Chapter XIII: Section 3

But the whole is not yet told. The present "National" system is so burdened with taxes and other onerous conditions, that no banking at all can be done under it, except at rates of interest that are two or three times as high as they ought to be; or as they would be under the system proposed.

The burdens imposed on the present banks are probably equal to from six to eight per cent. _upon the amount of their own notes that they are permitted to issue_.

In the first place, they are required, for every $90 of circulation, to invest $100 in five or six per cent. government bonds.[I] This alone is a great burden to all that class of persons who want their capital for active business. It amounts to actual prohibition upon all whose property is in real estate, and therefore not convertible into bonds. And this is a purely tyrannical provision, inasmuch as real estate is a much safer and better capital than the bonds. Let us call this a burden of _two per cent. on their circulation_.

[I] At first they were required to invest only in _six_ per cent.
bonds. But more recently they have been coerced or "persuaded"
to invest sixty-five millions ($65,000,000) in _five_ per
cent. bonds. And very lately it has been announced that "The
Comptroller of the Currency will not hereafter change United
States bonds, deposited as security for circulating notes of
national banks, except upon condition of substituting the new
five per cents. of the loan of July 14, 1870, and January 20,
1872."--_Boston Daily Advertiser of February 5, 1873._

From this it is evident that all the banks are to be "persuaded"
into investing their capitals in _five_ per cent. bonds.

Next, is the risk as to the permanent value of the bonds. Any war, civil or foreign, would cause them to drop in value, as the frost causes the mercury to drop in the thermometer. Even any danger of war would at once reduce them in value. Let us call this risk another burden of _one per cent. on the circulation_.

Next, every bank in seventeen or eighteen of the largest cities--Boston among the number--are required to keep on hand, at all times, a reserve--_in dead capital_ (legal tenders)--"equal to at least twenty-five per centum," and all other banks a similar reserve "equal to at least fifteen per centum," "of the aggregate amount of their _notes in circulation, and of their deposits_."

Doubtless, two thirds--very likely three fourths--of all the bank circulation and deposits are in the seventeen cities named. And as these city banks are required to keep a reserve of dead capital equal to twenty-five per cent., and all others a similar reserve equal to fifteen per cent., _both on their circulation and deposits_, this average burden on all the banks is, doubtless, equal to _two per cent. on their circulation_.

Next, the banks are required to pay to the United States an annual tax of one per cent. on their average circulation, and half of one per cent. on the amount of their deposits.

Here is another burden equal to at least _one and a half per cent. on their circulation_.

Then the capitals of the banks--the United States bonds--are made liable to State taxes to any extent, "not at a greater rate than is assessed upon the monied capital in the hands of individual citizens of such State." This tax is probably equal to _one per cent. on their circulation_.

Here, then, are taxes and burdens equal to _seven and a half per cent. on their circulation_.

Next, the banks are required to make at least _five_ reports annually, to the Comptroller of the Currency, of their "resources and liabilities." Also reports of "the amount of each dividend declared by the association."

Then, too, the banks are restricted as to the rates of interest they are permitted to take.

Then "Congress may at any time alter, amend, or repeal this act;" and thus impose upon the banks still further taxes, conditions, restrictions, returns, and reports. Or it may at pleasure abolish the banks altogether.

All these taxes, burdens, and liabilities, cannot be reckoned at less than _eight or nine per cent. on the circulation of the banks_; a sum two or three times as great as the rate of interest ought to be; and two or three times as great as it would be under the system proposed.

And yet the banks must submit to all these burdens as a condition of being permitted to loan money at all. And they must make up--in their rates of interest--for all these burdens. Under this system, therefore, the rate of interest must always be two or three times as high as it ought to be.

The objections to the system, then, are, first, that it furnishes very little loanable capital; and, second, that it necessarily raises the interest on that little to two or three times what it ought to be.

Such a system, obviously, could not be endured at all, but for these reasons, viz.: first, that, being a monopoly, those holding it are enabled to make enormous extortions upon borrowers; and, secondly, that these borrowers--most of whom are the bankers themselves--employ the money in the manufacture and sale of goods that are protected, by tariffs, from foreign competition, and for which they are thus enabled to get, say, fifty per cent. more than they are worth.

In this way, these bank extortions and tariff extortions are thrown ultimately upon the people who consume the goods which the bank capital is employed in producing and selling.

Thus the joint effect of the bank system and the tariff is, first, to deprive the mass of the people of the money capital that would enable them to manufacture for themselves; and, secondly, to compel them to pay extortionate prices for the few manufactures that are produced.

Under the system proposed, all these things would be done away. The West and the South, that are now relied on to pay all these extortions, would manufacture for themselves. Their lands and railroads would enable them to supply all the manufacturing capital that could be used. And they could supply it at one half, or one third, the rates now required by the "National" banks. Of course, Massachusetts could not--under the "National" system--manufacture a dollar's worth for the South and West. She could not keep her manufacturing laborers. They would all go where they could get cheap capital, cheap supplies, and good markets. And then the manufacturing industry of Massachusetts, and with it the value of her real estate, will have perished from the natural and legitimate effect of her meanness, extortion, and tyranny.

Looking to the future, then, there is no State in the Union--certainly none outside of New England--that has a greater interest in supplying her mechanics with the greatest possible amount of capital; or in supplying it at the lowest possible rates of interest. And this can be done only by using her real estate as banking capital.