Financial dependence

“ Under this system all the various revenue officials and tax assessors and gatherers would be dispensed with, and a vast system of economy inaugurated, which, in a few years, would transpose us from a borrowing to a loaning nation, making us the financial example for all the world. ”

“ In the course of my task I shall describe such parts of the general financial structure as will place my readers, especially those unfamiliar with its more complicated conditions, in a mental state to comprehend the methods by which the savings they think are safely guarded in the banks, trust and insurance companies, are so manipulated by the votaries of frenzied finance as to be in constant jeopardy. ”

“ The objections usually urged against credit-money are considered and found untenable, the claim that interest naturally accrues to capital is disputed at each successive stand-point, and in the concluding remarks an explanation is given of the present excess of supply over the demand of commodities and service, confirming the conclusion that the correction of this abnormal state is contingent upon the financial measure suggested. ”

“ Is it for the best financial interest of the company to borrow on short or long time, to create a floating or a funded debt, etc.—these points require consideration and can, of course, be answered only in the light of the conditions prevailing in each case as to the status of the working capital requirements. ”

“ The entire case may be presented by the statement that the day of sensible and sound financial methods will not dawn upon us until our Government abandons the banking business and the accumulation of funds and confines its monetary operations to the receipt of the money contributed by the people for its support and to the expenditure of such money for the people's benefit. ”

“ Now this group in the past through their control direct or inter-related has been able to dominate the centers of credit, the money loaning institutions, such as the great banks and insurance companies. By this means they have been in a measure able to keep to themselves the great industrial exploitations dependent on the ability to finance in the hundreds of millions. More, they have been able to limit to narrow fields such men as myself and other newcomers, who wish to rise to the same financial advantage. ”

“ But the interest on loans, public and private was only a small fraction of the burden of usury imposed upon the wealth producing masses. All the large industrial, financial and commercial enterprises of the country were on a debt-creating basis. Stock companies owned the railroads of the country; the streetcars, waterworks, gasworks and electric light and power plants of the cities; all the great manufacturing, mining and commercial enterprises ”

“ So this financial reform refocuses the financial sector on what’s really important: getting capital to entrepreneurs who want to grow their businesses, and financing to millions of families who want to buy a house or send their kids to college. ”

“ Under a disastrous financial system our income had been reduced to three thousand ducats; yet I could not comprehend how we were in such straits as she had described. When people were unable to maintain a decent state in the capital, they could live at ease in the country at one-third of the same cost. Houses ought to be let, and not sold. Still my father had the power to make any contract he thought right ”

“ Two such economies will be of infinite value to the people, whose riches will be proportionally increased. In the development of wealth, next to making money is saving money.
Bearing these things in mind, Financial Reconstruction is relieved of its difficulties. It only remains to find the proper machinery or process. And here we encounter the propositions of the Secretary of the Treasury in his Annual Report, [209] which are threefold:—
1. To refund twelve hundred millions of six per cent. Five-Twenty bonds in four and a half per cent. ”

“ Under the operation of the present system, by which prices are constantly falling and money is constantly increasing in value, the surplus earnings of the people are flowing in a steady stream into the vaults of money-lending institutions, and into the pockets of creditors. ”

“ Interest upon capital must be charged, and risk of fluctuation in the value of that which is to be received in payment added. Hence high prices, acting as a protection to the foreign producer, who receives nothing in exchange for the products of his skill and labor except a currency good, at a stable value, the world over It seems to me that nothing is clearer than that the greater part of the burden of existing prostration, for the want of a sound financial system, falls upon the working man, who must after all produce the wealth, and the salaried man, who superintends and conducts business. ”

“ If the whole or any part of that income be saved, so much new capital is generated,—the infallible operation of which is to lower the value of money, and consequently to conduce towards the improvement of public credit. ”

“ Next, my Remedy will benefit that great middle class whose savings go to make up the billions in the savings-banks, national banks, trust and insurance companies, which are used by the "System" to secure for themselves a hundred, a thousand, and ten thousand per cent. interest on their capital, while the owners of these billions must be content with two and a half to four per cent. per annum ”

“ I've practically no capital to enlarge the business, and I don't care to mortgage what I have and pay a high rate of interest when, just at the critical moment, we might have a commercial crisis and I would then lose everything. ”

“ The chief work of money and credit is done in, and because of, "transition periods." Assume a normal equilibrium accomplished, and you have little trading left to do. It will still be necessary, if you have the division of labor, and private enterprise, for goods to pass through as many different hands as there are different independent enterprisers in the stages of production, and on, through merchants, to the consumer. It will still be necessary to pay wages, rents, dividends and interest. ”

“ Running through the above statement of the independent doctrine of finance, we see that three ideas are most prominent. First, a desire that the government supersede avaricious man and blind nature in the creation and distribution of money, in order that money may be a stable purchasing power. Second, a determination that money shall no longer be a commodity to be bought, and sold, and manipulated, a leech upon labor in the hands of a few, but a convenience of trade, accessible to the many at first cost. ”

“ In other words, a low rate of interest, instead of being, as Child imagined, a cause of national wealth, by which he meant the accumulation of capital, might more truly be said to be a consequence of such accumulation ”

“ The preceding account will, I fancy, help to shew what is practicable, taking things as they are, in borrowing money for public uses. It proves, that the nation loses greatly by the low price of all capitals bearing a higher interest than 3 per cent. ”

“ In finance the most striking effect in America has, on the first view of it, certainly been good. It has enabled the Government to obtain and to keep a vast surplus of revenue over expenditure. Even before the civil war it did this—from 1837 to 1857. ”

“ But is it nevertheless true that, during the whole of the interval between the creation of the capital of $100 and its reduction to a sum not greater than that of the annual revenue appropriated to its redemption, there will be a greater active capital in existence than if no debt had been contracted. ”

“ First, Is it not self-evident, that any financiering operation, which reduces from 5 to 4, the interest of a national debt, deprives as well the lender of the fifth part of his comforts, as if the nation had loaded herself with ten millions more, to be paid annually? ”

“ The rate of interest, which the capitalist will demand, will depend upon a variety of circumstances, and especially upon the risk of loss attendant upon the loan-in other words, upon the character of the security offered by the borrower for the payment of the loan. ”

“ Where there were many banks keeping their own reserve, and each most anxious to keep a sufficient reserve, because its own life and credit depended on it, the risk of the Government in keeping a banker would be reduced to a minimum. ”

“ Therefore, for the sake of public enterprise in its manifold forms, for the sake of that prosperity which depends on human industry, for the sake of manufactures, for the sake of commerce, and especially for the sake of railroads, by which all these are quickened, we must do what we can to reduce the general rate of interest, which is now such a curb on enterprise; and here we must begin with our own bonds. ”

“ At the worst, too, the nation would not dock me of more than half my income, so I should still be as well off as before my investment, and in the meantime I shall be drawing a double income until the catastrophe arrives. A nation doesn't become bankrupt more than once in a century, so I shall have plenty of time to amass a little capital out of my savings. ”

“ This is real humbuggery; and for which the industrial classes—the whole working population, have to pay an enormous price. Does any one calculate the cost to the people of banking in our country? how many costly edifices have to be built? what an army of officers have to be maintained? what daily expenses have to be incurred? how many stockholders must get profits? in a word, what a vast sum a bank lays out before it begins to make its half yearly dividend of four or five per centum, leaving a surplus—all to come out of the productive classes of the people? ”

“ It has already been shown that capital, saved by thrifty folk, is essential to industry as society is at present built and worked; and the financiers are the people who see to the management of these savings, their collection into the great reservoir of the money market, and their placing at the disposal of industry. ”

“ The conversion of their Public Debt by many of the countries in whose Securities the funds of the Establishment had been invested, has greatly diminished its revenue, and necessitated an economy of expenditure much to be regretted. ”

“ The whole amount of our national riches—the capital of this and of every other country—has been formed by the same slow but certain process of individual savings, and the accumulations of savings, stimulating new industry, and yielding new accumulations. ”

“ It is clear, that when the rate of interest is increased, the gains of money-lenders are augmented, and the money gained will buy a greater quantity of property and [Pg 90] labor. The increased gains of the lender must be paid by the borrowers, by the productions of their own or of others' labor. ”

“ But though a funded debt is not, in the first instance, an absolute increase of capital or an augmentation of real wealth, yet by serving as a new power in the operations of industry it has, within certain bounds, a tendency to increase the real wealth of a community, in like manner as money borrowed by a thrifty farmer, to be laid out in the improvement of his farm, may in the end add to his stock of real riches. ”

“ When the treatment of a man's business surplus is spoken of as an investment problem, it is meant, of course, not his working capital, which should be kept in liquid form for immediate needs, but that portion of his surplus which is set aside for emergencies. ”

“ We need to make sure that the valve of aggregate monetary supply is well controlled, maintain moderate growth in M2 money supply, credit, and aggregate financing, ensure a reasonable, stable level of liquidity, and increase the proportion of direct finance, particularly equity finance. ”

“ When insisting that we needed more currency, they evidently did not consider that during a crisis business contracts itself; that people reduce their expenses; that demand falls off, and thereby production is necessarily discouraged; that capital becomes more than ordinarily timid in its investments; that enterprise grows very circumspect, and confines itself to the safest ventures ”

“ These loans, being drawn from capital (in lieu of taxes, which would generally have been paid from income, and made up in part or altogether by increased economy) must, according to the principles we have laid down, tend to impoverish the country: yet the years in which expenditure of this sort has been on the greatest scale, have often been years of great apparent prosperity: the wealth and resources of the country, instead of diminishing, have given every sign of rapid increase during the process, and of greatly expanded dimensions after its close. ”

“ For, in my pictures of the three main phases of “finance”—the industrial, the life-insurance and the banking—he, as arch plotter in every kind of respectable skulduggery, was necessarily in the foreground. My original intention was to demolish the Power Trust—or, at least, to compel him to buy back all of its stock which he had worked off on the public. I had collected many interesting facts about it, facts typical of the conditions that “finance” has established in so many of our industries. ”

“ From the gross profit has first to be deducted as much as will form a fund sufficient on the average to cover all losses incident to the employment. Next, it must afford such an equivalent to the owner of the capital for forbearing to consume it as is then and there a sufficient motive to him to persist in his abstinence. ”

“ Such deficits may be covered either by being regarded as a part of the investment and included in the capital upon which interest is allowed, or they may be carried until they can be written off when the earnings have so grown as to leave a surplus above a reasonable return on the investment that is large enough to permit it. When capitalized, they become a permanent charge on the consumers. ”