Reform Movements.—Mutual Banking
Template:WilliamBGreene 1849-50 was arguably the Second Mutualist Moment, after the Owenite-Mutualist Moment of 1825-7. The revolutionary philosophies of the French '48ers, introduced to the radical intellectuals of Boston, New York and Cincinnati by figures like Orestes Brownson, William Henry Channing, and Nathaniel Greene were important catalysts for this period. So were American currency and banking reform writers, such as William Beck, Edward Kellogg, and, more indirectly, Thomas Mendenhall and the colonial land bank agitators. The wide-open intellectual atmosphere surrounding transcendentalism and the American Renaissance in literature and the arts, brought into contact with the projects from radical renewal of figures like Proudhon, Leroux (and some of the other Saint-Simonian heretics), Fourier, etc., were turned to meet the "social problem" in its American form, symbolized by the Panic of 1837 and the still-fresh memories of the failures of the Revolutionary currency. Some of the forms of the Owenite-Mutualist movement persisted. It's no surprise to see Ingalls and Brisbane urging "mutualist township" colonies in the period. (This tendency persisted, with Ingalls and Samuel Leavitt involved in the "Hotel and Cottage Association" as late as 1878, and the Heywood's more modest efforts taking place about the same time. It's a part of the mutualist tradition we have not given nearly enough attention.) It's also no surprise to see The Spirit of the Age giving space to Greene's mutual banking proposals, in amongst the competing proposals of his brother-in-law Francis Shaw and the excerpts from Proudhon and his critics. Once we know that there really was a mutualist paper in the period, the primary mysteries are the absence of a couple of key figures. Josiah Warren, for instance, is supposed to have signed a petition for mutual banks in Massachusetts in 1850 or 1851. We know from The Boston Investigator that Warren was lecturing in Boston in 1850, and gathering important figures like Peter Blacker under the banner of "equitable commerce." Looking at the relevant dates, it's likely that nothing but chance, the suspension of The Spirit of the Age, and perhaps the bouts of ill health that Warren mentions in the Investigator, prevented an even broader convergence of projects and key figures in those pages. It would have been the right time, and perhaps the only time. The passage of the Fugitive Slave Law was a turning point. By the mid-1850s Greene and a number of other Boston radicals were in Paris, where Greene met Proudhon, but not Leroux. He returned during the Civil War, and from that point on the game had changed considerably for American libertarians.
What follows appears to be a very early attempt by Greene, perhaps the original attempt, to express the mutual bank idea. Much of it is identical to the form of the petition in the 1850 Mutual Banking, which it seems to predate. It does, however, include the most explicit acknowledgment of sources and influences that I have yet seen, and gives us new clues to the extent of Greene's reading of Proudhon. There is one more text on mutual banking in this same volume, probably by Greene as well. I'll post it as soon as I've had a chance to research the authorship more thoroughly.
[William B. Greene], "Mutual Banking," The Spirit of the Age, II, 4 (January 26, 1850), 61; II, 5 (February 2, 1850) 69-71.
It is not to be expected that first attempts at Mutual Banking will be satisfactory; but it is well that Principles of Collective Credit should be brought up in a form to attract public attention, and to ensure thorough scrutiny of the whole subject of interest. Certainly some plan can be devised, not only to enable merchants and holders of real estate to avoid the tyrannous entanglements of our present systems of currency, but yet more, fully to provide all producers with a true sign of the fruits of labor and skill; yes! and of the power to produce, also. Capital and Real Estate can command advances by combinations of Capitalists and Real Estate owners; why should not Labor do the same, without tying itself up hand and foot by paying ruinous rates of interest—through combinations of Laborers? We are not prepared to pass judgment upon the following scheme; but we rejoice at this sign of growing interest in Mutual Banking, among the industrialists of Massachusetts.
To the Honorable, the Senate and House of Representatives of the Commonwealth of Massachusetts:—
The prayer of your petitioners humbly showeth: that the farmers, mechanics, and other actual producers, whose names are hereunto subscribed, conceive that it is impossible for them, under the present organization of the currency, and the consequent present high rates of interest, to obtain the just reward of their labor. They, therefore, humbly pray your honorable body to grant to them a charter for a MUTUAL BANK, vesting in them the following powers, under the following regulations:
Any person, or company, by pledging real estate to the Bank, may become a member of the Mutual Banking Company, and the Company shall have power to receive new members to an unlimited extent.
Said Mutual Bank shall have power to issue paper money, which shall circulate as currency among persons who are willing to receive it as such.
Any member may borrow the paper-money of said Bank, on his own notes running to maturity, to an amount not exceeding three-fourths (or such other proportion as your honorable body in its wisdom may determine) of the value of the real estate by himself pledged.
Each member shall be bound by the act of incorporation to receive the bills issued by the Bank, at the full value borne on their face, in payment of debts, and in all the transactions of trade, but no member who has in his possession bills on the Bank to an amount equal to the whole value of the property by himself pledged, shall be bound to receive any more until some of those held by him shall have gone out of his possession.
The bills of the Bank shall thus be redeemable, not at the counter of the Bank, but at the stores, work-shops, mills, and other business places of the individual members of the Company: the bills shall thus be redeemable, not because they can at any time command specie at the Bank, but because they are at all times receivable in lieu of specie by the members of the Mutual Banking Company.
The rate of interest at which said money shall be loaned shall be determined by, and shall if possible just meet and cover the average losses and necessary expenses of the institution.
No money shall be loaned by said Bank, except to members of the Company.
Any member, by paying his debts to the Bank, and giving thirty days notice to the President thereof, may withdraw from the Company may have his property released from pledge, and may himself be released from all obligations to the Bank, or to the holders of the Bank's money.
The Company shall have power to pass such rules and bylaws, not inconsistent with their charter, and to elect such officers as may be necessary to accomplish the ends for which the Bank is instituted.
No paper-money shall be issued by said Bank, until after real estate to the value of Two Millions of Dollars, shall have been pledged to the Bank by its members.
A bill of a Mutual Bank cannot reasonably profess to be a standard or measure of value. The Silver Dollar is the measure of value; and our bills suppose the prior existence of this measure, for they are receivable in lieu of so many dollars. One of our bills produces as much effect upon the measure of value as does a bill of exchange, and no more; that is, it produces no effect at all upon that measure.
The establishment of a series of Mutual Banks would be very advantageous to the community: for (1) Such banks would furnish an adequate currency; for whether money were hard or easy, all legitimate paper would be discounted by them. At present banks draw in their issues when money is scarce, (the very time when a large issue is desirable,) because they are afraid there will be a run upon them for specie; but our banks having no fear of a run upon them, since they have no specie capital, and never pretend to pay specie for their bills, can always discount good paper. (2) There can never be any over issue of such money, for it is issued only against good and sufficient commercial paper, and the bills must be continually returning to the banks as may be determined in the charters, every 30, 60, or 90 days, or longer period. (3) It is of no consequence how much of the new money goes out of the ad, country, for it can never draw specie after it, since it is redeemable only at the workshops, stores, hotels, &c., of private individuals at the place where it was issued. We might lengthen out this list to almost any extent, but prefer to invite the reader to reflect for himself upon the manifold advantages of a system of Mutual Banks.
In reply to objections which may be urged by persons who have failed to obtain a clear comprehension of the principle on which a Mutual Bank may be organized, we say,—No analogy whatever exists between the money we propose, and the bills of Banks established on the old principle, but which have suspended specie payments. (1) Bills issued by "specie paying Banks which have suspended specie payments," profess to be based on specie existing in the vaults of the banks, which specie does not exist there, as is made evident by the very fact of the suspension; while our money has a perfect guarantee, since it is based not on specie at all, but on actual property really pledged, and is secured by actual commodities really existing in one hundred workshops, hotels, stores, &c., which commodities are also indirectly pledged as security for the bills, since the owners of these commodities have bound themselves to receive the bills at their full value in all the transactions of trade: (2) The bills issued by "specie-paying banks which have suspended specie payments," pretend to represent gold and silver, and therefore derange the currency; for, since specie is in communication with itself throughout the world, and seeks, like water, its own natural level, every paper representative of a silver dollar that gets into circulation, drives a real silver dollar out; while our money, which does not pretend to represent specie (it represents, not silver dollars, but the value of silver dollars) has no more influence on the value of the precious metals than it has upon the value of any other commodity. The bills issued by a Mutual Bank do not in any way affect the standard and measure of value. Again, our money has no analogy whatever to the old Continental money; for (1) the Continental money was a promise to pay specie, while our money is not a promise to pay specie; (2) the Continental 9 money was guaranteed by the government, which guarantee was not good, because the government could not pay its debts; while our money is guaranteed by the actual property pledged for its security, and by the promise of each individual member of the company to take it in the transactions of trade; &c., &c. We might go on to show, if we did not think it unnecessary after what has been said, that no analogy exist between our money and the French Assignats.
Some persons are accustomed to appeal to experience, whenever any new thing is presented for their consideration: we would remark to such persons, that experience throws no light whatever on this question of Mutual Banking; for the money we propose differs essentially from any that has ever been issued in the world since Adam was expelled from the garden of Eden. Our system is one that has never as yet been seen in operation, and must be judged, therefore, not by the light of experience, but by that of reason.
We close by adducing a brief argument in favor of the immediate establishment of a system of Mutual Banks. There are, at the present time, in the State of Massachusetts, 123 stock banks, with actual and authorized capital of $34,583,330. How much are the people annually called upon to pay in support of these institutions? Let us say that the banks make annual dividends averaging 7 per cent on their capital: 7 per cent of $34,583,330, is $2,420,833.
The banks have also to pay their rent, their officers and lawyers, the tax to the State, their losses resulting from bad debts, &c.: let us say that all these annual expenses would be covered by an average of 4 per cent on their capital: 4 per cent on $34,533,830 is 1,383,333, which, added to the foregoing $2,420,333, gives us $3,804,166, the annual amount which the people are obliged to pay for the use of a currency—probably about one-third of the annual profits of the industry of the commonwealth. A system of Mutual Banks would furnish a better currency at one-tenth of the expense. All persons who borrow money, are interested in favor of a Mutual Bank; all persons who lend money, are interested in opposition to such a Bank.
One great State Mutual Bank, would do the whole work. It is not necessary to explain the details of the organization of such a Bank; we would merely remark that it is by no means necessary that any actual property whatever should be positively and specifically pledged as security for the bills; the mutual promise to take the bills in the transactions of trade, would be a sufficient guarantee. If anything further should be required to give the public confidence in the bills, the members of the Company might give their notes to the bank, binding themselves to meet all assessments that might be made to cover losses from bad debts, &c.
Note: The assessors' valuation for 1830, of the total taxable property then existing in the Commonwealth of Massachusetts, was $208,360,407: the valuation for 1840, was $299,878,329. We may safely estimate that the valuation for 1850 will be to that of 1840, as that of 1840 was to that of 1830. Performing the calculations, we find that the total , amount of taxable property possessed by the people of Massachusetts in the present year, is about $431,588,724. The excess of this last valuation over that of 1840, i. e. $131,710,395, is the net gain, the clear profit of the total labor of the people, in the ten years under consideration. The average profit for each year, was, therefore, $13,171,039. In the year 1849, the Banks of Massachusetts paid their tax to the State, their losses on bad debts, their rents, their officers and lawyers, and then made dividends of more than 7 per cent on their capitals: the people must, therefore, in the course of the past year, have paid interest money to the Banks, to the amount of at least 10 per cent on the whole Banking Capital of the State. At the close of the year 1848, the Banking Capital in the State amounted to $32,683,330:—10 per cent on $32,683,330, is $3,268,333, the amount the people paid during the year 1849, for the use of a currency. If the material of the currency had been iron, $3,268,333 would undoubtedly have paid all the expenses of carting and counting; what then is the utility of our present paper-money We have estimated the total profits of the whole labor of the people of the Commonwealth, for the year 1849, at $13,171,039: it appears, therefore, that the total profits of nearly one-fourth part of the whole population of the State, were devoted to the single purpose of paying for the use of a currency. Mutual Banks would have furnished a better currency at less than one-tenth of this expense.
$34,583,330, are, at the present moment, invested in this State in Banking Capital: $34,611,384 capital have already been paid in to the various Railroad Companies: there are simple business Corporations in the State, authorized to holder and employ capital amounting in the aggregate to $86,472,000. Total capital held by Incorporated Companies, and yielding dividends, $155,666,714. If now the institutions operating on this aggregate capital, make annual dividends of 6 per cent, (mere legal interest,) the total amount thus divided will be $9,340,002. The total profits of the whole labor of the commonwealth, are, as we have seen, $13,171,039, of which sum. $9,340,0002 go to the clear profits of capital while only $3,831,037 remain to be distributed as profits among the laboring people.
A Mutual Bank holding real estate in pledge to the value of, say $10,000,000 and located in Boston, (where there is no lack of houses, and other property that might be pledged,) would immediately relieve the present pressure in the money market; for such a Bank would furnish an excellent local currency for the whole State, to at least as far back as the Connecticut River, thus leaving the bills of the old Banks to serve exclusively for commercial purposes: and the old Banks would soon show themselves—that is, as soon as the relations of exchange could have time to become regulated—to be the fifth wheel in even the commercial coach.
Where a man has a right to borrow $100 on pledge of real estate, and on his own note running to maturity, he can, at any time, and without running any risk whatever, borrow $50; for when his note falls due, he can borrow the other $50, and take up his first note; and he may repeat the operation when the second falls due, thus renewing his note at pleasure, and without asking, any favors of anybody.
The idea of a Mutual Bank is borrowed from William Beck of Cincinnati, the process for the redemption of the bills is borrowed from P. J. Proudhon, and the form of organization from the Mutual Insurance Companies. In Mr. Beck's book on "Money and Banking," and in Proudhon's "Economic Contradictions," the petitioner desirous of further light may find all the information he requires.
- William B. Greene and William Henry Channing, “Mutual Banking,” The Spirit of the Age 2, no. 4 (January 26, 1850): 61.
- William B. Greene, “Mutual Banking (concluded),” The Spirit of the Age 2, no. 5 (February 2, 1850): 69-70.