The Northern Daily Times.
Liverpool, Merseyside, England, 1857-05-02 00:00:00

THE - REQUIREMENTS OF DEB rOR3 AND
CREDITORS, AND THE MEANS NECESSARY
FOR 318ETING THEM_

TO THE EDITOR OF THE NORTHERN TIMES.

Sir,—lt is the purpose of this letter to inquire into inch of
the rtquirernents of debtors and creditors as relate to the cor-
dittons which legal tender noes should be issued,andalso to
enquire how those requirements may be most effectually pro-
vitt for. Iu pursuing this enquiry we shall find it contri-
bute lets materially to the simplification Of the suljsct if we
suppose the currency, or legal tender notes of the- country, to.
be issued only by one central office, under the control of,
and having its solitency guaranteed by, the national Govern-
ment. And, in order to keep clear of some- well known
prejudices; we may as well assume the Government to be
&Wild from drawing notes from the office, except on prey
cisely_t_lse same conditions, in reference to depoSited security,
that would be enforced from all other persons or firms with-
drawing notes. Under this or some shniler arrangement
the issue office would be a sort of age•ecy between debtors
and creditors, not trading for profit, 'but acting merely as a
servant of the pablic.
The only very important questiren at isssue between the
(opPesingeschools of currency thereeefe is the all-predominating-
line-Should the legal tend :r notes of the country be, or be
hot, convertible on dnmsend into gold or any ocher commodity ?
The view taken in ',nese letters is that they should not be
thus convertio',e, and therefore a few- words may be advan-
tagennsl.T offered at the outset by way of explaining what
clu r'letey notes would represent in case they were not converti-
11.e into commodities at the will of the holder. The notes issued
'by Our ettpposed central office would represent debts-due from
the 'office to the holders of the note,. This would be true
even though in some eves the holders of the notes would be
debtors to the office to a greater extent than the amount of
notes held. In such cases two distinct debts would exist, the
one a book debt owing to the office b the customer, the
other a currency note debt owing by the office to
the customer. The fonder *mild bear interest chargeable
to tto etistOriiere the latter would only hear interest when the
hotea Wereoritinli•aWn from circulation by their owner depositing
heel at the offine. When so deposited, the debt represented
Kb the notes would go as a set off to the debt owing to the
otfieelei the customer, or in case no sock contra debt existed,
the °Mee would place the amount of the notes to the credit of
the depositor. The debt, previously ranking as a currency note
debt, would thus cease to have that character, and would,. in
lieu tjeMOVesheconare -a book. debt ;.- and, assuming -that-the.
depoettoi was not previously a debtor to the office, the book
debteso created would at once commence bearing interest in
favour 'a the -depositor.
By this means the debt would be placed under conditions
very similar to those of our present national debt— that is to
says irtenfilil be made a non payable debt, bearing interest ;
and since the:Word "stook" is almoi'. invariably applied to
debts of this class, we may, with every propriety, apply it to
the book deb's owing by this supposed issue office to its
Customers. The notes issued by the office would; therefore:
repre-sWoreAisd besconeertible on demand into, a peculiar form
itoCle,-which; far the sake of distinc.iou, may herein be
called " Cominercial Stock."
U ideeethis or some similar system-, all debts. awingoirothe
.ceietttr-tfw—Fin: in the eye of the law, be debts of this Corn-
Inescial Stock, that is to say, every debtor could relieve himself
from his monetary obligations, by paying notes ceuvertible into
the said stock, and every creditor could demand such notes in
l'quidation of the debts due to him. We mey, therefore, at
'Once ,relieve our subject of all the entanglements that belong
to 71-e- currency question as hitherto discussed, by dismissing
from our minds all ideas about notes and money, and con-
fining our attention exclusively to a consideration of the cone
ditioes.arrier which the proposed Commercial Stock should
be placed:,
If a fairly balanced body of men, having debts to pay and to
'teeeive in notes convertible into this form of stock, were to
decide for.lethemselves what conditions they required the stock
to he placed under, they would, among other thinge, rrittrire-
-Ist That the issuing office should have its solvency per,
petuery guaranteed.
2net,That the unit of the Stock (that is, the stock pound)
shoulttlf possible, be maintained of unvarying value:
&dr That the interest charged to debtors of, and. allowed to
creditors in the Stock should, if possible, be at all times- the,
truelAtural rate for the time being.
The first of these requirements would bo amply provided fore
'in this country, by makine the government to guarantee the
solvency of the office. The seemed and third requirements
• could rotsivier be realised in perfection without the aid of an
absolliltery perfect standard of value, and as we have no such
standardeand never shell have su,h a one, we must content
ourethtes with doing the best we can with such as we have at coun-
t/land.. Having, in a recently published essay, entered somewhat
inn on the means necessary for correcting in this pound
of account the fluctuetions of value which appertain to the
tnetale'Vensenefor a standard of value, I need not' enter on
that question here, further than to state that the plan, there
pro/seised consists in regulating this rate of interest charged
and allowed on the Commercial Stork, in accoolance with
indications furnished by the average value of gold, as expressed
in Conernerelit Stock, increasing the rate when the price of
gold seemed, on the average, to be advaecine,' and decreasing
the rate when the price of gold seemed, on the average, to be
Such a system would, in practise, lead to results almost
exactly similar to what would result from making the Com-
mercial Stock convertible into gold, within the lapse of a
specified period, dating from the date when such conversion
was demanded. It i 3 true that, in theory, this latter plan
would be less perfect, and true, also, that it would not so
clearly represent or express the natural relations which exist
between-ordinary debtors and creditors. It would, however,
pesse,s the very important advantage of being more intelligible
to the public, and ae, in cases where the public arc concerned,
intelligible practical results are of more consequence than
theoretical accuracy, it would be advisable, at firet, to adopt
this latter plan for the regulation of the value of the proposed
Corretnerciat Stork.
Let us then suppose it to be ruled that the proposed Issue
Office shall convert Commercial Stock into gold at par, some.
timaicithin the lapse of twelve months from the date of such
conversion being demanded. In being placed under this
reguition, the office would he compelled to keep the rate of
interest charged and allowed on the Stock at, or not appreciably
distantfrom, its proper level, and, therefore, this one regulation
tecculd boa means of ensuring the third requirement of debtors
and creditors, namely :—That the Stock should at all times
bear,' as nearly as possible, the true current rate of interest for
the time being.
As this provision for converting the Commercial Stock into'
gold atoparveoulcknot be designed for the convenience of stock
holders, but merely as a security, to them, against the stock
being allowed to depreciate in value, the ffice should not be
required to convert the sock into gold on any particular day,
but should be deft to
,s=lect any day, within the given term, that
may suit its own convenience. This regulation would
_pot it
out of tiropower of stock holders to derive any benefit from
demanding the conversion of their stock, unless its value were
reallyetelowewhat it ought to be ; andis this, could never he
the caisissonlere the Issue Office neglected the due regulat'oe of
the rate of hitereat, it would follow that no denten& for con-
version of the stock would ever be made so long as the office
fully and wistly discharged the duty entrusted to it.
I have here assumed the term of notice for the conversioneaf
the steolt to be twelve months, because, although a longer
term O'f notice would be beneficial to the system, it would he
advisable to commence with a comparatively short term, and
gradually to extend- it as the public acquired confidence in the
systeM'e Even a shorter term than twelve months may be
adopt4at the outset, if deemed advisable ; bur, the shorter
the teem, .the more would the rate of interest and the value of.
the unit, be subject to derangements from fluctuations in the
immediate supply and demand for gold. On the other hand,
the iouger the term, of notice, the more would the value of the
unit audlllesrate of interest he relieved from those distatbing—
eansts. Too long a term of notice would, however, give too
great a fixity to the rate of interest.
it would be out otplsee here to enter into de'ails concerre,
in; the, ineral'eendltions 'op which the above description
notes should-be bulled to the public. A brief c atline -may;
however, he given of the relation in which the office would
stand Witt-a enstorners, who may be classed under the three
following heads :—Creditors in the Commereiel Stock_; Intend-
ing Berroweraof Notes; and Debtors to the Commercial Stak:
Creditors-in the Stock would have the fellowit Cfainis 'on
the office:-Ist. The right of
,receiving the current rate of
interest on the amount of stock standing severally to their
creditee. 2nd. The-eight-of-having their stock converted 'into
legal tender notes on demand. ' 3rd. The right of having
their stock converted into gold (say) tWelve months after
demand.
Intending borrowers of notes would have the right of with-
drawing them from the office without any ether limit, as to
quantity, than that of the security severally provided by them-
selves.
Delors to the Stock would he under the obligation of
_ _ _

paying to the office a sufficiently high rate of interest to cover
the followihg items of disbursement :-Ist. The sums paid to
the creditors r.s interest on the stock. 2nd. The expenses, if
any, of obtaining gold to meet demands for the corversion of
stock into gold. 3rd. The working expenses of the office.
The profits derived from the interest paid on notes, while in
circulation, would be applied—lst. 'Po covering any losses
which the office may incur from defectiveness of the security
provided by its deb.ors. 2nd. To any other pur poi- or purposes
to which the legislature may think fit to apply them.
It should he observed, that although the rate of exchuge
betwr en the above commercial stock pound and the gold pound
would be allowed to fluctuate, within each period of twelve
Months, still, on the average, the two pounds would be at
par with each other. That is to say, they would always be at,
• or not appreciably distant from, par in average conditions of
the money market ; and if in peculiar conditions of the
money market the stock pound should fall below par, it would
invariably be made to rise above par, in a corresponding degree
before the lapse of twelve months. Who will pretend, then,
that this stock would be other than a vast convenience to men