even at these high prices, yield an interest of nearly seven per cent. Why should this be so? Why should the few persons interested in these institutions obtain such enormous dividends? Because so large a portion of the community prefer accepting a low rate of interest, free, as they suppose, from risk, to taking the larger risks and profits of the principals. These institutions are mere gaming-houses, with liabilities so great as more than ten times to exceed the property they own. Taken altogether, they form a great inverted pyramid, liable, at any moment of financial crisis, to topple over and bury the stockholders in its ruins.

No man, not possessing the nerve of a thorough gambler, could have thought eight, ten, or even twelve, per cent. sufficient compensation for the risks that, under the law of 1825, he was required to incur. The prudent capitalist, therefore, took no shares regarding it as better even to let his capital lie idle in the one incorporated bank that he deemed perfectly secure, though receiving no interest. He could, however, discern no good reason why he and ten or twenty of his neighbors might not each place £5000 in the hands of an agent, to be employed under an agreement with all who dealt with him, that the liability of his principals should be limited to the capital so employed. Knowing well that such an association, trading upon those terms, would command a far greater amount of public confidence than any one, two, or three of the individuals trading separately could do, he found it difficult to understand why, if those who wished to do business with him were content to take the liability of the subscribed capital, the community should deny their right to do so — requiring them to retain the privilege of looking to the private property of the parties. With great reason did he, therefore, say, "I would be willing to take four per cent. for the use of my capital, if permitted to use it in my own way; but if I must take the responsibility of an ordinary joint-stock bank, I must have six or seven per cent." He was thus compelled either to take large risks, for which he demanded a large proportion as interest, or to place his capital in the Bank of Eng

* "It may well excite astonishment, that any one who can really afford to make a bona fide purchase of shares in a bank, should be foolhardy enough to embark in such concerns."- McCulloch's Dictionary, article Banks.

land, and let it remain there idle, yielding nothing for its use waiting the occurrence of some other mode of investment, abroad or at home, by means of which he might obtain four or five per cent., without incurring risk beyond the amount of capital employed.

§ 19. Within the last two years, the system has been changed, and greatly for the better, by the passage of an act of Parliament fully recognizing limitation of liability. Associations may now, therefore, be formed for trading in money, or for almost any other purpose, without incurring risk of loss beyond the amount invested. The system of England tending, however, towards centralization, this measure, although in the right direction, can have but little effect while the general English policy shall remain the same looking exclusively to fostering trade at the expense of commerce-exporting men by hundreds of thousands to distant colonies, and thus diminishing the power of association-building up London at the expense of the rural portions of the kingdomregarding exports and imports as the sole criterion of prosperity -and thus increasing, by every movement, the numbers and the power of those who live by means of simple appropriation, and at the cost of those who seek to live by labor. The foundation of the system, as was the case with that of Carthage, having been laid in "gold-dust and sand," no alteration of the superstructure can be productive of much effect while it shall so remain. The small proprietor and the small manufacturer gradually disappear from the land; * and with every step in that direction, the difficulty of profitably investing small capitals is increased. † From year to year, the services of the middleman are more and more required; and therefore is it, that the change of system appears, thus far, to have been productive of small effect the proportion between capital and loans having remained almost unchanged, as

* See ante, vol. i. p. 420, for the process by means of which the small iron-masters are gradually being ruined.

The enormous amount managed by the directors of life insurance offices furnishes proof conclusive of the growing difficulty of profitably investing small capitals. Small properties are being gradually consolidated into large ones; small shops are disappearing; and with every step in this direction the necessity for such offices must increase.

is shown by the following figures, representing the state of eight of the principal London banks in the summer of 1856:

Average dividends.
13.9 per cent.

The larger the proportion borne by the capital of an individual, or a bank, to his liabilities, the greater is the tendency towards stability and regularity. The larger the proportion of liabilities to debts, the less must be the stability. We have here all the elements of instability large loans-large liabilities - small capitals and great dividends.

§ 20. Scottish banking has always been greatly superior to that of England, for the reason that it was more localized and more free. The Bank of Scotland was chartered in 1695; the Royal Bank of Scotland, in 1727; the British Loan Company, in 1746; the Commercial Bank, in 1810; and the National, in 1825. Instead, therefore, of one great corporation, with large liabilities and no actual banking capital, we have here five smaller ones, with an actual and paid-up capital amounting to nearly £5,000,000 — giving one, at least, of the elements of stability. Further than this, the people of Scotland have always been free to establish joint-stock banks on the basis of the law of partnership-the monopoly by the Bank of England having been limited by the Tweed. The result of this is seen in the fact, that banks with numerous shareholders have grown up gradually throughout the kingdom, and have acted as larger saving-funds- enabling those who had money readily to invest it, and those who needed to borrow readily to attain their object. That larger freedom has given greater steadiness, is shown by the fact that the Scottish banks safely rode out the storms of 1793 and 1825, in which so large a proportion of the English ones were wrecked.

The liabilities in the form of circulation but little exceed £3,000,000; whereas, those in the form of deposits, subject to withdrawal at short notice, are estimated at £30,000,000. Taking the total capital at £8,000,000, and the investments at £40,000,000, as they probably are, the proportions are those of five to one, whereas those of the London banks are, as the reader has seen, no less than ten to one.

So large an amount of business based upon so small a capital would, however, cause much greater instability than now exists, but for counteracting circumstances. The first of these is found in the fact, that a very considerable proportion of the credits on the books of the bank are those of small depositors — men whose claims amount to ten, twenty, fifty, or a hundred pounds, and who are receiving interest for its use. The second is found in this, that the Scottish banks trade largely on the London Exchange lending money there in times of excitement, and thus swelling the tide of speculation, and then as suddenly withdrawing it on the first appearance of danger. Scotland, to a considerable extent, escapes unhurt, but the effect is severely felt in England. The remedy would be found in the adoption of measures tending permanently to fix the large amount of floating capital now existing in the form of deposits converting it into stock, and thus placing it on a footing with that invested in the Bank of Scotland. The measure of 1844, however, looked only to the circulation, an almost fixed quantity of £3,000,000, leaving wholly untouched the deposits, an ever-varying quantity many times as large.*

§ 21. What is the total capital employed in the banking business of Great Britain, cannot be ascertained. private bankers making no returns whatsoever. The Bank of England, as we know, has none what is called capital being only a right to claim of government the payment of a certain annuity. Eight London joint-stock banks trade to the extent of £40,000,000 upon a basis of less than £4,000,000. Country banks do business in less proportion to their nominal capitals, but often in like proportion to their real ones. Experience has proved that private bankers, as a rule, have very little property of their own. The amount invested in Scottish banks is to their business as about one to five. Taking all these quantities, the total capital em

* Sir Robert Peel, the author of the law of 1844, was essentially a trader his knowledge of social science having extended little beyond the idea of buying in the cheapest market and selling in the dearest one. His first great financial measure built up the fortunes of state annuitants, like his father, the first Sir Robert, while it doubled the weight of taxes paid by

labor and land. its diminution.

His second increased the power of the bank, while seeking
Few men have ever acquired so great a reputation at so

small a cost.

ployed would seem to be from £20,000,000 to £30,000,000, while the total amount of securities held is probably little less than £150,000,000. The whole system thus takes precisely the form of an inverted pyramid, and hence its constant instability.

The great recommendation of the precious metals, for use as a measure of the value of other commodities, is the tendency towards steadiness in their own; that is to say, in the quantity of human effort required for their reproduction. That recommendation is wholly wanting in the British currency - the value of a pound being in some years doubled, while in others it is reduced one-half, and these changes occurring so frequently that they are now looked for with a certainty nearly equal to that with which we look for changes of the seasons. To what causes are they due? To the use of circulating notes, said Sir Robert Peel and his disciples. In every other case, however, in which the utility of a commodity is increased, the supply becomes more steady, and the price more regular. To this rule there is not, nor can there be, a single exception; and being true in regard to all other commodities, it must be so in the present one. That being the case, the use of circulating notes-tending, as they do, to increase the utility of money-must tend to the production of steadiness in its supply, and regularity in its value. That it does so, is proved by the fact, that both the supply and price are more regular in New England than in Texas and Mississippi in England than in India — in Germany than in Turkey - in France than in Brazil or Portugal.

The tendency to steadiness of value is in the ratio of the rapidity with which production follows consumption. That increases as the consumer and the producer approach each other-as commerce grows and as the middleman, or trader, is more and more eliminated. Hence it is that money flows from year to year more steadily into France, Germany, and Northern Europe generally, and that its value in other commodities becomes more regular. Hence, too, it is that the same phenomena are exhibited in the United States whenever they follow in the same direction-that of a policy tending to increase the power of association, and to enlarge the domain of commerce.

The reverse of this is always seen as the consumer and producer become more widely separated as trade acquires the mastery