The Daily bulletin., 1892-10-08
Bill No. 7s, Hawaiian Banking Act.

| have been asked to give my f,
opinion OF the Bill entitled "The
Hawaiian Banking Act" introduced
into the Hawaiian Legislature by
Noble of the Kingdom of Hawaii,
consideration of which was pending
at the date when my correspondent
wrote from Honolulu, August II,
1892.
| have some hesitation in comply
ing with this request, because it is a
matter with which l, as an individu-
al, have no concern; but inasmuch
as l have, from association and
otherwise, deep interest in the
progress and stability of the Hawai-
ian state, shall present very brief
ly my views upon this remarkable
project of law
First: it is crude, ill-digested, and
wholly unworkable.
Second: it is contradictory in its
provisions, would entail enormous
expense if the scheme were modified
to admit of even its partial working,
and provides no sufficient check |
against collusion and fraud on the
part of the public officers charged |
WlOh JhS uuly Vi bllt
proposed national loan and mort |
gage bank.
These objections should suffice to
defeat the measure if submitted to
any representative body having
business training, and no doubt
there are several members of the
Hawaiian Legislature who will point
out these and many other defects i'll
the same line. But the foregoing
are simply objections to the details
of the Bill. The main and fatal OBJ
lection is to its principle. 1t is
drawn in utter ignorance of the
principles of banking, the uses and
functions of money, and the laws or
rules of credit. No doubt it is drawn
with an honest and praiseworthy in
tent, but it is based upon the fallacy
that the state, by fiat, can make or
create money which that brilliant
financial buccaneer, John Law, used
to advance his own fortune and to
impoverish France under the Re
greny in the early part of the 18th
century. The assignats issued by
the Bank of France "made money
plentiful;" that is, it inflated values,
promoted an era of luxury and spe
culation which eliminated in the
Mississippi or West India scheme;
but it steadily drove gold and silver
coin out of France, and bore it's ripe
fruit in the French Revolution with
its attendant horrors. For when
the facts of history are calmly and
truthfully weighed, without senti-
ment or prejudice, it will be found
that the great social upheaval in
France at the close of the 18th cen
tury, which wiped out the ancient
system of government, was caused
wholly and solely by scarcity of
money and not by the excesses or
misconduct of the nobility. paper
money" was the true cause of that
political and social cataclysm.
This was in obedience to what is
known as the Gresham Law, namely,
that it is an unvarying rule of finance
that the less valuable medium of
exchange, or money, should displace
the more valuable. The French OBJ
ject lesson is too remote, however,
to be of practical value to us, al
though the French people have pro
flied by it themselves and now have
the most perfect and secure banking
system in the world; but the note
issue of the Bank of France is Sc
cured by coin reserve of cores
ponding volume. A note issue upon
any other basis is as certain to drive
gold and silver out of circulation,
and bring about financial ruin and
distress, as the rising of the sun
brings light and warmth to the
earth. The French silver note is
payable in silver. In this it differs
from the United States, which has a
large emission of paper, but which is
not protected by a coin reserve as in
the case of France. 1t is true that
the silver certificates are secured by
silver bullion deposited with the
United States Treasury, and that
the greenbacks, or Treasury notes
are secured by a gold deposit of less
was the issue of those very green
backs, to tide over temporary
financial difficulty at the beginning
of the war, which added so enor
mously to it's cost, because they
went into circulation for five years
together with two hundred and fifty
million dollars of State Bank notes
and of necessity this currency KEEP
both gold and silver out of circula
ton. The q. S. Government was
compelled in effect to purchase golC
at an enormous premium; and tc
avoid utter financial collapse in 1866
the State Banks issue was taxed tel
percent, whereupon these worthless
notes disappeared, and the Nationa
Banking system, the notes of which
are secured upon United State
bonds, was inaugurated. But whel
the war began the country was with
out money, that is, the State Banl
notes had driven all the gold ant
nearly all the silver out of the coun
try; there was practically no gold
and silver was at a premium. Whel
the "fat money" of the United State
was added to the worthless pape
emitted by local banks all over th'
Union, the effect may be imagined
At all events, it was speedily felt b,
the country, and the taxpayers arr
now suffering from it.
The National Banking system wa