Law's enterprise Subsequently the celebrated | depreciation of the currency lasted " According abbé Terrai, minister of finance, a man in every respect worthy the reign of Louis XV., proclaimed to the world the necessity and the legitimateness of a nation's going into bankruptcy at least once in every century. Before him, Rich elieu had urged the expediency of a decennial re-examination of claims upon the national treasury. These claims, certainly, were not always genuine. Sometimes they were not very authentic, | and emanated from suspicious sources; at other times they were burdened with exorbitant usu rious interest. But, we may ask, was the lender here more guilty than the borrower? These shameful transactions could produce upon the public credit only one effect, namely, that of raising the premium charged for risk, which the lender then added to the price of money. The states which, like Great Britain and the United Provinces where the principles of liberty and equity prevailed, put an end to these perfidious practices, were the only ones that enjoyed good credit. But these bankruptcies, under the ancient régime, affected directly only a rather limited number of persons. They affected the contractors, large and small, to whom the treasury was indebted, the parties to whom these contractors had transferred the treasury's promises to pay, and other evidences of national indebtedness, together with the capitalists who had consented to make direct advances to the national treasury. In order that the bankruptcy of the treasury might become a really national calamity, and affect all citizens to a greater or less extent, a wider circulation of government paper was necessary, and it was necessary, above all, to discover a means of borrowing from the people generally without their consent. Paper money furnished this means. Modern history affords us several instances of this kind of public bankruptcy. There is the case of France, Austria, Spain, Mexico, and some of the states of the American Union. That of France and of Austria was the consequence of the events which followed the great French revo lution. In both those countries the national bankruptcy affected the fundholders-the direct, voluntary creditors of the government, and also the holders of paper money-the indirect, involuntary creditors of the government.-In France, the nation's bankruptcy grew out of the excessive issue of assignats. When, at last, the law of the 29th Messidor, year IV., did away with the compulsory circulation of the assignats, that is to say, with their circulation itself, since nobody accepted them voluntarily, the amount issued had reached the almost incredible figure of 45,578,810,040 livres-about $8,432,079,857. We can easily divine what was the value of this mass of wastepaper. The extent to which the assignats had depreciated was officially fixed by the law of the 5th Messidor, year V., proposed by the Conseil des Anciens "to devise rules to govern in the case of business transactions entered into while the

to the tabulated statement of the value of the assignats, drawn up for that purpose, and which, be it remarked, rather extenuated than exagger ated their falling off in value, it appears that when the assignats were done away with at the | beginning of the year 1796, 24 livres in specie brought from 5,000 to 7,000 livres in paper money The law which authorized the issue of the mandats, of which 2,400,000,000 livres were issued between March and September, 1796, fixed their value at 30 times that of the assignats. In other words, 1,000 livres of the mandats represented 30,000 livres of the assignats, while the same thousand livres of mandats, as soon as they appeared in open market, were worth only from 100 to 120 livres in metallic money! This gen eral bankruptcy was soon followed by another, less extensive in its character, and which involved the holders of government securities. It was called the Liquidation Ramel, after the cabinet minister who was the author of the law of the 24th Frimaire, year VI. This law provided that all perpetual and life annuities owed by the state, as well as all other state debts, old and new, should be redeemed to the extent of two-thirds, in vouchers payable to the bearer, with the super scription: Dette publique mobilisée. As these vouchers, from the moment they were issued, lost from 70 to 80 per cent. of their value, it soon became impossible to keep them in circulation at all; and hence fundholders, pensioners, contractors and other creditors of the state lost two-thirds of their claims. Nor was the remaining third paid them. It was called the "consolidated debt," and bore 5 per cent. interest. This last third, known as the consolidated third, was the origin of the national debt of France.-While France, recovered from the violent shocks caused by the revolution, was placing her own finances on a sound basis, the wars of the empire and the immense sacrifices which they entailed on all Europe, produced the greatest disturbance in the financial condition of other states. In England, where the sacrifices had attained fabulous proportions, these losses were borne with comparative ease, thanks to the inexhaustible resources of the country, and to its solid, well-established credit at home and abroad. It was otherwise in Austria, whose national wealth was not so fully developed, and whose finances were in an embarrassed state, even before the outbreak of the wars of the empire. When Joseph II ascended the throne the national debt amounted to 283,000,000 florins, and there were upward of 7,500,000 in bankozettel, or bank notes of a low denomination, in circulation. The war with Turkey swelled the debt to 372,000,000 florins, while the paper money circulation (circulation fiduciaire) rose to 28,000,000. The enormous expenses and the crushing reverses which attended the wars with Napoleon were Austria's total financial ruin, and obliged the government to have recourse to every possible expedient to raise money. At the begin

BANKRUPTCY.

ning of the year 1811 the actual national debt had | morals, because, in this way, the loss of a million of which he has defrauded others is distributed reached over 700,000.000 florins, and the paper The declaration of inmoney in circulation was largely in excess of among his original creditors and the buyers of 1,000,000,000 florins. This had so shrunk in value his paper at a discount? that 1,500 florins in paper were given in exchange solvency on the part of the state is not the only for 1 florin in silver. After the peace of Vienna, thing to be blamed and regretted; quite as deplorable and blamable is the loss caused by the gradwhich deprived the state of its finest provinces, ual depreciation which precedes national bankAustria was less than ever in a condition to pay its ruptcy itself. Fortunately the terrible evils which debts. On Feb. 20, 1811, the imperial decree was we have just mentioned are hardly possible in issued to legalize, so to speak, de facto bankruptcy. The decree reduced the paper money (1,060,000,- our day. Revolutions are less frightful and wars 000 florins) and the baser coin (330,000,000 florins) less protracted in our generation, than they were to one fifth of their nominal value, and also low- during the exceptional period from 1798 to 1816. ered by one-half the interest on the consolidated Now, national resources are, as a rule, better dedebt. The paper money was withdrawn from veloped, national finances are better managed, Circulation, and new vouchers were issued in its taxation and credit are better able to meet even Place (at the rate of 1 to 5 florins in bankozettel, exceptional demands. At the present time public opinion has more power to prevent unwise and ruinous outlays on the part of states. Barefaced national bankruptcy is left to such countries as Still, cases of naPeru, Venezuela and Mexico. With the tional bankruptcy, sometimes protracted in duration, occasionally occur in Europe. present system of public debts, when the principal is not paid and the interest alone represents to the capitalist the money he has loaned, the failure to pay accrued interest is an act of bankWhen, for example, Spain refuses to ruptcy. pay the interest, or pays only a ridiculously small interest to a part of her creditors; or when Austria discharges in depreciated paper money the debts contracted on a metallic basis, they, in fact, repudiate the whole or a portion of the principal debt. The destruction of the debtor's credit is, and always will be, the first and inevitable consequence of such dishonesty. It is with the state as with the private individual: dishonest management is the costliest management. Hence, open or covert bankruptcy, be it total or only partial, is an abominable piece of speculation, and a wicked act as well. It is so in a higher degree in public affairs than in private transactions. With good laws, one might in some cases give credit

ank notes,) the issue of which was never to exCeed, in the aggregate, one-fifth of the bankozettel withdrawn from circulation. But this limit was soon exceeded in consequence of the wars of the years 1812 to 1815. In 1816 the amount ssued had risen again to 639,000,000, while the paper money had depreciated to 28 or 29 per One hundred florins cent, of its nominal value. in bankozettel, replaced in 1811 by 20 florins in Vouchers, were, therefore, worth in 1816 only 5 or 6 florins in specie. Advantage was taken of the creation of the national bank to bring order The bank was authorout of this state of chaos. ize:l gradually to call in the paper money, and to substitute for it its own notes, convertible on presentation into specie. It was provided that 250 florins in paper money should be equivalent to 100 florins in specie. The holders of the evidences of the public debt were paid at the same rate. Is it necessary to call attention to the prodigious losses which such a catastrophé involved, and from which no class, we inay say no individual, was exempt? There are writers who have striven to extenuate the gravity of national bankruptcy, and almost to give it the sanction of law. They argue that as the declaration of the fact of insolvency comes only as a consequence of the state's want of credit during a long period of time, and after a gradual depreciation of paper money, the loss in the end is really less heavy than it seems to be. The holder of the government paper at the fatal moment of the national bankruptcy, acquired it at a price quite as low as, perhaps even lower than the rate at which the Partial loss has insolvent treasury now holds it. long since been suffered by those through whose hands this paper has successively passed, while its holders, at the time of the bankruptcy, lose little or nothing. Even admitting this to be a fact, does it in any way extenuate the perfidy of bank ruptcy in itself? Take the case of a merchant who fails with liabilities of a million. His finan cal condition or his bad faith has been suspected for two months, say, by his creditors; and they have sold his paper without indorsement, at a Is his bankloss, let us suppose, of 50 per cent. ruptcy to be condemned any the less in law or

even to a dishonest man. The law and the courts of
justice will enable him to triumph over the bad
faith of the latter. But it is not so in the case of
the state. For the very reason that states have
the power to be bad creditors, their desire to be
Otherwise
honest should be above suspicion.
there could hardly be any national credit.
J. E. HORN.

BANKS. When through the indefatigable industry of the North American settler, a new town springs up amid the forests of the northwest, a bank is immediately established side by side with the church and the printing office, it may be in a grocer's store, who carries on the business of the banker and his own at the same time. The reason of this is, that the wants which the bank or banker supplies are among the most imperative wherever trade is active or tends to become so, even in a small degree. The bank is, in the circulation of capital, what the railroad is in the circulation of

of money, the want of an intermediary to facilitate the indirect exchanges was soon felt; and once the want was felt, institutions were estab

men and things, and what the newspaper is in the circulation of news and ideas. Like the railway and the newspaper, the bank does not create what it causes to circulate; but it not unfrequently hap-lished and men came forward to satisfy it. Money pens that only it can render such circulation possible. It always accelerates and develops the circulation of capital. We might therefore define a bank: An office for the circulation of capital in the form either of accumulated labor (money of all kinds) or of labor yet to be done (credit). This definition embraces the whole series of services which can be reasonably asked of banks, or which have been asked of them at different times. These services are many and varied. They have not been the same in nature and extent at all periods of history. But every country whose industrial and commercial organization did not remain rudimentary has sought and obtained the services of banks. The origin of the banking business is of very remote antiquity.-Recent research, especially that of Mr. Koutorga, has shown the impor tant part played by the trapezites (vi rpanĒĻìtat) in Athens when trade began to develop and personal property to assume some importance. In the fourth century before Christ, their sphere of action was so large that it was thought necessary to divide and specialize their operations. There were money changers who carried on the business of changing the different kinds of local and foreign money, money lenders engaged in the making of advances to borrowers, and bankers properly so called whose operations were much more extensive, of a higher character and approximated more closely to banking operations in modern times. The trapezites took the money of individuals either for safe keeping only, to effect payments, or to turn it to account in commercial, industrial or maritime enterprises. They were in constant relation with foreign places, and effected transfers of capital either in specie or by a clearing operation. They came to the assistance of the state when it was in financial want. trade did not occupy the highest place in public esteem, but it was lucrative. Pazion, the banker, immortalized in one of Demosthenes' orations, was able to lease his banking house in consideration of an annual rent of a talent, or about $1,200. The bank, however, was not always an individual enterprise. Recourse was had to the association of capital and to the formation of banking com panies. The argentarii of the Romans corresponded to the trapezites of the Greeks. With the increasing extension of the limits of the empire and its relations with almost all of the then known world, the business of money changing could not but acquire a greater importance than it possessed among the Athenian bankers. But the trapezites of the Greeks had predecessors as well as imitators. Banking operations can not have been un known to the nations which preceded the Greeks in the way of commerce and especially to the Phoenicians. When exchange proper took the place of barter in a country, when the exchange of services was operated only by the intervention

Their

was weighed in ancient times. It was also indispensable that its quality or value should be proven; and what more natural and practical than that recourse should be had to persons who had made a business of weighing and testing it, and who performed both these operations with accuracy and celerity, to establish its weight and value? It is very probable that goldsmiths were in ancient times, as in England in the middle ages, the first bankers.-Let us now suppose that a vender A is in need of a kind of money different from that which the purchaser of his wares has just counted out to him on the goldsmithbanker's table; that, at the same moment, a vender B, accompanied by his buyer, presents himself before the same table and receives the very kind of money which the vender A is in search of, and that B wants the money which A is anxious to get rid of. The exchange of the two kinds of money will be immediately effected by the remunerated intermediation of the banker. But such a meeting of supply and demand can not always be calculated on. The vender A will therefore leave his money with the banker to effect the exchange as soon as the kind of money sought is brought to his table. From this, to the practice of bankers keeping a certain quantity of different kinds of money always on hand to effect changes of money for their clients, in case of need, directly and indirectly, there was but a step. At another time, perhaps the vender A or B having no immediate use for the money just counted out to him at the banker's, leaves it there for the moment, either because he thinks it safer with the banker than in his own house, or because he expects, later, to take in its stead the kind of money he may need, or because he wishes the banker to turn it to account in the meantime. If the money received by A or B is intended to pay a debt due to C, a resident of the locality itself or of some other place, it may still be left in the banker's hands that he may effect the payment; and if the creditor C, in turn, be D's debtor, and D E's and E F's, each of these creditors, who is at the same time a debtor, may instruct the banker to satisfy his own individual creditor, and none of them need touch the money. Thus, thanks to the intervention of the banker, the same sum of money may, without even changing hands, settle a whole series of debts. The banker, seeing that all the payments intended for his clients are made at his counter, does not hesitate to advance to them, in case of need, the amount of a deposit he may receive shortly or only after an indeterminate period. On the other hand, the banker, to profitably employ the sums deposited with him or which he holds in reserve, advances money even to others than his clients, on such security as be considers sufficient. Thus, the whole series of bank operations--money changing, deposits, clear

BANKS.

ings, advances, loans, etc.-springs logically and | naturally from the modest beginnings of this one man's business, to whom buyer and seller address themselves to have their money weighed and assayed. The mechanism of these operations once known, it was not necessary that every banker should perform them all. One might have a preference for one branch and another for another of the banking business. It is conceivable, too, that at a given time or place one branch might be of much more importance than others. Where, for instance, metallic pieces used as money were subject to frequent alteration, and, therefore, could not be accepted by any one in any quantity until after a minute examination of them, the weighing and assaying of them played a very important part. On the other hand, that part was very unimportant, when confidence in the honesty of the coinage became general and Was well founded; for such confidence did away with all the obstacles in the path of monetary circulation. The business of money changing had a wide field in the cities in which great fairs were held, to which great numbers of strangers flocked; but when more perfect instruments and modes of circulation diminished the direct employment of metallic money in large transactions, the business of money changing lost much of its importance. The absence of safety may have been the first motive which determined the capitalist to deposit his money with the banker, who had special means of watching and guarding it not possessed by others; and this making of deposits continued, but for different reasons, after the credit system was more developed. Circumstances sometimes introduced a new branch of the business. Thus knights, going to the crusades, borrowed money by pledging their jewels and silver ware for its repayment. Bankers soon generalized this mode of borrowing, and loaning On pledges occupied a large place in banking operations during the second half of the middle ages.-Italy had a great share in reviving banking operations. Violent measures, and the theological hatred of all trade in money, had almost wiped out even the memory of banking. The Inodification of lay barbarism and the removal of ecclesiastical pressure, no less than the imperious wants of commerce, restored the banking house to Italy. It was not long before Italy supplied the hief commercial cities and nations with bankers. The Lombards, and their competitors and compariots the Cahorsians, instructed Europe again in banking from the thirteenth to the fifteenth centuries. They were the money lenders to governnents in financial need. The Italian bankers were one day loaded with favors, hunted and robbed the next; and this in England as well as in France, in Germany, and even in Italy. But they found their business a very profitable one; for they were a very serviceable class of men. Not only did they restore the institution of bankng to Europe; they assured its growth by assignaug an important place to credit which was des

229

tined soon to be the preponderating one in bank-
ing. Whether it be true or not that the bill of
exchange and the bill payable to order were not
unknown to antiquity, or that they were invented
by the persecuted Jews in the middle ages, cer-
tain it is that it was the Lombards who regular-
ized and generalized the employment of these
powerful and ingenious instruments of credit. -
Simultaneously, an innovation took place which
was destined to exercise in the future a very
great influence on the progress of banking: it
was the creation of public banks. This simul-
taneousness was not accidental. From the time
that the banker ceased to be simply a dealer in
money, taking the word in its most material
sense; from the time that fiduciary capital (credit)
became the principal part of his business, the in-
fluence of ass ciation could not fail to be felt as a
Public banks
necessity of the situation, and to get the advan-
tage over isolated individuals.
were destined inevitably to take the lead of simple
bankers, because the former had greater material
resources and more numerous relations, inspired
more confidence on account of the joint guaran-
tee of men of good commercial standing, and
offered more security because moral persons en-
dowed, so to speak, with immortality. Private
bankers, however numerous, rich and powerful
they might become, from that time took the
second rank; they were satellites revolving
around the public banks. Private bankers were
supported by, and supported public banks. But
public banks differed from private bankers whom
they partly superseded, only in the extent of
their business and the perfection of their organi
This principle,
zation; the essential principle of banking opera-
tions remained almost the same.

as the reader may have already noticed, is that a
banker can be and should be only an intermediary.
Whether he exchanges for two merchants the
money they mutually offer and ask; whether, by
loaning to B a deposit made by A, he causes it
to yield a profit; whether, by some strokes of the
pen (clearings), he settles for his clients a whole
series of accounts-whether he discharges C's
debt in a distant city, and pays to D the claim,
or letter of credit, he has on the same city;
whether he advances to the state the funds in-
trusted to him by private parties: in all these
cases a banker only facilitates between two or
more persons, transactions the direct realization
of which would have cost them trouble, time and
money. The usefulness of this intermediary ser-
vice is manifest; it sums up the whole part played
It was his business to facilitate
by the banker.
the movement of capital, no matter through what
channels; this was the mission of both banks and
bankers. It seems certain that Italy, the country
in which the institution of bankers was first re-
stored, was also the cradle of public banks.
Cibrario, an Italian economist, justly esteemed,
speaks of a privilege of banks of exchange, “with
the obligation to open eight banks," which the
municipality of Genoa granted, in 1150, to Wil-