The Arena, Volume 4, No. 22, September, 1891

by Various

The leading merit of the national banking system comes from the absolute security of its circulating medium, proceeding from the governmental guarantee. Meanwhile the interests of the depositors, in supplying whose convenience the bank derives its business, remain inadequately guarded. Is not some system possible whereby in place of this partial guarantee we may have a complete guarantee, covering both circulating medium and deposit?

Fortunately, with the experiences of other countries furnishing examples so available as they do nowadays, we are not left entirely to our own resources in devising solutions for problems that confront us. We have but to look to Austria for a most successful example of a truly national banking system, that completely meets the demand. When Austria established its postal savings bank, in 1882, a regular check and clearing system was made a feature thereof. This, offering substantially the same convenience as our ordinary private or national banks in this country, together with the additional advantages of absolute security of deposits, and checks good in all parts of the country, has become enormously popular with the mercantile public, so that the regular banking department has quite overshadowed the savings department, important as the latter is.

Every post-office in Austria, therefore, has the function of both a savings-bank and a bank of deposit. A permanent deposit of one hundred florins, or forty dollars, is sufficient to make a person a member of the check and clearing department. No limit is placed on the amount that may be deposited, but a single check cannot be drawn for more than ten thousand florins [four thousand dollars]. Interest is paid on deposits at a rate not exceeding two per cent., while the interest on savings may not exceed three per cent. A charge of two kreutzers [eight mills] is made for each entry, together with a commission of one fourth per mille. Another function of the postal bank is the buying and selling of government securities, for which a commission of two per mille is charged, with a commission of one per mille for the cashing of coupons.

It is interesting to learn that two years before the adoption of this system by Austria, a very similar plan was advocated by an able American student of finance, the Hon. L. V. Moulton, of Grand Rapids, Michigan. In his book, "The Science of Money and American Finances," published in 1880, he said: "The government ought to provide a deposit system of absolute safety to depositors for all who choose to avail themselves of it. A system of postal savings-banks somewhat similar to the British should be adopted. The government receiving a deposit, and allowing the depositor to check out at the same or any other office, paying no interest and doing no loaning, receiving the use of the funds while on deposit, as compensation for storage and transportation of funds. No actual transportation would, of course, be required, except to settle balances between offices. This would be the safest possible deposit and most convenient exchange system, and is quite as proper for the government to undertake as the postal or money-order business. As it is, the government coins money and transfers money, but will not take it on storage, which is absurd, and forces the people to deposit with loan and discount concerns, liable to explode at any time and leave them penniless."

Although interest on deposits is paid in Austria, there appears to be no good reason why it should be paid were the system adopted in this country. There is no need of it as an inducement, for the absolute security and the greatly increased convenience of the system would be sufficient for that. The present national banks pay no interest on deposits, the facilities afforded being adequate to secure all the deposits needed.

It appears desirable, however, to pay interest on deposits of savings. In the bill prepared by Postmaster-General Wanamaker, it is provided that this shall not exceed 2.4 per cent. This low rate is fixed upon in order that the interest may be considerably less than the average paid by private bankers to depositors. The great obstacle to the establishment of postal savings-banks in this country has been the lack of available means for the investment of the funds, the rapidly decreasing national debt making government bonds out of the question for the purpose. Mr. Wanamaker proposes to overcome this obstacle by loaning the funds to national banks within the State where the deposits are made. The objection to this course lies in the objection to the national banks themselves, as heretofore stated. To give them disposition over such a vast amount—it is estimated that the deposits in the postal savings-banks would soon reach $500,000,000—would be to increase vastly their power for harm.

Mr. Wanamaker's alternative proposition, to utilize the funds in the direction of greater and much needed expenditures for public buildings, particularly post-office structures, is, on the other hand, a sound one. They might also be employed to advantage in providing the means for the much needed extension of the postal service now so widely demanded, as in the adoption of a parcels post equal to that of Germany, England, and other countries, and in nationalizing the telegraph and telephone and incorporating them into the postal department.

The deposits in the proposed check and clearing department would place an enormous amount at the disposal of the government, in addition to the postal savings-bank funds. Paying no interest on these deposits, the government might utilize the money in its own expenditures, and thus to a considerable extent reduce taxation. Or, just as the ordinary banks loan their deposits, the government might loan this money for mortgages on land and on staple products, somewhat as demanded in recent agitations.

A person so eminent in the discussion of these questions as Mr. Edward Atkinson has recently stated, in substance, that, increase the volume of the currency as we may, still it would not be adequate to certain exigencies of regular recurrence, like the annual moving of the crops. He thus practically concedes the justice of the farmers' demand, as formulated in their "sub-treasury project," but he would supply this want through private banking institutions organized expressly to loan money for this purpose.