193. It is sometimes said that high interest eats up the poor. But plainly it is only the improvident or speculative poor who suffer. On the contrary, it ought to be said that natural rates of interest will make men more prudent in entering upon new enterprises; for they will more accurately count the cost, and will be less apt to expose themselves to vicissitudes and chances. Many a man borrows at seven per cent., and pays a premium making his interest equal to ten or twelve, who would hesitate to borrow at ten or twelve per cent. outright.

194. Bear in mind, then, that usury laws are injurious chiefly to those who labor for wages, by lessening the wages fund of the country, and by disabling them from borrowing sums by the help of which they might, with energy and prudence, become capitalists in their turn, and achieve independence.

195. You see, therefore, how short-sighted is the policy of those who oppose the repeal of usury laws in the states, and have even demanded that Congress shall enact such a law to apply to the whole United States.

XXIII.

OF BANKS, BANKING, AND CREDIT.

196. If I have a thousand dollars which I shall need to use three months from now, but do not need in the mean time, it would be an advantage to me to be able to lend it out at interest for three months. But it might happen that you wanted to use a thousand dollars for three months and no more; and it would be an advantage to you to be able to borrow, not for a year or a longer term, but for three months only. If we two could know of each other's wants at the right time, both of us would be benefited; and not we two only, but also all whom our joint arrangement enabled you to employ with my thousand dollars, and me with the interest I received of you.

197. In every civilized community there are daily hundreds, or rather hundreds of thousands, of such instances; and BANKS

are established to enable the borrower and lender to be quickly accommodated. Experience has shown that the demand of lenders can be foretold, depending, as it does, upon business transactions arising out of commerce, manufactures, and agriculture, which have their regular periods. A banker, therefore, acts upon his knowledge of the laws of commerce and the laws of nature, which tell him that money realized by one set of transactions may be safely loaned to persons engaged in another set, to be returned in time to be used for a third, and so on. You can see, for instance, that a miller, having sold his flour, can lend his money to a farmer, who wants to plant his crop; provided that at harvest the farmer, who will then sell his crop, will return the loan to the miller. The storekeeper, with whom laborers spend their wages for the necessaries of life, receives meantime money, which he may lend to the miller in case he should want to repair his machinery.

198. A bank is an association to facilitate such loans, and its interests are therefore harmonious with those of the whole community, and especially with those of the class who work for wages; because the less capital lies idle, the more will be at the disposal of those who want to employ labor and pay wages.

199. A bank is in fact an association for the safe-keeping and the loaning of money. It becomes responsible to us for the money we deposit with it; allows us to draw checks at will against our deposits; in some cases pays us a low rate of interest on the sums we leave with it; and makes its profit by lending at higher rates. As it is responsible to us for our money, it must lend on good security only, and must know the character as well as the circumstances of borrowers; and as it must return us our money at any time, and without previous notice, its managers can lend only at short dates, or on call" —that is, to be repaid by the borrower after a short interval, or on demand. And it is to the banker's interest not only to make as many loans as possible, but to make them prudently, to competent men on good security; for he has capital of his own at stake, and if he should fail to pay his depositors on demand, they would close his bank and seize his property.

200. Thus you see that a bank is a means for the economical use of capital; and every economy of this kind makes more abundant the fund out of which wages are paid, and thus secures a greater range and amount of employment to those who work for wages.

201. What is thus true of banks is, of course, equally true of credit in general. If a mechanic, on the strength of his good name and of his chest of tools, can borrow a hundred dollars for a year or for a term of years, and if he has a profitable use for the money, evidently he is benefited by the credit he has. He may use it to pay the wages of men he employs; and with the help of a small loan may in time achieve real independence. And if, after having accumulated property, his character and property secure him credit for ten thousand dollars, and enable him to employ fifty or a hundred men, still that credit would be a benefit not only to him, but to all whom by its help he was able to employ for wages.

202. Thus credit is useful to the poor, and not merely to the rich; and to the many, and not only to the individuals who have or use it.

203. But it may be misused; as if I should borrow money to be used in an enterprise, as a mill, which was unprofitable. Here my laborers would still receive the money in wages. I should lose that; but they and the mass of laborers also would lose, secondarily, because the capital sunk or lost in the unprofitable mill would be dead; it would never more be available for wages or consumption; it could not increase, and would produce no profits available for wages; and by every such loss of capital, the whole community, including, as you plainly see, the laborers for wages-the non-capitalists as well as the capitalists-are the poorer. Thus when a bad law tempts or forces capital into naturally unprofitable industries, this is a loss to the mass of the laborers as well as to the owners of the capital.

204. In many cases, indeed, the individual capitalist prudently saves himself from loss, by insurance. Thus when a mill or factory is burned down, or swept away by a broken dam,

the owners may receive its full value from an insurance company; they may use this money to rebuild their factory, and thus give temporary employment to a large number of men; and to a superficial view the loss might appear a gain. But you must see that, first, the operatives stand idle while the mill is rebuilding: or if they seek employment elsewhere, do so at a loss to themselves by the cost of removal, and at a loss to others of their own class by increasing the supply of their kind of labor at the very time that the demand is diminished; and, second, the old mill rebuilt will only give employment to its former operatives, while if the mill had not been destroyed, the capital used in rebuilding it would have been available for a new mill or other enterprise, which would have given employment to an additional number of hands.

205. Thus you see that destruction of capital works to the injury of the non-capitalist class; and that the Chicago fire, though it gave employment for a time to a multitude of carpenters, masons, bricklayers, and others, and caused an artificial and seeming prosperity in that place, was a loss to the mass of our population, because in fact it lessened the capital, surplus, or wealth of the country, and thereby impaired the means of giving employment all over the land. The Boston and Chicago fires were followed by a general stagnation in business all over the country, because capital which would have been used in other enterprises and expenditures, and consequently in the payment of wages for other and new production, was concentrated in Boston and Chicago, and used to repair waste and losses to replace what had been destroyed.

206. But an unprofitable enterprise is just as much a destruction of capital as a fire; and if I should hire you for a year to carry bricks from one side of a road to the other and back, though you might in the mean time live from your wages, I should have sunk my capital, and the mass of the laborers in the community would have suffered a loss, because there would be less capital out of which to pay wages.

207. Thus you see that credit, which is only capital in another shape, can not be misused without inflicting a loss on the

whole community, and especially on the laborers for wages. And you see how foolish are the people who would like to have the government borrow vast sums of money to be expended in what are called "public works," of doubtful and certainly not established utility; for if it were certain that a new canal or railroad or other so-called "improvement" would be profitable, private capital would quickly create it. The plea is that such projects would give employment to great numbers of men. But if they are employed in unprofitable enterprises, they and the mass of laborers are in the end injured by the loss of capital, which involves a decreased fund out of which wages may be paid.

XXIV.

OF BANK-NOTES.

208. Besides receiving money on deposit, and lending it out on security, which is their proper and legitimate business, banks sometimes issue notes or bills of their own.

209. This is a peculiarly profitable business: for a bank-bill bears no interest; it is liable to be destroyed by fire or water; it is likely to remain out for a considerable period-indeed, issue-banks often take pains to cause their bills to be circulated at a great distance from the bank in order to keep them out the longer; and, finally, as the bank-bill becomes a medium of exchange, the people are in a manner compelled to accept it. But if a bank fails, the laborers for wages, the non-capitalists, are sure to suffer most of the loss which occurs from the depreciation of the bills. A bank note or bill has therefore some of the features of a forced loan by the bank from the public.

210. In the United States we have been so long accustomed to see the issue of bills made the most conspicuous business of a bank, that in the common apprehension a bank is synonymous with a paper-mill, a machine to create shin-plasters, and to suspend specie payments whenever, by granting unwise

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