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Full text of "Co-operative finance; an American method for the American people ... to encourage business, farming, home-owning, individual and corporate success, social justice and national prosperity .."


By- Herbert Myrick 

1-16 246 

23^Em fork 

Hatt aroaege of Agriculture 

At (SiomsU IninerHitH 
aitljara. sr. f . 


Co-;operative finance; an American method 
3 1924 013 900 604 _ 

Cornell University 

The original of this book is in 
the Cornell University Library. 

There are no known copyright restrictions in 
the United States on the use of the text. 


C^ UO-fQ ic- 

Co-operative Finance 

Jin Jlmerlcan Method 
for the Jimerican People 



To Encourage Business, Farm- 
ing, Home-Owning, Individual 
and Corporate Success, Social 
Justice and National Prosperity 

How to reform banking, improve the mechanism of exchange, promote co-opera- 
tion, and insure against the possibility of a money trust, through 
combining American experience with scientific principles 
by means readily adapted to customs, con- 
ditions and institutions through- 
out the United States 

By Herbert My rick 

Profusely illustrated by charts, sketches, and 
good'humored cartoons 






an American monetary method, attainable 
forthwith through one, single, comprehen- 
sive act of Congress, to be followed in due 
course by legislation in the respective states 


Jin American Method 
of Co-operative Finance to : 

1. Wisely Mobilize the Bases of Wealth — gold, land and industries, 

labor and character, health and co-operation — as means for credit and 
exchanges through a sound banking system. 

2. Safely Furnish Suitable Banking Facilities — to all the people 

all the time, and ever be adequate to the country's needs for expansion 
or contraaion. 

3. Supply Rediscounts for commercial paper and farmers' notes, "accept- 

ances," bills of exchange, "clearings," collections, national and banking 
reserves, credit currency in addition to government money, etc., thus 
remedying all the defects in our present fiscal system while making the 
most of its advantages. 

4. Insure That ^11 Deposits Shall Be ^oailable when wanted, 

furnish gilt-edge investments, "accommodate" farmers, other workers and 
small businesses, as well as richer individuals and larger corporations. 

5. Provide Land Banks to Issue Nontaxable Bonds secured by 

mortgages upon real estate — preferably owned farms and homes, thus 
encouraging agriculture and home-owning, while enabling other banks 
to realize upon such mortgages. 

6. One Comprehensive Act of Congress to establish forthwith this 

American monetary method, to be supplemented in due course by 
appropriate legislation in the respective states, all designed to encourage 
productive industry rather than gambling on the stock exchange. 

7. This Method Will Insure Stability in Finance, facilitate ex- 

change, reduce expense, risk and loss, be reasonably profitable, increas- 
ingly efficient, beneficial to all, harmful to none, promoting domestic in- 
dustry and foreign trade — the foundation of an economic prosperity that 
shall foster social justice, and make the United States more than ever the 
hope of the world. 


Value —the expression of human effort. 

Gold — the standard by which value is measured. 

Money — whether in the form of gold, silver or paper, may be coined 

only by the government, as the prerogative of the sovereignty of 
all the people. It is the actual embodiment of value for use. 
Every dollar of it must be redeemable at par in gold at any and 
all times and places, being lawful money and full legal tender 
for all debts. 

Credit — are the documents and records by means of which values are 

Instruments exchanged more conveniently and economically than with money. 
Checks, drafts, bills of exchange, etc., are instruments for the 
transfer of credits upon the books of a bank ; they express book 
credits. Cashiers' checks, or notes issued by a bank, either of 
which pass without indorsement, express current credits ; they are 
credit currency, to be redeemed and go out of existence, as do 
checks, when their function is performed. Credit instruments 
are not money, but are payable in cash upon demand. 

Cash — is actual money, exclusive of credit instruments ; bank notes or 

any form of credits, book or current, are not money nor cash. 

Currency — paper money and bank notes. 

Coin — is of gold or silver in denominations of one dollar or more. 

Minor coin, is fractional parts of a dollar, in silver, nickel or copper. 

Exchange — is the mechanism — organization, banks, clearing houses, book- 
keeping, etc., whereby values are transferred or interchanged by 
means o( credit instruments and without necessarily using cash. 
In the United Slates probably 85 per cent of the volume of trans- 
actions in daily business is effected by credit instruments. 


Wisdom is knowledge and the capacity to use it. But a lifetime's study and^ experience 
would not have enabled me— within the period of a few weeks— to produce in this book 
form my ideas in words and pictures setting forth the principles and methods described 
herein, had it not been for the aid of efficient co-workers in our art, photo-eniravinC. 
composing, electrotypin£, printing and office departments. 

Carl FIREY has interpreted happily my ideas in his many clever cartoons and good- 
humored sketches. Arthur A. Whitbeck deserves credit for the typography of the book 
and Superintendent F. G. Smith for its prompt manufacture. This work is a concrete 
expression of the co-operative ideas it advocates. 

Copyright igZ2 by Herbert Myrick. All rights reserved. Printed in U. S. A. 

Entered at <Stationer*s Hall^ London^ England 

Co'Operative Finance 

Table of Contents 

The American Flag in Colors 

Portrait of the Author, 

The Divine Law, Poem .... 

Title Pages ...... 

Nomenclature ..... 

Table of Contents .... 

List of Illustrations .... 

The Course of Finance and Business . 

The Vision — Preface . . 

An Open Letter to the President, Introduction 

What Each State May Do . 

A Momentous Declaration . 


Insert in front 







Insert facing xiv 





Part One — First Principles 

Chapter I Fivefold Reserves of the American People 

Chapter II Co-operation vs Combination 

Chapter III Money and Credits .... 

Chapter IV Government and Banking . 

Chapter V Essentials in Banking Reform 



on page 


3- 7 

8- 12 

13- 17 
i8- 23 
24- 30 

Part Two — Functions of Banking 

Chapter VI Exchange and Banking 

Chapter VII How a Bank Is Conducted 

Chapter VIII Book Credits vs Credit Currency 

Chapter IX Defects in American Banking 

Chapter X On the Use of Acceptances 

Part Three — Banking Federation 


33- 37 

38- 44 

45- 54 

55- 65 

67- 74 

Chapter XI Co-operative Organization for Banking 

Federation 77-83 

Chapter XII Merits of Federation . . .84- 90 

Chapter XIII Important Considerations . . .91- 99 
Chapter XIV Financing Our Foreign Trade . . 101-105 


Table of Contents— Concluded 

Part Four — Hoiv to Effect This Reform 

Chapter XV What Each National Bank Does 

Chapter XVI What the Clearing House Does 
Chapter XVII What the Zone League Does . 
Chapter XVIII What the American Reserve Union 

Does .... 
Chapter XIX What the Government Does . 
Chapter XX New Phenomena in Gold 

Chapter XXI America's Triple Reserves of Gold 
Chapter XXII Postal Banking, Remittance and Col- 
lection .... 

Part Five — People's American Co-opera* 
tive Banks 

Chapter XXIII Need of Banks for the Masses 202-209 

Chapter XXIV European People's Banks . . 210-223 

Chapter XXV Essentials in Co-operative Banking . 224-231 

Chapter XXVI Plan for National Co-operative Banks 232-244 



ON page 


1 17-128 








Part Six — Mn American Land Mortgage 
Banking System 

Chapter XXVII Elements of Land Banking . 
j Chapter XXVIII Co-operation in Acquiring Homes 
j Chapter XXIX European Mortgage Finance 
' Chapter XXX The Method for America 
Chapter- XXXI How the Land Bank Operates 
Chapter XXXII Benefits to Investors and Others 

Part Seven — Addenda ... 




References by numbers 
Charts and designs . 
Statistical articles and tables 
Biographical sketches 
Index .... 

• 307-315 

• 305-316 
. 302-321 


. 322-327 


Co'operatlue Finance 

List of Illustrations 

The American Flag Prelude 

Portrait of Author Facing Title Page 

American Export Banks xiii 

Relations of banking reserves, course 

of business, money, prices. Insert xxiv-xxv 
Charles M. Fowler, David Lubin, Myron 

T. Herrick (portraits). Insert between 

pages 300 and 301. 


Fivefold reserves of the American 

people z 

The trinity of economic unity 4 

Co-operation harnesses capital, ex- 
change and labor 5 

Put the man above the dollar 8 

And they said he was a valuable dog! 9 

This ax will cut the chain 11 

Centralization la 

Aldrich and Vreeland bill cartoon 14 

All people profit by using credit in- 
struments 16 

Man should drive the dollar, instead 

of the dollar driving man 17 

Fiscal ship ig 

Finance should promote productive in- 
dustry 22 

Juggling with assets 24 

No one can wonder at the decease of 

the monetary commission's measure 30 

Capital before and after co-operation 32 

Science and art ._ 33 

Making money work 34 

Supply and demand 3S 

The people's co-operative bank 36 

Products in a form to facilitate ex- 
change 37 

"Aw, get off'n his tail, Uncle Sam!" 38 

A homely illustration 39 

The cotton buyer's use of checks 40 

Possible results of draining cash away 

from banks 41 

Bank is servant, not master 43 

Laborgrams 45 

Naturally automatic contraction and 

expansion 49 

Easy when you know how! 51 

Credit currency, like the check, has 

but a brief existence . 54 

Dead bank — ^Busted credit — No funds 56 

Separate like this — Not this way 58 

Banking not a private snap 60 

Agriculture neglected 61 

Why banks fail — Seventeen reasons. 65 
A bill of exchange adapted to 

America 66 

A solid investment 67 

Why are interest rates so steady 
abroad, and so fluctuating in 

America? 69 

Applied to little or big transactions. 71 
Manufacturer obtains cash on accept- 
ances for goods in transit 7a 

Scheme for the co-operative federa- 
tion of American fiscal system 76 

All have equal voice 79 

Democracy in finance 84 

All interests watch each other 86 

Representation for all interests 88 

How is the American Reserve this 

morning? 90 

Reached by mail 91 

Chart showing how commercial bank- 
ing zones depart from state lines 92 

A typical zone 93 

Decentralization of credits 94 

No chance for graft — Banker and pub- 
lic unite 97 

The people's mailed hand 99 

New York, New Orleans and San 
Francisco can soon be made centers 

of the world's finance and trade 100 

Import — ^Export loi 

When the United States itself finances 

its foreign trade 103 

Peace on earth 105 

Which shall it be? 106 

Condition of national banks in the 

United States 108 

Doing business as usual 109 

Each bank is backed by gold no 

Banker to Depositor: "Oh, yes, we pay 

2% on checking accounts," etc 113 

In union there is strength 1x5 

What happens when the bank "goes 
broke" 116 



Co-operative Finance 

List of Illustrations — Concluded 

"Clearing" the transactions of the day iiy 

Clearing house 119 

All banks now pull together i2j 

Three harbors of refuge from the 

stormiest of seas 128 

Zone league 139 

Free gold reserve 131 

Rigid inspection 132 

No more receivership scandal 134 

Fighting panic in old vvay (full page 

drawing) 136 

Fighting panic in new way (full page 

drawing) 137 

American Reserve Union 138 

Assembly hall for American Reserve 

Union 141 

As it was — As it may be 145 

Owner and boss 147 

American money and what is back of 

it (colored chart) 148 

Progress of the American dollar 

(colored chart) 153 

Total stock of gold, silver and paper 
money in America and Europe, 

(colored chart) 163 

Gold reserves and paper money, 

(colored chart) 163 

Changes in world's production and 

consumption of gold (colored chart) 164 
The mysterious sink-hole of India — 167 
World's production and consumption 
of gold 1890-99, 1900-1910 (colored 

chart) 169 

Progressive development of gold re- 
serves in United States and Europe 

(colored chart) 173 

Proportion of gold reserves to loans 

and discounts (colored chart) 179 

Growth of business in three decades, 

America, England and Europe 179 

Total stock of money, gold, silver and 
paper, Europe, United Kingdom 

and U. S. A. (colored chart) i8i 

Per capita stock of money, gold, silver 
and paper, Europe, United King- 
dom and U. S. A. (colored chart). 181 
Total stock of gold in reserves and in 
circulation, France, United King- 
dom and U. S. A. (colored chart). 183 
Per capita stock of gold in reserves 
and in circulation, France, United 
Kingdom and U. S. A. (colored 
chart) , 183 

America's gold reserves (color) 184 

Our threefold reserves of gold (color) 191 

The new idea in the mail service 200 

The world's basis of credit 202 

The Caryatids of the twentieth cen- 
tury 20s 

Banking basis in a Southern state 207 

Before taking — ^After taking 209 

The human side 210 

"Joint and several unlimited personal 

liability" 213 

Growth of co-operation in Germany. 214 
All the people own, love, patronize 

and support their co-operative bank. 2i£ 

As it was — As it will be 223 

An American system adapted to the 

American people 224 

Wrong — Right 226 

As it is — ^As it will be 228 

People's national co-operative banks 232 
Solid as the oak, but grows more 

rapidly 234 

The government's charter 237 

Profits — ^bank 240 

Solid as Gibraltar 244 

Scheme for a land bank in each state 

under national banking law 246 

Stick a pin here 247 

What it costs in interest to borrow 

$t,ooo on typical kinds of security. 250 
The great handicap under which 

American farmers do business 251 

Old Uncle Sam remarks: etc 252 

Before — ^joining the building and loan 

association — ^After 254 

The plot — Exposed 257 

Co-operative banks and societies in 

Saxony 261 

Paris is France 265 

Type of architecture for the federal 

land bank in each state 268 

Each certificate holder entitled, etc. — 282 
The American method insures conser- 
vation, supervision, encouragement 284 
Borrower and investor are repre- 
sented in land bank 287 

Strictly limited liability 290 

A universal market for national farm 

bonds 294 

An investment free from all taxation 298 
Avoid the old financial heresy 300 

Preface ix 

The Vision 

The only permanent thing is change! Everywhere and 
always, progression or retrogression; nothing is fixed. "Ever 
the contention of positive and negative forces — evolution." 

Advance results from struggle. Triumph over obstacles is 
the only worth-while victory. Honest endeavor is the vital prin- 
ciple, rather than achievement, however glorious. 

All Nature, all human history, attest these truths. Civili- 
zation is the human object lesson in evolution. Economic jus- 
tice is the basis for social justice, and the degree to which both 
prevail measures the progress of civilization. 

God's ways are beyond man's comprehension. Man's effort 
often is so befogged by the smoke of battle as to obstruct the 
vision of his progress. We see the dust, the cloud, we do not get 
the clear birdseye view of the whole situation. But go to the 
top of an exceeding high mountain on a cloudless day, and how 
distinct appears all that previously was obscure! 

So now we discern, amid the warfare of aggressive Individ- 
ualism, ruthless Capitalism and extreme Socialism, the strong 
figure of CO-OPERATION advancing to the front. His 
majestic mien, his masterful bearing, his confidence-imparting 
atmosphere, withal his modesty and sympathy and humanity, 
inspire in every man and woman the conviction that Co-opera- 
tion is the great leader who will conduct them to the promised 
land. But the people quickly learn from this leader that they 
can never reach the goal except through their own individual 
efforts, supplemented by associated effort in doing those things 
which can be done better by people working together rather than 

Co-operative Finance 

Just as you dimly feel the latent powers inherent within 
yourself that are seeking expression, so are there powers inher- 
ent but latent in the mass which are seeking an outlet. Just as 
these powers in the individual grow by use, education and expe- 
rience, until he may accomplish the seemingly impossible, so do 
the powers of co-operation develop by use, training and wisdom. 

When you know how, it is so easy to do anything, whether 
individually or collectively! The inefficient methods of the past 
give way to the efficient processes of the future. Past theories 
become obsolete in the light of modern experience. Old issues 
naturally wither and die in the bright sunshine of the new era. 
What before was complicated, now becomes simple. 

Fresh evidence of these fundamental truths is afforded by 
the evolution of Co-operation and Exchange. This evolution 
long since buried the old dead issues of greenbacks and free 
silver. Old theories about issues of bank notes for money are 
nearly as dead. Even the "volume-of-money" ideal is gradually 
shriveling up before the powerful rays of the rising sun of 

The modern economic miracle is this science of exchange, 
and the arts by which it is being employed, with an increasing 
efficiency that is amazing beyond compare. New agencies and 
instruments for the transfer of credits and for the exchange of 
values are displacing money in its old sense. 

These mechanisms and instruments of exchange are to 
money relatively as the automobile is to the oxcart. The per- 
fected operation of exchange in the near future will compare 
with existing methods, as wireless communication and transpor- 

*"There is a certain grim satire in the figures of bank clearings, Trhen one thinks of the 
libraries filled with blue books full of weighty arguments, all curiously Tyrought out to help 
in the settlement of the great question of bank notes. IT IS PLAIN THAT THE 
BANKING IS DESTINED TO RUN. Dead theories respecting notes and the right of 
issue belong to the generation to which they were living verities. 

MENT OF CREDIT. For the present generation, the improvement of the cheque and the 
clearing system, the mechanical details of office organization, those details of bookkeeping 
which save time, are from the enormous number of documents passing throu^ the hands of 
a banker of more weight than the most learned treatise on notes and note makers." — G. H. 
Pownall, to the London Institute of Bankers. 

Preface xi 

tation by the air-route may compare with the telegraph and 
telephone, railway and motor car of today! 

Already the new phenomena in gold, first revealed in their 
present true relationship by this book, upset old ideas and fore- 
cast a new alignment. The application of science in practical 
experience is producing results in human development and in the 
utilization of natural resources so unexpected, so new, so preg- 
nant with possibilities for the future, that one must fully realize 
these new conditions and tendencies in order to form a sound 
judgment as to the present of finance and the future of economics. 

This book is an effort to set forth the economic transforma- 
tions now going on. It offers practical suggestions whereby the 
American people may so organize and co-operate as fully to 
utilize the transcendent opportunities which now confront them. 

The eye illumines the mind : hence, charts and designs are 
freely used in this work to illustrate its meaning. Good-humor 
is an aid to comprehension : hence, cartoons and kindly fun adorn 
these pages. 

Abraham Lincoln was so "human," he could grace the most 
serious subject with anecdotes from life, relieve the gravest ten- 
sion with a bright story, and enliven the darkest crisis with a 
flash of humor. Why not apply such humanhood, however 
poorly, to the science of economics and the art of finance? 

Which reminds me of a philosophic bank president, who 
had a slight impediment in his speech. A character-about-town 
named Jacob, a ne'er-do-well with the gift of gab, went into the 
bank and inquired: 

"Mr. President, how do you make loans to people?" 

"S-s-o-m-e-times on their n-o-t-e, s-s-o-m-e-times with 
i-n-d-o-rsement, s-s-o-m-e-times with c-c-ollat-t-eral." 

"Well, then, what must I do to get a loan?" 

With shrewd kindliness the president looked him over and 
replied : 

"Well, Jake, I g-g-u-ess you'll have to be b-b-o-rn again/" 

xii Co-operative Finance 

The dominant note in the new economics is human welfare. 
Equality of opportunity for each individual, co-operation among 
the weak as a safeguard against abuse of power by the strong, 
encouragement to honest endeavor among people of all ages and 
conditions, inspiration to achievement^the new finance must 
recognize these as among the essentials of the new era. 

But hard work, struggle, industry, thrift, efficiency, com- 
mon sense, gumption, grit, "sand," persistence — these eternal 
economic-social factors each of us must cultivate even more in 
the future than in the past. 

Yet the spiritual, moral and ethical attributes may be em- 
ployed to more directly promote material progress. To apply 
the ideals of service — to our fellows, our community, our state, 
our nation — will add to both the success and joy of life. To 
integrity of purpose unite willingness to entertain others' views 
or opposing reasons. Accompany personal power with human 
poise, sincerity with love. Let us do the best we can each day, 
and the future will take care of itself, for as my mother wrote on 
her deathbed: 

"Honest endeavor is ne'er thrown away, 
God gathers the failures day by day, 
And weaves them into His perfect plan, 
In ways that are not for us to scan." 


' United to aiiitt, not combined to iiyure " 


xiv Co-operative Finance 

Jin Open Letter to the President 

Tells what the Jtmerlcan Monetary Method is 

Urges the President to recommend it to Congress 

Points out that a single comprehensive act of Congress 

may cure financial ills and insure human welfare 

Jtsks that this be done MOW— forthwith 

Sir: The American people now unitedly demand financial 
reform. The grave inadequacy of our monetary and banking 
system is universally recognized. All political parties agree 
upon the diagnosis, but no appropriate treatment has been sug- 
gested since the demise of the ill-conceived Aldrich bill. The 
crisis is here — further delay is dangerous, but proper remedies 
applied promptly will insure speedy cure and quick recupera- 
tion. Then the United States will be in a position to realize 
upon its limitless possibilities for human welfare at home and 
commercial supremacy abroad. 

The treatment indicated forthwith is prescribed in my book, 
CO-OPERATIVE FINANCE, a copy of which accompanies 
this letter. It suggests certain cardinal principles that may 
be observed in the enactment by the Congress of one com- 
prehensive measure to reform our monetary system, perfect 
national banking, improve the mechanism of exchange, promote 
righteous co-operation in finance and in industry, and forever 
insure against the possibility of a money trust. 

These results may be achieved by suitably perfecting the 
details of what I have named the "American Monetary Method 
for the American People."* It combines American experience 
with scientific principles, by means readily adapted to customs, 
conditions and institutions throughout the United States, so as to 

*I also declare most emphatically against the idea that we can graft on to our present 
American fiscal system the co-operative banking methods of Europe. We can profit by all 
foreign experience, and should be willing to learn therefrom; but this idea is all wrong 
that the needs of American agriculture and industry will be met by providing a new class 
of institutions foreign to American ideals, contrary to American history and not in harmony 
with American conditions. 

Introduction xv 

encourage all legitimate business, agriculture, home-owning, 
individual and corporate success, social justice and national pros- 

True Basis for Co'Operative Finance 

, The method suggested is grounded in the fivefold reserves 
of the American people — gold, land, health, character, co-opera- 
tion. It provides for the universal application of the science of 
exchange and the arts of finance. The development of this 
science and of these arts is second in economic moment only to 
the amazing new phenomena in gold. 

It is now evident that impregnable financial stability for the 
United States will be assured readily by proper mobilization of 
America's triple gold reserves, the representative federation of 
banking upon the principle of one-bank one-vote, and the effi- 
cient management of co-operative financial organizations based 
upon one-man one-vote. This method puts manhood above 
money, makes money servant not master. 

While preserving the independence of each existing bank, 
national or state, their subsequent federation should be a repre- 
sentative financial democracy in which the customer in front of 
the counter (the depositor or borrower), has an equal voice with 
the management behind the counter (the officers, directors and 
owners). This insures the equal representation of bank users 
and bank owners in the federated associations required to 
mobilize the people's cash, credits and co-operation in the inter- 
est of all the people all the time. Yet it protects each individ- 
ual bank from outside interference with its own business. 

Representative Financial Democracy 

Instead of imposing foreign systems and an autocratic cen- 
tral bank upon the American people and upon their independent 
banks, this method builds up from the people and from the banks 
a simple, effective, representative form for co-operative action 
which is characteristically American. Each bank with not less 
than $25,000 unimpaired capital unites with others in a local 

xvi Co-operative Finance 

clearing house, whose functions and usefulness are to be as great 
an improvement upon existing methods, as the New York clear- 
ing house of today is superior to the former cumbrous system of 
collections by messenger. 

Each individual bank joins and has equal power in the zone 
league that covers the commercial zone or banking district natu- 
rally and economically tributary to some important center, which 
becomes the credit-currency redemption city. Representatives 
from these 42 leagues in the United States constitute the Ameri- 
can Reserve Union. This completes the representative democ- 
racy of bank owners and bank users, the national government 
holds the balance of power therein, and the whole institution is 
subject to the Congress as representing all the people. 

Triple Reserves of Gold 

Now, having the organization so built up from the people 
as to render impossible any form of manipulation in the interest 
of the few at the expense of the many, there will be a reserve 
in gold coin in the national banks (and in banking institutions 
under state charters) of about 250 millions of dollars, there will 
be a second reserve of 500 millions of gold in the American 
Reserve Union, and there will be the third or national reserve of 
1,000 millions of gold and refined bullion in the federal treasury, 
not to mention over 100 millions of gold in the pockets and 
hoardings of the people. 

This is the greatest aggregate of gold ever amassed by any 
one people since the dawn of history. It may then be so mobil- 
ized that this gold can be used instantly wherever and whenever 
needed to prevent panic, allay distrust, promote financial health, 
or to foster productive industry rather than gambling on the 
stock exchange. 

Government JHone Coins Money 

The government will again assume the sole function of 
coining MONEY, whether in the form of gold, silver or paper. 
Eventually there should be one uniform kind, quality and char- 

Introduction xvii 

acter of American money, every dollar of whichi should be kept 
as good as gold, and every piece of it full legal tender and law- 
ful money for the payment of all debts. 

By reason of the government's vast reserves of gold and 
silver, American money today is intrinsically in a far sounder 
position than foreign money. The United States is on a hard- 
money basis, while the United Kingdom and Europe are ap- 
proaching relatively a soft-money basis. 

Present new phenomena in gold, coupled with the control 
of the discount rate by the American Reserve Union — an insti- 
tution that is fairly representative of all the people and all the 
banks- — insure that the American gold reserves shall continue to 
accrue. Already there is back of each dollar of American 
money (including treasury notes and the present national bank 
notes) more gold alone, and much more of gold and silver com- 
bined, than is true of the money of all Europe (including the 
continent and the United Kingdom). 

American money today is the best money on earth. Within 
a few years, we will have loo cents' worth of gold back of each 
and every dollar then outstanding, not to mention America's 
other reserves — the brains and hands of our people, their health 
and character, their powers for larger usefulness through the 
cohesive force of well-directed co-operation, and their vast area 
of land and water with its unparalleled natural resources. 

Therefore, let the American government take back to itself 
that part of the money-coining function which it delegated to the 
national banks fifty years ago as a war measure. Let the national 
banks cash in at cost their 2 per cent bonds and retire the bank 
notes secured thereby, receiving in exchange from the treasury 
American government money issued upon the joint security of 
those very same bonds and of all the gold and silver in the treas- 
ury, not to mention the other reserves of the American nation. 
Thus without inflating the currency by a single dollar, without 
detracting one penny from its security and backing, without caus- 
iiig any disturbance in business, or without working any injury to 
any hank or person, the bank notes gradually are transmu.ted into 
American money; each dollar of which is equivalent to gold 
because redeemable in gold anywhere at any time. 


Co-operative Finance 

Strengthening the Bank Reserves 

The national banks would then be able to settle in cash their 
balances with state banks, could deposit with their zone league 
of their American Reserve Union the necessary 7 per cent gold 
reserve against their demand obligations, and would still have 
in their own vaults ample reserves in gold, silver and other law- 
ful money. The condition of state banks would be correspond- 
ingly improved. Thus the present precarious condition of the 
reserves of the whole banking system, would be transformed into 
a position of impregnable strength. 

The seriousness of present conditions is emphasized by the 
colored charts and cartoons, which show the relation of net re- 
serves and demand obligations of all banks to panics, prices, gold, 
tariffs and the course of domestic and foreign business. Instead 
of the bank reserves resting upon an inverted pyramid that trem- 
bles on its point, turn the pyramid squarely over so that it will 
rest immovably upon its broad and secure foundation ! 

Provision is also made for the wise use of bank reserves, 
their safe expansion and contraction in rhythm with business 
requirements, and their prompt repletion following use. The 
inability of banks to employ their reserves, when the emergency 
arrives against which they have been conserved, is an economic 


The national debt of the United Statei of America at the 
close of 1910 was equal to only about $11 tor each man, 
woman and child In the United States at that time. The 
total annual expenses of the government, Including Interest, 
cost of administration and all other outgoes are only $11 per 
capita yearly. The burden Is therefore at the most only $22 
per capita In the United States. 

In Great Britain the National debt Is the gigantic sum of 

$81 for each man, woman and child, the annual expenditures 
average $16, making a total of $97. 

France, however, is struggling under the most stupendous 
load of all. Each man, woman and child there Is carrying 
a burden of national debt to the amount of $151, while the 
annual expenditures of the national government are $22 per 
capita. This maltes a total burden of $173 for each man, 
woman and child In France, compared to only $22 In America. 

In i r du c ti n xrx 

firrar, ^hich (tagethcir with otiter glaTiag defects in our fiscal 
system) has icaiased Joss and misejry transcemding the iraagination. 

AH the eamm^s o^ the -proposed banking federation, over 
and above suitable reserves, go to the federal treasurry. The -gold 
3«ceived from this source would letire an equal amount of the 
.bond« in the toeasury. In this and other ways, the treasury 
reserves oif igald increase luntil they reach loo per cent of the 
lawful money in circulation, whether gold, silver oj paper. 

Nicither the zone leagues nor the American jEles£;Tve Union 
Ws .any shares or capital upon which to draw dividends, do 
not operate for profit, do not do business with the public, xio not 
compete with any existing barak, but their service is perf oumed 
in the interest of all the banks and of all the people in behaH of 
4he common weliare. 

In times of plethora, banks might exchange part of their 
cash^or some of these bonds, and vice versa, so that the treasury 
would have absolute control over the volume of lawful money in 
circulation. TJie revenue from the Aaaaerican Reserve Union 
would .enable the treasury to pay 3 per cent instead of -iz per cent 
cupon the bonds, in case it was necessary so to do in oiBder to resell 
them far gold, ^ho.uld additional gold ever ie required. 

Financing America's Foreign Trade 

This method also provides for the incorporation under na- 
tional law of American export hanks,, which may have branches 
in the principal cities of the world. 

Tbu« the United States will be in a position to finance its 
foreign trade, New York will take tfe LpJace of Loudon as the 
financial center of the globe, and along with the development of 
its mercantile marine, the United States will come into a com- 
manding position in the commerce of the worid. 

Banks Issue Book Credits or Credit Currency 

While the national government thus fully reassumes the 
prerogative of the sovereign people by itself exercising its sole 

XX C - p e r at iv e F i n an c e 

monopoly of the coinage into one uniform kind and quality of 
MONEY, of gold, silver and the public credit, the banks would 
be free to employ book credits or current credits in meeting the 
legitimate demands of business. 

The coinage of MONEY is a government function, but the 
use of CREDIT INSTRUMENTS is a banking function, 
which should operate automatically in response to human activ- 
ities and without governmental interference. 

By the method proposed, therefore, the use and volume of 
book credits or of current credits — the latter either as cashiers' 
checks or as credit currency for temporary purposes — would 
safely regulate itself in response to economic law, just as the use 
of checks (cheques) by individuals and corporations now adapts 
itself to their needs. Credit instruments in form and volume 
would then naturally expand and contract with the requirements 
of trade. Such instruments are not money, nor legal tender. 

All this being based upon sound economic law, the free 
action of which is promoted by co-operation, supervision and 
regulation, with adequate means for meeting any and every 
emergency that may arise, panics would become a thing of the 
past, and industrial development would be assured to the limit 
of human effort and natural conditions. 

Rational Co'operative American People's Banks 

To complete the foundation for an absolutely effective 
American monetary method, we need a system of co-operative 
banks through which the people of small means may pool their 
resources of cash, credits and co-operation so as to supply their 
needs for current personal credit. 

Amend the national banking act so as to authorize the incor- 
poration under its provisions of little national co-operative banks, 
thus affording the people of small means relatively the same 
opportunity to create banking facilities for themselves as are 
enjoyed by those of larger means. Such a co-operative bank 
may begin business with as little as $i,ooo of paid-up cash capi- 
tal in shares of $5 each; one vote only to each member. It 
should be free to adapt itself to the needs of the school district, 

Introduction xxi 

township, ward, or smaller unit in country or city, in which it 
may be located. 

The people have confidence in the national banking system, 
and in a charter granted by the national government, and it is 
believed that quite universally they will utilize this opportunity 
to help themselves. These little co-operatives for personal 
accommodation, savings and loans, will affiliate with existing 
national banks, and thus will become a part of the American 
fiscal system. They should be called, banks, not credit societies; 
nor credit unions, and being adapted to American conditions will 
speedily enable our farmers and other people to confer upon 
themselves even greater benefits than have resulted from the 
people's co-operative banks in various European countries. 

American Land Bank System 

The crowning glory of the co-operative American monetary 
method will be the American land mortgage banking system I 
propose. It calls for a land bank covering each state, incor- 
porated under the national banking law. Such bank at all times 
shall have in cash or available securities what I call the LAND 
RESERVE, equal to not less than 5. per cent of the bonds it has 
outstanding, which are secured by the mortgages held in its treas- 
ury upon farms occupied and worked by their owners^ or upon 
homes occupied by their owners. 

Laad reserve certificates being the backbone of the mort- 
gage-bank system, and bearing only 3 per cent interest or less^ 
should be free from all forms of taxation whatsoever — national, 
state, county, local, special, personal, inheritance or death. The 
land bondsj. bearing 3J^ or 4 per cent, would be free from all 
taxation except death taxes or inheritance imposts. The land 
itself pays the taxes^ in the case of farm land it usually pays more 
taxes than it should; therefore these securities bearing so low a 
rate should be free from every form of taxation. By reason of 
their many other advantages, it is believed that the farm and 
home bonds of the state land banks under the federal law, will 
speedily become a most popular investment for large or small 

xxii Co-operative Finance 

This method provides in a simple, systematic, businesslike 
and effective manner for the little national co-operatives to act 
as the local representatives and supervisors for the national land 
bank in their state. The investment of the co-operatives in the 
land reserve, also the relation thereto of the regular national 
banks, are so adjusted as to secure their interest and co-operation, 
while avoiding the error of combining or mixing ( i ) commep 
cial banking and personal credits with the functions of (2) 
permanent credits and mortgage banking. These are two 
entirely different kinds of banking, which must ever be kept 
separate and distinct, yet may wisely co-operate to supplement 
each other. 

One Jtct of Congress Sufficient 

One single comprehensive act of Congress which shall per- 
fect and apply the principles of Co-operative Finance, will solve 
this greatest of economic problems. If desired by yourself, or 
by the appropriate committee of the Congress, a tentative draft 
of a bill will be submitted for this purpose. The Congress can 
readily perfect a measure, and enact it into law FORTHWITH, 
which shall establish the comprehensive American monetary 
method now required by the American people. 

Such an act doubtless will be supplemented by appropriate 
legislation in the respective states, whereby co-operative banks 
for personal credit and land banks for mortgage credit may be 
instituted under state law, along the lines proposed in my letter 
herewith to governors. 

The field is so vast, however, the need for such institutions 
so universal, and their usefulness will be so prodigious, that there 
is ample room for both a national system and a state system of 
co-operative banks and of land banks, just as there is room for 
the regular national banks and for other banks, trust companies, 
savings banks, etc., under state laws. Further views on this 
phase are embodied in my open letter to governors, while the 
author's "Momentous Declaration" discusses the general subject. 

Will you not familiarize yourself with all the details, as set 
forth in Co-operative Finance, for carrying out the American 

Introduction xxiii 

monetary :method suggested ? If you find 'that the same is in the 
interest c«f the JLm£tican people, will you not -rommend this 
subject to;the attention of the Congress? 

American farmers recognize and warmly appreciate the 
efforts made "by yourseH and others toward better methods in 
•farm finance, fox both .personal credit and reality credit. Cham- 
pionship of iheir needs has^een joined in by all political parties 
and presidential -candidates, while the prdhlem of Tef orming our 
whole fiscal system has been kept out of party politics and now 
may be considered Ktrictly upon its merits. But the farmers, and 
others whom Idncoln dignified by catling them "^le common 
people," fully realize "that the whole iiacal system requires rear- 
rangemerct to adapt it to present and future needs of aM the peo- 
ple. For they realizic, also, that all interests are indissdlubly 
interwoven, and that the common welfare is paramount. Nat 
special privilege to agriculture or labor, or to capital and banks, 
'but equal means whereby the wTiole people may wisely employ 
themiraculous powers of Co-operation and Exchange — these are 
the-simple, just and imperative demands of the American people. 

Pray observe that the peaple do not ask for pap or privilege, 
subsidy or subvention. iPeople of smaill means simply want 
equality of opportunity "with those of la;rger resources, for mobil- 
izing their more limited cash, credits and co-operation through 
.a sound banking system bounded upon American money each 
dollar of which is the equivalent of gold. Americans are eager 
to help themselves — -let Congress give them the chance. Seflf- 
lielp strengthens, gift-help weakens. 

Respectfully, patriotica;lly and co-operatively yours, 


To His Excellency, 


President of the United States of America. 

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Introduction xxv 

What Each State May Bo 

Improve the land laivs and simplify land taxation 

Authorize the incorporation of little people's co'operatioe 

banks under state law 

Strictly regulate mortgage banking, encourage local building and 

loan associations, authorize land mortgage banks 

Abolish private banking 

To the Governor of Each State: 

Your official attention is personally directed, with the 
utmost respect, to the author's Momentous Declaration which 
■follows, and to his letter to the President, which precedes this 
communication. These three articles reflect the unanimity with 
which public attention is now centered upon feasible means for 
accomplishing at once needed reforms in our entire fiscal system. 

Two Functions ,Are to Be Performed 

1. An act of Congress putting into effect needed reforms in 
the currency and national banking systems. This is attainable 
forthwith through one comprehensive act of Congress establish- 
ing the American monetary method, as outlined in the letter to 
the President, and detailed in this book. 

2. Action by the legislature of each state, to enable its 
citizens to supplement by their own activities under state law 
the improved fiscal system to be provided by the Congress. 

What the State May Do for Fiscal Reform 

(a) Codify, simplify and improve its land laws. Remove 
all taxation from real estate mortgages, provided the latter bear 
not to exceed the minimum rate of interest. The land pays the 
taxes: in case of farm land it usually pays more taxes than it 
should. On top of this, to also tax the mortgage is an infamous 

xxvi What Each Strife May Do 

form of double taxation which inevitably comes out of the bor- 
rower, at least in effect. 

{b) Authorize the people to incorporate hxtlc local co- 
operative institutions for savings, loans, discounts, safety deposit, 
trusteeship, etc. These little co-operative institutions under 
state law will enable the people of small means to pool their 
interests in piroviding themselves with personal credit, in much 
the same manner that is suggested for co-operative banks under 
the national law. 

The best plan now in use for s«ch little co-operative banks 
under state law is the credit union under the Massachusetts stat- 
ute. One of the first of these to be established in the United 
States is the Myrick credit union, instituted upon their own 
initiative by the writer's co-workers in our eastern establishment. 
Experience has shown how the Massachusetts law should be 
modified and improved It is important to avoid the rather 
unfortunate name "credit union" or "credit society"; instead, 
employ the popular and comprehensive title of "people's co- 
operative bank." These little co-operatives for personal credit, 
savings, etc., may be readily adapted to both rural and urban 

State Lavos Rjegarding Mortgage Banks 

(a) For furnishing long-time loans secured by mortgages 
upon owned HOMES in towns and cities, the local co-operative 
building and loan association is the most effective institution 
ever devised. It has proven to be the best means whereby wage 
earners and salaried people, who are in receipt of regular in- 
comes, may own their own homes. This type of institution orig- 
inated with American working men, and has obtained the high- 
est perfection in this country. 

These local co-operative societies in the United States now 
have in the aggregate over $1,000,000,000 of assets, have enabled 
almost countless hundreds of families to acquire homes of their 
own, and should be instituted in every town and ward. The 
miscalled "national" building and loan associations are mostly 
things of the past, and should not be permitted in any state. 
Some states need to improve, simplify and codify their laws per- 

Introduction xxvii 

taining to co-operative building and loan associations. Every 
state that does not have such laws, may well enact the same. 

{b) But the building and loan association plan is not 
adapted to the means of the average farmer, whose income is 
irregular, although assured. To provide the FARMER with 
permanent credit, in the form of mortgage upon his real estate, 
a land bank may be authorized in each state under state law. It 
would operate along the lines similar to those of the national land 
bank for the respective states. 

(c) State law should not only regulate any land bank incor- 
porated under state charter, but the law should provide efficient 
safeguards for all forms of mortgage credit institutions. The 
danger is that private individuals or corporations may manipu- 
late for their own profit the principle of issuing debentures 
against realty mortgages. Some past experience in that line was 
disastrous. If it is now to be permitted, it should be only under 
the strictest legal provisions. 

What This Method Accomplishes 

By these means, existing commercial banks under federal 
law, are supplemented by little national banks for the masses. 
The national banking service is completed by providing for a 
land bank in each state under the federal banking act. 

At the same time, each state may provide for little people's 
co-operative banks, and for their affiliation with a land bank in- 
corporated under state law. 

In other words, it will then be possible for national banking 
and for state banking to be carried down to meet the two great 
needs of the masses — people's co-operative banks for PER- 
SONAL credit, and land banks for REALTY credits. 

And these little people's banks, together with the land banks, 
will supplement and co-operate with existing commercial banks, 
trust companies and savings banks, rather than unduly or un- 
wisely compete with them. And the little people's banks, or land 
banks under state laws, will have their field of usefulness without 
interfering with the activities of similar institutions under fed- 

xxviii What Each State M .a y Do 

eral law, jrast as existing state banks aani naticaial baaaks mow stip- 
plenaent each other in every state. 

Needett Reforms in State Banking 

Whf siiOijJd any state pEroiit so-called "private" .banjdfflg^? 
YouT state has laws to regulate all kinds of incoTporaited ibatik- 
img, but in soxne states any person or concern caai do bsusiiaiess out- 
side tihte pale of law by simply setting up as a "private" banker. 
No state permits a "private" life insarance wc a ^'private" &re, 
insurance cxjoijpany. JMo more may a private bank be permitted. 

Banking is a pmfelic utility, not a private snap. There 
s<bofuld he no twilight zone for nefarionas finaance, w^hotiuer dis- 
guised as private foanfciaag or Etnder any other terrrL E-pcry 
private banking concern that is doing a kgitiwiate baasiness has 
nothing to lose by incoqjorating and being smbjfcct to the same 
official supervision and public authority that is applied to regu- 
larly incorporated banks. The sooner the other kind of private 
bankers are put out of business, the better. 

No personal allusion is here made; I sim|)ly state a prin- 
ciple that cannot be gainsaid. Since congress is about to recast 
the American fiscal system, it seems a most appropriate tinve for 
each state likewise to improve upon the banking operations per- 
mitted under its laws^ 

/ Will Gladly Help 

The specific functions of nation and of state are thxrs dis- 
tinct, but may well supplement each other. Will you not urge 
all interests in your state to co-operate to effect the needed re- 
forms along broad, generous, patriotic lines? And the states may 
well co-operate with the nation by uniformity in financial legis- 
lation. In these ways will be magnified the dignity, power, inde- 
pendence and resourcefulness of individual, state and nation. 

It will be a pleasure to supply you, or the appropriate com- 
mittee of your legislature, upon request, with a tentative draft of 
a measure covering the above purposes so far as a state is con- 
cerned. Not that this draft will meet the various conditions in 
yowr state, but posfsibly it may be of service in facilitating a start 
in Ae right direction. 

Introduction xxix 

A Momentous Declaration 

Inaugurating a NatloamWide Campaign for a Broad Constructive 
■ Mmthod of Co'operatluo Finance 

^^EMEDY the defects, inefficiencies and delinquencies of 
J^ the fiscal system under which the American people have 
^ so long struggled, and the way will be clear for reforming 
the many other problems which are due so largely to the unjust, 
insufficient, unfair, monopoly-ruling and uneconomic character- 
istics of the present system of finance throughout the United 

The inability of the so-called commercial and banking in- 
terests of the country to get together in behalf of a practical solu- 
tion of the question at issue, has shown that this matter will not 
be settled right until the common people themselves undertake it. 

This means that the hard thinking, the solemn judgment, 
the effective work needed by the people to accomplish the desired 
reforms, must emanate largely from them. Now, therefore, 

/ Hereby Declare as Follows: 

I declare that the fundamental cause of many of our 
economic and social ills is our bad fiscal system. 

I declare that the cost of money to the American farmer is 
materially higher than it should be, or than it needs to be. 

I declare that in many instances the ordinary farmer, and 
also the average worker in other vocations, find it difficult to 
secure temporary or permanent banking "accommodation" upon 
any terms. 

I declare that in these respects city people are more for- 
tunately situated than country people. 

x«x A Momentous D e c laration 

The System, J\[ot Banks, at Fault 

I declare that this is not the fault of the banks as such, but 
it is the fault of the .system under which our bankitig is done. 

I dTeclaTe-thaHhc'banfcs as a tilass "have ^one their best with 
conditions under which they operate, and that banks are entitled 
to tke^€neral appjeciatien and xoofiAjiusfiithey. have reefiived. 

I declare that While some bariking=institutions, and certain 
combines and interests affiliated therewith, have abused their 
powers and have sought to manipulate the welfare of the many 
for'the'benefit of the few, such practices^iave not been univeisal 
among the rank and file of banks and 'bankers. 

I declare that, in spite of many drfects of our banking sys- 
tem, and of our currency system, the econorriic develqpment 
obtained by the United States is in no small, part due to the co- 
operation of her citizens through the'bariks. 

I declare that the time has now come.foj all .the people to 
unite in securing ior themselves adequate jmoney and banking 
iacilities all the time. 

J declare that this must be done by the ipeople themselves, 
that it can be done in no other way. Its successful accomplish- 
ment will be immeasurable advantage ito every .individual, to 
every bank. There is nothing to lose ^nd .ev£rvything ,to gain 
by such efforts. 

The American Monetary Method 

I declare that what;has cometD!be known ; as '^ the Myrick 
:method," in contradistinction to the Aldrich plan, is one worthy 
of the earnest attention and heartiest co-operation of every 
farmer, banker, manufacturer, professional person, or man and 
woman, young and old, in any and all vocations or positions in 
life. To the end that this method may be so perfected that when 
it shall have been finally enacted into law 'by the United States 
Congress, and also adapted by state laws to the conditions di the 
respective states, it will prove adequate to 'the hopes expressed 
for it. 

Introduction xxxi 

I declare that this method is based upon the fivefold reserves 
of the American people — character, health, co-operation, gold, 

I declare that any financial method not grounded in these 
fivefold reserves is destined to be inadequate, for the reasons 
indicated in Chapter I of this book 

I declare most earnestly and gravely that this whole prob- 
lem must be approached as a whole, discussed as a whole, and 
solved as a whole. 

I declare that to seek to accommodate the farmers without 
accommodating other people, is an economic error and social 
wrong, for all our people are indissolubly united. What benefits 
one, benefits all ; what injures one, injures all. 

Foreign Methods Will A[ot Do 

I also declare most emphatically against the idea that we 
can graft on to our present American fiscal system the co-opera- 
tive banking methods of Europe. We can profit by all foreign 
experience, and should be willing to learn therefrom; but this 
idea is all wrong that the needs of American agriculture and 
industry will be met by providing a new class of institutions 
foreign to American ideals, contrary to American history and 
not in harmony with American conditions. 

I declare that, speaking as an expert whose views are based 
on thirty years' experience, the need in the United States is 4or 
an American system of finance that shall come up from the 
humblest citizens and grow into the sturdiest of oaks, because 
its roots and rootlets reach into every pocket and into every heart. 

I declare that it is perfectly feasible, simple and practical, 
to so build upon, modify, enlarge, extend, improve and federate 
the American system of independent banking, as to perfectly 
adapt it to American conditions, and make it the means of insur- 
ing the economic supremacy of the American people. 

I declare that when this is accomplished — and it can be 
done within two years — panics will be largely avoided and bank 
failures will be mostly insured against and agricultural produc- 
tion will vastly increase. Cheaper money and better "accommo- 

xxxii A Momentous Declaration 

datioa" for farmers, accompanieA by co-operative methods of 
buying and selling, will result in lower prices to coiiaiHneES,;yet 
insufe fair returns to producers, and thus reduce for all people 
the present high cost of living. 

^ Patriotic Movement 

I declare that these purposes are worthy of the most disin- 
terested, most earnest and most patriotic effort of each and every 

I declare that the movement in behalf of these reforms must 
come up from the farmers and common people. The public 
behind them; and the banking and commercial interests^ will 
gradually join in a concerted effort to help in perfecting and 
applying this methods 

I declare that the time has arrived for people to take hold 
of this proposition in earnest. Let the farmers do this, and all 
other classes will join them in good time. 

I declare that the necessity for instant action is imperative, 
because selfish interests may work to prevent righteous action 
by Congress, or by the legislatures that will meet in most of our 
states this winter. These interests will seek to head off reform 
in banking or currency that may put a stop to the abuses that 
profit certain large institutions and combinations. Other inter- 
ests seek to get control of the co-operative idea in finance, in 
order to exploit it for profit to capital instead of for benefit to the 
common people. 

I declare that the underlying principle of the Myrick 
method is for the man to drive the dollar, instead of having the 
dollar drive man. It is a method for putting manhood above 


" United t» Msiit; not combined to iftjure " 

Co*operattoe Finance 

Part One 

First Principles 


of this Part 


Chapter I— Fivefold Heserves of the Jfmerican People 


Character, health, co-operation, gold, Association a natural Taw 5 

'^'*" 3 Co-operative finance 5 

The basis of business 4 Human spirituality 6 

What is exchange? 4 Wholeness of the problem 6-7 

Chapter II— Co-operation as Combination "^ 


Right basis for federation 8 Bankers recognized 10 

No "money trust" 9 American conditions 11 

Reform popularly favored 9 DjTiamic vs. static money n-12 

Chapter III — Money and Credits 


Gold the standard of value 13 Credit instruments 15 

Ten kinds of United States money 13 Their character 16 

Vast trade — little money 14 The people and the banks 16-17 

Chapter IV — Government and Banking 


Government money as distinguished Public must be represented 20 

from credit currency 18 Bankers alone not competent 20 

Government controls, but is out of Promote industry, not speculation 21 

an ing 9 Honest and complete 22-23 

As to credit currency 19 

Chapter V — Essentials in Banking Reform 


Keep each bank absolutely independent 24 Precautions in the public interest 28 

Equality for all 25 Cater to popular needs 29 

"Private" bankers not exempt 26 Co-operative federation 29 

No undue interference 26-27 Nation's example to the states 30 

Collection of checks free 28 Aldrich bill dead 30 








" ^1,850,000,000 


« lUiHinl Miinrlifini'DiynifljjiiiiirijnuiiilllliuiflHi) 

3,623.000 SQUARE MILES 

f////i IW//'V 

'SS:.//,,>-v>'.svm' "''■"«!■ 


Fivefold H,eserves of the Jimerican People 

Uncle Sam, with a satisfied air: "I guess it will be a long time before 
tliose fellows down there will even malce a dent in our reserves. And every 
year we are building our reserves deeper, broader, higher. Each stone is 
growing stronger, each course firmer. The United States seems just like 
Nature — developing all the time." 

Fivefold Reserves 


Chapter J 

Fivefold Reserves of the 
American People 

Character, health, co-operation, gold, land 

The basis of business 

The trinity of economic unity 

What is exchange ? 

Association a natural laut 

Co'operatioe finance 

Human spirituality 

Wholeness of the problem. 

HE future of the United States as a nation depends upon 
the use which the American people make of their five- 
fold reserves: 

1. Character Reserve — mind, will, soul. 

2. Health Reserve — physical, mental, spiritual. 

3. Co-operative Reserve — the cohesive power of individ- 
ual effort when wisely associated for the common welfare. 

4. Gold Reserve — making every dollar in exchanges as 
good as gold. 

5. Land Reserve — mobilized as the basis of all wealth. 

While air, land and water support all life, the real power 
of America lies in the extent to which each of these five reserves 
— Character, Health, Co-operation, Gold and Land — are har- 
moniously inter-related, inter-conserved, collectively utilized. 
Each of these five forms of national reserve must be made strong, 
none of them can stand alone — they must all develop in unison 
and operate in harmony in order to produce the largest and best 
results in individual and corporation, state and nation. 

Without character and health, neither co-operation, money 
nor land will avail much. But associate the three latter with the 

First Principles 

two former, and the combination is rich in endless possibilities 
of human endeavor, achievement and happiness. Granting this 
premise, the present work aims to outline a feasible method for 
associating land, money and human effort. 

The Basis of Business 

Confidence is the basis of business, security the basis of 
credit, chance the basis of speculation. 

All business is founded upon confidence rather than upon 
material things : evidence of the universal law that the spiritual 
transcends the material. No bank in existence, no nation, could 
pay all its obligations upon a moment's notice; if everybody 
demanded to be paid at once in gold, and nothing else, no one 

could collect ten cents on the dollar 
of what is due them. But you never 
want gold, unless you fear you can- 
not get gold — loss of confidence 
You are satisfied to leave your money 
in the bank, unless you fear the bank 
cannot pay you when you want your 
funds — again, loss of confidence. 
Bonds and stocks drop when the 
holders fear they will decline in 
value or not be redeemed — once 
more, loss of confidence. 

Business generally is poor or in- 
active and restricted when people 
generally have lost confidence. The 
state of mind, the spirits of the peo- 
ple, are controlling factors. There were just as much gold, 
land, labor and securities in the United States the week before 
the panic of 1907 as during and after that tragic event, which 
was due so largely to loss of confidence. 

What Is Exchange? 

All business is basea upon exchange. "Exchange is mak- 
ing one debt pay another debt." The debt may be in the 
form of monev or gold, of a credit or a commodity, an account 


Through (I) exchange, (2) debits balance 
(3) credits — one debt or transaction Is set otT 
against another. Result: balance, fitness, pra- 
portion, activity, prosperity, economic health, 
social welfare, ethical progress, human hap- 

Fivefold Reserves 

or an instrument of credit, but whatever the form of the things 
exchanged, the exchange itself consists in offsetting one against 
the other — debits and credits. 

The better the agencies for safely and quickly effecting ex- 
changes of labor, property or money, the better will be the 
economic prosperity of all the people. And the economic 
welfare of the masses is indissolubly bound up with their social, 
intellectual and ethical welfare, for in these respects, also, are 
people indissolubly associated. 

Association a J^latural Law 

The solidarity of man is the great fact in Nature. Economic 
co-operation is a practical expression of the brotherhood of man. 

Co-operation promotes economic harmony, and "harmony 
of laws, proportion and forces" is the paramount principle. 



Economic harmony, the harmonious rhythm of exchange 
and of the varied activities of material life, is analogous to the 
supreme harmony of the spiritual life. The one may be likened 
to the music of the spheres, the other to attunement with the 

Co'Operative Finance 

Co-operative banking, of, by and for the common peo- 
ple, lies at the basis of exchange, and exchange is the basis of 

First Principles 

all business. Hence, co-operative finance is applied Christian- 
ity. It harnesses the powers of money, credits and co-operation 
into one team that pulls together steadily, and draws the people's 
load ever forward and upward. It makes "the money power" 
servant, not master. 

Co-operative finance aids in developing and utilizing the 
marvelous powers now latent in the human mass — latent, un- 
known, not even suspected, because of the absence of an agency 
through which these forces may be interpreted and expressed; 
just as the individual begins to comprehend the powers latent 
within himself only when education and experience have 
revealed these powers and taught him how to use them. 

Human Spirituality 

Association with our fellows for economic welfare also 
develops the spirit of service, unselfish enthusiasm for noble 
ideals, which add to the zest o-f life, and create happiness, inspire 
hope and promote desire for better things. In the last analysis, 
these phenomena are spiritual, expressive of the divinity in 
humanity. What joy, satisfaction and harmony await every 
individual who seeks service, justice, wisdom, duty, righteous- 
ness, power, beauty, love, truth 1 How the use of these attributes 
promotes better living, better homes, better farming, better 
methods in all industries, better citizenship! 

While co-operative finance is at the root of all forms of 
economic association, while one of its purposes is to bring the 
almighty dollar into its members' pockets and confer upon them 
large material benefits, this is coincident with the promotion of 
what may be broadly termed the people's spiritual welfare. 
Co-operation aims to bring the full and complete life within 
reach of all the people all the time! 

Wholeness of the Problem 

As the spiritual and material aspects of existence co-operate 
in molding each life into one whole individuality, so do the 
various aspects of finance constitute the complete unit of our 
fiscal system. Hence, grasp the financial problem as a whole. 

Fivefold Reserves 

rather than piecemeal. A comprehensive method for solving 
the whole problem with thoroughly practical efficiency, is the 
need of the times — not crazy-quilt patchwork, or salve upon the 
sorest spots. 

Nature goes to the root of things, though how delicately, 
economically, efficiently! In rearranging finance, let man 
follow Nature's object lessons. 

Little help is needed from state or nation other than laws 
which, while improving commercial finance, shall give the 
farmer and the common people full and free opportunity to 
associate and co-operate in mobilizing their lands and other 
resources as a basis of credit. This can be done in a way to 
promote greatly the common welfare and to benefit all other 
forms of banking. Legislation must neither debar the people 
from these privileges nor make them criminals if they combine 
their resources. 

Neither may banking reform be solely in the interest of 
those who operate banks for private profit, but the reform must 
equally promote financial institutions for the co-operative dis- 
tribution of their net earnings, and other benefits. The interests 
of borrowers must be conserved as well as of lenders, the poor 
as well as of the rich. 


' United to assist, not combined to injure ' 

First Principles 

Chapter II 

Co-operation us Combination 

Right basis for federation 

Why co-operation is right 

No " money trust " 

Reform popularly favored 

Appreciation for bankers 

Adapt finance to American conditions 

Dynamic us static money 

Put the Man Above the Dollar 

ffllNANCE, like other human activi- 
*^ ties, must become more co-operative. 
In financial administration, the 
depositor and borrower are to be 
represented as well as the bank 
shareholder or bank manager. 
While each bank itself may be cap- 
italistic or co-operative, as the 
owners may prefer, all co-opera- 
tion between banks should be based 
upon the principle of equality of 
representation as expressed in one 
vote only for each shareholder, 
each customer or each bank, irre- 
spective of their holdings, business, 
wealth or power. 

Put the Man above the Dollar 
— the creator over the created! 

Federation based upon the vot- 
ing equality of the individual MAN — is co-operative and benefi- 
cent. Federation based upon voting equality of the individual 
DOLLAR — is combinative and capitalistic. 

The one unites to relieve, the other combines to injure. 
The one substitutes constructive co-operation for the good of 

Co-operation v s Combination 

all, in place of destructive competition for the good of a few; 
the other substitutes destructive "trusts" for constructive man- 
hood. Co-operation benefits all equally; combination benefits 
only a few at the expense of the many. 

Co-operation is man's compliance with Nature's edict; 
combination is man's defiance of natural law. The one is 
spiritual, the other material ; co-operation is right, combination 
is wrong! 

^o "Money Trust" 

Hence the public's opposition to any scheme that smacks 
of a capitalistic combination which might result in a "money 
trust." The people quickly sense danger — their intuitions pre- 
cede their knowledge. Then follows consideration, debate, 
study, and conclusion. The final decision is so usually right 
as to give rise to the axiom that, in the last analysis "the voice 
of the people is the voice of God." 

Reform Popularly Favored 

On the other hand, the people not only welcome but 
demand reform, progress, efficiency. There is public apprecia- 
tion of any policy that may rearrange American 
finance so as to make banks, money and credits 
the servants, not masters, of the people ; and public 
antagonism to the opposite policy. This accounts 
for the failure of what has come to be known as 
"the Aldrich bill," and the growing conviction that 
what has come to be termed (for want of a better 
name) "the Myrick method" may be so 
perfected through the united effort of all 
as to accomplish the reforms desired for 
the benefit of all. 

And They Said He Was a Valuable Dog! 

Because there has been dissatisfac- 
tion with our currency and banking sys- 
tem — most marked among those most informed thereon — it is 
a mistake to assume that the small farmer, or the workingman 
of small means, or the people generally, are antagonistic to capi- 

lo First Principles 

tal. They want to become capitalists, at least in a modest way, 
as soon as possible, but their main complaint is that the facilities 
for their doing so are not relatively as good for them as for those 
of larger means. 

Such facilities can be provided, and they will increase the 
efficiency of the whole fiscal system. The methods herein pro- 
posed contemplate co-operative banks, which may be considered 
in no sense as rivals to or competitors with ordinary banks of any 
existing type. On the contrary, the more the common people 
prosper, through the help of their own little banks by means of 
which they help themselves, the sooner will their wealth be such 
that they can become profitable customers for commercial banks. 

Bankers Recognized 

Right here a word of appreciation for American banks and 
bankers. As a whole, they have served their country well. The 
average banker and bank director is not below the average of 
people in other vocations in patriotism and public spirit. Their 
services in maintaining individual, corporate and -public credit 
during times of stress is worthy of all praise. To be sure, there 
have been abuses in banking; there has been the same tendency 
toward combination and monopoly in banking that has been 
witnessed in other industries, and this tendency seems to have 
culminated in the Aldrich bill, but the opposition to that 
measure among bankers themselves, and the success of banks in 
maintaining our fiscal system in spite of the incubus of ineffi- 
cient laws, shows that the rank and file of the banking fraternity 
are righteous, upright and patriotic men. The many are not 
to be censured for the selfishness or errors of the few. 

Destructive criticism of banking and bankers is as foolish 
as it is cheap: a constructive method for remedying existing 
defects and for making the American fiscal system what it 
should be in the interest of all the people all the time, is as 
difficult to frame as it will be invaluable to our beloved country. 

Even the Aldrich bill, while admittedly now a dead issue, 
has been worth all it cost, as an object lesson in "how not to 
do it" ; and in business, it is quite as important to know what net 

Co-operation v s Combination ii 

to do as it is to know how to do the right thing at the right time, 
in the right way at the right place ! 

American Conditions 

In working out our fiscal salvation, it must ever be kept in 
mind that, while natural laws and international relations are 
not to be interfered with, American finance must be adapted 
to the American people. We cannot 
slavishly imitate other people's institu- 
tions. Their ways are not our ways. We 
rule, the Europeans are ruled; our peo- 
ple initiate, they have things initiated for 
them. Theoretically we are all of, for 
and by the people; they have been bred 
to look up to hereditary leadership. We 
live in the atmosphere of a republic ; they 
are still under monarchial conditions. 

Although we possess a genius for -';^,^ ;^ ^„, ^ ~.^, ,,^,„ 
organization, a sturdy independence and 

peculiar individuality are characteristics of the American peo- 
ple, which have retarded the largest progress of co-operation 
among us; yet it remained for the American working man to 
originate, perfect and operate the finest co-operative system for 
helping people to own their own homes. 

Dynamic vs Static Money 

Furthermore, while the universal interest in and general 
demand for adequate banking facilities for those whom 
Abraham Lincoln dignified by the title of "the common people" 
can hardly be exaggerated, the greatest need seems to be in the 
field of farm finance. 

Agriculture requires vast and universally diffused means 
whereby farmers may enjoy bo'th {a) personal credit and current 
accommodation, and {b) land mortgage credit — two very sepa- 
rate and distinct needs and functions, which should ever be "differ- 
entiated in the public mind as well as in actual operation. The 
distinction between agriculture's requirements for permanent 

12 First Principles 

capital as well as personal credit, and the same needs in other 
industries, has been aptly emphasized by David Lubin:^ 

"In the ordinary commercial business, every dollar is 
dynamic, that is busy — when not so engaged it may be immedi- 
ately returned to the bank and ceases to pay interest for the 
time it is not wanted. A mortgage, on the other hand, is static, 
or fixed money, providing a fixed amount for a fixed period. 
Even the farmer's working capital is much more static than is 
the merchant's or manufacturer's — the latter make a profit on 
every sale or transaction, which may be many in a single day, 
or week, whereas the farmer's transactions come only as a result 
of some six to twelve months' work, or several years' effort." 

The tendency in American finance has been to centralize 
money and credits in town at the expense of country. To decen- 
tralize the money power among those who create it, and to so 
diffuse credits that retail business may be done upon a cash 
business, are desired reforms which may be promoted by the 
methods herein described. 

1 See notes in Addenda for this reference, and for all other references hereafter. 


M oney and Credits 13 

Chapter III 

Money and Credits 

Gold the standard of value 

Ten kinds of money 

Small volume of money relative to vast exchanges 

Credit instruments 

Their character 

The miracle of credits 

The people and the banks 

^y^ATTLES royal have been fought over the standard oi 
y3 values. Gold has come to be the well-nigh universally 
accepted standard. Silver coins, baser metals for petty 
coins, the paper representatives of gold and silver coins, and 
other forms of money, are kept "as good as gold," by being 
exchangeable for the precious metal. 

The vast increase of late years in gold production has been 
regarded in certain quarters as the essential cause of the higher 
values of land, labor and commodities. But present new^ phe- 
nomena in gold indicate conditions which tend to modify this 
conclusion. In spite of its imperfections, however, the yellow 
metal seems destined to be the world's standard for many years 
to come. Let it be employed for measuring values, rather than 
as the instrument whereby the exchange of values is effected. 

Ten Kinds of United States Money 

Gold and silver coins, or certificates representing them, 
form but a small proportion of the medium now used for the 
exchange of values. In the United States, coin is supplemented, 
to a relatively small extent, by fiat paper currency — "promises 
to pay" — issued directly by the national government without 
specific security behind them. The controversy over the green- 
back was fought to a finish years ago, and no fiat paper has been 
uttered since 1863, except a few treasury notes in 1890. "Free 
silver" has long been a dead issue also. 


First Principles 

The other part of our currency now consists of bank notes 
issued by national banks upon the security of United States 
bonds — a system so at variance with sound principles as to have 
support no longer. 

The total of all these stocks of cash in the United States is 
only about 3,665 millions of dollars. Of this aggregate, gold 
represents about 50 per cent, silver 20 per cent, greenbacks 10 per 
cent, national bank notes 20 per cent. The ten kinds of money 





Uncle Sam: "As though my old coat wasn't patched Into ten kinds of misfits, darned If Aldrich and 
Vreeland ain't b&gun on my pants! I hope Congress will let me have this new suit some day — it fits to a T." 

now in use form a stock of cash actually about twice as large 
as in 1898, being around $35 per capita now compared to 
$25 then.^ 

Vast Trade — Little Money 

Yet how petty these relatively few millions of cash com- 
pared to the gigantic volume of trade transacted by the 
American people! 

On this apparently slender basis of less than 4,000 millions 

Money and Credits 15 

of cash, our people's exchanges reach the incomprehensible total 
of 400,000 millions of dollars' value in a year of ordinary busi- 
ness activity — more than one hundred times the volume of our 
foreign trade. 

Credit Instruments 

Evidently but a fraction of our business transactions in- 
volve the use of cash. 

What marvelous instrument is it that constitutes the prin- 
cipal medium whereby these exchanges, so vast in number and 
volume, are effected? 

It is the humble check (cheque), or useful draft, or some 
form of an order for the transfer of credits upon the ledgers of 
our bankers! 

These credit instruments are the chief mechanism of ex- 
change. Their use is far more universal in America than in 
other nations, possibly excepting Great Britain and Canada. 
Nevertheless, the scientific miracle of credit transfers is not 
generally much better understood today than in Napoleon's 
time, when that mighty monarch entered and conquered Venice 
expecting great treasure from her wealthy banks, only to be 
thunderstruck at finding that her commercial supremacy was 
due mainly to "clearings" of book credits and debits. 

Credit is satisfied with very little. Instruments for ex- 
pressing, interpreting and transferring credit are the marvel of 
modern civilization. 

Without neglecting other essentials, the more perfect the 
conveniences for safely employing credit instruments, it may 
be said that the more exchanges are facilitated, the efficiency of 
distribution is improved, all industries are encouraged, and the 
nation's economic fabric is strengthened. 

"Credit is not the creator, but simply tlie mover of capitals. It multiplies indefinitely 
tlieir services ; it quickens tlieir movement, as tlie rail quickens the revolution of wheels ; it 
annihilates the obstacle of time, as steam annihilates the obstacle of space ; but it does not 
create. It uncovers, it awakens, it fructifies ; it does not invent. It is a marvelous power, 
without which the economic movement would not exist ; but it is not a panacea. Even witli 
enormous effective values it cannot do everything, and with nothing it will never accomplish 
anything. However, with next to nothing, and that is] the case of the people's banks, it will 
effect wonders." — Laurent, the French economist. 


First Principles 

Their Character 

These credit instruments are short-lived, temporary in char- 
acter, serve their purpose and then go out of existence. Their 
issue automatically expands or contracts with the volume of 
trade or exchanges. Thus they adapt themselves perfectly to 
the people's needs, in marked contrast to the inelastic and panic- 
breeding currency-system so long in vogue. 

While opinions differ upon the relative merits of the various 
forms of currency that may be issued by government or by banks, 
the public mind and expert authority quite agree that the grant- 
ing of bank credits and the transfer thereof is peculiarly the 
function of banks. 

Such credits must be kept at a parity with gold, must be 
honestly administered, conveniently transferred, economically 
managed, and should be available to all the people all the time 
at lowest cost consistent with absolute safety. 

The People and the Banks 

This involves intimate knowledge and personal familiarity 
between the bank and its clients, which can be insured only by 

having many separate banks, each 
largely owned by the people 
within its territory, and conducted 
with special reference to the 
peculiar needs of its depositors and 
borrowers, and the other wants of 
its customers. 

Yet these independent banks 
have a community of interest 
which binds quite closely institu- 
tions of similar type, and makes 
each and every kind of bank an in- 
tegral part of the whole system. To insure legitimate co-opera- 
tion among banks and bankers of the various types, so as safely to 
bring adequate banking facilities within reach of all classes of 
our people, is the problem. This problem must be solved in a 

Farm, factory, store, oflice, all people, profit 
by using the bank as aflource of credit instruments. 

Money and Credits 


manner just toward all, but with special privilege to none, either 
now or in future. 

Such ideal solution of banking problems involves education 
and organization, improvement and confidence, among present 
and would-be customers of banks as well as among bankers. Not 
how may the one seize unfair advantage over the other, but how 
may both co-operate for their mutual benefit. 

To this end, the closer banking is brought to the people, 
the better ; the further that banks are removed from the people 
they serve, the worse for both. 

That is why the American system of many independent and 
popularly owned banking institutions — free from politics and 
bureaucrats, yet under rigidly efficient public supervision — is 
capable of evolving into the most perfect financial mechanism 
for the common good that the world has yet known. To aid in 
bringing about this result, along the lines set forth upon its title 
pages, is the object of the present work. 









First Principles 

Chapter IP 

Government and Banking 

Government money as distinguished from, credit currency 

Governm.ent controls banking business, but Is out of It 

Jis to credit currency 

Public must be represented In co-operative finance 

Banking customers as well as bank owners 

Bankers alone not competent 

Promote Industry, not speculation 

Bankers not legislators, but sworn public officials 

Important details of legislation 

The common people's Interests 

I HE national government alone shall 
continue the coinage of gold and other 
coins, and the issuance of all "govern- 
ment money" in paper form. 

Of course, the creation of 
"money," as distinguished from credit 
currency or other credit instruments, 
should ever be the exclusive function 
of the people through their federal 

All government money must be 
redeemable in gold coin, whether 
such money is in the form of gold coin or gold bullion, silver 
coin, or of gold or silver certificates, or any form of paper money 
bearing exclusively the stamp and insignia of the government. 

With the exception of subsidiary coin, all government 
money should be full legal tender for all debts public and 
private (unless otherwise stipulated in the contract), being law- 
ful money without any other reservation whatever, because 
every dollar of it is as good as gold and adequately protected 
by a sufficient gold reserve in the United States Treasury.^ 

Government and Banking 19 

Eventually" the ten kinds of government money now in use 
may be brought into such uniformity in theory as they now are 
in practice. 

Government Controls, but Is Out of Banking Business 

For the purposes of this discussion it is assumed that the 
United States Treasury is to go out of the banking business as 
such; that banks owned by the people are to do the people's 
banking business. This is the procedure followed by every 
nation in the world. No American state, city or town, conducts 
a bank. 

Further issues of natix)nal bonds should not be used as. a 
basis for bank currency, and the bank notes now secured by such 
bonds are to be redeemed and retired as gradually as may he 
consistent with sound public policy; a better form of currency 
is to be provided in place of bond-secured, national bank notes, 
free from their defects, and such as shall automatically but 
safely expand and contract with the varying needs of business 
at different seasons. It is also agreed that the stock of money 
per capita should not be reduced. 

The govemtnentshall'everpossess ultimate control and full 
authority over any and all banking institutions which are incor- 
porated or operated under national law. Any and all. forms of 
hanking.are to be so safeguarded as forever, to protect the people 
against the exactions of a possible "money trust" ; that is to say, 
the law and its enforcement shall forever render impossible any 
manipulation of any form of money or credit in the interest of 
the few at the expense of the many, but shall insure equal and 
exact. justice for one and all. 

^Sr to Credit' Currency 

Credit currency, in its pure and unadu^lterateti form, is 
notes issued by banks instead of cashieral- checks^and of such 
denomination as may be convenient for the bank's clients. Like 
cashiers' checks whose place they take, credit currency is for 
temporary use afnd of short life. It performs its. function, just 
asdoes a check, then it is sent in to the bank for coUectionrtbe 

20 First Principles 

same as is a cashier's check. In times of stress, the issue of 
notes by any bank may be increased, under appropriate regula- 
tions and taxej to prevent an overissue, but must be promptly 
collected and retired when the storm has blown over. 

Such credit currency is not lawful money nor legal tender, 
but is in effect merely the cashier's check in a more conveniently 
available and circulatory form. Its supply automatically ex- 
pands with the demand, and likewise contracts automatically 
as demand contracts, just as the individual uses more checks as 
his business transactions increase in number, and fewer checks 
with the decline of transactions. 

The trouble in the United States has been that national 
bank notes violated this principle, being fixed in amount, and 
incapable of automatic expansion or contraction because secured 
by government bonds ; while not legal tender they possess most 
of the functions of money, and all national banks are required 
by law to receive the notes of other national banks at par. Credit 
currency ready for use by bank of issue should be obtainable 
only from the government, so as to prevent counterfeiting or 
overissue, and keep it always within federal control. 

Public Must Be Represented 

To this end, the people who use banks — their customers, 
depositors and borrowers, who are not holders of shares therein, 
are to be consulted and represented as well as those who own 
banks — shareholders, directors, officers. 

It is a grave mistake to conclude that the reforms required 
are to be secured by having only bankers in control of the bank- 
ing federations needed for effectuating such reforms. All the 
vast interests involved in finance — agriculture and manufactures, 
labor and capital, transportation and distribution, merchant and 
middleman, producer and consumer — must be considered and 
represented in any scheme of co-operative finance which is to 
operate effectively and justly. 

Bankers Jilone Not Competent 

Victor Morawitz, one of the ablest of them, says: "Few 
bankers in the United States are familiar with the broader ques- 

Government and Banking 21 

tions of finance; there are even fewer who would be competent 
to direct the policy of a great central bank (which institution 
the American people will never consent to). Nearly all our 
bank presidents are men who have grown up in the routine of 
their own bank, with very little experience except in the daily 
business of lending money and dealing in securities for a profit." 

The president of the Bank of France was not even a. banker, 
and the Bank of England never chooses its directors from among 
other bankers, yet this method has worked successfully for two 
centuries. The latter is a corporation "organized and carried 
on to finance the government and control the finances of 
the empire, but is administered by disinterested persons free 
from governmental ownership or control." It is co-operative 
to the extent that each shareholder in the Bank of England has 
but one vote, irrespective of the number of shares owned, and 
no proxies are allowed. 

In like manner, the proposed co-operative system, in which 
banks may affiliate for their common welfare and to protect the 
common good, should be in charge of experts representing those 
who use banks as well as those who own banks. Co-operation 
among banks is good, but to prevent it ever becoming bad, the 
foundation rnust be right : 

First, fix the basis of representation and the form that the 
federations may take. 

Second, specify the powers and duties, rights and privileges, 
of these co-operative institutions. 

Put the horse before the cart, not behind it. 

Promote Industry, Not Speculation 

None of the associations of banks herein proposed — local, 
zone or national — may rediscount paper for any member bank 
arising out of other than commercial transactions ; that is, "notes 
and bills of exchange issued and drawn for agricultural, indus- 
trial or commercial purposes, and not including notes or bills 
issued and drawn for the purpose of carrying stock, bonds and 
other investment securities." 


First Principles 

Whether it is possible by other provisions of the law, 
national or state, to prevent the use in mere stock-exchange 
speculation of funds that should be employed in legitimate in- 
dustry, is a grave problem worthy of most serious consideration. 
The foregoing proviso is simple and practical, and is one of the 

Industry Specuration Agriculture 


best of the relatively few good features of the Aldrich bill. If 
rigidly enforced, it will do much to remedy present evils in this 
respect, without undue interference with private rights or the 
natural laws of trade. 

Banks should be encouraged to act as markets for the pur- 
chase and sale of sound investment securities, and shares in 
legitimate productive enterprises. Restriction upon specula- 
tive gambling should imply no injustice to legitimate industries. 
Yet banks should not countenance the sale of "blue-sky 
securities." Before offerings may be made to the public, the 
prospectus should conform to legal requirements which will 
afford full information to the would-be investor. In this 
respect the English statute is better than the new law in Kansas. 

Honest and Complete 

Sumptuary legislation is never effective in finance; public 
opinion may be. Patriotism must be applied to the ordinary 
transactions of banking, as in the other affairs of daily life. 

To avoid even the appearance of favoritism, no member of 
any national or state legislative body may be an officer or director 
of the American Reserve Union, nor any of its zone branches, 
nor of any local clearing house association. 

Government and' Banking 23 

Every director and officer of a bank, national or state, 
should be sworn to the faithful performance of his duties. To 
that extent he should be esteemed a public official and held 
equally responsible under the law. 

Not less than two-thirds of the directors of a bank shall be 
residents" within. itS' bailiwick, so as^ to. insure local sapervision 
of its operations, and'prompt co-operation by a working majority 
of the board with the aational examiner when he. is- auditing 
the bank. Such personal assistance to the, examiner by the 
directors should be- required in city banks aa much as in country 
banks — equality to alL 

Any director who fails to attend not less than two-thirds 
of the meetings of the board convened during any year, shall 
thereby be retired from the dir£Ctorate, and not be eligible 
therefor until two years haver elapsed. Directors must direct. 

Loans approved by the officers and directors to concerns in 
which they are interested are to be made only when accom- 
panied by detailed statements or collateral, proving their worth. 

In^ the; arrangement: of Ametican finance,, of which Con- 
gress .shouldimakc one. comprehensive: job^ all the minor details; 
and defects whichaexperience; has pointedioutshoutd be attended 
to or remedied.. One of these is the necessity for more dis- 
tinctly: indica.ting- the. denomination of- bills, so as to facilitate 
their handling and counting by the many thousands, of individr 
uals- and banking, officiala wha use them.. To perfect all these 
little- matters,, based. oa the, teaching^of practical lexperience, will 
grjeatly convenience. the public. 

Laws should. he. fair toward big banks and big business, but 
while those interests-, are quite capable of taking care of them-, 
adves/ it. is the "common people" whose banking requirements 
most: need, attention, in the readjustment, of America's fiscal 


First Principles 

Chapter V 

Essentials in Banking Reform 

Keep each bank absolutely independent 

Equality for all 

Private bankers not exempt from public supervision 

No undue interference with, legitimate banking 

Co-operative federation among independent banks 

Precautions in the public interest 

Cater to popular needs 

Nation's example to the states 

The JUdrich bill dead 

THE American idea of free and independent banking is to 
be not only preserved, but fully respected. Each individ- 
ual bank must be separate from and independent of all 
other banks in its ownership and management. The bank may 
be capitalistic — one vote for each share of stock — or it may be 
co-operative — one man one vote, irrespective of the amount of 
money the man has invested in the corporation — as the statutes 
and its by-laws may provide. 

One bank may not hold shares in another bank. No ofHcer 
or director in one bank may hold either position in another 

bank. No two banks should have 
the same controlling ownership or 
be so closely interrelated as to in- 
terfere with their independence 
or their justly reasonable com- 

These recommendations will 

be combated bitterly in certain 

quarters. They will be resisted 

by men and concerns that are identified with chains of banks, 

holding companies, banking syndicates, and similar monopo- 

Jugallng with asset* 

Essentials in Banking Reform 25 

listic enterprises. Opposition will also come from the whole 
ilk who now fatten by juggling back and forth the assets 
of commercial and savings banks and trust companies. 

But the hour has arrived to go to the very root of this 
matter. If the present system is to be the root of a tree that 
shall branch out into a perfect method of finance, all diseased 
parts of the roots must first be cut out, and the wounds upon the 
roots remaining must be thoroughly sterilized. No half-way 
job, either! The American people mean business now. They 
know, too, that rigid compliance with this recommendation will 
eventually benefit all legitimate banking — and the people will 
no longer permit any other kind of finance ! 

No national bank should be authorized to establish a 
branch, since the purpose now is to encourage the people in each 
locality to co-operate in doing their own banking, until they 
reach the condition which entitles them to consideration from 
a big bank. 

No officer or employee of any bank shall receive or accept 
any reward, favor or consideration of value for granting or 
denying bank accommodation or for otherwise performing any 
banking service in his official capacity as an officer of the bank, 
other than the compensation specifically agreed upon between 
the bank and the officer. No "rake-offs," no hold-ups; do busi- 
ness on the square. 

Equality for All 

Whether formed under national or state laws, banks should 
have equal rights and privileges, equal duties and responsibil- 
ities, equal treatment and consideration. 

Unincorporated banks, private bankers, and ah similar 
fiduciary concerns, or individuals who solicit and receive moneys 
on deposit, should have a lower legal standing than incor- 
porated banks. 

Both classes should be subject to the same laws, official 
inspection and public supervision. Abolish the "twilight zone" 
between public banking and private banking, for it is that misty 
haze which covers many abuses and much chicanery. 

26 First P*r in c i pi e s 

" Private f^' Bankers Not Exempt' 

No form of private banking- should be allowed, meaning 
by that the conduct of banking functions by individuals or cor- 
porations^ not subject to public supervision. While there are 
many private banks of' long standing^and the liigKest reputation-, 
and while too many 'failures have occurred^ eveiv among" batrks 
conducted under official oversight, nevertheless^ every concern 
in the baiik-ing business should be subject to the same rigid 
inspection, supervision and control that is now exercised over 
national banks by the federal law; and over state banks' by the 
banking^^ commissioners in' those states which have the most 
perfect system of inspection. 

Pirivate banking interests are very powerful, and may 
strongly resist being placed under state or- federal supervision. 
High-class concerns that are doing a private banking' business, 
object- to such inspection on the ground that it is an attack upon 
their interests and a reflection upon their integrity. The "wild^ 
cat!' private banks, and irresponsible; and fraudulent people 
engaged in private: banking^, oppose this reform for obvious 

The United States supreme- court has stated- that private 
banking is a- public dangen The private banker may call the 
institution- lie operates his bank, yet it is not his but the- peo- 
ple's, for it handles the people's property. This reform has 
been made effective in. Kansas and protects the people and the 
bankers who do business honestly. No valid argument can be 
adaraaiced; against, this reform, while, every consideration of 
jusitice: fayors it. , The .private banker who- is- doing right has 
nothing to fear from officiaJi inspection ; those- who do f ea^ it 
evidently are doing that which, they should not do. 

^o Undue Interference 

While subject to the most rigid officiar supervision, there 
should be no undue interference with the ordinary business of 
the bank: New and-added functions may be permitted to banks 
if profitablb alike to bank and people, but these new privileges 
should be granted only on condition that the public as vroW as 
the banks arc adequately safeguarded. 

Essentials in Banking Reform 27 

Each incorporated bank whi^h now exists, and those here- 
after established, should be permitted to continue in business 
uninterruptedly, and without undue interference or unnecessary 
espionage, so long as they are conducted properly. 

Instead of interfering with or restricting the usefulness of 
existing banks, the methods described herein will enlarge their 
powers, increase their privileges and enhance their service. But 
these methods will have a tendency to increase rather than 
diminish the number of banks, and also may retard the present 
tendency toward amalgamation of banking institutions. 

While strictly subject to rigid laws, all forms of banking 
require the largest liberty and facility in securing deposits, 
mobilizing credits, facilitating exchanges. No unnecessary 
obstacles should be placed in the way of legitimate banking 
enterprise. It should be encouraged, not discouraged. 

Only the individual bank does business with the public — 
the clearing house, the zone league and the American Reserve 
Union do business only with, for and between banks. 

No unnecessary interference whatever with the banking 
business, when properly conducted by sound banks with their 
customers, no uncalled-for red tape or bureaucratism, no arti- 
ficial restrictions upon the natural laws of trade and exchange, 
no unwise limitations upon labor or efifort, intellect or character! 

If a bank undertakes more than one class of business, each 
class should be conducted as an entirely distinct and separate 
department. A bank of discount should not employ its savings 
deposits as it does its commercial deposits, but the savings of 
the people should constitute a separate department administered 
in accordance with state and national laws regarding savings 
banks. Trust funds and trustee banking should not be mixed 
with commercial banking. 

All things being equal, banking should be so conducted as 
to employ the people's funds for the promotion of their indus- 
tries and prosperity in the vicinity where the funds originate; 
especially prevent the undue drainage of money and credits 
from country to city. 

28 First Principles 

Collection of Checks Free 

No bank shall make any charge for the collection of checks, 
drafts and exchange. The system of reorganization hereinafter 
proposed is so complete that the present expense of such collec- 
tion will be mostly eliminated. 

It is a service which each bank will gladly perform for the 
other, as so to do will be to the interest of each bank and its 

The utility, efficiency and economy of the check will be 
greatly enhanced by the methods and federations suggested. 

Petty remittances should be made in the form of self- 
clearing postal notes, to the convenience of the public, the 
increase in small transactions between producers and consumers, 
and the elimination of bother and expense for all concerned. 

Precautions in the Public Interest 


It shall be illegal for two or more banks to combine in any 
way to fix rates of interest, or of discount, or of charges for 
collections, or in any other way to conspire to prevent fair 

The national discount rate may be established only by the 
representatives of bank users and bank owners, through the 
American Reserve Union. 

In addition to the penalties already imposed by federal and 
state law for malfeasance in banking offices, let this new proviso 
be made: 

That a bank whose officers violate those newly-to-be-enacted 
sections of law that aim to prevent illegal combination or regu- 
late unfair competition, if convicted upon fair trial in open 
court, shall have its charter revoked, and be placed in the hands 
of a receiver to wind up its business, with due regard to its 
customers' welfare. One bank thus closed out would be enough 
— there would not be another case in a long while! This is not 
sumptuary law; it reaches only those that need it. 

Essentials in Banking Reform 29 

Cater to Popular Needs 

More little banks are needed to facilitate thrift and the 
right use of credit instruments among peoples whose business and 
resources do not warrant the attention of the great banks. Such 
self-help is the best help. 

But right here, and throughout this work, let it be under- 
stood that the co-operative people's bank for savings, loan and 
discount, also the co-operative land mortgage banks, suggested 
in the later pages, are based on facts, not theory. My recom- 
mendations for them are founded upon results, not merely upon 
sentiment. It is condition, not theorv. which confronts us in 
this matter. 

First-class mortgages upon real estate, preferably upon 
owned farms and homes, should be the basis for bonds of uni- 
versal popularity, thus mobilizing land credit without seeking 
to make it support a bond-secured currency. 

Likewise the agriculturist's needs for personal credit in the 
form of seasonal loans must be provided for. 

Various other deficiencies in present currency and banking 
methods, hereinafter set forth, also are to be corrected. 

Co'operative Federation 

The foregoing being effectively provided for, banks should 
be permitted to co-operate to do collectively those things which 
can be done together better than separately; but such co-opera- 
tion must be so conducted as to forever prevent a "money trust," 
and always secure proper representation in banking administra- 
tion of the interest of borrowers as well as lenders, and of the 
state and nation as representatives of the entire public. 

Co-operative federations will give the smaller banks a fair 
field, yet without injustice to the larger banks. For in all 
associations of banks the fundamental principle of co-operation 
must prevail — one member one vote, or one trustee one vote, 
and no voting by proxy. 


First Principles 

Nati&n's Example ta the States 

National banking laws should be so just and perfect that 
their provisions may be incorporated into the laws of the 
respective states, thus securing much needed uniformity. For 
this and other reasons, the present book is confined mainly to 
banking under national law, but with the distinct understanding 
that the principles: advocated may be enjoyed equally.-by institu- 
tions formed under state laws which adequately provide for 

Midricb Bill Dead: 

A plan to reform the national banking system was reported 
to Congress, January 8, 1912, by the National Monetaiy Com- 
mission. That report and its accompanying documents are a 
mine of information, yet in some respects both are singularly 
deficient. The Aldrich bill is aot truly co-operative, does not 
compel independence, between, banks^r neither incorporates nor 
regulates clearing houses, fails to fully utilize those remarkably 
serviceable and well-tried institutions, does not provide for 
many other pressing needs, and does not sufficiently insure 
against possible ulterior manipulation. It entirely overlooks 
the need^for popular, co-operative banking' and landL^nance. 

The fewof the really good" features in that-measure, together 
with many others whose validity is fully attested by experience, 
are herein combined; inta a metiiod that may be so perfected 
as to accomplish all the good which its advocates claimed for 
the Aldrich bill, and vastly- more, while being free from the 
manifold objections- that have led an intelligent people to reject 
the propos-ition of the National Monetary Commission. 




Co'operatioe Finance 

Part Two 

Functions of Banking 

of this Part 

Chapter VI— Exchange and Banking 

Science and art of banking 33 

Elementary principles of exchange 33 
Value standard, registry for set-offs, 

medium of exciiange 33 

Organized production and distribution 34 

Supply and demand 
Bank's part in exchange 
Deposits, credits, loans 
Usefulness of banking functions 

Chapter VII — How a Bank is Conducted 

Lending money and credits 38 

A homely illustration 39 

What the bank gets 40 

Why its shareholders should profit 41 

The bank's service 41 

It is servant, not master 
The bank sells cash and credits 
The borrower is the buyer 
Superiority of banking methods 
The vital point 

Chapter VIII — Book Credits us Credit Currency 

Meaning of book credits 45 

Use and function of checks 46 

What is credit currency? 46 

Diametrically different from "money," 

but performs most of its functions 47 
Mobile, not inflexible as at present 4S 





Characteristics of present issue 49 

Book credits of tenfold importance 50 

Advantages of credit currency 50 

Easy to have it right si 
No over-expansion or undue contraction 

should be permitted 52 

Chapter IX— Defects in American Banking 

Inferior inspection 

Ghastly record of failures 

Resources and management 

The human factor 

Character, co-operation, patriotism 

Departmentized banking; commercial, 
note-issuing, trust and savings fea- 
tures kept separate 


Protection for savings deposits 59 

Trust and savings funds subject to 

state law 60 

Agriculture neglected 6i 

Farmers need two forms of credit — 

mortgage and personal 61 

Many glaring defects in our commer- 
cial banking system 63 

Chapter X—On the Use of Acceptances 

Facsimile example of an acceptance 
What is an acceptance 
The security for it 
Uniform security for discount rate 
Benefits of acceptances 
They explain European advantage over 
American banking 





Acceptances in small transactions 

Short credits on goods in transit 

Facilitate moving the crops 

Remarkably convenient in many ways 
for many people 

Distinction between a note and an ac- 






Functions of Banking 

Lion Capital, smacking ills Jaws witti brutal satisfaction: 
"That lamb Co-operation made Just one good mouthful. What 
a Juicy bit it was! How tat I get on this liind of feed!" 

Lion, very meekly and sollcltoualy: "Now, my dear Lamb, are you quite comfortable? An I keeping 
the flies off from you? It there anything elBO I can do for you?" 

Exchange and Banking 


Chapter VI 

Exchange and Banking 

Science and art of banking 

Elementary principles of exchange 

Value standard, registry for set'offs, medium of exchange, 

organized production and distribution 
Supply and demand 
Bank's part in exchange 
Deposits, credits, loans 
Usefulness of banking functions 

iCIENCE is knowing, art is doing — theory 
• and practice, why and how. The art of 
hr-* banking is well developed, the science of 
exchange is as yet but little understood. 
The ordinary banker who prides himself 
on "knowing how to run a bank," may 
have but slight acquaintance with the 
philosophy of banking. The customer 
may know how to use the bank, although 
he may be quite ignorant of the science of 
exchange. Some knowledge of the ele- 
mentary principles of exchange, therefore, will aid to a compre- 
hension of the functions of banking. 

Principles of Exchange 

First, there must be a standard for the measurement of 
values ; the present standard is gold. 

Secondly, the exchange of values requires a place of registry 
where one value may be set off against the other value for which 
it is exchanged ; the bank is such a place. It is no longer possi- 
ble to pay in gold or in other forms of cash the sums involved in 
the multifarious exchanges of value. Such barter of money for 
commodities has been supplanted by the modern art of banking, 
much as the motor-vehicle has superseded the oxcart. 

Science and Art 


Functions of Banking 

Thirdly, formal documents are also required to express the 
amount and terms upon which any given value is to be ex- 
changed, and to convey the security for the transaction. These 
paper instruments constitute the medium of exchange. 

Organized Production and Distribution 

A fourth principle of fundamental importance is also in- 
volved: Industry and commerce must be so organized that the 
products of human labor may be in a form that shall facilitate 

exchange. Then the more per- 
fect the agencies for transporting 
and distributing the product, the 
more readily the one can be ex- 
changed for the other, and the 
more available will be their 
exchangeable value. 

Iron, wheat, gold, or any 
other commodity on a desert 
island inaccessible to the world, 
possesses no available value, be- 
cause they cannot be exchanged 
for other articles of value. To 
set up a modern bank on such an 
island, equipped with every con- 
venience for exchange of values, would not help the situation. 
The iron, gold and wheat would still be valueless because still 
inert, inactive, not exchangeable, not in demand. But make 
these resources accessible to the world, let people know that iron, 
gold and wheat can be obtained more readily from this supply 
than from any other source, and the demand at once creates a 
value for that which previously was inactive and dead. Forth- 
with the island is populated, its miners and farmers exchange 
their products for manufactures, and the bank forms a most use- 
ful agent in effecting these exchanges. 

Supply and "Demand 

Supply and demand regulate values, though artificial regu- 
lations may interfere with the operation of this natural law. It 

Making Money Work 

Exchange and Banking 


is as immutable as the tides, resistless as the sun! No 
man can say exactly the point at which demand begins or 
ends, or where supply ends or begins in its relation thereto. 
Like other natural forces, supply and demand tend toward equi- 
librium, but cannot maintain it: ever the contention of positive 
and negative forces — evolution! 

But supply can be adapted to demand. The gulf between 
producer and consumer may be bridged ; it can never be filled. 
Organized association of effort in production, transportation and 
distribution, will help promote the 
more harmonious operation of the 
natural laws controlling supply 
and demand, but those laws will 
endure. Man's stint is to get into 
gear with Nature, and keep in 
gear so as not to be ground to pow- 
der between the gears! 

Right here exchange plays an 
important part. The more per- 
fect the mechanism of exchange — 
which has been briefly described 
above — the more readily may demand adapt itself to supply, or 
vice versa. 

The Bank's Part in Exchange 

In the mechanism of exchange, the bank is an important 
factor, an integral part, an indispensable cog in the gearing of 
the machinery of trade. But in, by and of itself, the bank 
creates no demand, creates no supply, creates no value; it is 
simply the agency through which exchanges are effected and 

For, while a bank may have large resources, it may possess 
but a relatively small amount of gold or of cash in other form ; 
aside from this reserve in cash, its resources are invested in loans 
to its customers or in bonds, stocks and other securities, and its 
profits arise mainly from the income it receives for its services 
in making such loans and in otherwise facilitating the exchanges 
in which its customers are engaged. 


The ocean of supply rolls upon the shofee of 
demand, and no king's order of man's barrier can 
stay the rise and fall of the tide. 


Functions of Banking 

Deposits, Credits, Loans 

5. In addition to its own capital, the bank receives deposits 
of money and of credit instruments which otherwise might be 
idle. The savings and capital of the people, whether small or 
large, can thus be put to useful purpose. Instead of remaining 
unproductive in their homes, or wherever money may be stored 
when not in use, the people bring it to the bank, and the bank 

lends it to those who can make 
good use of it, preferably for pro- 
duction or distribution — exchange, 
rather than for mere speculation. 
6. Equally important, if not 
even more so, is the power of the 
bank to lend its own credit, as de- 
scribed in the next chapter. » 

Especially if loans are made 
to individuals or corporations in 
the neighborhood of the bank, then 
the otherwise unproductive capi- 
tal and credits are now employed 
in their midst and to the general 
advantage of all the people. Only 
when money or credits are busy are they thus productive, or 
dynamic; otherwise, they are idle or static. 

7. The bank may also afford a safe deposit for the valua- 
bles of its customers. It may serve them in various fiduciary 
capacities, including the purchase or sale for customers of invest- 
ment securities, and advice on financial matters. 


Owned by the people, is of, by and for them, 
whether on farm, in factory, store or office. 

Usefulness of Banking Functions 

Thus the bank is an agency through which the people co- 
operate to secure the wise use of their funds, to promote 
exchanges of values, to foster the distribution of commodities 
and acts as a financial center for its patrons. 

In these ways the modern bank is becoming more and more 
indispensable and helpful. The better it serves its clients, the 
greater their number, the larger their deposits and borrowings, 

Ex change and Banking 


then the larger are the profits of the bank — either for its share- 
holders, if run for private profit, or for distribution among its 
patrons, if operated on the co-operative plan. 

These principles, upon which are founded the science of 
banking, prove the indispensable convenience of these institu- 
tions. Their usefulness is so great, their operations can be so 
improved and enlarged for the pxiblic welfare, that every reason- 
able effort should be made to increase the number and efficiency 
of banks, especially in a form whereby the masses may benefit. 

Before organizing: Many difforont lots of varying 
quality In different siilpments by different railroads to 
different middlemen; big expense, small returns to pro- 
ducers, tiiough consumers pay high prices. This Is 
one reason for the high cost of living. 

After organizing: The stuff is classified into gra.des 
of uniform quality, forwarded in one shipment by 
trainioad on one railroad, sold at auction on thv mar- 
ket; little expense, big returns to producers, less price 
to consumers. 



Functions of Banking 

Chapter VII 

How a Bank Is Conducted 

Lending money and credits 

Jt homely illustration 

What the bank gets 

Why its shareholders should profit 

The bank's service 

It is servant, not master 

The bank sells cash and credits 

The borrower is the buyer 

Superiority of banking methods 

The vital point 

HE business of the ordinary commercial bank is 
conducted in quite a simple manner. It loans 
to borrowers the funds it receives from depos- 
itors or from its own capital, and also 
loans its credit. It pays as little interest 
as possible to secure the deposits it lends, 
and obtains as good rates as may be upon 
the loans it makes. If the bank's expenses 
are kept down and losses avoided, satis- 
factory profits are secured. The average 
dividend upon the actual capital invested 
in national banks is now about lo per cent 
annually, after paying its losses and adding something to its 
reserves. In some instances, profits have been so large as to 
permit of stock dividends, generous or even extravagant in size. 

These profits could not be secured by loaning merely the 
capital, surplus and deposits of the bank. Its earnings, as well 
as its usefulness, depend largely upon the extent to which the 
bank may lend its credit, with safety to all concerned. A homely 
illustration will make plain this fact. 

"Aw, get off'n his tail, Uncle Sam!' 

How a Bank Is Conducted 39 

M Homely Illustration 

Let us suppose that John Doe is a man of character, of good 
judgment and of reputation for paying his bills. He may be 
possessed of property in lands, merchandise and other forms of 
wealth, but his available cash may be limited 
to $1,000, which is to his credit at the bank. As 
he resides in a cotton-growing region, and 
market prospects for that staple look good to 
him, he decides to buy $10,000 worth of cotton 
for re-sale to domestic or foreign manufactur- 
ers. He arranges with the local bank for a 
loan of $10,000 on his note, and as security for 
this loan he gives the warehouse receipts for the a Homoiy illustration 
cotton as fast as he buys it. The bank does not 
give him $10,000 in cash, but it credits his account with $10,000, 
so that he may check against that sum. 

Suppose Mr. Doe buys $1,000 worth of cotton from Mr. A, 
and a like amount from B, C, D, E, F, G, H, I, J, respectively. 
Each of these ten planters delivers the cotton at the warehouse, 
and receives from Mr. Doe a check for $1,000, which they forth- 
with deposit in the same bank. The result is that of the $10,000 
which was credited to Mr. Doe, $1,000 of it is now transferred 
(on the bank's ledger) to each of the ten depositors; that is, Mr. 
Doe's account is charged with the $1,000 which is credited to 
Mr. A's account, and so on. 

Now assume that Mr. A owes $50 each to ten different 
individuals in the vicinity. He proceeds to pay each of these 
creditors by sending them his check for that amount, whereupon 
his debts are all paid and he has a balance of $500 to his credit in 
the bank. Assume that each of the other nine planters do like- 
wise ; thus debts are paid off to the amount of $5,000 by the ten 
planters, and they will have left a like amount in bank. Ere 
four months have elapsed, Mr. Doe has sold the cotton at a nice 
profit, has paid his note, and added his profit to his balance at 
the bank. 

Observe that throughout all these transactions, not a dollar 
has been used of currency or of cash in any form. No actual 


Functions of Banking 

money has changed hands. The bank simply loaned its credit, 
for which it was paid in advance at the rate of six per cent inter- 
est per annum. Furthermore, the fifty checks that were issued 
to pay ofif sundry debts, were also deposited in the bank to the 

credit of the payees, who likewise 
check against same in settlement 
of their accounts with others. It 
may be that in this way several 
hundred different debts will be 
wiped out that aggregate several 
thousand dollars, yet not a dollar 
of actual money will change hands, 
V^sjs ^^\ W ^/^J ■^hi^s ^^'^h o^ the ten planters may 
\ I ^^^y hsc^t a snug balance left to their 

credit for the future. 

The cotton buyer's credit is good at the bank, he 
pays Messrs. A, B, C, D, E, etc., by check, they 
deposit their checks right back in the bank, and 
proceed to pay their debts by check. Everybody 
liquidates, but no cash used. 

All concerned have profited 
by these operations — the bank, the 
dealer, the planters and their 
creditors. The expense involved has been almost infinitesimal, 
the risk is avoided of having to keep or handle cash, and there 
has been no drain upon the supply of cash or currency, either 
within or without the locality. 

What the Bank Gets 

Now what has the bank done and what has it received for 
its services? For the loan of $10,000 for four months at six per 
cent it receives $200. Against this loan the federal law obliges 
the national bank to set aside a reserve in lawful money equal to 
15 per cent, or $1,500; therefore, the bank loses the full interest 
on this $1,500, which at the same rate amounts to $30 for the four 
months, but this loss is reduced to $20 if the bank gets two per 
cent on its reserve by depositing the $1,500 in a central reserve 

Therefore, the amount received by the bank for the service 
or "accommodation" extended to Mr. Doe is $180. Out of this 
the bank has to pay all its expenses of operation, including losses, 
should set aside something to add to its reserve, and the balance 

How a Bank Is Conducted 


of free net profit remaining will be available for dividends upon 
the capital stock of the bank. Since its shares are usually held 
among the people in the locality, or should be so owned, its 
profits accordingly are divided among the local public. 

If any bank makes abnormal profits from its legitimate 
business, another bank is quite certain to be established to com- 
pete with it. Thus rates for money are kept down to a com- 
petitive basis, if our system of free banking operates properly. 

Shareholders Entitled to Profit 

And what have the shareholders done to entitle them to the 
8 or 10 per cent dividends usually paid by national banks? 
Each $100 par value of capital stock is the bank's first and paid 
up reserve. In case of liquidation, every depositor and other 
creditor of the bank must be paid in full before the shareholders 
get any part of the assets. 

If the assets are not sufficient to pay the debts, then each 
share of national bank stock may be assessed another $100, or so 
much thereof as may be necessary to pay the creditors in full. 
For assuming such an obligation, the shareholder in a national 
bank is justly entitled to a reasonable dividend, but not excessive 
compensation. How serious this obligation may become ap- 
pears from the failures among national banks that have assessed 
shareholders $20,000,000 over and above the loss of their original 

The Bank's Service 

Through the agency of the bank, the produce of farm and 
factory is transformed into gold, or into money, credit currency, 


0M& MA^WtT. 



42 F u n c ti Q n s f B an k i n g 

bank credits, or credit instruments, all as good as gold. In a 
word, the bank temporarily coins the equivalent of gold out of 
the produce as it passes from the producer to the middleman on 
its way to the consumer. This equivalent is either {a) in cash, 
or {b) in the form of temporary credit instruments, which latter 
should go out of existence the moment their function is per- 

This is a great service, and for it the servant, which is the 
bank, receives under a proper system only what is a reasonable 
compensation, the net profits of which are divided among the 
shareholders who back up the bank. Under a righteous method, 
therefore, producers say to the bank, which is their servant: 

"We require you to loan us your cash or your 
credit in effecting our exchanges; every dollar of 
cash or credit thus extended you must keep as good 
as gold ; you must let us have our money whenever 
we want it ; you must assume the risk of loss in case 
the borrower fails to pay; you must do all the 
accounting and other work incidental to our bank- 
ing business ; and for this we are willing to pay you 
a reasonable compensation." 

To meet these demands, in case the bank itself has not suffi- 
cient funds on hand at any particular time, then it should be able 
readily to issue its own notes to a limited and temporary extent, 
or to borrow on its assets, or to rediscount the notes of its cus- 
tomer?, thus securing additional funds to tide over the 
emergency. Yet this must be so done as to avoid the error of 
seeking to make assets out of liabilities. Not even a bank can 
lift itself by its bootstraps! 

Banks Sell Cash and Credits 

Whereas the farmer sells produce, the manufacturer sells 
goods, the worker sells labor, but the bank sells its cash or its 
credit. The bank must sell its credit or money, or it can make 
no profit. The bank must collect the sums due it, just as the 
farmer, manufacturer or laborer must collect for their produce, 
goods or labor. All four of these interests have bad debts occa- 

How a Bank Is Conducted 


sionally, and the principle of business is to have few losses, so 
that profits may not be reduced thereby. 

The vital difference between the bank and the individual 
is, that the bank does business almost entirely on borrowed capi- 
tal — in the proportion of about $i of its own money to $io of 
its depositors' or its credits; whereas with the farmer, manu- 
facturer or laborer, the reverse 
is true-^they usually use $5 to $8 
of their own money for each $1 
of their debts. Another differ- 
ence is that the bank's borrowed 
funds (deposits and credits) are in 
danger of being called for any 
minute, whereas the business 
man's obligations are usually for 
a fixed period. 

The buyer is a buyer, whether 
he wants money or credits in the 
form of a loan, or wants produce, 
goods or labor. The producer 
is a seller, be he banker, farmer, manufacturer or laborer. 
Neither of the four can sell if they haven't the stuff to sell, or 
can't get it; nor will they sell, if they think they won't get 
their pay. 

Superiority of Banking Methods 

How much superior is the method of our homely illustration 
to the common plan of draining cash away from either home 
or foreign banks, in order to pay for the cotton, only to have 
the cash eventually get back into the banks ! Meanwhile, such 
demand for cash to move the crops has stiffened the money 
market, advanced rates of discount and made it difficult for 
cotton buyers to get credit cheaply. These conditions have 
caused a hesitating tendency in all business, merchants and 
manufacturers are forced to be more conservative, prices sag 
off, and dealers take advantage of the situation to "bear" the 
price to the farmer of the additional cotton or other produce 
they require. 

Bank Is Servant, Not Master 

44 F u n c ti n s f B an kin g 

All these unfavorable influences are done away with when 
bank credits expand automatically to meet the demands of the 
season, and then as automatically contract after those extraor- 
dinary demands have gone by. 

The Vital Point 

It is more convenient for all concerned tha.t Mr. Doe should 
pay for his purchases of cotton by means of checks against his 
book credit at the bank, but the same transactions may be effected 
with money or bank notes. 

The vital point is not the particular form of the instrumen- 
tality wherewith the bank's credit has expanded to meet the 
situation, but the vital point is that the credit was granted, the 
accommodation was extended at the time it was needed, and the 
various instruments used for transferring these credits went out 
of existence as soon as their purpose was fulfilled. 

This is a perfect illustration of a form of credit expansion 
and contraction which is greatly needed at least twice each year. 
The wise use of the same principle, in times of stringency and 
threatened panic, will usually avert serious financial trouble. 

' United to assist, not combined to injure ' 

Book Credits v s Credit Currency 


Chapter VIII 

Book Credits vs Credit Currency 

Meaning of book credits 

Use and. function of checks 

What is credit currency? 

Diametrically different from "money." but performs most 

of its functions 
Mobile, not inflexible as at present 
Characteristics of present issue 
Book credits of tenfold importance 
Advantages of credit currency 
Easy to have it right 
Mo over^expansion or undue contraction 

T IS apparent from the preceding 
chapter that proper conveniences 
for the wise and safe expansion 
and contraction of bank credits 
are more important than any 
other phase of the monetary prob- 
lem, other than the standard of 
values itself. Of course, it is im- 
perative that banks should have 
an adequate reserve of govern- 
ment money to meet extraor- 
dinary demands upon them, also 
that all money and instruments of 
credit should be as good as gold. 
Hence, the need of co-operation between banks to protect their 
reserve, and to consolidate the stock of gold so that it may be 
most wisely employed wherever and whenever needed. But 
these relations of book credits to credit currency call for further 

Meaning of Book Credit 

The placing by the bank of a credit upon a customer's 
account, against which he may check, is what is called a "book 


46 Functions of Banking 

credit." This form of credit is the one so universally employed 
in America. 

More than 90 per cent of our infinitely numerous business 
transactions, outside of retail trade, are probably settled with 
checks. Their convenience and economy were simply expressed 
in the homely illustration previously cited. Their use and 
function are destined for still greater efficiency. 

Of course, the book credit may be created either by (a) an 
advance of the bank's own credit, as cited on page 39, or by {b) 
deposits by oneself in the bank to one's own credit of money — 
coin or government money, currency or credit instruments. So 
long as your credit on the ledger of the bank is not exhausted, 
you may check against it, your check will be good, and will be 
accepted as valid for its face value by all who know it is good. 
Its function is completed within a few days, when it flows into 
the bank for payment (redemption), and is then charged to your 
account, reducing by a like sum the balance to your credit. 

Checks or drafts are simply instruments for the transfer of 
credit. They are not currency in any ordinary acceptance of 
that term, neither are they lawful money nor legal tender. They 
are immeasurably convenient, no obstacle should be placed in 
the way of their use, but every facility should be afforded 
whereby all the people may enjoy the great convenience of these 
and other credit instruments. 

What Is Credit Currency ? 

Now, in the illustration already given (page 39) instead 
of placing $10,000 to Mr. Doe's credit on its books, if the bank 
had given Mr. Doe ten cashiers' checks upon itself for $1,000 
each, for him to use in paying the ten planters, the same result 
would have been accomplished. 

Or had these ten cashiers' checks been in the form of bank 
notes issued by the bank itself, in lieu of its checks, the result 
would have been the same, provided these notes are merely 
credit currency to be redeemed within a few days as soon as its 
function is completed, just like a check. 

Book Credits v s Credit Currency 47 

A bank note should be in effect a cashier's check made pay- 
able to bearer, so that temporarily it may pass current without 
the indorsement required on a check, as set out in Chapter IV. 
Charles N. Fowler's generic definition: 

"A bank note is essentially the same in princi- 
ple as a deposit payable on demand. It is a book 
deposit converted into such form that it passes cur- 
rent. It resembles in character a demand certifi- 
cate of deposit or cashier's check — simply a current 
deposit liability of the bank." 

Not "Money" 

The definition quoted is partly right, partly wrong. A 

little change in its wording will make it right, but involves a 

^big change in principle. I think it is more nearly correct to say: 

In a pure credit currency the bank note is a 
book-deposit liability converted into such form 
^ that temporarily it passes current. It resembles 
in character a cashier's check. It is different from 
other deposits in that they represent labor, effort or 
commodities to the value expressed, while credit 
currency is usually 85 per cent fiat, being backed 
by only 15 per cent reserve in the forms usually 
taken by such other deposits. 

It will be seen that the difference between the two defini- 
tions is fundamental. The former aims to make "money" 
out of 85 per cent pure credit, the latter avoids this error. 

If the bank issues its bank notes (credit currency) instead 
of cashiers' checks, these notes may not be regarded as permanent 
cash, like government money — paper or gold, but their nature 
should be such that speedily they will flow back to the bank to 
be redeemed by it, just as its cashiers' checks will come back for 

Credit currency should not presume to be lawful money 
nor legal tender. Though it be obligatory upon any national 
bank to receive at par the notes of any other bank, because all 

48 F u n c ti n s f B an k i n g 

are kept as good as gold, such credit currency may not be counted 
in reserves, any more than may cashiers' checks or other credit 
instruments. The only safe way to create "asset money" is to 
have assets as good as gold ! 

Circulating credit is an order for the payment of money, 
w^hatever may be the nature of the instrument whereby the credit 
circulates. Therefore, credit currency, to quote W. H. Berry, 
"differs diametrically from money in that it does not require 
the sacrifice of an equivalent in value in order that it may come 
into existence." Even the two per cent tax Fowler imposes 
upon credit currency to make it cost the bank the same as other 
deposits upon which two per cent is paid, does not compensate 
for this fundamental difference. Such tax simply makes this 
paper 83 per cent fiat instead of 85 ! 

Yet, important as is this distinction, nevertheless it does not 
materially interfere with the specific functions or usefulness of 
the pure credit currency herein advocated. The full significance 
of this distinction appears in Chapter VII. Of course, law and 
custom must rigidly supervise the issue of credit currency, so 
as to prevent the dangers of inflation and nip in the bud over- 
expansion, while affording accommodation during legitimate 
emergencies and thus guard against undue contraction. 

Mobile, Not Inflexible 

One trouble in the United States has been that national bank 
notes violated the foregoing principle. They are fixed in volume 
and incapable of automatic expansion or contraction, because 
secured by government bonds which are permanent in amount. 
While not legal tender, they possess many of the functions of 
money, because national banks are required by law to receive 
at par the notes of other national banks. There would be no 
change in these respects in the credit currency proposed. 

By transforming national bank notes into a pure credit 
currency, the supply would adapt itself to demand, while over- 
expansion would be prevented by prompt redemption, as is the 
case with checks. This is the nature of the Canadian bank note, 
whose life averages 30 days, while the Scotch bank note averages 

Book Credits vs Credit Currency 


Naturally automatic contraction and expansion 

to be out only i8 days. In the United States, the credit cur- 
rency bank note would probably be out an average of about 30 
days, the variation in its life being controlled by the amount 
temporarily carried in tills and pockets. 

The people of Canada and 
of Scotland evidently use checks 
to a vastly greater extent than 
they call for credit currency, 
since their deposits subject to 
check are some tenfold the 
amount of the credit currency 
outstanding. The English em- 
ploy checks almost as freely as 
we do. In France and Germany, 
on the contrary, credit notes or 
cash are used to a relatively 
larger extent, the people of 
France having in the Bank of 
France only about one-eighth the 
amount of deposits subject to 
check that they hold of the bank's credit currency, showing that 
they prefer and use current credit instead of book credit subject 
to check. In the United States net individual deposits in 
national banks are ten times the outstanding bank notes. 

Present Issue of Bank Notes 

The United States bond-secured notes of national banks now 
in use are virtually a prior and underlying lien upon all the 
resources of the issuing bank. The two per cent bonds, without 
circulation privilege, if thrown on the market would sell at 
about 80. The other 20 points would have to be made good by 
the bank out of its other resources, in order for it to redeem 
its notes at par. 

The present form is therefore credit currency in part, but 
is deprived of one of the latter's chief characteristics in being 
fixed instead of mobile — it cannot now expand when needed, 
and yet contract when not in use 1 Now suppose the bank could 
either keep its bonds or sell them at par, and issue its credit notes 

50 F u n c t i n s f B an ki n g 

as called for by its trade (within safe and prescribed limits), 
such credit currency would then possess exactly the same security 
as backs the present form, with the extra advantage of mobility. 
Even if the bank sells its bonds, it receives in money their full 
par value, so that the security for its notes is not impaired. 

Book Credits of Tenfold Importance 

Subject to the distinctions above noted, one may almost 
agree that it is "immaterial, whether the obligations of a bank 
are in the form of deposits subject to check or of credit currency, 
providing the reserves are ample and the same amount [and 
quality] is required for the protection of each. With the same 
freedom on the part of the bank to issue its credit notes that it 
has to accept deposits subject to check — [that is, being obliged 
by law to pay a tax of two per cent on its notes, so as to put their 
use on a par with its deposits-subject-to-check upon which the 
bank usually pays two per cent interest] — the habits of a people 
will determine whether the deposits of a bank or its credit notes 
are the larger." As a matter of fact, deposits doubtless will 
continue to average nearly tenfold the volume of national bank 
currency, and at times deposits even will be relatively larger. 

Here again is evidence of the truth that instruments based 
upon book credits are fully ten times more important than bank 
currency. Further attestation of this truth is the business of 
the thousands of state banks that have no currency circulation 

Advantages of Credit Currency 

The advantages claimed for credit currency by Fowler are : 

1. It will lower and equalize the rates of interest 

throughout the United States. 

2. It will make the rates practically uniform 

throughout the year. 

3. It will give to the country districts as economi- 

cal a form of credit as the cities enjoy where 
checks are chiefly used. 

4. It will give to the mass of the people, who use 

currency in their smaller purchases, as 

Book Credits vs Credit Currency 51 

economical a form of credit as those enjoy 
who use checks in their larger transactions. 

5. It will make it possible for the banks gener 

ally to serve such of their customers as may 
want currency without disturbing their 
reserves, to the great injury of other cus- 
tomers who have loans which must be paid 
before the currency can be advanced ; for it 
is immaterial to a bank whether it owes a 
depositor or a noteholder. 

6. It will almost invariably prevent any panic 

whatever, and will always avert a ruinous 

7. If at any time contraction of credits becomes 

necessary because too much of the commer- 
cial fund- has been diverted and transformed 
into the investment fund, a credit currency 
will facilitate liquidation without that de- 
struction of values incident to a fixed 
quantity of currency such as we now have. 

Eemy to Have It Right 

The evolution from national-bond-secured currency into 
credit currency would be comparatively simple. The existing 
plates from which national bank notes are now printed, would be 
amended by striking out the words "secured by government 
bonds and other securities," and 
printing thereon boldly in red the 
number of the zone in which the 
issuing bank is located, also its 
own number in its district. Every 
bank would have to redeem its 
own notes — its credit currency — in 

cash over its own counter, through ^^^ ^^^„ ^„„ ^^^ ^^, 

its own clearing house, or through 

the zone league oxits correspondent at its redemption city. This 
redemption would have to be in gold or its equivalent, and thus 
every dollar of credit currency while it is outstanding would be 
as good as gold. 

52 F u n c t i n s f B an k i n g 

Naturally, however, credit currency would not circulate 
very far from the bank of issue, because the individual or the 
bank receiving same would deal with it as they do with a check 
or draft, instead of treating it as money. 

Thus the patrons of banks could obtain their loans in the 
form of a book credit against which they could check, or as 
cashiers' checks, or as drafts upon other cities, or as credit cur- 
rency. For the brief time the latter is outstanding it performs 
all the functions of money or cash, "in its very essence is a cur- 
rent credit of the banks, never too great in quantity, never too 
small, but always just equal to the requirements of trade, and 
always adequate to any demand for money," because redeemable 
at any minute in gold. 

^Jeither OvenExpansion Nor Undue Contraction 

While over-expansion is guarded against as above described, 
the danger of contracting the currency is also insured against. 
For since it will cost the bank no more to loan its credit than to 
loan its deposits, and really less, and since the bank is in business 
to make money, it will loan its credit as well as its deposits so far 
as it can safely do so, up to the limit of its reserves as prescribed 
by law. 

Self-interest, as well as the public scrutiny to which the 
banks are subject, under the proposed system, and the fact that 
the control of the American Reserve Union and of its branches 
is vested in representatives of customers and of the federal gov- 
ernment as well as of the banks, will insure against the evils of 
contracting unduly the issue of credit currency. 

The smaller banks will then be relatively as independent 
as the bigger banks, and both will draw upon the American 
Reserve Union for gold or for rediscounts, so that neither the 
little nor the big banks will be obligated to any one banking insti- 
tution more than another. 

Should any bank willfully or impudently or arbitrarily 
contract its credits, its customers immediately would be grabbed 
up by other banks, its action would be censured by its associates 
in the clearing house, in the zone league and in the American 

Book Credits v s Credit Currency 


Reserve Union, and. it would be "hoist with its own petard." 
Or, if any group of banks attempted contraction of credits, the 
situation instantly would be relieved by rediscounts through the 
zone league of the American Reserve Union. 

J\[o Change in National Bank Currency 

is required, so far as its appearance, function or use by the public 
are concerned. The only change needed is in the law, and 
in banking practice. The resulting difference may be briefly 
compared in this way: 

Credit Currency 

1. Being a. first lien upon both bonds 
and all other assets, it is 
equally well secured. This 
truth is beyond cavil. 

2. This cash is released to loan to 
productive industry. 

3. Automatically expands or con- 
tracts in response to trade re- 

4. Redeemed quickly each day as 
presented, just as checks are 
met, being a substitute for 
checks rather than for money. 

5. Pregnant with benefits, pros- 
perity, success. 

6. Is not legal tender, is not accept- 
ed by banks in lieu of gold, 
cannot deplete the gold reserve, 
cannot weaken the basis of 

7. Wherever employed — France, 
Germany, Scotland, Canada — 
has prevented bank failures 
and promoted financial health. 

8. A complete success, when prop- 
erly safeguarded. 

Bond Currency 

1. Secured by (a) bonds now sal- 

able at 80 cents on the dollar, 
and in effect (b) a first lien 
on all other assets of the bank. 

2. Ties up in bonds cash equal to 

notes outstanding. 

3. Fixed, immobile, inflexible, irre- 

spective of the needs of busi- 

4. Slowly presented for redemption 

because circulating as money 
instead of as checks. 

5. Pregnant with trouble, panics, 


6. Is not legal tender, but circulates 

as "money," and even takes 
the place of gold in central 
reserves, thus weakening the 
basis of all credit. 

7. Has caused a record of financial 

disaster and bank failures un- 
paralleled in history. 

8. An utter failure in spite of all 


Beyond Manipulation 

Indeed, no two or more persons, banks, corporations or 
associations may conspire to expand or to contract credits. 


Functions of Banking 

"accommodation," or interest rates. Under my method those 
matters may be left to automatically regulate themselves through 
the operation of the natural laws of supply and demand. The 
limit to the demand for credits will be the extent to which labor 
and capital may be so employed as to net a profit. The supply 
of credits cannot be manipulated because it is fed by each one of 
our almost 30,000 banks, each of which is a separate entity, inde- 
pendent of all other banks. The co-operative federation pro- 
posed, administered by equal representation of bank users and 
bank owners, with federal trustees holding the balance of power, 
supplies the needed agency through which the gold reserves may 
be mobilized for instant use as needed. Thus my financial 
method becomes impregnable, because it makes safe both busi- 
ness and banking. 

It must ever be kept in mind that the zone league, as well as 
the reserve union, by my method, is controlled as much by bank- 
ing customers as by banking owners, while the federal govern- 
ment itself has controlling voice in the American Reserve Union. 
Thus the interests of the people are insured, and credit currency 
becomes desirable. All this is directly opposite to the monopo- 
listic control of the entire banking and currency system which 
seems to have been involved in the Aldrich bill. 


"^W - 




Unlike the cat with her nine lives, credit currency 
like the checic, has but a brief existence. 

De f e c t s in American Banking 55 

Chapter IX 

Defects in American Banking 

Inferior inspection 

Ghastly record' of failures 

Resources and management 

The human factor 

Character, co'operation, patriotism 

Departmentized banking ; commercial, note'issuing, trust and 

savings features kept separate 
Protection for savings deposits 
Trust and savings funds subject to state law 
Agriculture neglected . 

Farmers need two forms of credit, mortgage and personal 
Many glaring defects in our commercial banking system 

/NSTITUTIONS which perform the important credit func- 
tion, that have the custody and use of the people's funds, 
and that are the custodians of their other valuables, should 
be under the strictest supervision of state officials or of the 
national government. 

The deficiencies in our inspection account in part for the 
. relative frequency of bank failures in the United States, whereas 
bankruptcy is comparatively unknown among the banks of Great 
Britain and Europe. Since adequate inspection is provided for 
in the organization hereinafter proposed, it is needless here to 
further emphasize its importance. 

Ghastly Record of Failures 

The harvest of death among American banks is disgraceful 
beyond all parallel. Their failures are too common and too 
serious, and too many instances have been due to dishonesty 
rather than to misfortune or inefficiency. The record of bank 
failures throws a ghastly light upon the necessity for banking 

56 F u n c t i Q n s f B an ki n g 

National bank failures from 1865 to 1909 inclusive in- 
volved capital, surplus and other liabilities to the enormous 
aggregate of some 350 millions of dollars, of which total only 
120 millions were made good. 

Incomplete data for state banks and private banks for the 
like period show failures for 660 millions. 

Here is the stupendous total of about 1,000 millions of 
dollars as the liabilities of failed banks since the civil war! 
Equal to the aggregate paid-in capital stock of all solvent 
national banks now doing business in the United States! 

The assets of the failed banks appear to have paid a far 
higher percentage of the: debts of national banks than of state 
and private banks. The latter class as a whole paid out only 
45 cents on the dollar of their debts, over a long series of years. 
Failed national banks whose receiverships have been completed 
have netted their creditors an average of 76 cents on the dollar 
from 1865 to 1910. In order to net their creditors 45 to 76 cents 
on the dollar, the stockholders of these banks lost all their capi- 
tal, and in the nationals were assessed 20 millions besides ! Many 
small private banks have failed, data for which are not included 
in the statistics. The facts quoted understate the truth.* 

During the twenty years ended with 1909, "eighty-eight 
banks have failed every year on an average, or more than seven 
banks every month, and one bank about every four days."^ 

No wonder the more progressive bankers now seek a sys- 
tem of self-inspection that shall be perfect. No wonder the 
public demands an official system "of supervision and adminis- 
tration that will prevent dishonest men from robbing banks and 
foolish men from running banks, and a system of bank credits 
and bank reserve that will absolutely protect every bank that 
avails itself of the privileges of such reserves." 

D e f e c t s i n A m e r i c an B an k in g 57 

lifisources and Management 

The bank's capital and surplus over and above all obliga- 
tions, are what insure the depositors that they can get back their 
deposit when wanted. Only after this is provided for may 
profits be divided among shareholders. 

Yet we have seen that when state banks fail they are not 
able to pay a mean fifty cents on the dollar, while failed national 
banks make a better showing partly because of the double lia- 
bility of their shareholders. 

The difference between success and failure, in banking as 
in everything else, is due more to differences in management and 
judgment than to lack of capital. It is easy enough when you 
know how. The human factor is the vital factor! 

Obviously, this banking is a quasi-public business, for it 
affects every branch of industry, and is vitally connected with 
the interests of employed and employer, producer and consumer. 

Hence, also, the obligation upon the bank to wisely and 
safely employ its resources in promoting industry and prosperity 
among the people of its own bailiwick, yet not to the extent of 
jeopardizing its resources. 

Hence, too, the need of co-operation between banks for 
mutual support in times of stress. And finally we see that much 
more is required than official supervision and ultimate public 
control. The interest of each individual bank-shareholder and 
customer, director and officer, employee and helper, is 
demanded. No system of laws or oversight can take the place 
of character, co-operation and patriotism in a right banking 

Departmentized Banking 

The federal law intended that national banks should con- 
fine themselves to what is called commercial banking. Of late 
years, however, many of them have instituted savings depart- 
ments, upon the theory that what the law does not forbid is 
authorized.^ Equality of opportunity between national and 
state institutions in the matter of trust company business also has 


F un c ti O'ti s of Banking 

been suggested. Such equality may be: legalized, but only pro- 
vided equal opportunity is accompanied by equal responsibility, 
not' otherwise under any circumstances whatsoever. 

It is proposed that any national bank having $25,0(X> capital 
or more may be permitted to issue its credit currency, and that 
such banks having $50,000 capital or more may conduct the 
functions of a trust company, also that all national banks may 
institate savings departments. Such authority can be granted 
only under provisions strictly requiring the entire separation of 
these three functions from each other and from the regular com'- 
mercial business of the bank. Departmentized banking may 
justly be instituted upoa: 

I. The commercial department of a national bank should 
be strictly confined to what is meant by a regular banking busi- 



ness, receiving moneys on current account, making current loans, 
discounting commercial paper, etc. 

2. The note-issuing function of a national bank must be 
kept absolutely distinct from its other business. It constitutes 
a separate department, for purposes of safety, administration, 
inspection and taxation. Even with equal responsibility and 
oversight, the national bank will still possess one advantage over 
the state institution, in that only the "national" may issue its 
own credit currency. But since that form of temporary deposit 
liability is to cost the bank ia taxes practically as much as the 
interest it pays on current deposits of actual cash, the advantage 
to the national is more apparent than real. Certainly the fed- 
eral government can never permit state banks, which are not 
under its entire control, to have the note-issuing function. 

D e f e c t s in A m e r i c an B ankin g 59 

3. All trust company business, such as trusteeship, the 
execution of wills and similar fiduciary trusts, if undertaken by 
a national bank, must be conducted in accordance with state 
laws and under state inspection. 

Protection to Savings Deposits 

4. The savings department should be confined wholly to 
the receipt of the people's savings deposits, and the investment, 
care and repayment thereof. 

The savings department of any national bank should be con- 
ducted in accordance with the laws of the state in which it is 
located, concerning savings banks, savings deposits and savings 
funds. It is not right to permit nationals longer to conduct 
savings departments independent of the laws of their states. 

It is not right that the people's savings deposited in nation- 
als, or in state commercial banks, should be used in such bank's 
commercial business and thus be subjected to all the risks of 
daily trade. Pennsylvania, New York and the New England 
states have developed a great system of mutual savings banks, 
as a result of over 100 years' experience; their methods and laws 
should be applied in each of the other states, and all national 
banks conducting savings departments should operate the same 
in harmony therewith. 

The vital importance of this reform, in both national and 
state banking, is emphasized by this great fact: of the more than 
four billion of savings deposits in the United States, only three- 
fourths are in states — New England, New York, New Jersey, 
and Pennsylvania^^under sufficiently strict legal requirements, 
while the remaining more than one billion of the people's sav- 
ings "are in the capitalized savings banks, state, national, and 
private banks, and trust companies of the other states, most of 
which have invested these savings funds under no legal restric- 
tions whatever." 

Still worse, as Pierre Jay points out, these savings deposits 
in these other States, "are not secured creditors, nor even pre- 
ferred creditors. As a matter of fact, they may actually become. 


Functions of Banking 

at the option of the bank, deferred claimants. Such banks may 
enforce the ninety-day clause against the withdrawal of savings 
deposits, meanwhile permit their other deposits to be with- 
drawn, and thus oblige the bank to dispose of or borrow upon 
its liquid assets in order to meet the demands of its commercial 
depositors, and have nothing left for the savings depositors but 
the unrealizable assets." 

There can be no disputing the imperative need of providing 
state and federal laws, and such co-operation between state and 

nation in their enforcement, 
that the savings depositor may 
"know that in every author- 
ized place of deposit, his sav- 
ings are subject to exactly the 
same protection, and are 
invested in exactly the same 
manner, which nearly a cen- 
tury of experience has shown 
to be peculiarly wise and 

For savings investments, 
by either the state or national 
banks, there can be nothing 
better than the land bonds here- 
inafter provided for. They will also afford one of the best of all 
investments for savings funds in postal banks. The foregoing 
considerations are imperative, otherwise millions upon millions 
of savings will drift into commercial business and into specula- 
tion which should be invested in land bonds or mortgages. 

Reform can be accomplished in a very simple way. Each 
state should adopt the savings bank requirements of New York 
or Massachusetts, and the same should be embodied in the 
federal banking act. This reform, to further quote Pierre Jay, 
"works along the line of least resistance, does not drive any 
existing bank out of business, does not disturb their commercial 
business, and still permits them to make a profit out of the 
handling of savings deposits," while at the same time absolutely 
protecting savings depositors. 

Banking Hot a Private Snap. 

Defects in American Banking 


In the event of the failure of a national or state bank having 
a savings department, should the assets in said department fail 
to pay the savings depositors in full, the balance due them should 
constitute a relatively preferred claim against the remaining 
assets of the bank. 

Agriculture Neglected 

The American fiscal system, and our lack of system in 
banking, also have operated to the detriment of our fundamental 
industry — agriculture. In America, agriculture is the basis of 
wealth. Agricultural 
credit is the basic credit. 
Intrinsically speaking, the 
farmer's credit is the best 
credit, but because of his 
lack of organization, it is 
often a slow^ form of credit. 

While the farmer's 
accommodation should be 
among the first objects in 
banking, too often it has 
been the last. Because 
other forms of credit have 
been more attractive, more 
available, and more profit- 
able to commercial bankers, 
the discrimination against 
farmers has been persistent, 
insidious, increasing, until 

it has become well nigh a subconscious habit, at least in some 
places. Some country banks have become feeders of metropol- 
itan speculation rather than fertilizers of rural needs. 

The usual excuse is the correct one, that the system is 
wrong, and that no one bank can correct prevailing conditions. 

The Farmer's Need for Credit 

I. The farmer may require a permanent loan for a long 
term of years, secured by a mortgage upon his farm. If he can 

Agriculture Neglected 

62 F un c t i o n s of B an kin g 

get such money at reasonable rates of interest and easy terms of 
repayment, he. will use the capital for permanent improvements 
that will pay a fair profit upon their cost. 

2. But even if a farmer has his place paid for, or has 
bought or improved it on mortgage, he usually needs working 
capital in order to buy his supplies in the spring, or the cattle 
he wishes to feed for market, or the other manifold needs of 
agriculture. Provided with such "accommodiation" at reason- 
ble rates, and given eight to sixteen months in which to pay it 
instead of the three or four months customary with commercial 
paper, and the farmer can produce more and market his product 
to better advantage. 

No adequate system exists for providing the first need, and 
in too many places still less facilities are afforded for rural 
"accommodation." Hence, relatively high rates of interest, and 
expensive methods in loaning money to farmers for either long 
or short terms. 

Remedy these conditions, supply farmers with cash and 
credits at reasonable rates, and agriculture will witness a vast 
improvement, production will increase, and the high cost of 
living will be greatly reduced. There is no substitute. 

The lack in farm finance reveals underlying economic con- 
ditions that drive people from country to cities. Those econo- 
mists and statesmen who have sought financial principles rather 
than panaceas, are beginning to realize the truth compressed 
into the axiom known as "Myrick's law" : 

"Other factors being equal, agriculture will 
progress in the ratio that farmers employ CASH, 

To supply the two needs first mentioned requires organ- 
ization among farmers and co-operation with them on the part 
of banks, reinforced by a public opinion appreciative of rural 
needs, and of the farmer's true relation to the public. 

More than a century ago Germany solved the problem of 
mobilizing land as a basis- of "permanent dedit," and it is nearly 
fifty years since the Germans learned how to co-operate to supply 

Defects in American Banking 


the seasonal needs of agriculture through "personal credit." But 
the American farmer's needs are not to be met by merely trans- 
planting foreign institutions to his soil, nor by granting the 
farmers petty favors. 

Another defect in the American banking system is the 
absence of what may be called little people's banks to serve the 
interests of v^orkingmen and those in very moderate circum- 
stances in cities and tov^ns. Their needs are quite different 
from the farmer's needs. 

The producing and consuming masses, whether in country 
or town, want no financial favors — they simply want financial 
justice to one and all. It is entirely feasible and a relatively 
simple matter to accord the masses the opportunity to create 
the banking facilities they require, by the methods described 
later on in this work. 

Glaring Defects in Commercial Banking 

All intelligent opinion agrees with the following terrible 
indictment of America's present banking system, uttered by the 
National Monetary Commission — the one feature of its work 
which meets unanimous approval: 

1. We have no provision for the 
concentration of the cash reserves of 
the banks and for their mobilization 
and use wherever needed in times of 
trouble. Experience has shown that 
the scattered cash reserves of our 
banks are inadequate for purposes of 
assistance or defense at such times. 

2. Antiquated federal and state 
laws restrict the use of bank reserves 
and prohibit the lending power of 
banks at times when, in the presence 
of unusual demands, reserves should 
be freely used and credit liberally ex- 
tended to all deserving customers. 

3. Our banks also lack adequate 
means available for use at any time 
to replenish their reserves or increase 
their loaning powers when necessary 
to meet normal or unusual demands. 

4. Of our various forms of cur- 
rency the bank-note issue is the only 
one which we might expect to respond 
to the changing needs of business by 
automatic expansion and contraction, 
but this issue is deprived of all such 
qualities by the fact that its volume 
is largely dependent upon the amount 
and price of United States bonds. 

5. We lack means to insure such 
effective co-operation on the part of 
banks as is necessary to protect their 
own and the public interests in times 
of stress or crises. There is no co- 
operation of any kind among banks 
outside the clearing-house cities. 
While clearing-house organizations 
of banks have been able to render 
valuable services within a limited 
sphere for local communities, the lack 


Functions of Banking 

of means to secure their co-operation 
or affiliation in broader fields makes 
it impossible to [now] use these or 
similar local agencies to prevent 
panics or avert calamitous disturb- 
ances affecting the country at large. 
These organizations have, in fact, 
never been able to prevent the suspen- 
sion of cash payments by financial 
institutions in their own localities in 
cases of emergency. 

6. We have no effective agency 
covering the entire country which 
affords necessary facilities for making 
domestic exchanges between different 
localities and sections, or which can 
prevent disastrous disruption of all 
such exchanges in times of serious 

7. We have no instrumentality 
that can deal effectively with the 
broad questions which, from an inter- 
national standpoint, affect the credit 
and status of the .United States as one 
of the great financial powers of the 
world. In times of threatened 
trouble or of actual panic these ques- 
tions, which involve the course of for- 
eign exchange and the international 
movements of gold, are even more 
important to us from a national than 
from an international standpoint. 

8. The lack of commercial paper 
of an established standard, issued for 
agricultural, industrial, and commer- 
cial purposes, available for invest- 
ments by banks, leads to an unhealthy 
congestion of loanable funds in great 
centers and hinders the development 
of the productive forces of the 

9. The narrow character of our 
discount market, with its limited 
range of safe and profitable invest- 
ments for banks, results in sending the 
surplus money of all sections, in excess 
of reserves and local demands, to 
New York, where it is usually loaned 

out on call on stock exchange securi- 
ties, tending to promote dangerous 
speculation and inevitably leading to 
injurious disturbances in reserves. 
This concentration of surplus money 
and available funds in New York im- 
poses upon the managers of the banks 
of that city the vast responsibilities 
which are inherent in the control of a 
large proportion of the banking re- 
sources of the country. 

10. The absence of a broad dis- 
count market in our system, taken 
together with the restrictive treat- 
ment of reserves, creates at times 
when serious financial disturbances 
are anticipated a condition of de- 
pendence on the part of individual 
banks throughout the country, and at 
the same time places the farmers and 
others engaged in productive indus- 
tries at a great disadvantage in secur- 
ing the credit they require for the 
growth, retention, and distribution of 
their products. 

11. There is a marked lack of 
equality in credit facilities between 
different sections of the country, re- 
flected, in less favored communities, in 
retarded development, and great 
disparity in rates of discount. 

12. Our system lacks an agency 
whose influence can be made effective 
in securing greater uniformity, steadi- 
ness, and reasonableness of rates of 
discount in all parts of the country. 

13. We have no effective agency 
that can surely provide adequate bank- 
ing facilities for different regions 
promptly and on reasonable terms to 
meet the ordinary or unusual demands 
for credit or currency necessary for 
moving crops or for other legitimate 

14. We have no power to en- 
force the adoption of uniform stand- 
ards with regard to capital, reserves, 
examinations, and the character and 

Defects in American Banking 


publicity of reports of all banks in the 
different sections of the country. 

15. We have no American bank- 
ing institutions in foreign countries. 
The organization of such banks is 
necessary for the development of our 
foreign trade. 

16. The provision that national 
banks shall not make loans upon real 
estate restricts their power to serve 
farmers and other borrowers in rural 

17. The provision of law under 

which the government acts as cus- 
todian of its own funds results in 
irregular withdrawals of money from 
circulation and bank reserves in 
periods of excessive government reve- 
nues, and in the return of these funds 
into circulation only in periods of 
deficient revenues. Recent efforts to 
modify the independent treasury sys- 
tem by a partial distribution of the 
public moneys among national banks 
have resulted, it is charged, in dis- 
crimination and favoritism in the 
treatment of different banks. 


hav« banks failed In th* United States at tlie rate of one bank 

abaut every feur days for 20 years? 

as the Aldrich report quoted above truly says, there are teven< 
teen terrible defects in our system of commercial banking, not to 
mention the absenc» of agricultural finance and land banking. 

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On the Use of Acceptances 


Chapter X 

On the Use of Acceptances 

What is an acceptance? 

The security of it 

Fac'simile example of an acceptance 

Uniform security for discount rate 

Benefits of acceptances 

They explain European advantage over American banking 

.Acceptances in small transactions 

Short credits on goods in transit 

Facilitate moving the crops 

Remarkably convenient in many ways for many people 

Distinction between a note and an acceptance 

JT'EDERAL and state laws 
^ should authorize banks to 
"accept" bills of exchange, 
or to discount the same. This 
useful credit instrument is almost 
universal in Europe, but rela- 
tively is not employed in the 
United States. Jacobs describes 
them as follows: 

"Of the bills of exchange in 
which are employed, either 
through loans or discounts, the 
funds of European banks, an 
essential part consists of what are 
known as bankers' bills — that is, bills drawn on bankers and 
accepted by them on behalf of customers in accordance with 
arrangements previously made. They are bills in exchange for 
which, by sale to a broker or by discounting at a bank, bankers' 
customers or those to whom they are indebted may secure imme- 
diate credit. In some instances it is arranged that the customers 
themselves shall draw the bills and in others that the bills shall 
be drawn by third parties for their account. 

No chance for lots to the buyer ol gaoil acceptances, 

68 F un c ti ons of B ankin g 

"In granting the accommodation, the obligation that the 
bankers take upon themselves is that they will accept the bills 
upon presentation. This acceptance consists in the bankers 
writing across the face of the drafts the word "accepted," adding 
their signature and the date. It is in the nature of a certifica- 
tion that the bills will be paid at maturity — that is, a specified 
number of days or months from the date appearing in the accept- 
ance, or three days later if grace is allowed, as in England. 

Security for Acceptance 

"When a banker grants accommodation to a customer by 
means of an acceptance, he may secure himself in various ways. 
Ordinarily, a European banker accepts a customer's draft merely 
upon his general responsibility, the banker's risk being much the 
same as if he had discounted the customer's note running a cer- 
tain length of time. Where the customer is an importer, the 
banker ordinarily accepts the drafts upon the delivery to him of 
the documents covering the shipment, which documents he then 
turns over to his customer against a trust receipt. 

"When a credit of this kind is opened, the usual practice 
is for the banker to require the signature of a form containing an 
agreement to hold him harmless for accepting the bills, to place 
him in funds sufficient to pay off the bills three days prior to 
their maturity, and to pay him a commission on the transaction, 
this commission varying according to the length of time the bills 
are to run and the financial standing of the customer. The cost 
of the accommodation to the customer is this commission plus 
the prevailing rate of discount for banker's bills. 

Acceptances J\[ot Legal Here 

"In the United States the national bank act does not permit 
banks to accept time bills drawn on them. Although the act 
does not specifically prohibit such acceptances, the courts have 
decided that national banks have no power to make them. This 
restriction has had a very considerable influence upon the de- 
velopment of banking in this country. For some time after the 
passage of the national bank act, merchants and manufacturers 

On the Use of Acceptances 


provided themselves with funds by discounting thqir promissory 
notes with their local banker, 

"Gradually, however, many concerns, finding that their 
needs were outstripping the banking accommodation which they 
could secure in their immediate vicinity, came to place their 
notes in the hands of brokers, who in turn disposed of them to 
such bankers as possessed greater surpluses than they could satis- 
factorily invest at home. It is this method of borrowing which 
is now largely employed. In 

PARI 5 --- 


other words, the prohibition 
of bank acceptances has led to 
the creation of a vast amount 
of promissory notes instead 
of time bills of exchange. 
The difference between these 
two classes of instruments 
accounts to a great extent for 
the difference between Eu- 
ropean and American bank- 
ing. In the case of time bills 
of exchange drawn on and 
accepted by prime banks and 
bankers, there is practical 
uniformity of security. In 
the case of our promissory — ^ 

notes or commercial paper there is no such uniformity, the 
strength of the paper depending on the standing of miscellaneous 
mercantile and industrial concerns. 



Why are interest rate« to steady 
abroad, and so fluctuating in America? 

Uniform Security for Discount Rate 

"It is this uniformity of security, on the one hand, which 
makes possible a public discount market; it is the lack of it in 
single-name paper which makes such a market impossible. As 
a result, we have great discount markets in London, Paris, and 
Berlin, and none in New York. In European centers the dis- 
count rate is the rate upon which the eyes of the financial com- 
munity are fixed. In New York it is the rate for day-to-day 
loans on the stock exchange. 

70 F u n c ti n s f B an kin g 

"The advantage in character of the one rate over the other 
clearly indicates an important advantage of European banking 
systems over our own. In the first place, the European discount 
rate bears a very direct relation to trade conditions. Its fluctua- 
tions depend primarily on the demand for and supply of bills 
which owe their origin to trade transactions, as balanced against 
the demand for and supply of money. If trade is active the 
supply of bills becomes large, rapidly absorbing the loanable 
funds of the banks. 'As these surplus funds become less and less 
banks are unwilling to discount except at advanced rates. If 
trade is slack, less accommodation from bankers in the way of 
acceptances is required, bills become fewer in number, the com- 
petition for them in the discount market more keen, and the rate 
of discount declines. Low rates are an incentive to business 
and advancing rates act as a natural check. 

"The New York call-loan rate, on the other hand, bears 
only an indirect relation to trade conditions. Its day-to-day 
fluctuations register mainly the speculative and investment de- 
mand for stocks. Low rates, instead of being an incentive to 
the revival of trade, are rather made the basis for speculative 
operations in securities. 

Benefits of Acceptances 

"The striking difference, however, between European dis- 
count rates and the New York call-loan rates is that the former 
are comparatively stable and the latter subject to most violent 
oscillations. Foreign discount rates as bank reserves become 
depleted advance by fractions of one per cent. In New York 
the money rate advances on occasion lo per cent at a time, 
mounting by leaps and bounds from 20 per cent to 100 per cent 
in times of stress. 

"There are two principal reasons for the stability of foreign 
discount rates: In the first place, trade expands and contracts 
gradually, so trade bills multiply or diminish in number little 
by little, producing a gradual increase or decrease in the de- 
mand for money. In the second place, discount rates are steady 
because there is a free movement of funds between the countries 
possessing great discount markets." 

On the Use of Acceptances 


Used in Small Transactions 

It would be difficult to improve upon the foregoing remarks 
as applied to commercial banking, but I would direct attention 
to the great use of the acceptance in Europe among people of 
the smallest means. Hundreds of thousands of acceptances are 
discounted for sums as small as from $5 to $50, or anywhere 
between these figures, as well as for larger amounts. They are 
usually paid within from two to four months of their date, and 
must be met at maturity by the maker or paid by the bank which 
accepted them, thus making the acceptance one of the most liquid 
forms of paper for banks to hold. As Wolff says: 

"The acceptance is the most convenient record of the claim. 
And it has this additional recommendation, that it is in its turn 
reconvertible into money, 
yielding, to a bank of good 
repute, a profit in the process, 
since the bank is sure to obtain 
its discounts at a lower rate of 
interest than the original bor- 
rower." He also rightly em- 
phasizes the importance of 
distinguishing between the 
acceptance which represents a 
legitimate trade transaction, and one drawn for speculative pur- 
poses: the latter is to be avoided, the former is quite certain to 
be good. 

In Italy "collection of acceptances is made remarkably 
easy, postmen being authorized to collect on their rounds." The 
Italians employ acceptances in even the humblest transactions. 
The poulterer may have a bill against a housewife for say $10 
worth of poultry and eggs ; the bill is not due for say thirty days, 
the housewife does not wish to pay it until due, but she is willing 
to approve it in writing as a just bill. On the strength of this 
collateral, the poulterer draws a hill of exchange on his little 
people's bank: it will accept the bill; the acceptance can then be 
readily sold to some of the larger banks or brokers, at the estab- 
lished rate of discount. The poulterer thus receives his money 

Applied t» Little or Big Trantactlona 


Functions of Banking 

and uses it to his advantage, in due course the housewife pays her 
account to him, and he takes the funds to the bank and meets his 
acceptance the day it is due, or deposits the necessary funds to 
meet it a day or two before. 

Thus all parties are accommodated — the debtor is not 
pushed, the creditor gets his money just when he wants it, pays 
his draft when the debt is paid; meanwhile the bank or other 
person in funds has obtained good interest on their little invest- 
ment in the acceptance, and have their money back when the 
paper matures. 

Short Credit in Transit 

Acceptance is therefore short credit. The shorter the term, 
the more effective control does the bank retain over the loan; 
while the shorter the term, the more readily convertible is the 
acceptance; that is, the more easily can it be converted into 
money by being passed on to some other bank or individual who 
will discount it. 

Acceptances based on goods in transit from producer to 
market or consumer, or upon manufactured necessities in the 
same condition, are of the safest type, because the security they 
represent is en route for consumption and must be paid for by 
the consumer in a short time. 


On the Use of Acceptances 


The acceptance can thus be made an instrument of great 
convenience in the rural trade. For instance, in the case cited 
,in Chapter VII, if Mr. Doe wished to buy more cotton for 
export, he could draw bills of exchange upon the firm in Lon- 
don to whom the cotton was shipped, his bank could "accept" 
them, and then the paper could be sold readily, less only the 
discount at current rate of interest. 

This instrument, however, should be strictly confined to 
short time obligations, which are certain to be met. It cannot 
safely be applied against cord wood, grain, cotton, other produce 
or manufactured goods in the hands of original producers and 
not yet en route to market nor sure to be sold in time to liquidate 
the bill of exchange. The reason for this is obvious. 

Of course, no bank could discount such paper beyond the 
limit imposed by its reserves, but then it might sell the paper to 
other banks, or on the open market to purchasers of such paper, 
or in a pinch it might offer the same for rediscount to the zone 
branch of the American Reserve Union. 

Itemarkably Convenient 

The wide applicability and safety of the acceptance justi- 
fies its permissible use, within well defined limits to prevent 
overdiscounting. The law should very strictly oblige the maker 




74 F u n c ti on s f B an ki n g 

of a bill of exchange to meet it when due, under penalty of being 
publicly posted as a bankrupt, unless he privately arranges with 
the accepting bank to take care of it for him. This involves 
important lessons to people in the sanctity of contracts, and the 
necessity of meeting payments when due, and thus establishing 
character as a basis of personal credit. 

Difference Between Bill and J\[ote 

The bill of exchange accepted by the bank is quite different 
from a note signed by the same party and indorsed by the bank. 
The acceptance is a loan of the bank's credit, the indorsed note 
is a direct liability involving the loan of money from and by the 

The nearest thing to the acceptance which we have in 
American usage, is the undated check or the check dated ahead, 
but it is not much used and banks do not like to accept, approve 
or indorse the same. The use of drafts is common here, but their 
acceptance by the bank is for immediate discharge by being at 
once taken up by the person upon whom drawn. The bill of 
exchange, on the contrary, does not become a draft until the day 
it is due, and its payment at that time was previously guaranteed 
by the accepting bank. 

Coioperatioe Finance 

Part Three 

Banking Federation 

of this Part 

Chapter XI—Co*operatioe Organization for Banking Federation 


1. The individual person is the unit 

2. Start with the individual bank as the 

basis 77 

(a) Include existing national 
banks 78 

(b) Admit state banking institu- 
tions 78 

(c) Authorize the incorporation of 
national co-operative banks — 
local "people's" institutions 
for savings and loans, which 
affiliate with some larger bank 
nearby 78 

3. All banks in each community unite 

in a local association called a 
Clearing House 79 


. Zone League. Each bank also be- 
longs to 

(a) Its Zone League, and through 
this agency, each bank also is 

(b) a member of the American 
Reserve Union. 80 

American Reserve Union is composed 
of the Zone Leagues, and their 
constituent banks 81 

Land Banks in each state under the 

federal law 82 

, Provide for National American 

Export banks 82 

Significance of the architecture 83 

Similar banks under state law 

Chapter XII— Merits of Federation 

Every sound principle observed 84 

Representative democracy in finance 84 
Insuring the good of public as well as 

banks 85 

No money trust possible 85 

People's representation simple, prac- 
tical and certain 85 
Equal banking representation in local 

unions 87 

Representation in Zone league of bank 
owners and bank users 87 

Thus the American Reserve Union be- 
comes a co-operative union of all in- 
terests, each of which is fairly repre- 

Why that title? 

Co-operative people's banks 

Mortgage-finance and export bank- 

Triumph of representation, organiza- 
tion, co-operation 




Chapter XIII — Important Considerations 


Each zone an economic commercial unit 91 

Their proper delimitation insured 93 

Forty-two zones not too many 93 

Decentralization of credits 94 

Co-operative mobility of reserves 95 

Popular rights plus efficiency 9S 

Banks and public unite 9^ 

Justice to bank owners 97 

Chapter XW— Financing 



The whole affair subject to the con- 
gress 98 

Charter the American Reserve Union, 
like other national banks, for twenty 
years g8 

Public must keep its grip on the 
powers of Cash, Credits and Co-op- 

American export banks loi 

Need of them if the United States is to 
compete with England, Germany and 
France '°' 

Should organize under federal law, 
and be subject to the congress 102 

Ample capital and surplus 103 

Our Foreign Trade 


Domestic banks may be shareholders 104 
Immense possibilities for expansion 104 
Making New York the center of the 

world's finance 104 

The United States dominant in gold, in 
trade, in civilization, insuring peace 
among men! 105 



Banking Federatio 

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Co-operative Organization for Banking Federation 77 

Chapter XI 

Co-operative Organization for 
Banking Federation 

In Outline 

1. The individual parson is the unit 

Require the representation oi banking customers in 3, 4, 5, thus insuring ade- 
quate consideration for the agricultural, industrial, commercial and distribu- 
tion interests, and safeguarding all the people's welfare 

2. Start with the individual BJINK as the basis: 

{a) Include existing national banks 

(i) Admit state banking institutions 

(e) Authorize the incorporation of national co-operative banks— local "people's" 

institutions for savings and loans, which ^.affiliate with some larger bank 


3. The banks in each community unite in a local association 


4. ZOME LEAGUE. Each bank also belongs to 

(n) Its ZONE LEAGUE, and through this agency each bank also is (i) a member 
of the American Reserve Union 

5. The JtMERICJtM RESERVE UNIOM is composed of the 

Zone Leagues and their constituent banks 

6. Jt LJtND BJtSK. in each state under the federal lauf 

7. Provide for National American EXPORT banks 

8. Significance of the architecture 

In Detail 

JT'IRST — The individual person, corporation, trustee, or 
JT^ whoever has a bank account, or desires one, or wishes to 
become a shareholder in a bank, or a depositor therein, or 
a customer thereof, shall continue to have those rights. If they 
want to do business with two or more banks, they may do so. No 
restrictions upon or interference with individual or corporate 
rights, powers and privileges in doing business with banks, pro- 
vided only that the latter do it honestly and properly. Enable 
all the people to use banks freely and safely all the time. This 
is one of the principles of free banking by independent banks. 


Banking Federation 

Second — The Bank 

Second, existing banks are not interfered with in any way. 
The stockholders continue to elect the directors, either one share 
one vote, or one member one vote, as the by-laws of the bank 
may provide. 

{a) No obstacles under state or national laws to the estab- 
lishment of new banks, except that they are needed, are organ- 
ized in compliance with the statute upon a solid basis, and are 
conducted along safe and legitimate lines. 

{b) Banks incorporated under either national or state 
laws are to enjoy equal benefits and responsibilities, in the co- 
operative federation, save only that currency issue is limited to 

(c) Bring within reach of the people of small resources 
who most need banking facilities but who do not now enjoy 
them, the means for incorporating little co-operative people's 
banks for savings and loans. Start this evolution first under 
national law, but each state is free to adopt it also. Each of 
these independent little banks may have for its correspondent 
some larger bank conveniently accessible, through which the 
little people's institution affiliates with the whole fiscal system. 

These small co-operative banks 
(described in full in Part V) federate 
with the land bank for their state, and 
are an integral part of the American 
land mortgage banking system set forth 
in Part VI. For a banking federation 
to thus provide for "the common peo- 
ple," is one of the original features of 
my method which distinguishes it from 
all others. These producing and con- 
suming masses are the elements whose 
welfare most needs to be conserved — 
they support the race; they are the 
heroes of industry! 


Heroes of shot and shell 
Fought their part well 
In the grim hell 
Of battle. 

But the workers of life, 
Faithful in strife, 
Until they knife 
Death's rattle — 

Are they not h trees too ? 

— H. M. 

Co-operative Organization for Banking Federation 79 

The People's I^epresentation 

begins at the next point. For the first time in the history of 
finance, a method is provided whereby the users of banks — 
depositors and borrowers, in contradistinction to owners of 
banks — shareholders and directors, are granted the voice, the 
representation and the power imperatively required for safe- 
guarding the people's welfare in the subsequent federation of 
banks. Yet this is accomplished without infringing upon the 
prerogatives of any bank's management, and does not interfere 
therewith. Note carefully: 

J. The Clearing House 

Third, each bank with $25,000 capital or more has 
two memberships and two votes in the local clearing house. 
Each bank's shareholders elect, by majority vote, the person who 
may be termed the banking-member of the clearing house. The 
patrons of the bank, not share- 
holders or officers therein, but 
who are either depositors or 
borrowers or both, elect (by 
majority vote of those present 
at a duly called meeting) the 
person who may be called the 
customer-member. A share- 
holder or customer in two or 
more banks may choose in 
which he prefers to vote, but 

may vote for the clearing house member of only one bank. 
Member's term of office, two years, expiring alternately, so 
that each bank always has one "old" member, and may have 
one "new" member if the retiring member is not re-elected. 

The committees of the clearing house shall consist of odd 
numbers, half elected from and by the banking members, half 
elected by and from the customer-members; the odd man by 
these, and he shall be chairman. 

All hav« equal voice, big and little, liankers and 

8o Banking Federation 

The usefulness of the clearing house is to be immensely 
enhanced in the method proposed, of which it is properly an 
inseparable part. The clearing house will be brought to its 
full fruition, yet with justice to the public, by the means de- 
scribed in Chapter XVI. 

4. Commercial Zone League 

Fourth, Zone League — Divide the United States into 42 
commercial zones, each zone bounded, not by state lines, but by 
the lines of demarcation between the area whose commercial 
business naturally revolves around a certain city; but these 
boundaries are not in any way to restrict the free flow of finance 
or any other form of trade between zones or states. 

Each zone is composed of seven districts, each district con- 
taining an approximately equal number of banks. The banking 
representatives in each district, in assembly convened, elect a 
comptroller, also a councilor; the cM,j/omer- representatives in 
each district likewise meet and elect a councilor. Two-thirds 
vote elects ; term of ofRce seven years, expiring in rotation ; not 
eligible for re-election. 

{a) The seven comptrollers are banking ex- 
perts, who administer the functions of the zone 
league; their chairman, chosen by the governing 
council, is the league's executive head and active 
manager of the zone league's office, which is fed- 
erated with the American Reserve Union ; he is 
also United States deputy comptroller. 

{b) The fourteen councilors — seven bank- 
ers, seven customers — choose a president from 
without their number, these fifteen comprising the 
zone's GOVERNING COUNCIL. It is this 
body which elects the chairman of the comp- 
trollers, also chooses the national trustee to repre- 
sent the zone in the American Reserve Union, and 
acts as a board of appeal to which any person, 
bank, or clearing house within the zone may apply 
for redress. 

(c) No comptroller shall hold any interest 
in any bank. No councilor shall be an officer or 

Co-operative Organization for Banking Federation 8i 

director of any bank, nor sit on a case involving any 
bank in which he may be interested. 

{d) Each zone comptroller chairman may 
convene the governing council whenever he desires 
to confer with the councilors. The seven comp- 
trollers may act by not less than five votes in 
accord. The governing council may be convened 
by its president for any purpose, and shall be con- 
vened only by him when it is to act as a court of 
appeal. Not less than 1 1 votes out of the 15 coun- 
cilors shall be required to elect chairman of comp- 
trollers, president of council, or trustee of 
American Reserve Union, also to transact other 
important business. 

5. American Reserve Union 

Fifth, American Reserve Union — Each zone has one mem- 
ber and one vote in the American Reserve Union. In half of 
the 42 zone leagues, the banking representatives shall elect a 
banker-trustee, to serve for seven years, and then to be succeeded 
by a customer-trustee elected by its customer representatives; 
reverse this in the other 21 leagues. These 42 trustees thus 
chosen, therefore, will consist of 21 bankers and 21 non-bankers. 
Three of each class retire yearly and are not eligible for re-elec- 
tion, thus six new men come on to the board annually — three 
bankers, three business men. No trustee shall hold any office 
or interest in any bank; three- fourths vote controls. 

The Federal Government shall be represented upon the 
board of trustees of the American Reserve Union, by the Secre- 
taries of Treasury, Agriculture, Commerce and Labor, and 
Postmaster-General, and by the comptroller of the currency, all 
ex officio. These five federal trustees, the 21 banker-trustees, and 
the 21 customer-trustees, make up a board of 47 trustees of the 
American Reserve Union. The Secretary of the Treasury may 
remove any zone chairman who is remiss in his duties as United 
States deputy comptroller. The President may remove the 
governor of the American Reserve Union. 

The trustees of the American Reserve Union shall choose 
its governor by not less than a four-fifths vote of all its trus- 

82 Banking Federation 

tees, from within or without that body, and he shall have one 
vote therein. Two deputy governors shall be chosen from 
within or without that body by two-thirds vote, but shall have a 
vote only if they are trustees ; or if not, only when acting in place 
of the governor. 

The trustees shall not deputize their essential powers to any 
committee, but shall collectively deliberate upon and decide all 
such affairs by not less than two-thirds vote of all the trustees 
of the American Reserve Union. Only the carrying out of de- 
tails of policies thus agreed upon shall be referred to appro- 
priate committees, each of five members, of whom two are 
customer-trustees, two banker-trustees, and the fifth (who shall 
be chairman) chosen by majority vote of these four. Thus 
forever guard against any manipulation such as was possible 
under the executive committee in the Aldrich plan, which ulti- 
mately gave five bankers alone almost absolute power over the 
finances of the American people and of their government! 

6. Land Mortgage Banks 

Sixth, Part Seven of this work fully describes a method for 
land mortgage banking which is adapted to American condi- 
tions, institutions and people. It is imperative that right ideas 
prevail upon this subject, now so prominently before the public. 

Established on the right basis, developed gradually as expe- 
rience points the way, and conducted in the interest of farm 
owners and home owners who cultivate the land they own and 
occupy the homes they own, the American method for land 
mortgage finance will be the glory of our fiscal system. Other- 
wise it may do harm as well as good. 

7. Banks for Our Foreign Trade 

Seventh, no system of banking reform will be complete 
which fails to provide for financing the export and import 
trade of the United States. It is humiliating that our foreign 
trade is still largely financed via London, Paris and Berlin. 
Chapter XIV sets forth briefly a feasible method for establishing 

Co-operative Organization for Banking Federation 83 

export banks under national law in a manner that is practical, 
safe, patriotic and adequate to the growing importance of 
America in the commerce of the world. 

S. Significance of the Architecture 

The building for each zone league's headquarters, as indi- 
cated on the frontispiece of this chapter, should take for its motif 
the Parthenon at Athens, whose beautiful lines still express the 
power and culture of the earliest republic. 

For the national home at Washington of the American 
Reserve Union, let the motif be the Pantheon at Rome, the 
most ancient structure in use. After twenty centuries of con- 
stant use, through all the storm and sunshine of Nature's forces 
and of man's actions, the Pantheon is still in splendid preserva- 
tion and daily use. Its dignity, strength, endurance and history 
are typical of the American Reserve Union — an institution that 
shall conserve the people's economic welfare throughout the cen- 
turies, whatever may be the evolution of politics or government! 

During my prolonged conference with the King of Italy, 
at the royal palace in Rome, his majesty asked my opinion of the 
Pantheon. My reply was to read from my original notes, made 
the day before, the lines below, whereupon Victor Emanuel 
exclaimed enthusiastically: "Why, sir, you have expressed the 
whole past, present and future of Rome in four lines" : 

"In the Pantheon at high noon, bathed in rich 
light varied by sunshine and cloud, marvelous in 
beauty, proportioned with majestic grace and har- 
mony, impressive with antiquity, redolent of 
history, vibrant with action, expressive of the evo- 
lution of government and of the advance of 
LIFE, symbolic of the power that each of us may 
develop, if only we attune our being to the eternal 
poise of Nature!" 


Banking Federation 

Chapter XII 

Merits of Federation 

Every sound principle observed 
tiepresentative democracy in finance 
Insuring the good of public as u/ell as banks 
No money trust possible 

People's representation simple, practical and certain 
Equal banking representation in local unions 
Representation In zone league of bank owners and bank users 
Thus the American Reserve Union becomes a co-operative 
union of all Interests, each of which is fairly represented 
Why that title ? 

People's banks, mortgage 'finance and export banking 
Triumph of representation, organization, co-operation 

^^^^^^Y THE foregoing method, every 
——^^m-—^m sound principle is observed of 
^L^^^ public weal and private enter- 
^^^^^^k prise, of efficient organization 
^M ^m and effective co-operation. The 
^^f^^^^^ scheme is based upon Mr. 
^^^*^^^^ Fowler's plan, but involves radi- 
cal improvement thereof. 

Without interfering with 
the ownership or management 
of any individual bank, in all 
the subsequent federated activi- 
ties between banks, each bank- 
shareholder and each non-share- 
holding customer has one vote 
and equal voice, no more and no 
less. Hereby every legitimate interest of banks and of their 
customers will be subserved. Both have everything to gain, 
nothing to lose, by such representative democracy in finance. 

This method will promote better understanding of the 
mutual interests of owners and officers of banks upon the one 

Democracy in Finance 

Merits of Federation 85 

hand, and of depositors and borrowers upon the other. It will 
be reflected in mutually improved relations, better banking, 
wiser use of banking facilities, deservedly greater public con- 
fidence in banks, and many other advantages to all concerned. 

Insuring the Good of All 

To thus apply the co-operative principle at the very root of 
banking federation, is one of my entirely new contributions to 
the art of finance, but it is thoroughly representative and funda- 
mentally important. It is wholly in accord with American 
ideals of equality and of manhood, and is a feasible application 
of some of my First Principles. These principles must be 
observed from foundation to capstone in any system of finance 
that is to command the confidence of the American people. 
Either some such financial evolution or increasing danger of 
social revolution! 

By thus granting the customer representation from the bank 
up through the zone to and in the American Reserve Union, we 
at once solve effectively, fairly and simply, the problem of insur- 
ing popular rights in finance. Then no form of money trust 
will be possible. No one interest may be unduly favored when 
all interests are thus in a position to watch, scrutinize and safe- 
guard each other. 

It will be to the customers' advantage to insist upon the 
proper representation of the industrial, mercantile, labor, manu- 
facturing, agricultural, transportation and distribution inter- 
ests of the community — in the clearing house, in the zone league 
and in the American Reserve Union. Self-interest will insure 
the proper exercise of this right, duty and privilege. And in 
economics, self-interest is the strongest and most insistent of all 

People's Jiepresentation Feasible 

How simple and practical to carry out this method : The 
call for the first meeting of customers of each national bank will 


Banking Federation 

be prepared by the United States comptroller of the currency, 
and will set forth fully the purposes of the meeting, suggesting 
its procedure without dictating its action. This notice will 
be mailed by each bank to its customers who are not its officers, 
directors, or shareholders ; and none of the latter shall attend the 
customers' local or district meetings unless upon invitation of 
majority vote of the customers present and voting, such majority 
constituting a quorum for all business. Now, when the cus- 
tomers come together, they will be wholly free to act as their 
judgment dictates in electing their members in the clearing 
house, and their representative to the customers' district assem- 
bly which chooses their coun- 
cilor in the zone league. The 
first meeting of a bank's cus- 
tomers also chooses a permanent 
chairman and secretary, who 
shall have charge of calling 
their meetings thereafter. 

All Intemts Watch Each Other 

Some bankers will say that 
their customers will not attend 
such a meeting, but if the matter 
is put before them intelligently 
and effectively, as above out- 
lined, a surprisingly large pro- 
portion of the customers may 
come even to the first gathering 
when convened in this manner. As the years go on, their in- 
terest and attendance will increase. 

Customers will be quick to see the advantages that may 
accrue to them through such representation. Moreover, the 
fact that the abler and more competent men among the cus- 
tomers may be promoted to the zone council, or to a national 
trusteeship in the American Reserve Union, or to a lucrative 
banking position later, will serve as an additional stimulus. 
Here again self-interest may be trusted to secure the co-operation 
of customers representing the various interests and vocations of 
the people. 

Merits of Federation 87 

Banking Representation in Local Associations 

In the third step by this method — the federation of local 
banks into their local clearing house — each bank has equal vote 
and voice, irrespective of its size, wealth or power. 

This principle of equal representation always has been 
observed in American clearing houses. 

The only new feature proposed is that, instead of one bank 
one vote, each bank has two votes — one voicing its controlling 
management, the other representing its customers, the non-bank 
owners who are the principal bank-users. 

Such representation in the very beginning of association and 
union of effort among banks, is the only way to accomplish the 
desired efficiency without possible injustice to any bank or cus- 

Representation in Zone League 

In the fourth step, where the banks unite in their zone 
league, each bank and its customers have equal voice in the 
league's governing council. To this council, any customer, 
bank or clearing house within the zone may appeal for the 
arbitration of any matter upon which it may feel that injustice 
has been or may be perpetrated. While this arbitrating body 
shall not in any way usurp the functions of the established courts 
of justice — either the United States courts or state courts, it will 
succeed in satisfactorily disposing of many cases which other- 
wise might have to go to the law courts. The governing council 
will also insure the smooth operations of the zone league, with 
due regard to all the banks and other interests concerned therein. 

The governing council naturally will be composed of the 
older and more experienced bankers, business men and farmers, 
who are possessed of sound judgment and discretion. 

The active duties of administering the daily functions of 
the zone league will be in charge of its seven comptrollers, under 
the direction of the chairman. In effect he will be at the head 
of the combined banking operations of the entire zone, and 
therefore must be the ablest man available. 


Banking Federation 

Representation for All Interests 

The formation of the zone league is as simple as it is repre- 
sentative: At their meeting, the customers of each bank choose 
one to represent them in the district assembly as well as in the 
clearing house; the shareholders do likewise. Each zone is 
divided into seven districts, each containing an equal number of 
banks. The one banking representative from each bank in a 

district meet and choose their 
comptroller, also their coun- 
cilor, the one customer-repre- 
sentative from each bank in the 
district meet and choose their 
councilor. The comptroller 
board chairman is selected by 
the council, which also chooses 
its president. 

Since the zone league is not 
a bank, in any of the usual 
acceptances of that term, it 
should not be called a bank. It 
is only the means or agency through which all its constituent 
banks are enabled to conserve their mutual interests and thus 
better serve their customers, who are the whole people. 

American Reserve Union 

Now, in the fifth step, that is, in the American Reserve 
Union, banking and customer interests also have equal repre- 
sentation upon the board of trustees. Neither side alone may 
control, dictate or monopolize. Each side is strictly and entirely 
representative, chosen upon the co-operative principle of one 
bank one vote, or one man one vote. This representation comes 
right up direct from the banks and the people, upon a basis equal 
to each institution and individual, whether great or small, rich 
or poor! 

While thus representative, yet the federal government has 
ultimate control. It has five trustees ex officio; therefore, if 
the other two parties become deadlocked, the government would 
have the controlling voice and final power. The national trus- 
tees being the head respectively of four great departments of 

MeritsofFederation 89 

the government, the public interests thereby are still further 
conserved. The comptroller of the currency, whose office is in 
the closest official touch with all the banks, would be a further 
precaution upon the board. 

A three-fourths vote of all the trustees being required upon 
all matters of policy, untoward or unpatriotic combinations 
against the public welfare are impossible. The trustees may not 
delegate their powers to any little committee, but the whole 
body of trustees must give proper consideration to all matters 
of policy. 

The Title "American Reserve Union" 

is in every way superior to the names which have been suggested 
of national reserve association, national people's bank, or federal 
reserve bank. 

The American Reserve Union is a union in fact as in name. 
It is a union of all the banks, which contribute to its gold reserve. 
These banks and their customers are leagued together in the 
respective zones, and it is the officers they elect who conduct the 
league of the American Reserve Union for each zone. Thus 
we have a representative federation of bank owners and bank 
users — local, zone and national — united in and forming the 
American Reserve Union. This is directly opposite to the 
deservedly unpopular Aldrich plan, and still further is it re- 
moved from the old United States bank of unsavory odor. Nor 
is the American Reserve Union a central bank; it does 
banking only with banks, either at Washington or through its 
zone agencies, and thus serves all without competing with any. 

Particularly should the term "American" be used, not only^ 
to emphasize American principles and American nationality 
here within our own borders, but also for use and effect abroad. 
In each and every country on earth this name will be a synonym 
of strength, integrity and enterprise — a magnificent and constant 
advertisement of the United States of America. These foreign 
nations each have their own nationality to foster, and the term 
national or federal reserve would therefore have no such mean- 
ing among foreign peoples as would the title "American Reserve 


Banking Federation 

Union." These words also appeal to the spirit of patriotism 
and of union among our own people. 

The title is psychologically sound, scientifically expressive, 
popularly pleasing, and cleverly alliterative. 

People's Banks, Mortgage Finance, Export Banking 

The chapters later on dealing with these vital subdivisions 
of the whole problem show how the same principles are applied 
to these institutions. This truth will appear upon careful read- 
ing thereof. 

It is also provided, throughout the whole method, that com- 
mittees, as well as directorates, shall be justly representative in 
character. No loophole is left for selfishly unfair manipula- 
tion, yet all superfluous red tape and other unnecessary regula- 
tions are avoided. 

The co-operative federation outlined thus becomes a tri- 
umph of representation and organization, co-operation and 



Important Considerations 


Chapter XIII 

Important Considerations 

Each zone an economic commercial unit 

Their proper delimitation insured 

Forty'two zones not too many 

Decentralization of credits 

Co'operatioe mobility of reserves 

Popular rights plus efficiency 

Banks and public unite 

Justice to bank owners 

The whole affair subject to the congress 

Charter the American lieserve Union, like other national 

banks, for twenty years 
Public must keep its grip on the powers of Cash, Credits and 


V Y ^HY not have each zone cover only one state? Because 
mMJ state lines have no necessary relation to commercial 
lines. The cotton region of which Memphis is the 
commercial center has little in common with the active manu- 
facturing business of the area tributary to Nashville or Knox- 
ville. The New York zone would include parts of several 
states, so would the .Chicago zone, the St. Louis or the Kansas 
City zone. The Boston zone would include a large part of New 
England, but southern and western Connecticut, which does its 
banking business so largely with New York, would be in the 
latter zone. 

Each zone is to be an economic commercial unit. These 
zones may be considered as unofficial commercial states, in con- 
tradistinction to the political 
units which constitute our politi- 
cal states. Let this distinction 
be fixed clearly in mind, for our 
purpose is efficiency in finance, 
which depends upon economic 
factors rather than upon govern- 


Reached by Mail 

Important Considerations 












•^5 kSEDALlA 

t-S. ' 

mental division of territory or political administration. The 
head office of each zone league of the American Reserve Union 
should be at the natural commercial center of its territory, and so 
located that each bank in the zone league may be reached by 
mail within a few hours. 

The 42 zones will adequately cover each of the different 
commercial areas of the United States, not only for the 
present, but for probably half a century to come. Their bounda- 
ries are to be selected with due 
regard to all economic condi- 
tions and tendencies. The work 
of laying them out may be left 
quite properly to a commission 
appointed by the President of 
the United States. 

This body of disinterested 
practical experts would investi- 
gate, give hearings, invite sug- 
gestions, submit a tentative 
layout for public criticism, and 
its final judgment would stand, 
unless modified by unanimous 
vote of the five federal trustees of the American Reserve Union 
acting as a court of appeal. By such procedure, every region 
would get full consideration and just treatment in determining 
the many vexed details involved in mapping zone areas. 

Mot Too Many Zones 

Forty-two zones, each with one trustee in the American 
Reserve Union, is by no means too large a number. The Aid- 
rich bill was criticized for having only fifteen separate divisions, 
while the Fowler bill suggested twenty-eight. 

We must remember that population is constantly increasing, 
business is developing in every zone, and we are establishing a 
method to endure perhaps for a century. 

Furthermore, twenty-one trustees from the business interests, 
twenty-one trustees from the banks, and five trustees from the 



■■■.^ LINE -^ 

This shows the territory claimed by the Kansas City 
Clearing House as the area of which it is the finan- 
cial and banlting center 


Banking Federation 

federal government, making a body of forty-seven national trus- 
tees, is not too large a number to be in charge of the great powers 
and usefulness of the American Reserve Union. Such a body is 
representative in every way of every interest, yet it is not too 
unwieldy for the effective conduct of business. 

Decentralization of Credits 

The zone system also will have the very desirable tendency 
to decentralize credits and to upbuild the financial resources of 
the respective zones. Individual deposits will be used more 

generally for loans within the 
territory of the local bank. Thus 
the cash and credits of each 
locality will be employed to de- 
velop its economic welfare, 
instead of being drained away. 
Surplus balances in one district, 
instead of flowing to New York 
and Chicago for feeding specula- 
tion on the stock exchange, will 
then flow into the zone league to 
be loaned to banks elsewhere in 
the zone that can safely employ 
them in loans to their customers 
for productive purposes. 

The existing system has 
drained money and credits away 
from the country to the city — 
away from the poor to the rich, away from the weak to the 
strong. It has produced a centralization of wealth-producing 
agencies which is nothing less than a menace. Such centraliza- 
tion is an underlying cause of effects like trusts, conspiracies, and 
the whole ilk of ills that beset the future. 

To decentralize the money power, to decentralize the facili- 
ties for credit, to afford means whereby all the people may 
co-operate in providing themselves all the time with the banking 

Decentralization of Credits 

ImportantConsiderations 95 

facilities to which they are entitled — these purposes will be 
achieved by my method. No greater economic problem now 
confronts the nation. 

Co-operative Mobility of Reserves 

Now the decentralization thus provided for, in no wise 
weakens the gold reserve or impairs banking power. Quite the 
contrary. For, as will be seen in Part Four, this method implies 
a gold reserve not only bigger than ever, but one that may be 
available at every instant at any point where needed. 

A reserve that cannot be used when the emergency arrives 
against which it was created, is relatively of little use. That is 
just the trouble with America's fiscal system today. We should 
have reserves that may be used when needed, that shall be replen- 
ished promptly following such use, and above all that can be 
mobilized at a moment's notice at any point. Co-operative 
mobility in reserves is the last word, and is orovided in this 
method as originally suggested by Fowler. 

Furthermore, transfer of funds or exchanges of credits 
between banks or zones in different parts of the country, will be 
facilitated and economized by being effected through entries 
upon the ledger of the American Reserve Union, much as local 
banks balance their claims against each other in the local clear- 
ing house, or as depositors' checks are cleared through the bank 
upon which they are drawn. Free trade in money and credits — 
no needless delays, red tape, restrictions or expense ! 

Popular Itights Plus Efficiency 

While ultimate control by the nation is assured, the whole 
method is kept independent of political manipulation. The 
system is certain to be conducted on strictly business principles, 
with, due regard to the interests of both lenders and borrowers. 

Moreover, the Myrick method is free from the monopo- 
listic and undemocratic basis of representation set up by the 
Aldrich plan. My method maintains the independence of each 
bank insures equality of power between state and national banks, 

96 Banking Federation 

and provides that any bank may enjoy the benefits of associated 
effort and co-operation without being subjected to possible unfair 
interference with its functions through the manipulation of a 
self-contained and all-controlling central money power. 

My method enables the people, the customers, to elect their 
own representatives in the fiscal system, independent of and out- 
side of the owners and managers of banks, yet this is done with- 
out in any way interfering with the independence of any bank or 
of its operations by its own shareholders, directors and officers. 

Banks and Public Unite 

By thus having the people in front of the counter choose 
their own representative, to co-operate with the bank manage- 
ment behind the counter, the organization under the Fowler sys- 
tem, as improved by the writer, is vastly superior to and in every 
way better than the defunct Aldrich plan. The latter aimed at 
monopolistic control by a few of an autocratic central body with 
dangerous powers. It was to have charge of the branches, and 
thus the whole plan was to be controlled from the top down. 
The Fowler system, as modified, is based upon a representative 
democracy in financial co-operation. It is co-operative, not 
monopolistic ; representative, not autocratic. It comes up from 
the people and the banks, instead of being carried down to them. 

The banks own and control their own reserves through their 
own delegates in zone leagues and American Reserve Union. The 
public — whose servants the banks are — is adequately represented 
through the delegates chosen by bank-customers, representing 
the agricultural, manufacturing, transportation, labor and mer- 
cantile industries. 

Furthermore, the national co-operative banks I propose will 
bring banking facilities within reach of the masses who are now 
below the level of present commercial banks. With these little 
people's banks as local agencies, my method of land mortgage 
banking becomes feasible. 

In these ways, the whole American people become part and 
parcel of the whole fiscal system of the United States. Nothing 
less will be acceptable to the people. 

Important Considerations 


Justice to Bank Owners 

Some shareholders in banks will maintain that since the 
banks furnish all their own capital and put up all the reserves 
in the American Reserve Union, such capital should have the 
controlling vote therein. As a matter of fact, however, the cap- 
ital stock, surplus and undivided profits of all the national banks 
are less than 20 per cent of their total resources, the balance of 
their funds being furnished mainly by their depositors. 

Upon that basis, therefore, depositors should have equally 
as large a vote as shareholders. But, as neither the capital nor 
deposits of any bank could be profitably employed unless there 
w^ere people to borrow and employ the same, it is equally impor- 
tant that the borrower be represented and interested, and the 
borrower is usually a depositor also. To give these two forms 
of banking custom jointly the same representation in the co- 
operative unions as is accorded to capital and banking manage- 
ment, is therefore more than equitable toward the latter. 

As to the weight of influence which the large or the small 
shareholders should have in these federated institutions, again it 
may be recalled that in the Bank of England each shareholder 
has only one vote, irrespective of his holdings, no proxies are 


The "politfclan," who has sometimss fattened 
on "ciMitracts," tpecial depiKlts o< publio funds, 
or sfnilar iief8rlo>us practicft, says to the disgusted 
iraftep he meets as he comes out o* the bank: 

"Tell the boyt this new hstitution is nil on 
the lovclr no chance for jraft hero." 


98 Banking Federation 

allowed, no banker is a member of the governing board, and the 
government has no official participation therein. 

Jill Subject to the Congress 

Each clearing house, as well as the American Reserve 
Union, shall be incorporated under federal law and be subject to 
federal supervision ; the zone league operates in harmony with 
the American Reserve Union. State banks may affiliate there- 
with upon the same basis as national banks. 

The clearing house members, district representatives, zone 
councilors and comptrollers, also trustees of the American Re- 
serve Union, should be divided into classes with different dates 
of expiry of term of office. This will insure retention of experi- 
enced men, also the infusion of fresh blood — both highly desir- 

The act of Congress which puts into eflfect this method 
should specify fully the relations of these institutions one to the 
other, the powers and privileges and responsibilities of each, and 
their strict accountability to public supervision and legal control, 
as interpreted by the courts or expressed from time to time by 
further acts of Congress. 

As national bank charters run for twenty years, it may be 
wise to charter for a similar period the clearing houses and 
American Reserve Union which are to be incorporated under 
the act. Meanwhile the Congress, of course, reserves to itself 
the right to alter the enabling act, and the whole system should 
be subject to congressional review every twenty years. Canada's 
banking law is subject to parliamentary review every ten years. 

The proposal to tie the American people to the untried 
Aldrich plan for fifty years, was one of its most monstrous errors. 
Too frequent changes should be guarded against, sufficient time 
assured for legitimate developments in business, but the people 
should never let go of their grip on the powers of Cash, Credits 
and Co-operation! 

Throughout this work it will be observed that the purpose 
is to keep this whole banking federation in the hands jointly 

Important Considerations 99 

oi bank users and bank owners, but in such manner that the 
various associations — denting house, zone league and American 
Reserve Union—shall be eubject to the closest supervision by 
the executives of the federal government, while always amenable 
to direct control by the Congress. 

There is not left any "gloaming by the twilight" under 
cover of which some financial combination may perpetrate nefa- 
rious practices outside the pale of law and beyond responsibility. 
Moreover, it is provided that ail net profits accruing from the 
operations of these federations shall be paid into the treasury 
of the United States. 

The people and the banks, therefore, will have every facility 
for using their Cash, Credits and Co-operation, but no coterie 
or combination will then be able to manipulate these powers to 
the detriment of the whole people. 

Will flwer let go tt> wis m Cjuii. Credits and 


Banking Federation 

tnancing Our Foreign Trade 


Chapter XJV 

Financing Our Foreign Trade 

Jtmerican export banks 

Need for them if the United States is to compete with Bng" 

land, Germany, France and Japan 
Should organize under federal law, and be subject to the 

Jtmple capital and surplus 
Hotnestic banks may be shareholders 
Making New York the center of the world's finance 
The United States dominant In gold, in trade, in civtUzatioa, 

insuring peace among men I 

NE of the gravest defects of the en- 
tire fiscal system of America, is that 
it does not properly provide for 
financing our foreign trade. With 
a foreign commerce of four billions 
annually — exports and imports — 
which many will live to see reach 
ten billions, it is a disgrace to Amer- 
ica that the btilk of the financing of 
this magnificent trade is largely in 
the hands of foreign banks and 

The spirit of commercial con- 
quest in other lands now stirs the 
American people as never before. The Panama canal stimu- 
lates this spirit, quickens the imagination, and broadens the 
mental horizon. But with neither banking nor shipping facili- 
ties, how is the United States to meet the competition in the 
world's markets of her two greatest commercial rivals, England 
and Germany, with their system of international finance, and 
their mercantile marine? Not to mention the Japanese, whose 
marvelous powers of organization and limitless supply of cheap 

I02 Banking Federation 

labor among the brown and yellow races, may enable her to 
demonstrate that while America built the canal, Japan may 
thereby yet become mistress of the seas and dominant in the 
world's commerce. I venture the prediction that within ten 
years, under the following method, the United States will have 
at least one American export bank equal in capital resources to 
the capital stock and surplus of the Imperial Bank of Germany 
— about $45,000,000, another equaling those resources of the 
Bank of France — a trifle over $60,000,000, and a third that shall 
fairly rival the staid old Bank of England with its capital and 
reserves of some $90,000,000! 

The business in sight for such banking, the marvelous ex- 
ploitation of the world's now undeveloped natural resources, and 
the enormous expansion in production, distribution and con- 
sumption which are to characterize civilization* during the 
ensuing ten, twenty-five and fifty years, warrant the United 
States in laying foundations broad and deep for the part it is 
to play in the commerce of the world ! 

In order to properly care for America's foreign trade, as 
well as to insure for the United States supremacy in the world's 
exchanges, it is imperative that an adequate system of export 
banking be provided for now, fashioned after the following 
scheme : 

National Jtmerican Export Banks 

The federal banking law should provide for the incorpora- 
tion under it, and subject to the supervision of the United States 
treasury department, of institutions whose name shall include 
the words "National American Export Bank." The head office 
of such bank shall be in the United States, and a majority of its 
directors and of its shareholders (holding not less than 67 per 
cent of its capital) shall be residents of the United States. 

An export bank may establish branches in such foreign 
countries as are set forth in its charter, and may transact its for- 
eign business along the broadest lines, but shall not do domestic 
business or compete in the domestic trade with our domestic 
banking institutions under either national or state law. 

Financing Our Foreign Trade 103 

In other words the export bank shall confine its attention 
to export and import bxisiness, subject at all times to such regula- 
tions as the Secretary of the Treasury may provide in harmony 
with the laws of Congress. 

The charter of such bank might well run for thirty years, or 
ten years longer than the time limit for domestic banks, owing 
to the distances and character of the export bank's husiness. 

Jimple Capital and Surplus 

An export bank should have not less than $5,000,000 of paid- 
up cash capital stock before it can begin business. Dividends 
on this capital should be limited to 6 per cent, until the surplus 
equals the capital. 


Like other institutions under the federal law, the national 
export bank would have behind it the double liability of its 
shareholders, so that in a few years the minimum resources of 
the smallest of our export banks would be $10,000,000, with 
$5,000,000 uncalled up liability, or a total of $15,000,000. 

There would be no legal limit to their growth in size, which 
would depend wholly upon their management and the conditions 
of commerce. 

As their incorporation, field of operations and other essen- 
tials, are to be subject to approval of the Secretary of the Treas- 

I04 Banking Federation 

ury, no more such banks can be established than the foreign trade 
seems to require ; the business will neither be overdone nor under- 
done. Doubtless there would be banks under some such titles 
and territory as : 

National Export Bank of South America. 
National European Export Bank of America. 
National American Export Bank of the Orient. 
World's National Export Bank of America. 

Domestic Banks May Be Shareholders 

The only exception to the universal rule against permitting 
any individual bank to hold shares in another bank (other than 
the reserve certificates of national land banks) would apply to 
these export institutions. Let any domestic bank be free to 
invest in the shares of an export bank, to an amount not exceed- 
ing 5 per cent of the capital of the domestic bank. 

This would enable our domestic banking system to affiliate 
with our export finance, without having the two systems in any 
way conflict or compete with each other. It would also make 
it easy to quickly obtain the large capital required for efficient 
export banking, the more so as such institutions probably would 
be extremely profitable. 

With five or ten such export banks, each having enormous 
resources and conducted with signal ability, and dividing the 
world's territory between them, it will not be long before the 
United States dominates the world's markets, to the enormous 
advantage of our export trade, and of the industries of the Amer- 
ican people. The advantages to foreign countries and foreign 
peoples would be equally great. Not control but mutual service 
would be the object. 

J^ew York Center of World's Finance 

Within ten years New York would become the financial 
center of the world and in connection with the American Reserve 
Union, would profoundly influence if not govern the interna- 
tional discount rate and world's money market. This would 

Financing Our Foreign Trade 


have a most beneficial influence upon American securities 
abroad, ?nd would greatly strengthen the stability of domestic 
finance and the development of all American industries. 

In view of the close relationship existing between the inter- 
national money market, and the American gold reserve and 
domestic discount rates, probably it would be wise to permit the 
group of these great banks of export to have one voting member 
in the American Reserve Union, 

Every precaution that human ingenuity and experience can 
suggest should be taken and enforced rigidly to insure the proper 
conduct of these foreign-com- 
merce banks, so that the title 
"American Bank of Export" 
shall become synonymous with 
all that is upright, efficient and 
progressive, wherever in the 
world people produce and ex- 
change, buy and sell. With 
these fundamentals thus safe- 
guarded, it is almost impossible 
to exaggerate the momentous per- p„,„ „„ ^.^h 

manent benefits of such national 

system of export banks. Ere long they would have their 
branches so perfectly organized and widely distributed as to 
effect great improvements over the existing complex, archaic 
and more or less unbusinesslike methods in foreign exchange. 

The Moral Effect 

With a gold reserve equal to if not exceeding the visible 
reserve in several other great nations combined, with imports 
and exports outrivaling the British Empire, with her civiliza- 
tion founded upon the co-operation of man's physical, mental 
and spiritual natures, the United States would then be in a posi- 
tion to promote harmony between nations — "on earth peace, 
good will among men." 


How to Effect Reform 

Cash RESERVES of National Banks 

Reported, as they were on 4 September 1912, 
and hoiv they would be under the method herein proposed 




Cast on hand 
Owed state "banks net 


Cash on hand 
Owed state bMiks 


Net cash reserve 


Net cash reserve 


Deposits 5,951 

Bank notes 714 

Deposits 5,951 

Total demand obligations 


Total demand obligations 


Reserves nine-tenth* of / per 
total demand obligations. 

cent of 

Reserves now are up to 13 per cent o! 
total demani obligations. 


This apparently miraculous transformation Is possible without a single dollar of inflation, without any 
disturbanoe in finance, but with immeasurable advantage to every oitlzon, to the United States, and there- 
fore to the world. See Chapters XIX and XX. 

Co'operative Finance 

Part Four 

How to Effect Reform 

Contents of this part 

Chapter XV 


What Each National Bank Does 109 

It goes right on doing business without apparent change 1 10 
It joins its clearing house and zone league 110 

It puts up with the zone league a reserve of 7 per 

cent in gold 110 

It maintains in its own vaults a cash reserve 111 

It may issue credit currency, subject to a tax that 

makes such currency'cost the bank same as imiivid- 

ual deposits upon which 2 per cent interest is paid HI 
It may dispose of its 2 per cent government bonds at par 1 12 
It may use its vault reserves temporarily^ if their 

yearly average comes up to the required standard 112 
It may expand and contract its reserve within safe 

limits 113 

It may transact savings and trust business 114 

Chapter XVI 

What the ClearinK House Does 

What the clearing house is 

The economy it eifects 

Outside the pale of law 

To be incorporated under the federal act 

IVlembership liability 

Affiliation with zone league 

Operation of the clearing house 

Work of the departments of clearance and collection 

No charges for collecting checks and drafts 

Supervision and inspection 

The department of loans 

Clearing house certificates or gold for emergencies 

Other helpful activities 




Chapter XVII 

What the Zone League Does 12§ 

An agency whereby banks perform better service 129 

It does no business with the public 129 

It is not even run for profit 129 

A co-operative league for the common weal 129 

Legal status of the zone league 130 

The free gold reserve 130 

The banking reserves 131 
-Mobilizing cash and credits, yet co-operating to keep 

them always available 131 

The savings and trust reserve 132 

Chapter XVIII 

What the American Reserve Union Does 138 

AfTords centralization of reserves and their mobility 138 
Decentralizes credits 139 
Popularizes the money power 139 
Preserves the independence of banks 139 
Insures manhood above money 139 
Incorporates under national law 139 
Controls free gold reserve, protecting banks and pub- 
lic credit HO 
Fixes the rate of discount 142 
May .buy bills and rediscount 142 
Performs other duties, but does not deal with public 143 
Facilitates transfers of credits and exchange 144 
Supervises the zone leagues 145 
Acts as fiscal agent for the United States government 145 

Chapter XIX 

What the GoTemment Does 149 

It controls the entire situation 149 

It alone coins MONEY, whether gold, silver or paper 149 

It permits banks to issue credit currency ^ 150 
Eventually there shall be one uniform money, in place 

of the ten different kinds now in use 150 

Superiority of American money ISO 


The vital change needed 151 
American money in place of bank notes 152 
Vast strengthening of now precarious bank reserves 155 
Impregnable reserves without one iota of inflation 156 
All defects remedied without disturbance , 156 
Large advantages to national and state banks 157 
Volume of money itself may safely fluctuate 159 
Incidental considerations of importance 160 
New economic transformations which insure the sound- 
ness of this method 162 

Chapter XX 

New Phenomena In Gold 165 

New conditions have transformed the gold situation 165 
Conclusions as to world's production and consumption 166 
The unprecedented new demands for gold 166 

United States has gained more gold than any other 

nation 167 

Use of gold in the arts 168 

New developments in use of gold as money 170 

Gold alone not the cause of high prices 170 

Gain in world's reserves of gold 171 

The total stock of gold money in America and else- 
where 172 
Relation of gold to volume of paper money 174 
America on a hard-money basis, while Europe ap- 
proaches RELATIVELY a soft-money basis 175 
Relation of gold to loans and discounts 175 
World's showing for 21 years 177 
America's remarkable gains in 21 years 178 
Comparisons with other countries 180 
Final conclusions extraordinary lg2 

Chapter XX! 

America'a Triple Reserves of Gold 185 

Impregnable position of the United States 185 

How its pre-eminence in gold may be still further 

strengthened 185 

Threefold character of our gold reserves 185 

(1) In the federal treasury 1,000 millions of 

dollars, or a reserve of 50 per cent 186 

(2) In the American Reserve Union 500 millions 186 

(3) Held by state and national banks 250 millions 186 
Ample lawful money reserves for the banks — gold, sil- 
ver and legal tender 186 

Vastly lessened demand for gold 187 

America may dominate the world's finance and 

economics 187 

Still further safeguards provided 187 

Apply modem credit instruments to world trade 188 

A proposition that can be carried out 189 

Elementary principles restated 1S9 

Leave the gold standard alone 189 

The final result 190 

Chapter XXII 

Postal Banking* Remittance and Collection 192 

Successful beginning of the postal savings system 192 
Lessons of its present development 193 

Remove all restrictions upon deposits 193 

Provide ,by law for their investment 

(a) One-third in liquid form 194 

(b) One-half of the remainder in national land 

bank bonds 195 

(c) The balance in mortgages upon farms and 

homes owned and occupied by their owners 195 
Caution against mistakes of foreign governments 195 

Reform in postal money orders 196 

Conveniences that should be embraced in the new 

UPOs, or Universal Postal Orders 197 

The necessary instrument perfected by the author 198 

Postal service only in its infancy 199 





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^XXX ^ 




What Each National Bank Does 


Chapter XV 

What Each National Bank Does 

It goes right on doing business without apparent change 

It joins its clearing house and zone league 

It puts up with the zone league a reserve of 7 per cent in gold 

It maintains in its own vaults a cash reserve 

It may issue credit currency, subject to a tax that makes such 

currency cost the bank same as individual deposits upon 

which 2 per cent interest is paid 
It may dispose of its 2 per cent government bonds at par 
It may use its vault reserves temporarily, provided their average 

for the year comes up to the required standard 
It may expand and contract its reserve within safe limits 
It may transact savings and trust business 

'OW that the co-operative federa- 
tion of banking power has been 
provided for, through a scheme 
of organization that is representa- 
tive of every interest and pro- 
tective against abuse of privilege, 
let us consider the function of 
each constituent thereof. 

In speaking of what the bank 
does, reference is had only to 
national banks having $25,000 or 
ipore capital and operating for 
Commercial purposes with or 
, Vithout savings departments. 
The little people's banks, sug- 
gested in Part V, are not referred 

to in this chapter, as they have not the note-issuing power until 

they attain $25,000 capital. 

State Banks Provided For 

Each state bank or trust company which does a commercial 
banking business may not enjoy currency issue, but may secure 

Doing Buainess as Usual 


How to Effect Reform 

all the other advantages of this method by the means set forth 
in Chapter XVI. 

Each bank which is a member of the clearing house, zone 
league and American Reserve Union, may state that fact in all 
its literature. Such connection will soon come to be recognized 
by the public as a guarantee of solvency, strength and enterprise. 
Together with the many other advantages incident to member- 
ship in the American Reserve, every state bank admissible to it 
will be drawn by self-interest into the American Reserve Union, 
whether the bank is incorporated under national or state law. 

First of all, it will be observed that each bank continues its 
regular business in the regular way, without interruption or 
interference. Neither employees nor customers will have occa- 
sion to realize that any changes have been effected, except that 
now accommodation will be more steady, fluctuations in money 
rates and supply less severe, all industry will go along in a 
healthier way. Just what each national bank will do, by my 
method, are the following : 

Each Bank's Reserve in Gold 

1. Each national bank joins its local clearing house, as 
narrated in the next chapter. 

2. Each national bank joins its zone league, as described 
in Chapter XVI L 

3. Each bank deposits gold in the treasury of its zone 
league to the amount of 7 per cent of said bank's "average depos- 
its during the preceding six calendar months, and in addition 
thereto 7 per cent of the national bank notes it has or proposes 


What Each National Bank Does iii 

to take out for issue and circulation." This gold shall be sub- 
ject to the control of the American Reserve Union, as described 
in Chapter XVIII. Each bank maintains with the league this 
proportionate reserve in gold, as the bank's liabilities increase 
or diminish. 

4. Each bank also carries in its own vaults a reserve in 
gold or government money, not national bank notes or any form 
of credit instruments, equal to "6 per cent of all its individual 
deposits subject to check up to $6,000,000, and one-half of i per 
cent additional for each $500,000 up to $10,000,000, and upon 
this latter amount and all additional individual deposits a reserve 
of 10 per cent" in such cash. Against deposits from other banks 
or balances due them, each bank shall carry a reserve in such 
cash of 20 per cent. 

Tax on Circulation 

5. Each national bank shall pay to the American Reserve 
Union a tax equal to 2 per cent per annum upon such bank's 
average circulation of credit currency (national bank notes) for 
the preceding six months. From this tax an amount equal to 5 
per cent of all bank notes outstanding shall be held in the Ameri- 
can Reserve Union as a redemption fund with which to redeem 
the notes of any failed bank. The other proceeds from this tax 
shall be used (a) for paying all expenses of the zone leagues and 
American Reserve Union, (b) for defraying any ultimate losses 
they may incur, and (c) for the other purposes of the American 
Reserve Union (see Chapter XVIII). 

6. Each bank may take out credit currency — that is, na- 
tional bank notes — to an amount not exceeding its unimpaired 
capital, but only when it is prepared to redeem same in gold or 
government money over its own counter, also through a national 
bank in its redemption city, and through its zone league. Such 
issue may be made only when approved by the comptrollers of 
the zone league, who will approve only when satisfied that the 
bank is sound, and that it has sufficient cash reserves in its treas- 
ury. The redemption fund carried in such redemption bank, 
or in the zone league, may be counted as a part of the bank's 
required cash reserve. The amount of credit currency required 

112 How to Effect Reform 

will be vastly less under this method than at present, while the 
problem of adequate reserves is also settled upon a sound basis. 

7. Since an average of about 70 per cent of the national 
bank notes have been redeemed annually under the old system, the 
obligation to redeem its currency on demand over its own coun- 
ter does not add much to the bank's burden. The fact that the 
national bank notes continue to pass current at par would in no 
way give them permanency, because it costs the bank receiving 
them nothing for transportation by mail or express to the re- 
demption city or zone league, where they must be redeemed in 
gold or lawful money. This cost, like all other expenses of the 
Fowler system, is defrayed out of the tax on circulation. By 
this device the note circulation will tend to be restricted more 
and more within the territory of the bank of issue. 

The 2 per cent tax is but slightly more than the present 1J/2 
per cent tax on notes secured by 3 per cent bonds, which is the 
relative equivalent of the 1/2 per cent tax on 2 per cent bonds. 
The advantages to banks and public involved in the new method 
should make both favor this tax. After the admirable purposes 
are accomplished for which the tax is imposed, as set forth in 
Chapter XIX, public opinion may assent to its reduction or 

8. Each bank may sell its government bonds in the open 
market, or "put" them to the United States, as described in Chap- 
ter XIX, and the gold or government money received therefor 
may be counted in the bank's cash reserve. My recommendation 
upon this point is of fundamental importance, as it also enables 
the bank to get back bonds on a 3 per cent basis when money 
cannot earn the bank more than that rate. 

Expansion and Contraction of Reserves 

9. Any national bank may at any time fall not to exceed 
50 per cent below its required cash reserve, provided its average 
cash reserve for the twelve calendar months shall equal the 
required total. Failing to do this, the bank must pay into the 
American Reserve Union a penalty tax equal to 10 per cent per 
annum upon all loans made in excess of such required average 
reserve for the year. 

What Each National Bank Does 


If a bank is required to have an average reserve of 14 per 
cent, which falls to 7 per cent for six months, then the bank 
would have to carry 21 per cent reserve for the remaining six 
months to bring its average for the year up to the required 14 
per cent. Failure so to do would oblige the bank to pay what 
is almost a prohibitory tax upon all loans it had made that were 
not "covered" by the required reserve. 

Fowler is right in saying "there must be opportunity for 
reserve expansion and contraction, as well as of currency expan- 
sion and contraction, to meet the varying needs of business." 
The purpose of a reserve is use, not disuse; it is a surplus laid 
by for a rainy day, to be employed only when the storm comes, 
and to be restored when the storm has blown over. Under the 
present system, this is not possible — stringency or panics may 
occur just because the banks cannot use their reserve, although 
it is accumulated for that very purpose ! 

On the other hand, law and custom must compel reserves to 
be fully restored as soon as possible. If a bank fails to bring its 
reserves up to the average standard required for the year, it will 
be only because of some extraordinary demand from its cus- 
tomers, for which service they could amply afford to compensate 
the bank for the tax imposed upon it in consequence thereof. 
Such a tax would prevent any undue or unsafely prolonged over- 

Advantages to All Concerned 

10. How the banks may secure the money (gold and gov- 
ernment notes) which alone may constitute their reserves <platnly 
appears from Chapter XIX. ^ •^^^~'y 

Banker to Ospwitor: "Ob, ye>, wei pay 2% 
checking account«, and flnd It Is 00«d bu>ine» 
do to, same as Is the rule In other ocuntries." 

Uncle Sam to Banker: "Goodl Then you pay me 
2% an the depofilts I permit you to create, in the 
form of your own bank notes or credit currency." 

114 How to Effect Reform 

11. Each bank is now able to better serve its customers, 
and to insure against the evils incident to the many and serious 
defects under the old fiscal system. Risks and losses are reduced, 
the banking business becomes steadier and safer, and if its profits 
are not quite as large in some years as heretofore, neither may 
they be as small. Their net gains for the ensuing ten years v^rill 
compare favorably w^ith the past decade, but the ensuing period 
in business w^ill be free from the terrific ups and downs of indus- 
try during the past twenty years, and free from the past's awful 
harvest of death in the banking business.'^ 

Other Benefits 

12. Each national bank may conduct, as wholly separated 
departments, a savings bank business or a trust company busi- 
ness, subject to the laws of its state regulating such business, or, 
in the absence thereof, subject to the regulations of its zone 
league. The land bonds described in Part Six shall be a legal 
investment for any funds of the bank. 

Each bank shall maintain with the zone league a money 
reserve equal to 5 per cent of said bank's savings and trust depos- 
its, to be invested by the league in government, state or land 
bonds for the sole benefit of the original depositors and without 
any deduction for expenses. 

No national bank may hold deposits of all kinds making a 
total in excess of ten times its unimpaired capital stock. 

Consideration of I^serves 

One vitally weak spot in our banking system at present is 
the {a) inadequacy of reserves of lawful money held by the aver- 
age bank for the security of its depositors. This lack of reserves 
is to be provided for, as well as solving the problem of mobiliz- 
ing the gold reserves. Both these defects must be remedied 
forthwith, but only the former is discussed at this point. 

We have compiled Table A (see Addenda, Part Seven) to 
show the relation of national banking reserves to demand liabili- 

IV h a t Each National Bank Does 


ties. It shows that national banks have total reserves of 934 
millions. They now (September, 191 2) owe net to state bank- 
ing institutions 874 millions. If accounts were squared between 
the two classes, nationals would have left only 60 millions of 
cash against nearly 6,000 mil- 
lions of individual deposits. The 
demand liability increases to 
nearly 6,700 millions by adding 
the bank notes outstanding. 

To be sure, loans and dis- 
counts slightly exceed deposits, 
and other assets are ample, but 
the actual cash reserve in lawful 
money after settling with state 
banks is less than i per cent of 
individual deposits. A dozen 
years ago, such net reserve was 
relatively four times as great 
as it is today! Some of our 

charts throw a flood of light on the various relations of reserves 
to business. 

Proof of Strength 

In Union There Is Strength 

The present gross cash reserves of 934 millions, however, 
are 14 per cent of total demand liabilities, compared to 19 per 
cent a dozen years since. During this interval, there has been 
a steady decline in both gross and net reserves. The greater 
strehgth which partly offsets this weakness in reserves is the fact 
that working capital (that is capital stock, surplus and undi- 
vided profits) is now relatively much larger than in 1900. It 
is now almost 50 per cent of demand liabilities, whereas then it 
was hardly 40 per cent. The general position of the banks is 
much stronger therefore, but the weakness lies in the paucity of 
cash reserves. 

This can only be remedied in a sound way as outlined in 
Chapter XIX. The nationals may not safely continue to bor- 
row all the legal tender possible from state banks. That policy 
explains why redemptions of national bank notes have jumped 


How to Effect Reform 

from 35 ana 40 per cent, a dozen years ago, to 70 per cent and 
more of late years. The need for more lawful cash- reserves is 
felt by all classes of banks. Berry ^ computes that in 1910 the 
nationals held a trifle more than 12 per cent against their depos- 
its, state banks 6.4 per cent, savings banks 0.9 per cent, or an 
average of only 8 per cent for all forms of deposits combined. 
The panic of 1873 was coincident with a drop to 12 per cent in 
cash reserves to demand obligations, the panic of 1883 found the 
reserves down to 10.6 per cent, while the panic of 1907 came at 
a time when reserves stood at only 8 per cent for all banks. 

Despite this weakness, however, the situation of reserves is 
inherently much stronger in the United States than in the United 
Kingdom. For our reserves of actual gold are relatively more 
than double England's. We have about 13 cents in gold for 
each dollar of our loans and discounts to Britain's six cents — an 
amazing fact here first revealed. 

is conclusive evidence of the service performed tor the people by any bank that Is efflciently conducted. 

What the Clearing House Do 

e s 


Chapter XVI 

What the Clearing House Does 

What the clearing house Is 

The economy It effects 

Outside the pale of lau> 

To be incorporated under the federal act 

Membership liability 

Mf/illatlon with zone league 

Operation of the clearing house 

Work of the departm.ents of clearance and collection 

No charges for collecting checks and drafts 

Supervision and Inspection 

The department of loans 

Clearing house certificates or gold for emergencies 

Other helpful activities 

ITHER through oversight or de- 
sign, a most useful adjunct in the 
facilitation of exchange has been 
disregarded in the various schemes 
for banking reform hitherto sug- 

The institution referred to is a 
strange anomaly, in that it has no 
corporate form, usually has neither 
asset nor liability, yet performs 
daily an indispensable function of 
universal service. Operating out- 
side the pale of law, its great 
powers are exercised, subject to no legal or public supervision, 
regulation or control, by a small committee chosen by a majority 
of its own members! It is more than half a century old, is 
widely established, and without its services the present method 
of exchange would be well-nigh impracticable. In periods of 
financial stress, it has helped to avert panics. Yet while so use- 
ful to the public, at times it has assumed to tax the public by 

"Clearing" the transactions of the day 

Ii8 How to Effect Reform 

fixing the rates that banks charge for their services, and hence 
may even have committed conspiracy in restraint of trade ! 

What the Clearing House Is 

This remarkable institution is the clearing house. No- 
where in the world is the clearing house so highly perfected as in 
the United States, but even here it is only in the infancy of its 
usefulness. The fullest use of an institution of such proven 
value must be an all-important feature in a more effective fiscal 

The clearing house has been plainly described as "a device 
to simplify and facilitate exchanges of items (checks, drafts, 
etc.) and settlements of balances among the banks, and a medium 
for thoroughly united action upon all questions affecting their 
mutual welfare." One of its functions has been more fully de- 
scribed in a decision of the Pennsylvania Supreme Court: 

"It is an ingenious device to simplify and 
facilitate the work of the banks in reaching an 
adjustment and payment of the daily balances due 
to and from each other, at one time and in one 
place on each day. In practical operation it is a 
place where all the representatives of the banks in 
a given city meet, and under the supervision of a 
competent committee or officer selected by the 
associated banks, settle their accounts with each 
other and make or receive payment of balance and 
so 'clear' the transactions of the day for which the 
settlement is made." 

The Economy It Effects 

The marvelous economy of the clearing system is shown 
by the fact that out of the billions in value and millions in num- 
ber of credit instruments which are "cleared" through the New 
York clearing house, an average of less than 5 per cent of the 
total amount has to be paid in cash or its equivalent. This 
means that at that clearing house, each $roo of claims or checks 
against any bank may be offset by other claims and checks in 

What the Clearing House Does 


favor of the same bank to the amount of $95, leaving only $5 to 
be paid in cash or its equivalent. Occasionally the matching of 
credit instruments against and in favor of any one bank are prac- 
tically equal : in one instance, there was a balance of but a single 
cent in the day's total clearings at New York! 

"The speed with which these clearances are effected seems 
almost incredible. The daily clearances in New York have 
reached 700 million dollars, and exceed an average of 300 mil- 
lions, yet this enormous amount of paper is exchanged between 
the banks in ten minutes, and often in less time." Mere words 
could not emphasize the marvelous ingenuity, efficiency and 
usefulness of the system ! 

Outside the Pale of Law 

One cause that led banks and public to unite in repudiating 
the Aldrich plan was that it fails to include the clearing house 
as an integral part of that plan, and also left this institution to 
continue without legal status. Not a word in behalf of the legal 
incorporation, public supervision or official regulation of the 
clearing house is uttered in the 
Commission's report upon the 
subject, nor in any of the cur- 
rent discussions by the advo- 
cates of that plan. However, 
one of its chief spokesmen has 
made the brief and inconspicu- 
ous but distinct admission that 
"what the clearing house has 
lacked heretofore is {a) legal 
sanction and recognition as a 
permanent institution, and {b) 
legal oversight and restraint." 

The absence of legal 
standing for the clearing house 
has gone to the extreme of 
action by Congress authoriz- 
ing emergency currency asso- 
ciations to do work that has 


Each national or state bank having not Iom than 
$25,000 caoital (shown above by B) may Join the 
elearino houso In its locality. The smaller A banks 
are those which have less than $25,000 capital, In- 
cludlnfl the little people's eo-operative banks to be 
incorporated under federal law, Eaoh A bank "cor. 
responds" with at least one B bank, and thus becomes 
part of the whole system. 

I20 H w t E ff e c t R e f r m 

been better done voluntarily by the clearing houses, though 
without sanction of law! The Aldrich-Vreeland act is another 
instance of inefficient patchwork. Eighteen associations have 
been formed in accordance with its terms; they expire in 1914. 

The comptroller of the currency truly says that "one of the 
greatest forces in this country today for safe and conservative 
banking is a well-organized clearing house association," but even 
he fails to point out the necessity for its incorporation, super- 
vision and regulation. 

Incorporated Under Federal Law 

Each clearing house now in existence, or organized here- 
after, should be incorporated only under national law, in order 
to secure the largest uniformity and efficiency. There should 
be an unwritten understanding between the states that no clear- 
ing house shall be incorporated under state law so long as these 
national clearing houses afford the same security and conveni- 
ences to state banks as to nationals. 

Any new monetary legislation by Congress should provide 
comprehensively for the incorporation and conduct of the clear- 
ing house. The law should protect each of the member-banks 
and the public against any undue assumption of power or abuse 
of its privileges by the clearing house, and yet should not inter- 
pose unnecessary obstacles in the way of the largest possible 
utility of this remarkable institution. It should be an agency 
through which the banks may "unite to assist, not combine to 

It must be subject to rigid supervision by public authority, 
and be held strictly amenable by the courts. Each clearing 
house in each state should be subject to examination by the zone 
league's inspection system, of course under the regulations of the 
United States treasury department. 

These methods will avoid many of the criticisms which have 
been brought against the clearing house, and will enable it wisely 
to fulfill its manifest destiny. For it is to perform functions as 

What the Clearing House Does 121 

new, important and beneficial as was the reform efifected when 
the New York clearing house in 1853 was substituted for the 
cumbrous former system of sending collectors from bank to bank. 

Membership Liability 

The territory covered by the clearing house should be a 
single large city, or in the case of smaller communities, an area 
containing not less than ten banks. All national banks within 
said area having not less than $25,000 capital, should be required 
by law to join the clearing house. All state banks or trust com- 
panies within said area, which have a paid-in and unimpaired 
capital of not less than $25,000, and that agree to the same 
clearing house provisions as are applied to national banks, may 
be admitted by two-thirds vote of the present members. Right 
here begin the same privileges to state banks as to nationals, and 
on a basis so attractive that every state banking institution that 
does a commercial business will be compelled by self-interest 
to join the clearing house, the zone league and the American 
Reserve Union. 

Each member bank shall subscribe to the by-laws of the 
clearing house, and contract to live up to all the obligations im- 
posed thereby. 

Upon being admitted to membership, each bank shall pay 
in a suitable sum, which should go into the reserve fund of the 
clearing house. The annual dues from each bank, assessed 
ratably upon its capital and surplus, should be ample to defray 
all expenses of the larger work the institution is to do. 

Each bank shall receive a non-transferable certificate for 
its share in the clearing house, and shall receive back in full its 
admission fee in case it liquidates, but if it is expelled from the 
clearing house for cause, then the membership fee is forfeited 
by the expelled bank. 

Just as each shareholder in a national bank is liable to the 
extent of twice the par value of its shares he owns, so may each 
bank be liable to the clearing house for double the sum of its 
admission fee and dues. Each member-bank shall also be liable 

122 How to Ejfect Refor 


for such further assessment, if the amount just named is insuffi- 
cient, as may be required to make good any obligation of the 
clearing house. Such obligation shall be a prior lien on the 
assets of each bank. 

This proviso will be resisted in some quarters, but mature 
consideration may lead to general approval of it, since it lies 
at the very root of the co-operative idea — "union for the good 
of all." 

The member-banks are not jointly and severally liable for 
all the debts of the clearing house, but by their membership do 
contract to stand their individual proportion of any assessments 
and ultimate loss, so that the clearing house reserve may be 
restored promptly to its former position following its use in an 

Affiliation with Zone League 

Each clearing house in a zone chooses one banker-member, 
also one customer-member, to represent it in the "zone clearing 
house committee." The chief thereof shall be employed as an 
assistant comptroller in the zone league. 

In this way, the peculiar interests of the clearing houses may 
be adequately represented in the administration of the zone 
league. Otherwise, the clearing house has no vote in the zone 
league, for the reason that the latter is composed directly of the 
individual banks which also compose the clearing houses. 

Each bank thus maintains its individual membership in its 
clearing house, and also in its zone league. This preserves the 
independence, separate entity, and freedom of action, of each 
bank in its relations to both the zone league and the clearing 
house. These precautions are essential, and avoid the over- 
organization and further-removal of each bank from the zone 
league, which would follow if the latter were composed of rep- 
resentatives from each clearing house instead of from each bank. 
On the other hand, all the clearing houses are directly associated 
in the zone league through their active representative therein, 
while their members also collectively constitute the league. 

What the Clearing House Does 


Operation of the Clearing House 

The members of the clearing house — one banking-member 
and one customer-member from each bank — shall elect its offi- 
cers and administrative committees. Each of the latter shall 
consist of five members, two chosen from and by the banking 
members, two chosen by and from the customer members, and 
the fifth selected by majority vote of these four. This insures 
the full, fair and adequate participation in clearing house man- 
agement of both these interests. Suitable rotation in these 
offices may be provided for. 

Each bank having two equal votes, and also being a mem- 
ber in and guarantor for the clearing house, each and all the 
banks would give this local asso- 
ciation the oversight required to 
secure its largest efficiency. 

Through its various depart- 
ments, each presided over by a 
committee selected as aforesaid, 
the clearing house may become 
more serviceable than has even 
been dreamed of in the past. 
Constituted as described and sub- 
ject to public authority, it may 

be trusted safely and wisely to increase its efficiency through 
vastly improved service. 

All Bankt Now Pull Together 

Work of the Departments 

The department of clearings will improve upon and enlarge 
the efficiency of the clearance system. In addition to the clear- 
ing of checks, drafts and similar credit instruments, eventually 
it may be possible to devise a scheme whereby the clearing house 
may be an agency for the balancing of accounts payable and 
accounts receivable, between individuals, whether persons or 
corporations. The possibilities of this suggestion are alluring; 
its successful application would promote trade enormously and 
would be a novel development of the science of exchange. 

1 24 H w t E ff e c t R e f o rm 

The department of collections will grow in usefulness. 
Through the affiliation of each clearing house with the zone 
league, and the latter with the American Reserve Union, it will 
be possible to simplify much the exchange and collection of 
credit instruments. 

Most of the work, time and expense now involved in 
handling checks from other points, may be avoided. Then even 
the "country check," which metropolitan banks now affect to 
disdain, will partake of the nature of a draft. Already the sys- 
tem is perfected whereby any New England bank in good 
standing issues its checks payable at par through the Boston 
clearing house, and other sections are aiming at the same result. 

Checks Free of Collection Charges 

The collections committee may not seek to fix rates illegally 
nor conspire to tax customers unduly. This was done at one 
time by the Buffalo clearing house in such a manner that 

The "increase on the profits of collections, to 
the twelve banks interested, over the former 
methods of doing business free of charge, paid the 
dividends of all the banks each year, and whatever 
profits were made on loans and discounts were used 
to build up the surplus." ® 

Such "uniform rates" were an added tax or imposition upon 
banking customers, and all such charges should be eliminated 
so far as possible. A bank is entitled to a fair return for its 
labor, and so is the clearing house, but that is no justification for 
conspiring to take advantage of customers. Does the collection 
tax of one-tenth of one per cent imposed upon country checks by 
the clearing house in a few big cities, partly explain the latter 
banks' huge profits, as was the case in Buffalo? Is not such a tax 
a conspiracy in restraint of trade? 

The claimed justification for the tax is the cost of the service 
performed. But by the organized method now proposed, all 
exchanges of checks, drafts, etc., will be so reorganized and sim- 
plified that each clearing house and each bank will perform 

What the Clearing House Does 125 

this service without charge to others, because it will be a small 
task compared to the present. It is to be a mutual service for 
mutual benefit, but so perfected as not to be a hardship to any. 
This will be an important feature of the better service which 
will make banking more useful to the public and sufficiently 
profitable to the banks. 

"The better the service to customers, the better the safe 
profit to the bank." 

Supervision and Inspection 

Right at home where each commercial bank is established, 
located and doing business, is the place to begin such a close 
supervision of banks and banking corporations, that failures and 
dishonesty shall be well-nigh impossible. Since each and every 
bank in the clearing house is vitally afifected by the inability of 
any one bank to meet its obligations, each bank has paramount 
reasons for insisting upon a method of bank examination and 
supervision so perfect and so thorough as fully to protect all the 
banks concerned, as well as all their customers. 

The object is not to expose the private affairs of one bank 
to another, nor to hamper the banks in any way, but 

"to prevent them from taking undue risks in order 
to secure high rates of interest, or go into under- 
writing schemes of a questionable character, or 
allow directors or officers of an institution loan- 
ing the bank's funds to corporations in which they 
are interested, provided they are not well secured; 
also to prevent firms and corporations securing 
larger lines of credit than they should be entitled 
to, based on their assets, and to enable the banks to 
check up firms, individuals or corporations that 
make false statements." 

Each bank should be obliged to submit to examination 
from only one authority, but that inspection should be so 
rigidly thorough as to make superfluous its being done over 
again. Therefore, the Fowler idea is right of centering all bank 
inspection in the zone league, as described in the next chapter. 

1 26 How to Effect Reform 

But in this work of bank examination, the department of super- 
vision in each clearing house may be of large assistance. 

Loans and Certificates 

The clearing house may be legally authorized to issue clear- 
ing house certificates, under well-defined restrictions that shall 
compel their retirement promptly upon the passing of the 
emergency that gives rise to them. The certificates are to be 
used only between banks and the clearing house, for the settle- 
ment of balances, and shall never get into circulation. This is 
as far as it . is necessary to go, for our method automatically 
expands credit currency and money volume as needed, and as 
automatically contracts both when not required. Repeal the 
Aldrich-Vreeland act. 

Advances to any member-bank of funds from the clearing 
house reserve, or of the clearing house guaranty upon any bank's 
paper rediscounted, or the issue of clearing house certificates, 
would be made only upon vote of nine-tenths of all the banks in 
the clearing house. The committee on loans would have charge 
of all details of carrying out such votes. 

Helping Its Members Out of Trouble 

Only in emergencies would a bank apply to the clearing 
house for assistance. Under ordinary circumstances, the bank 
would get all the accommodation it wants directly from the zone 
league, at a moment's notice and without any trouble or expense 
to either party other than the established rate of commission to 
the league. 

In case a bank feels the need of rediscounting more of its 
assets than the zone league is willing to accept without addi- 
tional security, such bank may apply to the clearing house for 
a guaranty of the commercial paper which it desires to redis- 
count at the zone league. 

Any such bank receiving such guaranty shall 
pay a commission therefor to be fixed by the direc- 
tors of the clearing house. Expenses and losses 

What the Clearing House Does 127 

in excess of commissions shall be met by an assess- 
ment of the members of the clearing house, in pro- 
portion to the ratio which their capital and surplus 
bear to the aggregate capital and surplus of the 
members of the clearing house, which assessment 
shall be made by the board of directors, and the 
commission received for such guaranty, after the 
payment of expenses and possible losses, shall be 
distributed among the several banks in the clear- 
ing house, or may be retained in whole or in part 
as a surplus fund for protection in the case of 
future guaranties. The clearing house shall have 
authority to require security from any bank offer- 
ing to take up a guaranty, or it may decline to grant 
the application. The total amount of guaranties 
by a clearing house shall not at any time exceed the 
aggregate capital and surplus of all the banks in 
the clearing house. 

The foregoing differs from Section 20 in the Aldrich bill 
in permitting the clearing house to establish a reserve, in using 
the clearing house instead of Aldrich's local associations, and in 
making this guaranty come only after the bank may have secured 
as much help as it can get from the zone league without addi- 
tional security, and in having the relief come direct from the 
zone league, rather than from the American Reserve Union. 

Through its loan committee, the clearing house would act 
in obtaining gold from the zone league with which to tide over 
any bank that otherwise might not be able to get enough gold 
at the moment needed. 

Other Helpful Departments 

The department of arbitration may settle most of the dis- 
putes between bankers, or between any bank and its customers. 
It will be a board to which any locally interested party may 
appeal. If it acts wisely, this feature will satisfactorily adjust 
a large proportion of the cases that now go to the courts. What 
a saving in time, feelings and work! The perfection of this idea 
lies in the right of any bank, clearing house or individual to 


How to Effect Reform 

appeal to the zone's governing council as a board of adjustment 
of differences. 

Many other means will develop whereby this local union 
of banks and banking customers, which is named the clearing 
house, may largely benefit. It should have a committee charged 
with advising and teaching the smaller A banks, so that the latter 
may feel they have friends near at hand to consult with. 

As a union in time of stress and trouble, of all the local 
banks within its bailiwick, the clearing house can be of large 
service. The various ways for so doing will suggest themselves 
as experience points out their need. 

But neither the statutes nor the by-laws should restrict too 
closely the activities in these respects of the institution or of its 
constituent banks. Avoid all unnecessary details in laws, banish 
bureaucratic routine that interferes with business, abolish super- 
fluous redtape. The present crkze for "regulating" every detail 
of business is simply an expression of the need for righteousness 
in management and efficiency in supervision, which are so well 
provided for by the method set forth in this work. 

In the stormiest of seas, all banks will have three lighthouses showing the way to a safe harbor. The 
outer light Is the clearing house, next Is the zone league, and last the American Reserve Union. They 
each afforil a harbor of refuge for the bank, whether It Is a little co-operative people's institution, or 
a small state bank, a bank of medium size, or a big bank. 

What the Zone League Does 


Chapter XVII 

What the Zone League Does 

•An agency whereby banks perform better service 

it does no business with the public 

It is not even run for profit 

Jt co-operative league for the common weal 

Legal status of the zone league 

The free gold reserve 

The banking reserves 

Mobilizing cash and credits, yet co-operating to keep them 

always available 
The savings and trust reserve 

HE zone league is not a bank, so far as 
the public is concerned, and does no busi- 
ness whatever with the public. It does 
not usurp the business of any existing 
banks, either with the public or with other 
banks. On the contrary, the zone league 
is an agency whereby the banks may bet- 
ter serve each other, and therefore better 
serve the public and general industry. 

It is not a trust nor combine con- 
trolled by a few big banks, but the zone league is a representa- 
tive democracy of all banks and of all users of banks, within its 
territory. It operates for the common good of all, and in 
emergencies is a source of strength to each bank that may need 
help. It may afford "clearances" between banks, clearing 
houses and other zones. 

Co'operation for the Common Weal 

It is not even run for profit to itself, all operating expenses 
of the zone league being paid from the tax on circulation. It 
has no capital stock, but does enjoy the use of the gold reserve or 

130 How to Effect Reform 

other deposits placed with it by its member-banks, subject to the 
American Reserve Union's control of the gold reserve. What- 
ever profits arise from the business conducted by the zone league, 
after setting aside such proportion thereof for additional 
reserves as the governing council may direct, may be appor- 
tioned as a profit-sharing dividend upon the custom received 
from member-banks. 

The zone league, therefore, is in fact as in name, a co-oper- 
ative league of banks and banking customers upon a basis of 
democratic representation — not for profit, but for the common 

The Legal Status 

To paraphrase the Fowler and Aldrich bills: 

Section 24. Each zone league shall have all 
the attributes and powers of a body corporate, 
and may sue and be sued in any United States court 
having jurisdiction of the action brought. It shall 
have power to receive, collect, and forward bank 
notes, to buy and sell commercial paper and bills 
of exchange from and to the banks which are mem- 
bers of such zone league, and to act as the agent 
or attorney in fact of the banks which are mem- 
bers of any of the zone leagues, so far as it may be 
necessary to do so to carry into effect the purpose 
of this organization. It shall have power to do 
and perform any and all acts that may be necessary 
for the proper periormance of its duties in the 
supervision of all banks under it, and in the con- 
duct and operation of the bank-note redemption 

The Free Gold Reserve 

Each zone league is the custodian of the gold reserve depos- 
ited with it by each member-bank to the amount of 7 per cent 
of said bank's individual deposits and credit currency. 

This is the free gold reserve. No obligation is outstand- 
ing against it, other than the league's receipt to the depositing 
bank to return the gold in case the bank liquidates, less what- 
ever it owes the league or the American Reserve Union. 

What the Zone League Does 


This free gold reserve is subject to the control of the Ameri- 
can Reserve Union, as described in the following chapter. It 
may also be employed by the league for loan to any bank within 
the zone that may require gold, upon deposit with the league by 
such bank of ample collateral in the form of short-time soon- 
to-come-due commercial paper, indorsed by the bank and if 
necessary guaranteed by its clearing house — all under such con- 
ditions imposed by the league as shall insure prompt return of 
the gold to the league's treasury, and all subject to the approval 
of the league comptrollers. 

The Banking Reserves 

In addition to the free gold reserve described, the zone 
league may receive from each member-bank other deposits. 
This is called "the zone league's 
banking reserve." 

These funds may be employed 
by the zone league in the purchase 
of gilt-edge commercial paper or 
bills of exchange guaranteed by a 
member bank, and having not 
more than 90 days to run. If such 
paper or rediscounts for its mem- 
ber-banks, do not satisfactorily 
employ all the league's funds, it 
may purchase similar paper from 
other zones, or may deposit with 
the American Reserve Union. 

In this way, the banking reserves may be mobilized to the 
best advantage, yet will be in liquid form, so that each bank 
may get same on demand. Where money is scarce and accom- 
modation high, the banks will rediscount freely with the zone 
league, which will thus employ the funds deposited with it from 
banks that have a surplus. 

In case the zone league is not able to meet all demands, it 
will apply to the American Reserve Union, as described in the 
next chapter. 

Free Gold Reserve 


How to Effect Reform 

The 5 per cent gold savings aiid trust reserve, placed with 
the league to protect such deposits in its member-banks, shall be 
invested in national bonds, or partly in the bonds of any state 
lying wholly or in part within the zone, and also in the bonds of 
any land bank therein. 

Here we have decentralization of cash and credits, yet co- 
operation in their use whenever and wherever needed for pro- 
ductive and distributive purposes. How beautifully effective, 
compared to the inefficient system which now concentrates re- 
serves for gambling on the stock exchange! 

M Thorough Method of ll,igid Inspection 

One of the chief functions of the zone league is the inspec- 
tion of banks. Each member-bank shall be subject to inspec- 
tion by the comptrollers of the zone league, or their assistants. 

The chairman comptroller being 
a United States deputy comp- 
troller, the examination of banks 
will therefore be conducted by a 
combination of all the authority 
vested in the United States treas- 
ury department and all the facili- 
ties and powers enjoyed by the 
zone league. All the leagues be- 
ing joined into the American 
Reserve Union, the experience of 
inspectors in each league will be 
available to all. 

Rigid inspretioii Nccdlcss to Say, the inspec- 

tion, examination and supervision 
will be of the most rigorous, searching and rigid description. It 
will go through each and every bank with a fine-tooth comb. 
Nothing will be overlooked, nothing neglected, no mere "ex- 
planations" accepted, but everything will have to appear in black 
and white to the satisfaction of the examiners. 

These men will be the most highly trained experts available. 
They will have neither friends nor enemies, and will not be 

What the Zone League Does 133 

interested in any bank or affiliated with the officers of any bank. 
They will be wholly fair, impartial, thorough, disinterested. 
They will require the presence and active participation, in their 
inspection, of the officers and of all the directors of each bank, 
so far as the examiners think wise. 

The work will be even more perfect than is the inspection 
of banks conducted by the New York and Chicago clearing 
houses, which has received the highest praise. This method 
possesses the further advantage of being applied by experts 
whose work is not influenced by local considerations, and who 
will not "give away" any of the information. 

Each report shall be made m triplicate, the original being 
sent to the comptroller of the currency in the United States 
treasury department at Washington, a duplicate being filed with 
the zone league, and the triplicate given to the bank itself. This 
method will secure equal efficiency in bank examination through- 
out the United States, in country as well as in town. Injustice 
to any bank will be guarded against by permitting it to appeal 
to the governing council of its zone. 

Public confidence in the whole banking system will be 
stimulated by the most perfect bank supervision that human 
ingenuity can devise. Therefore there will be general approval 
of this plan, by banks and public. The following opinion ex- 
pressed by the comptroller of the currency will doubly apply 
to an inspection conducted as above described : 

"Every one of the objections always urged 
against a clearing house examiner was used before 
these clearing house associations adopted the plan, 
and every single one of the objections, by actual 
experience, has fallen to the ground. The fact is 
that no real argument from any angle can be made 
against the wisdom and efficiency of such a plan of 
supervision. Give to the state supervisors of banks 
all the power they ask; give to the comptroller of 
the currency all the power he may Want, and then 
let each select the very best examiners available, 
and, even with these ideal conditions, an effective 
clearing house association, with an efficient clear- 


How to Effect Reform 

No More Receivership Extravagances 

ing house examiner, will be by far a more potent 
factor for sound banking in the community than 
either or both combined." 

One of the conditions of membership being that every bank 
shall submit to the American Reserve Union's system of inspec- 
tion and live up to its stand- 
ard of doing business, this will put 
state and national banks on a par 
as to stability, and will insure uni- 
form efficiency in their inspection 
and supervision. Each member- 
bank will be subject to one inspec- 
tion per year, or oftener if 
necessary, but only one — that one 
will be thorough, complete and 
rigid beyond precedent. National, 
state, clearing house, league and 
American Reserve Union inspec- 
tion, will be consolidated into one perfect system. 


In case a member-bank fails, or gets into serious trouble, so 
as to require being placed in the hands of a receiver, the comp- 
trollers of the zone league shall be appointed receivers thereof. 
They shall serve as such without any extra compensation. 

This will provide for the economical administration of the 
receivership, as well as the largest ability and best facilities in 
closing out the assets in the interest of the creditors. Such 
reform will prove invaluable. 

Relations to American H,eserve Union 

Each league has one representative and one vote in the 
American Reserve Union at Washington, as described in Part 
Three. The latter has general control over the league, and 
specific and exclusive control over the free gold reserve depos- 
ited with the respective leagues. The union's powers thus 
include supervision and inspection of the respective leagues, and 
the league supervises the clearing houses in its zone. 

What the Zone League Does 135 

The Governing Council 

It will be noted from Chapter XI that while the adminis- 
tration of the active afifairs of the league is in charge of the 
seven comptrollers, as a body of experts chosen only by the bank- 
ing interests, there is a governing council composed of one 
customer-member and one-banking member from each district 
assembly in the league. 

The governing council has general supervision over the 
league, and acts as a board of appeal. In case circumstances 
require, the council may appeal to the American Reserve Union, 
or appeals from the governing council may be taken up to the 
union by any individual or bank. In this way every safeguard 
would seem to be assured to public and to banks. 

The Zone Does J^ot Limit Any Bank 

It should be distinctly understood that the boundary lines of 
each zone do not in any way confine within such limits the activ- 
ities of any bank therein. The only vital limitation is that the 
city which is the headquarters of the zone league shall be the city 
at which shall be redeemed any credit currency of any bank with- 
in the zone which may not be redeemed over its own counter. 

The boundaries of each zone should include areas that em- 
brace substantially an equal number of banks in each zone. 
There will soon be upward of 35,000 banks in the United States, 
the number now being about 30.00©. About half of the present 
number of banks are institutions having $25,000 capital or more, 
all of which would be eligible for membership respectively in 
their clearing house and zone league. This would allow about 
300 of such banks to each of the 42 zones. Each of the seven 
districts in such zone would therefore contain an average of 
about 43 such banks and many smaller ones. These details 
could be worked out, on an equitable basis, by the special com- 
mission appointed for the purpose by the President. 

It should be reiterated that the purpose of the zone is not 
to prevent any bank therein from in any way doing business in 
other zones or sections. The zone is simply a convenient size 
for a representative league, without interfering with the inde- 
pendence or activity of any member-bank in the zone league. 

Why? Because bankers and business men are not organized are as utterly ridiculous and Ineffectjve as the old-fashioned 

to prevent panlo. Each one "hogs" their gold and reserves 
In nameless fear, while the panlo spreads with Irresistible 
Intensity. What efforts are made at last to put out the lire, 

hand-engine, no water supply, and an unorganized mob are 
powerless before a San Franoisoo disaster. But all the panics 
we have had may now be Insured against by the Myrick method. 

By the Myrlok method, each bank, Its management and 
clients, become one unit In a pierfect organization, always 
mobilized for Instant action. With triple reservoirs, contain- 
ing an unlimited supply of ever mobile gold, and equipped 
with the latest up-to-date types of panlc-flghting apparatus and 


engines^ an overwhelming flood of gold, baoked up by public 
confldenoe, absolutely smothers the least susplolon of panic or 
distress before it can get any headway whatever. This Is not 
fancy— 'It can be actually realized, to the Immeasurable bene- 
fit of all the pnople ail the time. 


How to Effect Reform 

Chapter XVI II 

What the American Ifjsserve 
Union Does 

Jtffords centralization of reserves and their mobility 

Decentralizes credits 

Popularizes the money pouter 

Preserves the independence of banks 

Insures manhood above money 

Incorporates under national lau> 

Controls free gold reserve, protecting banks and public credit 

Fixes the rate of discount 

May buy bills and rediscount 

Performs other duties, but does not deal with public 

Facilitates transfers of credits and exchange 

Supervises the zone leagues 

Acts as fiscal agent for the United States government 

CO-OPERATIVE federation of bank- 
users and bank-owners, with its thor- 
oughly representative organization as 
described in the preceding part of this 
work, is a democratic body which safely 
may be intrusted with powers ample for 
its largest service to the American 

Independent of political manipula- 
tion, it is yet subject to congressional con- 
trol and to government supervision. 
Without capital stock, the American 
Reserve Union, nevertheless, is an association with invulnerable 
powers as a going concern. Farthest removed from the prin- 
ciple of an arbitrary central bank, it still affords every citizen 
all the advantages of co-operative mobilization of all the fiscal 
resources of the public, the banks and the government. It cen- 
tralizes reserves, and makes them usable where and when needed 


What the American Reserve Union Does 139 

(mobilization), while decentralizing credits and popularizing 
the money power. 

Preserves the Independence of Banks 

More than all, the American Reserve Union is the capstone 
to America's fiscal system. It is built up from the people, 
through their {a) little co-operative banks, {b) national and 
state banks and (c) zone leagues. 

Each institution in each of these three classes is more 
independent than ever, and their manipulation contrary to pub- 
lic welfare is guarded against, yet they are enabled to co-operate 
safely and efficiently for the common good, and the American 
Reserve Union becomes the final embodiment of the collective 
powers of people, banks and leagues. 

Insures Manhood Mbove Money 

Growing up from the people, it is diametrically opposite to 
the national reserve association in the Aldrich bill, which came 
dangerously near to being a central bank with autocratic powers 
over the people. The latter appears like a despotism that might 
or might not autocratically confer favors or impose burdens 
upon the people; the American Reserve Union is a representa- 
tive financial republic of, for and by the people. It is typically 
American and republican; the Aldrich scheme was typically 
monarchical and despotic. 

The American Reserve Union is the final expression of 
American manhood controlling the dollar; the Aldrich bill was 
capable of insuring capitalistic control of humanity. 

Incorporated Under Federal Law 

The new measure which forthwith should be submitted to 
the Congress for the comprehensive fiscal method outlined in 
this work, may provide for the incorporation of the American 
Reserve Union. Its charter should run for not less than twenty 
years, like national bank charters, nor more than thirty years. 
The Canadian principle is good of embodying in the law a state- 
ment to the effect that it is subject to congressional review every 
ten years. 

140 How to Effect Reform 

The American Reserve Union shall have all the attributes 
and powers of a body corporate, and may sue and be sued in any 
court having jurisdiction of the action brought. It may act as 
the fiscal agent and attorney-in-fact for all the respective zone 
leagues and their member-banks and have full power to carry 
into effect the object for which this organization is created. 

Controls Free Gold Iteserve 

The American Reserve Union shall be the custodian of the 
free gold reserve of all its member-banks. Each of them shall 
maintain a deposit of gold in their zone league, to the amount 
of 7 per cent of their individual deposits and 7 per cent of their 
credit-currency issues; and likewise shall pay the 5 per cent 
reserve on savings deposits to the Union in gold; also, the 2 
per cent tax on circulation shall be paid in gold to the central 

The American Reserve Union shall have absolute control 
over all of the gold so deposited. This control is subject only 
to reimbursement to any bank upon its final liquidation, of its 
gold deposit less its debts to its zone league or to American 
Reserve Union. The banks shall receive 4 per cent interest 
upon their gold deposit, from the American Reserve Union, as 
one of its operating expenses. 

The American Reserve Union shall also have power to buy 
or sell gold coin or coin bullion in domestic or foreign markets. 

Protecting Banks and Public Credit 

The free gold reserve may be employed in any fashion that 
seems wise to its trustees for the purpose of maintaining the 
credit of the government and of the banks. To this end, the 
Union will arrange to furnish gold through any zone league to 
any bank that has pressing need for the same, but only upon 
adequate security guaranteed by the bank, and if necessary also 
guaranteed by its clearing house and zone league. 

The gold may be kept in the vaults of the American Reserve 
Union at Washington, or in the vaults of the various zone leagues 
subject to the call of the Union. 

What the American Reserve Union Does 


This supply of free gold will thus constitute a common 
reservoir from which it may readily flow wherever and when- 
ever it is needed to meet an emergency. As bank deposits 
increase, so will this stock of free gold increase. From the very 
beginning, America would have the largest and most impressive 
aggregation of free gold in the world. 

It will be absolutely mobile, that is to say, the trustees of 
the American Reserve Union will be able to supply gold at an 
instant's notice to any bank, or group of banks, or to any zone or 

The trustee from eaoh of the zones indicated by the name of the city which is their zone center and 
bank-note redemption agency occupies the desic set apart for the zone league ho represents. During or- 
dinary business the galleries would be open to the public, as Is the case with the United States Congress, 
but executive sessions would be held by unanimous consent. 

section, that might be in pressing need of it. But this will be 
done only under such conditions and securities as would insure 
the prompt return of the gold so soon as the emergency had 
parsed. Thus the gold would flow automatically in and out of 
the one common reservoir of the precious metal. 

The American Reserve Union may also borrow gold from 
the federal treasury, temporarily and for a limited period only. 

142 How to Effect Reform 

upon the written recommendation of the Secretary of the Treas- 
ury approved in writing by the President of the United States, 
provided ample soon-to-mature security therefor is given. Such 
loan would be made only for a short time, and only when justi- 
fied by highest consideration for the public welfare, as a further 
safeguard against possible emergency. 

Fixing Discount Rates 

In order to control the import and export of gold, and to 
facilitate the evening up of rates of interest throughout the vari- 
ous sections of the United States, the American Reserve Union 
should have power to fix the rate of discount or exchange, upon 
which it may be willing to sell some of its gold, or to rediscount 
prime commercial paper or prime acceptances for member- 

Such control of the discount rate has been practiced long 
and successfully by the Bank of England, Bank of France and 
the Imperial Bank of Germany. It accounts for rates in Europe 
being so much more steady than in America. 

The discount rate fixed by the American Reserve Union, 
should be established only at a duly called meeting of all the 
trustees, held on Friday afternoon, and requires a four-fifths 
vote of the entire board. It would be announced Friday night, 
after the close of business. 

The discount rates would be the feature of the American 
Reserve Union's circular which should be mailed that night so 
as to be on the desk of practically every banker in the United 
States the following Monday morning. This circular would 
give a general view of financial and business conditions through- 
out the United States and the world, and each bank would be 
obliged to keep it on file for the inspection and use of the public. 
No manipulation of the discount rate would be possible for the 
benefit of any clique, individual, bank or other corporation. 

May Buy Bills and Rediscount 

The American Reserve Union may buy and sell acceptances 
or bills of exchange, domestic or foreign, arising out of commer- 

What the American Reserve Union Does 143 

cial transactions, indorsed by the member-bank selling same, 
having not over four months to run and being of the character 
known as prime bills. 

It may rediscount commercial paper for any bank, clear- 
ing house or zone league embraced within the Union, when the 
same is amply secured, and provided such paper arises out of 
agricultural, industrial or commercial transactions in contradis- 
tinction to stock exchange transactions or other speculations of 
a nonproductive character. "Such notes and bills must have a 
maturity of not more than 28 days, and must have been made at 
least 30 days prior to the date of rediscount. The amount so 
rediscounted shall at no time exceed the capital of the bank for 
which the rediscounts are made. The aggregate of such notes 
and bills bearing the signature or indorsement of any one per- 
son, company, firm, or corporation, rediscounted for any one. 
bank, shall at no time exceed ten per centum of the unimpaired 
capital and surplus of said bank." 

Whenever in the opinion of the American 
Reserve Union, the public interests so require, 
such opinion to be concurred in by the Secretary 
of the Treasury in writing, the Union "may dis- 
count the direct obligation of a depositing bank," 
indorsed by its zone league and local clearing 
house, if the same is fully secured by pledge and 
deposit with it of satisfactory securities, "but in no 
such case shall the amount loaned by the Union 
exceed three-fourths of the actual value of the 
securities so pledged." 

Other Duties 

The American Reserve Union may buy and sell the bonds 
of the United States, or of any state therein, or of any land bank 
incorporated under federal law; whether it may deal in the 
securities of foreign nations is a fair question. 

It may receive deposits from any member-bank, clearing 
house or zone league, but not from individuals or other corpora- 
tions, and shall not pay interest on deposits. Its domestic busi- 


How to Effect Reform 

ness shall be done through its member-banks, and its foreign 
business through the national American export banks. It 
transacts no business with or for the public direct, for either 
home or foreign account. 

Transfers of Credits 

It should be the duty of the American Reserve Union, or of 
any zone league, upon request, to transfer any part of the deposit 
funds of any bank having an account with it, to the credit of any 
other bank having an account with the American Reserve Union. 
If a deposit fund is transferred from the books of one bank or 
league to the books of another, it may be done, under regulations 
prescribed by the American Reserve Union, by mail, telegraph 
or otherwise. 

This adaptation from Section 37 of the Aldrich bill can 
be developed in a way to greatly simplify and facilitate ex- 


Heretofore {f a bank got pressed for funds, because 
its borrowers could not pay their loans fast enough 
to enable the bank to meet withdrawals, the only 
alternative has been for the bank to close Its doora 
and suspend business. But even if this Is done tem- 
porarily, It too often leads to permanent failure* 
receivership, liquidation and loss to all concerned. 

What tragedy of financial distress, economic ruin 
and human failure has followed the suspension of 
banks! And nine-tenths of It ail might have been 
avoided, had the Myriok method been In operation. 
How grave the need of such co-operation In view of 
the present small proportion of cash reserves to large 
demand obligations of American banks I 

But, by the new method, each bank having $25,000 
capital or more is a member of Its local clearing 
house. The latter's president says to the zone chair- 

"One of our banks is a little snug for funds, but 
we know It is all right, so the clearing house guaran- 
tees Its paper." 

Zone's chairman: "We will take some of It, but 
as we have a good many cajis Just now, we cannot 
take It all. However wa will Indorse the balance 
and rediscount It at the American Reserve Union." 

Governor of A. R. U.: "Glad to cash all this kind 
of paper you can bring us. There is nothing safer, 
better or more available." 

What the American Reserve Union Does 145 

change. It may be that some form of national clearing house 
function can be developed by the American Reserve Union, 
which will be feasible and successfully convenient. It ought to 
be possible to effect all such transfers or exchanges without 
charge for collection, the only expense being the cost of trans- 
mitting the order, if by wire or wireless. 

The purpose is to avoid all delays, charges, taxes and costs 
upon the free interchange and free play of exchanges, drafts, 
checks and credit instruments, not only between individuals and 
banks in the same locality or state, but between these interests 
in different parts of the country. Let us have free trade in 
exchange, as well as free trade in commodities, within the limits 
of the American nation. It will be quite possible for the Amer- 
ican Reserve Union to perfect a plan for doing this, in co-opera- 
tion with the clearing house function of its zone branches, 
working in harmony with local clearing houses and local banks. 

Supervises the Zone Leagues 

The American Reserve Union shall have general super- 
vision over each and all of the zone leagues and in cases of 
necessity may assume charge thereof. Upon its recommenda- 
tion, the comptroller of the currency should have power to with- 
draw from any bank its note-issuing function, provided the same 
has been abused. 

Names and addresses of the member-banks shall be public 
property subject to public inspection and use: let nothing be 
hidden, covered up or kept back. The trustees' meetings should 
be open to the public, but executive sessions may be had by 
unanimous consent. 

Fiscal Mgent of the Government 

The American Reserve Union shall act as banker, fiscal 
agent, representative and attorney-in-fact for the United States 
government, in selling government securities or in advancing 
money to it. The federal government shall transfer to and keep 
with the American Reserve Union a sufficient balance, approxi- 
mating $50,000,000, to meet all the government's checks and 
drafts, the Union acting as its general fiscal agent for all pur- 

146 How to Effect Reform 

poses except for collection and current daily deposits of its 

Of course, the bulk of the revenues of the government 
should be allowed to remain in the banks "at the very place 
where the duties are paid to the government, until actually 
needed to defray the expenses of the nation," This will be done 
directly by the treasury department in the regular course of 
business. For such government deposits, the banks should pay 
not less than 2 per cent, and as much more as the government 
can obtain from competitive banks under safe conditions. This 
at once solves the problem of preventing the government from 
unduly taking from the channels of trade the funds it collects, 
and thus a whole train of evils, inequality and possible favorit- 
ism and injustice is done away with. The government should 
not require the banks to "invest an equal amount of their cap- 
ital in bonds to secure the repayment of any deposits it may make 
with them, because under the law, the government already has 
a first lien upon the assets of the bank with which it ma;kes a 
deposit." As Fowler further says: 

"The United States government should accept 
the checks and drafts of the national banks for any 
money due it, and should immediately redeposit 
the same in national banks in the locality where 
collected, without collateral, in order that the 
transactions of the government may be no more 
disturbing than an equal amount of business car- 
ried on between banks or between business houses 
and the bank." 

Income from the Two Per Cent Tax on Credit Currency 

By enabling each bank to strengthen its reserves, and to 
secure more actual cash (full legal-tender lawful money of the 
government) as narrated in Chapter XIX, the national banks 
will have occasion to issue credit currency only when they can 
lend it at a profit over and above the tax thereon at the rate of 2 
per cent per anniftn. This tax would be i per cent semi- 
annually upon the average amount of such currency the bank 
had outstanding during the previous six months. 

What the American Reserve Union Does 


From the proceeds of this tax, an amount equal to 5 per 
cent of all credit currency outstanding shall be held in the 
American Reserve Union as a redemption fund with which to 
redeem the notes of any failed bank. The balance may be 
used (a) for paying all operating expenses of the leagues and 
Union, and for (^) defraying any losses that ultimately may 
occur. The remaining proceeds of the tax on circulation, and all 
other incomes, shall be used by the American Reserve Union for 
the following purposes : 

1. To pay the extra i per cent on the 2 per cent bonds 
when refunded into 3 per cents, as described in next chapter. 

2. To add gold to its surplus until the latter equals the 
average government deposit in the Union. 

3. All profits earned by the American Reserve Union in 
excess of these purposes shall be covered into the treasury of 
the United States, and used for retiring its bonds. 


Undo Sam; "That's right, Governor of the American Reserve Union, 
I'm glad to have you clear out the rocks and do all the other heavy 
work for me on this financial farm of mine, but I want you to understand 
that I'm the owner and the boss!" 

Governor of A. R. U.: "Aye, aye, sir. I'll obey orders." 

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JVhat the Government Does 149 

Chapter XIX 

What the Government Does 

It controls the entire situation 

It alone coins MOMEY, whether gold, silver or paper 

It permits banks to issue credit currency 

Eventually there shall be one uniform money, in place of the 

ten different kinds now in use 
Superiority of American money 
The vital change needed 
JImerican money in place of bank notes 

Vast strengthening of now precariously small cash reserves 
Impregnable reserves without one lota of inflation 
Jill defects remedied without disturbance 
Large advantages to national and state banks 
Volume of money itself may safely fluctuate 
Incidental considerations of importance 
Mew economic transformations which insure the soundness 

of this method 

rHE national government of the United States, constitut- 
ing the sovereign power of all the people in their 
federated relations, as a result of the organized method 
previously outlined, will now possess sovereign power over 
money and banking, in fact as in name. For while it permits 
national banks to issue credit currency, the federal government 
retains to itself sole control over the coinage of actual money, 
whether in the form of gold, silver or paper. 

And while the bankers are free to run the banking business, 
just as other lines of business are free to all the people, the gov- 
ernment retains to itself full control over its own receipts and 
expenses, assets and liabilities, simply using the American Re- 
serve Union as a banking agency and convenience, much as the 
individual depositor uses his local bank. 

Distinction Between Money and Credit Currency 

The distinction is vital between money and credit currency. 
The latter is an instrument for the transfer of values, similar to 

150 How to Effect Reform 

a check on a bank ; the former is the concrete embodiment of the 
value itself. Only the government may control money, but 
banks may freely utilize all forms of credit instruments, subject 
only to laws and associations that shall prevent abuse and insure 

No form of credit currency is lawful money, nor legal 
tender for all debts public and private, because it is merely an 
instrument for transferring values. But every form of actual 
money should be lawful money and full legal tender, because 
it is itself the concrete expression of the value it represents, 

One Uniform Money 

Therefore, let us aim to establish — in a gradual, natural 
and evolutionary manner — one uniform kind, quality and char- 
acter of American government money. 

Let every dollar of our actual money be full legal tender for 
all debts public and private. Let its paramount legal status 
as lawful money be reinforced by its natural economic status of 
containing 100 cents worth of gold, or being interchangeable at 
par for gold. 

This improvement upon our present ten different kinds of 
so-called "money" will be inherent, vital, vast — pregnant with 
rich possibilities for the American people. 

Superiority of American Money 

Even in its present somewhat complicated composition and 
technically varied legal attributes, the American dollar is supe- 
rior in every way to the European dollar. 

Considering the total stock of money in the United States 
the American dollar contains one-quarter more of gold than does 
the European dollar. American money contains over 50 per 
cent more silver, and only about half as much paper or credit. 

If this comparison at the beginning of the year 191 1 is con- 
fined to the relation of gold reserves to paper money, excluding 
silver entirely, we find that the American gold-and-paper money 

What the Government Does 151 

consists of 60 per cent gold reserve and only 40 per cent credit 
coinage represented by paper, whereas the proportions are 
almost exactly reversed in the European gold-and-paper money, 
which consists of only 35 per cent of gold reserves, the other 65 
per cent being represented by paper; but in our case, most of the 
"paper" consists of United States bonds — the highest type of 
government security yet devised by any people in the world. 

Now, the other fourfold reserves — land, character, health, 
co-operation — back of the American coinage of credit are pro- 
digiously bigger and stronger for America than for either the 
United Kingdom or any of the nations of continental Europe. 
These conclusions profoundly favor the United States, although 
the comparisons include as paper money both our bank notes 
and treasury notes. How this truth is emphasized by the 
graphic charts in the present work! 

Only Vital Change J^eeded 

Further study of the situation from each and all of its angles 
leads to the inevitable conclusion that the only change vitally 
needed in American money is to replace gradually the present 
bank notes with government money. This change should be so 
effected as to rigidly protect against either overexpansion or 
undue contraction. 

Since bank notes in their present form act as money, except 
that they may not be counted in reserves, their gradual exchange 
for government money, dollar for dollar, would not increase by 
one iota the total volume of all money. 

Suppose this change had been effected gradually during the 
twenty months ended 'September i, 1912, by the national banks 
selling at par to the federal treasury each month not to exceed 
one-twentieth of their holdings of 2 per cent bonds, receiving for 
each $1,000 bond the sum of $1,000 of lawful money of the 
United States, the bank, of course, simultaneously retiring its 
$1,000 of national bank notes outstanding against the bond. 
Then if no other change had occurred, the money account in the 
federal treasury would show as follows : 

3 tfi 

What the Government Does 153 

United States Money Account 

As of September 3, 191 2, assuming that the 2 per cent bonds 
had been all cashed (approximate figures) : 

Assets Liabilities 

Gold, all forms $1,221,000,000 Gold certificates $1,054,000,000 

Silver, all forms 523,000,000 Silver certificates 490,000,000 

2% U. S. bonds 683,000,000 New American money 683,000,000 

Deficit 150,000,000 Old treasury notes 350,000,000 

$2,577,000,000 $2,577,000,000 

Now, this operation has not changed the amount of the 
deficit or uncovered paper. It has simply transferred to the 
federal treasury all the 2 per cent bonds, against which an equal 
volume of lawful money has been issued in place of that amount 
of national bank notes. There has been no change in the total 
volume of money, or in the security back of it, or in its location 
in the treasury or in circulation. 

American Money in Place of Bank A[otes 

What has been done, however, is to substitute full legal 
tender lawful money of the United States government for the 
notes of some 7,500 different national banks. These banks have 
received this money in exchange for their notes and for the 
bonds which secured those notes, so that not a dollar has been 
withdrawn from circulation and there has been no disturbance 
whatever to business or finance. 

Now, in gradually effecting this vital change, assume that 
Congress had provided that the gold certificates and silver cer- 
tificates outstanding, also the old treasury notes (so-called 
greenbacks) and new treasury notes issued for the bonds, should 
all be changed over into one uniform kind, character and quality 
of money, known as American government money, each dollar 
of which should be lawful money with full legal tender qualities 
receivable for all debts, public and private. 

Every dollar of such American money would have back of 
it in the national treasury, reserves consisting (in round num- 

1^4 How to Effect Reform 

bers) of 53 cents in gold, 23 cents in silver, 21 cents in United 
States bonds, making a total of 97 cents of the best security in the 
world back of each dollar, and leaving only three cents on the 
dollar of government fiat or apparently unsecured credit. 

That would be the best dollar in the world ! 

Moreover, the gold reserves would continue to augment in 
future relatively faster than in the past, if the methods outlined 
in this work are at once put into effect. Indeed, it is not too 
much to say that by the year 1920, or early in the third decade of 
the present century, each American dollar would have back of 
it in the treasury reserves substantially 80 cents in gold and 20 
cents in silver. Long before 1925, the gold reserves will reach 
100 cents for every dollar of American money outstanding. 

How conservative this prediction in view of the cold fact 
that American reserves of gold increased by the prodigiously 
colossal sum of 727 millions of dollars during the eleven years 
ended with 19 10! This was a threefold increase over the 
previous decade. Should that rate of increase be maintained, 
we would have 100 cents of gold on the dollar long before the 
close of the current decade. The present rate of gain, rather 
than the phenomenal relative increase noted for the two periods, 
will more than fulfill the prediction of the preceding paragraph. 
Chapter XX must be mastered in order to realize fully the sound 
conservatism of the views herein expressed. 

Over and above such metallic reserve of 100 per cent, each 
American dollar would be backed by America's other reserves, 
each of which are in truth more important than gold — our Char- 
acter reserve, our Health reserve, our Land reserve, and our 
Co-operative reserve! 

Observe that this money has back of it now, after the change 
is effected, all that was back of it before. There has been no 
dilution of its backing, or security, or value. The bonds are now 
in the federal treasury, instead of being held by 7,500 different 
banks. These bonds originally cost the banks par or more in 
gold or its equivalent; all that value is therefore back of and 
represented in them today — not one mill of fiat in these bonds, 
and every dollar of the government money heretofore or now 

JVhat the Government Does 155 

issued partly upon their security is the equivalent of gold, be- 
cause interchangeable at par for gold. 

Vast Strengthening of Bank Iteserves 

If the above had been consummated as suggested, then the 
condition of the national banks in the United States, September 
3, 1912, would have shown an addition to their reserves of 714 
millions of dollars, being the total amount of national bank notes 
then outstanding which have now been transmuted into Amer- 
ican money. (This total is here used, instead of only the 683 
millions of bank notes secured by the 2 per cent bonds.) The 
national bank gross reserves in gold, silver and lawful money 
would then stand at 2,182 millions, against net deposits subject 
to reserve requirements of approximately 7,100 millions of 
dollars, as officially reported. 

In this way gross reserves are raised from a trifle less than 
20 per cent to about 30 per cent. There would then be no dupli- 
cation in or "pyramiding" of the reserves, either in New York 
city, Chicago, St. Louis, or the central reserve cities, which now 
bring down the actual net cash reserve relative to all demand 
obligations to state banks and other depositors. 

Assume that on the same date the national banks had 
liquidated their net indebtedness of 881 millions to state banks 
and trust companies, now the nationals would still have remain- 
ing a net cash reserve of 774 millions against individual depos- 
its, United States and postal deposits of 5,951 millions. 

In other words, the nationals have now paid all their obli- 
gations to state banking institutions, and have left an average 
cash reserve of 13 per cent against their other deposits or demand 
liabilities, compared to hardly i per cent as was the actual situa- 
tion at the date cited. And the state banks and trust companies 
having received this large volume of cash in place of their 
claims against the nationals, have likewise increased their re- 
serves from present notoriously low figures to a point of 
unexampled stability. The laws of the respective states should 
require state banks to maintain reserves equal to the reserve 
requirements of national banks. This will insure against a com- 
mon danger. 

1^6 Ho wto Effect Reform 

Impregnable Reserves Without One Iota of Inflation 

Thus without one single iota of inflation, we have trans- 
formed the entire banking situation from one of over-extended 
credits in relation to cash reserves, to a position of impregnable 
reserves in relation to credits. And this transformation has been 
effected without any disturbance, uncertainty, or loss. On the 
contrary, it has improved the economic situation throughout the 
United States, and therefore has benefited directly the whole 
commercial world. 

Nor have we "watered" the -currency, nor issued more 
"greenbacks," nor returned to the "heresies of fiat money infla- 
tion." Every dollar of American money is backed by 47 per 
cent gold and 20 per cent silver, making a total metallic reserve 
of 67 per cent. The United States bond reserve of 27 per cent 
is no more and no less than it has been ever since the 2 per cent 
bonds were issued. 

In a word, we have merely substituted one uniform kind, 
quality and character of American money for the present more 
or less unrelated ten different kinds of so-called "money." This 
now homogeneous American dollar has back of it all of the gold, 
silver and bonds that were back of the heterogeneous dollars of 
the past. 

In addition to having the same security, however, we have 
now so co-ordinated the financial and banking with the indus- 
trial interests of all the people, as to make incomprehensibly 
stronger the economic position of the United States. 

We can now guarantee to exchange each and every dollar 
of American money for a dollar of gold of the present weight 
and fineness upon demand at any instant anywhere, and we are in 
a position to constantly, persistently and everlastingly still fur- 
ther increase our gold reserves, both actual and relative. 

Mil Defects Hfimedied Without Disturbance 

Thus we have at once remedied each and every defect that 
has been pointed out in the fiscal and commercial banking sys- 
tem of the United States. 

What the Government Does i^j 

We have perfected an American fiscal method for the 
American people. 

In so doing, we have created an American dollar that is 
good for loo cents in gold in any market anywhere in the world 
at any moment. 

So far as human ingenuity can devise, we have safeguarded 
against panics at home while laying the foundations wide and 
deep for commercial supremacy abroad. 

We have made it possible for America to enter upon an 
era of development before which the glories of the past may pale 
into insignificance. 

We have placed all the people, through their federal govern- 
ment, in control of the money power, instead of having the 
money power in a position possibly to control the American 
people and their national government! 

And all this has been accomplished without injury to any 
bank, interest, or industry. 

Large Advantages to the Banks 

Some national banks may object to the apparent loss of their 
note-issuing function, but in its present form that function 
afifords but slight profit, taking one year with another. The 
profit on circulation of bank notes is officially estimated (United 
States comptroller's report 191 1) to be around 1.3 per cent per 
annum, if the bank can earn 6 per cent for its funds. The profit 
is more or less, according as the rate earned is more or less than 
6 per cent. Over the older sections of the United States, the 
rates for money during the past few years have been such as to 
yield little if any profit upon circulation. A number of expense 
items involved do not appear in the official estimates. 

The feeling among many nationals is that circulation is 
"about an even thing," taking one year with another. In ear- 
lier times, there was a large profit on circulation. In these 
recent years, the profit has been so small as not to induce state 
banks to change over to nationals. The fact that thousands of 
state banks, without the note-issuing function, make profits that 

i£;8 How to Effect Refor 


compare favorably with nationals, tends to confirm the foregoing 

J\[ationals May Issue Credit Currency 

My method, however, now permits the national banks to go 
on and issue a pure credit currency for short time and tem- 
porary use, whenever such currency is required to meet the 
demands of trade. Such credit currency is backed by a reserve 
of 7 per cent in gold deposited in the zone league, and a further 
reserve in the banks' own vaults which averages 8 per cent and 
that may be partly in gold and partly in lawful money, making a 
total reserve averaging 15 per cent in cash against each dollar 
of credit currency issued. It is now possible for the banks to 
obtain and build up such reserves with which to support their 
credit currency, over and above the reserve required against 
their deposits. 

While the position of the banks is thus made incredibly 
stronger than at present, there is no danger that they will unduly 
inflate their issue of credit currency. For they will put it out 
only when it pays them so to do, after paying the 2 per cent tax 
thereon, and borrowers will not borrow unless they can employ 
labor at a profit. The credit currency privilege accorded to the 
nationals is a fair set-off for withdrawing their bond-secured 
note-issuing privilege. Such fair exchange is therefore no 
robbery. But in addition thereto, my method possesses other 
advantages of such transcendent importance to banks and public 
as to warrant its prompt enactment by Congress. 

The margin remaining to national banks upon which they 
may issue credit currency is not large. Of their 1,308 millions 
of new cash reserves, they must retain say 858 millions against 
their deposits to meet the reserve of 15 per cent required by law 
and by good banking. This leaves a margin of 450 millions. If 
one-third of it is retained to cover reserves for increasing depos- 
its, we have a free balance of only 300 millions, or an extra lee- 
way over and above legal reserves of only some 5 per cent upon 
demand obligations. Even if the use of credit currency sup- 
planted checks and drafts to some extent, its volume would 
always be petty compared to the volume of these other credit 

What the Government Does 159 

instruments. A free margin of substantially 5 per cent is none 
too large for a nation of soon-to-be 125,000,000 people with im- 
measurable national resources to utilize and conserve. 

Money Volume Fluctuates within Safe Limits 

Right here comes in another advantage : Any bank, national 
or state, shall have the right at any time to buy back at par these 
government bonds from the federal treasury, which will then be 
earning 3 per cent instead of 2 per cent. And the bank may also 
turn back into the federal treasury any of the bonds it has thus 
repurchased, after having held them a reasonable time — say 
four to six months, whenever it can use the bank's funds to better 

That is to say, when a bank cannot earn more than 3 per 
cent on its funds, they will flow into these treasury bonds, but 
when the bank is able to earn more than 3 per cent on its funds, 
it will again exchange the bonds for the funds it gave for them. 
Such exchanges shall be effected through the American Reserve 
Union as the government's fiscal agency; the Union does the 
work, but the government is the master. 

Thus is set up a means for automatically expanding and 
contracting the volume of American government money itself, 
so that the supply thereof will always just equal the demand. 
Over-expansion in the volume of money is guarded against, 
because the quantity can be increased only in the form of gold. 
Undue contraction is likewise guarded against, by the proviso 
that such interchanges of cash and bonds by the banks shall be 
permitted only at such times and in such ratios as may be 
approved by the American Reserve Union, concurred in by the 
Secretary of the Treasury. 

Absolute equality for state banks is assured by the rule that 
any state bank, which by joining its local clearing house becomes 
an integral part of the organization of its zone league and of the 
American Reserve Union, shall be entitled to the same privileges 
that the national banks enjoy with reference to placing their 
funds in 3 per cent government bonds and cashing under the 
terms above noted ; also in all other respects, save only the credit 
currency issuing function. 

i6o How to Effect Reform 

The 3 per cent paid on the bonds will practically establish 
that rate for surplus funds, whether in the hands of banks or 
private parties. Such uniformity, together with the power of 
the American Reserve Union to fix the rate of discount, will tend 
to equalize the price of money and of credits in all sections of 
the continental United States. The whole method will there- 
fore tend to maintain stability in values, and will afford efficient 
protection against the artificial ups and downs which have done 
so much heretofore to create panics. 

Other Considerations of Importance 

Some may say that this plan is an infringement upon the 
rights of the holders of gold certificates. Not at all; they can 
exchange their gold certificates for the actual gold if they want 
it, or as the gold certificates are deposited in banks they will be 
automatically exchanged for American government money; the 
same with silver certificates. 

This plan leaves it open for Congress to cut up more of the 
silver dollars into subsidiary silver as fast as gold reserves in- 
crease. If this policy is carried out, before 1925 there may 
be 100 cents of actual gold in the reserves for every dollar of 
American money outstanding. For the American people 
greatly prefer paper money to metallic money; all experience 
and official data confirm this fact, provided all the paper money 
is as good as gold all the time. 

The American money proposed is utterly different from the 
note issues contemplated by the Aldrich bill. The latter meas- 
ure placed in the hands of five men (a majority of its executive 
committee), the power to manipulate most of the currency of 
the country, even to the extent of authorizing banks to count its 
notes in their cash reserves. The Fowler bill was not so objec- 
tionable in this respect, though still far from perfect. 

This method entirely solves the problem of "taking care" 
of the 2 per cent bonds, the disposition of which has been such 
a stumbling block in other plans. 

American money should be in denominations of $1, $2, $5 
and upward. No credit currency should be issued in smaller 

What the Government Does i6i 

denominations, than $io. Keep the smaller bills for the people's 
permanent money. 

Incidentally it is to be noted that the federal treasury saves 
2 per cent interest on all of the bonds it thus takes in. The sav- 
ing will amount to upward of 14 millions of dollars annually 
when all the bonds are thus cashed. Furthermore, the American 
Reserve Union is obliged to pay a premium of i per cent annu- 
ally upon these 2 per cent bonds, so that the government may 
benefit to the total extent of $20,000,000 a year from the transac- 
tion. This sum would enable gold to replace an equal amount 
of bonds in the treasury, which would be canceled. 

A wise law and its prudent administration can be trusted 
to effect this change from bank notes to government money, so 
gradually as to avoid all disadvantages and assure all advantages. 
Any possibility of over-expansion of credit currency by the banks 
may also be avoided. 

Final Word as to Credit Currency 

The timid will point out that these added reserves will 
tempt the banks to over-extend their credit currency. What 
of it, so long as such currency upon demand is redeemed instantly 
in actual money, and therefore is always as good as gold? The 
volume of credit currency will then fluctuate, as does the volume 
of checks (cheques), in accordance with the demands of busi- 

Don't confuse credit instruments, whether checks or cur- 
rency, with MONEY. Probably checks and drafts will be 
"cleared" between banks in the United States to a total of 200 
billions of dollars during 1913, compared to only 126 billions in 
1908. If a relatively minute fraction thereof should be credit 
currency instead of checks or drafts, this will be simply because 
the use of such current credit is more convenient than the trans- 
fer of book credits by checks and drafts. 

As a matter of fact, when all the people are educated to fully 
use banks, checks will be employed almost universally, credit 
currency will be employed less and less in volume and frequency, 
and its duration of life will be shortened as its use becomes 

i62 How to Effect Reform 

more and more temporary. American MONEY will be used 
mainly for payrolls, as petty cash and for retail transactions. 
With the perfection of banking and of credit instruments, the 
use of actual money or of credit currency will be correspond- 
ingly reduced. 

New Conditions Insure Soundness 

The economics of the human race are being transformed! 
Entirely new factors have come into play that are creating new 
conditions of the most profound significance to America and to 
the world. These new influences bid fair to become more 
pronounced annually for the ensuing few years. They are so 
fundamental as to warrant prime consideration. Some of the 
most startling revelations of the new economics are set forth in 
the next chapter. 

These and other conditions establish the soundness of my 
recommendations, while also proving their necessity. 

Meanwhile, it will be noted that the American government 
controls the situation. It may permit the volume of American 
money to expand or contract moderately within the maximum 
limit fixed, or as that limit may be increased by enlarging the 
gold reserve. Credit currency is put into its proper place, of 
being merely a more convenient form of temporary credit instru- 
ment to supplement the volume of money when business 
requires, just as checks expand or contract in number and amount 
with industrial activity. 

The welfare of little business and of big industry is con- 
served, progress in the arts and sciences is promoted, and the 
common good of all the people is insured. The rights of in- 
dividual and corporation, state and nation, are safeguarded. 
Each of these interests maintains its independence, but all co- 
operate to do together that which can be done better through 
association than separately. 

"Not to stand alone is vital, 
Get together is immortal : 
Instead of weakness, separately, 
Strength in oneness with Infinity ! " 

What the Government Does 


Total Stocks of Gold inj^merica and Europe Compared 



The first circle above shows the composition of the American dollar on 31 
December 1910. The circle beside it gives the same facts at the same date for 
what may be called the average dollar of the United Kingdom and continental 
Europe combined. That is to say, if the total stock of money in America at that 
date had been cut up into gold pennies, silver pennies and paper pennies, and 
mixed in their existing proportions, each dollar of icx) cents would have been 
composed as above indicated. The same explanation applies to the money of all 
Europe. The figures are based on official returns derived from the United 
States mint report for 1 91 1. 

Gold Reserves Compared in Relation to Paper Money 



The diagram at the left shows that all of the paper money in the United 
States 31 December 1910 (including as money national bank notes as well as 
treasury notes) was only about 40 per cent of the total quantity of gold RE- 
SERVES and total paper money. For all Europe, the gold reserves at the same 
date were only 35 per cent of the total quantity of gold and paper money. 





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New Phenomena in Gold 165 

Chapter XX 

New Phenomena in Gold 

Neva conditions have transformed the gold situation 

Conclusions as to world's production and consumption 

The unprecedented new demands for gold 

United States has gained more gold than any other nation 

Use of gold In the arts 

New developments In use of gold as money 

Cold alone not the cause of high prices 

Gain In world's reserves of gold 

The total stock of gold money In America and elsewhere 

Relation of gold to volume of paper money 

America on a hard'money basis, while Europe approaches 

RELJiTWELV a soft^money basis 
Helatlon of gold to loans and discounts 
World's showing for 21 years 
Jtmerica's remarkable gains In 21 years 
Comparisons with other countries 
Final conclusions extraordinary 

Jk T EW conditions now control in the supply, movement and 
/%/ use of gold, taking the world as a whole. These new 
^ factors are in marked contrast to the conditions which 
prevailed so recently as the year 1900. Present conditions are 
so new, so different from the past, and of such elemental impor- 
tance, that thorough understanding of them is preliminary to a 
comprehension of existing circumstances, and to a sound judg- 
ment as to their influence upon the future of economics in par- 
ticular and of civilization in general. The present situation has 
come upon the world so rapidly, and economic progress in 
America is so impetuous, that the true significance has not yet 
been grasped of these new developments. 

It is not easy to express in a few words and pictures all 
these new facts and influences so as to convey to the mind a clear 
conception of the unprecedented developments now going on. 
How efficiently these few pages accomplish that purpose will 
depend in part upon the mind powers and mental concentration 
of the reader. 

i66 How to Effect Reform 

While this phase of finance has ever been complex, it is 
possible to present the situation briefly, simply and clearly. The 
accompanying designs, with the tables in Addenda, summarize 
present conditions in a manner to warrant the following con- 

World's Production and Consumption of Gold 

1. Production doubled during the eleven years ended with 
1910 over the previous decade, but only 51 per cent of this in- 
creased supply was employed for usual monetary purposes ! 

2. The much heralded increase in the world's supply 
added less than 5 per cent each year to the stock of gold available 
for monetary purposes in the countries of usual consumption — 
Europe, America, Australasia and South Africa!! 

3. Industrial purposes consumed 24 per cent of the 
world's production during the latter period, compared to 29 
per cent for the previous decade, 

4. The amazing new fact is that the unusual absorption of 
gold jumped from one- tenth of the production during the earlier 
ten years, to one-fourth for the past eleven years. Whereas, just 
under 200 millions of dollars measured the consumption of India 
and Egypt during the former decade, those countries (together 
with South America, Japan and Mexico) consumed a trifle over 
/,000 millions for the latter period. 

5. Here was a fivefold increase in the unusual absorption 
during the past eleven years, against an increase for usual mone- 
tary purposes of only 47 per cent. Therefore, the new con- 
sumption of gold increased relatively ten times as fast as did the 
ordinary consumption!!! 

The ^ew Demand for Gold 

Considering only the increased supply during the second 
period over the first (of which increase 388 millions went into 
industrial uses), the balance of the added supply was almost 
equally divided between the usual monetary conS'Umption — 863 
millions — and the unusual absorption of 824 millions of dollars! 

New Phenomena in Gold 


Any authority would have been ridiculed if he had pre- 
dicted in 1900 that practically one-half of the increased produc- 
tion during the ensuing decade (other than -industrial uses) 
would be absorbed by India, Egypt, South America, Japan and 
Mexico, which had only then begun to come into the market as 
buyers of gold. He would have been "laughed out of court" if 
he had said that 433 millions would be taken by India and 146 
millions by Egypt, without add- 
ing to the apparent stock of J) 
gold money or of visible re- 
serves in those countries. 

If he had further predicted 
that South America was to wit- 
ness such a wonderful economic 
development and financial re- 
habilitation as to suck up 343 
millions of dollars in gold dur- 
ing the period ending with 1910, 
credulity would have been taxed 
to the utmost. If he had added 
that Japan and Mexico would 
"get away with" another hun- 
dred millions, our authority 
doubtless would have been regretfully sent to a lunatic asylum ! 

But all this has happened. The same movement is going 
on today. 

The United States Gained Most 

Fully 433 millions of dollars worth of gold has 

"disappeared" Ipto India darinfl tho eleven years 

ended with 1910. The gold coinage of India appears 

not to have Increased. 
Equally mysterious Is Mo absorpllon iiy Egypt of 

146 millions during the same time. 

Equally amazing, and still more directly important to the 
American people, is this pregnant fact: that the United States 
gained i,oi8 millions of dollars in gold during the past eleven 
years, compared to a gain of only 395 millions in the previous 

That is to say, during the latter period, the United States 
got 27 per cent of the total production of gold in the world, the 
countries of unusual consumption got 25 per cent, and all the 
other peoples of the globe combined got only 48 per cent! 

i68 How to Effect Reform 

Or, to interpret the world's consumption of gold in different 
terms, we see that, whereas during the first period the usual mon- 
etary purposes employed 6i per cent of the world's production, 
the proportion thus used for the second period fell to 51 per cent. 
The unusual absorption now took 25 per cent of the total supply, 
compared to only 10 per cent in the previous decade. 

Gold production in the United States is now about 100 mil- 
lions of dollars annually, or three times as much as two decades 
since. The importation of refined gold bullion and gold coin 
of all kinds into the United States for the twenty-one years ended 
June 30, 1 910, almost exactly balanced the total exports, the ex- 
cess of imports being only one million. Add to this the United 
States production of 1,422 millions, and we have a total addition 
to the United States supply of gold during these twenty-one 
years of 1,423 millions of dollars. 

Is it any wonder that the gold reserves in the banks and 
treasury of the United States at the end of the latter period 
should have been almost 1,000 millions greater than at the begin- 
ning? Yet only about two-thirds of our supply was used for 
money, and the showing would be vastly better from the view- 
point of cash alone had the United States coined the other third 
of its supply which it consumed in the arts. 

Use of Gold in the Arts 

The world as a whole used for industrial purposes, during 
the second period, only 24 per cent of the supply, compared to 
29 per cent for the earlier decade. But the United States more 
than doubled the quantity of gold it used in the arts, while for 
the rest of the world such industrial consumption increased only 
about 50 per cent. 

To interpret more clearly the development of American 
manufactures of gold, it may be said that American goldsmiths 
used 37 per cent of all the gold consumed in the arts of the 
entire world during the past eleven years, compared to 29 per 
cent thereof during the previous decade. 

Of the total net quantity added to supply of gold in the 
United States during the past eleven years, no less than one- 

World's Production of Gold for Two Periods 
SECOND P^Rioi^. 


TEN YRS. 1890-99 



_ regate Production for this first period of 10 years 
$1,960,000,000, making an average of 197 millions annually. 

Aggregate Production for this second period of 11 years 
$4,035,000,000, making an average of 367 millions annually. 


Production Total for Period 

Average Annually 


10 years 

11 years 

2(1 period 
over lat 

21 years 
both periods 

10 years 

11 years 

2d period 
over 1st 

21 years 
both perioda 









United States 






United States 

















World's Consumption of Gold for Two Periods 







Aggregate Consumption for this first period of 10 years 
S1,9S),000,000, making an average of 197 millions annually. 


Consumption Total for Period 

1690-1899 1900-1910 
10 years 11 years 


Industrial purposes 570 

Usual monetary purposes 1,195 
Unusual absorptions 195 






2d period 
over 1st 




21 years 
both periods 




Aggregate Consumption for this second period of 11 
years $4,035,000,000. making an average of 367 millions annually. 


Average Annually 

2d period 

10 years 


Industrial purposes 57 

Usual monetary purposes 120 
Unusual absorptions 20 



11 years 




over Ist 



21 year! 
both periods 




170 How to Effect Reform 

third was employed in the arts. Thus only two-thirds of our 
supply was consumed by the additions to our stock of coined 
money and refined bullion. 

Use ttf Gold as Money 

Therefore, it is conservatiTe to say that of the total pjoduc- 
tion of gold throughiflsttt the world during the past 21 yeaxs^ other 
than that which is ui^d for industrial purposes, only about one- 
half went to enrich the stocks of money in the commercial 
nations, and the other half went to India, Egypt, Sou^ Anacrica, 
Japan and Mexico. 

This entirely new condition proves in a striking manner 
how the human race adapts itself to changing circumstances. 
Only about half of the increased flood of gold is coming into 
monetary uses in the commercial nations, the balance being 
taken by peoples who in former years did not figure largely as 
gold consumers. Those new consuming countries were not even 
mentioned in the gold statistics prior to 1900. 

The significance of this remarkable evolution is here : even 
if the present rate of increase in gold production should con- 
tinue during the current decade,, since only about half of the new 
supply is becoming monetarily available in America and Europe, 
that will be only about enough to take care of the normal 
demands of their increasing population, business and develop- 

Gold ^lane Jifot the Cause of High Prices 

So far as gold may have promoted higher prices foe com- 
modities, these new facts seem to indicate that gold has reached 
the zenith of its powers in this respect, at least during the present 
decade. It is evident, however, that the scramble for gold will 
continue to be as keen in the future as it has been in the past. 

We are to remember, also, that every dollar's worth of gold 
dug out of the ground represents from 75 to 150 cents' worth of 
brains and effort, labor and capital. The cost of gold produc- 
tion during these twenty-one years has probably averaged 90 

New Phenomena in Gold 171 

cents for each dollar of refined bullion secured. That is to say, 
the human eflfort thus employed would have earned about 90 
cents, if it had been applied to other industries, for every dollar 
it earned in gold mining. 

Indeed, it is a fair question whether the gold-producing 
industry as a whole yields a much larger net return upon the 
human effort and capital it requires than do other lines of in- 
dustry, over a period of years. 

Gold does not rain from heaven! Like all other good 
things in this life, it is got only as a result of hard work. It is 
simply a product of human effort, just as wheat, fabrics, houses 
or other commodities are products of human effort. This funda- 
mental truth is utterly lost sight of in much of the discussion of 
the standard of values, and in considering the influence of gold 
upon prices. Certainly an increase of less than a petty 5 per 
cent annually in the commercial world's gold-money is not the 
main cause of the upward trend of commodity prices. 

If human demands for commodities increase faster than 
human effort is willing to work enough harder to supply the 
demand, higher prices per unit are naturally inevitable. Fewer 
hours of daily work, no epochal development in processes or in- 
ventions in machinery to compensate for the reduction in human 
effort, the luxuries of yesterday become the necessities of today, 
and the non-producing population increasing relatively faster 
than are the producers — the causes for higher prices should be 
sought along these lines! And it may be that the diversion to 
gold-mining of so much thought, labor and money that other- 
wise would have been employed in argicultural and manufac- 
turing production, has been an even greater factor in advancing 
commodity prices than the amount of gold produced. Human 
effort is the true expression of value, but man has not yet found a 
better standard by which to measure human effort than the yel- 
low metal. 

Gain in World 21ESERVES of Gold 

Although only about one-half of the world's gold produc- 
tion of late years has been consumed for monetary purposes, or 

172 How to Effect Reform 

a much smaller proportion than previously, the actual increase 
in production is reflected in the larger reserves of gold. By 
reserves is meant the visible supply of gold coin and refined bul- 
lion in the government treasuries and banks of the different 

Here again we find the United States leading all other 
nations of the globe. Our gold reserve jumped from 424 mil- 
lions of dollars at the close of 1889 to 141 1 millions at the close of 
1910 — an increase for the United States of 232 per cent, com- 
pared to 170 per cent as the increase for all Europe (including 
the continent and the United Kingdom) . 

America — and by America I mean the United States of 
America — has the greatest visible reserves of gold ever in the 
custody of any one nation siiPce the dawn of time. Our reserve 
is more than DOUBLE that of either France or Russia, and 
more than SEVEN times that of the United Kingdom. Coun- 
tries other than those named simply are "not in it" with America 
in this respect. 

Indeed, the American gold reserves are about two-thirds as 
much as the reserves reported for the entire continent of Europe, 
which has over four times our population! And the pressure 
to get into the reserves every possible dollar of gold, is much 
stronger over there than on this side of the Atlantic. 

The American reserve was $14.79 per capita at the close of 
1910, compared to $5.13 per capita as the average reserves for 
all Europe. Indeed, France is the only European country that 
has greater reserves of gold per capita than the United States. 
Our reserves per capita are upward of four times the gold 
reserves of the United Kingdom! 

The Total STOCK of Gold Money 

Under this heading is included both {a) the gold in reserves, 
and {b) all the gold in circulation. The latter classification 
embraces all the gold in the custody of the public, other than 
the supplies in the treasuries of reporting nations and banks. 
Observe well that "total stock" means all gold, whether in or 
out of the visible reserves. 

New Phenomena in Gold 


Progressive Development of Gold Reserves 








*4 24,000,000*^684.000,000 ^1,41 1,000,000 

The chart shows that in 1 889 the total amount of gold in the reserves of the 
United States was only 424 millions, whereas it is now three and one-half times 
as much. Then gold reserves constituted ^nly 34 per cent, the balance of our 
money being silver and paper. At the close of 19 10, gold had risen to 53 per 
cent, while silver and paper had fallen to only 47 per cent. 

feOLDV ht. 


*9M/>00,000 * 1.601,000,000 * 2,464,000,000 

The lower chart is a similar exhibit for all Europe, including the United 
Kingdom of England, Scotland, Wales and Ireland, and all the continental 
countries. Their gold reserves increased from 914 millions some 30 years ago to 
2,464 millions at the close of 1 910. But it will be seen that only about one- third 
of European money is gold, the balance being silver and paper. 

Both these charts are based on official data covered up in the tables of the 
United States mint report for 191 1. 

174 How to Effect Reform 

The total stock of gold in continental Europe at the close 
of 1910 approached 3,500 millions of dollars, compared to 1,710 
millions as the total stock in the United States ; that is to say, the 
United States has half as much gold as those continental coun- 
tries, which have over four times our population. 

While our stock of gold is $18.35 P^r capita, it is only $8.20 
in Europe, a trifle more than $14 in England, and averages only 
$8.77 for Europe and the United Kingdom combined. Thus we 
have relatively more than twice as much gold as those countries 
have. Canada approaches us in this respect, but nine-tenths of 
her stock consists of United States gold coin.^° Only France and 
Australasia have more gold money per capita than America. 

The stock of silver money shows but slight increase since 
1890. Europe reports about 1,200 millions oif dollars in silver 
money now, compared to 729 millions in the United States, giv- 
ing us $7.83 per capita, compared to $2.79 for the continent and 
United Kingdom. 

"Relation of Gold to Volume of Paper Money 

Reserves — In the United States at the end of 1910, there 
were outstanding 684 millions of dollars in national bank notes 
and 346 millions in treasury notes, or a total of 1,030 millions of 
dollars in paper. Against this paper there were gold reserves to 
the amount of 1,41 1 millions. All of Europe had outstanding at 
the same time 4,135 millions of dollars of paper money, against 
which there were gold reserves in sight of only 2,426 millions. 

That is to say, for each $1 of paper currency outstanding, 
America had $1.37 in gold reserves, while Europe had only 57 
cents! Our gold reserves are more than double those of Europe, 
relative to paper money. 

The total stock of money in the United States at the date 
cited was of gold 1,710 millions of dollars, silver 739, paper 785, 
making a total of 3,234 millions. The aggregates for the conti- 
nent and the United Kingdom show that all Europe had of gold 
4,140 millions, silver 1,318, paper 4,135, total 9,593 millions of 
dollars. With about five times our population, those countries 
only have three times our amount of money. 

New Phenomena in Gold 175 

Therefore, every loo cents of American money was made 
up of 53 cents in gold, 23 cents in silver and 24 cents in paper; 
whereas for every 100 cents of European money, there was an 
average of only 43 cents in gold, 14 cents in silver and 43 cents 
in paper. Thus the proportion of gold in each American 
dollar is almost 25% greater than in the European dollar, the 
American dollar has 57 per cent more silver than the "European 
unit, while our American dollar contains only about half as 
much paper as the European dollar! 

Or, to put it in another way, the American dollar consisted 
of 76 cents metallic money — two-thirds thereof being gold, and 
only 24 cents paper; whereas the European dollar is only 57 
cents metallic money and 43 cents paper. Thus our money is 
one-third more metallic than is European money, while the 
latter contains 58 per cent more paper than does American 

America is on a hard-money basis, while Europe approaches 
RELATIVELY a soft-money basis. 

And of the 24 cents "paper" in the average of all American 
money, at the date referred to, 21 cents was covered by United 
States bonds bearing 2 per cent interest, which by my method 
are now to be transmuted into American money. That left 
hardly three cents of fiat in the American dollar! 

It will surprise the American people generally, and students 
of the subject in particular, to realize that the volume of paper 
money is more than five times as much in Europe as in America! 
Of course, considerable of this money is "covered" by gold, but 
the so-called "uncovered" paper in Europe is $8.76 per capita, 
or relatively about the same as in this country — $8.40 per capita. 

Relation of Gold to Loans and Discounts 

The total stock of gold in the United Kingdom is equal to 
about 21 cents for each dollar of loans and discounts, compared 
to 13 cents in the United States. 

But if we compare only the gold reserves — and this is the 
true comparison — the astonishing fact is revealed that the gold 

176 How to Effect Reform 

reserves of the United Kingdom at the close of 1910 were equal 
to only six cents on each dollar of the total loans and discounts 
reported by all the banks of England, Wales, Scotland, and Ire- 
land combined. In the United States, on the contrary, our gold 
reserve was almost eleoen cents far each dollar of the enormous 
volume of loans and discounts outstanding. 

What an astounding fact this is! What a flood of light it 
throws upon the stability of the American financial position! 
How gratifying to realize that, although American loans and 
discounts at the close of 19 10 aggregated almost 13,000 millions 
of dollars — four times those of the United Kingdom — the gold 
in sight in this country was about twice as much for each dollar 
of that indebtedness as was the case with our British cousins! 

The commercial and industrial business of the United 
States, as measured by loans and discounts, has gained more 
than threefold during the past thirty years. By the same test, 
business in the United Kingdom has not even doubled. The 
data for the continent of Europe pertain only to loans and dis- 
counts in the one governmental bank, for each country, exclusive 
of the many other banks that make the bulk of commercial loans, 
but the increase there evidently has been even less than in 

To speak exactly, the loans and discounts reported for the 
United Kingdom show an increase of 69 per cent, and of the 
continent 71 per cent, compared to the stupendous increase of 
234 per cent in the United States. 

In view of these conditions and the marvelous industrial 
development of modern times, it is not surprising to find that 
loans and discounts reported for all the banks in the United 
States are four times the total for the United Kingdom. 

These borrowings by the American people make an average 
of $138 per capita, compared to $167 for England, $145 for 
Canada, and $156 for Australia. This is statistical proof of the 
usual assumption that business is more active in new countries 
than in old. 

If we deduct the total stock of money per capita from the 
loans and discounts, the remaining net indebtedness at the close 

New Phenomena in Gold 


Growth of Business in Three Decades 


TOTAL 5,185 

TOTAL 7023 

TOTAL 15.146 

The above charts show in millions of dollars the total amount of loans and 
discounts outstanding by all the banks in the United States on the last day of 
December, 1889, ten years later, and the same date for 19 10. Similar data is 
given for all the banks in the United Kingdom — England, Wales, Scotland and 
Ireland combined. For the continent of Europe, loans and discounts are reported, 
on each of the three dates, only for the one national or government bank in each 

Proportion of Gold "Rfiserves to Loans and Discounts 

GOLD /al^^ 


TOTAL 12,685 total 3,033 

The larger circle shows that the loans and discounts of all banks in the 
United States as of 31 December 1910 amounted to 12,885 millions of dollars, 
or more than four times the 3,033 millions reported by the United Kingdom. 

The gold reserves in the United States at that date amounted to 1,372 
millions or 10 per cent of the total loans and discounts, whereas the United 
Kingdom had gold reserves only to the amount of less than 6 per cent, or 192 
millions of dollars, against her much smaller volume of loans and discounts. 

178 How to Effect Reform 

of 1910 was in round numbers: England $47 per capita, United 
States $103, Australasia $107, Canada $115, while the wealth 
per capita was for England $945, United States $1,400, Aus- 
tralasia $900 and Canada $700. 

The loans and discounts in America are a sign of growth, 
of progress, of development, unparalleled in commercial his- 
tory. They reveal the inherent strength of America in contrast 
to other nations. Of course, over-expansion is to be guarded 
against, but our condition is vastly stronger than that of our 
British competitor or any other nation. Germany's fiscal situa- 
tion is extraordinarily weak; her economic and political strength 
is accounted for by the efficiency of her people in the sciences 
and arts, and even more in co-operation. 

World's Showing for Twenty^one Years 

The gold production in 21 years for the whole world comes 
within a bare fraction of being an even 6,000 millions of dollars. 
A trifle more than one-fourth of it was used for industrial pur- 
poses, leaving about 4,500 millions as the addition to the world's 
stock of gold coin and bullion during that period. The stock in 
continental Europe, in the United Kingdom and the United 
States, gained about 2,540 millions, or an average annual in- 
crease of a trifle more than 120 millions of dollars. That is to 
say, the much-heralded increase in the world's supply of gold 
resulted in adding less than 5 per cent annually to the stock of 
gold monetarily available in these old-established commercial 
countries. The increase in their monetary stocks consumed only 
56 per cent of the supply that was not used for industrial pur- 

The great question is. What became of the other 44 per cent 
of the increased supply, amounting to approximately 1,700 mil- 
lions of dollars in the 21 years? Our tables show that India 
absorbed 563 millions and Egypt 211 millions, or nearly half 
of the quantity to be accounted for. In those countries, this 
vast quantity of gold seems to have dropped out of sight, being 
hoarded or used for ornaments. As neither India nor Egypt 
report any material increase in either their gold reserves or 
stocks of gold money in use, the conclusion is irresistible that 

New Phenomena in Gold 179 

these countries are becoming a sink-hole for gold, much as India 
has long been the sink-hole for silver. 

In the rehabilitation of South American finances, nearly 
343 millions of gold were consumed during the eleven years 
ended with 1910, while Japan and Mexico together account for 
almost another 100 millions. This leaves only 476 millions of 
dollars in value of the world's production during 21 years to go 
into other banks, monetary circulation and hoardings other than 
those noted — these other unaccounted-for uses consuming only 
about 22 millions annually. 

America's Showing for Tiventy^one Years 

In the twenty-one years ended with 19 10, gold coin and bul- 
lion have been added to the reserves in the banks and treasury of 
the United States by the sum of 987 millions of dollars. But the 
United Kingdom — England, Wales, Scotland and Ireland com- 
bined — added only 67 millions. Uncle Sam, therefore, gained 
fifteen times as much gold as did Johnny Bull. 

Of the increase in continental Europe of 1,464 millions dur- 
ing this period, Germany gained 100, Austria Hungary 242, 
Spain 50, Netherlands 26, France 387, Italy 150, and Russia the 
enormous sum of 427 millions. This accounts for 1,382 mil- 
lions, leaving 82 millions as the gain of all other European 

The United States increase of 987 millions in twenty-one 
years exceeds the combined increase of Russia, France and Italy. 
Our gain was ten times that of Germany. The United States 
gained in the two past decades as much gold as did all of con- 
tinental Europe, exclusive of Russia and Spain. 

It is a fact of the most profound moment that in these 
twenty-one years the reserves in the United States have gained 
fifteen times as much gold as the reserves of the United King- 
dom! And it is of the gravest significance to Britain that at 
the close of 19 10, her reserves of gold were only 67 millions 
larger than they were twenty-one years before. Yet she pre- 
sumes to control the major part of the world's foreign trade, and 
therefore might be expected to enrich her gold reserves corre- 

i8o H w t E ff e c t R e f r m 

spondingly. As a matter of fact, however, she increased her 
reserves only by a petty seven millions during the past eleven 
years, so that her gold reserves are barely holding their own. 
It should be stated, however, that the United Kingdom reports 
gold in circulation to the extent of $io per capita, compared 
to $3.56 in the United States. But this is not much of an 
offset to her stationary reserves, since Britain's actual reserves 
and estimated stock of gold in circulation combined amount to 
only about one-third the total stock of gold in the United States. 

Britain's imports and exports have been one-half larger than 
the foreign trade of the United States, although we are rapidly 
catching up with her. America's stupendous gain in gold and 
trade compared to England is indicative of the financial and 
commercial supremacy the United States is soon to command 
in the foreign commerce of the nations of the earth. 

Comparison with Other Countries 

The aggregate stock of money in the United States, at the 
date noted, was $34.60 per capita, compared to about $20 as the 
average for Europe and also England, being exceeded only by 
France $45, and Australia $48. Indeed, the total stock of money 
in the United States, was one-third as much as in all Europe 
with more than five times our population. 

The aggregate wealth of the United States is twice that of 
France, or as much as France and Germany combined, and 60 
per cent more than England. Our national debt is less even 
than Germany's, only about one-quarter England's, and about 
one-sixth that of France. If from the estimated total wealth 
we deduct the national debt, the net wealth of the United States 
was $1,387 per capita in January, 1910, about the same as for 
France, compared to $932 for Germany, all other countries being 
much less. 

Our national expenditures per capita are only half as much 
as in France and are 50 per cent less than England's, while our 
debt of $11 per capita compares with France $151, Germany 
$17, England $81, Canada $54. 

New Phenomena in Gold 


The Combined Stock of Money of Jill Kinds 

On 31 December 1910, charted from data in United States Mint report for 191 1. 


T0TAL*I9.97 T6TAL^I9.60 TOTALIS 4.59 

The Total Amount of Money per Capita 

and how it is divided between gold, silver and paper money. Observe that while 
continental Europe, also the United Kingdom, have a total of only about $20 per 
capita, the money supply in the United States is now about $35 per capita. Thus 
America has nearly three-quarters more money for each man, woman and child 
than have the older countries cited. 







*8,59 5 


*l,078 *3.234 

The Total Stock of Money (the figures are millions of dollars) 

Compare the population of these three countries at the close of 19 10, as given 
in the full-page table in addenda, in order to realize the full significance of the 
lower charts. With about four times the population of the United States, 
Europe had only twice the gold but nearly six times as much paper money. The 
comparison would be still more favorable to the United States if the table in the 
United States mint report, from which this exhibit is designed, had stated the 
volume of paper money outstanding in Russia. 

i82 How to Effect Reform 

Our total foreign trade has been excelled only iTy Germany 
and England, for the current fiscal year will probably consider- 
ably exceed that of the Fatherland, and within ten years will 
equal the foreign trade of the United Kingdom. Whereas her 
foreign trade is $120 per capita, ours is only $38, but our home 
trade is upward of $4,000 per capita annually, which is probably 
twice if not three times that of England's. 

Final Conclusions Extraordinary 

We now see that America has more than twice as much 
gold for each dollar of paper money outstanding, as has all 
Europe, including the United Kingdom, while we have twice 
as much gold relative to our loans and discounts as has Britain 
alone. These facts have never before been revealed fully, and 
will have a profound influence upon opinion and expert judg- 
ment upon both sides of the Atlantic. 

Add to these new factors the gigantic proportions of our 
stocks of gold and visible reserves of the precious metal, and the 
veriest tyro will recognize instantly the tremendous advantages, 
financial and otherwise economic, America enjoys over the 
European countries. 

In natural resources, both those now available and those 
which have not yet been even scratched, the United States is 
vastly ahead of all other nations. 

Viewed from every angle, therefore, American money and 
the material bases of American finance, are superior to those of 
any other country. If we also compare the character and health 
of our people, the showing is still more favorable to the United 

New Phenomena in Gold 


Total Gold and Its Location 

The figures in this first chart are round millions of dollars 


On December 31, 1910, as reported by the United States mint tables, the 
total stock of gold in France was 1,158 millions of dollars, of which 633 millions 
were in the visible reserves, and the balance of 525 millions were in non-reporting 
banks, in hoardings or in circulation. The figures for the United Kingdom and 
for the United Slates are given. Each whole circle shows the relation of total 
quantity of gold and of its distribution, in each of the three leading commercial 
countries having the largest stocks of gold. 

Toted Gold per Capita Compared 

FRANCE «2 9 -"6 



Here it will be seen that France leads, her total stock of gold amounting 
to $29.46 for each man, woman and child in that country, compared to $14.44 in 
the United Kingdom and $18.35 in the United States, but it will be seen that 
America's reserves per capita are almost as great as in France, although we have 
millions upon millions more people. 

America's Triple Reserves of Gold 185 

Chapter XXI 

America's Triple lleseraes 
of Gold 

Impregnable position of the United States 

How its pre'etninence in gold may be still further 

Volume of the triple gold reserves 
Three'fold character 0/ our gold reserves 

(/) In the federal treasury 1,000 millions of dollars, or a reserve of 50% 
(2) In the American Reserve Union 500 millions 
isi Held by state and national banks 250 millions 

Jtmple lawful money reserves for the banks — gold, silver and 

legal tender 
Vastly lessened demand for gold 

ytmerica may dominate the world's finance and economics 
Still further safeguards provided 
Jtpply modern credit instruments to world trade 
Ji proposition that can be carried out 
Elementary principles re^stated 
Leave the gold standard alone 
The final result 

rHE impregnable position of the United States, with 
respect to both its total stock of gold money and its visible 
reserves of gold coin and refined bullion, may now be 
comprehended as a result of the foregoing studies. 

By means of the co-operation in finance advocated by this 
work, America's position becomes even stronger for the future. 
If the country has attained its present enviable pre-eminence in 
gold, in the face of a wretched fiscal system, what may not be 
accomplished by the United States during the ensuing five, ten 
and twenty years under a fiscal method commensurate with the 
position, resources, enterprise and character of the American 

Threefold Character of Our Gold Reserves 

For we come now to a recognition of the further insurance 
of stability which is aflforded by the threefold character of gold 

i86 How to Effect Reform 

reserves in the United States. This point will be clearly under- 
stood from an analysis of the present location of the various 
constituent parts of the stock of gold money in the United States, 
That analysis constitutes table B in the addenda, to which the 
student of details is referred, instead of cumbering the present 
page with statistical exhibits. 

Since the exchange of government money for the 2 per cent 
bonds and the bank notes issued against the same will be accom- 
plished only in a very gradual manner, over a considerable 
period of time ; and since the changes in the location of gold coin 
required by the method herein proposed also will be eflfected 
gradually, it is conservative to conclude : 

Volume of These Gold Hfiserves 

1. That the federal treasury will continue to hold a reserve 
in gold coin and refined bullion averaging about /,000 millions 
of dollars. This will be equivalent in amount to substantially 
one-half the total volume of American government money out- 
standing against the same. In other words, there will be a 
national gold reserve aggregating about 50 per cent of all the 
government money issued against all the gold and silver and 
bonds in the federal treasury. 

2. There will be approximately 500 millions of dollars in 
gold coin deposited in the treasury of the American Reserve 
Union by its member banks, including both national and state 

3. There will be in the neighborhood of 250 millions of 
dollars in gold coin in the vaults of the national and state banks 
throughout the United States. 

4. The amount of gold remaining in the pockets and 
hoardings of the people will be probably about lOO millions of 
dollars, if not more. 

decreased Demand for Gold 

5. National banks will then hold in their own vaults 
reserves in gold money, silver money and legal tender, to an 

^America's Triple Reserves of Gold 187 

aggregate amount equal to from 10 to 15 per cent of their depos- 
its subject to reserve requirements. And this after having 
"taken care of" their demand obligations to state banks and trust 
companies! This will be in addition to the 7 per cent reserve 
in gold which each bank will have deposited in its zone league, 
subject to the control of the American Reserve Union. 

6. Each state banking institution will also have tremen- 
dously strengthened its own position by increasing its reserves 
through the receipt from national banks of lawful money for 
part or all of the sums due the state institutions from the 

7. The national banks having authority to issue credit cur- 
rency to meet the further demands of trade, all banks and banking 
customers having much more highly perfected the use of book 
credits, and all commercial banks being effectively associated 
through their respective clearing houses, the demand for gold 
will be vastly reduced. 

Dominate World Economics 

For the first time in the history of the world, a nation would | 
be provided with a triple reserve in gold, as well as the greatest 
quantity of gold ever brought together. And this triple reserve 
would be further protected against raids, and its constant accre- 
tion would be assured, by the most perfectly organized repre- 
sentative federation of bank owners and of bank users. 

Let the United States put this idea into effect forthwith, 
and panics will become a thing of the past, domestic prosperity 
will develop rapidly but soundly, and our commerce with the 
world will rapidly advance to a commanding position. 

Still Further Safeguards 

The production of gold in the United States and its posses- 
sions will continue to increase as the years roll on. My own 
intuitions forbid the judgment that our domestic supply of gold 
is to witness any serious diminution in volume, actually or rela- 

i88 How to Effect Reform 

The American Reserve Union will enable the finances of 
the American people to operate in such fashion as to attract 
gold from other parts of the world, and also to hold on to such 
gold so far as it may be economically expedient so to do. 

And lastly, as a still further safeguard, the United States 
treasury could, in an emergency, sell from its holdings of the 2 
per cent bonds, which then would yield 3 per cent, and thus 
could add correspondingly to its reserves of gold. And in 
the final analysis, there always remains the power of the govern- 
ment to make a new issue of bonds with which to purchase gold 
in case of dire need. 

It is not too much to predict, therefore, that by 1925, the 
visible reserves of gold coin and refined bullion in the United 
States would equal lOO per cent of the American government 
money then outstanding, including both silver and all forms of 
paper money. 

^pply Credit Instruments to World Trade 

And when America dominates the commerce and finance of 
the world, as she will do within a decade if this American mone- 
tary method is so perfected and applied as to accomplish its pur- 
poses, then it will be possible for the United States to inaugurate 
a momentous reform in international exchange. Just as the 
use of book credits and of bank checks and "clearings" has made 
possible the almost unlimited increase in number and volume of 
transactions in domestic trade, just so will international trade be 
infinitely expanded by an equally efficient use of credit instru- 
ments in effecting exchanges between the peoples of different 

With great rapidity the world is growing smaller. Present 
means of communication and transportation are to be simplified, 
cheapened and perfected in the next twenty-five years, as much 
as they have been during the past 100 years. The characteristic 
of the twentieth century is the getting together more and more 
closely of all the peoples of the earth. Let the United States 
lead in this peaceful evolution of the world's economic and finan- 
cial development, and her service to civilization will be beyond 
human comprehension. 

America's Triple Reserves of Gold 189 

M Proposition that Can Be Carried Out 

It is entirely feasible, practical and relatively easy for the 
United States now to establish a monetary method and universal 
system of banking that will enable America to attain this world- 
wide pre-eminence. 

This method, beginning with the humblest citizen, enables 
all individuals and corporations, interests and parties, to co- 
operate for their own benefit and for the common welfare 
throughout the length and breadth of the United States. The 
system of national American export banks, supplementing our 
unrivaled triple reserves of gold, will make it possible to confer 
upon the rest of the world much of the benefits that will accrue 
to our own people from the use of scientific methods in the art 
of exchange. 

Elementary Principles Restated 

The yardstick is the standard for the measurement of 
fabrics. The foot measure is the standard for the measurement 
of distance. The pound is the standard for the measurement of 
weight. The gold dollar is the standard for the measurement 
of values. 

But no one wants a yardstick with every yard of cloth. No 
one desires a foot rule for every foot of distance traversed. No 
one wants a pound weight with every pound of merchandise. 
No one wants a gold dollar for every dollar in value of labor or 
commodities exchanged. 

What everyone does want is to feel and know that the yard- 
stick is a true and correct unit, that the foot rule is an accurate 
measure, that the weight used is the true pound, that the gold 
dollar is the established and universally recognized standard by 
which to measure values. 

Leave the Gold Standard ^lone 

Let there be no tinkering with the gold standard, at least 
until man evolves something much better. 

190 How to Effect Reform 

As we have already shown, the increased production of gold 
is by no means solely responsible for higher prices of commodi- 
ties; for the proportion of this increased supply of gold which 
has been used for monetary purposes by the older commercial 
nations, has but little more than kept pace with the relative 
increase in population, and has not nearly kept pace with the 
increase in the volume of exchanges. 

Academic disputation over the gold standard, or attempts 
to tinker the weight of gold in the standard dollar, are out of 
place. Practical experience in finance is producing results that 
far outweigh academic theory. There is no divorce in finance, 
between science and art, knowing and doing, but there is a wide 
gulf between results of practical experience and the theories of 
mere theorists. 

It is probable also that the future will show that the volume 
of all money (so long as all the money is the equivalent of gold) , 
is of relatively small importance, compared to the enormously 
increased efficiency of credit instruments in effecting exchange. 
It is in the latter direction that greatest progress is to be made. 

The Final I(fisult 

Let all money, also all credit instruments, be kept as good 
as gold, and no one will ever want to use actual gold, any more 
than they want to use the legal standards for measuring space 
and weight, which are maintained by every state or government 
as the standard by which to gauge the yardsticks, foot rules, 
weights and other units of measurement actually in use among 
the people. 

In the last analysis, human effort is the standard of values, 
and gold is but its concrete expression. Even the present un- 
economic carrying of physical gold back and forth between 
nations will become less, the more that international exchanges 
are improved by the use of international credit instruments. 

It is not impossible for the American monetary method, and 
our national American export banks, to inaugurate what may 
develop into a clearing house system for the whole world, with 
benefits to the human race and advances in civilization tran- 
scending the power of mind even to imagine. 

America's Triple Reserves of Gold 191 





.509.- \ / 1000 


5.0EI GOLD J^j^niLUMjno | j MILLIONS 

Our Threefold Reserves of Gold 

When the American monetary method herein proposed is 
in full efifect, say within a year or two, our threefold gold 
reserves may then be compared to the triple reservoirs above 
shown. The outside demand for gold would first be met from 
the stock in the vaults of banks, but before such stock could be 
exhausted, the banks would begin to draw on the American 
Reserve Union. And long before its supply got very low, the 
Union could replenish its reserves from the national reservoir. 
In case of the most powerful assault and long persisted in de- 
mand, there would still be a comfortable reserve left in each of 
the three reservoirs, below the level of the outlets indicated. 

As a matter of fact, gold would flow instantly to the point 
of need, as pictured on page 137. This would at once placate 
the demand for gold; promptly thereafter so much of the metal 
as had been paid out would flow back into the banks, then back 
into the American Reserve Union, and when its reservoir was 
filled to the limit, the surplus would run back into the United 
States treasury. Thus the flow of gold would automatically 
regulate itself in harmony with scientific principles. 

192 H oia t Eff e ct Re f or m 

Chapter XXII 

Postal Banking, Remittance and 

Successful beginning of the postal savings system 
Lessons of its present deoelopment 
Remove all restrictions upon deposits 
Provide by law for their investment 

(tf) One-third in liquid form 

(0 One-half of the remainder in national land bank bonds 
(c) The balance in mortgages upon farms and homes owned and occupied by 
their owners 

Caution against mistakes of foreign governments 

'Reform, in postal money order 

Conveniences that should be embraced in the new UPOs, or 

Universal Postal Orders 
The necessary instrument perfected by the author 
Postal service only in its infancy 

rHE postal savings system has come to stay. The num- 
ber of depositors, and the amount of their savings is 
constantly increasing. In a few years these deposits will 
reach 500 millions of dollars, and then will go on increasing. 

The act of Congress, 25 June 1910, established postal sav- 
ings only upon the condition that not less than 65 per cent of the 
deposits in any postofiice should be re-deposited in the commer- 
cial banks in the vicinity, so that these savings may be employed 
at the point of origin, preferably for productive purposes, 
although not so stated in the law. Of the balance of postal 
deposits, the law requires that 5 per cent be set aside as reserve, 
and the remaining 30 per cent is available for investment in 
postal government bonds bearing 2j^ per cent interest. As of 
I September 19 12, about $1,300,000 had been converted by 
depositors into postal savings bonds. The balance of deposits at 
that date exceeded $23,000,000, or an average of about $85 to 
each of 270,000 depositors. 

Postal Banking, Remittance and Collection 193 

Development of the System 

"It has already been demonstrated that the 
amount of money which the postal savings system 
causes to be withdrawn from banks is negligible 
in quantity, and that a very great proportion of the 
millions now on deposit represent money that 
would never have found its way into any bank. 
Practically speaking, therefore, every dollar de- 
posited by the postal savings system in the banks 
of the country is so much gained in deposits. This 
being true, it is further to the interest of the bank- 
ing institutions to encourage and stimulate this new 
branch of the federal government. The present 
limitation on deposits in the United States is much 
lower than in nearly all the European countries, 
although the per capita wealth and average income 
here are much greater." 

The amount which any one depositor may deposit in the 
postofKce during any one month is limited to $100, and the total 
to $500. Both of these limitations should be entirely removed, 
provided that no interest shall be paid upon any deposit in excess 
of $1,000. This would remove all incentive for the transfer of 
accounts now deposited in banks, and would at the same time 
enable the system to receive large sums of money now hoarded 
by persons who will not avail themselves of the ordinary bank- 
ing service, and to whom the question of interest is an unimpor- 
tant consideration. "If the law is modified in this manner," 
writes Mr. Weed, the director of the postal savings system who 
is quoted above, "I am convinced that when the system is fully 
established, many millions of dollars now in hiding will be added 
to the circulating medium of the country and become useful in 
the channels of trade." 

The postal savings bank pays depositors 2 per cent inter- 
est. The money is re-deposited in commercial banks which pay 
2]/2 per cent interest, but such banks have to put up as collateral 
for these deposits, national bonds at par, state bonds at 90, or 
municipal bonds at 75 per cent of their market value, and at 
not to exceed their par value. The only acceptable bonds are 

194 How to Effect Reform 

those which are supported by the taxing power. Of the $53,000,- 
000 in bonds now on deposit with the treasurer of the United 
States to secure postal savings deposits, 69 per cent are munici- 
pal, 14 per cent United States, 12 per cent state and 5 per 
cent territorial bonds. Funds are apportioned among the dif- 
ferent banks as qualified. The bank must be organized "under 
national or state laws, and be subject to national or state super- 
vision and examination." Thus private bankers may not receive 
postal deposits. 

Investment of Postal Deposits 

The law is very deficient in not providing that these postal 
savings deposited in national and state banks be invested in the 
manner which national or state laws provide for the regulation 
of savings funds. Instead of needlessly tying up millions of 
money in national, state and municipal bonds, as security for 
postal deposits, each bank receiving such funds should be obliged 
to invest two-thirds of the total in accordance with the state law 
governing savings bank investments, or in the absence of such 
state enactment, the federal law should apply. 

In most states which have savings bank laws, giltedge 
mortgages on improved real estate are the favorite investment 
for savings funds. The great bulk of postal deposits should be 
invested in this manner. The best, simplest and most attractive 
form of such investment will be in the land mortgage bonds 
issued by the national land bank for each state. By reason of the 
precautions in the system hereinafter set forth (Part Six), it 
will be seen that these national land bonds possess every element 
of safety, combined with a fair rate of interest. 

Employ Postal Savings at Home 

The federal law imposes no restriction as to the employ- 
ment of postal savings when re-deposited in other banks. Of 
course a sufficient proportion thereof, say one-third, should be 
kept in "liquid" form, such as short-term loans on prime com- 
mercial paper, so as always to be available for meeting with- 
drawals, but a large part of the balance may be invested safely 

Postal Banking, Remittance and Collection 195 

in national land bonds (which are always salable and available), 
or directly in carefully selected mortgages. 

Unless this rule is enforced, there is danger that postal de- 
posits, as well as the increasing mass of deposits in the savings 
departments of national banks, will be withdrawn from real 
estate purposes, for employment either in ordinary commercial 
business or for speculation on the stock exchange. 

The savings department of any bank authorized to receive 
postal deposits should be permitted to invest the same in choice 
mortgages suitably secured. But let it be provided that in mak- 
ing such loans, substantially one-half of the deposits available 
for mortgages should be loaned upon productive improved 
farms, preferably those occupied and worked by their owner for 
agricultural purposes; and in loaning the balance, give prefer- 
ence to first mortgages upon homes occupied by their owners. 
Such farms and homes should be within the locality of origin of 
deposit, or within a reasonable radius therefrom. 

Upon all such real estate loans, the borrowers should be 
obliged to pay a reasonable sum on the principal annually, so as 
gradually to reduce the mortgage and improve the security. 
This amortization should be at least the sum required by the 
national land bank for that state. Such amortization has the 
additional advantage of increasing the funds available for loans 
upon other farms and homes, while stimulating the borrowers to 
pay up as rapidly as possible, and thus to own their own homes 
and farms free and clear of all encumbrance, as described in 
Part Six hereof. 

Caution Against Mistakes 

It is in the highest degree wise and patriotic thus to pro- 
vide that postal savings deposits shall be employed largely in 
enabling the people to own their own farms and homes. Incieed, 
I would reduce from 30 per cent to 10 per cent the proportion of 
such deposits that may be invested by postal depositors in United 
States postal bonds bearing 2j^ per cent interest, thus leaving 
85 per cent thereof instead of 65 per cent for employment at 
point of origin, and to earn 3 or 4 per cent instead of 2j^ per cent. 

196 How to Effect Reform 

The public and the Congress should ever recognize the 
importance of protecting against the mistake which has caused 
more harm than good by the postal savings systems in some 
countries. One reason for the rural poverty and agricultural 
depression in Great Britain is the fact that for generations the 
people's savings have been sucked up by the postofBce, sent up 
to London, invested in government consols, and the money used 
upon the army and navy. As the volume of postal deposits 
increase in America, there will be a corresponding increase in the 
temptation for the national government to use these sacred sav- 
ings of the thrifty for federal purposes — a tendency which 
should be strictly restrained. 

Reform in Postal Money Orders 

It is strange that no convenient means exists for safely 
remitting by mail petty sums. The postal money order is so 
inconvenient, expensive, cumbersome and relatively inaccessible 
as to be nothing less than a stale joke, from the standpoint of 
modern business efficiency and scientific economics. It is so in- 
ferior that its use has been largely supplanted by express money 
orders, but the latter are also open to many objections. The 
banker's money order is some improvement, but has not come 
into general favor for remitting petty sums. 

The absence of any convenient form for mailing small sums 
is a blot upon our civilization. At present there are only three 
ways of remitting a petty sum by mail : 

1. In the form of postage stamps, which get all stuck up, 
are not legal tender, may occasion loss to sender and remitter, 
are not always available, are not acceptable to many merchants, 
and will not even be accepted by the government itself. Some 
concerns receive great quantities of stamps instead of money 
and have to sell the same at a discount of from i to 3 per cent, 
entailing a loss of from a few hundred to several thousand dol- 
lars a year to each concern. 

2. Or coin may be sent in a letter, but this is dangerous ; 
the coin easily wears through the envelope, and is a constant 
temptation to theft. 

Postal Banking, Remittance and Collection 197 

3. The only other method is that of going to the postofBce 
or express office, paying in the cash for a money order, having 
it made out, inclosing it in letter, and then having it collected 
by the recipient, either direct or through a bank. Not only is 
all this inconvenient, but the fees charged for postal or express 
orders are relatively excessive. 

These fees amount to an average tax of i per cent. Not 
only are you put to inconvenience to get existing money orders, 
but in addition thereto you are taxed an average of i per cent on 
the principal of each remittance. Now, from the time you pay 
in your cash for your money order until the recipient collects it, 
averages about five days; consequently this tax of i per cent on 
the principal of each remittance is equal to the usurious rate 
of 73 per cent interest per annum! 

Universal Postal Order 

What the public desires and should have is a simple form of 
universal postal order that shall embody the following points : 

1. It must possess all the safeguards of a postal money 
order or express money order, or bank money order. 

2. Be good anywhere at any time. 

3. May be made payable to bearer or to order. 

4. May be available as a check for local use. 

5. It should be the equivalent of a universal bank draft, 
good at par in any part of the United States without charge for 

6. It is in fact a certificate of deposit, 

7. It should be furnished in denominations of loc, 25c, 50c, 
$1 and $2. 

8. It should be sold at par at every postoffice and postal 
substation in the United States, also in all banks, stores and 
offices that are willing to handle it. 

198 How' to Effect Reform 

9. It should be so designed as to cut out the mass of clerical 
work, accounting and expense involved all along the line in the 
present money order system. 

10. Let it be so prepared that it is practically impossible 
for it to be raised, lowered, altered or counterfeited. 

11. It may also be used as a letter of advice, or as an order 
for goods, thus doing away with unnecessary correspondence. 

12. It serves as a perfect voucher or receipt of the transac- 
tion it represents. 

13. It should save depositors all the fees now charged by 
postoffice or express company for making out money orders, such 
fees being equal to an excessively high rate of interest. 

14. Universal postal orders, or UPOs, as the public will 
call them, should be in a form that everyone may have a few 
in their pocket, so that one can fill it out and use it at will, 
instantly.' This saves all the trouble, bother, delay, inconveni- 
ence and expense of going to postoffice or express office, besides 
saving their fees. 

15.^ When ordering anything by mail, it enables one to 
record where one saw the advertisement of the article — an im- 
portant point to consumers, advertisers and publishers. 

16. The UPO for sums of loc, 25c, 50c and $1 may even 
be incorporated in a postcard that will go for i cent, thus saving 
the bother of getting an envelope in which to inclose the order, 
besides saving half the postage. 

The J^ecessary Instrument Is at Hand 

The author has invented an instrument which embodies all 
of the foregoing attributes. He will gladly donate the same to 
the United States whenever the Congress sees fit to authorize 
its universal employment by the postoffice department. This 
new instrument also possesses all of the advantages suggested in 
the excellent postal check designed by C. W. Post. 

The object of my invention is to provide a new and im- 
proved instrument for the simple, easy, convenient, safe and 

Postal Banking, Remittance and Collection 199 

economical transfer of money or values in a round sum, or in any 
fraction of $1 which may be expressed in multiples of five. To 
the functions individually or collectively incident to the bank 
draft, certified check, bill of exchange or personal check, the 
UPO unites the attributes of a certificate of deposit in the 
postal savings bank, but does not draw interest thereon. Com- 
bined with all these features, but without interfering with them 
or limiting their usefulness, the object of the invention is also to 
supply a convenient form for making purchases with the money 
the instrument represents, and to furnish a complete record of 
the transaction. These instruments may be so colored and num- 
bered, with different sizes for the several denominations, as to 
vastly simplify counting and accounting. Yet the UPO is not 
money, it is not intended to circulate as money, nor is it intended 
to be used in lieu of lawful money. It could be sold in single 
pieces or in books of various amounts. 

When UPOs are adopted, everyone who has occasion to 
remit petty sums by mail would buy a few of the little UPOs or 
have a small book of them in his pocket.- Orders for $1 or less 
could be sent by postcard. The postoffice would sell UPOs at 
par and would be free from all further accounting. The cash 
it received for the UPOs sold would quickly run into millions of 
dollars. The postoffice being essentially a universal bank, with 
one single headquarters at Washington, the receipts for UPOs 
sold and the money paid out for the same daily or weekly, would 
just about balance. As a matter of fact, the postoffice would 
have a large balance of such money to its credit all the time. 

Postal Service In Its Infancy 

An immeasurable convenience would thus be bestowed 
upon the public. This would be reflected by a vast increase in 
postal business, consuming more postage stamps and returning 
larger profits on first-class matter. The infinite details would 
be avoided of handling the millions of the present form of pos- 
tal money orders or express orders, petty trade by mail would be 
enormously stimulated, and the aggregate great expense of 
present uneconomic systems for petty remittances would be 


How to Effect Reform 

The postoffice is but in the infancy of its usefulness. Postal 
savings, convenience of collection and remittance by mails, a 
practical system and rates for parcels post, with other improve- 
ments, will make our domestic postal service what it should be. 

In addition to this, however, there is room for unlimited 
improvement in our postal service with other nations. The ex- 
ports by mail for 1909 by Germany, Austria, France, Great 
Britain, Hungary and Switzerland, amounted to nearly 300 
millions of dollars. "In addition to this, these countries did a 
jewelry-box-valuable-letter export business amounting to over 
767 millions." Here was a total foreign business by post of 
1,261 millions, as against a parcel post business by the United 
States for the year 191 1 of only three millions. 

We need to make our international postal rates and service 
not only equal but superior to other countries, including insur- 
ance, remittances and collections. Down with the barriers! 

Now that paj^els post Is a reality, and good roads are beooming more common, It Is high time for 
the United States to operate the motor post coach. Sueh a service Is common in some European coun. 
tries. It will do much to promote small remittances and collections through the mails. The author crig. 
Inated the above Illustration for use in Orange Judd's American Agriculturist for Jan. 16, 1909. 

Co'operatioe Finance 

Part Five 

People's American 
Co-operative Banks 

Contents of this Part 

Chapter XXIII— Meed of Banks for the Masses 

Importance of the "common people's" 
welfare 2oz 

Two kinds of credit, one demoralizing, 
the other developmental 203 

Little banks are helpful as economic 
and educational centers 204 

Based on the principle of self-help 205 

Foster the ideal of service 206 

Co-operation imparts safety to banking 207 
This kind of banking hardly known in 

America 207 

An old established success in Europe 208 
Only the United States "lags lamen- 
tably behind !" 209 

Chapter XXIV— European People's Banks 


Why they are successful 210 

Remarkable results in Germany, both 

in town and country 210 

Three different types in Europe 212 

Raifieisen system of little banks for 

savings and loans 213 

Unlimited liability and close solidarity 215 
How the Raiffeisen society is conducted 215 
Plenty of capital from members' de- 
posits 217 

Loans at low rate for long periods on 
the security of personal charactei' 217 

The Schulze-Delitzsch bank quite dif- 
ferent 218 

Run for profit to the co-operating 
shareholders 218 

Details of management 219 

The Luzzatti system accommodates the 
humblest, and has well-deserved 
popularity 220-222 

Chapter XXV — Essentials in Co-operative Banking 


Instead of a new system, bring exist- 
ing methods within reach of the 
common people 225 

Purposes of co-operative banking 223 

Why the title "co-operative bank" 227 
What the people insist upon 227 

National co-operative banks will sup- 
plement, not compete with, existing 
institutions 227 

They will revolutionize retail trade, 
by substituting cash payments for 
buying on trust 228 

Momentous educative value 229 

Institutions may also incorporate under 
state law . 230 

Social service and patriotism . 230 

Chapter XXVI — Plan for Jtmerican Co'operatioe Banks 


To be formed by the people in any 
locality 233 

Amend national banking law to per- 
mit co-operative banks to be incor- 
porated and conducted thereunder 235 

Each state is left free to authorize peo- 
ple's banks under state law 236 

Name and capital 236 

Shares, par value five dollars, double 

liability like other national banks 233 
Powers, duties and privileges of the 

co-operative bank 233 

Supervision and management 234 

Detailed reasons for each suggestion 

advanced 235 

May take over existing small state 

banks 244 



People's American Co-operative Banks 

Chapter XXtll 

^eed of Banks for the Masses 

Importance of the "common people's" welfare 

Two kinds of credit, one demoralizing, the other develop* 

Little banks are helpful as economic and educational centers 
Based on the principle of self'help 
Foster the ideal of service 
Co'operation imparts safety to banking 
This kind of banking hardly known in Jtmerica 
Jin old established success in Europe 
Only the United States " lags lamentably behind I " 

HILE it is true that the system of 
commercial banks in the United 
States, under both national and state 
laws, has performed a large service 
to the American people, for which 
service the banks have been amply 
and liberally repaid, it is also true 
that the need exists for still smaller 
banking units that will get down to 
and accommodate the great mass of 
people in country and town whose resources and business do not 
justify them in applying to commercial banks. These masses 
vastly outnumber the customers of all existing banks for com- 
mercial purposes. 

Now, it is these masses whose financial condition and thrift 
are quite as important to the nation as is the welfare of people 
with larger resources — an economic, social and political truth 
that will be recognized unreservedly. 

Those whom Abraham Lincoln designated by that beauti- 
fully expressive term, "the common people," are rich in health- 
physical, mental, spiritual — and in will, vim, energy; eager to 
work with hand and brain, ambitious to get ahead in the world, 

Is agriculture and labor. The farmer with the 
hoe, and the worlcing man with the Job, make 
the whole world smile with prosperity. 

Need of Banks for the Masses 203 

and imbued with fervent patriotism ; but being poor in property, 
not organized to pool their resources, and uneducated in either 
co-operation or finance, they have no security to oflfer which the 
existing type of bank may accept. 

This is in no sense the fault of present banks, but is due to 
these people's lack of association into institutions properly de- 
signed to adequately meet their needs. 

Two IQinds of Credit 

The poor who most need credit, are sternly denied its use 
because of this lack of organization and of knowledge. Credit 
facilities should be furnished to the masses, just as much as these 
facilities have been so long enjoyed by the classes. It must have 
been some Shylock with money to loan at high rates to the poor, 
who gave rise to the proverb, "Who goes a-borrowing, goes a- 
sorrowing." The saying is all too true for those who are obliged 
to borrow at usurious rates, but under a proper method credit 
need not be over-expensive to the poor, or to those of limited 

When credit is furnished at the right time, in the right 
form, and at the right price, instead of being demoralizing, it 
is helpful and uplifting. As Leon Say has again and again 
insisted : "There are two kinds of credit — one demoralizing, the 
other educating; one dangerous and leading into mischief, the 
other largely creative and purely beneficial." The one is usury, 
the other is what is known among the thrifty and the wealthy 
as "banking accommodation." 

The purpose of the popular co-operative bank is to provide 
such credit to its members, "so long as they can show themselves 
to be deserving of credit, not as a matter of favor, but as a mat- 
ter of business. To this end, to do this successfully, freely and 
safely, all its efforts must be bent. And, together with facilities 
for banking, at the same time it must seek to provide a banking 
education for those who are at present unskilled in the matter, 
coupled with self-regulating restraints, the intended office of 
which is, while encouraging legitimate, to shut out improvident 

204 People's American Co-operative Banks 

borrowing, to supplement with an effectual protective guard the 
useful credit instrument provided." 

Helpful, Economic and Educative Centers 

Objections have been made to granting the common people 
full banking rights, upon this old theory that it would tempt 
them to run into debt. But, forsooth, am I my brother's keeper, 
that I should assume to arrogate to myself economic powers and 
credit privileges which I am not willing to accord him? That 
is a dangerous, undemocratic, condescending, unrighteous, 
illogical and unpatriotic standpoint. 

As a matter of fact, experience shows that the better the 
facilities for saving, the larger will be the people's savings and 
the sooner will they get out of debt; also, that what debts they 
do incur will be for productive and useful purposes. 

To enable them to get funds for such purposes, and then 
to pay these debts, is one of the several fine purposes of co-opera- 
tive finance. 

It will enable the farmer to pay ofif his mortgage, the work- 
ing man to pay for his home, the small merchant to accumulate 
capital of his own, all within a comparatively few years, instead 
of the debt hanging as an incubus about their necks for their 
whole lifetime. As Henry W. Wolff ^^ further says : 

"The masses need popular co-operative banks 
to democratize credit, to make credit and all other 
banking facilities readily accessible to small folk 
to whom the ordinary avenues leading up to such 
benefits are at present closed. That is the dis- 
tinctive object of co-operative banks. They are to 
be persistently called upon to take up and practice 
the small business, which, just because it is small 
and therefore little remunerative and very cum- 
bersome, the other banks excusably elect not to 
carry on. They are, in other words, to provide 
for the million — for poor people down to the very 
humblest, who show themselves worthy of credit." 

Need of Banks for the Masses 


These co-operative people's banks must be self-help banks. 
The American people are ready to take hold and help them- 
selves to organize and conduct such institutions; just give them 
a chance and they will succeed — without being fed on pap, 
privilege or pauperism! 

By pooling the people's character and resources through 
its agency, the co-operative bank creates security where none 
existed before; or rather the security was so subdivided, so 
attenuated between individuals, as 
to be not available as a basis of 
credit. Thus the co-operative 
bank is formed for service to the 
masses, rather than to pay large 
profits on the capital of the few. 

This ideal of service, rather 
than of big dividends, is at the 
very basis of any form of success- 
ful co-operation, particularly in 
co-operative finance. Associate 
credit so that it may be realized 
upon at the lowest possible cost 
for the benefit of the members, is the real purpose of the co- 
operative bank, in contradistinction to large returns to middle- 
men and big profits upon capital. 

"There must be profit, of course, to keep the bank, not only 
solvent, but advancing, accumulating a larger capital; but that 
profit should be deliberately kept as small as is necessary for 
the maintenance of a healthy equilibrium. The main object 
of the bank must always remain, to render a service to its mem- 
bers, a service of banking and credit as cheap and as readily 
accessible as can be, and therefore necessarily curtailing profit 
to a minimum." 

Increasing llesources for Credits 

What gives even the little co-operative commercial bank 
its great advantage over the individual, is not the volume of its 
cash resources, so much as it is the larger credit those resources 


Instead of the old mythology applied figuratively 
to modern architecture, It Is now the living, 
breathing, working human representatives of labor. 
Industry, agriculture and capital that support the 
whole flnanoial structure of this wonderful era in 
which we are living. 

2o6 People's American Co-operative Banks 

Under ordinary circumstances, the commercial bank may 
safely loan the bank's credit to the amount of several times its 
cash assets; a reserve of 15 per cent is usually considered a suffi- 
cient margin of safety, at least in dealing with current accom- 
modation. An individual with $1,000 in cash may lend only 
$1,000; the bank with $r,ooo free cash may lend its credit to 
the amount of $7,000 to $10,000! 

This miracle of credit is not now sufficiently available to 
people of limited resources, yet they are the very ones among 
whom most needs to be diffused the priceless benefits of such 
credits, and of the savings, thrift, progress and debt-paying 
which are promoted by the proper use of banking facilities. 

My own travels, personal observation and close study of 
rural conditions in foreign countries, especially in central 
Europe, have emphasized upon eye, mind and heart the wonders 
accomplished by private initiative in co-operative finance — 
decentralization through associated effort. 

Foster the Ideal of Service 

To all the benefits that accrue from thrift and economic 
prosperity, are added those other results which are ever supe- 
rior to the merely material. These results are a fresh illustra- 
tion of Nature's truth: through service to others, we best serve 
ourselves, best develop our own character, and promote all 
Christian virtues. 

The members of the European co-operative bank, whether 
rural or urban, are always enthusiastic over its value. They 
are grateful for the support it has accorded them, which they 
appreciate as being far more than the support they have given 
to the bank. 

The co-operative bank helps, but does not give; and there 
is all the difference in the world between the two. Self-help 
strengthens, gift-help weakens. 

Instead of separating the classes or occupations, co-opera- 
tive finance tends to draw them together in one blend for mutual 

Need of Banks for the Masses 


"The more various the occupations or inter- 
ests that enter into the composition of a co-opera- 
tive bank, the more will periodical demand in one 
interest dovetail into periodical supply in the 
other, the more strongly will the component parts 
accordingly be bound together, the broader will be 
the basis." 

What Wolff so well expresses will be even more true in 
America than among other peoples. 

Co'operation Imparts Safety 

The co-operative organization imparts to the bank peculiar 
safety, and stimulating educative effects. "The one springs 
almost naturally from 
the substitution of the 
aim of service for that 
of profit and the com- 
mon guardianship of 
the common purse, the 
other from the open and 
democratic character 
which the co-operative 
method necessarily im- 
presses upon the man- 

The wonderful suc- 
cess of local co-opera- 
tive building and 
loan associations in the 
United States testifies to 
these truths. They have 
capitalized the honesty, 
the labor, the frugality 
of the American work- 
ingman, and along with 

European experience, have proven that "with equal prudence 
and intelligence on the part of the lender, loans to the industrious 
and economical poor, or to people in moderate circumstances, 
are as safe as those made to any class whatever." 


The dots fn above chart Indicate towns of 3,000 population 01 
more each of which has not less than one national banlt. Then 
are also several hundred banlcs Incorporated under the state law. 
Some of these littie banits, both state and national, may be 
changed over Into national co-operative baniis when the national 
banlcing law Is so amended as to permit. 

2o8 People's American Co-operative Banks 

Hardly Jf^noivn in America 

Yet, imperative as is the need in America of popular co- 
operative banks for savings and loans, this type has been 
attempted only in Quebec, and more recently in Massachusetts. 

The very successful people's bank at Levis, Quebec, now 
has many imitators in that province which are doing excellent 

By the law of 1909, Massachusetts provided for institutions 
of this character, rather unfortunately named "credit unions," 
and the first one was formed upon their own initiative by my 
co-workers in the Myrick building. Both these types seem 
better adapted to townspeople than for rural needs; experience 
proves this to be the case. 

Old Established Success in Europe 

In Europe, on the contrary, co-operative commercial bank- 
ing along these lines has been developed most successfully. In 
most European countries, the co-operative people's bank is an 
old established institution, and in almost every village or some- 
what larger unit of area and population, the people's bank for 
savings and current loans is to be found doing its successful work 
and enabling the people to serve themselves with an efficiency 
as beautiful as it is astonishing, and productive of great eco- 
nomic, social and political benefits. Moreover, the principle is 
there adapted to rural needs quite as well as to the requirements 
of people in towns and cities. I echo Wolff's enthusiastic 

"Propagating themselves by their own merits, 
little people's co-operative banks have overspread 
Germany, Italy, Austria, Hungary, Switzerland, 
Belgium. Russia is following up those coun- 
tries ; France is striving strenuously for the posses- 
sion of co-operative credit. Servia, Roumania, 
and Bulgaria have made such credit their own. 
Canada has scored its first success on the road to 
its acquisition. Cyprus, and even Jamaica, have 

Need of Banks for the Masses 

made their first start. Ireland has substantial 
first-fruits to show of her economic sowings. 

"South Africa is groping its way to the same 
goal. Egypt has discovered the necessity of co- 
operative banks, even by the side of Lord Cromer's 
pet creation, the richly endowed 'agricultural 
bank.' India has made a record beginning, full 
of promise. And even in far Japan, and in China, 
people are trying to acclimatize the more perfected 
organizations of Schulze-Delitzsch and Raiffeisen. 
The entire world seems girdled with a ring of 
co-operative credit. Only the United States and 
Great Britain still lag lamentably behind." 










''at minimum 



At present and heretofore, the farmers' money 
■eemed to really take wings and tly away to the city. 
But under the extension of the national banking sys- 
tem to little eo-oi9erative people's banks. It will be 
possible tor farmers, workers and the "common peo- 
ple" generally to help themselves. 


Credit unions under state law, or other forms of 
co-operative banking under state law, will promote 
thrift among the working masses in cities, but the 
system of national ea-operative banks with the land 
banks it makes possible, is the prime need of villages 
and rural sections. 


People's American Co-operative Banks 

Chapter XXW 

European People's Banks 

Why they are successful 

Remarkable results in Germany, both in town and country 

Three different types in Europe 

Haiffeisen system of little banks for savings and loans 

Unlimited liability and close solidarity^ 

How the ^aiffeisen society is conducted 

Plenty of capital from members' deposits 

Loans at low rate for long periods on the security of per' 

sonal character 
The Schulze'Delitzsch bank quite different 
liun for profit to the co-operating shareholders 
Details of management 
The Luzzatti system accommodates the humblest, and has 

well'deserved popularity 

'HY has the number of co-operative 
banks in Germany increased ten- 
fold in twenty years, with corre- 
sponding growth in other forms of 
co-operation? Why is their growth 
greater from year to year? Be- 
cause it pays the farmers and others 
who thus co-operate — pays in sav- 
ing money and in making profits, 
pays by encouraging thrift, and 
pays yet more by bringing the peo- 
ple together and holding them 

There is no exaggeration in the statement that the remark- 
able progress in European agriculture during the past twenty 
years, is due in large measure to the successful development of 
co-operative finance. It has fostered education in agriculture 
and in other sciences, promoted better farming, encouraged co- 
operation in buying farm supplies and to a less extent in market- 

The Human Side 

European People's Banks 211 

ing farm products, and is raising the whole standard of civiliza- 
tion among the farmers, with social, political and economic con- 
sequences of transcending importance. To this factor is largely 
due the almost entire cessation of the emigration that formerly 
threatened to depopulate rural Germany, which is now culti- 
vated like a garden with hardly a foot of waste land nor a 
deserted farm! 

Probably one-half of all the farmers in the Fatherland 
are now members of the co-operative savings and loan banks 
which supply them with money or credits, though many of such 
banks do the bulk of their business with townspeople. 

This co-operative finance is so fruitful in benefit that these 
institutions have increased prodigiously in numbers, accompa- 
nied by large growth in other forms of associated effort. This 
is shown by the number of co-operative concerns reported as 
members of the German imperial union : 






Savings and loan banks, 





Co-operative stores, 





Co-operative creameries, 





Other co-operations. 










Outside the Union, 




Aggregate for Germany, 17,600 23,720 33,ioo 

Central banks act as feeders and equalizers for the local 
co-operative banks. 

98 co-operative wholesale societies supply the stores. 

Land mortgage banks have increased slightly in number and 
vastly in business. 

The total liabilities of these co-operative banks in Germany 
for 1909 were about $455,000,000, averaging a trifle under 
$40,000 per bank, and $400 per member; the average rural bank 
having about 100 members. Of the resources against these 
liabilities, 85 per cent consisted of the members' deposits upon 
savings or current accounts, about 4 per cent was members' 
share capital, leaving only 1 1 per cent of the total liability owed 
to outsiders. These locals are federated into central banks, in 

212 People's American Co-operative Banks 

which the surplus funds of some locals are deposited, to be 
loaned to other locals that may need them, and thus equalize 
supply to demand. 

The Three European Types 

Co-operative banks in Europe fall into what properly may 
be called three general classes: Raiflfeisen, Schulze-Delitzsch, 
and Luzzatti, being named after their originators, and being 
pronounced respectively, Raf'-fi-sen, Schooltz-ze-Day'-litsch, 

Reports more or less fully descriptive of these institutions, 
and of similar efforts in other countries upon the same lines or 
modifications thereof, were collected in the summer of 1912 for 
the Department of State at Washington, D. C, through Amer- 
ica's ambassadors, which may be referred to for specific details. 
David Lubin was the pioneer in such investigations, and later 
public documents add only details to the essential facts brought 
together at his suggestion by the International Institute of Agri- 
culture at Rome and published in its official reports prior to 

At the author's suggestion, the United States Senate passed 
in March, 191 2, the Gronna resolution for a national commission 
on farm finance, and when it was delayed in the House, the work 
proposed was taken up by the State Department, primarily 
through the efforts of Myron T, Herrick, United States ambas- 
sador at Paris, and much of the official data published was col- 
lected by Robert Ingalls as a voluntary patriotic service. 

Public documents, however, usually omit the "human" 
side of associated effort, though in this case they contain a wealth 
of technical information. One has to be familiar by personal 
contact with the differences between European and American 
institutions, their evolution and environment, in order to realize 
how much of this foreign experience may be wisely employed 
in the promoting of co-operative finance throughout the United 
States by adaptation to American conditions. 

For one thing, let it be remembered that the people in the 
towns and rural villages of central Europe are more frugal than 

European People's Banks 


our people, they live more simply, they are more intimately 
acquainted with each other, and less independent in thought and 
action. The smaller farmers and peasantry mostly live in little 
dorps or villages, "all huddled together," as the American farmer 
would say, instead of each family occupying its own farm- 
stead as is the case in the United States. The bulk of their busi- 
ness transactions is done with coin and with paper money, or 
by postal order. Only among the "upper classes" in Germany 
is the personal check used to the extent customary in the United 
States with every person who has a bank account. 

With these preliminary generalizations, let us proceed to 
give a bird's-eye view of the three European systems most in 
vogue. This review will illustrate their principles and prove 
their remarkable success. For though established as early as 
1849, their largest usefulness has been attained since 1890, and 
they continue to grow in number and resources, usefulness and 
power. On the other hand, this system as yet has hardly secured 
a foothold in England, despite its able advocates there, though 
the British people have outdistanced all others with their suc- 
cess in co-operative distribution of merchandise. 


The Raififeisen bank originally consisted of members who 
are jointly and severally responsible for every obligation of the 
bank. It had no shares, no profits, no dividends, and almost no 
expenses. Upon the joint liability of its members, it borrows 
money with which to make loans to the members. It also 


214 People's American Co-operative Banks 

receives savings and other deposits, and in a small way transacts 
a general banking business. Only the lowest possible interest 
is paid upon money borrowed or deposited, so that the bank is 
able to make loans to its members at very reasonable rates — 
formerly 3 to 5 per cent when money generally was cheap,, now 
4 to 6 per cent. 

Each member has one vote, and the bank being confined to 
a very limited locality — like our township, or even a school dis- 

IN 1912 

IN I890 


The charts show the number and relative Importance of the various societies which are afltliated with 
the German Imperial co-operative union. There are also 7,000 other co-operatives outside of this union. 
The total number of co-operativea In 1912 exceeded 33,000, or ten times as many as twenty-two years ago. 

trict — most of its business is transacted at general meetings 
attended by or open to all the members. Committees or trus- 
tees serve without any compensation, and very often the sec- 
retary-treasurer or general manager of the bank also gives his 
services ; there being no salaries, no fees, and no commissions, the 
expense involved is reduced to a minimum. So willingly do the 
committees and officers serve, that the average cost of manage- 

European People's Banks 215 

tnent is only about $150 a year for each of these little Raiffeisen 
societies, which have an average membership of about 90 people. 

Unlimited Liability 

Each member being unlimitedly liable for the bank's debts, 
every detail of its business is watched by the members, and it 
is this scrutiny, personal interest, vigilance, work and care that 
accounts for the fact that "never a dollar has been lost" by the 
thousands of these banks since Raiffeisen originated them in the 
Westerwald in 1849. 

The unceasing and intelligent interest in the enterprise, 
created in part by the members' joint and several liability, results 
in binding together the membership into one common brother- 
hood for economic and social welfare. 

The earlier plan of no membership fee has been supplanted 
by requiring each member to put in at least $2.50, or from that 
up to $125. The tendency of late years is not to fix the value 
of these shares too low; if so provided by the rules, the society 
may admit payments by annual installments. Such share capi- 
tal constitutes only about 4 per cent of the total funds of these 

Also with increasing frequency do these societies now limit 
the member's liability to from two to five times the amount of 
his shares, since in the few cases of failure of a bank, or of a dis- 
tributive society composed of several associations, great hard- 
ship has come to members who had property being held respon- 
sible for all the debts of the bank. Failures have never occurred 
among the little local banks, but disaster occasionally has 
resulted from bad management of a federated bank. 

There is always a tendency in these later times toward lim- 
iting the member's liability to some fixed amount; also to accu- 
mulate a large reserve from year to year, so that the joint and 
several unlimited liability of members is no longer necessary to 
the bank's stability. 

How the Bank Is Conducted 

The Raiffeisen bank is incorporated under national law, but 
its operations are strictly confined to the district set forth in its 


People's American Co-operative Banks 

by-laws. It must have at least seven members, and can admit 
other inhabitants of the district, of full age and in enjoyment of 
all civil rights. The members elect a managing committee of 
four or five, which has a president and treasurer or accountant. 
Subject to members' approval, this committee transacts all 
the business^— admission of members, granting of loans, 
acceptance of deposits. Also the making of purchases of 
agricultural or other supplies for the members; for in these 
little rural banks such purchases are made only when previously 
ordered in writing by members, who promise to pay and usually 
have cash enough on deposit to cover the order, so that the bank 

It Is wonderful how these little co-operative banks in the various European countries enlist the spirit, 
interest, love and patriotism of the people. That the same will prove true In America is attested by the 
brilliant success of the various local building and loan associations in American cities and towns. 

assumes no risk whatever on such purchases. Annually a balance 
sheet must be filed with the public officials, accompanied by 
certificate given by the auditor of the federation to which the 
society belongs. 

The members also choose a council of supervision, consist- 
ing of at least nine members, chosen from the different communi- 
ties or sections of the territory covered by the bank, whose 
business it is to supervise and control the acts of (he managing 
committee, and see that the same are in obedience to the order 
of the general assembly. These supervisors require that the 
managers act only by virtue of decisions in the meetings of their 
committee and duly recorded in its minutes; at least quarterly 
the council of supervisors, without previous warning, inspects 
the cash and records of the treasurer. 

European People's Banks 217 

The supreme authority, is the general assembly of members. 
It meets once a year, hears the reports of the managing and 
supervising committees, approves the accounts and balance sheet 
as audited and approved by the supervisors, and decides as to the 
division of the net profits. Usually 3 to 4 per cent interest is 
allowed on the members' shares and deposits, a certain amount 
is placed in the reserve fund, and the remainder, by decision of 
the general assembly, is generally assigned to some work of 
common utility for the benefit of all the members and -of the 

Plenty of Capital 

The Raiffeisen banks are confined mainly to the rural 
regions, and mostly accommodate farmers and the peasantry who 
require money on long time — one to ten years — but do not gener- 
ally loan on real estate mortgages. They obtain deposits, or hire 
money from other individuals, banks and corporations, and their 
credit is so good that they do not have to pay a high rate of 
interest to secure such funds, but nearly 90 per cent of their 
deposits come from the savings of their own members. 

The working capital, however, now consists mainly of the 
savings-bank deposits, which the society accepts from anyone. 
The amount of these deposits is surprisingly large, they flow in 
from the most unexpected sources, everyone in the community 
seems to be able to make deposits, very little cash is kept at 
home, but it all flows into the bank, and the members borrow 
it and use it for productive purposes. 

Loans at Low Itates 

Loans are made for any length of time; for a few days, a 
few weeks or a few months, up to five or ten years, and usually 
upon only the personal note of the borrower, indorsed or 
vouched for by some of his neighbors. Current loans, for one 
year or less, constitute about one-third, and longer time loans 
two-thirds of the business. 

The loan is made only for the purpose which, in the judg- 
ment of the committee on loans, is likely to be profitable, such 

2i8 People's American Co-operative Banks 

as buying fertilizers, the purchase of improved live stock or 
seeds, or any other sensible investment likely to produce a profit. 
The principal of the loan is usually reduced by annual pay- 
ments or oftener, and the interest is insisted upon promptly. 

With very few exceptions, most of the agricultural co- 
operative credit societies among the farmers in Germany are 
organized in this simple way, which has permitted of their 
becoming a continually increasing source of prosperity to the 
farming population. The exhaustive report by the Interna- 
tional Institute of Agriculture at Rome concludes : 

"With cautious, intelligent and active men at 
the head of their committees and councils of super- 
vision, they reap truly a golden harvest in the form 
of a constantly increasing reserve fund, besides per- 
forming their banking functions, but the chief 
merit consists in their being true nuclei of that 
spirit of solidarity which stimulates healthy sup- 
port of whatever is most nobly philanthropic." 


While it does more or less agricultural business, the 
Schulze-Delitzsch bank is usually found in towns of some size, 
and transacts the bulk of its business with townspeople. Each 
shareholder has one vote, but the amount of the share is usually 
much larger than in the little Raififeisen banks. The tendency 
of late years is to limit the members' liability to the amount of 
the shares. Where the share is large, the member may pay on 
the installment plan, and this encourages him to save, something 
after the principle of the American building and loan asso- 

The average paid-up share capital is about $200 per mem- 
ber, and members can withdraw after due notice, but sacrifice 
their interest in the reserve, and sometimes lose part of the 
income, upon withdrawal. 

Jl Profit' Making Proposition 

Every effort is made to earn money for the bank, by getting 
as large an income as possible from the loans it makes, and after 

European People's Banks 219 

paying 3 or 4 per cent on savings deposits and 5 or 6 per cent 
on members' shares, the remaining profits are usually added to 
reserves till they reach fifty per cent of the members' capital. 
Then the earnings go to the shareholders in dividends, which 
may reach as high as 7 to 10 per cent, though the average is 
hardly 6 per cent. 

Instead of striving to help the very poor by loans at the 
lowest possible rate, and raising money for this purpose upon 
the joint and several liability of the members but without share 
capital, the Schulze-Delitzsch bank does a straight-out banking 
business, and makes as much money as possible from its share 
capital and the savings of its members; it also seeks deposits 
from the public. 

The members' capital is increased from time to time, so as 
to equal about one-fourth of the amount of deposits. Preference 
is given to savings deposits, which are comparatively permanent 
and not frequently withdrawn, but these banks also do a regular 
commercial banking and check deposit business. The bank's 
share capital is not limited, but increases from year to year 
with the increasing membership, which includes people of all 
vocations. The more members, the more rapidly its assets grow 
and the less is the unit cost of maintenance. 

Loans are made usually only on good security, such as 
indorsed notes, acceptances, bills of exchange, or other forms 
of available collateral. The loans are mostly made to small 
artisans, small merchants, to farmers for current purposes, and 
to others who can use money advantageously for from three to 
six months or longer. Comparatively little money is loaned on 
mortgage. The bank is run as a commercial proposition, and 
its assets are kept as "live" as possible. 

Details of Management 

Members elect a committee on management, also on super- 
vision, but the members do not have any such intimate knowl- 
edge of and interest in the bank as is the case in the Raiffeisen 
societies. The latter are rural district trusts where everybody 
knows everybody else and everybody's business ; the former is a 

220 People's American Co-operative Banks 

more citified institution, and operates as both a savings bank and 
as a loan bank for current accommodation. 

The supervising committee employs expert auditors to go 
over the books and cash at frequent intervals. Everybody who 
works for the bank is paid for their services, and the whole 
enterprise is run for profit to capital rather than as a co-operative 
aflPair for mutual benefit. Any respectable person may join the 
bank by signing its rules and paying the first installment upon 
his share, and membership has to be approved by court certifi- 
cate. The business is under rigid governmental supervision in 
every respect. 

Each bank has a special committee to estimate the amount 
of credit which the management may safely permit to each 
member; beyond the limit shown on this credit register, loans 
may not be made. Loans are usually made for a short time, for 
six months or a year, but not infrequently are renewed from 
period to period over a series of years, provided the security is 
perfectly good or improving in value. With increasing wealth 
in the rural districts, these banks do an increasing agricultural 
business. All payments have to be promptly met, and as we say 
in America, "It is run just like a bank." The thousands of these 
Schulze-Delitzsch banks have hundreds of thousands of mem- 
bers, with millions of assets, and their business reaches hundreds 
of millions of dollars yearly. Failures are practically unknown. 


Luigi Luzzatti, who for years has been one of Italy's fore- 
most statesmen, began in 1863 to establish co-operative people's 
banks in that country. Instead of copying the German system, 
he produced a new type adapted to Italian conditions and char- 
acter, much as we must do here in America. 

Hence, these banks have no joint and several liability, but 
each member is liable only to the amount of his shares. The 
shares are not large, nor do the installment payments thereon 
run for a long period: the share is usually $5, sometimes $10, 
and must be paid up within ten months. One member may not 
hold in excess of $1,000 in shares in any one bank. Each mem- 

European People's Banks 221 

ber has one vote irrespective of the number of his shares. A 
relatively large area may be covered by one bank, sometimes the 
equivalent of several townships, or even a county. 

The members elect a large board of management, repre- 
sentative of all the interests and localities among the members, 
which is unpaid, and is selected with the greatest care. This 
board elects an executive committee of three or five members, 
at least one of whom must always be on duty during banking 
hours as representing the members' supreme authority, without 
whose signature no transaction is valid. Subject to such com- 
mittee, the usual officers are employed to conduct the institution. 

Every inducement is offered to members and to the public 
to deposit in the people's bank, either on current account or 
preferably in savings deposit; and so successfully is this done 
that the volume of deposits rises in volume from year to year, 
even in that comparatively poor country. 

Accommodating the Humblest 

Loans are made almost exclusively on personal security, 
such as indorsed notes, acceptances or similar paper, and less 
frequently upon public bonds and corporate stocks. The 
granting of loans is in charge of a separate and distinct com- 
mittee, which is instructed as follows : 

"Be careful to avoid risk. Never lose sight of 
this one maxim ; there must not be risk. You are 
dealing with other people's money. This bank 
is here not to earn a profit but to provide cheap 
credit and to keep money safe. Therefore above 
all things it is your duty to avoid risk." 

Yet many loans are freely made on the character of mem- 
bers rather than upon their visible assets. Thus honesty is cap- 
italized. While mortgages are not taken, great numbers of 
small loans are made to small people, for such purposes as the 
purchase of a cow, or sewing machine, or to cash a bill not yet 
due, or other forms of conveniently popularized lending. 

222 People's American Go-operative Banks 

This enables even people in the most humble circumstances 
to borrow cash at reasonable rates, so that they can pay spot 
cash for their purchases. This has made cash payments in trade 
the present rule instead of on long credit as in former years; 
it has quite done away with the curse of buying on the install- 
ment plan. 

The people's banks of Italy make hundreds of thousands 
of loans in sums from $i to $50, including many advances to 
farmers for agricultural purposes. Farmers borrow for six or 
twelve months with the privilege of renewing, and give as secur- 
ity personal endorsement, acceptances, or some other form of 
collateral; the rate of interest on these longer-term loans to 
farmers usually is about one point higher than upon ordinary 
short time commercial loans. Landlords frequently indorse for 
their tenants. « 

Wetl'Deserved Popularity 

These Italian people's banks have become the most popular 
of savings banks. They encourage thrift. They train the peo- 
ple systematically to deposit their savings, and then employ the 
money within the district "to fructify there and benefit the sec- 
tion of the population from which it has been gathered." Thus 
money and credit is localized and decentralized, and the interests 
of the rural communities and of the smaller farms and villages 
are preserved. 

The people feel that the bank is their very own, they have 
confidence in it and patronize it accordingly, so that it is vastly 
more popular and better patronized than the postal savings bank. 

During periods of depression and panic these people's 
banks have proven to be steadier and more stable than the big 
commercial banks. Why? Because the co-operative people's 
bank is backed up by the good-will, the spirit, the interest, the 
patriotism, and the love of the people. 

The little rural bank of Italy is a still simpler form of the 
people's bank. It is constituted practically upon the Raiffeisen 
system, and confines its operations to the smallest village areas. 

European People's Banks 


'I'he poor people feel that it is their own, they administer it 
themselves, it keeps their money in their own district, and they 
take pride in its success. There is no other place where these 
people can get accommodation, unless of some Shylock at usuri- 
ous rates, so they all appreciate its value. The educational bene- 
fits are naturally great. 

An interesting phase of co-operative banking in Europe, is 
that the members prefer to put their money into their own co- 
operative bank than into the government bank conducted by 
the postofBce. And this among populations brought up to have 
the government run everything! But it is human nature to 
prefer to own and operate one's own business. Co-operation 
successfully cultivates individuality, while tending to prevent the 
abuses of capitalistic combination upon the one hand, or of dom- 
inating individualism on the other. 


Old Way: Farmer humbly begging a looal Shylock 
for a loan at 20 per cent. No one ean measure the 
distress and uneconomic results of farmers being 
obliged to deal with the "gombeen" man. The evil 
has existed In all countries. 


New Way: Farmer who wants accommodation Is 
gladly welcomed by the banker,' whether he Is at the 
head of a capitalistic bank or one of the people's co- 
operative banks, under national or state oharter. Thi 
farmer's credit is now In an available form. 

224 People's American Co-operative Banks 

Chapter XXV 

Essentials in Co-operative 

Instead of a neiv system, bring existing methods within reach 

of the common people 
Purposes of co-operative banking 
Why the title " co-operative bank" 
What the people insist upon 
National co'operative banks will supplement, not compete 

with, existing institutions 
They will revolutionize retail trade, by substituting cash pay- 

ments for buying on trust 
Momentous educative value 

Institutions may also incorporate under state law 
Social service and patriotism 

'T NOW remains for me to outline and 
suggest a method whereby co-operative 
banks for saving, loans and commercial 
purposes among the common people in the 
United States may be made successful, 
beneficial and permanent. We are to 
recognize that conditions here are much 
different from those abroad, and that our 
methods will have to be perfectly adapted 
to the history, customs, laws and conditions 

rican system Adapted to tno . t - . - ' 

American People. With which our pcoplc arc familiar. We 

require an American system adapted to the American people! 

We need more little banks and societies, mutual and co- 
operative, to foster thrift and better business methods among 
the co-owning and co-sharing members, to furnish them credit 
for productive purposes, and to enable their members to apply 
to their own needs the funds which thus are made available. 

In America, it appears that there is now even greater need 
for such co-operative banks to meet the situation in the country 
than in the town. Banking facilities simply do not exist at all 

An American System Adapted to the 

Essentials in Co-operative Banking 225 

in thousands of rural communities. But the "little" people in 
cities and towns also need such an agency, quite as much as do 
the farmers and rural dwellers. 

Therefore, the American method should be broad enough to 
cover both needs, yet sufficiently flexible so that it may be easily 
adapted to any and all wants. 

Bring Existing Methods Down to the Common People 

It must be simple, effective and within reach of all. It 
must be something that the American people are familiar with, 
an evolution from a system that has proven its worth and that 
rightly commands the confidence of the people. That is why 
organization under the national banking act is recommended. 

Right here is one beauty of my method. It does not set 
up a new type of institution, unfamiliar to our people and apart 
from the banks and banking methods with which they are 
acquainted. It simply brings these methods down close to the 
common people, by enabling the people of smaller means and 
smaller needs to organize and operate smaller banks for their 
smaller purposes and smaller accommodation. 

Purposes of Co'operative Banking 

Whatever the nomenclature applied, or whatever the pre- 
cise form of organization adopted, the purposes of the people's 
co-operative bank are the same : 

To induce the people to join it as members and 
shareholders, if only in a small way — labor or 

To encourage them to save money and deposit their 
savings in their own bank — capital accumu- 

To safely loan these savings and the bank's credit 
to the bank's members or customers within 
the local territory of the bank, for wisely pro- 
ductive purposes — ^wise use. 

To enable the people themselves to create efficient 
management of their bank. 


People's American Co-operative Banks 

By these means, the people co-operate to pool their cash 
and credits, so that both these resources may be employed in 
upbuilding the agriculture and other industries among the peo- 
ple whose savings and efforts create the bank. It is purely a 
banking function, a banking proposition, but animated by the 
co-operative spirit and conducted for the common welfare, 
rather than for the purpose of paying big dividends to capital 
irrespective of the people whose deposits and borrowing con- 
stitute the principal business of the bank. 

An institution of this type is worthy of the most intelligent 
solicitude and wise encouragement by a republican form of gov- 
ernment. These "little" people are entitled to just as fair an 
opportunity in banking as the "big" people who relatively have 
monopolized the banking business. These people do not wish 
to be allowed condescendingly to form what an unthinking pub- 
lic may consider societies for pauper credit, or unions of 
paupers for securing petty loans. On the contrary, the pride, 
patriotism and interest of the common people will rally to the 
support of their people's banks when these institutions are not 
only named but are recognized as real banks. 


Citizen A: "What lort of a thing l> thl> newfangled 
credit society they are tailLing aliout?" 

Mr. B: "Why, It Is one of those outfits to help poor 
people who can't get credit elsewhere. At least thafs 
the idea I have formed." 

Citizen A: "That Isn't right. Our people don't want 
any charity organization." 


Citizen C. holding up Mr. D. who has Just come out 
of the building: "Why, what's this institution over 
there that everybody seems to be patronizing?" 

Mr. D; "Why, It is the bank owned by the people, 
comprised of the people, and run for the people." 

Citizen C: "I will put my account In there today." 

Essentials in Co-operative Banking 227 

Why the Title, "Co'Operative Bank"? 

"The rose by any other name would smell as sweet, but it 
would not be the rose." Our people know the rose, they are 
educated to appreciate it, they would not stand to have it known 
by any other name. Likewise our people understand what a 
bank is, and especially what a national bank is; because the 
common people wish to associate themselves in such banks, but 
on the smaller scale adapted to their smaller needs, is no excuse 
for calling these institutions "credit societies," or "credit unions," 
or by any other strange name, suggestive of the new, the foreign, 
or the unknown. Massachusetts has tried that with poor results ; 
under her most excellent law, few "credit unions" have been 
formed, whereas if the law had used the term "people's bank" 
the number would doubtless have been greater. 

The service our common people require of their co-opera- 
tive financial institutions is distinctly a banking service, and 
they justly demand that these institutions be known as co- 
operative banks. Simply because their capital stock is smaller, 
is no reason why these people's co-operative banks should be 
stigmatized as "credit societies," or "credit unions," unless the 
purpose be to thus distinguish them from real banks. But since 
the people insist upon making these institutions nothing more nor 
less than "real banks," they rightly insist that these popular insti- 
tutions shall be known as co-operative banks, operated as banks, 
supervised as banks, and made an integral part of the American 
banking system ! 

This argument is irrefutable. It must be recognized by 
national and state legislatures, as it will be by the public and by 

Supplement, J\[ot Compete 

National co-operative banks would supplement national 
commercial banks and the state banking system. They would 
not interfere with the same, but would be feeders for them. 
These little local co-operative savings and loan banks, each under 
the national law and subject to national supervision, would at 
once possess the implicit confidence, not only of members, but of 
the public generally. 


People's American Co-operative Banks 

The savings of the people would flow into them automati- 
cally, and these funds and the credit of the banks would be 
invested and thrive in the vicinity where the deposits originate, 
or be loaned to farmers, artisans, country dealers, local merchants 
and others who would use the same for productive purposes. 
The world will soon be amazed at the growth in number and 
success, resources and usefulness of these popular institutions. 

Will Substitute Cash for Credit Purchases 

As rural co-operative banks increase and multiply they 
will effect a gradual revolution in country trade. At present, 
much of this trade is done on a long-time basis. In many sec- 
tions, the country merchant still "carries" the farmer for from 
four to eight months each year, furnishing the farmer with the 
necessary food, family and farm supplies on credit, and being 
paid for the same when the crop is made and sold. Even in 
quite thrifty sections, it is customary for the country merchant 
to give long credit. Much of the agricultural machinery, fer- 
tilizer and other staples bought by farmers, are sold on long 
time, either on open account or by note. 


What a revolution In rural trade will be aocomplistied when farmers have the actual money In pocket 
or In bank ao that they can pay cash to the aiorekeeper and to their dealer for all their purchases! in- 
stead of tumbledown stores, ornamented by bums and loafers, the country storekeeper will now become > 
center of up-to-date cash business. The people's national co-operative bank will aupply the people's need 
for credit, so that consumers can pay cash to the merchant and dealer. 

Essentials in Co-operative Banking 229 

Such credits are almost invariably good, though slow. 
They involve extra expense all along the line, and the farmer has 
to pay the bills. It is conservative to say that for accommoda- 
tion in this form the average American farmer pays what is 
equivalent to from 1 2 to 20 per cent interest per annum on the 
amount involved. 

Now, if the farmer can get current accommodation for say 
6 per cent, so that he can pay cash for his purchases, what a 
saving there will be to him! Moreover, the local dealer and 
country merchant will make more money by doing business on a 
cash basis ; the jobber, the wholesaler and the manufacturer will 
likewise be benefited. 

Equally imperative is it to provide relatively cheap credit to 
the masses in cities and towns, so that they may get out of the 
clutches of the installment system, or those leeches known as 
"private money lenders." The only person who will be hurt 
by this reform, is the local Shylock whose business is to grind 
the poor and exact usurious rates of interest from the loans he 
makes to the needy. 

Quick sales at small profits, mean many sales at an aggregate 
large profit. No one really benefits by the present custom of 
compelling merchants and manufacturers to grant the "accom- 
modation" which people should get at the bank. Right here the 
great need, economy, and efficiency are emphasized of having 
more and better banks whereby the common people may do their 
own banking business for themselves. The banking business 
should be conducted by the bank, instead of being thrown on to 
the merchant and manufacturer. 

Momentous Educative Value 

The educational value of this co-operative institution, 
among people who do not now enjoy such advantages, would be 
incalculable. The bank would start in a comparatively small 
way, and would be supported by the volunteer and unpaid 
services of its directors and officers, with the possible exception 
of its president or cashier, who may be paid for giving it the 
necessary time and attention. It could even begin with no ex- 

230 People's American Co-operative Banks 

pense for office rent, having its headquarters in the house or office 
of the manager until its business required an establishment of 
its own. 

The members would work like beavers to develop the insti- 
tution to a point where it could afiford to rent or build its own 
offices. The bank quickly could become the common people's 
center for financial thrift, advice and progress. 

Co'operative Banks Under State Law 

While I strongly advise one comprehensive act of Congress 
embodying all reforms needed in the American fiscal system, 
including provision for little co-operative banks and for a land 
bank in each state under the national banking act, there is also 
room in many states for these types of institutions incorporated 
under state law. 

The best statute now in efifect is the Massachusetts act of 
1909. One of the first to be established under that law was the 
Myrick Credit Union, formed upon their own initiative by the 
author's co-workers in our eastern establishment at Springfield. 
It has made a good beginning and a number of similar unions 
have been formed. 

This experience has taught lessons that will be of value in 
drafting a co-operative banking law for other states. Thus far 
the Massachusetts plan has been applied only in cities, and 
requires a number of modifications to adapt it to rural needs. 
As elsewhere stated, the name "people's co-operative bank" is 
superior in every way to "credit union" or "credit society." 

Social Service and Patriotism 

Aside from the executive head and actual employees in our 
people's co-operative bank, all of the other positions of honor, 
trust and responsibility — directors, committees, members — are 
such that the holders would gladly serve their country in this 
way, without money and without price. 

Precisely such service is being freely given by the managing 
boards of thousands of co-operative building and loan associa- 

Essentials in Co-operative Banking 


tions. The marvelous efficiency of mutual savings banks in the 
New England and Middle states is due partly to the unselfish 
devotion with which the most upright citizens, men of experi- 
ence and sound judgment, serve as trustees with no thought 
of pay. 

Such service is patriotism made practical — -it is the spirit of 
co-operation, which elevates the tone of the whole community. 

Patriotic volunteer service is the keynote to successful 
co-operation when supplemented by the most expert executive 
direction and practical management of business operations. 

It must ever be kept in mind that this undertaking is not a 
scheme for commercial profit upon capital, but that it is purely 
a co-operative undertaking between borrowers and lenders for 
their mutual benefit, and to eliminate the expenses and profits of 
middlemen. This ideal of service is vital to the largest success. 
Such spirituality is the real thing in life. 

The spiritual is superior to the material in any form of 
co-operation, provided the spiritual ideal is wisely directed and 
applied in a thoroughly practical and businesslike manner. 

Social Patriotism 

Serve well thy native land ! 
Let daily task 
Be but the mask 
Of duty done. 

Serve well thy loved land! 
Each day's good work, 
Without a shirk, 

Is service shown 

Guard well thy suff'ring land — 
Against her foes, who band 
Themselves to wrong demand 
With their whole might. 

Guard well thy noble land ! 
Uphold her honest hand 
By thine own fearless stand 
For truth and right. 

H. M. 


People's American Co-operative Banks 

Chapter XXVI 

Plan for American Co-operative 

To be formed by the people in any locality 

Jtmend national banking law to permit co'operatioe banks to 

be incorporated and conducted thereunder 
Each state is left free to authorize people's banks under 

state law 
Hame and capital 
Shares, par value five dollars — double liability like other na* 

tional banks 
Powers, duties and privileges of the cooperative bank 
Supervision and management 
Detailed reasons for each suggestion advanced 
May take over existing small state banks 

SUGGEST the following as an outline 
for a feasible method of enabling the 
"common people" to help themselves and 
their country, through a system of co- 
operative banks which is designed to 
accomplish the purposes set forth in the 
previous chapters. 

These popular institutions are for 
savings and loans, deposits and discounts, 
also for storage of valuables and other financial purposes. Their 
business is therefore personal credit on the strength of character 
or personal security, but these co-operative banks are also sections 
of the foundation of the land mortgage banking method I pro- 
pose in the next part of this work. It will be seen that the two 
forms of credit — (a) personal and character, for current accom- 
modation, and (b) mortgage or permanent, for long time on real 
estate security — are kept separate and distinct. But the co-opera- 
tive bank is the local representative, co-owning local supervisor, 
and the local representative of the land bank for its state. 

Plan for American Co-operative Banks 233 

^ Plan for People's Co'operative Banks 

1. Seven or more citizens, resident in any place, may in- 
corporate a national co-operative bank under the national bank- 
ing law, which law is to be suitably amended by Congress for the 

2. The words "National Co-operative Bank" must appear 
in its name. If located in a rural community, the word "rural" 
shall be used in, or immediately after, or under the name of the 
bank; if in city or town of 3,000 or more population, use the 
word "urban." 

3. Such bank shall receive its charter from the United 
States, through the Treasury Department, when — 

4. The bank has received not less than $1,000 in cash for 
its initial capital stock. Additional capital may be added at 
will, by the sale for cash only of more shares to present share- 
holders, or to new members. 

5. No one individual may hold more than 100 shares, nor 
shall any corporation, society or association other than a natural 
person, be admitted to membership. 

6. Each share shall have a par value of five dollars ($5), 
which must be paid in full before the certificate therefor is 

7. Each share of stock shall carry with it double liability : 
that is to say, in case of liquidation, an assessment up to $5 may 
be levied upon the owner of each share outstanding, if so much 
is required to pay all debts owing by the bank. (Double liability 
is provided by existing law for national banks for commercial 

Powers of the Bank 

8. Each national co-operative bank transacts a regular 
banking business, with its shareholders or the general public. It 
may receive and pay out money on current account, may grant 
loans of its cash and credit, may buy and sell notes, acceptances, 
commercial paper and other credit instruments. It may con- 


People's American Co-operative Banks 

duct a savings department, but the deposits and investments 
therein shall be kept separate from current commercial business. 

9. It may loan on mortgage upon real estate — preferably 
farms ov^^ned and cultivated by their owners, or homes occupied 
by their ov^^ners— at not to exceed 67 per cent the value thereof, 
to a total not exceeding two-thirds of its savings deposits. 

10. It shall not have the right to issue credit currency nor 
to conduct a trust department until its capital reaches at least 

$25,000 if in a place having 
3,000 inhabitants or less, $50,000 
for 6,000, $100,000 for over 
6,000 to not exceeding 50,000, 
and $200,000 for a city with over 
50,000 inhabitants. 

11. It shall deposit one- 
fourth of its capital stock, as 
fast as paid up, in the reserve 
fund of the national land bank 
for its state. 

12. Each national co- 
operative bank shall not pay any 

dividend upon its shares until its surplus equals at least 25 per 
cent of its capital. Thereafter half the earnings available for 
distribution shall be applied to surplus until the surplus equals 
capital, and the balance may be apportioned between capital 
stock or patronage, or otherwise employed as the by-laws set 
forth or the members vote; provided, that the maximum divi- 
dend upon shares shall not exceed i per centum over and above 
the average rate of interest charged borrowers. 


This picture Is no exaggeration of the rate of 
growth that will be enjoyed by many of the little 
local eo-operatlve people's banks which should be 
authorized by the amended national banking law. 
The largest success will follow the best manage- 
ment and most earnest support of the members. 
Substantial growth and financial strength are bet- 
ter than mushroom development. 

Supervision and Management 

13. Otherwise, its organization and operations shall be 
subject to the same regulations, supervision and control as is 
applied to regular national banks, with which it may be affiliated 
(if it has less than $25,000 capital) by "clearing" through a 
regular national bank that is a member of the local clearing 

Plan for American Co-operative Banks 235 

house ; but if it has $25,000 capital or more it shall be itself a 
member of the clearing house. 

14. The shareholders of each national co-operative bank 
shall elect a board of directors consisting of not less than five 
nor more than fifteen directors, who shall fairly represent the 
various areas and interests included in its membership. The 
shareholders elect an executive committee of not less than three 
shareholders, none of whom shall be an officer in the bank, who 
shall represent the shareholders when the directors are not in 
session, and who shall act as a committee of inspection and 
audit, with power to employ expert auditors and investigators. 
The directors shall elect a president, vice-president, a cash- 
ier, and such other officers or committees as may be required. 
The directors and officers shall conduct the bank in accordance 
with the federal act and the by-laws adopted by the shareholders, 
so as to best meet the conditions incident to its locality, and shall 
report fully to the annual or special meetings of shareholders. 

Why "National" Co-operative Banks ? 

I. National banks heretofore established under the fed- 
eral act were planned to do exclusively what is known as com- 
mercial business, though many of them now have a savings de- 
partment. The amount of their capital stock is governed in part 
by their location and the number of people in the vicinity in 
which they may do business. Until the year 1900, national 
banks could not be started with less than $50,000 capital stock, 
in any place having 6,000 inhabitants or less. Then the limit 
was reduced to $25,000 in any place having 3,000 inhabitants 
or less. 

Within a short time thereafter, the number of national banks 
doubled, thus showing the great need that existed for more 
banking facilities. The increase has been almost entirely in the 
rural districts. The number of national banks reported in Sep- 
tember, 191 2, as doing business was 7,397, of which 2,000 have 
a capital stock of $25,000 each, and the average capitalization 
of the remainder is $230,000. Of the total capital stock, amount- 
ing to 1,025 millions of dollars, about fifty millions were in the 
smaller banks. 

236 People's American Co-operative Banks 

The national banking system has thus proved its efficacy. 
In spite of its defects, it has served the public well, has held 
its own against the competition of banks under state law, and 
justly possesses the confidence of the American people. Dur- 
ing its nearly 50 years' experience, the system has developed 
into a widely ramifying organization which severally and col- 
lectively possesses a vast fund of experience. 

An institution which has thus proven its worth and won its 
way into the public's appreciation, is the thoroughly established 
foundation upon which to build people's banks smaller in size 
and co-operative in character. And with unanswerable logic, 
Americans now say : 

"If the national banking act is such a good thing for people 
of means, why not the same principle in a modified form to meet 
the needs of the common people for co-operative banks?" 

Another advantage of chartering co-operative banks under 
the national law, is that their organization can be encouraged so 
simply, quickly, effectively and uniformly. It only will be 
necessary for the Secretary of the Treasury to appoint a com- 
mittee in each state, from among those interested, who are recom- 
mended by the people themselves, equip such committee with 
uniform instructions for organization, forms of by-laws, etc., 
and these little co-operative people's banks will be established 
as rapidly as the people feel need of them. The movement will 
be championed by all existing agricultural organizations and by 
farmers individually, also by labor unions, and associations of 
other citizens. 

The experience in actual practice of these institutions will 
pave the way for each state legislature to pass such laws as may 
be wise for authorizing people's co-operative banks within the 
limit of their respective states and under the laws thereof. Each 
state is left free to create and govern any form of co-operative 
banking under state law which may be best adapted to its con- 
ditions, but my method begins the work forthwith upon a uni- 
form national system under federal law. 

Why the J[[ame? 

2. The words "National Co-operative Bank" must appear 

Plan for American Co-operative Banks 


in the name, so as to distinguish each institution of this class from 
the regular national banks now existing or hereafter organized 
for commercial purposes upon the usual capitalistic basis. In 
these regular banks each share of stock has one vote, instead of 
each shareholder having one vote as in the co-operative system. 

The regular bank is a strictly capitalistic affair, operated 
to make as large profits as possible 
upon the capital invested, more or 
less irrespective of its customers' 
welfare, whereas the co-operative 
bank, as we have seen, has quite 
different motives and objects; it 
limits return upon capital to a 
comparatively small or reasonable 
amount, and then divides addi- 
tional earnings among those whose 
patronage produces the earnings. 

It is important also to dis- 
tinguish between co-operative 
banks in country and town, as 
their field of operations is quite 
different and their methods neces- 
sarily will not be alike. For 
economic and statistical purposes, 
it is expedient to differentiate 
them. Moreover, the public and 
all banks will often wish to know at a glance whether the institu- 
tion is rural or urban. 

Why a J\[ational Charter? 

3. Receiving its charter direct from the United States, 
just as does a regular or commercial bank under the national 
banking law, each national co-operative bank will at once com- 
mand the confidence of its shareholders and the people in its 
vicinity, for the reasons previously set forth. 

IVhy Permit Small Beginnings? 

4. It should be permitted to begin business with as little 


The oonfldenoe felt by the people In national 
banks Is partly due to the fact that they receh/e 
their charter direct from the federal government 
and are under Its control and supervision. If 
the "common people" are now to feel that they 
may enjoy this priceless privilege which hereto- 
fore has been accorded only to banks having 
$25,000 capital or more, It will be a great in- 
spiration to the people to take hold and help 

238 People's American Co-operative Banks 

as $1,000 of cash capital. This may be as much as can be raised 
conveniently, at least at the start, by the limited number of peo- 
ple of small means who may at first undertake to organize the 
institution. If they can raise more funds and need more capi- 
tal, well and good ; but the law should make it possible for even 
the humblest community to institute its own co-operative bank. 

Let us not despise the day of small things! The co-opera- 
tive bank starting with only $1,000, within a few years may have 
a capital and reserve of anywhere from $10,000 to $50,000 and 
with deposits of from $25,000 to ten times that sum. All the 
arguments that may be advanced against small beginnings were 
made by some of the big banks against capitalizing national 
banks as low as $25,000 in small towns, but experience has shown 
that those smaller institutions were greatly needed; about 2,000 
of them have been formed within the past ten years, and they 
are doing a splendid work, to the great service of a public which 
previously did not have adequate banking facilities. 

It is only within very recent years that commercial bankers 
in America have begun to appreciate the power of small ac- 
counts. The recognition of this fact has led to the widespread 
introduction of the little home savings banks, and other means 
for inducing people in even the most moderate circumstances 
to make savings deposits, not only in savings banks but in com- 
mercial banks. In this marvelous country of ours, the small 
depositor today may be the big depositor tomorrow; the little 
co-operative bank at the start, may grow with amazing rapidity 
into a great popular institution of large resources and still larger 
usefulness ! 

Also is it of fundamental importance that the capital of a 
co-operative bank be allowed to grow, automatically and 
steadily, without let or hindrance. So long as the amount of 
capital stock outstanding at any time may not be depleted or 
reduced, except in the formal manner already prescribed in the 
national banking act; so long as no demand is made for a large 
"authorized" capital stock, nor for any "water," nor for the right 
to indicate that the bank has a larger capital or capital stock 
than the cash it has actually received and invested in its shares, 
no valid objection can be raised. 

Plan for American Co-operative Banks 239 

Why Limit Share Holdings? 

5. It is important to strictly limit the maximum number 
of shares which any one individual may own in a people's bank, 
so as to preserve its purely co-operative features. This is in 
direct contrast to a capitalistic bank, where a few individuals 
may own all or most of the stock. 

By having membership confined to natural persons only, 
we at once "nip in the bud" any tendency toward consolidation, 
monopoly or manipulation by outside selfish interests. 

Why $5 Shares? 

6. Five dollars has come to be the accepted size of shares 
in co-operative enterprises. It is the general rule in the United 
States, which received this unit from the co-operative stores of 
England, and this size is also characteristic of the Italian peo- 
ple's banks. It is within reach of the humblest, and thus makes 
it easy for the co-operative bank to obtain the largest number of 
members possible among its constituency. 

Because the par value of each share is only $5, by no means 
limits each shareholder to the investment of but $5, for any one 
member may acquire as many as 100 shares, or make a total 
investment up to $500 in the capital stock of the co-operative 

A little share is also within reach of children and young 
people. In hundreds of these little banks, every member of 
every family will be a shareholder, to the advantage of the 
family, the bank and the community. It is true that in capital- 
istic banks, both national and state, the par value of the share 
is $100, but that is no excuse for debarring the people from the 
great advantage of shares of a par value of $5 each. 

Why Double Liability? 

7. For fifty years, stockholders in national banks have been 
subject to double liability, although state banks do not usually 
impose the double liability upon their shareholders. The added 


People's American Co-operative Banks 

stability imparted to the national bank by reason of this require- 
ment is not the least of its advantages over state banks, at least 
in some commonwealths. 

The American people do not object to this double liability. 
It is a cardinal feature of the national banking system, and 
should be made use of in these co-operative banks, so that they 
may be established on the same basis as other nationals. Ameri- 
cans are unalterably opposed to the joint and several unlimited 
liability so common among the co-operative banks in Europe. 

Why Not Restrict Powers? 

8. The little bank being organized with broad powers, 
will proceed to transact its business and work out for itself its 
own salvation along the lines which will best serve its constitu- 
ents. Not to be tied down by unnecessary redtape or bureau- 
cratism on the one hand, yet on the other to be supervised most 
rigidly and given the benefit of affiliation with and education by 
existing banks ! 


.„J''Si„mJ1!!i."'°,';''' ■" ■*'"' "'*'• •«'"'»»»■ <"•• '■'•'' Don't let Its llfeblooil ooze awoy. Many a bank, 

for dlvldeods. It! earnings and proflf. should roll as well as many a business, has gone to Dilces 

.".L '"»!■' .."";".'"' ."^'rl.* """^ "'>'■ *"" *• '"■ "» "•» accumulating a reU™ On the othTr han" 

Jf. ^r*? "' "'»"''°""'" '"'I- "»•"" ""»t"« »•■• "•« reserves should be wisely but freely used when 
™ "<"'"■ the rainy day comes. 

Plan for American Co-operative Banks 241 

With such flexibility, the bank at the South, in the cotton 
region, can adapt its methods to the peculiar conditions of its 
environment; in the eastern states, among the little rural com- 
munities with their varied industries, co-operative banks will 
operate in quite a different way; the interests of the people of 
small means among city working men who have little banks, will 
require still different treatment; and so it will be all over the 

Let the law confine itself to fundamental principles, and 
leave each bank free in working out the details of its business, 
whether in country or town. But when the co-operative reaches 
$25,000 in capital, or more, it must be subject to all the rules that 
apply to such larger banks, and may then issue credit currency 
(national bank notes). No favoritism is asked for the co- 
operatives — simply a fair chance. 

Why Permit Mortgages? 

9. There is no better security for a considerable proportion 
of the savings deposits of any bank, small or large, than well- 
secured first mortgages upon farms and homes. For while these 
little banks are local agencies for the national land bank in their 
state, they should be free themselves to invest in mortgages; 
because ere long their savings deposits and surplus will be so 
large as to seek this outlet. Avoid restricting the bank's activi- 
ties ; make it as easy as possible for people to borrow money on 
their farms and homes, so that even the humblest person may 
acquire an establishment of his own. 

10. When the co-operative bank reaches a size, as meas- 
ured by its capitalization, equal to that prescribed by the national 
law for a capitalistic bank, it should possess the same privileges, 
rights, and duties. Let there be equality between the regular 
nationals and co-operative nationals, under equal conditions. 

Why 25 Per Cent of Capital in Land Reserve? 

1 1. While the national co-operative bank in each locality 
is mainly a bank for personal credit and for current accommo- 

242 People's American Co-operative Banks 

dation, for saving and for loans, and although it is authorized 
to loan some of its savings deposits upon real estate mortgages, 
the bulk of the land mortgage business in its vicinity will proba- 
bly be absorbed by the land bank incorporated under national 
Jaw for its state. The local co-operative bank is to be the local 
agent, local representative and in a sense the local manager for 
the land bank. 

Therefore the local bank should deposit one-fourth of its 
capital in the land reserve for the reason described in the part 
of this work devoted to land mortgage banking. This will also 
disassociate all the other business of the bank from the land 
reserve. Do not mix together current personal credit and per- 
manent mortgage credit. 

Why Limit Dividend? 

12. The provision that no dividend shall be paid until the 
surplus equals 25 per cent of the capital, insures that the bank 
will begin forthwith to accumulate a surplus. Once this habit 
is formed, the surplus will continue to grow, and ere long will 
equal the capital. Many banks will start in by having their 25 
per cent surplus paid up before beginning business. Such sur- 
plus will take the place of the 25 per cent of the capital stock 
which is deposited in the land reserve. 

The proviso that dividends upon shares may never exceed 
by more than one point the rate of interest charged borrowers, 
will have several good results. It will remove all temptations 
of the management to charge high rates for the purpose of earn- 
ing big dividends; this insures a more conservative and safer 
administration, as well as protecting borrowers from extortion. 
The proviso means that if the average rate charged borrowers 
for a given year was 6 per cent, then the total dividend that 
might be paid shareholders for that year could not exceed 7 
per cent. 

The whole object of recommendation 12 is to make each 
bank a financial Gibraltar — feed it with earnings, don't bleed it 
for dividends. Make an investment in its shares absolutely safe 
and let them double in value, as they will if they can earn i per 

Plan for American Co-operative Banks 243 

cent more than borrowers pay ; but in excess thereof, let earnings 
be apportioned on the co-operative basis. 

Why Same Supervision as Nationals? 

13. One of the strongest features of this method is that 
the co-operative bank is to enjoy the priceless advantages of 
government regulation, fe'deral supervision and public control 
which experience has proven to be so efficacious in the national 
banking system. 

When the co-operative reaches the dignity of size required 
for a regular national bank, then the former should be entitled 
to membership in the local clearing house; during its earlier 
and smaller stage, it should "clear" through the regular national 
bank which is its correspondent. This is important, to insure 
that country checks shall have validity and force, so as to forever 
do away with the discriminating charges for collecting country 

Even the humblest little co-operative bank would thus be- 
come indirectly affiliated with the American Reserve Union, 
and would look forward to the time when it was directly a mem- 
ber thereof; thus it would be part and parcel of the American 
fiscal system, and not an isolated and separate unit. In every 
way it would be "run just like a bank." 

Why and How Educational? 

14. Shareholders, directors and officers of these little peo- 
ple's banks could quickly educate themselves in the essentials 
necessary to the largest success in the management of their insti- 
tution. Not the least of the wonderful characteristics of the 
American people is their ability thus to adapt themselves, grasp 
ideas and methods, and to improve upon them. 

These little banks will be quick to cater to the small bor- 
rower, for that is one of their original purposes. They know 
that while capitalistic banks are "gunning for deposits," such 
banks are not equally solicitous for petty loans. Too often their 
scheme is to get the little people's money, in order to loan it to 


People's American Co-operative Banks 

the big fellows in big business, or for use in speculation on the 
stock exchange. Some of our large commercial bankers have 
no conception of the manner in which a great institution like the 
Bank of France, for instance, caters to small borrowers as well as 
to small depositors; it buys millions of acceptances or other 
forms of petty loans in amounts from $io to $50. Because con- 
ditions of the people and of business are so much different in 
America, that class of business is naturally the function of the 
little co-operative banks proposed. 

One of the most efficient means for instituting national 
co-operative banks will be for the little state banks to reorganize 
as co-operatives. Their customers and the other people in the 
vicinity in many cases will be glad to join a co-operative corpora- 
tion to thus take over a small bank which is established and doing 
some business. 

By so doing the new organization starts with an old estab- 
lished business, upon which it can readily build a larger success. 
Of course, the price paid by the buyer to the seller would have 
to be a very conservative one, because in these cases the buyers 

represent practically all the cus- 
tomers. If they cannot buy out 
at a fair price the little bank with 
which they have been doing busi- 
ness, they can start one of their 
own at but slightly increased 
expense of money and labor. 

It will be to the advantage of 
both parties therefore to get to- 
gether upon reasonable terms, 
especially if the management of 
the little state bank is of a char- 
acter that the new institution 
would wish to continue. One of 
the principles of co-operation is 
for consumers to thus take over 
the agencies that supply their needs rather than unnecessarily 
multiply such agencies by starting new banks or stores. 


One of the main propositions In each and every 
people's bank, whether under national or state 
law, should be to make It solid. Keep the In- 
stitution strong by adding to Its surplus Instead 
of trying to pay large dividends. Increase In 
surplus means decrease In liability to shareholders 
and greater security to depositors. There Is a 
wealth of advantages, and no disadvantages, to 
the policy that makes a bank Impregnable. 


Co'operative Finance 

Part Six 

An American Land Mortgage 
Banking System 

Contents of this Part 

Chapter XXV I J— Elements of Land Banking 


No adequate system for mobilizing land credits 247 Disastrous fluctuations in value of New York 

A nation of depositors, not investors 248 and Berlin property 250 

The great need of agriculture 249 Mortgage needs of agriculture 251 

Farms better security than town real estate 250 Mobilizing long term loans on rural property 251 

The three elements involved 252 

Chapter XXVIII — Co'operation in Jlcqulring Homes 


Marvelous success of the building and loan Growing in numbers and usefulness 256 

association 253 Copied in other countries 256 

Originated and conducted by American work- Strictly confined to limited localities 256 

ing men 253 Miscalled "Nationals" a fraud upon the co- 
Rent pays for the home 253 operative principle 256 
Remarkable record of achievement 255 Merits of the system in towns and cities 257 
Funds come from deposits of wage earners 255 Not adapted to agricultural conditions 258 

Chapter XXIX — European Mortgage Finance 


The German landschaften 259 Why unsatisfactory to farmers 264 

Its land bonds, interest and amortization 260 Important lessons from foreign experience 266 

Co-operative restricted to a single state, run Foreclosure made easy, quick, inexpensive 267 

economically 260 The United States needs a thoroughly 

The Credit Foncier de France 262 American method 267 

Loans, rates, lottery features 262 

Chapter XXX— The Method for America 


Outline of an American method of land mort- Fair inducements to co-operative and other 

gage banking 269 banks to come into the land bank 273 

Adapted to conditions throughout the United Why confine each land bank to a single state? 275 

States 270 Grave importance of the state being the unit 276 

A land bank for each state under national How the land reserve is created 277 

ja^ 270 Why land reserve certificates are attractive 

The LAND RESERVE is inviolate permanent investments 278 

capital 271 Commercial banking distinct from, yet co- 

operates with, land finance 281 

Chapter XXXI— Hotv the Land Bank Operates 


Its membership and co-operative represents- Relation of the local rural bank to the land 

tion therein 282 bank 285 

Land banking kept separate from commercial The farmer's relation to the land bank 287 

banking 282 Great advantage to the farmer 289 

How oreanized and conducted 283 Present rates for interest only may also pay 

, off principal 289 

Chapter XXXII— Benefits to Investors and Others 


Why a land bank's farm bonds are the safest Guarding against historic error 296 

investment 291 A national federation of land banks to issue 

Mav become even better than government bonds 293 bonds for ,the foreign market only 297 

Leeal investment for all savings and trust Land banking must be a development, not a 

funds 294 boom 300 

Will convert tenants into proprietors 295 










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Elements of Land Banking 


Chapter XXVII 

Elements of Land Banking 

Afo adequate system, for mobilizing land credits 

Jt nation of depositors, not investors 

The great need of agriculture 

Farms better security than town real estate 

Disastrous fluctuations in value of Aleui York and Berlin 

Mortgage needs of agriculture 
Mobilizing long term loans on rural property 
The three elements involved 

NE of the gravest defects of the 
American fiscal system heretofore 
has been its failure to mobilize 
what may be termed land credits, 
in contradistinction to personal 
credits or commercial accommo-: 

To borrow money on real 
estate, one has to go to individuals 
or corporations which have the 
actual cash to loan or to invest for 
long time upon real estate security. 
Even when the mortgage is nego- 
tiated, there are no facilities 
whereby the lender may rediscount 
the mortgage in case the lender desires more funds for any 

America has no general system whereby mortgage securities 
may be readily rendered marketable and available, or may be 
converted into a form in which the mortgage could be conveni- 
ently used for collateral or sold for cash. We have had no sys- 
tem whereby the great bulk of people who have small sums to 
invest might put their money into land mortgage bonds or similar 
instruments secured by mortgages on first-class real estate. 

stick a Pin Hera 

248 An American Land Mortgage Banking System 

Americans Depositors, J^ot Investors 

Hence America is a nation of depositors, who place their 
money in savings banks and other institutions that loan it out on 
mortgage or employ it otherwise : whereas France and Germany 
are nations composed largely of investors rather than depositors, 
because the individual people there invest freely in land mort- 
gage bonds, which are sold in small denominations and with such 
safeguards as to make them one of the most popular forms of 

Stick a pin here: Because our people are depositors instead 
of investors, our billions of savings deposits help to swell the 
vast resources available for gambling in stocks and commodities. 
The consequences are trusts and swollen fortunes for the few, 
less production and increased expenses for' the many. The evil 
is flagrantly apparent when funds which should be available for 
investment in mortgages upon farms and homes, are nefariously 
employed in non-productive speculation. 

Present and Past Types Not the Thing 

It is true that we have in America a few large trust com- 
panies which have realized this need, and have used their mort- 
gage loans as the basis for an issue of debentures in small denomi- 
nations. The latter are guaranteed principal and interest by the 
trust company and are sold throughout the world. But their 
mortgages are placed mainly in New York city and vicinity, 
and their purpose is private profit to the stockholders of the 
trust companies rather than to furnish funds to borrowers at 
the lowest possible rates of interest consistent with safety, in 
order to supply lenders with an investment as attractive in every 
respect as government bonds of the highest type. These institu- 
tions lack the rigorous public supervision which is an essential 
feature of a comprehensive land-banking method. 

One of the earliest efforts to mobilize American farm mort- 
gages for the profit of the middleman was made by the Lombard 
investment company, which many years ago sold in the East its 
debentures drawing high rates of interest and secured by mort- 
gages on Kansas farms at still higher rates. Being subject to no 

Elements of Land Banking 249 

supervision, it induced farmers to. borrow more money than they 
could advantageously employ or be sure to pay back, and in spite 
of the enormous margin for profit and expenses between the 
borrower and the lender who bought the bonds, the final result 
was disastrous failure. 

The Great J^eed of Agriculture 

Agriculture has languished in America, of late years, partly 
because the increasing value of land and the greater cost of its 
cultivation require the employment of more capital than the 
farmer can afford to pay the current high rates for. In many 
cases it has been quite impossible for the farmer to borrow any 
reasonable amount upon his land, even at this high interest. The 
lower the rate upon farm mortgages, the less is the cost of pro- 
ducing food products, and therefore the lower will be the cost 
of living. 

At present the average rate of interest on farm mortgages 
in the United States, taking the country as a whole, is nearly 
twice as much as the income produced by national or state bonds. 
The average interest per year upon $1,000, in the case of United 
States bonds, as Yoakum has pointed out, is only $20, call loans 
at New York $25, time loans $36, commercial paper $41, French 
farm mortgages $43, German farm mortgages $44, strong rail- 
road bonds $46, best public utilities $50, city mortgages $50, best 
industrials $55, average industrials $65, mortgages upon Arab 
farms in Egypt $80, American farm mortgages $85 ! President 
Taf t thus summed up the situation : 

"The 12,000,000 farmers of the United States 
add each year to the national wealth $8,400,000,- 
000. They are doing this on a borrowed capital of 
$6,040,000,000. On this sum they pay annually 
interest charges of $510,000,000. Counting com- 
missions and renewal charges, the interest rate 
paid by the farmer of this country is averaged at 
8>4 per cent, as compared to a rate of 4J4 to 3^ 
per cent paid by the farmer, for instance, of France 
or Germany. 

"Again, the interest rate paid by the American 


An American Land Mortgage Banking System 

farmer is considerably higher than that paid by our 
industrial corporations, railroads or municipali- 
ties. Yet, I think, it will be admitted that the 
security offered by the farmer in his farm lands is 
quite as sound as that offered by industrial corpora- 
tions. Why, then, will not the investor furnish the 
farmer with money at as advantageous rates as he is 
willing to supply it to the industrial corporations? 
Obviously, the advantage enjoyed by the industrial 
corporation lies in the financial machinery at its 
command, which permits it to place its offer before 
the investor in a more attractive and more readily 
negotiable form. The farmer lacks this machin- 
ery, and lacking it, he suffers unreasonably." 

And at the highest rate of all, the American farmer may 
have greater difficulty in obtaining a mortgage than any of these 
other borrowers. Yet he is notoriously responsible and sure to 

Farms Better Security Than Town Real Estate 

Usually the rate is much higher on American farm mort- 
gages than upon city real estate. Hence the unhealthy develop- 
ment of cities at the expense of the country. Yet intrinsically, 
economically, and actually the farm loan is the safer. In all 
well-settled regions, farm values are not so liable to change and 
decline as are the values of city real estate. Moreover, as the 
agricultural industry yields products that are always in demand 
for actual consumption, the land and its use constitute a funda- 
mentally better security than city real estate and commercial 

The violent changes in the values of real estate even in the 
metropolis of New York, during the past five, ten and twenty 

ComnwrcM French Germut Strong 

Piptr Farms firms Railroad 

Onlted Stales Bonds 

(From B. F. YoBkum'i article In the World'e Work for September, 1912— Copyright) 

Elements of Land Banking 


years, demonstrate this truth. There are said to be acres of 
vacant space in the old-fashioned buildings and lofts in certain 
sections of New York city, whose tenants have deserted them 
for more modern structures equipped with every convenience. 

Under an adequate system of mobilization, therefore, farm 
land credits should attract capital at a lower rate of interest than 
city real estate. 

Precisely this result has occurred in Europe, where the 
farmer borrows money upon the security of his farm at a lower 
rate than is charged upon city property. Whereas the Saxony 
farmer can now get money on mortgage at 4 per cent interest, 
the rate upon central business property and upon residences in 
the growing city of Halle, the thriving capital of that province, 
at present is 4J/2 to 5 per cent. 

In other words, the German farmer, through co-operative 
effort, gets mortgage money one-tenth to one-fifth cheaper than 
can city property. The recent over-speculation in Berlin real 
estate is fresh evidence of the truth here emphasized. 

How the American wage earner has solved this problem 
is described in the next chapter. But while the co-operative 
building and loan association is ideal for those in receipt of 
wages regularly, for that very reason it is not generally applica- 
ble to farmers. The financial returns from agriculture are 
irregular as to date and amount, though usually assured in the 
course of the year. The farmer must obtain such permanent 
capital as he needs to borrow, upon terms that not only are rea- 
sonable as to interest, but also both reasonable and convenient as 
to payments upon the principal. 

Americni Firm 



An American Land Mortgage Banking System 

The Three Elements Involved 

How to do this, while also encouraging thrift, prosperity 
and patriotism among all the people, has been demonstrated by 
nearly 150 years of successful experience in Europe. The 
methods there vary in detail, but all are based upon these prin- 
ciples, which must be employed also in the United States : 

I- Loans are made upon farms, sometimes 
upon other improved and productive real estate, 
upon an ample margin of safety. The principal 
is reduced by small annual payments (amortiza- 

2. Upon the secur- 
ity of such mortgages, 
bonds or debentures are 
issued in small or large 
denominations, which are 
sold to the public, and 
thus are secured the funds 
needed by the borrowers. 

3. The rate of in- 
terest exacted of borrow- 
ers is comparatively low, 
and the interest yield of 
these farm mortgage 
bonds is correspondingly 
low, but the whole matter 
is so co-operatively and 
efficiently rganized, 
managed and publicly 
supervised, that expenses 
are reduced to a mini- 
mum, middlemen's prof- 

Old Uncle Sam remarks; "Now we farmers 
have got something solid to sit on, haven't we? 
And say, you can see now why the farm bonds 
issued by the oationai iand banic of this state 
are as good even as my government bonds!" 

its are eliminated, and these securities vie with 
government bonds in popularity, salability and 
stability as the safest form of investment. 

Go-Operation in Acquiring Homes 253 

Chapter XXVIII 

Co-operation in Acquiring Homes 

Maroelous success of the building and loan association 

Originated and conducted by American working men 

Rent pays for the home 

Remarkable record of achievement 

Funds come from deposits of wage'earners 

Growing In numbers and usefulness 

Copied In other countries 

Strictly confined to limited localities 

Miscalled "Nationals" not on the co'operatlue principle 

Merits of the system in towns and cities 

Not adapted to agricultural conditions 

rHE American working man has partly solved this prob- 
lem of furnishing capital for home owning, through the 
beautifully efficient system of co-operative building and 
loan associations, which was originated in the United States and 
has developed to its highest perfection in this country. 

It has proven to be the best method for enabling the salaried 
and wage-earning classes to own their own homes. Its results 
for our wage-earners compare favorably with the accomplish- 
ments of co-operative finance in Europe, or of co-operative dis- 
tribution in England. It has been widely imitated in other 
countries, yet operates with such silent effectiveness that millions 
of the American people never heard of it; and it is seldom even 
mentioned in the books and debates on finance ! 

The system is based on the fundamental fact that the rent 
paid by the average family in town or city is sufficient to buy 
and pay for their own home in ten to twelve or fifteen years, after 
which they own it free and clear. The rate of interest now paid 
upon such mortgages varies from 5 to 7 per cent net. 

Building and Loan Association 

The institution referred to is usually called a building and 
loan association, sometimes the homestead bank, or the savings 


An American Land Mortgage Banking System 

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Co-operation in Acquiring Homes 255 

and loan bank, or building society; only in Massachusetts is it 
called a co-operative bank. It is more successful in America 
than elsewhere. 

Some 6,000 of these local societies to encourage home- 
ownership exist in the United States, with about 2,250,000 mem- 
bers, and with assets in excess of one billion dollars. Probably 
half a million homes have been paid for in this way, and perhaps 
as many more are now being acquired by their owners through 
this system. 

With the improved management now in vogue, these socie- 
ties are rapidly increasing their membership and usefulness. 
Pennsylvania has 1,500 of these people's institutions for home- 
ownership, with nearly $200,000,000 of assets and over 400,000 
members. Ohio, New Jersey and Illinois each have over 500 
of these banks. Their assets in Ohio are almost as great as in 
Pennsylvania, while in each of several other states these little 
but effective institutions have a total of from 50 to 100 millions of 
dollars in assets, vin 1882, the writer assisted in establishing 
these societies in a state which already has about 50 of them, 
with over $65,000,000 of resources, and their number and assets 
bid fair to double during the next decade. In co-operation, 
as in capitalism, nothing succeeds like success. 

Wage-Earners' Savings 

The capital employed by building and loan associations is 
practically all deposited by working men in monthly dues, and 
loaned to working men for the purpose of paying for homes. 
The loan is secured by a first mortgage, which is taken for as 
high as 80 per cent of the value of the property. The loan is 
paid off in monthly installments of principal and interest, which 
makes even a large proportion of the total value of the mort- 
gaged property a safe loan. 

On each $200 borrowed, the borrower pays $1 monthly 
upon the principal over and above the interest. The money 
thus paid in begins to draw interest at once, and this helps to 
gradually reduce the principal owed, so that at 6 per cent the 
loan is paid off in about 140 months. 

2^6 An American Land Mortgage Banking System 

Growing Everywhere 

Thousands of families have paid for their homes in this 
way. Philadelphia is largely built up through this system. 
That one city alone has nearly 800 of these co-operative build- 
ing and loan associations, with over $90,000,000 of assets, or 
nearly $60,000,000 more than the combined capital of all the 
national banks in Philadelphia! 

Most of the states exempt these institutions from some or all 
kinds of taxes. 

Nothing in the history of the world is of more benefit to the 
working man than the lessons of thrift that are given by these 
co-operative banks. 

England has about 1,600 similar banks, with assets of $330,- 
000,000, but only of recent years has this method been developed 
to any large extent in European countries. Germany took up the 
idea from America a dozen years ago, and has now about a 
thousand of such banks, with 75,000 members who have built 
about 20,000 homes. 

In America, more than thirty-five states have institutions of 
this character. Twelve states have leagues of these co-operative 
banks, and these leagues are united in a national organization. 

Strictly Confined to a Limited Locality 

The state leagues of building and loan associations admit 
only local societies that are strictly confined to a limited territory. 

Some years ago, the miscalled "national" building and loan 
associations were exploited for private profit, under state char- 
ters without public supervision, and having no" relation with or 
responsibility to the national government. In most cases they 
resulted disastrously, because they violated some or all of the 
principles of co-operation and of sound finance. The operations 
of some of these "nationals" were so notorious that some states 
prohibited them entirely. 

Such nationals were leeches upon the principle of co- 
operative building and loan associations, just as promoters and 

Go-Operation in Acquiring Homes 


middlemen now seek to fasten themselves upon the American 
co-operative land mortgage system advocated in this vi^ork. That 
whole ilk must be kept out of the co-operative movement. 

Merits of the System 

These building and loan associations have proven to be 
absolutely safe, even during times of depression and panic ; they 
are economically managed, and are worthy of universal support 
and encouragement. In establishing and conducting them, the 
United States has led the world. They ideally serve families 
who enjoy a regular income. They are typical of what can be 
accomplished through co-operative finance for home-ownership, 
by "the common people." 

Yet this is the first book to point out the bearing these insti- 
tutions have upon a general reform of the American fiscal sys- 
tem. Much has been said and done to inform the American 
people about co-operative finance in Europe, but hardly a word 
has been uttered to direct attention to the amazing fact that right 
here at home we have a type of co-operative bank which is an 
object lesson to the world. 



The local co-operative building and loan association years ago proved so successful for thrifty working 
men. that promoters started the miscalled "national" building and loan associations. In many Instances, 
suoh a promoter misled the citizen into doing business with the so-called "national," Instead of sticking 
to Ihe legitimately managed and properly conducted local building and loan association, in some com- 
monwealths the state intervened and drove out of business these mis-called "nationals." The dismay of the 
promoter can be readily imagined, when the state steps in to protect its citizen from being exploited. 

The working man thanks the state and remarks: "Queer how these fakers try to exploit it as soon 
as wo work up a good thing for ourselves." 

258 An American Land Mortgage Banking System 

Through these institutions the "average working man" has 
shown the willingness to serve, the patriotic idealism, the execu- 
tive capacity, and the business ability which are the elements 
of co-operative success. 

The building and loan association should become universal 
in cities and towns. It has proven to be just the right thing in 
just the right place for people who are receiving wages or sala- 
ries regularly. For this very reason it is not applicable to 
farmers generally, though in a few instances farmers have em- 
ployed successfully the system of the savings and loan associa- 
tion, notably in St. Lawrence County, New York. 

I believe that for the vast majority of home-desiring people 
in cities and towns, the building and loan association is a better 
plan than the mortgage-and-bond method required by rural 
conditions. The former type should continue to be under state 
laws, but these laws can be improved greatly in some of the 
states. The national and state leagues of building and loan asso- 
ciations may well be more aggressive and efficient in their 
propaganda, especially at this time when general interest is so 
keen in every phase of co-operative finance. 

Each of the four legs Is equally important. 

European Mortgage Finance 259 

Chapter XXIX 

European Mortgage Finance 

The German landschaften 

Its land bonds, interest and amortization 

Co-operative, restricted to a single state, run economically 

The Credit Fonder de France 

Loans, rates, lottery features 

Why unsatisfactory to farmers 

Important lessons from foreign experience 

Foreclosure made easy, quick, inexpensive 

The United States needs a thoroughly Jtmerican method 

THE German landschaften is the oldest type of successful 
land mortgage banking co-operatively conducted for the 
mutual benefit of borrowers and lenders without profit 
to promoters. The borrowers unite in an association to issue 
bonds secured by the mortgages upon their farms. These bonds 
yielding 4 per cent now sell at par, although money is now dear 
in that country; formerly, they commanded par when the rate 
was only 3 to 3^ per cent. These pfandbrief, or land bonds, 
are not only a legal investment, but are the popular investment 
for trust funds, savings banks, etc.. as well as for thrifty 

If the pfandbrief at 4 per cent commands par, the farmer 
pays 5 per cent yearly upon his mortgage, or $50 upon each $1,000 
of his loan. Of this yearly payment, $40 covers the 4 per cent 
interest, $7.50 is annually applied upon the principal (amortiza- 
tion), and $2.50 goes to the landschaften for its expenses. This 
latter one-quarter of i per cent annually affords a large surplus 
to the landschaften over and above its extraordinarily modest ex- 
penses, it makes earnings from its other funds, and after setting 
aside ample reserves, the profits remaining are available for 
dividends upon capital, or to borrowers as profit-sharing divi- 
dends to be applied upon their debt. 

26o An American Land Mortgage Banking System 

Cheap Money for Long Periods 

Thus it is that, while it takes about 46 years for $7.50 paid 
in annually and compounded at 4 per cent to reach $1,000 and 
pay off the debt, in the Saxony landschaften the farmer's mort- 
gage usually is paid off in 25 to 35 years, although his amortiza- 
tion payments and contributions toward expenses seldom exceed 
I per cent annually upon the principal of the debt. The last few 
installments on a mortgage may be anticipated, and this tends to 
reduce the average life of a mortgage to about 25 years. 

When money sells at 3 per cent, the farmer's mortgage is 
wiped out in 25 to 40 years by total annual payments (interest 
and amortization) of 4 per cent upon the amount. If interest 
is 3J/^ per cent, his total payment is 4J4 per cent; or if money 
is worth 4 per cent, as at present, the farmer's debt is liquidated 
by annual dues of 5 per cent. If he borrows at 4 per cent inter- 
est, and later on money drops to 3^ per cent or 3 per cent, the 
farmer can refund at the lower rate that portion of his debt then 

The borrower does not receive cash from the landschaften, 
but instead receives pfandbriefs, which he proceeds to sell and 
thus realizes the cash. As a matter of fact, the debentures are 
usually handed to him at one desk, and are cashed by the bor- 
rower at another desk in the banking or sales department of the 
same institution, which proceeds to sell the issue through the 
usual channels. 

Confined to a Single State 

A landschaften usually confines its operations to a single 
province or smaller area. It is a co-operative institution under 
public supervision. It cannot refuse to make a loan to a farmer- 
member, but it cannot be forced to make a larger loan than its 
judgment dictates is wise and safe. It has to compete with other 
institutions and individuals who loan money to farmers. In 
some of the eastern provinces, the landschaften has negotiated 
from one-third to one-half or more of all the mortgages now 
outstanding on agricultural real estate; in western Germany 
this system has made no such progress. 

European M o r t g a g e Finance 


Provided the landschaften furnishes farmers with money at 
lower rates, or gives them better service than do other lenders, 
it gradually absorbs a larger and larger proportion of the farm 
mortgage business, but never expects to get it all. Its business 
usually is confined to farm mortgages, for either large or small 
estates, or both, but special effort is made to encourage the little 
cultivator, who has only three to ten acres or so. 

Earnings and Expenses 

Some landschaften are not run for profit upon capital, which 
is small relative to its outstanding debentures, but after not to 
exceed 4 per cent interest has 
been paid on its capital and re- 
serve funds, any profit remain- 
ing is added to reserves, until the 
reserve accumulation against 
each mortgage reaches 5 per 
cent thereof, when a part may be 
credited as a small dividend 
upon the debts due from bor- 

The operating cost <is so 
small as to amaze the American. 
Only the head men and em- 
ployees whose time is wholly 
devoted to the landschaften are 
paid ; committees and local rep- 
resentatives serve without com- 
pensation, such positions being 
esteemed highly honorable. In 
some instances, the total expenses 
consume less than half of the 
one- fourth of r per cent received 
annually upon loans for the ex- 
pense fund. Yet the institution 
usually owns and occupies a 
large building, with offices, 
committee rooms and assembly 


In this chart each dot represents a co-operative 
rural bank or other form of associated effort among 
farmers. This German province Is a trifle larger 
than the state of Connecticut and has nearly five times 
the population, twice as many acres of Improved 
land and nearly four times the population per square 
mile. Such results are largely due to co-operative 
finance. Connecticut has so few of such Institutions 
that dots on It would hardly show at all. The Uni- 
versity of Halle Is the first In the world to have a 
seminar on co-operation. I was deeply edified and 
greatly helped by my personal experiences and In- 
vestigations in Saxony, assisted by Prof. H. C. Price. 

262 An American Land Mortgage Banking System 

hall ample for their purpose, conveniently arranged, simply but 
artistically furnished, and possessing an atmosphere of stability 
and dignity that reflect good agriculture and sound finance. 

Rigorous Supervision 

An effective body of law exists for so governing these insti- 
tutions that their methods and securities command universal 

The capital and reserves must alw^ays equal 5 per cent of 
the outstanding obligations. In other words, experience in these 
institutions under German conditions proves that for each $1,000 
of permanent funds — capital stock and reserves — the landschaft- 
en may guarantee the principal and interest upon $20,000 of 
land bonds, which are secured by the deposit with it of properly 
selected farm mortgages to the amount of $20,000, such property 
to be fairly worth from $30,000 to $40,000. 

The French Land Mortgage Society 

In France, a more centralized system is in vogue. The 
Credit Foncier de France (fon-ce-ay') is a corporation with 
$40,000,000 capital stock, in shares of $100 each, controlled by 
the 200 members who own the largest amount of stock, and they 
elect the directors, although the government appoints its gover- 
nor and two sub-governors. After paying 5 per cent dividends, 
not less than 5 per cent nor more than 20 per cent of the earnings 
go to reserves, which are now upward of $20,000,000, so that its 
shares are worth around $165. The debentures it has outstand- 
ing are approaching $1,000,000,000, so that the reserves (capital 
and surplus) are a trifle over 5 per cent of the obligations. Six- 
tenths of I per cent is allowed for expenses, or much more than 
in Germany. The Credit Foncier is run mainly for profit to its 

Loans and Amortization 

It loans money to cities and towns, also on farms and homes. 
Short-time mortgages run from one to nine years, all the prin- 

European Mortgage Finance 263 

cipal being payable at maturity. Long-time mortgages, with 
annual amortization, run from ten to 75 years, according as the 
borrower may prefer. Loans are made only upon productive 
real estate to not exceed half its value, and this limit is reduced 
to only one-third the value of vineyards, woods or similar more 
risky real estate. The rate of interest paid by the farm borrower 
is usually 4 to 4^ per cent. 

The amortization, or annual installment upon the principal, 
"extends over the whole period of the loan, so that the total of the 
interest and capital is repaid from a constant yearly annuity. 
Consequently, the cost of amortization depends on the length of 
the loan and on the rate of interest. On a loan running for 75 
years, at 4.3 per cent interest, the annuity or total payment to be 
made each year, including interest and amortization, is at the 
rate of 4.48 per cent per annum. The borrower has the right to 
pay the principal of the loan at any time and to profit by the 
amortization already made. He can also make partial pay- 
ments and thereby reduce the amount of the annuity." 

The miracle of compound interest makes possible the wip- 
ing out of principal of a debt "practically without feeling it." 
The small sum of one dollar paid annually and compounded at 
only 4 per cent amounts to $131.94 in 46 years. Thus it is that 
a payment of only $7.50 each year upon the principal of a mort- 
gage for $1,000, will wipe out the mortgage in full in just about 
46 years, if this payment is compounded at 4 per cent annually. 

Sells Bonds with Lottery Prizes 

The Credit Foncier obtains money to loan by selling bonds 
on the security of the mortgages it holds. These real estate 
bonds, like the German pfandbriefs, have no fixed maturity, be- 
ing similar to foreign consols in this respect, but are called for 
payment by lot. "Each payment of bonds must be of such an 
amount that the bonds remaining in circulation will not exceed 
the balance of the principal owed upon the hypothecated loans. 
The funds received from the usual amortization, or anticipated 
payments, must be used to amortize or redeem bonds, or to make 
new loans. In general, the bonds bear 3 per cent on their par 

264 An American Land Mortgage Banking System 

value, and the cost of the loans to the company, including inter- 
est, prizes and amortization, is about 3.6 per cent, which places 
them on a par with municipal bonds." 

The bonds are sold in small denominations at public sub- 
scription, interest in which is stimulated by the system of prizes 
and premiums that so appeals to the lottery instinct of the thrifty 
French. About every three years, the company issues bonds 
sufficient to yield from $50,000,000 to $75,000,000, and the 
amount is usually many times over-subscribed, partly because of 
their lottery feature. The bonds are bought mainly by people 
of small means, and usually remain in their hands; consequently 
the quotations of the bonds show little fluctuations. The secret 
of the marketability of these securities bearing only 3 per cent 
lies in the lottery principle, which is contrary to American prac- 
tice and illegal here. Moreover, some of the prizes are not paid 
until the debentures are redeemed, which causes the investor to 
hold on to them. A debenture for $1,000 recently drew a prize 
of $50,000! 

Not Satisfactory to Farmers 

Although the Credit Foncier does business all over France, 
it transacts only a fraction of the total farm mortgages in that 
country. The larger part of its loans are to cities and towns, 
upon the security of their public bonds. Of its loans secured by 
mortgages upon private property, from the time it began busi- 
ness until the close of 191 1, there were 122,000 loans, amounting 
to $935,000,000 upon city property and only 48,500 loans for 
$246,000,000 upon rural property, not all of the latter being 

It is not surprising, therefore, to find much dissatisfaction 
among French farmers with the Credit Foncier, and their com- 
plaint is justified that it does not serve agriculture with any 
such efficiency and singleness of purpose as characterizes the 
landschaften system. 

So widespread is this dissatisfaction, that other attempts are 
being made to provide the farmers with cheap capital, through 
the Credit Agricole, and also through a system of local and 

European Mortgage Finance 


regional banks subsidized by the government and fed by funds 
obtained by taxing the Bank of France. But there is now com- 
plaint of politics and favoritism in administering the subsidy — 
the fault common to all schemes that aim to do for the people 
what they should do for themselves. 

Moreover, France is relatively small, being only about 
three-quarters as large as our single state of Texas. The French 
people are trained to a 
highly centralized form 
of government and of 
administration, and 
therefore a mortgage 
company may do suc- 
cessful business all over 
that country so limited 
in area and in variety of 
conditions. "Paris is 
France, and France is 

German experience 
proves that the provin- 
cial landschaften, op- 
erating in a restricted 
territory, is more suc- 
cessful and its bonds 
sell better than do the 
securities of the national 


. 1 1 J t^ Zx. ^" °^ France Is only about three-quarters the size of our single 

or imperial landSCnait- state of Texas. French farmers oemplain that the Credit Fonder 

rpi 1^4-+^i- *\f\r\n\ **' ^™""* **°^* ""* properly provide for thelp Interests. It Is not 

en. 1 ne latier prinCl- what the Umted states needs. 

pie has been a distinct 

disappointment, even in centralized Germany, and should not be 

applied in the United States, with our vast areas and infinite 

variety of conditions. Nor do we want to imitate the French 


The Credit Foncier is centralized mortgage banking, 
largely with cities and upon town property, for profit to stock- 
holders. The landschaften is decentralized finance, mainly for 
mortgaging farms, and is operated in the interest of borrowers. 

266 An American Land Mortgage Banking System 

Lessons of Foreign Systems 

These two systems of mobilizing land credits are typical of 
the methods employed over much of Europe. Wherever wisely 
managed, they have been uniformly successful. This method is 
so simple, so reliable, so safe, that these German farm bonds, 
or debentures of the Credit Foncier of France, sell as freely as 
government bonds, and usually command almost as high prices. 

Provided the rate of interest is the same, the farm bonds 
issued by the provincial landschaften sell at within from one to 
three points of the price commanded by German imperial gov- 
ernment bonds. In case of war, these pfandbrief may sell higher 
than government bonds, because investors feel that even if the 
government is defeated and its securities depressed, the land 
remains, the people must be fed, and the farmers can always pay 
their interest. 

There are numerous modifications of the above two plans. 
Some nations administer the mortgage business through a bank, 
but by means of advances made directly from the government 
treasury. Or the imperial treasury, and also the provincial 
treasury^ may subscribe for capital stock, or may make a large 
investment in the reserve fund of the mortgage bank. In the 
latter case, however, the government merely reserves oversight, 
and the institution is controlled by the borrowers — each mort- 
gagor having one vote, which elects the directors who manage 
the business. 

This co-operative principle is at the basis of the land mort- 
gage banks of Germany, Holland, Belgium, Austria and other 
European countries, with the possible exception of France, 
although it prevails in the latter republic also. 

While some grant of public funds may be made to the land- 
schaften for its permanent reserve or original working capital, 
the law strictly provides for the accumulation of further reserves, 
and puts the management and responsibility for these institutions 
squarely upon the shoulders of the borrowers for whose benefit 
they are intended. The laws, imperial and provincial, under 
which these concerns are conducted, provide for every detail 
of the administration, and are most rigidly enforced, so that 

European Mortgage Finance 267 

it is utterly impossible for the society to abuse its privileges, or 
commit fraud with any mortgage or utter securities except those 
whose value and safety are insured. 

Ease of Foreclosure 

One vital feature in European co-operative mortgage 
finance, is the law whereby the lending corporation may fore- 
close upon the mortgaged property in case the borrower de- 

This so adds to the security of the mortgage as to partly 
account for the low rate acceptable to investors in the bonds. 
They know the company can realize upon the property in case 
of need, without the manifold delays usually imposed by law 
upon mortgage foreclosure. 

The borrower readily accepts these conditions in return for 
the many advantages he receives. 

Our various states should embody similar provisions in their 
laws relating to co-operative mortgage banking. 

United States Needs an American Method 

Important lessons for the United States may be learned 
from the European system of mobilizing farm mortgages, but 
long personal experience in studying into their methods and 
intimate knowledge of agricultural conditions throughout 
America, lead to the conclusion that here in the United States 
we must not slavishly imitate these foreign systems, though we 
may profit by them in working out a perfected method of land 
mortgage banking which shall be perfectly adapted to American 
requirements. The method is economically sound, legally right, 
socially just, and has everything to commend it, provided it can 
be suitably adapted to American needs. 

My own views also are fully confirmed by the observations 
of Myron T. Herrick, whose words should sink in deeply : 

"Several conditions must be observed if organ- 
izations for the loaning of funds to land owners in 
this country are to be successful. The associations 


An American Land Mortgage Banking System 

must have a large capital. They must be estab- 
lished for the sole purpose of loaning money to 
land owners at low rates and for as long periods 
as possible. 

"There should be no profit to promoters in the 
organization of such corporations, and their return 
to the stockholders must be kept within very rea- 
sonable limits. In other words, the borrowers and 
not the stockholders, should be the chief beneficia- 
ries of the success of the undertaking. The mort- 
gages held by the company should be exempt from 
taxation. Special laws would be needed and pro- 
vision made for thorough examination by state or 
national authority or both." 


It should be modern and convenient, worthily 
dignified and proof against fire, flood, wind, ver- 
min or decay. Besides providing headquarters for 
the iand bank Itself, the building may well house 
offices or quartern of all the state associations 
whose purpose is the promotion of agricuiturv, other 
industries or home economics. 

Since the iand bank deals with securities based 
on land, and since iand supports all other inter- 
ests. It is singularly appropriate that the head- 
quarters of the land bank should also be the head- 
quarters of state organizations whose purpose Is 
the advancement of agriculture and home owner- 
ship. This visible evidence of the union of land 
and home, and of the institutions oonneoted there- 


with, will be a powerful advertisement for that 

Reinforced concrete is an admirable medium for 
such a struoture. i have been greatly pleased by 
our experience with reinforced concrete, in the 
Myriek building shown above. The spirit of that 
structure Is co-operation, mutual confidence, ser- 
vice, happiness, it represents agriculture, home- 
making, education, labor, social welfare, art, 
science. Journalism, manufactures, commerce, man- 
agement, capital. Its architectural motif waa the 
royal palace at Stockholm. The Myrick building 
has a floor area of 7.49 acres, with room for S,000 
co-worker^ and is 283 x 105 feet. It la a Mecca for 
students of modern utiiitarian-artistio architecture. 

The Method for America 269 

Chapter XXX ^^ 

The Method for America 

Outline of an Jtmerican Method of land mortgage banking 

Jtdapted to conditions throughout the United States 

Jt land bank for each state under national law 

The LMND RESERVE is inviolate permanent capital 

Fair inducements to co-operative and other banks to come 

into the land bank 
Why confine each land bank to a single state? 
Grave importance of the state being the unit 
Houf the land reserve is created 

Why land Reserve certificates are attractive investments 
Commercial banking distinct from, yet co'operates with, 

land finance 

Tly^Y method for an American system of land mortgage 
yinf banking is outlined in this chapter. Subject to such 
modifications as experience may suggest, this method is 
adapted to the genius of our people, meets their wants, possesses 
every safeguard of public supervision and ultimate control by 
lawmaking bodies, and yet is entirely independent of politics and 
bureaucratism. While making the largest use of institutions 
which now exist or that may be organized hereafter, the land 
banks are distinct therefrom, yet embody the wisest principles 
of co-operation and supervision, self-interest and representative 
democracy in finance. 

My method is based upon the direct responsibility of the 
individual, promotes better farming and wiser thrift, while en- 
abling these responsible individuals to co-operate for their own 
good, for the benefit of investors and for the general welfare. 
Experience has proven these to be the right principles. They 
imply help for self-help through co-operation, in contrast to 
combination on the one hand, or socialism on the other. 

Only some of the fundamental principles for an American 
co-operative method of land mortgage banking can be outlined 

270 An American Land Mortgage Banking System 

below. The manifold details are to be worked out with great 
care. Much will be learned from experience in conducting land 
banks in this country. Federal and state laws providing for 
and governing land banks and their operations should be sim- 
ple, effective, strict, yet should avoid going into unnecessary 
details, so as to leave these institutions reasonably free to work 
out their own salvation along the lines which experience proves 
to be the best. 

Jidapted to United States Conditions 

The method is strictly co-operative in its representation of 
all parties in interest, yet the finest possible management is 
assured, though with extraordinary economy. There is almost 
no expense to the borrower, and none whatever to the investor, 
except the usual brokerage of one-eighth of i per cent. 

The paramount advantages to banks of such a method for 
securing permanent mortgage obligations in mobile form, will 
induce banks generally to co-operate with the method. Com- 
mercial banks, national or state, feel the need of a means for re- 
discounting or realizing upon their quick assets ; how much more 
they may require that their slow assets, which otherwise might 
be in non-negotiable mortgages upon real estate, may be in a 
form easily negotiated or sold. This beautiful result is achieved 
without involving the commercial bank in any liability, direct or 
indirect, in the land banks or in their obligations, other than a 
small investment in the land reserve. 

My method is designed primarily in the interest of agricul- 
ture, to make loans on farms at reasonable rates, easily obtain- 
able by borrowers, but after a fashion that shall be very attractive 
to lenders and investors. The same plan may be employed for 
urban homes, but for the latter nothing is better than the co- 
operative building and loan association previously described. 

Organization of a Land Bank in Each State Under 

J^ational Law 

I. There shall be a national land bank in and for each 
state, incorporated under the national banking law, which 

The Method for America 271 

should be suitably amended for the purpose. Such institution 
shall be named the "National Land Bank for Nebraska," the 
name changing for the respective states. Each land bank shall 
have a permanent capital reserve, called the "land reserve," de- 
rived from the following sources : 

2. Each national co-operative rural bank (described in 
Part Five of this work) in said state shall deposit 25 per cent 
of its paid up capital stock in the land bank's reserve. 

3. Each of the other national banks in the state shall de- 
posit in said land reserve an amount equal to not less than i per 
cent nor more than 5 per cent of its combined capital stock, sur- 
plus and undivided profits ; but such deposit in excess of i per 
cent shall be subject to the land bank's acceptance. These other 
nationals, subject to said acceptance, may deposit 25 per cent of 
their capital, and thereupon shall participate in other privileges 
and responsibilities accorded the co-operative banks in the land 
bank's mortgage system. 

4. The state itself, any state bank, or any corporate body 
or any individual, may deposit cash in the land bank's capital 
reserve, to such amounts as may be accepted by the land bank's 

5. Whenever a national co-operative rural bank increases 
its capital, or as the capital, surplus and undivided profits of any 
other national bank increase, the above percentages of such in- 
crease shall be deposited in the reserves of the land bank; but 
to protect itself against a plethora of capital reserve, the land 
bank has the privilege of refusing deposits therein. , After its 
surplus equals 50 per cent of its reserve, it also may retire any 
of its reserve upon due notice, provided the amount is replaced 
from its surplus, and the latter does not fall below 50 per cent of 
the land reserve. 

Land Iteserve Is Permanent Capital 

The land bank will issue a certificate to each depositor for 
the amount deposited; when such deposit is increased, the old 
certificate will be surrendered and a new one issued for the full 

272 - An American Land Mortgage Banking System 

amount. Thus, at all times, there will be outstanding only one 
certificate for each depositor in the land bank reserve. 

When issued to a bank or state, this qertificate shall be non- 
transferable, non-negotiable, non-hypothecable ; when issued to 
a natural person, or to a corporation other than a bank, these 
restrictions shall not apply. Land reserve certificates shall be 
free from all taxation whatsoever — national, state or local, and 
shall not even be subject to inheritance taxes. 

A deposit may be withdrawn from the land reserve only as 
follows : 

Upon final liquidation of any bank which is a depositor, or 
of any corporate depositor, that portion of its deposits remaining 
after all its obligations (direct and indirect) to the land bank 
have been paid in full, may be withdrawn or transferred, less a 
pro rata part of any losses which may have occurred. The same 
procedure may be followed in the settlement of the estate of a 
deceased individual depositor, or his certificate may then be 
transferred to his heirs or assigns. But in any case, for any sums 
thus to be withdrawn, the land bank shall not be liable until it 
places an equal sum in its capital reserve, either from its surplus 
or from fresh deposits of outside capital. And no funds may be 
thus transferred to reserve from surplus, except out of the surplus 
which exceeds one-half of the reserve. 

The land reserve is therefore the permanent capital of the 
land bank — its foundation asset, never to be encroached upon 
except to cover such losses as may not be defrayed out of the 
annual revenue or the accumulated surplus from previous years. 
Even the remotely possible withdrawal shall not be permitted 
unless the amount thereof shall have been made good. The cap- 
ital reserve can never be depleted in any way, shape or manner, 
except by outright losses upon the mortgages held by the bank, 
and the safeguards provided are so strict that such losses in 
excess of the surplus revenues are practically impossible. 

Earnings and Safety of Land lleserve 

Land reserve certificates may receive not less than 2 per cent 
nor more than 4 per cent interest per annum, as one of the ex- 

The Method for America 273 

penses of the institution. Net earnings in excess thereof are to 
be carried to surplus account, until the surplus reaches in amount 
25 per cent of the reserve. Then, three-fourths of the excess 
earnings shall be applied to surplus until it amounts to 50 per 
cent of the reserve, and meanwhile the other fourth of the earn- 
ings may be paid out as a co-operative profit-sharing dividend 
only upon such reserve certificates as constitute one-fourth of the 
capital stock of the member-banks. 

When the surplus equals the reserve, the excess earnings 
may be equally divided between surplus, dividends upon reserve 
held by said member-banks, and profit-sharing credits to bor- 
rowers. Such dividends may be distributed in any year until 
the total income upon the reserve certificates specified — interest 
and dividends combined — amounts to not exceeding double the 
fixed rate of interest thereon. In other words, if the rate of in- 
terest on the reserve is fixed at 3 per cent, the certificate held by 
any bank that invested one-fourth of its capital therein may 
receive profit-sharing dividends up to 3 per cent more, thus 
getting a total income of 6 per cent; or if the fixed rate is 4 per 
cent, reserve certificates may receive as much as 8 per cent. 

These provisions make land reserve certificates a most 
attractive permanent investment, yet the land bank reserves the 
right to refuse further deposits in its reserves, or to pay off the 
same, whenever it cannot use the money to advantage. In so 
doing, preference would always be given to the smaller depos- 
itor, thus guarding against too large a holding by any single 
interest. Individuals and corporations with funds for invest- 
ment, in big or little sums, will be attracted by the safety and 
non-taxable nature of these certificates. Since land itself bears 
the taxes for the living or the dead, and since this land reserve 
is the basis of the whole structure of land credits, the land reserve 
certificates justly may be exempt from even death taxes. 

Fair Inducement to Co'operative and Other Banks 
to Come into the Land Bank 

Only such certificates as constitute one-fourth the capital 
stock of the subscribing banks may share in dividends in excess 

^74 ■^'^ American Land Mortgage Banking System 

of the fixed interest rate. Each of these little member-banks is 
responsible for one-fourth the ultimate loss upon any mortgage 
negotiated by them; therefore they are fairly entitled to a rea- 
sonable proportion of the extra earnings, after all expenses are 
met (including interest upon outstanding bonds) and surplus 
accumulations provided for. Yet if no limit were put upon the 
dividends which may be paid, the reserve certificates held by 
such banks might earn lo to 15 per cent in the course of time; 
whereas the object of the whole method is not big profits to 
capital, but co-operative benefit to borrowers, after capital has 
received a fair return for its use in an investment quite devoid 
of risk. Without injustice to others, here is a strong induce- 
ment to promote the organization of the little local co-operative 
national banks, and to stimulate their interest in the land bank 
in whose extra profits they may share, and of which they are an 
integral part. 

After the surplus equals one-half the reserve, a goodly pro- 
portion of the excess earnings may be returned pro rata to the 
borrowers in proportion to the length of time their mortgages 
have been in the bank. This will be fair to all mortgagors, 
whether the loan is old or young. Such profit-sharing dividend 
may be applied upon the principal of their debt, thus hastening 
the time when it shall be wiped out. 

It is not wise for the law to be too specific as to rates of 
interest that certificates shall pay or that land bonds shall bear. 
Economic forces govern the money market, provided our fiscal 
system is such as not to interfere with natural law. Under the 
rearranged fiscal system proposed herein, interest rates through- 
out the United States will tend toward a more common level 
than has prevailed heretofore, but local conditions will have 
some influence, while economic conditions throughout America 
and the world, also the state of the popular mind, will continue 
to affect the supply, demand and prices of money and credits. 
Give natural law free play therefore, and do not attempt im- 
possibly artificial "regulation" of rates of interest. If rates to 
borrowers are kept within i per cent or point of the interest paid 
to lenders, all concerned are safeguarded. 

The Method for America 275 

Each Land Bank Confined to a State 

Unlike commercial banking which is so largely regardless 
of state lines, land mortgage banking necessarily must be confined 
within the political limits and legal limitations of the respective 
states. The traditions, habits, and customs of our people, and 
the laws relating to real estate, also demand that the state be the 
unit for land banking. The agricultural and allied industries 
are closely associated with the state's government and within its 

Furthermore, with the state as its area unit, each land bank 
is practically workable, is not too cumbersome, and yet the 
method is fair to every state and section. By appealing to state 
pride and interest, competition is stimulated in the best manage- 
ment of these institutions, and in maintaining the standard of 
credit among the people of the respective states. If the Massa- 
chusetts land bonds command better terms than Alabama mort- 
gage bonds, it will stimulate the people of Alabama to better 
economics, better farming and better laws, so as to make their 
securities vie with those of any other state. 

An idea is abroad that there should be one great national 
organization to issue bonds secured by farm mortgages, such 
bonds to be guaranteed principal and interest by the United 
States government. The idea is chimerical, except as hereafter 
set forth; it violates every principle of sound banking, of help 
for self-help, of associated effort between individuals, of equality 
between the states, and is clearly unconstitutional. 

Why Limit the Territory? 

Moreover, that policy would tend to destroy the self- 
reliance of our people. It would inculcate the thought that 
"the government must support us all," as the peasantry of county 
Cork declared when they refused to plow or plant at the time 
that the success of Gladstone's home rule bill seemed imminent! 
All experience at home and abroad tends to show that the only 
safe way for handling this mortgage debenture proposition is: 

(i) To have the closest local supervision, and the self- 
interest of the people in the vicinity where the mortgages are 

276 An American Land Mortgage Banking System 

placed, to insure that only good loans are taken, that interest 
and amortization are promptly paid, that the mortgaged prop- 
erty is maintained in good condition, and that there is no ulti- 
mate loss. 

(2) Then to have the mortgage pool managed, and the 
securities against the pool issued, by an organization that is not 
"spread out too thin," yet which is big enough to command the 
confidence of a public sufficient to absorb its bonds. 

Grave Importance of State Units 

The state is the largest area in which a land mortgage bank 
may safely operate, even when it has such local agencies as are 
proposed. Even in the least wealthy state — say Wyoming — if 
the national land bank offers interest upon its land reserve only 
I per cent higher than do most other land banks, money would 
flow to it in an ever-increasing stream. 

Furthermore, land reserve certificates being absolutely free 
of all taxation, would be an even better investment than govern- 
ment bonds, because of their present and prospective larger earn- 
ing power. Thus each land bank could get all the money it 
needs for its land reserve; and this need being supplied, it can 
safely issue its bonds in any amount justified by the mortgages it 
owns and by the market demand for its securities. 

The United States has had costly experience with concerns 
that ignored these principles. The co-operative building and 
loan association, when organized and operated by the people in 
a limited locality, and conducted by them voluntarily at almost 
no expense, is a beautiful success. When promoters took hold 
of the idea, formed companies to exploit the building and loan 
association for private profit over the whole country or through- 
out a group of states, the scheme ended in disaster, after a period 
of chicanery, fraud and disappointment. That scheme was so 
inherently weak and vicious, that numerous states legislated 
against it. Nothing of the sort will be permitted under the 
American land mortgage system, which in every respect must be 
kept above suspicion. 

The Method for America 277 

Under Federal and State Supervision 

The national land bank for each state would be under the 
direct supervision of the United States Treasury department, 
and subject to the laws of Congress. Their inspection, like that 
of other national banks, would be in charge of the comptroller 
of the currency, through the United States deputy controller in 
the zone embracing the whole or maior part of each land bank's 

Where any state government makes a deposit in the land 
reserve, it shall be represented in the management of the national 
land bank for that state. Also the state may provide for the 
incorporation under state law of mortgage banks. The rights 
of any state are not infringed. 

Any borrower upon mortgage, or investor in land bonds, 
who has a grievance against the local bank with which the busi- 
ness was transacted, or with the land bank, or any local bank 
dissatisfied with its state land bank, may appeal to the governing 
council for that zone. 

How the Land Reserve Is Created 

The amount of capital reserve with which any land bank 
may begin business should be equal to at least i per cent of the 
capital stock, surplus and undivided profits of the existing na- 
tional banks in that state. In Nebraska, for instance, this would 
be a minimum of over $250,000, which would be increased 
from year to year as those banks increase their capital, surplus 
and undivided profits. If their deposit were 2 per cent, the total 
sum would be double the above. 

It is impossible to predict how many national co-operative 
rural banks would be formed in Nebraska, or how much would 
be their capital, but it is conservative to believe that within a 
very short time Nebraska would have two hundred such little 
people's banks, with an average of at least $5,000 capital each; 
as one-fourth thereof in each case must be invested in the land 
reserve, the Nebraska national land bank would soon have a 
minimum of $250,000 in its reserve from this source. 


An American Land Mortgage Banking System 

Individual citizens in that enterprising state, as well as 
the many state banks and corporations whose prosperity depends 
so largely upon the thrift of Nebraskans and the development of 
her agriculture, will be only too glad to make a deposit in the 
land reserve. Persons outside the state may also deposit, thus 
attracting funds from other regions of the United States or for- 
eign countries. To start the land bank on the safest and sound- 
est basis, the legislature of Nebraska may well vote to invest in 
the land bank reserve such amount of the state's funds as in the 
legislature's judgment is expedient, up to say not exceeding 
$500,000, or $1,000,000. 

Any state whose people show the necessary interest and 
enthusiasm, will have no difficulty in establishing a land bank 
upon a secure basis of reserves. As the system grows in age, 
usefulness and popularity, the land bank will have more money 
offered for its capital reserve than it can employ, will have to 
refuse such offers, and in a few years may retire some of its 
reserves by making good the amount out of its surplus after the 
latter equals at least half of the reserve. 

The I per cent to 5 per cent of national banks' capital, sur- 
plus and undivided profits, immediately available for land 
reserve, would furnish at once an aggregate from this one source 
alone of from $20,000,000 to $100,000,000 as the combined cap- 
ital reserves of the forty-eight national land banks — one in each 
state, this sum being divided approximately as follows: 

Available for Land Reserves from National Banks 

Under " capital," appears the total capital stock, surplus and individual profits 
of all the national banks in each state on September 3, 19 12. The amount available 
for land reserve, at i per cent of the capital, then appears, also at 2 per cent and at 
5 per cent. Ciphers are used for the minor figures, to emphasize the comparisons. 


Amount for Land Reserve 
If 1% If 2% If 5% 


New Hampshire 


Massachusetts _. 
Rhode Island __ 

$14,100,000 ' 

















The Method for America 


New York 

New Jersey 




District of Columbia. 

Virginia , 

West Virginia 

North Carolina 

South Carolina 

















Missouri , 

North Dakota 

South Dakota 






New Mexico 



Oregon _ 













1 1 ,900,000 








































Amount for Land Reserve 

If 1% If 2% If 5^ 


























































1 ,040,000 



































1 ,020,000 












1 70,000 

















1 10,000 




1 10,000 



1 10,000 








An American Land Mortgage Banking System 

Summary by Regions 

Amount for Land Reserve 


If 1% 

If 2% If 5% 

New England states 



' $4,160,000 


Eastern states 





Southern states 





Middle Western states- 





Western states 





Pacific states 


1 ,430,000 



Island possessions 





United States 





It is to be distinctly understood that the deposit in the land 
reserve by national banks other than co-operatives, of a petty 
fraction of their capital stock, surplus and undivided profits, is 
in no sense a tax upon such national banks, though it may be con- 
stitutionally required by Congress under that guise. It is a 
permanent investment upon which the banks w^ill be sure to 
receive a fair rate of interest, while banks that deposit 25 per 
cent of their capital in the reserve may receive extra dividends 

This investment is made but once, being the specified per- 
centage upon such resources or upon any increase therein. This 
deposit of I per cent to 5 per cent by existing national banks, or 
those hereafter formed, is the least they can do toward the pro- 
motion of a safely efficient system of land mortgage banking in 
America, that will issue land bonds of unquestioned value, in 
which these banks may invest profitably a considerable propor- 
tion of the deposits in their savings and trust departments. 

Furthermore, this deposit in the land reserve by national 
banks does not involve them in the land mortgage business, nor 
conflict their commercial business with the land business. Con- 
gress has full right to decree that such investment is the least a 
national bank may do to promote a system that will be so advan- 
tageous to the federated national banks. It is one of those privi- 
leges and duties which should appertain to and inhere in the 
national bank franchise and permit to federate. 

Each national land bank may invest in land bonds issued by 
other national land banks, should it have available surplus for 
the purpose over and above the needs of its own business. 

The Method for America 281 

Commercial Banking Distinct From Land Finance, 
But Co-operates with It 

The method proposed is for a mortgage bank in each state 
under national law, analogous to the national commercial bank- 
ing system, but any state may also incorporate mortgage banks 
with which any or all banks under state charters may be affil- 

It is important to have land finance distinct from, but co- 
operating with, other banks, both state and national, for these 
reasons : 

1. The borrower and all the details of the 
loan, property, etc., are intimately familiar to the 
local bank which makes the loan. This famil- 
iarity and acquaintance makes it easy and conven- 
ient for both borrower and lender, and constitute 
the local bank the office at which the borrower may 
make his payment. The local bank already in 
existence, or one to be formed in each village as 
a national co-operative bank, is the logical place 
for this business to be transacted. Instead of un- 
duly multiplying special institutions, utilize to the 
utmost those that now exist, or make new ones of 
the largest possible service. This will reduce ex- 
pense and increase efficiency. 

2. The ordinary bank is the place for people 
to do their usual banking. The whole system 
should be kept simple, compact, efficient, so that 
the whole people may enjoy its benefits. The land 
bank may be a supplement to the national banking 
system, rather than something foreign to American 

3. Without confusing different kinds of 
banking or mixing one form of liability with an- 
other, it is well to foster unity of interest, purpose 
and experience in banking as a whole, so that each 
phase of it may profit from the knowledge and 
patronage of all. 

282 An American Land Mortgage Banking System 

Chapter XXXI 

How the Land Bank Operates 

Its membership and co'operatiue representation therein 

Land banking kept separate from commercial banking 

Hoiv organized and conducted 

Relation of the local rural bank to the land bank 

The farmer's relation to the land bank 

Great advantages to the 

Present rates for interest only may also pay off principal 

ACH depositor in the land reserve 
of the land bank for any state, in- 
corporated under the national law, 
as evidenced by the land bank's 
certificate, shall be entitled to one 
vote at the meetings of its members, 
irrespective of whether the depos- 
itor is an individual, a bank or 
other corporation, and also irre- 
spective of the amount of his 
deposit, until the permanent organ- 
ization is completed. 

At subsequent meetings, any 
person or corporation having a 
deposit in the reserve of not less 
than $1,000 may have one vote 
therein; any bank whose deposit is 
not less than the average land reserve deposit of the co-operative 
banks, and each of the latter, shall have one vote only — no prox- 
ies allowed. Thus no means or object exists for unfavorable in- 
terests to acquire control. If the state itself is a depositor, it will 
always have one voting member in the land bank for each 
$50,000 deposited, such member to be appointed by the governor 
and confirmed by the state senate, and to be a state official with 
supervisory powers. 

How the Land Bank Operates 283 

The borrowers of money from the land bank upon the secur- 
ity of their farms, should have representation in the management 
thereof on this basis: All borrowers through any one national 
co-operative rural bank should meet annually and choose one of 
their number as their member of the land bank, and he would 
have one vote therein, the same as the member representing the 
local bank itself. In areas where there is no local bank which 
acts as agent for the land bank, the farmers who do business 
directly with the land bank shall be convened by it in annual 
meeting to choose their member of the land bank for said terri- 
tory, which naturally may be a county, or a group of townships, 
as may be arranged by the trustees of the land bank. 

This provides fair representation to all concemed and the 
best management in behalf of each interest. As time goes on, 
the majority vote in the land bank membership would be the 
members representing borrowers, and as the mortgages upon 
their property are pooled into one undivided security for all 
the bonds the land bank issues, self-interest will compel them to 
conduct the institution in the soundest manner. All three of 
the parties in interest — the land reserve owners, the borrowers, 
and the bond investors — have their respective interests fully 
safeguarded and adequately represented. 

How Organized and Conducted 

The members of the land bank for each state, as above 
described, at its annual meeting, elect the trustees, one from 
each county or lesser unit of area in the small states, or from 
each group of counties in the larger states, so that all the differ- 
ent sections of the state are fairly represented on the board of 
trustees. If the state itself is a depositor, it must have suitable 
representation on the board. 

The trustees would elect the president, vice-president and 
other officers of the land bank, also such committees as are 
required, and define the duties and responsibilities of each in 
consonance with the federal statutes and the by-laws adopted. 
No oflEicer of the land bank necessarily need be a trustee, but the 
president and vice-president would be trustee ex-officio. The 


An American Land Mortgage Banking System 

board would naturally pick out the ablest, most experienced and 
most devoted men for these positions. The income would be 
ample to pay for the best experts, and the managerial positions 
would carry honors and dignity. 

All expenses would be kept down to the lowest possible 
limit, throughout every detail of the land mortgage business. 
The appraisers appointed by the local co-operative bank to pass 
upon the value of the property upon which a loan is desired, 
would serve without pay. In absence of such local agency, if 
the land bank itself sent an agent to the borrower, the latter 
would have to pay only a part of the agent's traveling expenses. 
The delegates who constitute the voting membership of the land 
bank would gladly give of their time and money, whatever is 
necessary to attend the bank meetings and to perform their duties 
therein. The trustees also should be willing to serve without 
pay, other than their actual expenses, but the officers who devote 
their entire time and abilities to the work of the land bank, 
should receive proper compensation, so that it may be assured of 
having the best available talent. 


The co-operator says to hie wife, as he drWes Into 
the yard In their high power motor; "Well, Maria, 
Hn't it a fine thing that wo are members of our co' 
operative banlt and of the land banit?" 

IVSaria; "indeed it Is. The money we have got on 
our mortgage will enable us to have lots of con- 
veniences In the house and at the barn that we have 
long needed." 

.Farmer: "Yes, and I can maice that money earn 
double what It costs. Why, Just think. Maria, the 
prineipai and Interest that we have to pay now Is 
hardly as much as I used to pay for Interest alone." 

The "Ne'er-do-well," seeing his thrifty neighbors 
drive by In their automobile, sollioqulzet Querulously, 
unsatisfied and unambitious: 

"I don't taice no stocli In them banks. I got a 
mortgage on my place 25 years ago and haven't paid 
a dollar on It since. Bankers are all robbers. I 
never can get any money from them. If 1 eonid 
raise a loan, you bet I'd never pay It back. If there 
was more money per capita. I'd always have enough in 
my pockets to get all the drinks I want. What we poor 
folks need is more money— not any of thh co-opera- 
tive bank business they are talking so much about." 

How the Land Bank Operates 285 

Relation of the Local Rural Bank to the Land Bank 

It is expected that eventually there will be a co-operative 
rural bank under the national law in every rural village or coun- 
try community. Through this agency the land bank will lend 
money on the farms within the territory of such co-operative 
banks. For its services, the local bank shall receive the usual 
broker's commission of one-eighth of i per cent upon each 
transaction it handles between the borrower and the land bank. 

Each national co-operative rural bank through which the 
land bank accepts a mortgage, shall be responsible to the latter 
to the extent of twenty-five per cent of any loss which may ulti- 
mately occur upon such investment. For instance, assume that 
the Petersburg national co-operative rural bank of Boone 
county, Nebraska, approved a mortgage for say $5,000, and 
ultimately the mortgage had to be foreclosed and the farm sold 
at a final net loss of $1,000. Then and in that case, the Peters- 
burg bank would have to pay the state land bank one-quarter of 
the loss, or the sum of $250. 

In a word, the local co-operative bank puts up one-quarter 
of its capital in the land reserve for its state, and stands one- 
quarter of any final loss which the land reserve has to meet as a 
result of any loan recommended by the local bank. 

Yet it should be distinctly understood that the national co- 
operative rural bank through which the loan is placed, does not 
endorse the mortgage note, nor assume any other direct liability 
therefor. What it does undertake to do, in effect, is to say to the 
national land bank for its state: 

"This is a good loan, we will watch the borrower; if things 
seem to be going to the bad on his place we will do what we can 
to help him to get ahead again, but rather than let it go too 
far we will co-operate with you in securing a larger payment 
upon the principal, or we will recommend you to foreclose 
before the price realized can be less than your claim against it; 
but should the thing have been wound up, and there is finally a 
loss on principal or accrued interest, then our local bank will pay 
one-quarter of such ultimate loss." 

286 An American Land Mortgage Banking System 

This is a very limited and specific liability for the local 
bank to assume, yet it is a vastly different matter from an out- 
right guarantee of principal and interest of every mortgage that 
passes through the local bank. Furthermore, it involves no 
joint and several liability upon the individual shareholders of 
such bank; their only personal liability is twice the amount of the 
par value of their shares in the local bank, the same as in all 
national banks. 

Insures Conservation and Supervision 

By this device we accomplish the utmost care in the grant- 
ing of mortgage loans, we keep the security good as long as the 
mortgage is outstanding, and in the remote contingency of ulti- 
mate loss, one-fourth of it is met by the bank that approved the 
loan, and the other three-fourths is borne by the land bank. 

In doing all this, we avoid any form of joint and several 
unlimited liability on the part of individuals, which form of 
liability is deservedly unpopular in America, although it is at 
the foundation of much of the co-operative banking in Europe, 
but even there it is now being displaced by limited liability 

However, in consequence of the local bank's possible ulti- 
mate liability, the shareholders and depositors of the rural bank, 
also its directors and officers, will not only be careful and con- 
servative in making mortgage loans or in recommending them, 
but will keep a watchful eye upon the borrower, and see to it 
that he conducts his farm properly, does not suffer any neglect of 
its resources, and that it always continues to be valid security for 
the loan. The local bank and its members will also see to it that 
the borrower is prompt in paying both his interest and amortiza- 
tion; thus the security for the loan will constantly increase in 
value, relative to the obligations outstanding against it. 

Such local responsibility and direct oversight is an integral 
and important part of the method. It is one of the elements that 
must insure the largest success. 

In case it transpires that the borrower is permitting his farm 
to run down, or is in arrears of payment, he can be called upon 

How the Land Bank Operates 


to pay up part of the mortgage, or the whole of it may be 
demanded and the farm sold before it is so run down as to sell 
only at a loss. In these ways, the danger of loss is reduced to 
the utmost minimum, and under ordinary circumstances will 
never occur. 

The Farmer's lielation to the Land Bank 

The farmer applies to the national co-operative rural bank 
of which be is a customer, or that is located in his vicinity, for 
a loan on his farm. Let us assume that it is a small farm worth 
only $1,500, and that the application is for $1,000. Three 
appraisers appointed by the local bank — men of good judgment 
and intimate knowledge of local conditions — inspect the farm, 
the applicant and his methods, and finally recommend the loan. 

The farmer then executes a note in favor of the state land 
bank for $1,000, in which he agrees to observe all its regulations, 
and this note is secured by a mortgage of the property drawn in 
favor of the land bank. At a duly called meeting, the direc- 
tors of the local bank officially approve the loan, sign a contract 
with the land bank setting forth the local bank's part in the mat- 





288 An American Land Mortgage Banking System 

ter, and all the papers in the case are then forwarded to the land 
bank. After passing its scrutiny and being formally ratified by 
it, the land bank remits the $i,ooo to the local bank, which pays 
the sum over to the borrower, less a brokerage of. one-eighth of 
I per cent, or $1.25, and less such other expenses as may have 
been incurred for examination of title, etc. 

For each $1,000 thus loaned, the land bank may issue $1,000 
of its general bonds, provided its land reserve is sufficient to 
allow a margin of 5 per cent of the loan as a reserve against this 
amount of bonds. It sells these bonds (which are secured by 
all its assets, not merely by this specific mortgage) as it needs 
more cash to loan. The sale may or may not be through the 
local bank that negotiated the mortgage. 

The farmer pays to his local bank semi-annually the inter- 
est as due, also tfte amortization once a year, which the bank 
remits to the land bank less one-eighth of i per cent brokerage. 
The land bank puts the amortization into its redemption fund, 
and the interest money into its current receipts. 

The farmer may pay on his mortgage at any interest date 
any larger installment than the regular amortization, or may pay 
off the whole of the principal then outstanding, but he can never 
be required to pay more than the amortization, except in case of 
default or such serious decline in the farm's value as to impair 
the mortgage's security. 

In the absence of a local bank, the farmer does business 
directly with the land bank. 

Interest and Amortization 

Included in the interest rate is a suitable amount for the land 
bank's expenses and reserves. In Germany this is usually one- 
quarter of I per cent; in the United States it may be one-half 
of I per cent; in France, it is 0.6 of i per cent 

If the land bonds bearing 4 per cent sell at par, the rate 
to the borrower might be 4^ per cent, to which is added one- 
half of I per cent for expenses and reserves, making a total 
charge to the borrower of 5 per cent per annum. Assuming that 

How the Land Bank Operates 289 

the farmer contracts to reduce the loan by paying off i per cent 
thereof annually — which would be $10 a year on each $1,000 of 
principal — the total amount paid by the borrower upon his loan 
for $1,000, would be 6 per cent or $60 each year, divided as 
follows : 

For interest at 4^^ per cent $45.00 

For expenses, J^ of 1 per cent 5.00 

Applied on principal, i per cent or 10.00 

Total, 6 per cent or $60.00 

Now, the $10 paid annually upon the principal earns inter- 
est in the land bank, or saves it interest when used to buy in and 
retire bonds, so the borrower gets the benefit thereof. He also 
participates in all earnings of the land bank over and above the 
sum required for its surplus. Whereas the payment of only $10 
a year without interest would take 100 years to pay off the debt 
of $1,000, if compounded at 4 per cent the time is reduced to 
forty years. This period would be shortened by the additional 
earnings the land bank makes and apportions pro rata to this 

The larger the sum paid on principal annually (amortiza- 
tion), or the lower the interest rate, the sooner will the total 
annual payment (annuity) liquidate the debt. Land bank 
earnings would probably mature a 6 per cent obligation in 
about twenty-five years. 

It would not require much extra effort for the average 
American farm family to increase the annuity, or to make larger 
payments on principal. Thus the average life of the farm mort- 
gage under this method would be about a dozen or twenty years — 
a mere incident in the farmer's lifetime, instead of being a mill- 
stone about his neck all his years, as too often has been the case. 

Great Advantages to the Farmer 

Certain it is that the interest alone, heretofore and now paid 
upon farm mortgages in the United States, is sufficient to pay off 
the principal in a relatively few years, besides paying the interest 

290 An American Land Mortgage Banking System 

meanwhile, provided these mortgages are refunded into the pro- 
posed American co-operative system. 

This miracle does not make something from nothing, how- 
ever; it simply so saves expense and adds to the advantages of 
farm loans, that the economies effected are sufficient to pay off 
the principal ere many years ! 

Another important feature is that each farmer who borrows 
money secured by mortgage on his farm, will be obliged to main- 
tain the fertility and productive value of the farm. His neigh- 
bors and other members of the local co-operative bank through 
which the mortgage is placed will see that this is done. 

Without being officious or interfering with private rights 
or the farmer's management, this policy of oversight and require- 
ment for upkeep will have a profound influence toward better 
farming. For if a farmer is obliged to pay up his mortgage 
under penalty of foreclosure, because he suffers the security to 
decline, he will find it very difficult to borrow money elsewhere. 
This policy involves a quiet, persistent and effective encourage- 
ment to good agriculture, that must be of immeasurable benefit 
as years roll on. 


The local 00-operatlve bank doaj not guarantoa 
principal or Inlorcst of the mortgages It negotlatea 
lor the national land bank of Iti etate. What the 
local bank doei do It to >ay that, should there be 
ultimately any loss on such a mortgage, the local 
bank will make up 25% of suoh loss. At a matter of 
tact there will not be any loss on one mortgage out 
of one thousand mortgages. 

Benefits to Investors and Others 


Chapter XXXII 

Benefits to Investors and Others 

Why a land bank's farm bonds are the safest investment 

May become even better than government bonds 

Legal investment for all savings and trust funds 

Will convert tenants into proprietors 

Guarding against historic error 

Jt national federation of land banks to issue bonds for the 

foreign market only 
Land banking must be a development, not a boom 

AW, custom and supervision would 
strictly safeguard the application 
upon outstanding bonds of the 
payments by the borrower upon 
principal. This would be accom- 
plished by a sinking fund until the 
various series of bonds mature. 

The American people do not 
take kindly to an indeterminate 
bond subject to call, so these farm 
bonds would have a specific date 
of maturity in series, as is the case 
with railroad bonds. 

As borrowers could pay their 
debts either in money or by a 
tender of bonds at par, this would have the tendency to main- 
tain the price or the market quotation for the bonds. In times 
of depression or uncertainty, if the land bonds fall below par, 
thrifty farmers would be quick to buy them at the reduced price 
in order to liquidate mortgages on the basis of par value for the 

Why Buy Guaranteed J^ational Farm Bonds? 

The rare attractiveness to investors of these farm and home 

292 An American Land Mortgage Banking System 

bonds is manifest. Each and every bond would possess the 
the following attributes : 

1. It would be in any desired denomination — $10, $20, 
$50, $100, $500, $1,000, or more. It would be registered or 
non-registered as the investor preferred. It would bear interest 
coupons, which could be collected without charge by simply 
depositing same in any bank. 

2. This real estate bond would be absolutely free from 
any and all forms of taxation — national, state or local — except 
the inheritance or death taxes. The mortgages securing the 
bonds should also be free from all taxation, since the land itself 
bears all the taxes, and farms usually are taxed for more than 
they should be. 

3. Each bank also acts as a center for buying and selling 
these land bonds. The public need not go to a broker or deal 
on the stock exchange in order to buy or sell land bonds, but can 
get them direct from its bank in its own vicinity. Hence, we 
at once secure a universally distributed market for these securi- 
ties, with thousands of local agencies for their sale, and make 
them more available than any other investment security ever 

4. The security back of this bond is of the highest char- 
acter and best type: 

{a) It is issued by the land bank, thus insuring that every 
precaution has been taken, every technicality of state and 
national laws complied with, to make the bond itself and 
everything back of it absolutely incontestable. 

{b) The investor looks only to the land bank for his inter- 
est and principal when due. The capital reserve and 
surplus of the land bank satisfies the investor as to the 
safety, validity and stability of its bonds, in addition to 
which the bonds have all the mortgages back of them. 
[c) Each land bond, whether small or large, is secured 
by all the assets of the land bank. Its reserve, its surplus, 
and all of the mortgages it holds, are collectively, jointly 
and severally obligated to maintain the interest and to pay 
the principal of each bond as due. . 

Benefits to Investors and Others 293 

{d) No bond is issued against any specific mortgage, 
which would confine its security to the particular piece of 
property covered by the mortgage. But all the mortgages 
in the treasury of the land bank are pooled as security for 
all its outstanding bonds. If here and there a mortgage 
should prove to be inferior or bad, the more than 99 per 
cent of the other mortgages in the bank treasury would be 
absolutely good, and therefore there could never be any 
default to the bondholder. 

(e) Each mortgage is for an amount not exceeding two- 
thirds of the fair value of the property, appraised by dis- 
interested experts, and is approved by the national co- 
operative rural bank through which it was negotiated, 
which institution guarantees to pay one-fourth of the ulti- 
mate loss should any occur. This proviso and the other 
features of the system, insure that every borrower shall 
pay his interest and amortization as due, and shall suffer 
no deterioration in the security. 

(/) The annual payment upon principal, by constantly 
reducing the loan, with equal constancy is improving its 
value and adding to the security back of it. And this is 
true even though the land bank has to call in and retire 
bonds in amount equal to such amortization, or passes this 
fund and these payments over into its redemption fund 
with which to pay off the bonds at maturity. 

Better Even Than Government Bonds 

No bond in the world is better secured than that. Govern- 
ment and rulers may change, the republic may fall, but the peo- 
ple will remain and must have farms upon which to feed and 
homes in which to live. Government bonds may decline, state 
bonds may even be repudiated in the future as they have been 
in a few cases in the past, even the standard of measure of values 
may change, but the terms of the land bond will never change, 
its value will steadily increase or at least be preserved, and every 
dollar invested in it will be paid principal and interest in full. 

Nothing but an overwhelming natural cataclysm that de- 


An American Land Mortgage Banking System 

stroys a whole state, can injure the credit, reduce the value, or 
delay the payment of income or principal of these land bonds. 
They are the nearest approach to an absolutely perfectly safe 
investment that the mind of man has yet devised. 

AH this will soon come to be the well-nigh unanimous opin- 
ion of the American people, whose money will automatically 
flow into these bonds, and thus fructify agriculture. The out- 
come will be to benefit all industries, all institutions, all individ- 
uals. Hence, the accumulation of wealth will become more 
rapid, and there will be larger surpluses than ever among the 
people for investment in other securities as well as land bonds. 
Instead of interfering with the market for corporate, railroad, 
state, city, county and town securities, the American people will 
be in a position to absorb them in the larger and larger quantities 
necessary to effect the improvement required by our rapidly 
growing population and advancing civilization. 

Legal for Jill Trust Funds 

Land bonds should be a legal investment for the savings 
banks within the state in which they are located. 

They will also be a legal investment for the savings depos- 
its and trust funds of any national bank, state bank or trust 
company, or for the deposits in any bank of funds from the pos- 
tal savings bank. 

Not the letul or the tremenilout advantages to Investore of the land bondi luued by the national land 
bank for eaoh state, is that they oan be bought or sold at every one of the more than 30,000 banks In the 
UnKed States. You won't have to send to Wall street to buy or sell these farm bonds. They will be as 
safe as the soil Itself. The hound "poverty" will never bark at your door If you have some money salted 
down In these farm bonds, which are proof against panic and poverty. 

Benefits to Investors and Others 295 

For these reasons, land mortgaging will be absorbed more 
and more by the -land banks in each state, saving much work, 
expense and bother to national and other commercial banks, 
whose savings deposits the public properly demands shall be 
largely invested in real estate. 

These bonds being in the highest degree not only safe but 
available, mobile, flexible, salable, realizable, will become the 
favorite investment for trust funds, executors and fiduciary insti- 
tutions, as well as for the common people. 

Persons in active business, or others who need cash at times, 
will desire this form of investment, because the bonds will 
always be acceptable collateral for loans at any bank, in case one 
does not want to sell them outright. 

The poorest people will each want to have $10, $25, $50, or 
$roo salted down in this absolutely safe, non-taxable and always 
realizable security. Even the children should be educated to 
invest their savings in this manner. 

It also appeals to the patriotic instincts, for every holder of 
a land bond, whether large or small, feels that he or she has 
a stake in the country. Being sold in small denominations, 
within the means of the humblest citizen, these land bonds will 
also encourage thrift; and once a people become thrifty, they 
are on the highway to economic prosperity and social content- 

Convert Tenants into Proprietors 

A great desideratum that will be fostered by my method of 
land mortgage banking, will be to convert tenants into owners. 
The present steady increase in tenant farming is a signal of one 
of the gravest perils which confronts the republic. As the older 
farmers have increased in wealth, they have bought more land ; 
as their children have left the farm, these owners have been 
obliged to let the land to tenants. 

This policy has also been fostered by the confidence that 
land values would continue to increase, and thus land has become 
the favorite safe investment for great numbers of well-to-do 

296 An American Land Mortgage Banking System 

farmers as well as those of means in other vocations, until there 
is danger of our becoming a nation of farm renters instead of 
farm owners. But by the mortgage plan proposed, it will now 
be relatively convenient for the tenant readily to obtain the funds 
with which to buy his farm. 

Moreover, the rentals now received from farm property 
are comparatively small, in many instances not netting the owner 
more than 3 or 4 per cent upon the value of the land. There- 
fore, the owners will be glad to invest in land bonds the money 
they receive from the sale of their land, since such investment 
may net them fully as much, if not more, than the land rental, 
besides saving them all the trouble and bother of tenants and of 
land ownership, while giving them a security that is more readily 
negotiable or disposable. 

Mortgages should be granted preferably upon farms owned 
and operated by their owners, though this should be a matter 
of understanding rather than a specific provision, so as to escape 
any unconstitutional discrimination in favor of such real estate 
owners. Instead of encouraging farm tenancy, put a premium 
upon farm ownership. 

Guarding Mgainst Historic Error 

Why not use land bonds as a basis for an issue of money? 
Because this would violate every principle of sound economics. 
Experience has shown the dangers that lie in a bond-secured cur- 
rency, even when the bonds are backed by all the resources of 
the national government. A land mortgage is a relatively per- 
manent obligation: any form of credit currency should be 
quickly convertible into gold or its equivalent. 

From the time of John Law down through the speculation 
in Argentine land debentures (cedulas) that caused the Baring 
failure and ushered in the worldwide panic of 1893, every effort 
to make land a basis of credit currency, or to overdo the issue of 
mortgage securities, or to put out mortgages in advance of the 
development of a region, inevitably have resulted in disastrous 

Benefits to Investors and Others 297 

If there is any one thing more than another to be guarded 
against in the American land mortgage system, it is all such 
errors, wildcat ideas and violations of economic law. Our 
methods must be safe and sane, sound and true, economically 
scientific and socially righteous. 

Profit Sharing with Borrowers 

Once this American system of co-operative land mortgage 
banking is thoroughly established, the land bank's income from 
its borrowing members' annual contribution for its expenses, 
together with its revenues from its reserve and surplus, will de- 
fray all expenses and leave a handsome surplus, a fraction of 
which may be credited as a profit-sharing dividend to borrowers. 

Such a dividend will be the capstone of the arch in this 
perfect method of mobilizing land credit for the mutual advan- 
tage of all concerned. 

The social, educational and economic value to the people 
of this method, and of the thrift and experience in finance which 
it will inculcate, goes without saying. It will insure for all 
time that America shall be a nation of farm owners and home 
owners, stimulating thrift, restricting extravagance, cultivating 
prosperity, and developing patriotism. 

Finally, it will be an easy matter to start a national land bank 
in any state. The work naturally should be in charge of the com- 
mittee on co-operative national banks appointed for each state 
by the Secretary of the Treasury. 

Ji J\[ational Federation of Land Banks 

The national land bank for each state shall elect one mem- 
ber to represent it in the National American Land Bank. Each 
member thereof shall have one vote. It may create a federal 
land reserve by selling its certificates, bearing not to exceed 3 
per cent interest, which shall be its permanent non-withdrawable 
capital. These certificates will be a legal investment for all 
banking institutions, and shall be free of tax — local, state and 
national — being in all these respects like government bonds. 


An American Land Mortgage Banking System 

The federal land reserve shall at all times be in amount equal 
to not less than i per cent nor more than 2 per cent of the 
American land bank's outstanding bonds. 

Upon the security of the bonds of any national land bank 
for any state, deposited in the treasury of the American land 
bank, it may issue "National American Land Bank Bonds," 
bearing not to exceed 3 per cent. These bonds shall have no 
fixed date of maturity, but like British consols, French rentes and 
German imperial securities, may be called in and retired at any 
time upon due notice, but shall not be subject to payment upon 
demand of the holder. Interest coupons thereon shall be pay- 
able at any branch of the American Reserve Union in the United 
States, and in foreign countries at any branch of the proposed 
American export banks ; also at many of the leading banks in the 
United Kingdom and on the continent of Europe and in other 
parts of the world. 

These national American land bonds are designed only for 
the foreign market. To accomplish this purpose, the bonds are 





Tlie Tax Collector will not molest land BONDS Is- 
sued by the national land bank for eaoh state. Suoh 
bonds will yield 3 or 4 per oent annual Interest, free 
from any and all forms of taxation during the life of 
the Investor. The land pays the taxes, the investor 
accepts a low rate of interest partly because the land 
bond is free of all taxation, as well as because It Is 
so safe, available and attractive otherwise. Since tlie 
land pays the taxes, one tax Is enough. This It a 
practical application of one feature of the single tax 
that all will gladly agree to. These bonds will of 
course be subject to Inheritance taxes. They will be 
the best safe Investment. 

Even all-oonquering Death cannot lay his clammy 
hands upon the land CERTIFICATE. As a part of 
the Land Reserve, as the basis of the whole realty 
mortgage system, and yielding a somewhat lower rate 
of Interest than land bonds, the land certificate Is not 
only free from all taxation during the lifetime of the 
holder, but It to exempt from Inheritance taxes or 
death taxes In any or ail forms. It Is the only In- 
vestment ever devised that escapes death and taxes! 
For these reasons, land certificates will enjoy an in- 
oreaslno market, even If they yield only 3 per cent. 
When money gets easier again, they may yield as little 
as 2 or 2</2 per oent and still be readily absorbed. 

Benefits to Investors and Others 299 

made taxable in the United States, the same as other personal 
property. Hence, they will be issued only to the extent that they 
may be absorbed easily by the foreign demand. They shall be 
sold in the foreign market through the agency of the American 
export banks. 

This National American Land Bank shall not be established 
until the land bank for each state under federal law has reached 
the age of five years. In other words, the last of the national 
land banks to be established in any state must be five years old 
before these institutions may federate into the National Ameri- 
can Land Bank. This proviso insures two important considera- 
tions : 

1. It will have a tendency to encourage the 
people within each state to establish the national 
land bank therein without delay. 

2. It insures that the American land bank, 
when it begins business, shall be a federation of 
thoroughly seasoned, entirely successful and firmly 
established American land mortgage banks. It is 
something to work for, and when it is achieved, it 
will be the capstone to the arch of American land 

These securities, as they became known abroad, would 
possess the implicit confidence of foreign investors, and could 
doubtless be sold to any extent desirable, provided the foreign 
money market would take them on a 3 per cent basis. Strict 
provision would be made for regulating the issue, retiring the 
bonds as fast as their underlying security was paid off, etc. This 
plan could be carried out for the foreign market, without inter- 
fering in any way with the domestic market for the land reserve 
certificates and non-taxable land-mortgage-bonds issued by the 
national land bank for each state. 

My feeling is that our own people are rich enough to absorb 
our own mortgage securities. Up to the present, the inter- 
national market for such securities has been a chimera. Even 
Germany failed in the attempt to create such a market. There 
are land bonds, issued by an imperial land bank and printed in 
German, French and English, that have found but small sale 


An American Land Mortgage Banking System 

outside of the Fatherland, and within the area of that country 
the bonds issued by provincial landschaften have been the more 
popular and ordinarily sell at the better price 

Must Be an Evolution 

Powerful influence will be brought to bear upon Congress 
to permit this national American land bank to be established at 
once, and to absorb all of the securities issued by the land bank 
of each and all of the states, so that there shall be outstanding 
against them only one form of combined obligation — the bond 
of the National American Land Bank. That demand should 
be refused, for the reasons heretofore stated in favor of local 

supervision and the operation of 

of using PERMANENT mortgages as a basis tor CUR- 
RENT credit. The landsehaftgn have prospersil ko- 
cause they profited by this lesson ot history. Th« 
Argentina oollapso, the Baring falluraand tho panic of 
1893, grew cut of the over-Issue of permanent and 
eurrent bonds for developnent purposos In Argentina. 
Thoso cedulas were not used as currency, but there 
was over-expansion In their Isaue. The American jiec- 
pie must play the game safely. 

a land bank in each state. 

Land banking must be a 
growth, a development, an evo- 
lution. It must win its way into 
public confidence by the perfec- 
tion of its methods, the sound- 
ness of its securities, the wisdom 
of its administration. All these 
essentials, separately and com- 
bined, must prove their worth 
by experience in order to come 
to their fullest fruition. 

Capital is timid, investors 
are conservative, vested interests 
are thoroughly entrenched, ex- 
isting institutions and methods 
are the result of experience. 
In creating a new method for 
mobilizing land credits, we 
would best go slow but sure, 
even to the extent of resisting 
the American characteristic of 
wanting "results" quickly. 



Co'operatioe Finance 

Part Seven 

Addenda, Tables, Charts 

of this Part 

"Hfiferences by Numbers 


Note 1, page la — David Lubin 307 

Note for co-operative banking, see 

page 14, volume of American trade 308 
Note a, page 14, and Note 3, page i8 — 

Ten kinds of United States money, 

and their legal tender qualities 

308, 309 and 312 
Notes 4 and 5, page 56 — ^Bank failures 312 
Note 6, page 57 — Savings deposits in 

national banks 312 

Redemption of bank notes (page 48) 
Note 7, page 114— National bank 

Note 8, page 116 — ^Willam H. Berry 
Note 9, page 124— Report on the clear- 
ing house by James G. Cannon 
Note 10, page 174 — Canada's stock of 





Note n,pageao4— Henry W.WolfiE 314-315 

Charts and Designs 

United States loss and gain of gold 

annually, 1890-1912 
Total stocks of all money by countries 
Total stocks of gold only by countries 
Per capita stocks of all money by coun- 




Per capita stocks of gold only by coun- 
tries 309 
World's total supply of gold 116 
World's annual production of gold 316 

Statistical Articles and Tables 


Table A — ^Relation of reserves to lia- 
bilities 30a 
Table B— Gold account of the United 

States 302-304 

Kinds of actual cash on hand June 
1911, compared to June 1912, all 
banks 304 

Banking power of the United States 305 
Recent developments in gold 306-307 

World'8 production of gold by perlodB 

for 21 years. 
World's conaumivtioa of gold by periods 

for 21 yeare. 
Stock of gold coin and bullion In slgbt 

at close of 1889, 1899, 1910. 
Becent and past production of gold for 
the whole norld by periods, 1873-1910. 

Total stocks of money in relation to 

wealth, trade and population, in 
the United States, United King- 
dom, Continental Europe and other 
countries 310 

Ditto, per capita stocks of money, 

loans, wealth, debt and trade 311 

Savings deposits in national banks 3x2-313 
Number of banks in the United States 314 
Savings bank life insurance 315 

Banking power of the United States 315 
The best form of mutual savings 

bank 315 and 317 

Gold reserves compared to notes and 

loans 318 

Gold reserves for three decades 319 

Banking methods must be American 320 

Biographical Sketches 



David Lubin 


Myron T. Herrick 


Charles N. Fowler 


The author of this work 




Addenda: Co-operative Finance 

Table Jl 

Relation of Reserves to Liabilities 

The following table is compiled from the 
abstracts of condition of national banks. It 
shows the components of the reserves held 
by all national banks at the dates noted, and 
assumes that all this reserve was lawful 
money and full legal tender, though tech- 
nically speaking this is not true (see note a). 
It shows the sums due net to state banking 
institutions, a considerable part of this being 
for legal tenders borrowed by nationals to 
maintain their reserves. Deducting latter 
from former, shows the net cash reserve 

remaining. "Deposits" includes individual 
and United States deposits; adding bank 
notes, gives total demand liabilities subject 
to be called for payment practically with- 
out notice. The percentage of total cash 
reserves to such liabilities is then given, 
followed by the percentage of net reserves 
remaining after deducting dues to state 
bank. The last line shows percentage 
of all outstanding national bank notes 
that were redeemed in the course of 
the year. 

All In millions of dollars except the percentases lndli»ted 

Autumn of- 






Reserve in gold 

Reserve in silver 

Total metallic reserve 

Reserve in paper 

Aggregate reserve 

Due state banks and trust companies, 


Net cash reserve balance- 


Bank notes . 

Total demand liabilities 

Loans and discounts 

Percentage reserves, gross 

Percentage reserves, net L" 

Capital, surplus and undivided profits 
Percentage redemption bank notes 




































I. II 






















Table S 

Gold Account of the United States 

Ms shown by statement of the United States Treasury at close of business S September 

1912, including also report of condition of national banks 

on the next day, September 4, 1912 

In millions of dollars 

Gold coin and refined bul- 
lion in trust fund in U. 
S. treasury 1,054 

Other gold in U. S. treasury 167 

Total gold in treasury 1,221 

Gold coin in national banks and 

clearing houses •_ 237 

Gold coin elsewhere 375 

Outstanding against it are gold cer- 
tificates 1,054 

Of these gold certificates there 
are held by national banks 320 

Leaving gold certificates else- 
where 734 

"Free" gold in U. S 779 

Total gold money in U. S 1,833 



Addenda: Co-operative Finance 


At the above date, if the national banks had drawn coin for all their gold certificates the 
account would stand: 

Trust fund in treasury 734 Gold certificates outstanding 734 

Other gold in treasury 167 

Total in U. S. treasury 901 

Gold coin in national banks 557 

Gold coin in circulation 375 "Free" gold in U. S l,099 

Total 1,833 Total 1,833 

Then the total cash account for all the national banks. 

Which on 4 September 19 12 stood at: 

Gold coin 237 

Gold certificates 320 

Silver and coin certificates 157 

Nickels, cents, etc 3 

5 per cent redemption fund 35 

Due from U. S. treasurer 7 

Legal tender 182 


Would have stood as follows: 

Gold coin 557 

Silver and coin certificates 157 

Nickels, cents, etc 3 

5 per cent redemption fund 35 

Due from U. S. treasurer 7 

Legal tender 182 




As a matter of fact there would never be 
any such complete transfer of gold from 
the federal treasury to the national banks. 
Whatever change there was, would be ef- 
fected gradually. Likewise it might be sev- 
eral years before the government got into its 
treasury all of the $683,cxx>,ooo of 2 per 
cent bonds in exchange for American money, 
as described in Chapter XIX. But the 
extremest phase of both transfers is here 
cited. Likewise the nationals would never 
completely settle their balances with state 
banks, as stated in Chapter XIX, but it is 
important to show the relations existing be- 
tween the two. 

By the plan illustrated on page 106, the 
nationals would now have total _ demand 
obligations of 5,951 millions, of which about 
60 millions are United States deposits other- 
wise secured, leaving say 5.892 millions of 
individual deposits subject to reserve re- 
quirements. Against this the nationals 
would have to deposit 7 per cent in gold 
with their zone league of the American Re- 
serve Union, amounting to 412 millions. 
They would have to keep in their vaults an 
average reserve of 8 per cent (in gold coin 
or other lawful money) amounting to 471 

This would leave the nationals with some 
free reserve, in addition to which would be 

their 714 millions of additional money re- 
ceived for the 2 per cent bonds they had 
cashed. In other words, they would have, 
over and above the required reserves, a free 
working balance of approximately 750 
millions, or a free balance of about 6 per 
cent upon their total liabilities of 10,396 
millions. Surely that is none too large a 
free balance in a business of such growing 

Assuming that the above had been con- 
sumed, the location of the gold in the United 
States as of 3-4 September 1912, would 
have stood: 

of dollars 

In the United States treasury 901 

In American Reserve Union 412 

In national banks 145 

In state banks, hoardings and circu- 
lation 375 

Total 1,833 

The latest available complete data show 
that on 14 June 191 2, all private banks and 
state banking institutions in the United 
States combined held of gold coin 88 mil- 
lions, and of gold certificates 204 millions, 
or a total of 292 millions. The proportion 
varies at different seasons and in different 
years. The total stock of gold in the United 


Addenda: Co-operative Finance 

States as of 3-4 September 191 2, doubtless 
was fully 1,850 millions of dollars. By 
January, 1914, it may be 2,000 millions. 

It would seem conservative to conclude, 
therefore, that if the transmutations and ex- 
changes suggested by this book were accom- 
plished as of New Year's day, 191 4, the 
triple gold reserves in the United States 
may then be divided approximately as fol- 

of dollars 

In the United States treasury 1,000 

In American Reserve Union 500 

In banks — national 150, state banks 

100 250 

Leaving in hoardings and in circula- 
tion about 250 

Total 2,000 

For the first time in the history of the 
world a nation would thus be provided with 
triple gold reserves, and America would be 
that nation. Furthermore, the vast quantity 
of 500 millions of dollars in gold held by 
the American Reserve Union, would have 
no claims whatever outstanding against it. 
In this respect, it would be the greatest re- 
serve of absolutely free gold ever known. 

These 500 millions being subject to the 
control of a representative union of bank 
users and of bank owners, could be employed 
whenever and wherever needed to meet 
emergencies which the banks individually- 
might not be able to take care of out of their 
own stocks of gold. In addition to such 

double reserve, however, there would be the 
national reserve of 1,000 millions of dollars 
in gold to fall back on. 

The government reserve protects less than 
2,200 millions of American money, thus con- 
stituting a reserve of nearly 50 per cent in 
gold against each dollar of money outstand- 
ing in all forms. 

Furthermore, the United States treasury 
would cancel and retire its holdings of bonds 
as fast as their place was taken by gold 
accruing to it from the profits of the 
American Reserve Union or from other 
sources. If necessary, the treasury could 
sell from its holdings of 2 per cent 
bonds, which would now yield 3 per cent, 
and thus add correspondingly to its reserve 
of gold. Should this plan be carried to its 
logical conclusion, all of the bonds in the 
table on page 152 eventually might be 
transformed into gold, which would ulti- 
mately increase the reserve to over 75 per 
cent. It is not too much to predict, there- 
fore, that by 1925 the visible gold coin and 
refined bullion in the United States would 
equal 100 per cent of the American gov- 
ernment money outstanding. 

In addition to a triple reserve in actual 
tangible gold, the United States would have 
this fourth form of increasing its gold sup- 
ply. On top of this, and fifthly, the Am- 
erican Reserve Union could so operate as to 
attract gold and hold on to it. Sixthly and 
finally, would remain as always the power 
of the government to sell bonds with which 
to purchase gold if some dire emergency 

I^inds of Actual Cash on Hand 

In dollars, millions and tenths of Hllllons 

Ai reported 7 June 1911 

Ou 14 June 1913 


Loan & 




Total of 
















' 1.6 
























Gold coin — 

Gold certificates 
_ Silver dollars _ 
Silver certificates 

— Minor coin — 
—Legal tender— 
Nat'l bank notes 

— Other cash 


















1 26-S 









Addenda: Co-operative Finance 


Banking Power of the United States 

Jts of 14 June 1912 
(In mUIlons of dollars) 






other re- 



all re- 






other re- 



all le- 


Loans and discounts 

Bonds, securities, etc 

Banking house, furniture 

and fixtures 

Otlier real estate 

Due from banks 

Checks and cash items- 
Exchanges for clearing 










■ $7,980 













Capital stock 

Surplus fund 

Undivided profits 


Due_ to banks 

Dividends unpaid 

Deposits (individual) 

U. S. Deposits 

Notes and bills redis- 


Bills payable^ 

Other liabilities 

























*I 7,024 


Cash in bank 

All other resources 












* Includes savings deposits in all banks approximating $6,480,000,000. 

United States and Gold 

Total Net Annual Supply of Gold 

Amomits In millions of dollars 




Addenda: Co-operative Finance 

Recent Developments in Gold 

IH millions of dollars 

World's Production of Gold 






i890-'99, ten years 

i900-'io, eleven years 








Total, twenty-one years 





World's Consumption of Gold 

(10 years) 

(11 years) 

Increa e 
2d period 
over 1st 

21 years 


both periods 

For industrial purposes 

a Banks and treasury of United States 

b United Kingdom 

c Other European banks 

d Banks of Canada, Australia, Africa 

e Other banks, circulation and hoardings. 

/ India has absorbed 

9 Egypt has absorbed 

h South America has absorbed 

i Japan, 69; Mexico, 28 


























Industrial consumption increase second period over first 388 millions, or 19% 

Usual monetary consumption, a, b, c, d, e, increased over first 863 millions, or 41 % 

Unusual absorption, e, f, g, h, i 824 millions, or 40% 

Thus accounting for increased production second period over first 2,075 millions, or 100% 

Stock of Gold Coin and Bullion in Sight 

December 31, 




In Europe and United Kingdom 

In United States 

Total -- - 








Increase in E., U. K. and U. S. over previous period 

Increased consumption in Egypt, India, Others, Canada, etc. 





Thus accounting for world's production each period of 



Summary. — The world's production of gold in the 21 years ended 31 December, 1910, 
rearranged above from the report of the Director of the United States mint, affords 
this conclusion : 

Gold production in 21 years, millions of dollars 5,998 

Industrial consumption 1,528 

Leaving an addition to the world's stock of gold coin and bullion 4,470 

Addenda: Co-operative Finance 


Stock of Gold Coin and Bullion — Continued 

Gold coin and bullion in Europe, United Kingdom and United States increased 

during the 21 years, millions of dollars 2,537 

Ditto in Canada, Australasia and Africa 241 

Ditto in other countries and absorptions 1,692 


Meanwhile, the stock of silver money in the United States, 1,000 millions, and in 
Europe, about 1,200 millions, has been quite stationary. 

Recent and Past Production of Gold for the Whole World 

Total for 
the period 

Average for 
the period 

Eleven years, 1900-19 10. 
Ten " 1 890-1 899. 
Ten " 1880-1889. 
Seven " 1 873-1 879. 



References by Numbers 

Note I, page 12 

David Lubin's Championship of Co-opera- 
tive Farm Finance 

That noted international agriculturist, 
David Lubin of California, in his concep- 
tion of the idea of world-wide co-operation 
as the only effective means for reforming 
distribution, showed that he had grasped 
these two great principles: 

1. That while the soil can be so culti- 
vated as to vastly increase the quantity of 
its products, what doth it avail the farmer 
so to do, 

2. Unless those products can be so ec- 
onomically and efficiently distributed to con- 
sumers as to insure fair returns to produc- 
ers, yet reasonable prices to consumers? 

Possessed by this idea, David Lubin 
started out in 1905 to canvass the gov- 
ernments of the world, and finally secured 
the personal and official co-operation of 
King Victor Emanuel III of Italy. The 
latter invited the nations to join in the In- 
ternational Institute of Agriculture and 
provided it with grounds and buildings. 
At present 98 per cent of the world's popu- 
lation, and 95 per cent of its area are af- 
filiated with the institute through their 47 
governments. Mr. Lubin has been the dele- 
gate from the United States at the Institute 
since its inception. The Institute is mak- 
ing substantial progress toward bringing 

into closer relations the peoples of the 
world, especially with reference to the most 
effective distribution of their agricultural 

In this work Mr. Lubin early became 
impressed by the remarkable success with 
which the common peasantry of Europe 
were improving their economic conditions 
through co-operative finance. Although rel- 
atively poor, and in some cases, compara- 
tively ignorant, and also perhaps lacking in 
enterprise, the farmers of Italy, France, 
Germany and the Low Countries, have ac- 
complished wonders through their neighbor- 
hood rural credit banks and co-operative 
buying and selling agencies. 

Mr. Lubin prevailed upon the Interna- 
tional Institute of Agriculture to investi- 
gate these methods of co-operative finance 
and to report upon them. These reports 
have been numerous, comprehensive and re- 
liable, as stated on page 212. Mr. Lubin 
devoted a week in April, 1912, to the na- 
tional conference on farm co-operation held 
at Nashville, Tenn., under the auspices of 
the Southern commercial congress. That 
conference gave a great impetus to this 
cause in America. The Southern commer- 
cial congress hopes to send a commission of 
one or more delegates from each of our 
states abroad in 19 13 to get in personal 
touch with the co-operative banks and other 
forms of associated effort in Great Britain 
and on the continent. 


Addenda: Co-operative Finance 

Total Stocks of All Money, by Countries 

On December 31, I9IO, authority United States mint 

All flgmres In miUioiu of dollars 


1710 729 785 

United States - - miOKm^aa^^^m^^^^^ ^ \ 3,224 

650 117 311 

England ■■■i^SZZ:] 1.078 

_ 1158 411 1024 

France — ^aii^iB^^^^^=- \ 2,593 

189 244 391 

Germany B^^^SZZ^ZI 824 

961 79 607 

3571 29 477 

Austria-Hungary - — ^^=' i 963 

Total Stocks of Gold Only, by Countries 


1372 338 

United States - - ■■^■■■■■■■■■■■HHH^^^^^= 1,710 

192 458 

England W^^ ^=. ' 650 

6M 525 

France l^lHmHHHHi^^^^^^^= 1>158 

159 30 

Germany - - - - ■■^ 189 

634 327 

Russia wm^^m^^mm^^m 961 

268 89 

Austria-Hungary - HBBIi^= 357 

References by Numbers — Continued 

Note for Co-operative Banking 

See pa£e 14— Volume of American Trade 

Bank clearings for the whole United 
States in 1912 reached 175,000 millions of 
dollars. Checks and transactions which did 
not "clear" may have reached 125,000 
millions of dollars. Here is a total of 
300,000 millions of dollars of exchanges 
effected in a single year by banking instru- 
ments. This quite agrees with Prof. David 
Kinley's conclusions that daily deposits are 
about 1,000 millions, making a total in the 
year of 300,000 millions. Allowing one- 
third more for exchanges effected with 
money or barter, and we have 400,000 
millions of dollars as the "volume of trade" 
in the United States for 191 2. As this is 
only $4,000 per capita for our 100,000,000 

people, it is probably an underestimate. Our 
imports and exports for 1912 were 3,857 
millions ; thus our domestic exchanges were 
probably 100 times our total foreign trade. 
The latter trade was some $38 per capita, 
while the stock of money in the United 
States is about $35 per capita. 

Note 2, page l4,andNote 3, page 18 

Ten Kinds of U. S. Money, and Their 
Legal-Tender Qualities 
There are ten different kinds of money in 
circulation in the United States — namely, 
gold coins, standard silver dollars, sub- 
sidiary silver, gold certificates, silver cer- 
tificates. Treasury notes issued under the 
act of July 14, i8go. United States notes 
(also called greenbacks and legal tenders), 

Addenda: Co-operative Finance 


Per Capita Stocks of Jill Money by Countries 

On December 31, I910, authority United States mint 
All flgnres In dollars and cents 

18.35 T as 

United States - 
England ■ 

Austria-Hungary - 
Continental Europe 

Per Capita Stocks of Gold Only 


14.79 3.56 

United States 
England- - - 
France - - - 
Germany - - - 
Austria-Hungary - 
Continental Europe 






, 2.32 0.61 

4.11 2.13 

5.25 1.75 


3 29.46 

References by Numbers— Continued 

national bank notes, and nickel and bronze 
coins. These forms of money are all avail- 
able as circulation. While they do not all 
possess the full legal-tender quality, each 
kind has such attributes as to give it cur- 
rency. The status of each kind is as fol- 

Gold coin is legal tender at its nominal 
or face value for all debts, public and pri- 
vate, when not below the standard weight 
and limit of tolerance prescribed by law; 
and when below such standard and limit of 
tolerance it is legal tender in proportion to 
its weight. 

Standard silver dollars are legal tender 
at their nominal or face value in payment 
of all debts, public and private, without re- 
gard to the amount, except where otherwise 
expressly stipulated in the contract. 

Subsidiary silver is legal tender for 
amounts not exceeding $10 in any one pay- 

Treasury notes of the act of July 14, 
1890, are legal tender for all debts, public 
and private, except where otherwise ex- 
pressly stipulated in the contract. 

United States notes are legal tender for 
[Continued on Page 313] 


Addenda: Lo-operat 

t V e 

r I n an c e 


•r I9IO 

The relation thereof to outstanding loans and discounts is shown completely for England, United States, Canada and Japan. The comparisons with European countries are valueless, how- 
ever, because official statistics are available only for loans and discounts in the one government bank of each continental country, whereas the bulk of such loans is made by the many other banks. 

The relation of the money components to the total wealth of each country and its national debt also appears. 

The total national expenditures by each nation are for the calendar year 1910, or the year nearest thereto. The same is true of imports and exports, the total of these two latter 
constituting the value of the foreign trade of each country. 

The money data are taken from the report of the Unit States mint for 1911; all other data are compiled from official sources. 







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Addenda: Co-operative Finance 


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Addenda: Co-operative Finance 

References by Numbers— Continued 

The Same Statistics Divided by States 

{.Continued from Page 30g\ 
all debts, public and private, except duties 
on imports and interest on the public debt. 

Gold certificates, silver certificates, and 
national bank notes are not legal tender, but 
both classes of certificates are receivable for 
all public dues, while national bank notes 
are receivable for all public dues except 
duties on imports, and may be paid out by 
the government for all salaries and other 
debts and demands owing by the United 
States to individuals, corporations and as- 
sociations within the United States, except 
interest on the public debt and in redemp- 
tion of the national currency. All national 
banks are required by law to receive the 
notes of other national banks at par. 

The minor coins of nickel and copper are 
legal tender to the extent of 25 cents. 

Foreign coins are not legal tender. — Sec- 
tion 3584 of the Revised Statutes of the 
United States provides that no foreign coins 
shall be a legal tender in the United States. 
— [U. S. Treasury Circular 52. 

Notes 4 and 5, page 56 

The data as to bank failures are ex- 
tracted from the reports of the Comptrol- 
ler of the Currency. The statement under 
5 is quoted from a speech in Congress by 
C. N. Fowler. 

Note 6, page 57 

Savings Deposits in National Banks 
A great development in the savings de- 
partments conducted by national banks is 
revealed by the following data compiled 
from the reports of the national banks to 
the comptroller of the currency in Septem- 
ber, 1912, compared to 1909. 


Statistics of Savings Departments 
tional Banks by Sections 



Number Kational 

Amount Savings 

Banks with Sarioes 



Millions of Dollars 






New England 





Eastern States 





Southern States 





Middle States 





Western States 





Pacific States - 










United States 





N. Hampshire 


Rhode Island- 
Connecticut _ 
New York __ 

New Jersey 




D. of C 


West Virginia 
No. Carolina 
So. Carolina- 

















North Dakota 
South Dakota 






New Mexico 


Washington _ 









United States 


















































2,010 3,238 376 I 742 









































































Adde n d a : Co-operative finance 


The number of nationals at the latter 
date which had savings banks departments 
was 60 per cent greater than three years 
earlier. The amount of deposits in these 
savings departments at the latter date was 
about double the same deposits in 1909. 
Out of the 7i397 nationals reporting in Sep- 
tember, 1912, no less than 3,238 have thor- 
oughly established savings departments. 

This rapid growth has not come unaided. 
One or more strong organizations exist 
whose business it is to establish a savings 
department in a national bank. Such a 
concern may furnish the equipment of sta- 
tionery, books, etc., and even the can- 
vassers whose solicitation brings in the 
depositors. It is an interesting application 
of organized effort to savings banking. 

The idea is prevalent among many men 
in the banking business that savings depart- 
ments exist only in national banks located 
where other savings institutions do not 
exist. The extent to which this opinion is 
wrong appears from the table on page 313. 

A specific instance illustrates the truth of 
our statement. Within less than two years 
from the time a savings department was in- 
stituted in a certain national bank, the num- 
ber of depositors in that department was 
about 10,000, their average deposit was 
about $85, and the aggregate of all these 
deposits was therefore well toward $1,- 
000,000. This was in a comparatively small 
city which is equipped with several mutual 
savings banks, also trust companies and na- 
tional banks, not to mention the postal sav- 
ings bank. Such a result is confirmatory of 
the argument of the present book as to the 
power of the "common people's" small units 
of cash and credits when co-operatively 

Redemption of. Bank Notes (Page 48) 

Gold coins and standard silver dollars, 
being standard coins of the United States, 
are not "redeemable." 

Subsidiary coins and minor coins may be 
presented, in sums or multiples of $20, to 
the Treasurer of the United States or to an 
assistant treasurer for redemption or ex- 
change into lawful money. 

United States notes are redeemable in 
United States gold coin in any amount by 
the Treasurer and all the assistant treas- 
urers of the United States. 

Treasury notes of iSgo are redeemable in 

United States gold coin in any amount by the 
Treasurer and all the assistant treasurers. 

National bank notes are redeemable in 
lawful money of the United States by the 
Treasurer, but not by the assistant treas- 
urers. They are also redeemable at the 
bank of issue. In order to provide for the 
redemption of its notes when presented, 
every national bank is required by law to 
keep on deposit with the Treasurer a sum 
equal to 5 per cent of its circulation. 

Gold certificates, being receipts for gold 
coin, are redeemable in such coin by the 
Treasurer and all assistant treasurers of the 
United States. 

Silver certificates are receipts for standard 
silver dollars deposited, and are redeemable 
in such dollars only. 

"Coin" obligations of the government are 
redeemed in gold coin when gold is de- 
manded and in silver when silver is de- 
manded. — [Treasury Department's Circu- 
lar 52. 

Note 7, page 114 

National Bank Dividends 
The average rate of dividends upon the 
capital stock of national banks for the forty 
years ended with 1909 was 8.89 per cent. 
The average rate for the year 1908 was 
10.89 per cent, and 10.12 for 1909. — 
[Treasury Circular 52. 

For 1 910, the dividends paid averaged 
10.99 per cent on the capital stock, or 6.65 
per cent on capital and surplus combined. 

Such dividends make the shares of na- 
tional banks worth an average of around 
$200 for each share having a par value of 
$100. The actual market price for bank 
stock is also governed by the demand, by 
general financial conditions, and by the 
assets and surplus of the bank. 

Note 8, page II6 

William H. Berry, formerly treasurer of 
the state of Pennsylvania, is the author of 
a striking book, "Our Economic Troubles 
and the Way Out: An Answer to Social- 
ism;" Chester, Pa., Economic Publishing 
Co. Mr. Berry adduces strong arguments 
for the limited coinage of the public credit 
conformable to the principles involved in 
the free coinage of gold. His computation 
of bank reserves and the red line indicative 
thereof on the chart in our introduction, is 
from Mr, Berry's book. 


Addenda: Co - o p^ e r a fi v e F i n a n 6 e 

Number of Banks in the United States 

The number of national banks is taken 
from the United States comptroller's report 
of October, 191 2. State banks include also 
trust companies and savings banks, and 

these figures, with private banks, are from 
the Bankers' Encyclopedia for September, 
1912, and foot up 20,000. The govern- 
ment reports over 25,000 banks. 



Alaska . 







D. of C 



Hawaiian Isl'ds 










Massachusetts - 

































































Montana - 
Nebraska . 


New Hampshire 

New Jersey 

New Mexico _. 

New York 

North Carolina 
North Dakota- 



Pennsylvania _ 

Rhode Island 

South Carolina 
South Dakota- _ 







West Virginia- 


































































J^eferences by Numbers— Continued 

Note 9, page 124 On the same date the amount of specie 

™, . , ■ ^ r, ^ ^1 held by the chartered banks of Canada, as 

This reference is to the report on the ^^ ^^^^ ^ ^^^^^ institutions, was $33,- 

cleanng house by James G. Cannon, pre- g ^^j^ ^^^^^ j^^j^^^^ ^^^j^ j^ 

pared for the monetary commission. ^„j ^^jl^^^ ^^ ^^^^^ ^^ ^^^ ^^^ ^^^^^^ ^^^. 

1LJ A fn tyjt portion would be gold, but this department 
' " o ' has no means of determining the exact pro- 
Canada'^ Stock of Gold portions of each. — [H. O. Levien, Deputy 
On 3 1 December, 1910, the Dominion of Minister of Finance, Ottawa. 
Canada held gold and bullion to the amount 
of $74,788,737.29, made up as follows: •'Vote //, page 204 

United States gold $68,261,279.00 Henry Wolff of London is the ablest 

British gold 6,304,524.30 writer in England upon co-operative bank- 
Bullion 222,933.99 ing. He has written many articles and 

A:d^d en d a: Go - ope rati'v e F i nan e e 


Savings Bank Life Insurance 

This book would be incomplete if it failed 
to record the four wonderful years' work 
and success of the system of life insurance 
conducted by the state of Massachusetts 
through the agencies of its savings banks. 
Full particulars can be obtained gratis upon 
application to Massachusetts Savings Insur- 
ance League, 161 Devonshire street, Boston, 
Mass. The results are summarized by 
Louis D. Brandeis as follow„ : 

Fourth year dividend on monthly 
premium policies, 16% per cent. 

Monthly premium rates, with the divi- 
dend, 32 per cent less than reduced rates of 
industrial companies. 

Reductions in industrial companies' rates 
already secured will save working people in 
Massachusetts alone over $2,000,000 a year. 

Savings bank insurance policies are in full 
immediate benefit from the date of the writ- 
ing of the policy. 

Four mutual savings banks have estab- 
lished insurance departments and 13 other 
savings banks and three trust companies 
have become public agencies for these four ; 
besides which 150 employers of labor have 
established unpaid agencies for the benefit 
of their employees. 

Banking Power of United States 

The United States comptroller's report 
for 1 912 gives an abstract of the condition 
of 25,176 banks of all kinds. Adding es- 
timated data for the 4,159 banks that did 
not report the previous year, we have a 
total of 29,335 banks in the United States. 

The capital (known and estimated) of 
these banks as of 14 June 1912, was 2,091 
millions, surplus and profits 2,207 millions, 
deposits 17,643 millions, and circulation 709 
millions. This made the banking power of 
the United States 22,650 millions of dollars 
as of that date, or an increase of 6 per cent 
over the 21,335 millions reported for June 

The total number of banks in operation 
in the United States as of i January 191 3, 

is probably 30,000, and the total banking 
power of the United States as of that date 
is fully 25,000 millions of dollars. 

Comparisons {in millions 

of dollars) 


No. of 





1912 _. 
1911 ._ 
1909 — 
1908 — 









The Best Form of Mutual SaO' 
ings Bank 

Taken all in all, the Massachusetts 
savings bank system probably is the most 
perfect ever devised. The report of the 
savings bank commissioner of that state 
shows that on October 30, 191 2, there 
were 194 savings banks, and his report of 
October 31, igii, shows that in the Massa- 
chusetts savings banks at that time there 
were 2,137,543 depositors to the amount of 
$802,220,707, or an average of $375 for 
each depositor. The best short description 
of the system is that just written by Ezra 
D. Whitaker, treasurer of the North 
Adams savings bank, which is here copied 
from Vol. 3, No. 4, of Savings Bank Life 
Insurance, dated Boston, October, 19 12. 
That form of insurance is conducted under 
state auspices through the savings banks so 
successfully that there has been a large re- 
duction in the premiums charged. 

In the first place, a savings bank in 
Massachusetts is not a bank at all, in the 
proper sense of the word. It has no capital 
stock; its deposits are not subject to check; 
it does not collect drafts; does not deal in 
domestic or foreign exchange ; does not dis- 
count commercial paper. In short, it exer- 
cises practically none of the ordinary func- 
tions of a national bank or trust company, 
and is, therefore, not subject to any of the 
risks which such banks or trust companies 
have to assume in the natural course of 
[Continued on Page Jl^i 

References by Numbers— Continued 

European countries. Still more recent is 
the excellent document by J. H. Cahill on 
German land and agricultural credit banks, 
published by the board of agriculture and 
fisheries at London, 191 3. 

pamphlets on the subject and several books. 
His latest work, "The People's Bank," pub- 
lished in London, in 191 1, is an admirable 
summary of this form of co-operation for 
personal credit as employed in the various 

3i6 A d d e ri d a')'C -operaiiv e'^F ina nee 

World's Total Supply of Gold 

JH the end of each year noted, Including total reported pre 
duction up to said date inclusive. Data for the past. United 
States mint reports ; for present and future, .Author's esti- 
mate. Each bar is relative to the length of the longest one, 

which represents $22,8^5,000,000 


1850 ^^^m TOTAL KNOWN PRODUCTION TO 1850 3,15B 

iseo ^^Hi^^H 
1S70 Hi^Hli^^^^ 

1B80 ^■^■■^^^■1^ 

1890 I^^^^BH^^^BH 

1900 ■^^^^^^■■■■^^■■H 

1905 ^■■^^^^^^^■I^^^^HI^H 

1910 ■^^^^^■■^^^^■■■■^^■^^H 

1911 mH^^mt^^^m^^^mmma^ 

1912 ■■■^■■^iHi^HI^HII^HHHBi 

1915 m^^^m^^^ma^mmm^Hm^K^m 

1920 ■^^^^■■■IH^^^^^^^^HI^^HII^^HI^I^^HH 

1925 mammm^^^^a^^m^^mmmi^^^mmm^^^^ 

Worlds Annual Production of Gold 

Each bar is relative in length to the longest one, 
which represents $700,000,000 




1880-70 ■■^^^■i 

1871-75 a^HHI 

1881-85 I^HJ^ 
1886-90 l^^l^BI 


1898-1900 BBSa^BHI^^HBHi 

1901-05 ^H^H^HHI^^B^^^ 323 


1911 wi^mm^aimmmmmmi^mmi^mm m 



Addenda: Co-operative Finance 3^7 

The Best Form of Mutual Sav 
ings Bank 

[Continued from Page 313] 

business. It is simply and solely what sev- 
eral of the Massachusetts savings banks 
choose to call themselves, namely, a "sav- 
ings institution" pure and simple. Its sole 
aim and function is to provide a place where 
people may deposit their earnings with the 
assurance that their money will be safe, and 
where it will return a fair rate of interest. 
Safety is always the first consideration, and 
the rate of interest paid to depositors is al- 
ways made secondary to it. 

The depositors, collectively, own a sav- 
ings bank. No group of capitalists, or any 
individual, owns it. When you make a 
deposit in a savings bank you practically be- 
come one of the owners of that bank. The 
officers are , employed to attend to your 
wants, and to see that your money is safely 
invested for you, and that it returns you a 
fair rate of interest. 

The management of a savings bank, and 
the administration of its affairs, is placed 
in the hands of a board of trustees, who are 
chosen annually from among the prominent 
citizens of recognized worth and ability in 
the community in which the bank is located. 
They serve absolutely without pay, and are 
sworn to protect the interests of the depos- 
itors first of all. The number of such trus- 
tees varies with individual banks, but is 
somewhere between ten and thirty, and is 
usually about fifteen. As they do not re- 
ceive any pay, and as many of them are 
themselves depositors, their first and only 
interest is to see that the depositors' money 
is safely taken care of. They do not man- 
age the bank for their own private interests 
and gain, but for yours, and for yours 
alone. . . . 

The treasurer is charged with the actual 
care of the. securities of the bank, and with 
the supervision of the office force ; in short, 
with the detail work of the institution. He 
is always paid a salary, and, except in the 
case of a very small bank, it is usual for 
him to give his entire time to the work of 
the institution. He is always bonded for a 
large sum by some reliable surety company, 
so that in the event of any possible wrong- 
doing on his part the depositors are fully 
protected. All members of the office force 
who ever have any occasion to handle any 

money are also bonded in a like manner, 
and for the same purpose. 

The president, treasurer and all of the 
members of the board of investment are 
expressly forbidden by law from borrowing 
any money whatever from the bank with 
which they are connected, or from being 
even remotely interested in any property on 
which the bank has a loan or other inter- 
est. . . . The law is extremely strict 
on this point, and is rigidly enforced by the 
state banking department. No national 
bank or trust company is under such strict 
legal restrictions on this point as is a sav- 
ings bank. 

Now let us see what happens to your 
money after it has been deposited in the 
savings bank. It is for your interest to have 
it invested at once where it will, above all 
things, be safe ; where it can be returned to 
you whenever you may happen to want it; 
and where it will return you a fair rate of 
interest. . . . 

Real estate is the basis of all property. 
Therefore savings banks are allowed to in- 
vest their depositors' money in mortgages 
upon it. The securities of the federal gov- 
ernment, of the various state governments 
and of certain municipal governments are 
safe beyond question. Therefore these se- 
curities arc made legal for savings banks. 
The bonds of certain public-service corpora- 
tions, such as the best railroads, street rail- 
ways and telephone companies, are unde- 
niably safe. Therefore they too are made 
legal. . . . 

All things considered, it is difficult to im- 
agine how any greater safeguards could be 
thrown about the savings of the people than 
have been placed around the money of de- 
positors in a savings bank in this state. Your 
money is looked after and invested in the 
safest possible ways by officials who are 
expressly forbidden by law from having any 
personal interest in the securities in which 
the moTiey is placed. The state officials 
watch over your money with a care which is 
for all practical purposes as good as a guar- 
antee. You are sure that your money is 
where you can have it at any time. And 
you are certain of a reasonable rate of 
interest upon your money. 

The Massachusetts savings bank law, in 
fact, has Been used as a model for all the 
States which have ever adopted a law of 
similar character. 


Addenda: Co-operative F i nance 

Gold Reserves Compared to Notes and Loans 

Millions of Dollars 

European banks include the 

As of December 30, 




United Kingdom and continental 

Attention is called to the fact 
that for the continent of Europe 
loans and discounts are reported 
only for the one national bank in 
each country, exclusive of the vast 
volume of loans and discounts 
made by the many other banks in 
each of those countries. The notes 
in circulation in the United States 
as given in the mint report, refer 
only to national bank notes, exclu- 
sive of about 350 millions of dollars 
of treasury notes. 

European banks, gold reserves 
European notes in circulation- 
European loans and discounts 

Proportion, gold to notes 

Proportion, gold to loans 

Proportion, gold to both 

U. S. gold reserves 

U. S. notes in circulation 

U. S. loans and discounts 

Proportion of gold to notes, 

U. S. 

Proportion of gold to loans, 

U. S 

Proportion of gold to both 






























Hon. Charles N. Fowler 

Charles N. Fowler was born on a farm 
at Lena, Illinois, November 2, 1852. He 
attended the district school in the winter 
and worked on the farm every summer until 
he was 19 years of age. His father was a 
large farmer for that section of the country, 
at that time, cultivating about 500 acres of 
land. The farming was carried on in the 
broadest kind of way ; for there were about 
150 head of cattle, 50 horses, 600 sheep, 
and usually 150 hogs. Mr. Fowler attended 
Beloit college, entered Yale college in 1872, 
was graduated in 1876, and was graduated 
at the Chicago law school in 1878. 

In the spring! of 1879, Mr. Fowler 
settled at Beloit, Kansas, where he prac- 
ticed his profession for four years and there 
engaged in the banking business, which he 
pursued until elected in 1894 to congress. 
At his urgent request he was placed upon 
the banking and currency committee by Mr. 
Reed, then speaker of the house. 

The burning question then before the 
country was our standard of value, and dur- 
ing all that session Mr. Fowler was fighting 
the battle of the single gold standard. He 
now refers to "the situation as astounding, 
and at this distance of time amusing, be- 
cause nobody seemed to know what they 
thought, except the ultra silver men, and 
they only thought they knew what they 

thought. Bimetalism was the slogan then ; 
I could only find two other men besides 
myself who were willing to speak out and 
stand up and be counted for the simple gold 
standard. This was the beginning of the 
fight for the gold standard." 

After the Republican party had declared 
unequivocally for gold in 1876 Mr. Fowler 
spent three months upon the platform urg- 
ing the importance of a right decision. 
Fortunately for the country, the people then 
as they always have when given an oppor- 
tunity of full discussion, decided the ques- 
tion right. 

At the very next session of congress, in 
1897, Mr. Fowler introduced a financial 
and banking bill whose purpose was to es- 
tablish beyond question the gold standard 
and give to the country a true credit cur- 
rency. That measure provided, among 
other things, for funding the United States 
government debt into 2 per cent bonds 
in precisely the same terms in which it 
was funded by the act of March 14, 1900. 
It also provided for the conversion of the 
United States notes into gold certificates or 
their retirement by funding them into 
United States bonds. 

During all the intervening years Mr. 
Fowler has never faltered in his fight for 
these reforms. He has lived long enough 
[Continued at bottom of next page] 

^3 3 e ri d'h : C o'-'o'p e'f a t"i v e 

F i h a k c e 


Gold Reserves for Three 'Decades 

In all Europe (the continent and United 
Kingdom combined) and the United States, 
separately and together. Compared with 
the total stock of silver money. These two 
together comprise "total hard money." 

"Total soft money" is the paper money. 
The aggregate of all three forms is given. 
Note that only the reserves of gold are in- 
cluded in this table, as it is only the reserve 
that is back of the silver and soft money. 


1889 1899 

Amount Amount 





Reserves of gold: 

In Europe 

In United States 

In both 

Stocks of silver money: 

In Europe 

In United States 

In both 

Total hard money: 

In Europe 

In United States 

In both 

Total soft money: 

In Europe ^ 

In United States 

In both 

Aggregate of all money: 

In Europe 

In United States 

In both 

Per cent of gold reserves to all 
other money: 

In Europe 

In United States 













































































[Continued from preceding page] 
to see the gold standard unequivocally re- 
affirmed, and a full confession on the part 
of the public that we have the worst bank- 
ing system in the world, instead of the best, 
as was universally asserted then. 

For fifteen years Mr. Aldrich and his fol- 
lowing persisted in saying that we had the 
best banking system in the world and criti- 
cized and jeered at Mr. Fowler for declar- 
ing that we had the worst. 

His bill and speech of March 29, 1910, 
which he prepared for the benefit of the 

monetary commission, will remain as "a 
most complete and replete source of in- 
formation and sound reasoning." 

When the so-called Aldrich scheme was 
announced by its reputed author, Mr. 
Fowler was in Chicago. He says that he 
at once sat down and wrote a review and 
criticism of that measure; but that when 
he had finished it, he was so convinced of 
"the economic unsoundness and damnable 
purposes administratively of Mr. Aldrich's 
proposal, that the thing would die of its 
[Continued at bottom of next page] 


Addenda: Co-operative F in a n c e 

Banking Methods Must Be American 

As an expert upon foreign systems and 
experience in co-operation and co-operative 
finance, the author has insisted throughout 
this book upon the imperative necessity of 
reform along thoroughly American lines, 
and here reiterates: 

"I also declare most emphatically against 
the idea that we can graft on to our present 
American fiscal system the co-operative 
banking methods of Europe. We can profit 
by all foreign experience, and should be will- 
ing to learn therefrom; but this idea is all 
wrong that the needs of American agricul- 
ture and industry will be met by providing 
a new class of institutions foreign to Am- 
erican ideals, contrary to American history 
and not in harmony with American condi- 

The same thought applied to commercial 
banking was expressed still more perfectly, 
in his remarks to the national monetary 
commission, by one of the most experienced 
bankers in the United States, Mr. George 

A. Nash, then president of the G)rn Ex- 
change bank of New York city, in these 
words : 

"And it has probably occurred to the 
commission and the bankers that all this use- 
ful investigation of foreign systems and the 
methods of business, while valuable as 
statistics, is not particularly applicable to 
American banking. Every banking system 
is an evolution suited to the people among 
whom it has sprung into being. It fits 
them as do their clothes, their houses and 
their food. It is as natural a growth as 
anything else that happens in a particular 
community. It may well be questioned, 
and perhaps the commission has perceived 
the fact, that American banking, in its 
diversity and unity, its adaptation to the 
locality, and its connection with the great 
reserve centers in the cities, is just the 
kind of system that we need, and the 
one that it would be fatal to change 
and destroy." 

[Continued from preceding page] 
own iniquities if left alone," that he tore up 
his article. How true that prophecy was, 
the public are now aware. 

Mr. Fowler stands today precisely where 
he has stood for the last sixteen years, fight- 
ing for these propositions: 

First. A gold standard, and consequently 
gold reserves exclusively for all bank 

Second. For the conversion of the United 
States notes into gold certificates. 

Third. A system of pure credit-currency 
currently redeemed by the banks in gold 

Fourth. A centralized gold reserve to 
equally protect all our bank credits, de- 
posits and note issues. 

Fifth. The individualism and absolute 
independence of every American bank must 
be preserved. 

Sixth. That to protect the gold reserves 
i)f the United States against the rest of the 
world, approximately one-half our gold re- 
serves must be centralized and powers given 
to fix the price of gold in form of the rate of 
interest charged. 

Myron T. Herrick 

Myron T. Herrick, formerly governor 
of Ohio and now representing the United 
States as ambassador to France, brought the 
matter of farm credits to the attention of 
the American Bankers' Association in 191 1. 
He was instrumental in getting a commit- 
tee appointed to consider the subject. The 
investigation conducted by the United 
States government into rural credit and 
mortgage banking in Europe was carried 
out under the direction of Ambassador 
Herrick. Acting upon his recommenda- 
tions, President Taft warmly championed 
the cause of farm finance in the United 
States. Woodrow Wilson, President-elect, 
and Theodore Roosevelt, as presidential 
candidate of the Progressive party, also 
warmly championed the cause of farm 
finance. President Wilson and the Demo- 
cratic party, which evidently is to dominate 
the federal government for at least four 
years after 4 March 191 3, are also on 
record as favoring the reform of the bank- 
ing and currency system, as a whole. 

Addenda': Co-operative F in a n c'e 


The Author of This Work 

Herbert Myrick, author and economist, 
editor and publisher, inventor and manufac- 
turer. Born at Arlington, Mass., child- 
hood in New England, youth in Colorado; 
educated at public and private schools, 
Massachusetts agricultural college and 
Boston University ; evolution — gardener, 
Jiouseworker, rancher, printer, farmer, agri- 
cultural editor, author, editor-in-chief. 
President The Phelps Publishing Company, 
editor of its semi-monthly Farm and Home, 
over 500,000 subscribers; director of its 
magazine Good Housekeeping from 1900, 
when it had 3,000 subscribers, until 191 1, 
when it was sold to the present owners with 
nearly 300,000 circulation. President 
Orange Judd Company, editor-in-chief of 
its five weeklies, with upward of 500,000 
subscribers, each covering a specific terri- 
tory — Orange Judd Northwest Farmstead 
at Minneapolis for the American north- 
west. Orange Judd Farmer at Chicago for 
the central west and mountain states, 
Orange Judd Southern Farming in At- 
lanta for the south, American Agricultur- 
ist at New York for the middle states. New 
England Homestead at Springfield for the 

Author of : How to Co-operate, The Hop, 
Turkeys and How to Grow Them, To- 
bacco Leaf, The American Sugar Industry, 
The Crisis in Agriculture, The Promise of 
Life, A Swim for Life, Money Crops, Cache 
la Poudre — a tenderfoot's romance. Presi- 
dent Educational Press Company, publish- 
ers of the weekly Current Events. Presi- 

dent Metallic Drawing Roll Company, 
manufacturers of the device which has done 
for cotton manufacture, especially at the 
South, a work akin to that done for cottort 
production by the Whitney cotton gin. 

Mr. Myrick has been a student of co- 
operation and of finance since 1880. His 
book. How to Co-operate, published in 1891, 
and since in many editions, briefly described 
the various forms of associated effort in 
banking in America and Europe, as well as 
other forms of co-operation. That book 
was the forerunner of the whole co-opera- 
tive movement, "its teacher and leader," 
said Hon. Willet M. Hays, assistant secre- 
tary United States department of agricul- 
ture, in his public address at the dedication 
of the Myrick building, 12 November, 1908. 
As early as 1882 Mr. Myrick assisted in 
organizing the Springfield co-operative bank 
(building and loan association). In 1900 
he wrote many editorials urging fiscal re- 
form and people's banking. In 1909 he ad- 
vised definite action by the Massachusetts 
legislature, which enacted the law for credit 
unions drafted by Pierre Jay, then state 
commissioner of savings banks. The first 
organized under that act was the Myrick 
credit union, formed upon their own initi- 
ative by his co-workers in the Myrick build- 
ing. He has made repeated visits to Ire- 
land, England and Europe for the investi- 
gation of their co-operative banking and 
other associated efforts; also their agricul- 
ture and other industries, social and political 


' United to assist, not combined to injure ' 


Index, Co- op era ti'v e Fin ah, c e" 



Acceptances , 67-74 

As used in Italy, 71 — benefits 
of, 70— different from note, 74 
— in small transactions, 71 — 
limited to short terms of credit, 
72 — use of, 67— what it is, 67 
Accommodating the humblest.... 221 
Account, gold, of the United 

States 302 

Acknowledgments iv 

Acquiring homes 253 

Activities of clearing house 127 

Actual cash on hand, kinds 304 

Adapt finance to American condi- 
tions 11 

Advantage of European discount 

rates over American 70 

Advantage of land bank to farmer 289 
Advantages of credit currency... 50 

Advantages to banks 157 

Agency of zone league 129 


America's great need, 249 — 
basis of credit in U. S., 61 — 
financial needs of, 11, 249 — 
mortgage needs of, 251 — 
neglected, 61. 
Agricultural conditions not prac- 
ticable for building and loan 

associations 258 

Agricultural progress in relation 
to cash, credits and co-opera- 
tion 62 

Aldrich 319 

Aldrich bill — dead 

9, 30, 96, 130, 139, 160 

Aldrich-Vreeland act 120, 126 

All defects remedied without dis- 
turbance 156 

All subject to Congress 98 

Amend national banking law . . . 233 
America may dominate world's 

finance and economics 187 

America on hard-money basis, 
while Europe approaches relor 

lively soft-money basis 175 

American banking, defects in.... 65 

American conditions 11 

American co-operative banks, plan 

for 232-244 

American export banks 102 

American land mortgages 248 

Rates of interest, 288. 
American method adapted to 

United States conditions..... 270 
American method of co-operative 

finance — purposes iii 

American method of land mort- 
gage banking, outline of.... 269 

American money 

In place of bank notes, 152, 
154— its superiority, 150. 

American Reserve Union 81-82 

A co-operative union of inter- 
ests, 88 — aids exchange of cred- 
its, 95 — ibuys and sells accept- 
ances, etc., 142 — controlled by 
federal government, 54 — con- 
trols free gold reserve, 140 — 
fiscal agent of government, 145 
— fixes rate of discount, 142 — 
incorporated under national law, 
139— insures manhood above 
money, 139 — laws governing, 
139 — may buy bills and redis- 
count, 142 — protects credit cur- 
rency, 52 — relation to zone 
league, 135 — supervises zone 
league, 145— title, 89— to be 
chartered for twenty years, 98 
— what it does, 138. 
American trade, volume of.... 14, 308 


American 7one league, see zone 

American zone league, avoidance 

of favoritism 22 

Americans depositors, not inves- 
tors 248 

America's pre-eminence in gold 

may be further strengthened. 185 
America's remarkable gains in 

gold production in 21 years.. 179 
America's triple reserves of gold 

Amortization end interest of Ger- 
man land bonds 259 

Ample capital and surplus for ex- 
port banks 103 

Ample money reserves for banks. 186 
Apply modem credit instruments 

to world trade 188 

Appreciation for bankers 10 

Architecture for zone leagues and 
reserve unions, its significance 83 

Art And science of banking 33 

Association a natural law 5 

Association for building and loans 253 
Attractive investments are certifi- 
cates of land reserve 280 

Author of this work 323 

Author's instrument for remitting 198 

Bank currency appearance un- 
changed 53 

Bankers 21 

alone incompetent, 20 — Ameri- 
can, appreciation of, 10 — not 
legislators but sworn public offi- 
cials, 22 — recognized, 10. 


ibusiness controlled by govern- 
ment, \Q — conducted without 
change, 110 — federation, co- 
operative organization of, 77 — 
functions, usefulness of, 36— 
methods must be American, 320 
— methods, superiority of, 43 — 
power of the United States, 305, 
315— iirivate should be abol- 
ished, 26 — representation in 
local unions, 87 — reserves of 
zone league, 131. 

Banking reform 

Merits of, 84 — essentials in, 24 

Bank in new mortgage system 270, 294 

Bank note 

Canadian redemption of, 48— 
changes under new system, 51 
— definition by C. N, Fowler, 
47— in United States, 49 — 
mobile, not inflexible, 48 — profit 
from circulation of, 157 — rela- 
tion to expansion and contrac- 
tion, 48 — replaced by govern- 
ment money, 151 — Scotch, 48 — 
supplanted by American money, 
152, 154. 

Bank of England, method of vot- 
ing 97 

Bank owners justified 97 

Bank reserves.. 110, 111, 114-116, 131 
May be used temporarily, 112 — 
strengthened by change in 
money, 155. 

Bank taxes • Ill 

Bankruptcy of banks 
In Europe, 55 — in United 
States, 55 — prevented by in- 
spection, 55. 

Banks 16,17 

Adoption of new system of 
procedure, 110 — and exchange, 
35— and public unite, 96 — as 
agency for use of funds, 36 — 


Banks — Continued 
as market for securities, 22 — 
combination of, should be Ule- 
gid, 28 — export, 82 — ^function 
of, 109 — government control of, 
18— independence of necessary, 
24 — ^land, 82 — lending of money 
and credits, 38 — may sell its 
government bonds, 112 — na- 
tional American export, 102— 
needed for masses in cities and 
towns, 202, 209 — need of small, 
29 — ^number of, 314 — officers, 
23 — organization of, 23 — part 
in exchange, 35 — permitted to 
issue credit currency, 149 — re- 
lation with clearing house, 79, 
122 — sell cash and credits, 42 
— servant, not master, 42 — sep- 
aration of departments, 27 — 
service, 41 — supervision of, 25, 
26, 125, 132— the basis of 
banking federation, 78 — -vill 
have ample money reserves, 186 

Basis for federation 8 

Basis of American money ...... 175 

Basis of business 4 

Basis of people's banks 205 

Beginning of postal savings sys- 
tem 192 


of acceptances, 70 — ^to investors 
and others, 291. 

Berry, William H 48, 116, 313 

Better service through zone league 129 
Basis for, 29 — of United States, 
sale of, by treasury, 304^of 
United States bought and sold 
by A. R. U., 143 — issued by 
German landschaften, 259, 266 
— sold by Credit Foncier, 263. 
Bonds of national land banks 
Bought and sold in banks, 292 
— denominations of, 292 — guar- 
anteed, 291 — ^how safeguarded, 
291 — non-taxable, 292 — savings 
bank investments, 294 — security 
of, 292. 
Book credit 

Meaning of, 45 — of tenfold im- 
portance, 50 — ^Ts bank currency, 
50— vs credit currency, 45. 

a profit sharer, 297 — in land 
banks represented, 283 — in new 
mortgage system, 270 — is the 
buyer, 43. 

Brandeis, Louis D 315 

Bring existing methods within 

reach of common people..... 225 
Buffalo clearing house, tax im- 
posed by it on checks and 

drafts 124 

Building and Loan Association 253-258 
in Massachusetts, 255 — con- 
fined to limited localities, 256 — 
copied in other countries, 256. 
Bullion, stock of, and gold coin 

in world 306 

Business based on exchange.... 4 
Business conducted without 

change 110 

Buying bills and rediscounting by 
American Reserve Union .... 142 

Cahill, J. H 315 

Canada's stock of gold 174,314 

Canadian bank note 48 

Canadian principle of review of 

reserve union law 139 

Cannon, James G 314 

Index, C - p e r a t i V e F i n an c e 



Capita, per, stocks of 
all money by countries, 309 — 
debt and trade, 311 — gold only 
by countries, 309 — money, loans, 
wealth, 311. 

and name of a co-operative 
bank, 233 — and surplus for ex- 
port banks, 103 — of national 
land banks, 272 — of Raiffeisen 
banks, 217. 

and credits mobilized, 131 — 
and credits sold by banks, 42 
— credits and co-operation in 
grip of public, 99 — kinds of, 
14 — kinds of, on hand, 304 — 
reserves strengthened, 155. 

Cater to popular needs 29 

Cause of high prices 171 

Caution against mistakes in em- 
ployment of postal deposits. . 195 
Center of world's finance, New 

York 104 

Centralization of reserves and 

their mobility 138 


for land bank deposits, 271, 
274, 282 — of clearing houses, 
126— of land banks, 271, 274 — 
of land reserves, 280. 
Championship of co-operative 

farm flhance 307 

Change in American money 

needed 151 

Character, co-operation and patri- 
otism in banking 57 

Character, health, co-operation, 
gold, land — fivefold reserves of 

American people 3 

Character of credit instruments . . 16 
Character of our gold reserves . . 185 
Characteristics of present issue 

of bank notes 49 

Chart of proposed American ex- 
port banks xiii 

Charter the American Reserve 

Union 98 

Collection of, 28 — not legal 
tender, 46 — ^no tax for collec- 
tion of, 124 — use and function 
in business, 46 — use and func- 
tion in England, Germany, 
France, 49. 
Circulation of credit currency 

taxes Ill 

Clearing house 79 

Affiliation with zone league, 122 
— certificates, 126 — charters, 98 
— committees, 79 — department 
of loans, 126 — effects economy, 
118— functions of, 118— how 
operated, 123 — its departments, 
123, 127 — its helpful activities, 
127 — its operation, 123 — laws, 
120 — members, 79 — need of 
legal sanction, 119 — outside 
pale of law, 119 — territory of, 
121 — to be incorporated under 
federal law, 120 — under federal 
laws, 98 — ^what it does, 117 — 
what it is, 118. 
Coin, gold and bullion, stock of 

in world •,■•••„• i' ^"° 

Coinage of money confined to fed- 
eral government ..■•• 14» 

Combination of banks should be 

illegal :.■•.•■: ^^ 

Commerci-1 banking distinct 
from, yet co-operates with 

land finance 281 

Commercial zone leagues »" 

Common people's interests ^^ 

Comparison of U. S. money with 

other countries 180 

Competition with England, Ger- 
many and France, how to meet 

it '"' 

Compound interest on money, 

paying off mortgages 260,288 

Comptrollers of zone league dis- 
tricts S" 



Congress has control of all bank- 
ing 98 

Congressional review of bank- 
ing system 98 

Considerations of importance in 
money reform 160 

Consumption and production of 
gold of world 166,306 

Contents, table of v 

Contraction and expansion of re- 
serves 112 

Convenience of short credits.... 73 

Conveniences that should be em- 
braced in new Universal Pos- 
tal Orders or UPOs 197 

Conversion of tenants into pro- 
prietors 295 

Among banks, basis of, 21 — 
benefits of, 5, 8 — in acquiring 
homes, 253 — in banking, 57 — 
imparts safety to banking, 207 
— is right, 9---needed in banks, 
57 — of land and commercial 
banks, 281 — vs combination, 8 

Co-operative banking 
Basis of exchange, 5 — its es- 
sentials, 224 — old established 
success in Europe, 208 — pur- 
poses of, 225. 

Co-operative banks 205 

Effects of, 228 — European type, 
210, 212 — hardly known in 
America, 208 — in Massachusetts, 
255 — management and supervi- 
sion, 234 — may take over exist- 
ing small state banks, 244 — 
plan for, 233 — powers, duties, 
privileges, 233— purposes of, 
225 — title, 227 — under state 
law, 230. 

Co-operative federation 29 

Co-operative finance 5 

American method, purposes, iii. 

Co-operative German landschaften 
restricted to a single state, 
run economically 260 

Co-operative mobility of reserves QB 

Co-operative organization for 
banking federation 77 

Co-operative people's banks .... 78 
Based on principle of self-help 205 

Co-operative principle in land 
mortgage system 270 

Co-operative principle of foreign 
land mortgage banks 266 

Co-operative rural banks 

Deposit in land bank reserves, 
27 1 — relations with national 
land banks, 285. 

Co-operative union of interests 
—A. R. U 88 

Cost of money higher 322 

Creation of land reserve 277 

Credit Agricole de France 264 

Based on agriculture, 61 — book 
credit, 4&— -circulating defini- 
tion, 47 — needs of farmer, 61 
— of banks, 36 — redemption of, 
47 — resources of co-operative 
banks, 205— two kinds of, 203, 

Credit currency 19 

Advantages of, 50 — circulation 
of, 52 — easily secured, 51 — 
function of, 47 — issued by na- 
tional banks. 111, 149, 158, 
161 — not included in reserves, 
47 — not money, 47 — what it is, 

Credit Foncier de France ....262-265 
Unsatisfactory to farmers, 264. 

Credit instruments 15 

Applied to world trade, 188. 


And cash sold by banks, 42— 
and money, 13— -decentraliza- 
tion of, 94, 139 — deposits, 
loans, 36 — on goods in transit, 

Credit unions ^^ ^^^ 

In Massachusetts, 208, 230— 
Myrick, 230. 



Cromer, Lord 


Automatically regulated, 54 — 
laws unchanged, 53 — protection 
of, 52 — varying needs for, at 
different seasons, 321. 


Per capita stock of all coun- 
tries, 3 1 1— total stock of all 
countries, 311. 
Decentralization of credit ...94,139 
Decentralized finance of land- 
schaften 265 

Declaration, A Momentous xxix 

Decreased demand for gold 187 


of commercial banking, 63 — in 
American banking, 65 — reme- 
died without disturbance, 156. 
Delimitation of each zone insured 92 

Democracy in finance 84 

Department of loans in clearing 

house 126 

Departmentized banking 57 

Departments of banks 57 

Proposed regulation of, 58— 
separated, 58. 
Departments of clearing house.. 

123, 127 
Deposit In gold with zone league 

by national banks 110 

Depositors, not investors 248 

Depositors' votes in bank man- 
agement 97 


Credits, loans, 36 — in banks, 
49 — in land banks, withdrawals 
of, 272 — of national banks 
in land banks, 281 — of wage 
earners* funds in building 
and loan association, 255 — 
received by A. R. U., 143 — 
transferred by A. R. U., 144. 
Detailed reasons of the "why" of 

co-operative banks 235 

Details of legislation 23 

Details of management of 

Schulze-Delitzsch banks 218 

Development of postal savings 

system 193 


Recent, in gold, 306 — in use of 
gold as money, 170. 
Difference between Schulze-De- 
litzsch and Raiffeisen banks.. 218 
Disastrous fluctuations in value 
of New York and Berlin prop- 

, erty 250 

Discount markets 69 

Discount rate fixed by A. R. U... 142 
Distinction between note and ac- 
ceptance 74 

District comptrollers of zone 

leagues 80 

Dividends, national bank 313 

Divine Law i 

Domestic banks, relation to ex- 
port banks 104 

Dominance of America in world's 

finance and economics 187 

Dominance of United States . . . 105 
Double liability of shares in co- 
operative banks 233 

Drafts and checks free from col- 
lection charges 124 

Duties of American Reserve Union 143 
Duties of a national co-operative 

bank 233 

Dynamic vs static money ...... 11 

Each bank independent 24 

Each land bank confined to a sin- 
gle state ..". 275 

Each national bank joins its clear- 
ing house and zone league... 110 

Each zone an economic commer- 
cial unit 91 

Earnings and expenses 
of landschaften, 261— of land 
banks, 272, 284. 

Easy to have credit currency 
right 51 


Index, C - p e r a t i V e F i n a n c e 


Economic commercial unit, the 

zone 91 

Economic unitjr — Trinity of 4 

Economy clearing house effects.. 118 

Educative value 229 

Efficiency plus popular rights.... 95 
Elementary principles of reform 

restated 189 

Elements of land banking, 3 prin- 
ciples 247-252 

Emanuel, Victor, King of Italy. .83, 307 
Emergencies, clearing house cer- 

tiBcates or gold 126 

Entire situation controlled by 

government 149 

Equal banking representation in 

local unions 87 

Equality for all 25 

Essentials in banking reform.... 24 
Essentials in co-operative banking 224 
European advantage over Ameri- 
can discount rates 70 

European mortgage finance 259 

European people's banks, their 

success 210-223 

Every sound principle observed. . 84 

Example of an acceptance 66 

Example of nation to the states. 30 

Exchange and banking 33-37 

Definition of, 4, 5 — of credit 
facilitated by A. R. U., 95 — 
principles of, 33. 

Existent banks reorganized 78 

Existing methods to be brought 
within reach of common peo- 
ple 225 

Expansion and contraction of 

reserves 112 

Expenditures, national 180 

Export banks 82,83,102-105 

Agents for national land bonds, 
299 — branches in foreign lands, 
102 — chart of proposed banks, 
xiii — subject to Congress, 103. 
Extraordinary final conclusions of 
U. S. of gold 128 

Facilitating transfers of credits 

and exchange 144 

Facsimile example of an accept- 
ance 66 

Failure of banks with savings de- 

partment 61 

Failures, record of 55 

Farm bonds of land banks 
better than government bonds, 
293— legal for trust funds, 293 
— safest investment, 291. 
Farm mortgages 

How paid for, 289 — principle 
of. 252. 
Farmer benefited by land bank 289, 295 

Farmers* need for credit 61 

Farmer's relation to national land 

bank 287 

Farms better security than town 

real estate 250 

Federal land reserves 298 

Co-operative, 29 — merits of, 84 
— national, of land banks, 297 
— of banks, 29, 84 — right basis 
of, 8. 
Final conclusions in U. S. gold 

extraordinary 182 

Final result of reform 190 

Finance adapted to American con- 
ditions H 

Finance, co-operative 5 

Financial problem as a whole. . . < 6 

Financing our foreign trade 101 

Fiscal agent of government .... 145 
Fivefold reserves of American 

people 3 

Fixing discount rate 1 42 

Fluctuation of money volume.... 159 
Fluctuations in value of New 

York and Berlin property 250 

Foreclosure easy, quick, inexpen- 
sive in European mortgage 

finance 267 

Foreign experience, important les- 
sons from 267 

Foreign land mortgage systems.. 266 
Foreign trade financed 82, 101 


Form, best, of mutual savings 

bank 315 

Forty-two zones not too many. ... 93 

Foster the ideal of service 206 

Fowler bill, 130 — Fowler on re- 
serves, 1 13 — Fowler system, 96. 
,Fowler, Charles N. ...47, 84, 93, QQ, 
125, 130, 146, 160, 312, 318, 321 
Free gold reserve 
controlled by A, R. U., 140 — 
in zone league, 130 — protects 
banks and public credit, 140. 
Free trade in money and credits 95 

French Credit Foncier 262 

French land mortgage, rates of 

interest 263 

French land mortgage society. , . . 262 
Further safeguards provided by 
banking reform 187 

Gain in world's reserves of gold 171 
Gain of United States in gold... 167 
Gains in American gold produc- 
tion for 21 years 179 

German imperial land bonds.... 299 
German land bonds, interest and 

amortization 259 

German land mortgages, interest 

on 248, 259, 260 

German landschaften . . .259-262, 265 

German loans on farms 251 

German Raiffeisen system of 

banking 213 

Germany's use of land as basis 

of credit 62 

Glaring defects in commercial 

banking 63 


account of the U. S., 302 — 
alone not cause of high prices, 
170 — annual supply of the U, 
S., 305 — annual production of 
world, 305, 316— ijorrowed from 
federal treasury, 141 — Canada's 
stock of, 174, 314 — certificates 
exchanged, 160 — consolidation 
of stock needed, 45 — develop- 
ments, recent, 306 — in the arts, 
168, 170— in panic of 1907, 4 — 
in U. S. for 21 years, 179 — its 
lessened demand, 187 — per cap- 
ita stocks of all money by 
countries, 309 — ^per capita 
stocks of gold only by coun- 
tries, 309 — production and con- 
sumption of, 165, 182 — recent 
and past production of whole 
world, 307 — relation of high 
prices, 170 — relation to loans 
and discounts, 175, 178 — rela- 
tion to paper money, 174 — rela- 
tion to volume of paper money, 
174 — situation transformed by 
new conditions, 165 — standard, 
principle of, 189 — standard to 
be left alone, 189 — stock in 
sight, 306 — stock of gold and 
bullion in world, 306 — the 
standard of values, 13 — total 
stock of, 172 — total stock of by 
countries, 308 — total supply of 
(world's), 316— world's con- 
sumption, 306 — world's produc- 
tion, 306. 
Gold reserve 

and decentralization, 95 — com- 
pared to notes and loans, 318 
— controlled by A. R. U., 140— 
for three decades, 319-:-in zone 
league, 130 — of America, char- 
acter of, 185 — results of, 186 — 
safeguards of, 187— triple, of 
America, 185-191, 304 — volume 
of, 186. 

Good of all insured 85 

Governing council of zone league 80 

alone coins moneys 149 — and 
banking, 18 — bonds owned by 
banks, 112 — bonds may be sold 
by banks, 112 — coinage of 
money, 18 — control of banking 
business, 19, 149— deposits 
with A. R. U., 145— money, 18 


Government — Continued 
— money to replace bank notes, 
151 — permits banks to issue 
credit currency, 149 — relations 
with A. R. U., 145 — represented 
in A. R. U., 81 — reserve, 45 — 
what it does, 149. 

Governors' letter xxv 

Great need of agriculture 249 

Growth of building and loan asso- 
ciation 256 

Guarding against historic error. . 296 

Hays, Willet Ai 323 

Helpful activities of clearing 

house 127 

Herrick, Myron T 212, 267, 322 

Higher cost of money 322 

Historic error guarded against... 296 

Home paid for by rent 253 

Homely illustration of lending 

credit 39 

How a bank is conducted 38-44 

How land bank operates 282-290 

How land reserve is created. .277-280 
How Raiffeisen society is con- 
ducted 215 

Human factor in banking 57 

Human spirituality 6 

Humblest are accommodated by 
Luzzatti system 22 1 

Ideal of service 206 

Illustration of lending credit .... 39 

Illustrations, list of • vii 

Importance of book credits 50 

Importance of ^'common people's" 

welfare 202 

Importance of state units 276 

Important considerations 91-99 

in money reform, 160. 
Important details of legislation.. 23 
Important lessons from foreign 

experience 267 

Impossible to have money trust. . 85 
Impregnable position of U. S. ... 185 
Impregnable reserves without one 

iota of inflation 156 

Incorporation of American Re- 
serve Union under national 

law 13? 

Incorporation of clearing house 

under federal law 120 

Incorporation of people's banks.. 78 
Independence of banks preserved. 139 
Inde[]endence of each bank .... 24 
Individual bank the basis of bank- 
ing federation 78 

Individual person the unit for 

banking federation 77 

Individual's relation to banks ... 77 
Inducements to co-operative and 
other banks to come into the 

land bank 273 

Industry, not speculation, pro- 
moted 21 

Inferior inspection 55 

Ingalls, Robert 212 

Inspection and supervision ..125, 132 
Instrument by author for transfer 

of money 198 

Insurance of manhood above 

money 139 

Insurance, savings bank (life) . . 315 

Insuring good of all 85 


and amortization of German 
land bonds, 259 — on French 
land mortgages, 263 — on Ger- 
man land mortgages, 260 — on 
land mortgages in U. S., 249, 
288 — on loans, statistics, 249 — 
rates in building and loan asso- 
ciation, 255 — sufRcient to pay 
o£f principal, 289. 
Interests of common people .... 23 
International Institute of Agricul- 
ture 218, 307 

Report on co-operative banks, 
Investment of postal deposits.... 194 
Investment of savings bank funds 

in land banks 60,294 

Investors and others benefited. 291 -300 

J n d e X , Co-operative Finance 



Investors in new mortgage sys- 
tem 270,294 

Issuance of credit currency to 
banks Ill 

Issue of money on land bonds 
unsafe 296 

Jacobs 67-70 

Jay, Pierre 59,60,323 

Justice to bank owners 97 

Kinds of actual cash on hand . . . 304 

Kinds of credit 203,232 

Kinds of money 13 

Kinley, Prof. David 308 

Land bank borrowers represented. 283 

Land banking 

a development, not a boom, 300 
— elements of, 247-252 — sepa- 
rate from commercial banking, 

Land banks 
Advantage of loan system, 286 
— advantage to farmer, 289 — 
capital of, 272 — certificates of, 
271, 274 — confined to a single 
state, 275 — distinct from other 
banks, 281 — expenses of, 284 — 
for each state under national 
law, 270 — method of voting, 
282 — national federation of, 297 
— non-taxable, 276 — organiza- 
tion and conduct of, 270-283 — 
relation to local rural banks, 
285 — slow growth desired, 300 
—supervision of, 275, 277— 
territory of, 275. 

Land banks' farm bonds 
better than government bonds, 
293— legal for trust funds, 293 
— safest investment, 291. 

Land bonds 291-300 

as investments, 60 — attributes 
of, 292 — imperial, of Germany, 
299 — interest and amortization, 
259 — investments for savings 
banks, 294 — local, nontaxable, 
297 — national, taxable, 297. 

Land credits, failure to mobilize. 247 

Land mortgage 
banking, 82, 90 — business, va- 
riations of methods, 266 — so- 
ciety of France, 262 — system as 
needed in U. S., 267— system, 
suggested plan for, 269— sys- 
tem of Europe, 266. 

Land mortgages 

in Germany, 248, 259— in 
United States, 248— present 
rates of interest in U. S., 249 
— should encourage land owner- 
ship, 296. 

Land reserve certificates attrac- 
tive investments 280 

Land reserves 
from national banks, 278— how 
created, 277-280 — inviolate per 
manent capital, 271. 

Landschaften, The Jerm^an..... ^^^ 

Decentralizes finance, 265-— 
earnings and expenses, 261 — of 
provinces, 265 — supervision of, 

Large' advantages to banks 157 

to amend national banking, 233 
— change in currency laws, S3— - 
for acceptance and discount of 
bills of exchange, 67— for 
clearing houses, 120 — for na- 
tional land banks, 271— for sav- 
ings deposits, 60— governing A. 
R. U., 139 — protecting accept- 
ances, 73. ,.. 

Law, John 29b 

Law, the Divine • 

League (state) . of building and 

loan associations mo 

League, zone 80 

Leave gold standard alone .... 183 

Legal status of zone league 130 

Legislation— details of 23 

Legitimate banking not interfered 

with 26 

Lending money and credits 38 

Lessons from foreign experience. 267 
Lessons of present postal savings 

system 193 

Levien, H. 314 

Liabilities, relation of reserves to 302 
Liability of membership in clear- 
ing house 121 

Life insurance, savings bank .... 315 

Lincoln, Abraham xi, 11, 202 

List of illustrations vii 

Little banks helpful, economic and 

educative centers 204 

Loan system of national land 

bank, advantage of 286 


at low rates, 217 — by banks, 38 
— deposits, credits, 36 — on 
farms, 250 — on farms in Ger- 
many, 251 — on real estate, pres- 
ent method, 247 — per capita 
stocks of, 311— principles of, 
252 — rates, lottery features of 
Credit Foncier de France, 262 
— to farmers by French regional 
banks, 265. 
Lombard Investment Company. .. . 248 
Long term loans on rural prop- 
erty mobilized 251 

Lottery features, rates, loans of 
Credit Foncier de France . . . 262 

Low rates of loans 217 

Lubin, David 12, 212, 307 

Luzzatti, Luigi 220 

Luzzatti system of .banking 220 

Accommodates humblest, 221 — 
popularity of, 222. 

Management and organization of 

land bank 283 

Management and resources 57 

Management and supervision of 

a co-operative bank 234 

Management, importance of ... . 57 
Management of Raiffeisen banks. 215 
Management of Schulze-Delitzscb 

banks 218 

Manhood insured above money . . 139 
Marvelous success of building 

and loan association 253 

Meaning of book credit 45 

Membership and co-operative rep- 
resentation of land banks . . . 282 
Membership liability in clearing 

house 121 

Members* unlimited liability in 

Raiffeisen banks 215 

Merits of bank federation 84-90 

Merits of system of building and 

loan association 257 

Method for America 269-281 

Methods, banking, must be Ameri- 
can 320 

Miracle of credits 15 

Miscalled "nationals" a fraud . . . 256 
Mistakes of foreign government 
in employment of postal sav- 
ings deposits to be guarded 

against '95 


In reserves, 95 — and centraliza- 
tion of reserves, 138. 

cash and credits, 131 — land 
credits, lack of, 247 — long term 
loans on ruraL property, 251. 

Momentous Declaration, A xxix 

Momentous educative value .... 229 
Money , , 

and credits, 13-17— coined by 
federal government only, 149 — 
definition of, 150— dynamic vs 
static, 11 — fluctuation in vol- 
ume of, 159 — government, 18 
— higher cost of, 322 — kinds of 
in United States, 13, 151— 
one uniform kind, 150 — per 
capita stocks of all money by 
countries, 309 — per capita 
stocks of gold only b^ countries, 
309— power popularized, 139 — 
price of equalized, 160 — re- 
deemable in gold coin, 18 — re- 


Money — Continued 

serves for banks ample, 186 — 
ten kinds of, 13 — total stocks 
of all money by countries, 308, 
311 — total stocks of gold only 
by countries, 308 — total stocks 
of in relation to wealth, trade 
and population, SlO^money 
trust impossible, 85— volume of, 

Morawitz, Victor 20 

Mortgage finance 90 

European, 259-268. 
Mortgage needs of agriculture ..251 
Mortgages — how paid off by small 
payments and interest com- 
pounded 260, 288 

Mortgages, see land mortgages 
Moving the crops facilitated by 

short credits 73 

Mutual savings bank, best form 

of 315 

Myrick credit union 230, 323 

Myriok, Herbert 323 

"Myrick's law" 62 

Name and capital of a co-opera- 
tive bank 233 

Nash, George A 320 

National American export banks. 102 
National banking law to be 

amended 233 

National banks 109-116 

Deposit with zone league, 110 
— deposits in land bank re- 
serves, 271 — dividends, 313 — 
issue credit currency. 111, 158 
— may transact savings and 
trust business, 114 — retain re- 
serve, 111. 
"National" building and loan as- 
sociations 256 

National co-operative banks 
Powers, duties and privileges, 
233 — will supplement, not com- 
pete with, existing banks, 227. 
National federation of land banks 297 
National land bank — See land 

National monetary commission, 
30 — one feature meets with 
unanimous approval, 63. 

National reserves 3 

Nation's example to the states.. 30 

Natural law — association 5 

Note and acceptance, distinction 

between 74 

Note issuance department of na- 
tional banks 58 

Notes not issued by state banks. 58 
Necessary instrument for transfer 

of money perfected by author 198 
Need for American export banks 101 

Need of agriculture 249 

Need of banks for the masses... 202 
Need of farmers for credit.... 61 
Need of United States — a thor- 
oughly American method .... 267 
Needs for currency at different 

seasons 321 

Needs of agriculture 251 

New conditions have transformed 

gold situation 165 

New demands for gold 166 

New developments in use of gold 

as money 170 

New economic transformations in- 
sure soundness of this method 

of reform 162 

New phenomena in gold ....165-183 
New York the center of world's 

finance 104 

No adequate system for mobiliz- 
ing land credits 247 

No charges for collecting checks 

and drafts 124 

Nomenclature v 

No "Money Trust" 9 

No over-expansion or undue con- 
traction of credit currency ... 52 
o undue interference with legit- 
imate banking 26 

Number of banks in U. S 314 

Number of zones 93 


/ n d e X , C o - 6 p e r at IV e Finance 


Old established success in Eu- 
rope of co-operative banking 208 

One uniform money . , 150 

"Only the United States lags 
lamentably behind" 209 

Operation of the clearing house 123 

Operation of land bank 282-290 

Organization and management of 
land bank 283 

Organization for banking federa- 
tion 77-83 

Organization of export banks un- 
der federal law 102 

Organized production and dis- 
tribution 34 

Origin and management of build- 
ing and loan association . . . 253 

Other duties of American Reserve 
Union 143 

Outline of an American method 
of land mortgage banking . . . 269 

Outline of co-operative organiza- 
tion for banking federation.. 77 

Part of bank in exchange 35 

Par value of shares in co-opera- 
tive banks 233 

Patriotism and social service .... 230 
Patriotism, character, and co- 
operation in banking 57 

People and the banks 16 

People in any locality may incor- 
porate a co-operative bank ... 233 
People, representation in banks . 79 

People's banks 202-209 

European, 208, 210-223 — in 
Europe, 3 types, 212 — in Que- 
bec, 208 — mortgage finance and 
export banking, 90 — need of in 
cities and towns, 63, 78, 90— 
plan for, 233 — self-help banks, 
People's representation simple, 

practical and certain 85-86 

Per capita stocks 
of all money by countries, 309 
— of gold only by countries, 
309 — of money, loans, wealth, 

debt and trade 311 

Permanent capital, land reserve 271 
Pfandbrief, German land bonds. . 259 

Price in war time, 266. 
Philadelphia use of building and 

loan association 256 

Plan for American co-operative 

banks 232-244 

Plenty of capital for Raiffeisen 

banks 217 

Popularizing the money power. . 139 

Popular needs catered to 29 

Popular rights plus efficiency ... 95 
Popularity of Luzzatti system... 222 

Population, total stock of 310 

Post. C. W 198 

Postal banking, remittance and 

collection 192-200 

Postal deposits, their investment 194 
Postal money orders, their re- 
form J96 

Postal savings banks jaz 

Postal savings not invested .... 194 
Postal savings system, its be- 
ginning J92 

Postal service in its infancy .... 199 
Power, banking, of the U. S. 305, 315 
Powers of the national co-opera- 
tive bank 233 

Pownall, G. H x 

Precautions in public interest... 28 
Present issue of bank notes .... 49 
Preservation of independence of 

banks 139 

President's letter xiii 

Principal paid off by interest... 289 

Principles of exchange 33 

Principles of reform restated . . 189 
Private banks not exempt from 

public supervision > 26 

Privileges of a national co-opera- 
tive bank , 233 

Production and consumption of 
by world, 166 — in world for 21 
years, 178, 306— recent and 


Production, etc. — Continued 
past for whole world, 307— 
world's annual, 316. 

Production and distribution .... 34 

Profit-making proposition, the 
Schulze-Delitzsch bank 218 

Profit on circulation of bank 
. notes 157 

Profit to shareholders 41 

Promissory note vs time bill of 
exchange 69 

Promote industry, not specula- 
tion 21 

Proper delimitation of each zone 
insured 92 

Proposition of reform can be 
carried out 189 

Protection for savings deposits.. 59 

Protection of banks and public 
credit 140 

Public and banks unite 96 

Public interest, precautions of . . 28 

Public must be represented in co- 
operative finance 20 

Public must keep its grip on 
cash, credits and co-operation 99 

Public supervision of private 
bankers 26 

Purposes of co-operative bank- 
ing 225 

Raiffeisen banks 
How conducted, 215 — system, 
213 — their capital, 217 — unlim- 
ited liability of members, 215. 
Rate of discount and exchange 

fixed by A. R. U 141 

Rates, loans, lottery features of 

Credit Foncier de Fr&nce .... 262 
Reasons for co-operative banks.. 235 

Receiverships 134 

Recent developments in gold .... 306 
Record of building and loan 

association 255 

Record of failures 55 

Redemption of credit currency, 47 
Of bank notes, 48. 

References by numbers 307 

Reform in postal money orders.. 196 
People's part in, 20 — popularly 
favored, 9. 

of fanners to land bank, 287 
— of gold to loans and dis- 
counts, 175 — of gold to volume 
of paper money, 174 — of loca! 
rural bank to land bank, 285 — 
of reserves to liabilities, 302. 
Remarkable convenience of short 

credits 73 

Remarkable record of achieve- 
ment of building and loan as- 
sociation 255 

Remarkable results in German 

people's banks 210 

Remove restrictions upon postal 

savings deposits 193 

Rent pa;^ for home 253 

Reorganization of existing banks 78 

Report of bank inspectora 133 


and membership of land bank, 
282 — of banks in local associa- 
tions, 87 — of people feasible, 
85 — of public in co-operative 
finance, 20 — in zone league, 87. 
Representative democracy in 

finance 84 

Reserve deposited by national 

banks with zone league 110 

Reserve of free gold controlled by 

American Reserve Union. .140, 304 

Co-operative mobility of, 95 — 
expansion and contraction of, 
1I2-— fivefold, of American peo- 
ple, 3 — for land banks, 271 — 
gold, compared to notes and 
discounts, 318— gold, for three 
decades, 319 — gold (triple), 
185, 191, 304 — ^in zone leagues, 
130 — (land) inviolate perma- 
nent capital, 271 — need of ade- 
quate, 45, 114 — of banks may 
be used temporarily, 112 — rela- 

Reserves — Continued 

tion to liaoilities, 302 — retained 

by national banks. 111. 
Reserve Union, American. .81, 88, 98 

Composition of, 81. 
Resources and management ... 57 
Restrictions to be removed on 

postal savings deposits 193 

Result of reform 190 

Retail trade \ Jtionized 228 

Right basis for federation 8 

Roosevelt, Theodore 322 

Rural bank's relation to land 
bank 285 

Safeguards provided by bank- 
ing reform 187 

Safety imparted to banking by 

co-operation 207 

Sale of United States bonds by 

treasury 304 

Savings and trust business con- 
ducted by national banks .... 114 
Savings and trust funds subject 

to state law 60 

Savings and trust reserve in zone 

league 132 

Savings banks 114 

In national banks, 58 — ^laws 

reformed, 60 — life insurance, 

315 — best form of mutual, 315. 

Savings department governed by 

state laws 59 

Savings departments in national 

banks 312 

Savings deposits, protection of, 

Pierre Jay 59 

Savings invested in land bonds 60, 294 

Say, Leon 203 

Schulze-Delitzsch bank 

A profit-making proposition, 
218 — different from Raiffeisen 
banks, 218. 
Science and art of banking .... 33 

Scotch bank notes 48 

Securities uniform with use of 

time bills of exchange 69 

Security farms afford over town 

real estate 250 

Security for acceptances 68 

For discount rate, 69. 
Self-help principal basis of co- 
operative people's banks . . . 205 
Separation of bank departments. 58 

Service of bank 41 

Shareholders entitled to profit.. 41 
Shareholders in export banks — . 105 
Shares in co-operative banks, par 

value, double liability 233 

Short credits 

facilitate moving the crops, 
73 — on goods in transit, 72 — 
remarkably convenient, 73. 
Significance of architecture of 

zone league - and A. R. U. ... 83 
Small state banks may be taken 

over by co-operative banks... 244 
Social service and patriotism . . . 230 

Sound principles observed 84 

Soundness insured by new eco- 
nomic conditions 162 

Southern commercial congress . . 307 

Speculation 22 

Standard of gold to be left 

alone 189 

Standard of value — gold 13 

State bank laws for gold re- 
serves • 155 

State banks taken over by co- 
operative banks 244 

State is unit of each land bank. 276 
State league of building and loan 

associations 256 

Status of zone league 130 

Stock, Canada's stock of gold 174,314 
Stocks of money 

Of gold money, 172 — of gold 
coin and bullion, 306 — of gold 
only (total) by couniries, 308 
— of all money ( toral ) by 
countries, 308 — in relation to 
wealth, trade and population, 
310 — per capita, of all money 
by countries, 309 — per capita of 
gold only by countries, 309. 

Index, Go-operative Finance 



Strengthening Americans pre-emi- 
nence in gold 185 

Strengthening of cash reserves. . 155 

Subject to Congress 98 

Substitute American money for 

bank notes 152, 154 

Success in Europe of co-opera- 
tive banking 20S 

Success of European people's 

banks 210 

Superiority of American money. . 150 
Superiority of banking methods.. 43 

of banks, 55, 132, 125— of 
landschaften, 262, 266 — of na- 
tional land banlcs, 275, 277, 286 
— of national co-operative 
banks, 234— of trust companies 
not required, 248 — of zone 
league, 145. 
Supplement, not compete with, ex- 
isting institutions 227 

Supply and demand 34 

Supply, annual, of gold 305 

World's total of gold, 316. 
Surplus and capital for export 
banks 103 

Table of contents v 

Taft, Wm. H 249, 322 


on banks. 111 — on circulation, 
use of income, 147 — on land 
banks, 276 — on land bonds, 297 
— for collection of checks, 124. 
Tenants converted into proprie- 
tors 295 

Ten kinds of money 13 

Territory of each land bank lim- 
ited 275 

Three elements of land bank- 
ing 252 

Threefold character of our gold 

reserves 185 

Three types of people's banks in 

Europe 212 

Time bills of exchange vs prom- 
issory notes 69 

Title "American Reserve Union" 89 

Title "Co-operative Bank" 227 

Title page ii and iii 

Total stocks of money 

All money by countries, 308 — 
gold, 172 — gold only by coun- 
tries, 308 — in relation to wealth, 
trade and population, 310. 
Town real estate not as good 

security as farms * 250 


American, volume of, 14, 308 — 
per capita stock of all coun- 
tries, 311 — total stock of all 
countries, 310. 
Transfer of credits and exchange 144 
Transfer of deposits by A. R. U. 144 

Transformation of gold situation 

by new conditions 165 

Transformation, how effected . . . 156 
Treasury sale of U. S. bonds . . . 304 

Trinity of economic unity 4 

Triple reserves of gold .... 185, 304 
Triumph of representation, or- 
ganization, co-operation .... 90 
Trust and savings business con- 
ducted by national banks ... 114 
Trust and savings funds subject 

to state law 60 

Trust and savings reserve in zone 

league 132 

Trust company business inspected 59 

Trust (money) impossible 85 

Two kinds of credit 203 

Types of European people's banks 212 

Uniform money 150 

Union, American Reserve . .81, 88, 98 
United Sfates 
Annual supply of gold, 305 — 
banking power, 305, 315 — bonds 
sale of by treasury, 304 — domi- 
nant in gold, trade and civiliza- 
tion, 105 — gained more gold 
than any other nation, 167 — 
gold account, 302 — impregnable 
position, 185 — "lags lamenta- 
bly behind," 209 — money com- 
pared to other countries, 180— 
needs a thoroughly American 
method, 267. 

Unit of banking federation 77 

Universal postal order, or UPO. 197 
Unlimited liability of Raiffeisen 

banks 215 

Unprecedented new demands for 

gold 166 

Use and function of checks 46 

Use of acceptances 67 

Use of gold in the arts 168, 170 

Usefulness of banking functions. 36 

Value of New York and Berlin 

property fluctuates 250 

Varying needs for currency at 

different seasons 321 

Vastly lessened demand for gold 187 
Vast strengthening of cash re- 
serves 155 

Victor Emanuel, King of Italy 83, 307 

Vision, The ix 

Vital change in American money 

needed 151 

Vital point of banking 44 

Volume of American trade ... 14, 308 

Volume of gold reserves 186 

Volume of money 14 

iVlay safely fluctuate, 159. 
Voting in land banks 282 

Wage earners' savings 255 

Aggregate of U. S. compared 

VleaXth— Continued 

with other countries, 180 — 
per capita stocks of all coun- 
tries, 311 — total stock of all 
countries, 310. 

Weed 193 

Welfare of "common people".., 202 
Well-deserved popularity of Luz- 

zatti system 222 

What an acceptance is 67 

What credit currency is 46 

What each national bank does... 109 

What each state may do xxv 

What exchange is 4 

What the clearing house is 118 

What the American Reserve Union 

does 138 

What the clearing house does .. 117 

What the government does 149 

What the zone league does .... 129 

What the people insist on 227 

What the bank gets for its 

services 40 

Whitaker, Ezra D 315 

Wholeness of financial problem.. 6 
Why European people's banks are 

successful 210 

**Why" national co-operative 

banks ? 235 

Why the title "Co-operative 

bank" 227 

Wilson, Woodrow 322 

Wolff, Henry W 

71, 204, 207, 208, 314, 315 
Work of departments of clearing 

house 123 

'World's annual production of gold 316 

World's finance, center of 104 

World's production of gold 306 

and consumption, 166 — produc- 
tion for 21 years, 178. 
World's reserves of gold, gain... 171 
World's total supply of gold.... 316 

Zone league 80, 81 

An agency, 129 — and clearing 
house, 122 — controlled by bank- 
ers and customers, 54 — co- 
operative for common weal, 130 
— does no business with public, 
129 — expenses, 129 — Fowler 
bill, 130 — its banking reserves, 
131 — its free gold reserve — 
legal status, 130 — not run for 
profit, 129 — relation to A. R. 
U., 134— relation to clearing 
house, 122 — representation in 
A. R. U., 81 — representation in, 
87 — savings and trust reserve, 
132 — supervised by A. R. U., 
145 — ^what it does, 129. 

42 not too many, 93 — economic 
commercial units, 91. 

Health physical, miental, spiritual — being the fundamental human reserve of the American 

nation, this work concludes with the author's invocation' upon the Right Use of Health. 

tEfje mm ®se of lealtii* 


Uttered in humility and penitence, by one who feels implicit 

confidence in God's infinite power, sublime 

mercy and universal presence 

Exalt thyself, O my life I 

Exult in thy broader Vision I 

WHATEVER powers be in 
me, dedicate anew to larg- 
er service, to wider usefulness, to 
nobler endeavor. 

INSPIRE me with the divine 
energy which seeks expression 
in duty well done. Grant me the 
sight always to see that which I 
should do, and the will to do it 

TEACH me to conserve my 
physical, mental and spirit- 
ual forces so that they may unite 
in a Trinity of Health. Enable 
me to consecrate my health to the 
service of God from whence it 
comes, and to do this by better 
serving my fellow-men. 

LEAD me into the Infinite 
Harmony, the poise of Na- 
ture, " the peace of God which 
passeth all understanding." At- 
tune my being to receive Thy 
vibrations, make of me an instru- 
ment for transmitting Thy will. 

HELP me, O God, to nourish 
my Body in holiness and 
health — to keep it free from all 
evil tendencies or unrighteous 

actions, to know its marvels and 
wisely to use them, rather than 
ignorantly or wickedly to abuse 
its wonders. 

AND help me yet more, O 
Lord, in Mind-growth and 
mental strength. Aid me to ex- 
pand my thinking powers, further 
develop my reason, enrich my 
affections and emotions, increase 
my vigor of will, guide my hopes 
and enthusiasms, banish my 
fears and worries, encourage me 
to bear my burdens, stimulate 
my self-control, refresh my ear- 
nestness of purpose, enlarge my 
love for the beautiful. 

THUS, with Thy ever-present 
help, Lord God Almighty, 
may my Body and Mind always 
be a fitting temple for my Soul — 
for Thy spirit in me wiUi which 
in its fullness I am Truth and 
Strength, Faith and Love, Health 
and Happiness, but without 
which I am merely human. 

FEED Thou my whole life — 
direct Body, Mind and Soul 
to co-operate in unison for effi- 
ciency, progress, contentment, 
joy, service, truth. 


*By HERBERT MYRICK, president Oraneejudd Company. Written 
while sailine out from the broad Atlantic between the Pillars of Hercules 
into the blue Mediterranean, after drinkine in the ozone of the ereat 
waters, beine inspired by the nearness of the Creator, rejuvenated 
by brief freedom from care, rejoicins in the harmony of Na- 
ture I Mr, Myrick maintains that the trinity of health 
is the iimdamental basis for efficient endeavor, 
the vital insurance of fflorious achievement 

v'-<i'.-«*iH.'.*>V'.'.'M'r*:*\'CfL'vtL'if'.!'V:vivj'i' >