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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Dague, Robert Addison Title: A postal banking system proposed to prevent... Place: Chicago Date: [1 899] W-S'^CC^'/ MASTER NEGATIVE # COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD BlISIN 203 D13 Dague, Eo'nert Addison, 1841- A postal banking system proposed to prevent bank panics; an address dejivered before the Union reform league, at Los Angeles, Cal., Jan- uary 22, 1899, by ... R. A. Dagnedi,,, Chicago, Charles H. Kerr & oo, |1899i 14 p. (Unity library, no. 93) W RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA FILM SIZE: .^mrv^ REDUCTION RATIO: 12^ * IMAGE PLACEMENT: lA (jJA) IB IIB DATE FILMED: .^-^-^V INITIALS: UA TRACKING # : ^ 5 /-/ 31^ FILMED BY PRESERVATION RESOURCES. BETHLEHEM, PA. BIBLIOGRAPHIC IRREGULARITIES MAIN ENTRY: Daaue. Robert Addison A postal banking system proposed to Bibliographic irreaularities in the Oriainal Document: List all volumes and pages affected; include name of institution if filming borrowed text, ,Page(s) missing/not available: ,Volume(s) missing/not available:. illegible and/or damaged page(s) : Damaged pages throughout Page(s) or volume(s) misnumbered: Bound out of sequence:. .Page(s) or volume(s) filmed from copy borrowed from:. Other: TRACKING#: ^^^"^ > CD O O m O O C/) X -< ■V -1^ 3 3 > OD 0,0 o m Q."n CD O OQ 0(/) ^ X M X ,'C>. 'V? 'd'. > o 3 i 4t. > .-^ 'V'^ L^ La* a? 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By A Law-Abiding Revolutionist. Paper, fifty cents; cloth, |z. 00. Aay vf tiMM b«oks will b« mailed proaptiy on r«ccipt •! price. Pall catalogiM free. Address, Charles H. Kerr & Company PoMtokers •! Social Rffem UUratHf*, 56 Firm AVENUE. CHICAQO. ILUNOIS. A Postal Banking System Proposed to Prevent Bank Panics AN ADDRESS DELIVERED BEFORE THE UNION REFORM LEAGUE, AT LOS ANGELES, CAL^ JANUARY 22, J899, BY Ex-Statc Senator R A. Dagne "^ ""^ of Los Angeles (PUBLISHED BY ORDER OF THE LEAGUE) Uhitv Library, No. 93 Monthly, $3.00 a Ybar April, 1899 Entered at the postoffice, Chicago, as second-class matter Extra copies of this issue will be mailed for five cents eacht SO for 25 cents, IQO for $2.00 T« CHARLES H* KERR & COMPANY PUBLISHERS OF SOQAL REFORM LITERATURE 56 FIFTH AVENUE, CHICAGO / -t 1/ ^im U ,3 D ^^ A BANKING SYSTEM PROPOSED TO PRE'' VENT BANK PANICS, lies and Gentlemen: You have no doubt often heard the statement made, as I have, that we now have in the United States the best' banking system that the world has ever seen. It is my purpose in this address to show the claim to be an erron- eous one, or, if it is the best system, that it is by no means a faultless one but can be replaced by a much better. I grant thai the clearing house system, or rather the book- keeping part of it, is probably the best the world has ever seen and doubtless it is this that the banker refers to when he says "the banking system has never been excelled," but I this clearing house feature must by no manner of means be confounded with the banking system proper, for any organization of business men could very easily inaugurate and successfully operate that system, which is only a good [. plan for carrying out a system of exchange between banks. I assert in the outset that a monetary and banking sys- tem that has engulfed seventy-five millions of thrifty peo-- pje so deeply in debt, that there is hardly a ray of hope that they can ever pay out, and that every few years cul- minates in wide spread panics, causing hundreds of bank suspensions and the loss of millions to depositors and gen^ eral demoralization of all business, cannot be a sound or safe system. Less than five years ago 600 banks suspended and mil- lions of the people's earnings vanished. Instead of being a safe and sound monetary system, I contend that it is a fatally defective and unsound one, and unless the people radically reform or entirely abolish it. they will in tie not distant future, find themselves financially undone. Already the debt of the American people is appalling. According to Mr. Walker, a republican member of Con- [- gress .from Massachusetts, quoted by Congressman Sibley 3 802518 of Pennsylvania, in a speech delivered In Oongrees January 8tli, 1895, the people of the United States, at that time, owed debts, public and private, to the amount of thirty-] two billions of dollars. He estimated that they bore an] average rate of interest of six per cent per annum, which' would amount to ONE BILLION, NINE HUNDRED! MIUiIONS OF DOLLARS. Now from statistics care- fully compiled for 1892, the value of the entire corn,! wheat and oats crop, added to all the gold and all the ail-f ver taken out of the mines of the country amounted to only $1,340,236,600, or the enormous sum of $579,763,- 400 less than the amount required to pay the annual in- terest on our debts. Do you ask is the situation growing better? No, but on the contrary, it is rapidly growing worse. Coming down four years later, E. H. Fulton, edi- tor of the "Age of Thought," made another investigation, and in a table in which Ke names 1,256 forms of indebted- ness, the total' outstanding debts of the people are shown to reach the enormous amount of $44,929,927,703.76; or nearly forty-five billions of dollars. If this colossal debt is bearing but an average of only five per cent, the annual interest would reach tEe vast sum of about two and a quarter billions of dollars. If these statistics are correct, and I believe they are substantially so, because they are corroborated by other credible statisticians, this country is doomed to universal bankruptcy and ruin, for no country can long prosper in which the interest crop exceeds all its staple cereal and mineral crops to the amount of more than five hundred millions of dollars anmiallv. Do you ask me what the banks have to do with this condition of things? Let us examine their methods of doing business and see. It is stated by the bankers themselves that they have in the United States loaned to the people five billions of dollars. Now the Treasury reports show that there is in the United States in all kinds of money a total of but about one billion, six hundred millions of dollars. The banks are thus enabled to reap an annual interest on three billions, four hundred millions more money than exists in the whole United States. Now M us see how matters etand in our own state of California. This state has a population of 1,350,000. Counting $21 per capita in cir- lation, the amount claimed by the Treasury department, )nt, 86 a matter of fact, there is not half that amount actual circulation), it gives a total of $28,000,000 in bhe state; yet the statistics show the startling fact that fhe California people owe the banks a debt of $212,000,- >00 on which they are paying interest — a sum nearly jight times more than all the money in the state. Let me illustrate how the banks do this: John Smith opens a bank, and people begin depositing their money. After the bank gets a few thousand dollars on deposit it bedns to loan. Farmer "A" comes in, gives his note at say 6 per cent interest and borrows $100. What does "A" do with the $100? Why he pays it out to the merchant, to the butcher, to his employes, and others, and most of that money soon goes back to the bank in the way of de- posits. Farmer "B" comes in. borrows $100 and gives his note bearing 6 per cent interest, and he to soon puts it in circulation and it in a short time flows back to the bank- Mr. '^C*^ and ^T>," and scores of others, come in and bor- row, each giving his note bearing interest and each scatter the money among the people, and nearly all of it sooner or later, finds its way back to the bank in the way of de- posits. Now note the fact that none of this money the banker is thus loaning, belongs to him, but does belong to the depositors. Again note particularly that the banker by this "endless chain'' method gets 6 per cent on $100 from "A," 6 per cent from "B," and 6 per cent from all subsequent borrowers on practically the same money. Most of the same identical dollars that the banker loaned to "A'^' he later on loaned to «B," and "C." and to 'T)," and 'TE*' so that if he loans the money eight times during the year (as the records show he does) he reaps a crop of 6 times 8. or 48 per cent of interest on the total amount of money in circulation, and none of it belonging to him but to* the depositors . to the larger number of whom he pays nothing for the use of their money and but a small inter- est to a few who hold certificates of deposit. Thus it may be easily seen that banking is not the least profitable business that honest men may pursue, and why the banker says we have in this country, "the best banking system in the world." Moreover, it may also be readily perceived just how the banks have succeeded in getting, the peopl'e of this country in debt to them to the amount o1 three billions, four hundred millions more than the total amount of all the money in existence in the Kepublie— j and all this too, without giving any adequate security U the depositors against loss, for let a panic come, and the banks close their doors, and how could they do otherwisel for it would be an utter impossibility to collect six to eight! times more money than exists in the whole country with which to pay their depositors. The whole system is un- safe to the depositor, menaces, the business stability of a nation, and is profitable to the banker himself only for a season. It is a dangerously inflated bubble liable to ex- flode in a day and spread desolation throughout the land. Well may the banker say that the" present banking system rests on '^confidence.'' I make no war upon bankers as individuals. They are as honest as the average citizen. It is the radically de- fective system that is to blame and not the banker person- ally. It is this system I attack, and would replace with a better one. You ask me, is there a better banking system than this? My answer is, yes, an infinitely superior and safer one. It is a system of Government Savings Bank and of County Loan and Savings Bureaus. All the leading nations of the world have government savings banks in Buccessful operation except Switzerhnd, Spain, China, the United States and Germany; and we ought to except Germany from the list, for while she has no national banks, she does have a successful municipal banking sys- tem behind whose credit stands the incorporated cities and counties and these are essentially government banks. Thus we have only Switzerland, Spain, China, and the United States without government banks. Those having govern- ment banks are twenty-eight in number. I could name all' of them with the amount of money on deposit in 1897, but for the sake of- brevity will herein give a few of the leading countries: Austria, $49,397,000; Belgium, $63,693,274; Canada, $28,932,929; Ceylon, $2,035,857; Cape of Good Hope, $5,741,528; France, $151,691,705; Finland, $9,445,057; Great Britain, $489,344,870; Holland, $18,557,250; Hun- gary, $9,063,206j Italy, $89,722,464; India, $24,321 ;023; Tapan, $15,223,122; New South Wales, $20,058,500; New IZeal-and, $18,957,893; Queensland, $11,127,924; Russia, fe286,945,677; Sweden, $10,696,725; Victoria, $15, 223,- Jl22. The gran^ total of those given above and those not [enumerated amounts to the sum of $1,344,473,613.00. Why is it that the United States has never adopted Postal Savings banks, which is a sure protection to the depositors and advantageous to the government? Every postmaster general from Cresswell to Carey ha^ urged Congress to do it, and has submitted to that body most convincing testimony from postal officials of foreign gov- ernments, all going to show the great advantage the sys- tem has over our system. I can assign but one reason why,' and that is that the people continue sending bankers, or representatives whom bankers control, to Congress, whose interest it is to maintain our present system which enabl'es them to draw interest from the people on six to eight times more money than exists in the whole Union. The cost to the government of maintaining Postal Savings banks would be very moderate. In Great Britain the expense of management is about three-sevenths of one per cent on balances standing to the credit of depositors: In France the figures are seven-fifteenths of one per cent: For the Netherlands about the same: In Belgium the cost of management is only one-fifth of one per cent: In Sweden one-fourth of one per cent: Austria is the only country having the Postal Savings banks in operation where the cost of management exceeds one-half of one per cent. In that country it is el'even-twentieths of one per cefit. This higher cost in Austria is explained by the fact that the masses of the people are poor and the number of deposits are in small amounts. This occasions more work in keep- ing the books and increases the expenses somewhat. In Italy where the people are poor and deposits are in small sums, the cost of management is a trifle less than one-half of one per cent. Again, I ask why, in the face of the fact that nearly the whole civilized world have this inexpensivo and abso- lutely safe banking system in successfid operation, why cannot the people of this country adopt it? Can there be 8 but one answer? The money loAners who live by annual]] reaping an interest harvest of about two and a half biUioi of dollars, or more than all the staple crops raised, and a that our mines produce, do not want a banking system in-l augurated here so manifestly in the people's interest anq one that would prevent them from reaping colossal fori tunes by clever manipulations of other people's money. Is there any hope that this government will in the nc future establish government banks? I am very sorry to sayl there are but slight grounds for such hope. Wall street is so powerful, the bond hoMers, the great interest gatherers are so thoroughly organized, the great aggregations of wealth are so greedy, that the scores of thousands of peti- tions that have been sent up to the capital praying for a government bank, have been cast in the Congressional waste basket and the people's prayers go unheeded. Even now there is the greatest danger that we will more firmly establish our present destructive and oppres- sive banking system than ever before and put off to the distant future a better system. In keeping with the demands of the banks, bills have been introduced into Congress providing that our 360 mil- lions of non-interest bearing treasury notes shall be called in and retired and interest bearing bonds be issued in their stead, and the banks be authorized to issue their own notes as money, and that the people be allowed no other kind of paper currency. Moreover, that the banks be authorized to loan their own notes to the people at the rate of ten per cent per annum. Was a more audacious and startling proposition ever made than this one to give a privileged class the monopoly of issuing their own evidences of in- debtedness as money, and then give them the power to compel the people to borrow of them these notes at a ruinous rate of interest? Not only do they demand this, but they propose that the government shall not, as now, be security for the re- demption of the notes, but the security to the people shall be based solely on the assets of the banks. And all this they demand without proposing any adequate security to the depositor for the return of money he has left in their keeping. If it is the correct policy for the government to "go out )f the banking business" and confer upon private corpor- Itions or individuals the authority to create all the paper poney and do all' the banking, then why should not the government also confer upon corporations or individuals 'le authority to control all the postal business, conduct all le schools, select all the judges and sheriffs, run all the jourts and hire all the police force to protect your cities 'and thus follow the example of Turkey, a semi-barbaric country. A reference to the United States comptroller's reports shows what I have herein stated, that banks can pay on an average about $1 in $8 of their deposits. That is, when they report $8 on deposit they have only $1 in cash with which to pay the $8. And this is considered "honest sound banking." If called upon to pay their depositors at once they could only pay about 11 cents on the dollar. The "Farmer's Sentinel" recently said: "Just when de- positors will get frightened and want their money is as un- certain as the coming of the next blizzard or the next earthquake. Of course there are "assets" to make good the deficiency in cash, but every body knows what "as- sets" amount to in the time of panic. Of course the more this bubble of bank credits is inflated the sooner it is liable to break. But until the collapse comes, the bankers are reaping a rich harvest of interest on what they owe their depositors. The next panic is looked upon by good busi- ness men with apprehension and anxiety as the next earth- quake by the inhabitants of tropical regions. The only time wl^en men are absolutely free from this fear of a panic is immediately after one has occurred, because they feel' that another one will not occur at once for they know the com- mercial world is then at the bottom of the hill and cannot go lower. But as the years go by, they begin to tremble,, for they know the history of the past, and that our unsound land unsafe banking system results in disastrous panics about every seven or eight years." Again I ask, why should not this intelligent, progres- sive nation adopt a better banking system? As I have shown government banks are not new, something that has never been tried. Great Britain established Postoffice Savings 10 banks in 1861. Gladstone championed them, ajid score of the advanced thinkers of Europe have expressed surpris that America haa not long ago followed suit. Our ptesei system is piling up an interest debt we can never pa] Our people are suffering onerous burdens because of thi colossal debt. Our industrial cl-a^es and* working peopL are growing poorer every day. Our money loaners arl heaping up immense private fortunes out of all proportioi to the value of services they render; depositors are not se- cured against loss; frequent panics and bank suspensions «weep over the country ruining millions; the heaviest bur- dens of this defective system bear the heavier upon the poor classes who are l-east able to bear it; our politics are corrupted in many ways by the use of money which seeks to and does effect legislation, and the perpetuity of our republican institutions themselves are threatened by out- breaks and riots on the part of the discouraged unem- ployed, whose numbers are greatly augmented by the busi- ness panics and depressions caused by periodical bai^ failures. The adoption of government banks, especially if sup- plemented by State and County Loan Bureaus, would cure all these ills. There is but one important feature lacking to make the Government Postal banks a model sys- tem of banking, filling all' the essential requirements of commercial banking. That lack consists in the fact that Postal Savings banks cannot easily be made banks through which small loans couM be negotiated; for, while they re- ceive money placed on deposit and loan in large amounts by investment in government, state and municipal bonds, they could not make small Mns to numerous individuals without a large increase of employes and expense. To meet this requirement and to bring government banks and the people closer together, so that not only small deposits might be made but small sums could be borrowed from the banks, I propose the creation of County Savings Banks and Loan Bureaus. If Postal banks were established without the County ban(ks it would be a grand improvement over our present system. If County banks were created without the govern- ment Postal banks it would be a mighty change for the 11 jtter, but if both were established, we would have as per- fect and as safe a banking system as could be created under )ur present form of government, and would meet every re- [uirement of seventy-five millions of people till that better je is ushered in, when the nation will be one grand co- jperative commonwealth, in which there will be no bor- rowing of money, no interest paid, when money, if it is itill called money, shall not be a commodity to be bought and sold and to bear interest, but will be only a medium of exchange or a memorandum of transactions completed or of labor performed. ~ I have drafted a bill for a proposed state law providing for the creation of such County Savings Bank and Loan Bureaus, which, owing to its great length of detail I can- not, in this address, give in full. It possesses many of the features of the German system alluded to. I will briefly st^ate its general provisions: Let every County Treasurer be authorized by state rlaw enacted, to receive money on deposit, pl-acing it, as do [our present savings banks, in one of two funds at the op- Hion of the depositor: A "Demand Fund" or a "Term Ihmd." Money placed in the Demand Fund to bear no interest and to be at all times subject to withdrawal by the depositor. For money deposited in the Term Fund for not less than three and more than twelve months, the treasurer shall issue to the depositor negotiable certificates bearing two per cent per annum payable at maturity of certificate, these certificates to be issued in denominations of $5, $10, and $20. Now let the treasurer be authorized to make loans at say three per cent per annum to cover ex- tra expense of conducting the business. No loans to run longer than two years, taking a first mortgage on real es- tate worth double the amount loaned, in the name of the County, as security, the borrower furnishing an abstrct of title to the satisfaction of the County Attorney and Board of Supervisors, and paying all expenses of making the loan if the loan is consummated. The Board of County Supervisors, through three of their number, can act as appraisers of property given as security, said Board having the general management under the state law, of the entire business. The bonds of each officer charged wih the 12 discharge of important duties in connection with thi County Bank and Loan Bureau, to be enlarged so as t< insure ample protection to county and depositor. All foreclosures shall be in the name of the County anc aU the profits accruing from the banking system ehall gt into the County Treasury. It shall be the duty of the At] torney General of the state to prepare all forms of certil ficates of deposit, books, notes, bonds, mortgages and otheu, instruments and forms required to put this system into operation in all the counties of the state alike. All* the penalties now prescribed by law for the punishment of county and district officials for unlawful acts are provided as penalties for the violation of this act. In large cities branches of this County bank can be established in several places for the convenience of the people. The advantages of the creation of this proposed County Bank and Loan Bureau would be inestimable. It would be absolutely safe to depositors; It wouM forever abolish bank panics; It would bring out millions of money now in hiding and puti it in circulation; It would abolish high interest on money,] • forcing the rate down to near the amount barely sufficient' to pay the expense of conducting the business (the per cent not to be called interest but "Expense Fund'') . It would inflate the currency by an inflation that couM do no harm, for it would be self-adjusting. The certificates issued in small denominations, would freely circulate among the people as money and would be safer and sounder money than bank bill's issued by private corporations who are under no bonds for the honest transaction of their busi- ness. It would stimulate industry. Money would seek in- vestment, not in note shaving and iron clad mortgages, but in trade, in manufacturing and numerous other chan- nels. It would take away from money sharks the power to fleece their fellow men by contracting the volume of the circulating medium, and the occupation of the usurer would be gone forever. In case of foreclosure of mortgage, the land would go to the county and state instead of to individuals as under the present system, being thus a more just and practicable method for the reclaiming of lands, by the state, than the single tax or any other system yet proposed. The present banks would in due time have to i3 content with the smalier interest or go out of business, >r they could not long get a higher rate of interest than lat charged' by the public banks, and yet this proposed ^stem would not necessarily destroy private banks. They )uld continue to sell exchange and. make loans on per- )nal security or on short time, and transact other com- mercial business; but having no monopoly of the banking usiness (as they have now) they could not create conditions >f panic by heaping upon the people an indebtedness eight [times greater than the total amount of money there is in I the United States. They would themselves be more se- |cure from panics than they now are. ^ • All the profits of this County Banking system, if there any profits, would not go to swell the princely fortunes of the usurer but would be returned into the country treas- ury and thus reduce the people's taxes. All the immeas- urable advantages of an honest, common sense, perfectly safe, cooperative banking system would be enjoyed by the people at large. It has been well said that all things used in common ^y the public should be owned and controlled by the pub- lic. Money, the medium of exchange, is probably more important and widely used than any other thing. It is, therefore, one of the most mischievous and fallacious er- jrors of the age, that money should be issued, owned and Icontrolled by private individuals or corporations for their [own benefit, instead of by and for the government which is Icomposed of all the people . Finally, this proposed Federal Postal Savings bank and I the County Savings Bank and Loan Bureau herein alluded to, would save the country from ruin which is inevitable 'under our present system. In conclusion let me add that this system which I pro- jpose fits in with the general system of doing public busi- mes8 now largely successful in this and other countries pnd which would be increased. Public schools, blind, in- Fsane, and deaf and dumb asylums, orphans homes, public l^hospitals, all reformatory institutions, police and fire de- " mrtments, postoffices and our mail carrying system, county )aor farms, the construction of public roads and bridges, ^prisons, courts, penitentiaries, public libraries and many 14 oisher things of a public nature, are cooperative, nationalis- tic and socialistic in their nature. To these are yet to hi added banks, steam and street railways, municipal watei works, telegraphs, tetephones, electric lights, water trans portation, fuel, land, mines and all other things of gener-i public utility, because these are used by all the people, ai their monopolization by private parties for individual ^\ must and does infringe upon the rights of the masses. lli€^ true solution of our industrial problems will be found after we have established 'TMrect Legislation," and estabhshed the principle and inaugurated the practice of government end municipal ownership of all those things of great public utility, while at the same time guaranteeing to the in