The workingman's advocate. [volume] (Chicago [Ill.]) 1864-1877, 1869-11-06
CHAPTER IV.-SEcrIoN /.
rBE NATURE OF BANKS, THEIR INSTITUTION, AND
rHE PRINCIPLES by WHICH THEY ARE GOV
ERNFD.
(CoNTINUED.)
r. H. W
BY EDWARD KELLOGG

(CoNTGNUED,)
Formerly, all our banks were conducted
uG4ler special charters, granted 70 eacti AZ 4
thkir capital was prOicssedly all 7Pecie.
Mlre recently, several of tine States have
o. ssed General Banking Laws, under which
listed States and State stocks, and bonds
autl mortgages are substituted as part Of
c7bital stocks. To establish a bank under
tbs first system the persons desrOu5 of
bfnking petition their State government for
charter granting them the privilege. The
petition states that the bank is needed by
tho public, yet we shall see presently that IL
Is lot only for private purposes, but that it Is
to be conducted solely for the benefit Of the
stockholders. The charter, according to
laa, requires the parties, or the stockholl-
era, to furnish a certain amount OF money,
which constitutes the capitol stock. When
this is paid 10, the bank becomes an Office OF
dilcount and deposit, and is authorized by
IL, charter to issue and lend bank notes 70
circulate as money. The chartered banks 10
tba State Of New York are authorized TO
diAcount two and a half times the amount d
thHr capital that is, bank that has, say
one million of dollars paid 10 as capital
stdck, is at liberty to discount or lend to
thu people two and half millions Of dol
lass. Without bank charter, the men wlo
OSn the million Of money which constitutes
tbs capital, could lend only one million OF
dollars. In granting the charter, the lesis-
Issure grants TO these few individuals the
privilege OF charging the people seven per
ccnt interest on one and a half millions OF
liars never owned by the stockholders.
/ re bank issues bank notes bearing no 10
\ tetest, and exchanges them for the ind jrsed
ntsses OF the people, bearing interest.
fhe bank pays no interest upon deposits,
add charges interest on all the iudorsed notes
/ given in exchange for its bank notes. The
! interest upon one and half millions of dol
\ lsCs' worth Of Endorsed notes, at seven per
cent, amounts to one hundred and hve thou
sand dollars a year. This interest il paid
Oh a capital which is entirely fictitious, 80
far as the bank is concerned Ii there be
arN capital underlying this one a1i half
millions Of dolla-s, it is furnished 10 the in
d4sed notes given BY the people in exchange
fot the bank notes. The sOlvency OF the
blink for one and a ha,f millions, depends
uton the goodness of the Endorsed notes re-
ceived from The the people, and lot upon its
own capital for however safely its one mil
ign OF capital NAV be loaned, iG can redeem
bit one million liabilities. II the bank
sbSuld lose million Of dollars, by bad debts,
Or, otherwise, the entire loss would fall upon
The stockholders, for this amount is com
pTssed in the capital of the bank and, By
tbs charter, is made first liable for the losses
which NAV be sustained. But the remaining
10000 of bank-notes loaned could not
be redeemed unless the Endorsed notes re-
ce4ved in exchange for the bank notes we're
against responsible persons II the drawers
add indorsers were able to pay only part
Of:these notes, then only part or a certain
pdr ceutsge Of the bank notes could be paid
ard, II no part Of the Endorsed notes could
be- collected, the million and half Of bank
notes would be total loss to the holders
The original ST. 900, 900 of capital has lit
It'd basis Of specie, and the surplus 8 $780,
OCD, issued over and above the capital, has
nooe. The latter is based upon privilege
QT .nted BY the government to company Of
md to make bank-nOtes bearing no interest,
anH exchange them for the endorsed notes
oflthe people bearing interest. True, all
bank notes are made payable on demand in
spkcie, and if banks refuse to pay specie
tbny are liable to forfeit their charters. Bat
alt obligations between individuals, even to
bd,ok. accounts, are also legally payable 10
SPECIE and all debtors are liable to pros5-
c1lon if they refuse 10 pay their debts 10
specie. The law which requires the banks /
70 redeem their notes on demand in specie,
ne more furnishes them with specie for that \
Purpose than IL furnishes individuals with |
sHecle 70 redeem their notes and pay their
gus Nearly lnree times the whole amount 4
ot specie in the banks in the State of New
Aork' from 1889 to ls45, would have been .