The general bearing of settlement in trade, deferred by promises to pay in
the distant future, has been several times referred to in preceding
chapters; but its bearing upon the general welfare is so marked in many
ways as to deserve more particular treatment. The special form by which
one man becomes a purchaser on the strength of future abilities may have
little importance in the total result, but some peculiarities of the
different forms are worthy of mention.
A _standing account_ without definite period of settlement easily becomes
a temptation to waste, as well as a source of worry, when the account is
extended. A friend remarks, “You never seem so well off as when you don’t
expect to pay for what you buy, although the reason may be that you can’t
pay for it.” The fact that the day of settlement may be indefinitely
postponed makes the temptation to overestimate the chances of future
ability. An account almost certainly insures the purchase of ordinary
supplies without asking the price, and only frequent and complete
settlement makes safe for ordinary people the expenditure of income
through store accounts.
_Promissory notes_ due at a definite time have less effect upon the
imagination; yet payment a year hence seems always easier than payment
now. Only repeated bitter experiences teach one to say, as I once heard an
old gentleman, when offered a horse to replace his dead one without limit
as to the time of payment, “That sounds very well, my friend, but it is a
mighty hard way at the latter end.” Every farmer familiar with country
auctions, with a year’s credit upon purchases, sees the effect of such
postponements in magnifying the value of articles purchased.
A note secured by _chattel mortgage_ in the nature of the security is less
extended and has the distinct hardship of future payment presented in the
possible loss of the chattel offered as security. The chattel mortgage,
therefore, becomes a favorite method for short time delays in payment, not
only because the security is good, but because the full attention of the
maker is given to the necessity of payment.
A most familiar form of deferred payment for farm property is the
_mortgage note_, secured by a deed entitling the holder to take possession
of the farm, or real estate of any kind, upon failure of the maker of the
note to meet its conditions. This is esteemed the best possible security
for payments long deferred, because the ordinary values of real estate in
a growing country like ours increase rather than diminish. Except in cases
of overvaluation from speculative investment, or in the settlement of a
new country under misconception of its conditions, the security remains
ample. And even then the lender has no greater risk than the borrower.
Since final settlement by foreclosure of mortgage involves the law’s
delay, increased by the natural sentiment growing up about a home which
has been occupied for years, such mortgage notes are only to a limited
extent available in general commerce. In large measure they are likely to
stand between the original purchaser and seller. The exception to this is
found in investment of large trust funds, as with insurance companies and
endowments of colleges and other benevolent institutions. In these cases a
permanent investment, with stated income, is desirable, and mortgage notes
with five to ten years’ credit give better rates of income than long time
bonds of great corporations or governments. The ease with which purchase
is made by a mortgage tempts many a young man to promise more than he can
fulfil. The weight of the farm mortgage is felt throughout the country,
doubling the disaster of every deficient crop. Variations from the
mortgage in deeds of trust and instalment contracts have essentially the
same relation to credit, involve essentially the same burdens, and differ
only in the legal forms for taking possession of the real estate in
default of payment.
Where a company or a community defers payment for its purchases, it is
said to issue _bonds_, which are simply formal notes, usually with
attached notes, or coupons, for interest at stated times, issued by
qualified officers under specific legislation. These are so easily
understood and tested for their quality as to become a part of the general
credit of the country. They gain a well understood market value, and pass
from hand to hand with greatest readiness. This fact adds to the ease with
which they may be issued, while the extended time, from ten to thirty
years, increases both the convenience of possession and the readiness to
issue. The people of a city do not hesitate to supply themselves with
magnificent waterworks at the expense of the people a generation later.
Thus municipal indebtedness is easy to contract, and the hard lesson of
paying for dead horses is seldom effectually learned. More insidious still
is the temptation to issue the bonds of a county for the building of a
railroad, whose prospective benefit in adding to the value of lands is
indefinitely magnified. A community of farmers already burdened by
mortgages can be tempted into additional burdens in county bonds from
expectation that a new railroad will double the value of their farms. The
facility with which states and nations negotiate bonds is so well
understood that it scarcely needs mention. Yet the burdens of taxation so
grievously felt are often self-inflicted by the people who favor unbounded
indebtedness. It is rarely the case that a well-to-do school district is
not better off when it meets the cost of its schoolhouse by immediate
taxes rather than to postpone payment by bonds.
The organization of a _stock company_ involves a peculiar system of
deferred payments, in that every holder of stock becomes in a sense both
debtor and creditor. He is debtor to all his associate shareholders, and
is also their creditor to the extent of his share. _Stock certificates_,
like bonds, may pass from hand to hand with ease, and foster the innate
spirit of speculation among a commercial people. The organization of a
stock company, especially of a great trust, is made relatively easy from
this fact, and in this way the general credit of a people is indefinitely
extended. A prosperous corporation is likely to distribute the results of
its prosperity by increased issues of stock, and the readiness with which
the public accepts such issues makes natural, though vicious, the
so-called _watering of stock_, familiar to all. The immediate object of
watered stock in fairly managed companies is the immediate distribution
among shareholders of any increased value without increased cost. As the
farms along a line of railway may have doubled their value with no
expenditure in improvements, so the railroad itself may have doubled its
value in the possibility of earnings through the rapid development of
settlements along the line. In ordinary ways this increased value will be
shown in the market price of the stock, but an issue of more stock to the
present holders of stock certificates will keep down the price of
individual shares and yet give the benefit of the increased value to
shareholders.
_The stock exchange._—The last mentioned forms of indebtedness so easily
become matters of everyday purchase and sale as to lead to the business of
stock brokerage, found everywhere in greater or less extent. In large
cities the brokers naturally unite for convenience of business in the
so-called stock exchange, in which the market price of all current forms
of indebtedness or deferred payments is fixed from day to day, or from
hour to hour, by the higgling of the market, just as the price of produce
is fixed in the produce exchange. Naturally, as in the case of produce, a
fictitious business, purely speculative, grows up around the legitimate
dealing in stocks and bonds. Other forms of deferred payments enter less
into the business of the brokers, because the market value of any
particular mortgage or individual note cannot be easily determined outside
the immediate neighborhood where it is made. The chief way in which these
enter the general brokers’ market is through the stock or bonds of large
brokers’ companies, sometimes called guaranty loan companies. In this way
the universal extension of credit through deferred payments finally has
its effect upon the general confidence. The broker’s business grows
legitimately out of the need of ready transfer of claims, for the sake of
larger use of the floating capital of the country, and readiness of
investment in more fixed forms. It adds, however, to the dangers of
extended credit by making more easy the gratification of present wants
through expectation of future ability. The broker makes his gain, without
reference to the final settlement, by taking a commission upon the loan.
His interest leads to an overestimate of the borrower’s ability, and cases
are not infrequent where appraisers of real estate have been hired by
brokers to misrepresent the value of property, for the sake of securing
improper loans.
Every period of expanding credit in speculative movements has furnished
proofs of this tendency. A standing example is furnished in mining stocks,
in which the temptation to misrepresent prospects by “salting” and false
assays is proverbial. Almost as notorious are the misrepresentations
associated with bonds of newly established cities or other municipalities.
Not all such misrepresentation is intended fraud, but the immediate
interest of the broker clouds his judgment as to conditions of final
settlement. With little to lose and everything to gain in the immediate
transaction, his judgment is necessarily biased. The merely speculative
buying and selling of stocks by margins has little to do with the general
character of indebtedness, except to increase somewhat the risks of
legitimate brokerage. The “bulls and bears” on exchange make their gains
by fluctuations in market values, and, like all gamblers, delight in
producing false impressions upon their opponents in the game. This fact
adds to the uncertainty of all standing credit, and so increases the
natural rate of interest. This effect upon interest will be noticed in
considering the nature of interest and conditions affecting it.
“_Borrowed money._”—In all the forms of deferred payment, except standing
accounts, it is customary to represent the amount of the debt as “borrowed
money,” no matter how the transaction occurs. When a farmer buys his farm
with a promise to pay five years hence, his note is said to represent so
much “borrowed money,” while in fact he has simply borrowed the farm. The
reason is, that the farm is represented by its value in dollars, and the
promise is to return that value in dollars at the end of five years.
The same is true, in fact, of all purchases on credit. Even when the
purchase is made by means of a note at the bank, the actual transfer of
property is from the owner of the farm to its prospective owner, the bank
simply acting as agent, and interposing its credit or capital only to
promote the exchange. In many instances no money in any form is used, and
where it is employed at some stage of the transaction, it is used, as in
any other exchange, simply as a machine of transfer. Even the final
settlement is likely to be made through the ordinary channels of trade,
without the intervention of money in any of its forms. The deferred
payment takes its place when the time of payment comes in the ordinary
everyday transactions of the universal credit system, illustrated in
banking. Even if the farm is paid for by instalments, those instalments
are simply ordinary transactions in trade, the farmer transferring the
check which he receives from the sale of his steers or his wheat to the
former owner of the farm. The money involved is simply money of account,
referring to a well understood standard of value. The importance of this
standard in reference to deferred payments has already been referred to.
It cannot be overestimated. But any estimate of the currency needed, or to
be needed for the transaction of business, founded upon the amount of
deferred payments, is wholly fallacious.
It is equally wrong to suppose that the bankers are the principal
money-lenders. The real lenders are those who have sold their produce, the
use of their tools or their time, at a price to be paid next week, next
month or next year. Every man who has wages due him is as truly a
money-lender, to the extent of the wages due, as any banker who accepts a
promise to pay in the future for service or value given in the present.
Even where the borrowed articles have been consumed or wasted, the promise
to pay is simply a promise to return so much of value as the articles
received were estimated to be worth. This may be easily seen in thinking
of a running account at the store for the ordinary supplies of the family.
It may amount to five hundred dollars, if one’s credit is sufficient, and
seem only the actual articles used, and yet to be paid for; but if settled
by a note fixing a future definite time of payment, the debt at once
becomes in thought borrowed money, though no change whatever has been made
in the actual facts. If the same purchases had been made by means of
credit at the bank, gained by discounting a personal note, the same
articles exactly would have been borrowed, the bank instead of the
merchant being the lender. In all probability the bank has been the means
in the first case of enabling the merchant to meet these current wants on
credit, for he himself has gained the credit of the bank by discounting
his own note. In either case the bank has been the means of serving both
the borrower and the lender. It is simply a machine for accommodating
both.
_Legal tender._—All forms of deferred payments imply the possible
intervention in final settlement of the force of government. While the
great mass of promises to pay are met without an appeal to laws or courts,
the whole is put in such form by customs of society as to involve the
possibility of such arbitration. Government takes no note of debts which
cannot be proved in court, and the forms of legal proof are well settled.
All the formalities of credit in systems of book-keeping, forms of notes
and bonds, and wording of stock certificates imply the possibility of
final adjustment in a court of equity. For this reason, governments
establish some form of currency as the representative of value, which must
be accepted by the creditor in complete satisfaction of a debt. This is
naturally what custom has established as the standard of value, but
anything else may be substituted if the government so decides. Thus,
Massachusetts once made bullets legal tender at a certain price, up to a
certain number. Our government now makes copper cents and nickels legal
tender to the value of twenty-five cents.
The current notes of the government are usually legal tender, unless
otherwise stipulated, whatever their current value. This means simply that
the government through its courts secures the collection of _bona fide_
debts, in terms of value defined by law or by contract. The assurance of
final settlement, given in this way by the government, is one principal
element in extending credit on time. Without such machinery credit would
be confined to intimate acquaintances and very limited time.
_Expanding credit._—All the machinery of credit tends to bring the
floating capital of a country within the reach of great enterprises. If a
body of men have faith in some great undertaking, like a continental
railroad or a Panama canal, their faith in the enterprise is easily made a
basis for the faith of others. Even the small accumulations, the savings
of day laborers, may be turned to account in such great enterprises if the
popular expectation of success is thoroughly aroused. The greater the
undertaking, the greater is the general faith under skilful leadership.
The same principle applies to undertakings of less national character,
like immense factories or combinations in a trust. The stock of such
enterprises is often widely distributed, and when profits are fairly
begun, even upon a small scale, the chances of gain on the value of the
stock are made more prominent than the actual profits of the enterprise.
It is not uncommon to find enterprises starting with the expectation that
a large portion of this stock will be paid for out of the profits of the
business and the profits on a portion of the stock to be sold. This is
especially true when business is reviving after a period of depression. It
is one of the first symptoms of the return of a speculative spirit. With
the rise of such enterprises there is almost sure to be an advance in
prices of real estate, though it follows later.
The starting of a railroad line involves the purchase of station sites,
and almost surely the laying out of villages at intervals along the line.
The promoters of the railroad are likely to be promoters of town sites as
well. And this increased demand for farms and lots brings a larger faith
in the future of these locations. Everyone who can save a little from his
income hopes to increase that little indefinitely by investment in the
chances of increased value of a lot or a home. Under such circumstances
the machinery of credit moves easily, and one does not hesitate to extend
his credit to the utmost for the purchase of what is increasing in value
each day. The result is a temptation to larger expenditures.
People who are counting their future gains are sure to have larger wants,
and their seeming prosperity in accumulation of value gives them a larger
credit among dealers. The next step is an enlargement of sales of current
supplies of all sorts and an increasing manufacture of such supplies to
meet the increasing wants and naturally enhancing price. Soon the staple
products of farms and factories and mines become themselves objects of
speculative purchase. Men buy simply to hold for the increase in price.
This speculation itself is a temporary cause of success, and goes on until
some accident somewhere reveals the exaggerated proportions of
expectation. Sometimes this speculative spirit continues for a series of
years, in which case it pervades every circle of producers and consumers.
Sometimes it is temporary and local, being produced by some special
undertaking and destroyed by a special failure. Sometimes the death of an
enterprising man destroys the "boom" he has created. When speculation is
rife over a large territory, everybody is employed to his utmost ability,
and the times are said to be good. All property of every kind is counted
at its highest price in the mind of the owner, and all credits are easily
extended from month to month, or from year to year, because of the
universal faith. There seems to the casual observer no reason for doubt,
and the most conservative judges overestimate the ability of the people.
_Financial crisis._—At such a time as that described, when credits of
every kind are interlocked and expectations are high, the so-called
floating capital of the country, under indefinite promises to pay, is
gradually being actually locked up in huge plants of machinery in great
railroad routes, in vacant city lots, and uncultivated farms held for
future sale, or in warehouses and elevators full of the products of
industry,—especially such products as do not immediately deteriorate in
quality, such as grains, cloths, raw materials of every kind and machinery
of general use. This is apparently the property of the holders, but
against it are the claims of all those who have contributed by loans on
time, by credit for sales, by labor unpaid for and by provisions on
account. One can easily see that with all these people bound together by
credit a single failure may be far-reaching in its effects. The inability
of a single man to meet his promises, if those promises are widely enough
distributed, may bring a panic among his creditors, their creditors, and
so on down to even the solid men, supposed to hold the accumulation of
years untouched by speculation. For every channel of trade is full of
credit, which now everybody loses.
In 1873 the promoter of the Northern Pacific railroad had borrowed
everywhere, even the small savings of widows and workmen, through his
intimate connection with banking. All this accumulation of savings had
been expended for labor upon what was only a huge embankment, making no
possible returns to any owner. The only possible means of continuing the
work was continued borrowing, or the sale of additional stock. The revenue
promised upon the means already used could be given only by larger
borrowing. On a certain day the amount to be borrowed was less than the
amount to be paid, and the failure of Jay Cooke to meet his expectations
and promises was known. Within six hours every village in the land felt
the disaster. The financial crisis was seen and realized. Bargains
partially completed were stopped in the midst. Materials about to be
shipped were held at the station. Deposits at the bank were needed
immediately, notes due at the bank could not be extended, collectors of
accounts appeared at every corner, thousands of workmen directly and
indirectly employed on the great railroad building were out of employment
and out of wages due, the banks were unable to furnish even paper currency
to their depositors, and the whole world felt absolute loss of confidence
in any undertaking or any expectation.
I select this particular panic because its beginning was so comparatively
simple, its progress so evident and its results so well defined. Any other
failure of speculative purpose might have been equally disastrous. It
could hardly have been so rapid, because it could not have been so
directly distributed among the masses of the people. Yet the machinery of
credit is such that any considerable failure in enterprise or speculation
is felt everywhere. The banks are at once called upon for larger loans and
for deposits together, an impossibility in the nature of the case. All
exchangeable forms of credit are immediately offered in market at
constantly decreasing prices. Current credit of every kind is checked, and
exchange is limited to the barest necessities. All productive energies are
practically stopped, except such as are out of the line of daily
exchanges. Very soon all domestic expenses are reduced to the lowest
notch, domestic help is discharged, the well-to-do undertake to help
themselves, and the poor are left without resources. It seems as if all
the wheels of progress had stopped.
_Hard times._—Succeeding such a crisis must follow hard times. Wage
earners generally are without employment; manufactories have put out their
fires; the warehouses full of goods are under attachment; farm produce is
moved very slowly to market; fancy stock of horses, cattle and sheep are
unsalable; farm mortgages are foreclosed as rapidly as the laws allow;
skilled workmen meet absolute necessities by half time, and common
laborers move from place to place in useless search for employment, their
families being barely kept alive by charity. The fact that warehouses and
granaries are full leads to the assumption that over-production has
destroyed the market and the demand for labor. This is quite probably true
of all articles of such a nature as to be held for speculative purposes.
The staple grains and fancy live stock are illustrations of these. An
universal over-production, so long as the articles produced are adapted to
current wants, is impossible, since every man’s product, if needed, is his
means of securing another man’s product to meet his own wants.
On the other hand, the suffering of multitudes and the abstinence of
everybody lead to the supposition that under-consumption, or failure to
use what we might, is a principal cause. It is undoubtedly true that fear
of absolute want checks consumption of articles within our reach. This is
shown by the immediate increase of consumption as soon as the fear
subsides. This, however, is a symptom of the times, rather than a cause.
Some theorists account for the suffering by the ratio of the currency to
the population, claiming that a larger circulation of money will fill the
empty pockets of the needy, forgetting that money circulates only through
the very channels of trade which something else has stopped. It is quite
true that any financial legislation involving uncertain results
contributes materially to the doubt which stops the machinery. All efforts
to make money worth less by legislation have invariably extended the
period of hard times. Almost every conceivable cause has been assigned, or
given as a partial explanation, for the stagnation of trade. A careful
analysis of these recurring periods in the history of our country in 1837,
1848, 1857, 1873, 1887 and 1893, shows many partial causes of disaster in
exchange, affecting the peculiar nature of each panic, yet one especial
cause is evident in them all. That cause is large investment in fixed
capital from which no immediate returns can be expected.
_The chief causes of hard times._—Prior to 1837 there was a rapid
development of new country, as shown from the greatly increased receipts
for public lands. Every new home involves a permanent investment of
somebody’s savings to the extent of at least $1,000. With the settlement
of every new region a considerable waste in real estate speculation is
found. A similar expansion of territory occupied by settlement immediately
followed the Mexican war, and was a chief cause of reduced capital and
consequent lack of employment.
The crisis of 1857 was preceded by enormous waste in the Crimean war. To
that was added the loss of a season’s labor in a bad harvest and increase
of cost of living, reducing profits. The latter cause was incidental to
this particular season, but added materially to the suffering. In this
country there had also been an extensive enlargement in iron works and
woolen factories without corresponding products.
The panic of 1867, felt widely outside of America, was preceded by immense
waste of property in the civil war of the United States, a considerable
portion of which expense, on both sides, had been borne in Europe, either
during the war or immediately following, through the sale of bonds.
The panic of 1873 followed immense investments of wealth in fixed capital,
as illustrated in the Northern Pacific railroad, previously mentioned.
Between 1865 and 1873 30,000 miles of railroad were built in the United
States alone. This permanent investment involved immense debts at home and
abroad, _with all the profits yet in the future_. The fact that imports
increased at the rate of nearly $100,000,000 a year in 1871 and 1872
indicates the extent of expenditures. The Franco-Prussian war had also
wasted great energies.
The hard times in America, shown especially in the price of farms, about
1888 were immediately preceded by enormous investments in unsatisfactory
farming lands and unneeded town sites, as well as in railroad building.
Forty-nine million acres of land were sold by the government, and more
than 12,000 miles of railway were built. Enormous expenditures were also
made for school-houses, court-houses, and other public buildings by sale
of bonds. The actual crisis was perhaps delayed and a new speculation
fostered by large payments on the public debt. Again, there was expansion
of credit and large investment in railroad and city building in
anticipation of future growth, during which the small savings of
multitudes had been gathered up through the guaranty loan companies of the
West. Upon the top of this came the expenditures of 1892 and 1893 on the
great World’s Exposition. The expenditure of savings in attendance upon
the exposition curtailed the abilities of hundreds of thousands of
families. So the panic of 1893 was in no respect an exception to the rule.
No sufficient data are at hand for showing exactly how great has been the
expenditure in unproductive enterprises, but a reference to Chart No. IV,
p. 83, giving the development of railroad building in this country, will
show how this form of enterprise in every case outran the increase in
population immediately preceding the hard times.
It is evident to any student of the question that extra large consumption
of floating capital has immediately preceded every period of supposed
over-production. The chief over-production has always been in the
machinery of production and trade, including the costly settlement of new
land. The immediate dismissal of labor employed in such enterprises brings
greatest suffering, because such laborers are always least forehanded and
are in large numbers homeless. Such laborers also most readily become
competitors for any kind of a job, and so affect current wages of those
still retaining their places. This emphasizes the unequal distribution of
wealth, and leads multitudes to call for a redistribution, by fair means
or foul. This increases the distrust of community and the disposition to
hoard wealth in the form of money, while checking every desire to build
for the future.
_Remedies for hard times._—The means of recovery from such a disaster are
less easy to see than the causes. We know, in fact, that the world does
recover confidence among enterprising men and confidence in the future,
sometimes surprisingly soon. We can see some of the steps by which the
burden of debt is diminished and hopes are revived. In the first place,
some method of settlement out of the usual course is adopted. Most obvious
is an agreement among banks to carry on the usual machinery of exchanges
through checks, drafts and a clearing house without the use of currency.
This is called suspension of payment. It holds the deposits steady while
the transfer of ownership is easy. It saves the sacrifice of large credit
to meet the panicky condition of small trade, and it checks the
disposition to hoard money in out-of-the-way places. The actual failures
are thus confined to those actually engaged in the wasted production or
directly involved as creditors of such persons. The failures in 1873 were
said to have been nine in each thousand business houses; those of 1893
were thirteen in a thousand. The actual failures among farmers are
confined almost entirely to those who have been caught in the speculative
spirit of investment in more land for the sake of increasing prices or
have borrowed capital to be used in other speculation. A few only have
wasted their substance in expensive homes and luxuries.
If all forms of indebtedness could circulate freely, the final result in
balancing debts with debts would be quite readily reached, and the actual
losses would be found less than is generally supposed. An equal loss
without distrust, if that were possible, would be met with new enterprise
and extra energy instead of despondency.
The various remedies offered in proposed legislation frequently add to the
delays in the recovery of confidence. The issue of paper currency, while
universally welcomed by the most wasteful of investors, makes those who
still have property more doubtful as to the future. The proposition to
increase demand for labor by great public improvements comes at a time
when revenues are diminished and almost surely is coupled with a proposal
of government scrip. To increase the burden of taxation at once, when the
mass of the people are already burdened and distressed, is impossible. The
issue of scrip, though actually a costly method of taxation, seems to the
unthinking a way of making something out of nothing. The certain effect is
to extend the period of doubt. Laws affecting the coinage and character of
legal tender, since they disturb the relation of borrower and lender
indefinitely, postpone readjustment of confidence. Changes in the tariff
laws are liable to have the same effect because of uncertainty as to where
the influence will be most felt. Special legislation with reference to
contracts for labor, however well intended, are sure to hinder adjustment,
and all agitation in favor of new experiments in government enterprises or
in legislation as to property makes less available the capital and
ingenuity of the people.
_Cure for hard times._—The only genuine cure involves a restoration of
faith in enterprise. It is almost as hard to establish after a commercial
panic as after a panic in an army. The remedies best worth study are
really preventives, in the form of checks upon undue expansion of credits
and distinct limits as to extension of time. Some have gone so far as to
wish there were no laws for collection of debts, since this would actually
prevent the great bulk of indebtedness; but it would also destroy the
essential foundation of daily credit, one of the most productive machines
of exchange. The best that can be done is to make more explicit the laws
against frauds, and to limit easily transferred forms of credit to those
whose foundation can be carefully inspected. It is very desirable that all
corporations dealing in credit should be subject to the strictest
examination by a public officer.
_Short credits vs. hard times._—More important than legal enactments are
the business habits of a community, and these can be cultivated by
business men. Farmers, of all classes of people, can foster such customs
of careful inspection of business standing and frequent settlement of
accounts and careful loaning as will make a panic less possible. They
need, however, a wider acquaintance with the machinery of business and a
firmer faith in the advantage to all concerned of cash payments and
absolute promptness in all settlements. The moral power of such a body,
amounting to one-half the population, most of whom are solid owners of
property, would, if well informed and united in principle, check most of
the extravagances in expenditure and investment which waste the capital of
the country.
_Bankruptcy._—In closing the discussion of hard times, it is proper to
mention a device for removing in part the discouragement of debts where
ability to pay is entirely wanting. Of course, a settlement between debtor
and creditors, in which the property of the debtor is divided among his
creditors, is always available, leaving both at liberty to begin business
anew with a knowledge of the worst that can happen. It seems possible to
contrive bankruptcy laws in such shape as to secure a fair settlement of
insolvent business whenever the business is evidently failing. If
discovery of fraud or misrepresentation could cause immediate intervention
in a bankruptcy court, the surest possible check would be brought to bear
upon improper credits. It is certainly to the interest of all honest
creditors and debtors that a fair settlement should be reached as early
after insolvency as possible. Such bankrupt laws should be as wide
reaching in their uniformity as government permits. If a national bankrupt
law is not sufficient, the states should combine to establish in each the
same general system.