That’s Right: “Famously Sound and Famously Stable”

In one of my recent posts I observed, not only that Canada’s ca. 1913 currency and banking system was sound and stable, but that it was “famously” so. Many of my readers may wonder about that description. After all, relatively few people today are aware of Canada’s having had such a successful system; and most current writings on U.S. monetary history don’t even refer to it. That one can read one official Federal Reserve account after another of that history, and especially of the Fed’s origins, without hearing so much as a whisper about Canada’s having had a well-working banking and currency system, albeit one without a central bank, goes without saying.

But the story was far different a century or more ago. Back then, just about any U.S. adult who paid attention to current events knew all about Canada’s smoothly-working monetary system, and also about various reformers’ efforts to replicate it’s success in the U.S. Where’s my proof? It’s all right here, in hundreds of articles that appeared in scores of U.S. newspapers between 1890 and 1913.

Read ‘em, or some of them at least. And weep.

The foreign press also took some notice of Canadian banking. One such notice, consisting of a long letter in the September 7, 1896 London Times, seems to me especially noteworthy. Though it was sent from Blackfriars, it’s author, Thomas G. Shearman, was actually a British-born American citizen then visiting London. A lawyer by trade (he defended Henry Ward Beecher in his sensational trial for adultery), he was also a well-respected political economist and the original author of the “Single Tax” proposal that was subsequently endorsed by Henry George.

What distinguishes Shearman’s letter from many of the other writings I’ve referred to is the fact that it traces William Jennings Bryan’s popularity — especially among farmers — and that of the free silver and greenback movements, to the peculiar shortcomings of the U.S. currency and banking system, and especially to the lack of adequate banking facilities in many parts of the country:

In the south and west it is quite common to find numerous populated districts…in which there is not a single bank of deposit. In most of the agricultural regions back of the North Atlantic States payment by cheque is practically unknown. All transactions are settled either by payment in paper money or by book accounts.

For reasons pointed out in my earlier post, there simply wasn’t enough coin and paper money to pay for half of the crops, let alone to pay for them all. Consequently farmers were forced to buy goods on credit from country or “crossroad” stores, at stiff annual rates of between 20 and 40 percent, to be settled eventually with their crops. “Is it at all surprising, under such circumstances,” Shearman asks, “that these small farmers, hardly pressed for a living, should clamorously demand more money of every kind — gold, silver, paper, or rags?”

A much less dangerous remedy, Shearman observes, would be to simply give farmers better access to banking facilities. In the U.S., however, that solution was ruled out both by laws against branch banking and by a tax of two or three percent on bank capital. Not so in Canada:

Just across the northern boundary of the United States lies a country, inferior in climate and lacking many of our natural and social advantages, shut out from its natural commerce by absurd tariffs on each side, even more dependent upon agriculture than we are, and having no opportunities which we do not possess in at least equal measure. Why does not Canada have a currency question? Why do not Canadian farmers clamour for silver coinage and fiat money?

The answer, of course, was nationwide branch banking, thanks to which

first class banks of deposit and discount are made easily accessible to every farmer, mechanic, lumberman, and fisherman in the remotest parts of Canada on substantially the same terms with the residents of the largest cities. Each branch… has at command a supply of loanable funds ten times greater than it actually needs, because the head office always has millions lent on call in the United States, which it would be glad to use among the farmers of Canada. A similar state of things might easily exist in the United States; but it is made impossible by legislation… .

In short, “the true remedy for the hardships of American farmers is to be found (as in so many other cases) not in more restriction, but in more liberty.”

Couldn’t have said it better myself.

[Cross-posted from Alt-M.org]