The Mason County journal. [volume] (Shelton, W.T.) 1886-1927, 1898-06-17
Queer Ideas about National Banks.

the CnenallS Bee as MEDIUM for eX-
pressing some queer ideas about money.
lie also makes public some still more
pe'uliar ideas about the workings of
the national bank act. He seems to
think that under that act a man may
buy bonls of the government, get
back the money hn paid for them, and
then draw the inte1e>t on his bonds
for ~ VI ars. Naturally the gentle
man is IA fatist. The combination of
ign france and vagarious thinking
which ermits man to believe the
government of the United States en-
cages IN transactions Of that kind with
It's citizens always produces a fiatist.
This gentleman SAYS that Jones, a
man with 100000, buys 3 per cent
bonds; then he starts bank and or
ders 80 per cent of his bonds in bank
notes, that is orders and receives from
the government $4,000 in good, law
full money then the government or
ders Jones to pay 100000 toits troops;
and to make him even, returns to him
$50 600 of the money he paid for its
bonds; from that time on he has only
$4,000 in the deal, and for this he
gets the interest on 100000 worth Of
bonds for period of 20 years. In The
end the government reileems 500 900
worth of bank notes held by the sol
ders and pays Jones his $4,000.
Now the gentleman is all wrong.
Jones may be smooth, but he is
daisl ii he can do up Uncle Sam in
the way the gentleman outlines
To begin with, if Jones only has
100000, he can't buy 100000 worth
of bonds and start bank, too. He
must have 100000. Secondly, if he
has only 100000 of capital, he can't
buy 100000 worth of bonds of the
United States, He will need about
1922 900. But if he is going to buy
any amount of bonds, he is also going
to pay for them. When he gets the
bonds, the government gets the money.
In it's simplicity, such a transaction
is a loan by Jones to the government,
on which the government pays A per
cent interest. nomlnally, but in fact,
approximately p per cent, for Jones
pays the government Il big premium,
/ and he gets no interest on the pre-
MUM, Tor even gets it back.
When Jones goes into the banking
business, that is new transaction. 1t
/ has nothing to do with the other, and
affects it only in one way. 1t makes
| Jones' investment in government
| bonds less remuneratlve than 1T was
before. Out of the interest on the
| bonds must come certain expenses,
snch as the tax on circulation; the
fees of bank examiners and attorneys,
transportation, etc.
When Jones becomes a national
bank proprietor, he is permitted to
issue bank notes, which circulate as
money, but are not legal tender to the
extent of 80 per cent of the face value
of bonds deposited with the govern
ment. The bonds go out of his hands.
They are put up as collateral. Jones
gels them back if he redeems his notes,
but if he does not or cannot redeem
them, the government does so, and
Jones and his bonds part company.
II Jones starts a bank which is re-
ouired to have 100000 of bonds to
secure it's circulation, his dealings with
the government affect his pocket book
precisely as if he had taken $122O 900
in gold to the treasury and lett 1t
there. with an understanding that the
government should pay him about 3
per cent annually on 100000 for 20
years; that AT the end of ~ years he
should receive back 100000 only !;
and that during the 20 years he should
have the privilege of issuing $9O,Ooo
of bank notes. Manifestly, he would
have made more money out OF his
bonds if he had stayed out of the bank
ing business. And if it were not for
tine consideration that a national bank
as a rule has and in most states is en-
titled to, fuller confidence of the pub
lie than private institution, he would
have made more money out OF the
banking business If he bad had nothing
to do with the bonds and the clrc ula-
ton.
The natl, nal hank act is govern
ment device for charging the clrculat-
ing medium. Its practical effect Is To
convert bonds of the government into
notes that circulate as money. 10 Sc
cure the holders of these notes from
loss to the government guarantees
their payment, but first secures Itself
by requiring the bank issuing them to
deposit as collateral security It's OVID
bonds 10 an amount in excess of the