effective service to the government during the opening years of the war, filling the empty treasury by a large loan of specie, and upholding the national credit.

The National Banking system which has grown out of Secretary Chase's financial operations, and now includes all the banks of issue in the country, recalls many of the features of early banking. Like the Italian banks, and the Bank of England in its first stage, the notes are secured by the deposit of government securities, but with the additional guarantee that the national credit is fully pledged for their redemption. The banks have a double source of profit; they receive the interest on the government bonds, and have besides the profits of their discounts. They are of course subjected to the closest examination as to the state and management of their affairs. Those who remember the state of the currency before the war, or have ever looked into an old Counterfeit Detector, will be forced to confess that this national currency has great advantages.

The valid objections to the system are two: (1) The laws to establish and regulate it are based upon a very imperfect notion of the credit system, and of the nature and extent of the credit employed by the bank in business. Like the old state laws, they take great pains to "hedge in the cuckoo" by limiting the issues of notes. They do not provide for the grouping of the banks in local clearing-houses for mutual supervision. They do nothing to keep the banks from "protecting themselves" in stringent times at the cost of the business community at large.

(2) The distribution of these banks was an artificial one, and was becoming more and more so with every year. In the original assignment the amount of their aggregate issues was fixed at a given amount and distributed among the states according to population. Several of the poorer states were unable to make use at once of all the amount thus assigned to them, and after a given date it was distributed among the older and richer Connecticut, Rhode Island and Massachusetts, for instance, got very much more than their share, the Western States very much less. With every year these poorer states were

DEFECTS OF OUR BANKING SYSTEM.

177

growing in wealth and in the need for money, at a rate that surpassed the progress of the older states. With every year the preponderance of numbers and wealth shifted farther westward. But the new states were tied to just the amount of circulation that they could put upon the market at that date; and this, although they needed far more bank-notes in proportion to the extent of their business than the older states did, as with them the credit system is far less perfectly organized. Hence their outcry for more money, and their opposition to the measures taken to reduce the amount of national currency in circulation, unless it were replaced by some other form of paper-money. So far as this defect can be obviated without changing the basis of our banking system, it has been, by recent legislation.

66

(3) In spite of their bearing the name national," our banks are confined to very limited localities in the transaction of business. A vast amount of money is paid in transactions between distant parts of the nation by the cumbrous and expensive method of drawing and negotiating bills of exchange. The sales of the Western crops and the purchase of Eastern goods in exchange are actually carried on as if they were transactions between the merchants of two different nations, and sometimes at an expense of several per cent. premium or discount to business men. While our present system offers the advantage that the national currency passes freely through the whole nation, and keeps the rate of discount down, its incompleteness leaves great openings for illegitimate business in drawing speculative bills of exchange based on no real transaction, but negotiated by collusion between distant banks or firms.

A national clearing-house established by government, with branches in every important city, and an understanding with all the national banks, would cheapen, simplify and add security to all our domestic trade. As local clearing houses enable the banks to keep watch upon one another, so would this system bring the collective banks of each locality under the supervision. of the banks of other places. The amount of money needed for the whole business of the nation would be greatly reduced. The

balance due to (or from) any city from (or to) all the rest, could be ascertained at a central office and then paid from (or to) that office. There might also be lodged in this national clearing-house, as in the Bank of England, "the power to meet panics by temporary expansion," which "must be a power capable of being used promptly and with decision" (The Nation). Of course this institution would be debarred from all trading in money or commodities, and would be allowed to charge a small rather per mille to pay expenses.

per centum or

(4) The laws which regulate these banks unhappily tend to accelerate rather than to retard the centralizing tendencies of the national money-market,—the tendency to gather the great mass of the nation's capital into one great monetary centre. Money flows naturally to the places where it is most abundant, just as water tends to run down hill; but as it is often the chief problem in hydraulics to overcome that natural law, so also is it a chief problem of national economy to bring the power of capital to bear upon the less developed and less wealthy districts of the country.

CHAPTER NINTH.

NATIONAL ECONOMY OF FINANCE AND TAXATION.

§ 171. The differentiation of function that accompanies the progress of society renders necessary the existence of a body of paid officials to carry on the government (including police and military forces), and numerous other expenditures. In the earliest time the head of the family-the chief of the tribe-the lord of the manor-bore rule within limited areas without receiving fee or salary. He was the lawgiver, the law-ward (lord), the executor of the law, by reason of his position as chief proprietor or as head of the kindred. But in the growth of nationalities a great step was effected when the king's judges rode circuit through the whole realm, with cognisance of all or nearly all causes, and when the king's shire-reeve (sheriff) took the place of the feudal and hereditary count at the head of the county. It was felt that there was a great gain in the increased responsibility and in the fairness of professional judges, though the new system was far more expensive. The remnants of the old system that exist to this day in England in the unpaid justices of the peace, chosen from the gentry and clergy, is felt by the common people to be a great burden. It gives the power and the interpretation of the laws into the hands of men who are swayed by the prejudices of a class. "Justices' justice" is a proverbially poor sort, and one of the chief demands of the working classes in the agricultural shires is: "Give us stipendiary magistrates!" So in Ireland, the "assistant barristers"professional judges supreme on the local bench, though bearing a very modest name-are found to be the mainstay of the poorer classes in all matters of the interpretation of the law.

§ 172. As in the enactment, interpretation and administration of the laws, so in the enforcement of civil order and the national defence,-every class of transactions is a source of expense. The soldier and the policeman discharge duties that

were once incumbent upon every male citizen; they set the citi zen free to employ himself as he will, and he must pay for the release. And if the state interprets its vocation as extending to the sanitary and intellectual welfare of the people, the expense involved becomes still greater. It must take measures itself, or require municipalities to take measures, to keep its cities in such a state of cleanliness as shall bring up the average health of the people to a high standard. It must establish public schools and colleges, and training schools for teachers, that the rising generation may not grow up in ignorance. It must set up postoffices, to promote easy intercourse between the different parts of the nation. If it regard religious knowledge as essential to good citizenship, it may endow a clergy devoted to diffusing it. In these and a thousand other ways it comes to pass that a civilized nation is obliged to pay for the advantages of a free government, and the state must assess upon itself in some form taxes to secure a sufficient national revenue. Through fees, fines, costs of suits, &c., it can throw a part of the burden upon those who are most immediately concerned, but a large part of it must be discharged by the community as such.

§ 173. The problem of so imposing taxes that they may be as little burdensome as possible is one that has perplexed statesmen in all ages. Some of the methods taken to raise money for current expenses without taxation are sufficiently curious. Down to quite recent times lotteries have been thus made use of on both sides of the Atlantic,-the people greedily buying a "ticket," each acting in the hope that one of the great prizes will fall to him. This plan is now justly discredited as lowering the tone of social morality by giving a legal sanction to gambling, and fostering thriftless and reckless habits.

Monopolies have been another device of state-craft. The notion that the state possessed exclusive control of certain trades, and of various branches of commerce, was general in the middle ages. Even where no fee was exacted, it was usual to require a charter from the king for every trade-guild, and this was afterward made a source of revenue to the government. James I