Los Angeles herald., 1891-08-31
GOVERNMENT CREDIT
It Should Not Be Used in
Financial Matters.
AStudy Of the History Of Credit
in Business.
Schemes of Initiation Which Have Re-
suited in Ruin.
Can Government Credit Aid Business
Enterprises ?-Three Examples From
History-some Ideas for
nsideration.
[BY W. L. GRAVES

[BY W. L. GRAVES.
The following paper by w. L. Graves,
of the National Bank of California, was
was read at the last meeting OF the
Clearing House association:
I beg leave to call your attention for a
few minutes to the many plans ad-
vanced for procuring abundant money
for the use OF che people. The legal
govern in ali such cases proposed, should
be considered first, to-wit: Under what
law, could it be done? There is none
expressed or implied in the constitution
of the United States. Then under what
authority could it be done? An amend
ment to that effect would remedy it, say
some. While it may be true that
money could be made abundant in this
manner, what guaranty would we have
of its permanent value being main
tanned, and of its final redemp-
ton at par? We all know
that the greater the indebtedness
of any one, the less his paper is worth,
and after certain point is reached by
the government, that, although the
nominal amount would be greater, the
cash value thereof would steadily de-
cline in an inverse ratio until bank
ruptcy would stare it in the face for re-
lief. This is the natural result of
socialism. No party has succeeded in
placing reasonable ratio on the in
debtedness of a nation when once
launched upon the sea Of public credit.
Credit has to be based upon parti-
san plan. No scheme yet advanced will
enable the masses to take advantage of
it. That of land as basis of security
would only help the land owner; what
are the other classes to do? That of
cereal crops in warehouses is open to
the same objection; that of cotton the
same. As matter of justice each citi-
zen would have the same right
to mortgage his machines of
all classes and kinds, products of all
manufacturing establishments; the
stock-grower his cattle, horses, sheep
and wool; the stock-broker his bonds;
thus making the government one huge
pawnshop, and reducing us to socialism.
This would be departure from all our
ideas of government and could only re-
suit in relief by repudiation.
This opinion does not result from
want of confidence in the people, but be-
cause in all socialistic movements the
lower orders get control OF the govern
ment. As proof that the land basis
would fail, listen to the following expe-
rience by four good governments, to-wit:
England, France, Rhode Island, and the
Argentine republic.
First-That of the Land Bank act,
brought forward under William and
Mary in 1898. The bank was to be
49,, %<, <ho RonL ~ Zooruo of
Genoa, and that of Amsterdam !; the
former having existed 300 years and the
latter eighty. years. 1t was dropped in
1894, again revived in 1896 and passed,
provided it would lend the govern
ment 92,564, 900 at 7 per cent, and
half OF this sum was to be paid into the
exchequer before August 1st. 1t was to
be allowed to lend money upon land to
the full value thereof. Subscriptions to
the amount of G2l00 only were secured.
The various causes of its failure are
given in detail by Macaulay. The good
sense of the English people was the
main one.
Second-That of France in 17l8 and
1920, under the guidance of John Law.
The regent, the Duke of Orleans, was
confronted with debt of 5000, ,000, 900
livres and national bankruptcy. Law;
assured him that the prosperity of ma
tion depended entirely upon. the size of
its circulating medium; that poor Hol-
land was the richest country in the
world because of its large circulating
medium, and that France by doubling
its capital, would enormously increase
its wealth and resources, pay off it's
debts and become the richest nation in
the world. How could France double
it's capital? Easy enough argued Law;
establish bank on the basis of
all the actual property of the
nation. Law was allowed to
establish private bank, the govern
ment accepting it's bills. 1t laid the
foundation OF credit in France, being
the first bank of circulation and dis
count Being successful, the regent and
Law argued that with more money they
could attain greater success. So, in
17l8, the private bank was dissolved
and the Royal bank was established,
with Law as director-general. Says
Blanqpi, Law had conceived the idea
of "cOmbining into one common asso-
ciation all the capitalists of France, and
putting under their control as q loan all
the elements of public wealth from
landed property to the uncertain ven
lures OF colonial trade. What could be
a finer mortgage than France?" Its
first issue was 10000, 900 francs. The
Issue reached {, ,07l 900 900 francs. Its
issue of shares reached 10000, ,O00, 900
francs. In less than two years collapse
ensued and repudiation. Now, says
Blanqui, .sof all the industrial values
(. produced under the hot atmosphere of
Laws system nothing remained but ruin,
desolation and bankruptcy. Landed
property alone had not perished in the
tempest"
Tnird-That of Rhode Island in 1876.
Being burdened with debt, their trade
crippled on account of the war, and be-
ing in distress, the Rhode Island author
tiles turned to paper money for their re-
lief. Money was to be loaned on land
to the extent of one-half its value. A
bank was established authorized to is-
sue E100, 900 in paper money. This was