IV. MUTUAL BxVNKING. 



capital belonging to themselves, thus enabling these banks to offer a 

 pretext for charging an exorbitant premium, the power to exact which 

 depends in reality solely upon this monopoly. This book aims at the 

 destruction of their monopoly by allowing perfect freedom in banking, 

 giving to all credit instruments the liberty of such circulation as they 

 can command upon their merits, and thereby enabling producers to 

 monetize their credit directly and at cost, instead of through the media- 

 tion of a prescribed and privileged commodity and at an exorbitant 

 price, as well as to increase the circulating power of their credit by 

 methods of organization and insurance similar to that which the author 

 proposes under the name of mutual banking. 



Tlie long-standing feud between the hard-money advocates and the 

 fiatists has been possible only because each has persisted in looking at 

 only one side of the shield. The former demand a safe currency; the 

 latter desire the benefits of paper money, and each party ignores the 

 other's arguments. This feud the author brings to an end, by proposing 

 a paper currency secured by real property, thus combining the safety of 

 coin with the advantages of paper, and eliminating the evils of botli. 

 Whenever a theory of financial reform is broached that involves tlie issue 

 of paper money, the failures of paper money experiments in the past are 

 brought up as a warning. But the experiments that failed after a fair 

 trial were characterized by one or more of three features which almost 

 inevitably bring disaster, and whicli mutual banking excludes: 



1. The issue of money by a government, or under an exclusive priv- 

 ilege granted by one. 



2. The legal tender privilege. 



3. Redemption on demand. 



When the power to issue money is confined to privileged banks, the 

 control of the volume of currency and the rate of interest resides in a 

 cabal, which will .sooner or later use its power to drive producers into 

 bankruptcy. When the power to issue money is confined to government 

 itself, losses ultimately ruinous will be suffered through maladministra- 

 tion by incompetence, or by fniud, two factors whose oi)er:it ions, in com- 

 bination or in alternation, constitute the history of almost all govern- 

 mental undertakings. 



The legal tender privilege adds no virtue to good money, and re- 

 moves the only effective cure for bad money— the right to reject it. To 

 force bad money on people is as surely disastrous as to force bad food on 

 tliem. But to dwell at U-rigtli on this point and on tlie redemption of 

 notes on demand would anticipate the author's argument. 



Within the last three years all the political parties have sliown ten- 

 dencies toward the ideas advocated in tlie following pages. The Popu- 

 lists, in the "sub-treasury plan," have adopti'd the author's economic 

 theory that money sliould be based on real wealth. The Democrats, in 

 professing to favor the repeal of the 10 per cent tax, incline to his polit- 

 ical theory that tliere should be no restrictions on banks of issue. Mr. 

 Hepburn, who was comptroller of the currency under President Harri- 

 son, is the author of the "Baltimore Plan," which provides for the I.ssuo 

 of money based on the nninipaircd capital of national banks. This plan 

 has been received with niucli favor by many Ki-|)ubllcans. Tin; Popu- 

 lists fall short in not allowing all forms of property to serve as a basis of 

 currenc-y. The Democrats, in not demanding the removal of state re- 

 strictions as well as federal, and in not enforcing their demand when 

 they have the power; and Mr. Hepburn In not placing the unimpaired 



