Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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First Pub. Date
1881
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New York: Maynard, Merrill, and Co.
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1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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CRÉDIT FONCIER

I.331.1

CRÉDIT FONCIER. When after a long period of inactivity the energies of a people are suddenly turned in an industrial direction, they find innumerable enterprises which would be profitable if only they possessed the means of setting them agoing. The quantity of money which was found sufficient for a non-industrial people is now found to be wholly inadequate to the increased demands for it, and the only consequence can be, that if there be a greatly increased demand for the existing quantity of money, the rate of discount, or interest, will rise proportionably, and rise to such an extent as to preclude all possibility of profit from such enterprises, even if effected.

I.331.2

—It has been invariably found, therefore, that whenever this takes place there are abundant schemes set afloat for increasing the quantity of money. This was particularly the case after the restoration, in England, when men, weary of politics and polemics, began to turn their attention more to commerce.

I.331.3

—Among fields of enterprise none appeared at that time more promising than agriculture. But, unfortunately, all the available specie was absorbed in commerce; none was to be had for agriculture, or, at least, except at such rates as to be a practical prohibition.

I.331.4

—It was this real want that gave rise to the schemes of Asgill, Chamberlen, and others, for the purpose of turning the land into money, which were so rife at that period. Among all of them, John Law's has attained the greatest name. He perfectly well understood the powers of credit, and he saw that credit was an increase of the powers of money; but he saw that credit was limited by money, and his plan was to devise a scheme by which paper money should be created, which should maintain an equality of value with silver.

I.331.5

—He supposed that if the land were mortgaged to the government it might create paper money to the amount of the value in silver of the land, and that this paper money would circulate at par with silver.

I.331.6

—This doctrine may seem to have some plausibility in it, and has many modern admirers. But, nevertheless, whenever it has been tried in practice, it has uniformly been found to fail. This, however, is not the place to point out its error, nor to detail the practical examples of its failure.

I.331.7

—Ten years, however, after the failure of Law's system in France, the Scottish banks, by the admirable invention of cash credits, pushed credit to the utmost extent of its legitimate limits, and realized all that was practicable in Law's scheme.

I.331.8

—No one who understands the subject can fail to see the enormous advantages of paper when duly administered. But the great difficulty in all such cases is to determine what are the true limits of the issues of paper. That is, to what extent it may be issued and maintain an equality of value with silver. In fact, it is one of the profoundest problems in political economy, and of the most momentous consequence to the prosperity of the nation.

I.331.9

—Seeing, then, that paper money directly based upon land was a failure, and that the invention of cash credits could not be carried out by the timid and narrow system of foreign banks, the question was how to divert capital to the land without creating paper money.

I.331.10

—At the close of the seven years' war the proprietors in Silesia found themselves in a state of inextricable embarrassment. The ruin and destruction caused by the war, and the low price of corn, caused by the general distress, made them unable to meet their engagements. Interest and commission rose to 13 per cent. They obtained a respite of three years to pay their debts. To alleviate the distress arising out of this state of matters, a Berlin merchant, named Büring, invented a system of land credit, which has been very extensively adopted in Germany, Russia, Poland, and lastly in France.

I.331.11

—Proprietors of land can no doubt borrow money on mortgage; but in every country such transactions are attended with many inconveniences. They have many expensive formalities to undergo, such as investigation of title, etc. Moreover, the difficulties and expense of transfer are usually very great, as each purchaser has to undergo the same investigation and expense. If the debtor fails to pay, the process of obtaining redress, or possession of the land, is usually very troublesome and expensive. The consequence of all these obstacles is, of course, to raise greatly the terms on which money can be borrowed on mortgage.

I.331.12

—The system of government funds suggested to Büring the idea of creating a similar species of land stock. The government could usually borrow much cheaper than the landlords, because the title was sure and indisputable, and there was no impediment to the negotiability.

I.331.13

—Büring, therefore, conceived the idea of substituting the joint guarantee of all the proprietors for that of individuals, and establishing a book in which this land stock should be registered and be transferable, and the dividends paid exactly in the same way as the public funds. The credit, therefore, of the association, was always interposed between the lenders and the borrowers. Those who bought this stock looked only to the association, for payment of their dividends, and the borrowers paid all interest, etc., to the association, which took upon itself all questions of title and security. The whole of these obligations were turned into stock transferable in all respects like the public funds. Such is the general design of these associations. It is plain that they avoid the rock of creating paper money, while they greatly facilitate the application of capital to the land. They, in fact, do nothing more than turn mortgages into stock.

I.331.14

—There are different methods of organizing such associations, which we shall describe presently, but we may say in a general way that the system was introduced into Silesia in 1770; the March of Brandenburg, in 1777; Pomerania, in 1781; Hamburgh, in 1782; West Prussia, in 1787; East Prussia, in 1788; Luneburg, in 1791; Esthonia and Livonia, in 1803; Schleswig-Holstein, in 1811; Mecklenburg, in 1818; Posen, in 1822; Poland, in 1825; Kalenberg, Grubenbagen, and Hildesheim, in 1826; Wurtemberg, in 1827; Hesse-Cassel, in 1832; Westphalia, in 1835, Gallicia, in 1841; Hanover, in 1842; and Saxony, in 1844.

I.331.15

—These associations are divided into two classes. The first are private associations, and these again are divided into companies founded by the borrowers, and financial companies founded by the lenders; the second are associations founded by the state or the provincial authorities.

I.331.16

—The fullest information respecting these companies is to be found in M. Josseau's work, mentioned below, from which we take the following details.

I.331.17

—Of private associations formed by the borrowers there are: Pomerania. The Sociéte de Pomerania, called landschaft, or, Landschaft Casse, founded in 1781, with an advance of 200,000 thalers from Frederich II., and with revised statutes, in 1846.

I.331.18

—The company creates negotiable obligations at 3½ per cent. for 100 thalers and upward, and 3½ per cent. below, payable half-yearly.

I.331.19

—The proprietor pays 4 per cent. interest, and 1/6 per cent. for expense of management.

I.331.20

—The holder of the obligations has, as security for their payment, the entire capital of the company, the land specially mortgaged for them, and the liability of all the proprietors of the circle, and, if that should fail, all the proprietors of Pomerania. There is no priority of preference among the obligations. The holder may take away the negotiability of the notes, which can only be restored by a court. The holder can not demand repayment, but the company may pay off their bonds. These bonds can only be issued on property in the power of the company.

I.331.21

—The head office of the company is at Stettin. A royal commission has the surveil lance of its operations, and presides at the general meetings. The administration consists of a director and two assistants. There are four departments in the country, with a director at their head, and several branches to each. These branches have to make all the necessary inquiries concerning the property upon which loans are to be advanced.

I.331.22

—The borrowers receive the company's bonds at the exchange of the day, in sums of 200 or 1,000 thalers. For one-tenth of the loan they may receive 100,50 and 25 thaler notes. They may pay either in money, or in the company's bonds, which they may purchase from the public. Overdue coupons are also received as ready money. Thus, again, showing that the release of a debt is equivalent to the payment of money, or - x - = + x +. A debtor may at any time pay off his debt on giving eight months' notice before the payment of the coupons, and paying a deposit of 5 per cent. The company may also redeem its bonds on giving six months' notice. In 1837, its bonds in circulation amounted to $55,602,844, and they were above par.

I.331.23

Russia, The Banque de Crédit System was founded in 1818, by Alexander, who advanced funds for its organization. It extends through the Baltic provinces Livonia, Esthonia and Courland. It issues bonds transferable by indorsement bearing 4 per cent. interest something for expenses, and something also to form a sinking fund. Its bonds are received by the government at their nominal value—Poland. The Société de Crédit Foncier de Pologne was founded in 1825, and reformed in 1838. It issues bonds bearing 4 per cent. interest, transferable by indorsement or delivery. The borrowers pay 4 per cent. interest, 2 per cent. to form a sinking fund, a fee of one florin for notes of 200 or 500 florins, and two florins for those of 1,000 florins. By this means the debt is redeemed in 28 years. The sum advanced does not exceed one-half the estimated value of the land. The holders of the company's bonds have as security, besides the lands specially mortgaged, national domains given by the crown, and the reserve fund of the company. The bonds are issued at Warsaw, at the head office, on the recommendation of the branches in the departments. Debtors may free themselves at any time by paying off the debt and 2 per cent. additional. A general meeting is held every two years, at which the minister of finance presides. The bondholders also have meetings, at which all the creditors above 10,000 florins have a voice for the purpose of considering any proposals made by the company.

I.331.24

Gallicia. The company of Gallicia is the only bank of crédit foncier in Austria. It was founded in 1841 by the provincial estates. It issues bonds of from 100 to 1,000 florins, bearing interest at 4 per cent. Besides the 4 per cent., the borrower pays 1 per cent. to form a sinking fund, a single payment of 3 per cent. to form a reserve fund, ¼ per cent. for cost of management, and the first six months' interest in advance, on receiving the loan. The bonds can not be issued for less than 1,000 florins, and only to the extent of one-half of the free value of the land. The holders of the bonds may be compelled to receive payment of them on receiving six months' notice. The debtors may always pay off their obligations by adding six months' interest. In 1843 the company's bonds in circulation amounted to 11,414, 016 francs—Wurtemberg. The Wurtembergischer Creditverein was founded in 1827, and its statutes revised in 1831. It differs from the preceding companies so far that it advances the money itself to the borrowers, and not merely its bonds. Its operations were at first limited to 6,000,000 of florins, but it has the right of contracting new loans. The company gives to its creditors negotiable bonds, which may be divided into 100, 200, 500 or 1,000 florins. They bear interest at 3 per cent. The company only lends on first mortgages, and to the amount of one-half of the value, or two-fifths of the income. The borrowers, besides the 3 per cent. interest, pay ½ per cent. for cost of management; 1 per cent. as a sinking fund, by which the loan is redeemed in 48 years.

I.331.25

—The company makes profits by the debtors paying their interest half-yearly, while it only pays its creditors yearly. The debtors also pay their interest six weeks before the end of the half-year. At the redemption of the debt at the end of the 48 years, the debtors pay two years' interest to form a reserve fund, and to free themselves from their joint liability. They must also pay ½ per cent of their actual debt for cost of management, and a premium of 4 1/6 per cent. on the advance, and when they wish to pay off any part of their debt before it is due, they must pay 10 per cent. additional. The contribution to the sinking fund varies according to the choice of the borrower, so that he may pay off the debt at the minimum of 10 years, or the maximum of 50. In 1846 the company had bonds to the amount of 11,936,930 francs in circulation, which stood at a premium of 12 per cent.

I.331.26

Saxony. There are two land credit banks in Saxony, one private and the other public. The private one is called the Union de Crédit des pays Heréditaires, created in May, 1844, with revised statutes in 1849. It advances on both nobles' and peasants' land, which produce not less than 1,256 francs a year. It makes its loans by bonds of 500, 100 and 25 thalers, at an agreed rate of interest, and to not less than 3,756 francs, and not more than half of the value of the land. Debtors must pay half-yearly, and three months before the company pays its dividends. The public authorities and trustees are authorized to invest funds at their command in these bonds. In 1849 those in circulation amounted to 4,470,656 francs.

I.331.27

Hanover. Hanover has one public and four private associations of crédit foncier. The private ones are: 1. Institut de Crédit Hypothécaire de Luneburg, founded in 1790, for making advances to the nobles. Its bonds are not less than 200 thalers. It pays dividends of 3 per cent. half-yearly. The borrower pays 5 per cent. for the first five years, and 4½ per cent. afterward half yearly. It never can demand more than 5 per cent. from the debtors, but if it is obliged to pay more than 3 per cent. on what it borrows, it may take the difference from the sum paid toward the sinking fund. The debtors may pay by installments of 50, 100, 200, or more, thalers, on giving six months' notice. If they redeem the debt before the end of five years they must pay 2 per cent.; after that, 1/8 per cent. The debtors pay 2 per cent. for the first five years, and ½ per cent. from the sixth to the seventeenth years.

I.331.28

—2. Association de Crédit pour l'ordre équestre des principaulés de Kalenberg, Grubenhagen, et Hildesheim. This company was founded in 1825, and by new statutes in 1838 was enabled to make advances on peasants' land, if not less than 6,000 thalers in value. Its organization is very much the same as that of Luneburg. In 1844 its bonds in circulation were only 1,500,000 thalers.

I.331.29

—3. Etablissement de Crédit pour l'ordre équestre des principautés de Bréme et de Verden. This company was founded in 1826. Its statutes are very similar to those of the bank of Luneburg. It charges 4½ per cent. when it advances to the value of one-half of the land. The debtors may redeem their debts, either in 72 years by paying ¼ per cent.; in 56 years by paying ½ per cent.; in 47 years by paying 8/4 per cent.; or in 41 years by paying 1 per cent. The charge for cost of management is not to exceed ¼ per cent.

I.331.30

—4. Association de Crédit pour les propriétaires dans les principauté de la Frisc Orientale et de Harlinger-land. This is a small establishment, founded in 1828.

I.331.31

Mecklenburg Schworin and Strelitz. These two grand duchies have a bank of crédit foncier between them. This was among the earliest founded, and was remodeled in 1818. It issues bonds varying from 1,000 to 25 thalers, bearing 3½ per cent. interest. The debtors pay, besides this interest, ¼ per cent. half-yearly, as well as a premium of ½ per cent. on the loan, to cover cost of management, and ¼ per cent. to form a sinking fund. The debtors may redeem their debts in advance by buying up the company's bonds—Hamburg. A private Caisse de Crédit pour les propriétés et les terrains de la ville de Hamburg was founded in 1832, and its statutes revised in 1844. Its intention is to form a fund by gradual contributions, to make advances to proprietors whose lands are mortgaged and the sums demanded by the mortgagees, and to extinguish the debt by a yearly sinking fund. There are three classes whom this company is intended to benefit: 1, Proprietors of land situated in Hamburg, who may place their money at interest in it; 2, Proprietors whom the company guarantees against their creditors to the extent of three-fourths of their property; and, 3, Private persons who wish to buy real property by making annual payments.

I.331.32

—Those of the first class pay 2 per cent. on the estimated value of their property on entering, as well as ½ per cent. half-yearly. The company pays 2½ per cent. on these sums when they amount to 1,000 mares-banco. Proprietors who wish repayment must give six months' notice; they may receive a bond if they please.

I.331.33

—The contributions paid by the second class are similar to those of the first. The property is revalued every five years. The guarantee of the company consists in this, that the proprietors can claim its assistance when the payment of the debt is demanded from them, and they can not get it elsewhere at 4 per cent. Those of whom payment is demanded must give notice to the company within four weeks, and must themselves endeavor to raise the money. If the company has to pay off the debt, it succeeds to the rights of the creditor. The debtor must then pay 4 per cent. per annum, besides his other contributions, but he is not liable to be called on to pay the capital. But he may pay it off on giving six months' notice.

I.331.34

—Those of the third class specify the capital they require, for which they receive a note. The payments are the same as those of the first class. But if they place a sum in it they receive 2½ per cent. interest. When the purchase is made they may enter either of the other classes. The company receives deposits from the public, in return for which they give bonds, bearing interest at 3 per cent. above that sum, payable yearly.

I.331.35

Denmark. In 1786 the government founded a Credit-Kasse for the purpose of making advances for the improvement of agriculture at 2 per cent. It has since then founded several savings banks for the same purpose. In 1850 a law was passed to form the establishment of banks of crédit foncier. It enacted that each society must have a united fund of 1,000,000 rigsdalers, or 3,000,000 francs. Its bonds must not be below 50 rigsdalers, nor for a sum exceeding the mortgage, which must not be for more than two-thirds of the value of the land; the members to be jointly and severally liable for the bonds. The debtors must pay something to a sinking fund. The banks must send a quarterly balance to the minister of the interior. The bonds of the bank are free from stamp duties, and the property of minors and of the public may be invested in them. The banks may borrow and lend above the legal rate of interest, 4 per cent. This law was received with great favor, and immediately on its passage, several banks were formed; but we have no information how they have succeeded up to the present time.

I.331.36

—The second sort of private associations consists of those formed by companies of lenders.

I.331.37

Bararia. No establishment of crédit foncier was founded in Bavaria before 1835, though many had been talked of. In that year the Banque Hypothécaire et d'escompte was founded at Munich, by a company of shareholders, with a capital of 10,000,000 of florins, divided into 20,000 shares. This bank issues notes at 10 florins, which are legal tender, discounts bills, receives deposits, and is also a fire and life insurance company, a savings bank, and one of crédit foncier. Its privilege is for 99 years. Its notes must not exceed four-tenths of its capital, nor the sum of 8,000,000 of florins: Three-fourths of its issues must be covered by a mortgage of land of double the sum advanced, the remaining fourth by specie.

I.331.38

—The bank lends on all sorts of capital producing revenue, in sums not less than 1,070 francs. The borrower pays an interest which can not exceed 6 per cent., nor be less than 4½, including the sinking fund. At the minimum it requires 61½ years to redeem the debt. The sum paid to lenders is 3 per cent., and 1 per cent. is kept for cost of management, and a reserve fund. Interest is paid half-yearly. But at each payment the sums paid to the sinking fund are marked off against the capital, and the balance treated as a new loan. The obligations signed by the borrowers are not negotiable. Their place is filled by the shares of the bank and its notes. Its shares have been quoted at 30 per cent. premium. The bank pays its shareholders an interest only of 3 per cent. per annum, but they divide the other profits. Its notes enjoy great credit, and are received in public payments. The affairs of the bank are governed by the 60 principal shareholders. They name seven shareholders as directors, who must not engage in commerce. The 60 meet once a year, the directors once a week.

I.331.39

—This bank passed easily through the financial crisis of 1848. In 1849 its loans amounted to 13,952,598 florins. It has been found to be of the greatest public utility, and has constantly increased in prosperity.

I.331.40

Hesse-Darmstadt. There is a company, with limited liability, called the Renten-Anstalt, at Darmstadt, which, besides granting life assurances and tontines, makes advances on land, to double the value, in sums of not less than 500 florins. The borrower may pay off the loan in annuities of from 6 per 100 to 30 per cent. at his pleasure. At 6 per cent. the debt is redeemed in 33 years. The company pays its creditors 4 8/4 per cent. per annum. The borrower may always accelerate or retard the final liquidation by increasing or diminishing the annuity.

I.331.41

Belgium. In Belgium some of these institutions have failed. But there are two in operation. 1. Caisse des propriétaires, a limited liability company, founded at Brussels in 1835, and incorporated for 99 years. It lends to the amount of 66 per cent. of the value of the land. The interest is fixed from time to time. The borrower pays besides something to extinguish the capital, and not more than 1 per cent. on the loan for commission. He may regulate the annuity so as to extinguish the debt in terms of from 5 to 60 years. Borrowers may pay the interest either in money or in the company's obligations. They may also discount their debts at the rate agreed upon.

I.331.42

—The company issues its obligations on the first of every month for the sum agreed to be advanced during the preceding month. The capital is 3,000,000 francs, divided into shares of 500 francs. The bank of Brussels receives the company's obligations at par.

I.331.43

—2. Caisse Hypothécaire. This, like the last, is a company with limited liability, founded in 1835, incorporated for 60 years. This bank borrows at 4 per cent. by issuing shares, which also participate in any surplus profits. It lends at 4 per cent., with 1 per cent. commission, and an annuity to redeem the debt. It issues its obligations once a month, and receives them exclusively in payment of the annuities due to it.

I.331.44

—The second class of these establishments are founded by the state and under its control.

I.331.45

Russia. In Russia there are four classes of institutions of crédit foncier. The first was founded by the empress Catherine II., about the middle of the last century. There are more than 100 in the country. They consist, 1, of those managed by the ministry of finance for the benefit of the state; 2, local establishments in each government under the ministry of the interior; 3, those founded by the communes, 4, those directed by the council of the foundling hospital under the patronage of the empress. Every one holding the rank of nobility, merchant or agriculturist, who possesses landed property has a right to crédit foncier Proprietors of land with serfs are entitled to an advance of 10 silver roubles for every male serf. The borrower pays 5 per cent. interest, ½ per cent. for commission, and ¼ per cent. on the advance. It is said that the proprietors prefer to borrow from private bankers, in consequence of the terms of repayment being easier.

I.331.46

Hanover. In Hanover a state bank was founded in 1840, to facilitate the redemption of the feudal burdens and tithes, and it extended its operations as a bank of crédit foncier into those provinces which had none before. Its statutes were revised in 1849. It issues bonds repayable in six months, and one month after sight, not exceeding 5,000 thalers. The government guarantees the bank to the amount of 80,000 thalers, and always keeps 100,000 thalers ready to assist it to repay its bonds if necessary. The borrower pays not more than 4¼ per cent., per annum; 3½ for interest, ¼ per cent. for management, and ½ per cent. for sinking fund. This redeems the debt in 60 years. At 1 per cent. the debt is redeemed in 43 years. If the rate of interest falls below 3½ per cent., the remainder goes to the benefit of the sinking fund. The bank is said to have done great service by redeeming the feudal burdens.

I.331.47

Saxony. There is, besides the private bank we have already mentioned, a state bank, called Banque Hypothécaire des Etals Provinciaux de la Haute-Lusace, founded in 1844 by the estates of Haute-Lusace. It issues bonds for not less than 100 thalers, bearing interest fixed from time to time by the estates. The borrower pays also a premium of ¼ to ½ per cent., and also 1/8 per cent. to the reserve fund. He is not bound to pay an annuity as a sinking fund, but may pay it in any sums he pleases, not less than 20 thalers. In case the debtor does not pay the interest within a month after it is due, the bank may call up the capital. In 1847 the bonds in circulation were 1,668,330 francs. It is said not to be in a very prosperous condition, as the expenses of management are too great.

I.331.48

Hesse-Electorale. In 1832 the government founded a bank, called the Landes-Credit-Kasse, to assist the peasants to redeem their tithes and feudal burdens, by loans, at from 3½ to 2 per cent. Its operations have been extended by subsequent statutes. The bank borrows from other banks, savings banks, corporations and private persons, and from the state, at rates not exceeding 3½ per cent., the sums it lends out. The state is liable for all its obligations. Debtors pay 4½ per cent. interest. At the end of 1848 the bank had advanced 17,586,536 thalers, and it is said to have been of great service.

I.331.49

Nassau. In this little state a state bank was founded in 1840, to furnish advances to the communes and landed proprietors to redeem their ancient debts, tithes and other burdens, to assist agriculture and commerce generally. Its capital was fixed at 3,500,000 florins. The seventh part of this sum was created by means of notes, 100,000 of one florin, 50,000 of five florins, and 6,000 of 25 florins. These notes are received as ready money by the government, and are payable in specie. It acts as a savings bank, and one of deposit. Loans must be covered by twice their value in land. The borrower pays 4 per cent. interest, and 1 per cent. as sinking fund. In 1848 the bank was reorganized, and transformed into a national bank.

I.331.50

Bremen. The magistrates of Bremen have instituted a bank which seems more nearly to approach the ideas of Law, or Cieszkowski, than any of the others we have mentioned. The owner of real property has the right to deliver to commissioners appointed by the magistrates his titles to it, and these are made negotiable like bills of exchange. These instruments are of the nature of dock warrants.

I.331.51

—In Belgium and Switzerland projects for institutions of this nature were brought forward and in course of organization at the date when M. Josseau's book was published.

I.331.52

—These institutions have had the most remarkable effects in promoting the agriculture of the countries they have been founded in. Their obligations have maintained through all crises—monetary, war and revolutionary—a steadiness of value, far beyond any other public securities whatever, either government or commercial. M. Josseau states (Traité du Crédit Foncier, Introd., p. 25), that in a population of 27,827,990 the negotiable lettres de gage, or pfandbriefe, amount to about 540,423,158 francs. In 1848, when all public securities fell enormously, owing to the revolution, the pfandbriefe kept their value better than anything else. The Prussian funds fell to 69, the shares of the bank of Prussia to 63, and the railroad shares to 30 to 90 per cent, whereas the land credit bonds, producing 3½ per cent. interest, in Silesia and Pomerania stood at 93, in West Prussia at 83, and in East Prussia at 96. In 1850 those producing 4 per cent. were at 102 in Posen, and at 103 in Mecklenburg.

I.331.53

France. The marvelous effects of the institutions of crédit foncier were long unknown in France. At length the increasing weight, and the heavy terms at which the landed debt was contracted in France, began to attract the attention of economists and statesmen. In 1851 the value of the real property in France was estimated at 56 milliards, and its gross income at 1,920,000,000. Upon this income the land tax amounted to 240,000,000, and the interest on the mortgage debt, estimated at an average of 7 per cent., to 560,000,000, leaving 1,120,000,000 for the support of all the proprietors. On July 1, 1820, the mortgage debt in France amounted to 8,863,894,965 frs.; July 1,1832, to 11,233,265,778; and on July 1, 1840, to 12,544,098,600; and though later official accounts of the total were not published, it continued to increase up to the revolution of 1848.

I.331.54

—The heavy rate of interest on mortgages was due greatly to the imperfect state of the law, which permitted secret mortgages, which could not be discovered by the lender. M. Dupin, the Procureur Général, said in 1840: "In France the purchaser is never sure of becoming the proprietor; the lender on mortgage is never sure of being paid." We need not be surprised that many estimated the usual interest upon mortgage at 12, or even more, per cent. Owing to these causes landed property was held in bad odor as a security. In 1826 M. Casimir Perier offered a prize of 3,000 francs for the author of the memoir on the best method of improving the law of mortgage. These appeals produced some effect. In 1841 the Cours d'appel and the Faculté de droit appointed a committee to prepare a scheme of reform, which was just going to be laid before the chambers when the revolution took place. When the effervescence produced by this event had calmed down, the government and the assembly each appointed a committee to consider the subject. Each of them recommended that all transfers of property, and all burdens on it, should be made public. Both the conscil d'état and the assembly, however, rejected this proposal. The government, following the coup détat of Dec. 2, effected some reform, so that third parties might ascertain the debts affecting land.

I.331.55

—M. Wolowski seems to have been the first who brought the banks of crédit foncier before the notice of the French, in 1835. The idea began to spread slowly. In 1845 the conseils généraux were consulted, and M. Royer received a commission to go to Germany and study their mechanism. The reports published by him helped to enlighten the public mind. In 1848 multitudes of projects for making paper money, and mobilizing the land, were brought before the assembly, which were warmly and successfully combated by MM. Thiers and Léon Faucher on Oct. 10 and 11, 1848. The sufferings of the agriculturists. however, were very severe. M. Wolowski brought forward his plans again, which were warmly taken up by meetings of agriculturists and manufacturers. A meeting of proprietors was held at Paris, to overcome opposition and introduce banks of crédit foncier into France. The government then took up the matter. The conseil d'état opened an inquiry, and gave a hearing to every one who had anything to say—economists, financiers, administrators, lawyers and projectors of schemes. Further information was sought from Germany. Louis Napoleon had especially studied the crédit foncier banks in Germany and had long desired to introduce them into France. Feeling himself less embarrassed after the 2nd of December, he appointed a commission, and himself presided at its meetings, and on Feb. 28, 1852, a decree authorizing the formation of such institutions was published.

I.331.56

—Immediately this was done, M. Wolowski, who had so long labored in the cause, formed a company, whose statutes were approved of on July 3, 1852, and called the Banque Foncière de Paris, Sociéte de Crédit Foncier. It received a privilege for 25 years to carry on operations within the limits of the Cour d'Appel of Paris. Soon afterward similar institutions were formed at Marseilles, Nevers, Lyons, Toulouse, Orléans, Poitiers, Limoges, Rouen, Bordeaux, Brest, and other places. It was then considered that it would be far more advantageous to have all these consolidated into one great establishment than to remain separate ones. The land bonds would be far more negotiable at the bourse if they were those of one great company, than if each separate one stood upon its own credit. In December the establishments of Marseilles and Nevers were united with that of Paris, which was authorized to extend branches into any department where none existed, and to incorporate with it all existing societies, and was then called the Crédit Foncier de France. The bank received a subvention of 10,000,000 francs from the state, and was bound to raise its reserve fund to 60,000,000 and to advance on mortgage 200,000,000, redeemable in annuities of 5 per cent., including interest, sinking fund, and cost of management. The debt was extinguished in 50 years by these means. Other measures were taken to facilitate the abolition of secret mortgages, which was the principal obstacle to their success. M. Josseau's work, published in 1853, contains a full exposition of the mechanism of the proposed institution.

I.331.57

—Properly organized, it would be impossible to exaggerate the benefits which such an institution would produce to France, and under the sage direction of M. Wolowski, who was so complete a master of the subject, and who well knew how to avoid the dangerous rock of creating a paper money based on land, there would have been no danger of the institution straying from its legitimate objects. But in the sixth volume of Messrs. Tooke and Newmarch's invaluable "History of Prices," which brings information up to a later date than M. Josseau's work, it appears that in 1854 great and hazardous changes were made in its constitution. By a decree of July, 1854, M. Wolowski was superseded in its management, and a governor, the Comte de Germiny, was appointed, with two sub-governors, MM. Crépy and Daverne. Its objects, as defined by its statutes, are to lend upon mortgage of lands, in any of the departments, sums redeemable by terminable annuities; to adopt any other system of lending upon real security; to create an amount of negotiable interest-bearing securities equal to its advances; and to receive deposits, without interest, of sums destined to be turned into these obligations foncières, or land bonds. The privilege to the company is for 99 years, from 1852. It was intended that the annuities charged should redeem the debts with interest in 50 years, The first charge made by the company was 5 per cent., but this being found too low, it was raised to 5.44 per cent., then to 5.65 per cent., and then to 5.949 per cent. The bonds are for 1,000, 500 and 100 francs, and bear 3 per cent. interest, but are repayable by lottery drawings, held four times a year, at 1,200, 600 and 120 francs. But a very curious and objectionable species of gambling has been introduced into the lottery, in order to stimulate the public to purchase the bonds. The first bond of 1,000 francs drawn is entitled to a prize of 100,000 francs; the second to 50,000; the third to 40,000; and from the 7th to the 14th to 5,000. The bonds of lower denominations are entitled to ratable prizes. In 1853 and 1854, says Mr. Newmarch, the sums given away as prizes amounted to 1,200,000 francs, and in 1855 to 800,000 francs, and by means of these stimulants at this period it had obtained more than £3,000,000 of deposits. As, however, the whole landed debt of France amounts to £320,000,000, we see what an enormous field the company has to work upon. In short, should it even succeed in converting a moderate proportion of it, it may become almost a power in the state. If it should succeed in converting the whole, it would exceed many times all the banks of crédit foncier of Germany together. Mr. Newmarch justly censures the gambling element introduced into it as vicious in all points of view, both of economics and morals.

I.331.58

—By the annual report of the directors for the year 1861. published in the Moniteur May 3, 1862, the position of the company was as follows: The loans on mortgage and to the communes, which in 1860 amounted to 69,489,445 francs, rose in 1861 to 120,065,519, of which there were to private persons 90,272,334 and to communes 29,793,185.12. Of the private loans 2,500,000 were for short dates, the remainder for long dates. In 1860 these loans were 709 in number and 48,054,300 francs in amount; in 1861 they were 1,136 in number, and 87,772,334 in amount, showing an increase of 63 per cent. in number, and 80 per cent. in amount. Of these, 826, amounting to 19,380,700, were advanced to persons in the department of the Seine; 332, to the amount of 18,218,000, in the departments. In 1860 the number of these latter was 199, and their amount 12,617,000; in 1859 their number was 110, and the amount 6,000,000.

I.331.59

—In 1861 the loans were as follows:

To 1,000,000 and upward... 3... 20,000,000
From 500,000 to 1,000,000... 8... 5,970,000
From 100,000 to 500,000... 162... 32,784,000
From 50,000 to 100,000... 168... 13,827,000
From 10,000 to 50,000... 472... 13,037,700
From 10,000 and less... 345... 1,980,300

I.331.60

being an average of 76,000 on the whole.

I.331.61

—Up to the end of 1861 the number of long loans effected by the company was 3,941, to an amount of 275,577,314 francs, of which there had been cleared off by the sinking fund, 6,419,665.60; and by payments in advance 15,347,533.20, leaving in existence 253,810,115.20. Of these, 2,404 had been made in the department of the Seine, and 1,537 in the departments. These loans were classed as follows:

1,000,000 and above... 8... 41,500,000
500,000 to 1,000,000... 41... 28,562,000
100,000 to 500,000... 595... 114,592,000
50,000 to 100,000... 599... 43,671,234
10,000 to 50,000... 1,657... 41,851,580
Under 10,000... 1,041... 5,400,500

I.331.62

—During 1861 the sum the company had to receive for annuities was 11,331,510.02. The increase in the number and amount of loans was as follows:

1857... 114... 8,059,780
1858... 227... 30,041,200
1859... 343... 26,386,300
1860... 709... 48,054,300
1861... 1,136... 87,307,584

I.331.63

—The number of land bonds issued during 1861 was 165,609, and their amount 82,891,800; of which there were 54,461 for 27,317,800 at 3 to 4 per cent., and 111,148 for 55,574,000 at 5 per cent. At the end of 1853 the company's land bonds in circulation amounted to 22,099,600 francs; at the end of 1861 they had increased to 259,148,200.

I.331.64

—The company receives deposits on current accounts like a bank, one-half of which it places in the treasury, the other half it may invest in securities of not longer than 90 days. During 1861 it received in deposits 252,794,487, and paid out 57,061,275. The number of depositors at the end of the year was 6,743, and the rate of interest they received during the year 2½ per cent.

I.331.65

—The dividend per share was 17.50 francs for 1853 and three following years; 20 francs for 1857; 22.50 for 1858; 25 for 1859; 30 for 1860; and 37 50 for 1861, being at the rate of 15 per cent.

I.331.66

—Seeing the great development of the company, the directors determined to issue a second series of 60,000 shares, which they were permitted to do at any time, but ordered to do, by a statute of July 6, 1860, whenever their obligations amounted to 600,000,000. These shares are to be issued at the price of 250 francs, payable by installments.

I.331.67

Great Britain and Ireland. Banks of crédit foncier have never been formally introduced into Great Britain. In Scotland, we have seen that their practical effects had been anticipated by the invention of cash credits by the Scotch banks. By the excellent system of registration of titles to land which has been long in use in that country, all difficulties which have been felt in other countries with regard to secret mortgages were obviated. The rigorous system of entails, however, which prevailed in that country for a long period, counteracted the good that might have been done. Successive acts, however, were passed to mitigate these evils; and the progress of the country has been correspondingly rapid.

I.331.68

—In England, many obstacles, political and legal, tended to retard and impede the application of capital to the improvement of the land. When the desire for it, however, existed, the different insurance companies supplied the necessary means, and Mr. Newmarch says that in 1858 there were probably advances to the amount of £80,000,000 or £90,000,000 by the different insurance offices. These, therefore, performed the part which it was the purpose of the banks of crédit foncier to supply, only the securities they take are not negotiable.

I.331.69

—These facilities, however, not being sufficient for reasons arising out of the tenure of land, an act was passed, statute 1840, c. 55, to enable the owners of settled estates to charge their estates with annuities to redeem advances made for draining them. Tenants for life were authorized to petition the court of chancery to enable them to borrow money to drain their estates, to be paid off by installments, in not less than 12, and not more than 18 years, with 5 per cent. interest. But the court was not to allow such advances to be made unless it was certified to them that the annual value of the lands would be increased by at least 7 per cent. These formalities greatly impeded any improvements that might have been made.

I.331.70

—The repeal of the corn laws in 1846 threw the landed interest into a great state of alarm, as is not to be wondered at. It was seen that their principal hope of combating the effects of low prices was in agricultural improvements. In that year an act, statute 1846, c. 101, was passed to authorize the advance of £2,000,000 for Great Britain, and £1,000,000 for Ireland, by way of exchequer bills, to promote the improvement of land by draining, to be redeemed by a rent charge of 6½ per cent. for 22 years. These exchequer bills, we see, exactly represented the lettres de gage of the German banks of crédit foncier.

I.331.71

—This operation, excusable under the particular circumstances of the case, was, however, contrary to sound principles, as the government had no business to make advances to one species of industry rather than another. The plan was found successful, and in 1849 an act was passed to facilitate advances on a similar plan by private persons, statute 1849, c. 100. The inclosure commissioners were appointed to act as the intermediaries between those who wished to lend and those who wished to borrow. Some private companies were formed for this purpose, and they obtained private acts, thus being banks of crédit foncier, except that their bonds were not made negotiable. A paper read by Mr. Denton before the society of arts in December, 1855, and quoted by Mr. Newmarch, states that the area of cultivated land in Great Britain is about 44,000,000 acres, of which one-half requires draining. Of this only about 6 per cent. was drained. That to drain the remainder properly would require a sum of about £107,000,000. Since that period considerable advance has been made, but from this statement it is clear what an extensive field is open in England for the establishment of institutions of crédit foncier on sound principles.

H. D. MACLEOD.

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