Green-Mountain freeman. [volume] (Montpelier, Vt.) 1844-1884, 1878-10-02
Disestablishment OF National Banks.
A correspondent writes as follows:

worth saving. as he observes. But the
main benefit to the business of the country
is that no legitimate opening is left where
by capital can be safely invested on large
scale in way 10 bring regular DIVIDENDS
of eight and ten per cent. The getting oil
such interest by the capital invested in the
national banks has had the effect TO nearly
double the rate of interest on all the lead
ing capital of the country. With that
chance cut off, and every tub on its own
bottom, interest must be lower. National
bonds will yield only four per cent. Other
borrowers will then be able to get money
Mt six per cent as easily rs they have here
lofore got it ut eight or ten per cent
the government meantime paying seven
and three-tenths to six per cent. Every
chance for sure thing and big interest
will be cut off, with the death OF tho ma
tional banks. So ut least it appears to me.
The above suggestions deserve careful
attention, for, if the views are sound,
money would be easier with the national
banks and all banks disestablished.
1t has been hitherto supposed that banks
we're a help rather than hindrance to
money borrowers. The old state banks
which were allowed the extraordinary
privilege of issuing their own notes Tor
two dollars for every dollar of capital, in
creased the loanable capital of the stock
holders 10 three times its original amount;
and, in addition, q large proportion OF the
deposits were available to loan, and these,
otherwise, would have remained in the
pockets of individuals. Did any one ever
suppose that money would have been made
easier by closing up these banks, calling
in the loans, destroying the bills and pay
ing off the stockholders in dividends that
business enterprises would have been
helped by it?
Wherein is the case different with ma
tonal banks, except that they have less
currency in proportion to their capitai' 1t
is not uncommonly said, to be sure, that
the money or capital invested in govern
ment bonds is "locked up" and if the
bonds were paid would be released and al
once seek Investment in business enter,
prises. In the first place the capital SO in
vested is not locked up at all, and the
money or currency is not put out OF the
way. If A, having bond for one thou
sand dollars, should sell it 10 B for one
thousand dollars in greenbacks, the loana-
BILE capital of the two persons would re-
main precisely the same as before Inc
transaction. And if B. inste ad OF doing
that, buys his bond Of the government, tht
money that he pays is still in existence
and is at once aid by the government iol
something not heing locked up, but ready
to perform its functions as loanabl'
capital or currency after the TRANSACTION
rs before. If the government should us'
the money to purchase bond held abroad
that would be an incident of settling day
and might, in one sense, produce hare
times, but it is not at all chargeable to TN
fact that thousand dollars has been In
vested in such bond. So far rs thu
United States is concerned it is precisely
the same as though A should take hi
thousand dollars to Europe and spend it II
foreign travel, except that this country
supposed to have received value for TIT
bond when it was first purchased abroad
But perhaps the actual case of n banl
, would better illustrate this point lie
: any national bank be taken with one hun
dred thousand dollars capital, fifty thou
sand dollars surplus, fifty thousand
loanable deposits and ninety thousand dol
; lars of national bank notes. The hundre
F.; thousand dollars in capital being investe
in government bonds, its other loanabl
funds may be said, in round Numbers
to be one hundred and ninety thousan
y dollars, (ninety thousand of which was tn
increase of loanable capital caused by tn
/. establishment of the bank, and its loan
may be placed at that figure. If this ban
concludes to go out of business, it will b
: obliged to call in its one hundred an
l. ninety thousand dollars of loans, tempori
IS rily reducing the loanable capital to thu
amount. 1t then pays fifty thousand do
lars of this to its depositors, ninety thol
sand dollars to the government to redeel
its notes, and it will have fifty thousnn
left to pay to its stockholders us dividen
on surplus account. Then the bank di
tributes the hundred thousand dolla
capital by selling the government bono
and paying over the proceeds; but if
sells these bonds somebody must BIT
them, and there will be the same amoul
i of money in loanable capital after Il
" transaction as before, and the same amou
~ invested in government bonds. The n
= result of the closing of the bank is tn
u the loanable capital of the country b;
W been reduced by the sum of ninety tho
u sand dollars, caused BY the retirement
as the bank notes. and this decrease mu
sc increase rather than diminish the rate
m interest, and make it more difficult inste;
u, of easier to start business enterprise
+. The replacing of this currency afterwar
III or during the process, by greenbacks
treasury notes, would only restore t
loanable currency to the same amount
re before the bank notes were withdraw
st even on the supposition that the COVER
' oi ment thereby paid and cancelled an equ
n amount of bonds.
e. Take another illustration. Suppose t
y. secretary of the treasury, having been a
a 'S thorized so to do, should cause an amou
he of greenbacks equal to the bank notes M
tn outstanding, or,to make it round numbe
u three hundred and fifty millions of dolla
q to be printed, and deposited in the tres
it. ury for the redemption of the nation
is bank notes, and should, on the first of ia
nary next, notify all the banks that he h
done so, and had cancelled an eql
he amount of their bonds held by him AS
ne curity for that redemption. Without loc
he ing at the justice of this transaction. wi
I'M would be its effect on the rate of intere