Pawn (finance)

“ But besides the impossibility of paying the interest of the funded debt in cash, there are many thousand persons, in London and in the country, who are holders of bank notes that came into their hands in the fair way of trade, and who are not stockholders in the funds; and as such persons have had no hand in increasing the demand upon the bank, as those have had who for their own private interest, like Boyd and others, are contracting or pretending to contract for new loans, they will conceive they have a just right that their bank notes should be paid first. ”

“ Under the operation of a shrinkage in the volume of money this enormous mass of borrowers, at the maturity of their respective debts, though nominally paying no more than the amount borrowed, with interest, are, in reality, in the amount of the principal alone, returning a percentage of value greater than they received—more than in equity they contracted to pay and oftentimes more, in substance, than they profited by the loan. ”

“ During this time there is money invested in these products, that is, capital is required. The local banker is called upon to help finance the purchases. The elevator company or fruit company has some capital, he depends upon borrowing for more. The banks when commodities are freely moving are frequently severely taxed to furnish the required money for the movement of crops. The banks at the terminal markets are also stressed for they are furnishing money to the buyers there, and the export commodities are paid for by money from abroad. ”

“ This sum—four hundred millions, so vast in those days, was issued in assignats, which were notes secured by a pledge of productive real estate and bearing interest to the holder at three per cent. No irredeemable currency has ever claimed a more scientific and practical guarantee for its goodness and for its proper action on public finances. On the one hand, it had what the world recognized as a most practical security,—a mortgage an productive real estate of vastly greater value than the issue. ”

“ Then according to the laws of supply and demand, the price of money rises, which means that the rate of interest for short loans, from a week to three or six months in duration, is increased. The bubble goes on growing, until the more venturesome and unscrupulous speculators have borrowed many times as much money as they themselves really possess. Credit is said to be greatly extended, and a firm, which perhaps owns a capital worth ten thousand pounds, will have undertaken to pay two or three hundred thousand pounds, for the goods which they have bought on speculation. ”

“ Twenty times the interest is equal to the capital. The accumulation of paper money in England is in proportion to the accumulation of the interest upon every new loan; and therefore the progress to the dissolution is twenty times slower than if the capital were to be emitted and put into circulation immediately. ”

“ The funding system is not money; neither is it, properly speaking, credit. It, in effect, creates upon paper the sum which it appears to borrow, and lays on a tax to keep the imaginary capital alive by the payment of interest and sends the annuity to market, to be sold for paper already in circulation. ”

“ And what a burden his camel carried—flour-mill, saw-mill, ash- factory, farms, a general store, lime-kilns, agency for lightning-rods and insurance, cattle-dealing, the project for the new cheese-factory, and money-lending!
Money-lending? It seemed strange that Jean Jacques should be able to lend money, since he himself had to borrow, and mortgage also, from time to time. When things began to go really wrong with him financially, he mortgaged his farms, his flour-mill, and saw-mill, and then lent money on other mortgages. ”

“ He gets back no more control over present income, but he gets a purchasing power over a greater amount of deferred income. Had he invested in land at the start, instead of lending, the rise of interest would have left him with the same amount of land, but a less value. As it is, he gets back a purchasing power over a greater amount and the same value of land. An accident has made the lender better off than he expected, and better off than he would have been had he invested instead of loaning. ”

“ It is not a part of the "cost of construction." The money provided for working capital at the outset is not a permanent investment, but is rather a temporary loan paid back out of earnings. The writer fails to perceive any possible argument in favor of adding such an item to the permanent value of the property. In making an appraisal, after the physical value is determined, it is usual to set up a statement of stores, supplies, fuel, and cash on hand, and working capital is certainly shown by the current balance sheet, in the form of cash or accounts receivable. ”

“ When money is increasing in volume and decreasing in value, prices rise, and its investment in productive enterprises becomes more profitable, and as a consequence interest rises. When it is decreasing in volume and consequently increasing in value, prices fall, investment in property and productive enterprises become precarious and unprofitable, and, as a consequence, it avoids them, and seeks investment in bonds and gilt-edged securities, aptly termed "money-futures," which for years have been increasing and continue to increase. ”

“ 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. ”

“ Looking at credit extension and its use for purposes of capital as a whole, the outcome which presents itself most strikingly at a period of liquidation is the redistribution of the ownership of industrial property incident to the liquidation. The funds obtained on credit are in great measure invested competitively in the same aggregate of material items that is already employed in industry apart from the use of loan credit, with the result that the same range of items of wealth are rated at a larger number of money units. ”

“ Then I bid more and more; but Carew will neither sell nor let; and my money grows and grows in vain. I tell you I have laid by a fortune only to pour into his hand. It is ready for him to-night; there would be no haggling, no asking for time—it would be paid him in hard cash. How long, thought I, will this madman balk me with his whim? He will die some day in his cups, or break his neck in hunting, and I shall surely come in with my offer to his heir, and have my way at last, and win my prize. But now, after all my patience and my pains, I am overmatched by a Parson and a Boy. ”

“ A widow, or a trustee, or other long-time investor, would prefer to buy bonds which guaranteed a regular yearly purchasing power over subsistence, rather than those which merely promised a given sum of money of uncertain value. ”

“ The lending of money without interest, was very common, before the introduction of trade and industry. Money then was considered as a barren stock, incapable of producing fruit; and whenever the quantity of it, in any country, exceeded the uses of circulation, the remainder was locked up in treasures. In that light, the exacting of interest for it appeared unreasonable.
Things are now changed: no money is ever locked up; and the regular payment of interest for it, when borrowed, is as essential to the obtaining of credit, as the confidence of being repaid the capital. ”

“ Pitt's life, supposing him to live the usual age of a man. How much sooner it may fall, I leave to others to predict.
Let financiers diversify systems of credit as they will, it is nevertheless true, that every system of credit is a system of paper money. Two experiments have already been had upon paper money; the one in America, the other in France. In both those cases the whole capital was emitted, and that whole capital, which in America was called continental money, and in France assignats, appeared in circulation ”

“ By this method the farmer gets all the advantages of the money market if money is tight—the rate of interest goes up and the price of the Pfandbriefen go down when money is abundant and interest rates low the price of Pfandbriefen go up. The farmer through his bank watches the money market and takes advantage of the low points in interest rates to secure his loan, and once made he is safe from having his loan called in or his interest rate raised. ”

“ In each case the money producing this income was left in trust to the son for life, and afterwards, if he bad no children, to different hospitals and charitable institutions. It was shown that these two men drew the whole, or nearly the whole, of their income from the bank every year, and always drew it in gold. They had not spent it, for it was doubtful if they spent fifty pounds a year between them; and no trace of any investment could be found. Both men died intestate, and the cottage and garden, with about a hundred pounds that was in the bank, went to a relative, a man called Jordan. ”

“ Under a more natural system, no part of the banking reserve would ever be lodged at the brokers'. Bankers would deposit with the brokers only their extra money, the money which they considered they could safely lend, and which they would not require during a panic. In the eye of the banker, money at the brokers' would then be one of the investments of cash, it would not be a part of such cash. The deposits of bill brokers and the profits of bill broking are increased by our present system, just in proportion as the dangers of bill brokers during a panic are increased by it. ”

“ Ask yourself if this enormous net earning percentage, made out of commandeered capital and out of conscripted deposits, isn't outside the realm of banking and in the realm of unconscionable vampire pawnbrokery? Ask yourself—in a land where pawnbrokers are licensed and restricted to two to three per cent a month or 24 to 36 per cent per year—if 79.56 per cent per year [Pg 47] doesn't brand such a system as outrageous Shylockery? ”

“ Bonds, real-estate mortgages, and loans on collateral represent somebody's promise to pay a certain sum of money at a future date; and if the promise be good and the security ample, the holder of the promise will be paid the money at the time due. On the other hand, equities, such as the capital stocks of banking, railway, and industrial corporations, represent only a certain residuary share in the assets and profits of a working concern, after payment of its obligations and fixt charges. ”

“ In times of continued business prosperity very high rates are demanded for the use of money, because the liquid capital of the country, to a large extent, has been converted into fixt forms, in the development of new mines, the building of new factories and railroads, and in the improvement and extension of existing properties. These high rates have the effect of reducing the price level of investment securities because people having such securities are apt to sell them in order to lend the money so released, thus maintaining the parity between the yields upon free and invested capital. ”

“ Of this four millions in London, every banker, merchant, tradesman, in short every individual, must have some. He must be a poor shopkeeper indeed, who has not a few guineas in his till. The quantity of cash therefore in the bank can never, on the evidence of circumstances, be so much as two millions; most probably not more than one million; and on this slender twig, always liable to be broken, hangs the whole funding system of four hundred millions, besides many millions in bank notes. ”

“ For instance,
"The person who borrows 3d. in pawn, pays 6d. a year, (p. 134) interest, but, if taken out weekly, (a thing very common, particularly during the Lottery) ,
"This explanation should be a warning to those who are so improvident, as to pawn their Sunday cloaths, every Monday morning, or 52 times a year, a custom which too frequently prevails, without reflecting that the Interest paid the Pawnbroker would, probably, purchase two or three coats, gowns, or silk cloaks, in the course of the year."— (Times, Mar. 20, 1797.)
"ON PUBLIC-HOUSES. (Condensed.) ”

“ In every country there is found a sum of money (that is, of circulating value, no matter whether coin or paper) proportioned to the trade and industry of it. How this sum is determined, and how it is made to augment and diminish in proportion to industry, we have already explained in the 26th chapter of thethe second book: we are now to examine some of the consequences which result from the accidental stagnation of any part of it to the prejudice of alienation; and we must shew how the loan upon interest is the means of throwing it again into circulation. ”

“ On the other hand, the creditor will see that with four per cent more in money he can, if he will, buy with his principal and interest five per cent more than he virtually loaned in commodity. He is satisfied with this increase; and, moreover, he is forced to adopt it, since the natural increase of real capital will not enable a borrower to pay more. The entrepreneur will stop borrowing if more is demanded. The whole adjustment is supposed to rest on a forecast made by the contracting parties and a speculative calculation as to the trend of prices. ”

“ The money kings over-reached themselves by encouraging people to secure loans and pledge their real estate for interest and principal, and then by contracting the circulation in order to increase the purchasing power of the money which they received as interest. As long as only a minor fraction of the land was mortgaged the interest was promptly paid, but a time came when nearly all of the lands were mortgaged and the people were compelled to force their products on the markets all at once to get money to pay interest. ”