$293

$41,987,643

CHAPTER XXIX.

BANKS AND MONEY.

"The basis of our currency is not gold, but the nation's honor, guaranteed by the national loyalty and the general interests of its members."-Hon. M. Anderson.

FARMERS NEED CHEAP MONEY-LEGISLATION CONTROLLED BY CAPITALISTS-FARM-
ERS AND LAWYERS IN CONGRESS--EXEMPTION OF BONDS FROM TAXATION--RATE
OF INTEREST A TEST OF PROSPERITY; OF CIVILIZATION-BANKS AND BANKING--
SAVINGS BANKS--PAPER PROMISES MADE LEGAL TENDERS-PROF. BONAMY
PRICE ON CRISES AND PANICS-ENGLISH CO-OPERATIVE ASSOCIATIONS AS FINAN-
CIAL SUCCESSES.

It has been a favorite theory that the farmer should leave the after-management of his products to other classes of society, especially gifted by nature and qualified by special education and opportunities to deal with them to the best advantage for him and for themselves.

We will judge of the correctness of this principle by its results. The British "Fortnightly Review" thus clearly and impressively states the problem, as it looks from that point:

In this complex industrial system, wealth has discovered the machinery by which the principal, in some cases the whole results of common labor become its special perquisites. Ten thousand miners delve and toil, giving their labor, risking their lives; ten masters give their direction, or their capital, oftenest only the latter. And in a generation the ten capitalists are rioting in vast fortunes, and. the ten thousand workmen are rotting in their graves or in the workhouse. And yet the ten thousand were at least as necessary to the work as the ten. Yet more, the ten capitalists are practically the law-makers, the magistrates, the government. The educators of youth, the priests of all creeds, are their creatures. Practically they make and interpret the law-the law of the land, the law of opinion, and the law of God. They are masters of the whole of the social forces. A convenient faith has been invented for them by moralists and economists, the only faith which in these days they at all believe in--the faith that the good of mankind is somehow promoted by a persevering course of selfishness; that competition is, in fact, the whole duty of man. And thus it comes that in ten thousand ways the whole social force is directed for the benefit of those who have.

The farmers are by far the largest class of our population, but are they the most prosperous? Is it not well to inquire what it is that retards their prosperity, and prevents them from exercising a proportionate influence over the public policy of the country?

LACK OF REPRESENTATION.

413

By reference to the table on page 73, it will be seen that nearly one half of our people are agriculturists; and that there were in 1870, 41,106 lawyers in the United States. It is not extravagant to say that the latter have exerted more practical influence in public affairs than the whole body of farmers.

For instance, we have in Congress one hundred and ninetyeight lawyers and thirteen farmers, or one lawyer to about two hundred of that profession, and one farmer to about one hundred and thirty thousand land-owners or independent agriculturists. It is a fearful commentary upon the working of our government, that the great producing arm of the country is so feebly represented; but the fault and the remedy is entirely in themselves. Prof. Perry says, "there is no objection to raise to lawyers; they are a useful class of men; but there is a decided objection to allowing a mere handful of them representing another mere handful of powerful clients, to shape and mold the policy of forty millions of people. That is only a republican form of government, in which they who are intrusted with political franchises, exert an influence somewhat proportionate to their numbers."

The producing classes will have little or no ability to turn the current of legislation in their own favor while their representation is so small; and it is not arraying one class against another, to say that this should be changed in order that justice may be done. I believe that what is best for the laboring men of this country, is the best for all classes, and best for the local, state and national governments, as gatherers of taxes.

Now, as the farmer needs to know what he wants, and how to get it by a more adequate representation, so also he needs to know something of the methods of business, in order that he may not be at the mercy of others.

One of the greatest wants of farmers in all portions of the West, as well as the business men, is, more money at low rates of interest. We have seen elsewhere that one of the questions met by our State Grange was a remedy for the high rates on this coast. The legislation of the country has been under the control of the eastern capitalists who have got the lion's share of the present bank circulation. The patriotism which submitted to the payment of six per cent. interest, gold, upon United States bonds, exempt from taxation, as a war measure,

will not cover the payment of about $800,000,000 premium, in gold, to the holders of those bonds in time of peace.

Language more forcible than elegant, has been used in the meetings of the Western State Agricultural Societies on this subject, and without regard to other burdens of taxation from which the wealth of the country manages to escape. "When the people of the country get to understand how they have been compelled to pay tribute to capitalists, and how the capitalists have controlled the legislation of this country, by bribery and corruption, and by munificent gifts to men whom they expected to work in their interest when in power; the driving out of the ancient money-changers from the Temple will be a mild affair in comparison with the kicks and cuffs they will receive from an outraged people."

A low rate of interest, then, is a gauge of the farmer's prosperity. The "New York Merchant and Banker" acknowledges it to be the test of civilization:

What is the best criterion of the degree of civilization to which a people has attained? Some promptly answer, "The proportion of those who can read and write in the total population;" but this will not serve, for census figures are not always reliable, and literary instruction by no means secures commercial or political intelligence and prosperity. Others will say, "the relative wealth of countries; but this is very difficult to determine, and if ascertained, the more important inquiry remains-in which countries is that wealth increasing, and where is it growing less? Others still will name the degree of religious devotion, the extent of virtue, the development of learning, the culture of art and science in various lands; but neither of these is practically available as a standard, since before it can be so applied, it must itself be quantitatively determined.

It then states that there is, however, a test quantitative in its nature, self-determining, and for the most part readily ascertained. It is the average rate of interest actually paid for loans on good security. Not, of course, the rate sanctioned by law; for the only relation of this rate to that actually paid, is commonly a tendency to heighten the latter by increasing the risk of the loan. The rate of "pure interest" does not greatly differ in different countries, and is not far from four per cent. The amounts demanded or offered and actually paid for loans above this rate, consist mainly of premiums of insurance on the risk the lender considers himself to take when he puts his property out of his possession. When it is remembered that confidence is a plant of slow growth; that it is developed by long experience, and very quickly and easily destroyed, and that its development to such a point that premiums on risks of loan are nearly nothing, means that commercial practice and legal administration have convinced property-holders by experience that their property is secured to them through business honor or through

AMERICAN BANKING SYSTEM.

415

the aid of law; when these great and grave facts are borne in mind, it is clear that the countries where interest rules lowest are the most civilized. The fall in the rate when a state of thorough security to property, (which means personal liberty, commercial integrity, and honest government,) has been developed, hastened and furthered by the immigration of capital from less civilized countries. To the land where he learns that his property will be secure, the owner in a country where he feels that his tenure of it is unsafe, sends that property for investment; and the monetary centers of such lands overflow with capital seeking investment at rates astonishingly low, for the sake of the security expected. Hence, for all proper enterprises in such a nation, capital is readily obtainable at a price that permits a development of her resources, compared with which the plausible schemes that politicians propose for government to execute, are as puerile as they are futile.

It then argues that there is one important lesson to be deduced from these facts, viz: That every one in the community, and every law-maker especially, can help or hinder among ourselves the development of such a condition. Every man who faithfully pays his debts and lives an honest life, helps to develop a great civilization, and renders real service to his country. Every man who commits fraud or robbery, does more to destroy confidence, to increase the rate of interest, and to retard civilization, than two honest men can do to help it on. Every law that practically protects men in the possession of their own, operates to lower interest and build up civilization; but every law that operates to make it less securetariffs, legal-tender acts, etc.-raises the rate of interest, and postpones the advance of civilization.

The application of this test to our civilization does not give a flattering result, and we must look into the reason. Five per cent. is thought by good judges to be all that the producing classes can afford to pay, and is more than they make, on the average, out of their capital invested in farming. "So long as money-lenders receive a larger income on loans than can be realized out of real estate, money cannot be obtained at a reasonable rate of interest. There is surely no good reason why strips of paper, called money, should bring a larger income than the same amount of money will bring when invested in almost any productive industry.

A look into our American banking system will not be unprofitable to the farmers of California; but first let us find out what banks are, and how they originated.

The word bank comes from the Italian for bench; the Lombard Jews of Italy, who were the first money-lenders in Europe, having been accustomed to transact their business on benches in the market places. When one of these men was detected in