Mountebank

“ And all persons concerned are hereby desired to take notice of, and to suppress all mountebanks, rope-dancers, prize-players, ballad-singers, and such as make show of motions and strange sights, that have not a licence in red and black letters, under the hand and seal of the said Charles Killigrew, Esq. master of the revels to his majesty;” and in particular it requires them to suppress two, one of them being “Thomas Teats mountebank,” who have no licence “that they may be proceeded against according to law.” ”

“ A Scotchman of the name of Paterson had some years previously suggested the plan of a national bank, by which the Government should obtain some of the advantages of the banker, and the public, while gaining the convenience of cheques, should have a better security than private goldsmiths offered. This scheme Montague now adopted. He borrowed rather upwards of a million, and formed the lenders into a banking company, allowing them to treat the loan to Government as part of their capital, the interest of which, secured upon taxes, gave them the requisite supply of ready money. ”

“ In the discussions which arose it was often unclear whether it was expected that all notes should be equally valuable at all places, or at all times, or all equal to each other. The only realizable equality was that all should be brought up to specie at the place of issue and redemption, and in that sense, be equal to each other. The more intelligent demand on the Bank was that it should make its own notes a universal currency, and force the local banks everywhere to keep theirs up to par with those of the Bank. ”

“ In our national bank system bonds, as circulating evidences of a government loan, are bought and deposited, and the notes issued upon them may properly be regarded as constituting an internal core or permanent part of the total circulating medium of the country, with a provision for cash redemption upon the variable margin.
This system of currency has put an end at once and forever to the old banker's trick of expansion and contraction. The present generation knows of that trick hardly by tradition. It is now complained that the national bank note currency is not elastic. That is very true. ”

“ In this way the Bank of England, perhaps the strongest bank in the world, had its beginning. Montague carried out another reform, very much needed at that time. The coin of the realm had become so worn and clipped by dishonest men, that a shilling was often worth no more than sixpence. The rich people did not feel this much for they took the coins at what they were really worth; but poor men had little choice, and their wages were often paid in this debased coin at its face value, while the coins they gave for what they bought were taken by dealers at sometimes less than their true value. ”

“ He is to have the custody of the plates and paper, and to replace worn out notes, the cost being assessed on the banks, and each bank is to have the interest on its bonds as long as it pays specie; but if, in New York for four weeks, the bonds fall below the value at which they were deposited, the interest is to be retained to make good the deficiency. Any insolvent bank is to be wound up by a receiver and the securities sold to pay the notes. All the stockholders of a bank may not be liable to it, in the aggregate, for more than three-fifths of its capital. ”

“ Can the national banks be called a monopoly? Monopolies are exclusive, and national banking is free to any person in the land who has money to invest. There is, then, a monopoly of which everybody can become a party and beneficiary. There are at present 208,000 shareholders in the national banks in the United States. More than one-half of them hold shares to the amount of $1000 and less. They are presumably people of limited means, who have thus invested their little surplus. And any five of you, if you can raise the necessary capital, may, under the laws, organize a national bank. ”

“ In this "Plan" he maintained that the general government ought to agree to pay the interest of the public debt in coin, and that the notes of the national bank ought to be payable on demand in six per cent. stock at par, or in specie at the option of the institution. The national bank ought to have no branches, but to be the bank of the banks. The notes of all the banks in any one State should be made convertible on demand in the notes of one designated central bank, and the notes of these chief State banks ought to be redeemable in notes of the national bank. ”

“ It comes to be believed that bank notes have a substantive existence, that they, on which interest is obtained, are not like the notes of individuals, on which interest is paid; in short, that they are money, perhaps even capital.
The view of notes as supplanting specie to an exactly equal amount is what is called the "currency principle." According to it the note issuers have a monopoly privilege and strive with each other for shares in a quantum of gain which cannot be surpassed. ”

“ Originally the business of banking consisted only in receiving deposits, such as bullion, plate, and the like, for safe-keeping until the depositor should see fit to draw it out for use, but the business, in the progress of events, was extended, and bankers assumed to discount bills and notes and to loan money upon mortgage, pawn, or other security, and at a still later period to issue notes of their own intended as a circulating currency and a medium of exchange instead of gold and silver. ”

“ In times when business was good and money plentiful, this arrangement worked very well, but when periods of business depression arrived and money became scarce every small bank naturally drew upon its reserve deposits in the larger banks, which found difficulty in paying them all at the same time. Moreover, it was found from experience that during times of business prosperity the country needed a large increase in paper money while the national banking system, as established in 1863, proved too rigid to meet the business needs of the country. ”

“ It was only after the debt was paid and the surplus revenue began to accumulate that the attraction of this bonanza overcame prudence and good sense. The popular sentiment now swung over again to a mania for banks. Each district wanted a deposit bank so as to get a share in the stream of wealth which was expected to flow from the public treasury. If a deposit could not be obtained, then a bank was formed in order to participate in the carnival of credit and speculation; for a non-deposit bank had the advantage of being bound by no rule. ”

“ There was one cashier in a bank who had "utilized" about three of the many thousands he had access to, an innocent and underpaid stenographer in Weston & Hill's office who persuaded her widowed mother to draw her all from the savings bank and buy Rockhaven, and scores of small investors, trustees for estates; and even sane business men, lured by the early and unexpected dividend and anxious to share in the rapid advance, bought, what they at heart feared was worthless. ”

“ If bonds were to be sold, it might act as financial agent to market them. If it bought them itself, it would lock up its capital and become a canal or railroad company, not a bank. It might make temporary advances before stocks were sold or taxes collected; but if the bank was to stay sound, these must run but a short time and payment must be strictly secured. If banks were used otherwise than in these limits, they and the improvements must all fail together. This is what happened. The Bank of the State engaged at once in a supply of capital for speculative operations at Alton. ”

“ This same movement toward concentration has taken place in the banking business; and here the point is certainly, not that one man or a few men own a main share in the banks, but only that a few men are put in charge of a group of financial institutions for the sake of organized management. In this way the public is more uniformly and systematically served, and the banks are more secure, by reason of their mutual co-operation. ”

“ Some of the big banks are agents for one or two thousand institutions, and there's the keenest kind of struggle going on. It's not an easy thing to follow, of course; but they offer all kinds of secret advantages—there's more graft in it than you'd find in Russia.”
“I see,” said Montague.
“There's only one thing about which the banks are agreed,” continued the other. “That is their hatred of the independent trust companies. You see, the national banks have to keep twenty-five per cent reserve, while the trust companies only keep five per cent. ”

“ The complaint is that the Eastern States have an undue amount of national-bank circulation, and therefore enjoy in a measure a monopoly. I admit this to be true. I will not discuss here the system of banking in all its aspects, but I will inquire how far the establishment of more national banks of issue in the West and South will remedy the real evil complained of—which evil consists in a lack of loanable capital there. If the remedy proposed is to serve any good purpose at all, then the establishment of new national banks of issue must increase the available amount of loanable money. ”

“ But the bankruptcies which followed the closing of the Exchequer by the Cabal had shaken public confidence in the goldsmiths, while the dread of a restoration of James made these capitalists appear shy of the Ministers' appeals for aid. Money therefore could only be raised in scanty quantities and at a heavy loss. In this emergency Montague came forward with a plan which had been previously suggested by a Scotchman, William Paterson, for the creation of a National Bank such as already existed in Holland and in Genoa. ”

“ There might be no bank with less than $1 million capital, and no notes under $5; if any bank suspended for ten days, its charter was to expire; one-tenth of the capital must be paid in in specie before beginning; every bank, within one year of its beginning, must invest ten per cent. of its capital in bonds of the State, and also ten per cent. of any capital subsequently paid in; it must also save two per cent. of its net gains every year and invest them in State bonds, as a contingent fund. ”

“ Niles became convinced that there was such a scheme, and in the following April he said: "To speak plainly, let who be offended that may, let any power be exerted against us that can, we express an entire conviction of the belief that certain great proprietors of the stock of the Bank of the United States, with other speculators having a powerful influence on money affairs, aided perhaps by certain officers of government, are enrolled for a common exertion to bring about a suspension of specie payment by the establishment of a paper medium." ”

“ The jealousy of the rural population in respect to banks led them to insist on inserting in bank charters a provision that a certain fraction of the capital should be loaned on mortgage of land. We shall presently see the antagonism, which here arose between parts of the same State, marking the relations of parts of the Union.
We observe that a bank was conceived of primarily as a means of creating wealth. Every one wanted a share in its beneficent operation. If the Legislature created it, all the people ought to participate in its blessings. ”

“ With the Bank of England thus acting as a centre to the system, there has grown up around it a circle of the great joint stock banks, which provide credit and currency for commerce and finance by lending money and taking it on deposit, or on current account. These banks work under practically no legal restrictions of any kind with regard to the amount of cash that they hold, or the use that they make of the money that is entrusted to their keeping. ”

“ One of the chief subjects of complaint was that the national banks get double interest on their capital. Every bank of issue gets double interest on its capital, minus such deductions as must be taken into account for taxes, specie reserve, and so on. If the bonds must be bought at a premium, and only 90 cents on $1 of their par value can be obtained in circulation, the deductions are so important that the special advantages of being in the national system are very slight. ”

“ Property, produce, stock, farming utensils, everything which the people of the country were tempted by advanced prices to dispose of, were purchased and paid for in paper, which was known by the utterers to be absolutely valueless. Large amounts of notes were hypothecated for small advances, or loans of specie, to save appearances. Quantities of paper were drawn out by exchange checks—that is to say, checked out of the banks by individuals who had not a cent in bank—with no security beyond the verbal understanding that notes of other banks should be returned at some future time. ”

“ Then suddenly, like a thunderbolt, came tidings that a conference of the big bankers had decreed that the young Lochinvar should be forced out of his New York banks. There were rumours that other banks were involved, and that there were to be more conferences. Then a couple of days later came the news that all the banks of Cummings the Ice King were in trouble, and that he too had been forced from the field.
Montague had never seen anything like the excitement in Wall Street. Everyone he met had a new set of rumours, wilder than the last. ”

“ It is impossible for us to picture the ruin and distress that followed, the effects of which are still remaining. It is said, and we presume correctly, that in one county of this State there were $100,000 of the bills of the Farmers' Exchange Bank in circulation at the time it failed, and probably in the State there were $400,000 or $500,000, all of which, after being bartered at various discounts, became a total loss to the last holders, which, in most instances, were the poorer and less informed parts of the community. ”