Mr. Laboringman: I see now that you bankers must keep the money you receive from us depositors, either in cash or in something you can instantly convert into money, and when you don't do that, you have tied it up, as you say; and if we happen to find it out we are apt to want our money; and if we all want it at the same time, you call it a run on your bank. Now when you say a banker is ready for a run, you mean, as I now understand it, that he has all his deposits on hand in cash, or has all his deposits invested in something that he can turn into cash: good notes that have been taken in the course of business, that is, in the production and transportation of consumable commodities, the necessaries of life. Of course, anybody must understand that if a bank bought a lot of farms or a lot of farm mortgages (and it might be worse off if it bought city mortgages with our deposits), he could not convert them or turn them into money on demand. I am on to this thing now; neither mortgages nor land can be considered what you described a minute ago as quick assets, or as liquid assets, because you cannot convert them into money practically on demand.
Mr. Farmer: I grasp that idea now myself. Do you know I have always thought, until within an hour, that we farmers ought to be able to get something to pay out in the shape of currency that represented our land, or in exchange for a mortgage, just because I knew a mortgage was good or worth its face; but I see now that a bank must not only have something that is good and worth its face, but it must be exchangeable for, and convertible into, real money or gold, at any time, or the bank must shut up. And you can't turn all our farms into some form of currency, and expect the banks to redeem it any more than you can sell a farm every hour. I have been trying to sell one farm for ten years. Now I see that would not make very good currency. Since I cannot sell it, the only way for me to convert that farm into cash capital is to take the net earnings, and lay them aside until they equal its value or what it cost me; that might not be within twenty years, as I might not be able to save for that purpose more than 3 per cent or 4 per cent a year which, at compound interest, would about make it. It is perfectly clear to me, now, that real estate is not a proper basis for a currency, which must be currently redeemed in gold. It cannot be done; that is a sure thing.
Mr. Lawyer: Mr. Farmer, you have reasoned out for yourself a thing that has fooled many a man, and the world has had many bitter experiences trying to do the very thing you now so clearly see cannot be done; that is, make currency out of real estate, or, rather, as you would say, make money out of real estate, when, as we have already seen, gold is the only money we have or can have, so long as gold is our standard of value.
Jevons, a great English writer, has well said: "Land is doubtless one of the best kind of security for the ultimate repayment of a debt; and it is therefore very suitable when money is lent for a long time. But representative bank notes purport to be equivalent to gold, payable on demand, and nothing is less readily convertible into gold in an emergency than land."
Mr. Farmer: And we cannot have any more currency than we can redeem daily in gold. Therefore we can't make currency out of all of our real estate, even our agricultural land, which is according to our last census worth sixteen billions or $160 for every man, woman and child in the United States. The average value per acre is $15.57. Now, at first thought, anyone would say that it would be safe to issue money for this value, or sixteen billion dollars; but who would redeem it? That is the question. One hundred and sixty dollars for every man, woman and child. That would certainly be absurd; and yet I have always thought that we could do that very thing until tonight. I see how it is, currency must be currently redeemed in our standard of value, or it will become first worth less than 100 cents on the dollar, and if the thing goes far enough, it would actually become practically worthless, although it might be based upon valuable real estate. How perfectly simple and plain this all is now.
Mr. Lawyer: Indeed, it is simple and plain, but do you know that that scheme of making currency or money out of real estate, or converting real estate into currency or money, was tried twice in France upon a most gigantic scale? First, John Law, in 1717, worked out a scheme whereby he tied the government of France to a land enterprise in the United States, the "Mississippi Scheme," covering a large French grant, and through his plan issued money, Government money, that represented about one-quarter cash and the balance real estate. But everybody has heard of John Law and the "Mississippi Bubble," so I won't say any more about that. Nearly a century afterward the same scheme was tried again, and strange as it may seem, in France, too.
From 1789 to 1796, during the French Revolution, the credit of the French Government was added to vast real estate holdings, so that the security was doubled, such as it was. I have just looked this matter up with a good deal of care, and the best description I found was substantially as follows:
Assignats were a form of paper money issued in France from 1789 to 1796. Assignats were so termed because land was assigned to the holders of them. The financial strait of the French Government in 1789 was extreme; coin was scarce, loans were not taken up, taxes had ceased to be paid, production and the country were threatened with bankruptcy. In this emergency Assignats were issued to provide a substitute for metallic currency. These Assignats were originally of the nature of mortgage bonds on the National lands. These lands consisted of the church property confiscated on the motion of Mirabeau by the Constitutional assembly on Nov. 2, 1789, and the Crown lands which had been taken over by the nation on Oct. 7th. Subsequently the lands of the Emigres, the princes and royal followers, 30,000 of the nobility who were exiled from the soil of France, were added to the list of lands against which the Assignats were issued.
These Assignats were first to be paid to creditors of the State; with them the creditors could purchase National land, the Assignats having for this purpose a preference over other forms of money. If the creditor did not care to purchase land, it was supposed that he could obtain the face value for them from those who desired land. Those Assignats which were returned to the State as purchase money were to be canceled, and the whole issue, it was argued, would consequently disappear, as the National lands were distributed.
A first issue was 400,000,000 francs or ($80,000,000) worth of Assignats, each note being 100 francs or $20 value and bearing interest daily, at 5 per cent. They were to be redeemed by the product of the sales, and from certain other sources, at the rate of 120,000,000 francs ($24,000,000) in 1791; 100,000,000 francs ($20,000,000) in 1792; 80,000,000 francs ($16,000,000) in 1793 and 1794, and the balance in 1795. The success of this first issue was undoubted, as all such first issues are.