consequently cannot again be put in circulation, except as disbursements may be necessary to pay expenses and debts of the government. So that government circulation is not convertible, and therefore is not elastic, and cannot be made so without first making a radical change in the organization of the United States Treasury by which it should be converted into a hug banking institution calculated to receive deposits, make loans, and otherwise perform the functions of a national bank. The notes issued by national banks are nominally redee nable; and, if the legal tender notes were out of the way, would be actually so, and, being issued by institutions in sympathy with trade, would contract and expand in obedience to the law of supply and demand, so that they would also possess the element of elasticity. As to the comparative merits of the two kinds of currency, an impartial consideration would prabably decide in favor of a bank circulation, principally because it would possess the power of adapting itself to the exigencies of trade. If government issues could be made to possess the same power of adaptation, the verdict would be in their favor. A candid investigation, however, cannot fail to develop the fact that there is no branch of the fiscal service adequate to the direct issue and care of such a currency as the country requires. The treasury system is so arbitrary in its collections and disbursements, so little in harmony with the business interests of the community, that it frequently absorbs large amounts of currency at most inopportune seasons, and disburses them with just as little regard to the wants of trade. If the treasury were redeeming its issues, large amounts would be presented for payment when money was plenty; but, as the return of tas money to the channels o. trade would depend upon the disbursements of the government, there could be no certainty that it could find its way back again when needed. In fact, the current operations of the treasury of the United States are regarded by business men as constituting a powerful, and, at the same time, a very uncertain element, difficult to estimate, but which must necessarily be taken into consideration in all their business transactions. It is but justice, however, to say that the inconveniencies and defects inherent in the present system have been obviated as far as possible by the present administration of the department, and where they could not be obviated entirely, they have been reduced to a minimum. So long, therefore, as the collection of the revenues is liable to be a process of contraction, and their disbursement a process of inflation, the agencies hrough which collections and disbursements are effected cannot be regarded as suitableagencies for furnishing a sound currency to the people. The argument that the government should furnish the currency in order that it may realize the profit upon its circulation is a common one, but will not bear scrutiny. There is no profit to the government on the circulation of an inferior currency. Only a sound currency will promote the material prosperity of the people; and the government can realize no profit from anything deriment to their it rests. As a currency, therefore, government issues are not profitable. As a loan without interest they are equally unprofitable, because they are injurious to the national credit, and add enormously to the expenses of the government. It, however, it is impossible for the government to comply with the conditions necessary in order to furnish a sound currency, it can at least provide for the withdrawal of its own notes, an i prescribe the conditions upon which, and the agencies through which, a better currency may te previded. As before stated, there should be batone paper currency in the country, and that shou. emanata from a source that is influenced by, and is amenable to, the laws of trade. No check or limitation should be imposed upon it, other than the law of supply and demand. FREE BANKING The banking system now in operation under the act of Congress, is doubtless an improvement upen the condition of things that prevailed prior to its inaugu ation. It may have imperfections, but tmost of them can be tr ce to the evils of an irre leemable currency. Abuses of various kind are practic d, or tolerated, during suspension of specie payments, that would disappear of themselves in a healthier financial atmos hra; and as observation and experience bring w light defects, they may be corrected by judicious legislation. Any radical changes now would affect so many and such great interests, that it would be sater and wiser to build upon and improve the pr. sent system, so as to bring it fully up to the requirements of the age and the country, than to unler ake to buil up a new ne. It may be made the means of supplying a safe, conver able, and elastic currency in any lane that may be requied by the business of the country. No human intelligence canfix the amount of currency that is really reeded; for it is continually varying, and is never fixed. If Congress limi 8 the amount, there will always be those who will be d satisfied, and who will seek legislation either for the purposes of contraction or expansion And long as the volume of currency depends upon legislative enactment, uncertainty and stability in will pervade all financial operations. If, Lowever, notes for circulation are issued by a banking association composed of business men and c pitalists, who areobliged to furnish security for the pr mot and easy conversion of their issues into e in on demand, no other limit to the amount of such notes need be fixed than the imosed ly se f interest. If there is a legitimate demand for currency, the notes wil remain in e realat on ong enough to make their issue profitable. If there is not such a demand, the notes will be hurried home for conversion into coin. In this way the business demand for currency will get its supply; and the surplus, if any, will always be retired. A self-adjusting system of currency is the only one that is adapted to the exigencies of trade, and to the wants of the country; and it is a vital question at this time, whether this result can b reached before the return of specie payments. It possible at all, it is only possible through the agency of national banks. The machinery of the government is not adapted to such ends. And further, if possible, it is so only upon the adoption of a policy which will tend gradually but sure.v to a resumption of specie payments. It must be the gradual development of a process which shall absorb legai tenders, and put in their place a paper currency which shall at all times and under all circumstances be exchangeable for coin, either of paper* or gold-a paper currency which shall gradually increase, while the legal tenders for its redemption shall gradually decrease, in such a ratio as a healthy demand for banking facilities may determine. Where banking facilities were already abundant, there would be no inducement for the establishment of banking institutions for the issue of currency upon conditions that would inevitably diminish the volume of lawful money applicable to its redemption, and so gradually but surely enhanc the cost of such redemption; while in other sections destitute in whole or in part of banking faciliti s for the legitimate demands of business, the necessity for banks and currency would justify the increase of bank circulation, notwithstanding the fact that by such increase the burden of its redemp. tion would also be enhanced. The entire South and many portions of the West are very much in need of the facilities and advantages to be derived from properly organized banking institutions, and their necessities would justify them in deliberately adopting measures to supply their wants, the direct tendency of which would be to hasten the return of specie payments in the manner indicated, to wit, by the increase of bank notes, and the absorption of the legal tender notes. As the former increased, the latter would diminish. As lawful money became scarce, its value would be enhanced, and would gradually approx. imate to par with gold. Thus specie payments may be reached through the agency of the national banks, and by the operation of natural causes. The process will not be rapid or spasmodic, because it will in all its stages, and in all its details, be governed by sound principles and conform to established laws. At the same time, the benefits and advantages of the national banking system would gradually become more equally diffused, until all sections would at length get their just and equal share, apportioned beyond cavil or objection, because regulated by the actual requirements of busi ness. While free banking may thus be established with safety, anterior to specie payments, conditioned only upon the withdrawal and cancellation of a legal-tender dollar for every dollar of bank currency issued, free banking upon a specie basis may also be permitted, with equal safety, and without delay. With details properly adjusted, banks may be established with authority to issue and put in circulation gold notes-limiting the amount only by the ability of the banks to comply with the necessary conditions, and to redeem their issues. Some provision of this kind is probably necessay in order to supply the Pacific and gold-producing States witha paper currency. A circulating medium, cheaper and more convenient than coin, has long been a necessity in those States, and would undoubtedly do much topromote activity, enterprise, and development. Experience has dem onstrated to them that a currency composed exclusively of specie is not exempt from the fluctuations to which money and trade everywhere are subject, and has awakened an anxiety on the subject, which may lead to the introduction of paper money, if the opportunity is afforded. By the establishment of banks on a specie basis, the resumption of specie payments is only anticipated; and familiarity with gold values will do much to relieve the subject of the mystery with which it is associated in the minds of many. Looking forward to the day when uniform values shall again prevail, it may be that, by wise legislation now, a banking system can be established, truly national in its character and scope, which will furnish a sound currency of uniform value in every State in the Union. Statement showing the number of banks, amount of capital, amount of bonds deposited, and circulation, in each Sta e and Territory, on the 80th of S pten.d.r, 1809. Total..... 1,694 74 1,620 432,163,611 00 242,475,:00 817,992,516 249,789,893 45 Statement showing the national banks in liquidation, their capital, bonds deposited to secure circulation, circulation delivered, circulation surrendered and nestroyed, i nd circulation outstanding October 1, 1869. 100,090 CO 75,000 63,500 63,500 00 345 Name and location of bank. Capital. U. S. bords on deposit. (irculation delivere. Circulation r turne and destroyed. Circ lation outstanding. .... Nat. Union Bank of Rochester, N. Y..... † No circulation, *The First National Bank of El hart, Ind., has been reorganized under the ame name and resume usiness. |