Currency and Banking - Raguet

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L I B R A R Y O FAN D

HISTORY

CURRENCY & BANKING





A

TREATISE

ON

C U R R E N C Y & B A N K IN G

BY

CONDY RAGUET

2nd Edition

[1840]

Reprints of Economic Classics

Augustus M. Kelley Publishers

New York / 1967



First Edition 1839Second Edition 1840

( Philadelphia: Grigg & Elliot, 1840 )

Reprinted 1966 by

Augustus M. Kelley • Publishers

Library of Congress Catalogue Card Number65-26375

P R I N T E D I N T H E U N I T E D S T A T E S O F A M E R I C A

by S E N TR Y P R E S S , N E W Y O R K , N . Y . 1 0 0 1 9



A TREATISE

CURRENCY AND BANKING.

BV

CONDY RAGUET, LL.D.,

MEMBER OF THE AMBRICAN PHILOSOPHICAL SOCIETY; PRE SIDEN T OK TH E CHAMBERO f COMMERCE OF PHILADE LPHIA; LATE CHARGE D'AFFAIRES OF THE UNITED

STATES AT TH E COURT OF BRAZIL, AND AUTHOR OF " THB PRINCIPLES

OF FREE TRA DE ILLUSTRA TED."

" It i9 the interest, of every country that the standard of its money, once set-tled, should be inviolably and immutably kept to perpetuity. For wheneverthat is altered, upon whatever pretence soever, the public will lose by it.

" Men in their bargains contract, not for denominations or sounds, but for theintrinsic value.—LOCKE ON M O N E V .

Second

PHILADELPHIA:

G RIG G Sc E L L I O T , B O O K S E L L E R S , N o . 9 N O A T H F O U R T H S T R E E T ,

1840.



Entered, according to act of congress, in the year 1839,

By CONDY RAGUET,

In the office of the clerk of the District Court of the Eastern District

of Pennsylvania.



TO

CLEMENT C. BIDDLE, ESQ.

AS AMARK OFRESPECT,

DUE TOAN ENLIGHTENED POLITICAL ECONOMIST, AND

AS ATESTIMONIAL OFAFRIENDSHIP,

COMMENCED IN CHILDHOOD, CONTINUED WITHOUT INTERRUPTION

FOR MORE TH AN FORTY YE AR S, AND STREN GTHE NED BY A H A R -

MONY OF OPINION ONMOST OF THEPOLITICAL SUBJECTS THAT

HAVE OFLATE DIVIDED THEPEOPLE OF THE

UNITED STATES,

AND ESPECIALLY ONTHOSE OF

CURRENCY AND BANKING,

THIS WORK IS,WITH SENTIMENTS OF THE

MOST AFFECTIONATE REGARD,

DEDICATED BY

T H E A U T H O R .





TABLE OF CONTENTS.

BOOK THE FIRST.

O F T HEL A W S W H I C H R E G U L A T E A C U R R E N C Y

C O M P O S E D E N T I R E L Y OFT H E P R E C I O U S ME-

T A L S .

C H A P T E R I . — O f t h e in t r ins ic va lue oft h e p r e c i o u s m e t a l s ,

and of the i r adap ta t ion to thep u r p o s e s of a c i r c u la t in g

m e d i u m , - - - - - - - - - 2

C H A P T E R I I . — O f t h e d i s t r i b u t io n of thep re c io u s me ta l s

t h r o u g h o u t t h e c o m m e r c i a l w o r l d , . . . . 5

C H A P T E R I I I . — O n t h e re la t ive va lue of g o ld a n d s i lve r , - 8

C H A P T E R I V . — O n t h e b a l a n c e of t r a d e , or th e c a u s e s w h i c h

occas ion t h e t r a n s m i s s i o n oft h e prec ious meta ls f rom o n e

c o u n t ry to a n o t h e r , - - - - - - - 1 2C H A P T E R V . — O n t h e p r in c ip l e s of e x c h a n g e , - - - 2 5

C H A P T E R V I . — O n t h e s t e a d i n e s s oft r a d e inc o u n t r i e s e m -

p l o y i n g a me ta l l i c c u r r e n c y , - - - - - - 36

C H A P T E R V I I . — O f thedifferent k inds of d e p re c i a t io n to

w h i c h a me ta l l i c c u r r e n c y is l i a b l e , - - - - 4 2

C H A P T E R V I I I . — O n t h e " c r e d i t s y s t e m , " ort h e influence

of credi t in p r o m o t i n g n a t i o n a l w e a l t h , - - - - 48C H A P T E R I X . — O n the l a w s w h i c h r e g u l a t e the h i r e of

c a p i t a l , a n d ont h e i m p o l i c y of u s u r y l a w s , - - - 53

C H A P T E R X . — E x a m i n a t i o n of the c o mmo n o p in io n re-

s p e c t i n g t h e s i n k i n g of c a p i t a l , - - - - - 58



TABLE OF CONTENTS.

BOOK THE SECOND.

O F T H E L A W S W H I C H R E G U L A T E A M I X E D C U R -

R E N C Y C O M P O S E D O F T H E P R E C I O U S M E T A L S ,

A N D O F P A P E R C O N V E R T I B L E I N T O C O I N O N

D E M A N D .

CHAPTER I.—O f banks of deposite, of banks of discount,

and of banks of circulation, - - - - - - 67

CHAPTER II.— O f the operation of banks of circulation, - 73

CHAPTER III .— O f the principles by wh ich the profits of

ban ks of circulation are determined , - - - - 80

CHAPTER IV.—Of the safest and most profitable mode of

inves ting the capitals of banks of circulation, - - 84

CHAPTER V.—Of the legitimate operations of banks of

circulation, - - - - - - - - - 9 0

CHAPTER VI.—Examination of the common opinion that

banks create capital , - - 9 4

CHAPTER VII.—On the strict convertibility of bank notes

and credits, - - - - - - - - - 100

CHAPTER V III .— O f the various mod es resorted to by som e

bank s to augm ent their dividen ds, - - - - 104

CHAPTER IX .— O f the creation of banks without capitals,

or of fraudulent bank s, - - - - - - 1 1 0

CHAPTER X .— O f the effects of banks dealing in exch ang e, 114

CHAPTER XI.—Examination of the common opinion that

the establishment of banks in the western states upon

eastern cap ital, is beneficial to those sta tes, - - - 124

CHAPTER X II.— O n the circulation of small bank note s, - 127



TABLE OF CONTENTS. vil

BOOK THE THIRD.

O F THE L A W S W H I C H R E G U L A T E A C U R R E N C Y

C O M P O S E D E N T I R E L Y OF I N C O N V E R T I B L E

B A N K P A P E R .

CHAPTER I . — O f the career usually run by b a n k s of circu-

la t ion previou s to a general s toppage of spec ie payments , 134

CHAPTER I I.— O f the fluctuations in the marke t p r ice of

specie and of bi l l s of exchange under an inconvert ible

paper currency , - - - - - - - -140

CHAPTER I II .— O f the t rue character and effects of a gene-

ra l suspension of paymen ts by the b a n k s , and their obli-

gations under it, - - - - - - - - 148

CHAPTER I V . — O f the cr imina l i ty of b a n k s in augmen t ing

their issues after a suspension of p a y m e n t s , - 154

CHAPTER V . — O f the cost to a communi ty , pecunia ry and

mora l , of b a n k s of circula t ion, compared with the bene-

fits derived from them , - - - - - - - 158

CHAPTER V I . — O f the different kinds of deprecia t ion to

w h i c h an inconvert ible paper currency is l iab le , - - 168

BOOK THE FOURTH.

CHAPTER I.—Examination of the question, of what does a

currency consist 1 - - - - - - -173

CHAPTER II.—Examination of the question, of what does a

currency consist! continued, - 177



viii TABLE OF CONTENTS.

CHAPTER III.—On the importance of having uniform peri-

odical statements of the condition of the currency, - 188

CHAPTER IV.—On the impolicy of adhering to our present

mint proportions between gold and silver, - 194

CHAPTER V.—On the superiority of the New York general

banking law, over the present banking system, - - 200

A P P E N D I X .

A.—On therelative value of gold and silver, . . . 207

B.—History of the gold coinage of the United States, - 218

C.—Condensed statement of the condition of all the banks

in the United States, at different periods, - - 242

D.—The New York general banking law, - 243

E.—Letter from theauthor to J. W. Co well, Esq . - - 254

F—Table of imports and exports, from 1789 to 1839, - 258

G.—Essay onunlimited liability, by James Cox, Esq., - 260

H.—Report to the senate of Pennsylvania on the money

crisis of 1818, 289

I.—Prices of state stocks in London at two different pe-

riods, 306

J.—Extract from the annual report of the comptroller of

New York, of January, 1840, upon the general

banking law,with abstracts from tworecents laws, 308



PREFACE.

TH E suspension of specie payments by all the banks

in the United States, south of Ne w E ng lan d, in the

ye ar 1814, and of all, w ith a very few trifling ex ce p-

tions, in the ye ar 1837, ha s strongly impressed the

public mind with the belief that there is something

defective in the present banking system of this conn-try ; and it is not, pe rha ps , ve nturin g too m uch to

assert, that there are now elements at w ork, w hich

will ultimately overthrow the whole fabric, unless

those w ho hav e the pow er to rem edy the evil, shall

introduce the reforms which can alone render a repe-

tition of such a calamity impossible.

It m ust be evident to every obse rvant m ind, tha ta dislike to hea r the truth , w hen opposed to on e's

interests or prejudices, is the principal cause of a

large portion of the mischievous errors which so

generally prevail. M en of education and cap acity,

w ho are best qualified to investigate an d und erstan d

the important principles which belong to the science

of public econom y, are too apt to view them as of

no a ccount, or to despise them w he n they come in

conflict w ith their pu rses, or w ith their political pr o-

motion; and hence that knowledge, which is the most



X PREFACE.

entitled to regard, because most intimately connectedwith the prosperity of a country, is of all others the

m ost neglected. I assert it, an d, in so do ing , I thin k

I do not overestimate its value, that political economy

is the most important of sciences; and if its practical

branches were introduced as a study into all our

colleges and principal schools, it would do more

tow ards ex em pting the country from erroneous anddestructive legislation, than any other study to which

the attention of our youth could be directed.

Of these practical branches, the science of banking

is one, but it is one, to the attainment of a knowledge

of w hich there is no " royal road .7 ' any more tha n

there is to an y other species of learning . H e w ho

w ishes to un der stand it, m ust study and reflect, andthis not with the feelings of a partisan, but in the true

spirit of philosophy, unbiassed by self-interest, or by

any other consideration than a pure love of the truth.

The rapid strides which the banking system has been

making of late in France and other countries of

E ur op e, accomp anied, as i t has been, by indications

of unsoundness, in Belgium and elsewhere, givesjust ground for apprehension, that the same spirit

which has characterised the management of most of

our institutions, as well as those of Great Britain,

producing alternate expansions and contractions of

the curre ncy , to the gre at injury of the pub lic, w ill

also ther e ex tensively pre vail. In such eve nt, the

check to over-issues in this coun try and E ng lan d,w hich now ex ists from the reaction of the m etallic

currencies of continental E ur op e, w ould be greatly

dim inished , and in conseq uence of it, inflations an d



PREFACE. xi

convulsions hitherto unknown in the commercialworld, because extended over a wider field, would

most certainly ov ertak e us all. T h at the interests of

a coun try are best to be prom oted by a stable cur-

rency, precisely as they are by a fixed stan dard of

w eights and m easures, w ill h ardly be d isputed; and

if it can be shown, that a defective, or mismanaged

banking system, produces exactly the same resultsupon the pursuits of industry, and the property of

individua ls, as w ould the decrees of a despot, w ho

should alter, at his plea sure , w ithou t an y previou s

notice, as often as he thought it expedient, the weight

of the po un d, or the leng th of th e yard stick, it is to

be hoped that there is not a patriot in the land, who

w ould hesitate to assist in the entire e radication ofsuch a m onstrous evil. T h a t such is the effect of ou r

present system, as it has been of late conducted, must

be obvious to all who have closely examined its

op erations, and hence the necessity, before it is too

late, of an application of the app rop riate rem ed y.

The author of this treatise in offering it to the

public, ha s no private ends to prom ote. H e has beenfor tw en ty y ears a student of the science w hich he

proposes to discuss, and has during that time in some

reports to the senate of Pennsylvania, and in many

detached publications, presented his views in relation

to currency and banking; and if in the present volume

there should appear here and there an expression

familiar to the reade r from former acq ua intance, hemay be assured that not a phrase has been employed

as original, w hich is not his ow n prop erty. H e

kn ow s that in his opinions respecting the influence



Xii PREFACE.

and operation of ba nk s of circulation, up on the publicprosperity, he differs from some of his personal friends,

and from m an y others engaged in the m anag em ent

of such institutions, for w hose intelligence and pu rity

of character he entertains the highest respect. B ut

the truths of science cann ot be forced to accom m odate

them selves to m an 's imperfection or interests. If

w ha t he advan ces be not such truths , they can beeasily refuted, and he invites the severest criticism to

be applied to his doctrines, in order that their solidity

m ay be tested, and if found to be false or un stab le,

tha t their true cha racter m ay be ex posed . If, on the

other hand, the principles which he asserts, be in

reality, as he honestly believes them to be, incontro-

vertible truths, he will not do any of his readers theinjustice of supp osing, th at the y w ou ld reject them ,

because they are not profitable.

With these preliminary remarks, the author will

briefly state, tha t the plan he h as ad opted , is one w hich

he thinks the best calculated to simplify the subject

to those w ho ha ve no t heretofore m ade it a study .

H e has divided the volum e into four books. T hefirst treats of the laws which regulate a currency

composed entirely of the precious metals; the second,

of those which regulate a currency composed of coin

and convertible paper united; the third, of those

w hich regulate a n inconvertible p ape r curren cy;

w hilst the fourth treats of some miscellaneous m atters,

w hich could not hav e been w ell comprised undereither of the former heads.

In the language and style of the work, the author

ha s sough t rather to rende r his positions intelligible



PREFACE. x i i i

to practical men, than to appear to be scientific, and

hence the read er w ill find some familiar ex pression s,

w hich hav e been purposely adopted, because every

body could understand them.

Jlpril 15, 1S39.



x i v PREFACE.

N O T E TO S E C O N D E D I T I O N .

T H E stoppage of specie payments referred to

ab ov e, in 1814, comm enced in Baltimore about the

27th of August, soon after the battle of Bladensburghand the capture of Washington, which events took

place on the 24th of that m onth , and w as followed

by Philadelphia on the 30th, and by N ew York on

the 1st of Se ptem ber. A gene ral resum ption took

place on the 20th of February, 1817.

The second stoppage commenced at New York on

the 10th of M ay , 1837, and w as followed at Ph ila-delphia on the 11th, at Boston and Baltim ore on the

12th, an d in all othe r places in qu ick succession.

Re sum ption took place at N ew Yo rk on the 9th of

M ay . In Boston, Ph ilade lphia , and places further

south it w as delayed until the 13th of A ugu st.

Since the publication of the first edition of this

book, all the banks in the United States, south ofN e w Yo rk, w hich pretended to pay in specie, sus-

pende d pay m ent aga in. Th is even t took place first

in Philadelphia, on the 9th of October, 1839, and

w as follow ed by the rest in rapid succession, leaving

only N ew York and N ew En gland in the enjoyment

of a convertible currency. T his suspension has con-

tinued to this tim e, an d is ex pected to continue until

1841.

June 1, 1840.



A TREATISE

ON

CURRENCY AND BANKING

BOOK FIRST.

OF THE LAWS WHICH REGULATE A CURRENCY COM-POSED ENTIRELY OF THE PRECIOUS METALS.

A D A M S M I T H , and other elementary writers on thescience of Political Economy, have shown the princi-ples upon which commodities must have been ex-changed in that rude condition of society which pre-ceded the use of metallic money, and it is not my in-tention to travel over the sam e grou nd, and occupythe attention of the reader in recapitulating detailsw ith w hich he is prob ably alre ady fam iliar. N or isit my intention to give a history of the various inven-tions to facilitate barter, which have been adopted atvarious periods in different countries, such as the useof cattle, cowry shells, tobacco, iron, and some otherobjects, each of w hich has been at some period em -ployed to perform the function of what has been ap-

propriately denominated " a medial co m m od ity/ ' byv/hich the relative value of other things could be deter-m ined . I propose at once to enter upo n the subjectof currency as we find it at the present day in com-m ercial natio ns, and shall first point out the law s by



A TREATISE ON

w hich commerce is carried on in a co untry w he rethere are no bank notes or paper money of any kind,and w he re gold and silver alone constitute the cur-ren cy ; and , as i t w ould be carried on in every cou ntry,if there did not exist paper money.

C H A P T E R I .

OF TH E INTRINSIC VALUE OF TH E PRECIOUS METALS,

AN D OF THE IR AD APTATION TO TH E PURPOSES OF

A CIRCULATING MEDIUM.

G O L D and silver, it is well known, are produced in

va rious pa rts of the glob e, at the cost of labor an dcapital, precisely in the same manner that iron, lead,and other metals are prod uced ; and w ith regard toall the mining countries, they constitute, if not theonly, at least the most inviting product of industry tow hich a portion of the land , labor, an d ca pital, oftheir inha bitan ts can be applied. As pro du cts, the re-fore, of ind ustry, the y possess an intrinsic valu e, likeall other com m odities, dep end ent up on the cost ofproducing them ; that is , upon the am ou nt of the rentpaid to the owner of the land for the privilege ofm ining them , the am oun t paid for the w age s of thelaborers employed in digging and smelting the oreand in refining the m etal, and the am ou nt of the or-dinary profits on capital invested in the enterprise.Were this not the case, it is evident that mines wouldnot be worked, for no proprietor of land or capitalist

would embark in an undertaking that would lead tocertain loss, the object of mining not being to producegold an d silver, bu t to prod uce gold an d silver of avalue greater than that of the capital expended in itsprodu ction. Th is m uch is prem ised, in order that the



CURRENCY AN D BANKING. 3

read er m ay hav e at the outset a clear view of thisfund am ental truth in political econom y, tha t gold andsilver being products of industry, possess a value af

real an d substantial as that w hich belongs to anyother commodities; not indeed founded upon the basisof convention, a s some people ima gine, but upon theirwell known applicability to various purposes of uti-lity and ornament for which no other materials pos-sess equal qualities, and which renders them on thataccount universally sough t for. T he y are thereforenot mere representatives of w ealth as m any personsfancy, but real wealth itself to the full extent of theirvalue.

W h at proportion of the actual value of gold andsilver, as exchangeable for other commodities, is dueto their applicability to objects of utility and orna-ment, and what proportion to their fitness for the pur-

poses of a circulating medium, now that they are ap-plied to that purpose, it would not be easy to deter-mine; nor is it at all necessary to this investigation thatit shou ld be de term ined. It is sufficient for us toknow, that almost every individual who can afford asilver spoon, or a gold watch, or a plated or gilt orna-m en t, w ill ha ve on e; and that if gold and silver w ereto be w holly disused as m oney , they w ould retain a

large share of their present value for the purpose ofbeing converted into plate and other objects of manu-factu re, and in process of tim e, w ould aga in rise to thecost of their production, which would be an indispen-sable requisite to ensu re a future fresh sup ply.

It w ill, per hap s, rem ain for a future d ay to developeall the reasons why gold and silver have become souniversally adopted by all civilised people as the me-dial com m odity, that is, the com modity in ex cha nge

for which any other commodity can almost always bereadily had. Those with w hich w e are already ac-quainted, are the following:—

1. Th eir uniformity of valu e, va ry ing from oneyear to another, and from one period of years to an-



4 A TREATISE ON

othe r, less than jany other kn ow n com m odities, an dtherefore well adapted to be the commodities of con-tracts and obligations payable at a future day.

2. T he universality of this uniformity of va lue , bywhich they serve not only as standards for comparingprices at different per iods of tim e, but prices in diffe-rent countries at the same time.

3. T he ir convenient portab ility, possessing a grea t

value in a small bulk, and yet a bulk not too small forall practical purposes.4. Their divisibility into pieces of any weight, and

of the most ex act qu an tities, and their con vertibilityby fusion back aga in into larger masses w ithout loss.

5. Th eir malleabili ty and toughness, w hich renderthem not liable to break.

6. Their susceptibility of receiving impressions ascoins.

7. Th eir uniformity of physical qu ality, pu re goldor silver being the same at all times and at all places,and thu s unlike most other m etals and com mo ditieswhich have different degrees of excellence.

8. Their capacity of admixture with alloy whichrend ers them as coins less destructible by w ear an dtear, and of their being aga in sepa rated from it w ithvery little loss.

9. Their du rability, not being easily destroyed byfire, and not at all by rust.10. Their clear sound when dropped upon a hard

substance, by w hich they can be know n from basemetals, and be thus distinguished from counterfeits.

11. The ir specific grav ity, w hich differs from th atof other metals of the same bulk, and thus rendersthe detection of counterfeits easy by a practised hand.

T h e beau ty of the m etals adds to their value forpurposes of utility and ornament, but perhaps not totheir value as money; and hence I have not embracedthat quality in the foregoing enumeration.




CHAPTER II .

OF THE DISTRIBUTION OF THB PRECIOUS METALSTHROUGHOUT THE COMMERCIAL WORLD.

A L L the gold and silver annually produced in the

four qu art ers of the globe, an d not required for con-sumption in manufactures or for currency in the coun-tries w here produc ed, are in the c onstant course of dis-tribution throughout the commercial world in ex-change for commodities which are more desirable tothe producers thau the metals themselves; and w he nthus distributed, they are liable in common with thatportion of the pre-existing mass which retains theform of coin an d bullion, to such further ch ang es of

place as the w an ts and circumstances of each particu-lar coun try m ay require. In these distributions, eachcountry does not equally participate, but each d ra w sto itself that proportion of the whole quantity whichis called for by the extent of its wealth, its population,its commerce, and the state of confidence or creditex isting am ongst its inha bitants . A rich nation, coete-ris parib^s, will require more gold and silver than

a poor one— a large population m ore than a sm allone— a nation carrying on much trade m ore than onew hich carries on little— and a n ation w here confi-dence and credit are circumscribed, more than one inw hich th ey are ex pa nd ed . T he first three of thesepropositions are self-evident. T he fourth needs per-haps some illustration, and as I wish to leave nothingin dispute as I go along, I w ill state m ore plainlyw ha t is mean t by it , w hich is, that in a country w here

no credits or comparatively few are given on the saleof property or merchandise, and where consequentlypayments are made entirely or chiefly in coin on thedelivery of the articles sold, a larger amount of gold-and silver is required, than in another country of equal



6 A TREATISE ON

wealth, population and trade, in which sales are usu-ally or frequently made on credit.

What proportion the supply of the precious metalswhich each country secures to itself as a circulatingmedium bears to its wealth, its population, its trade,or, to the existing state of confidence or credit, itwould not be easy to ascertain: nor is it indeed neces-sary that it should be ascertained, as far as any prac-

tical good can result from the know ledge. Thosewho carry on the operations of trade will take carethat a country has neither too much nor too little ofthem, and it may be assumed as a safe position, thatwhen the precious metals neither flow out from acountry in which there are no gold or silver mines,nor flow into it faster than is incident to her additionalshare of the new annual production of the mines, she

has her exact proportion. These proportions, w henonce attained as nearly as the nature of circumstancesw ill permit, establish w hat may be called the gene-ral level of currencies, and it is to this level, as to aspecies of standard, that reference is made, when wesay that money like w ater w ill find its level. It istrue, that owing to the constant production of themines, w hich may at times occasion unequal distri-butions, or, distributions other than through the ac-

customed channels, as was the case after the revolu-tions in Spanish America took place, which caused tobe sent first to the United States or England, themetals w hich formerly all w ent to Spain, as w ell asto a great variety of other circumstances which dis-turb the currency of particular countries, this levelmay never be a perfect one. It is sufficiently so, how -ever, for all purposes of reasoning upon it, and per-

haps as much so as fully w arrants the figure by whicha fluid-like property is ascribed to the precious metals.The surface of the ocean is never free from undula-tion, and the daily operation of the tides is constantlyinterfering w ith its level, as well as w ilh that of rivers.Moral causes, operating like the physical causes which



C U R R E N C Y A N D B A N K I N G . 1

influence the m ovem ent of the w aters, operate up ongold and silver, in driving them from one place to ano-ther, but it is easily to be seen, that were the extent ofwealth, population, commercial transactions, and con-fidence, in all countries to remain the same for a longperiod together, and were the new productions of them ines to be distributed in d ue proportions, and theold stock in each cou ntry to be diminished by con-

sumption in an equal ratio, gold and silver wouldassume such a uniformity of exchangeable value, asto arriv e at a perfect state of quiescence. Indeed , asit is, gold and silver are of all commodities the leastlikely to be ex po rted from an y cou ntry , ex cept fromthose in which they are produced, and where of con-sequ ence they form a portion of the produce of theland an d labor of the peop le, as iron and lead do in

some other cou ntries; or, from those w hich , in ad di-tion to their supply for the purpose of currency, havepossessed them selves of an am ou nt specifically in-tended for ex portation to countries hav ing produc tsnot procurable by any other means than by purchasew ith gold and silver. * W e m ay therefore conclude,tha t a level do es ex ist, created as w ill be seen he re-after, b y the imp orts and e x ports of commo dities otherthan the precious metals themselves, tow ards w hich

the currencies of all coun tries ha ve a perpe tual ten-dency, and from which, if th.ey do not precisely con-form to it, they do not greatly depart.

* From the period of the Independence of the United Statesup to about the year 1823, nearly all their im ports from Chinaand India were paid for by an exportation of silver dollars,brought into the country in addition to the supply required forthe currency. Since the year mentioned, the chief part of the

China and India cargoes, are paid for by credits or bills onLondon, exports of manufactures, and by coin procured inEurope.



8 A TREATISE ON

CHAPTER III .

ON THE RELATIVE VALUE OF GOLD AND SILVER.

G O L D and silver, like all other com m odities, ha veeach their ow n peculiar value founded upon the im-

mutable law of supply and demand, by which al lva lue s are determ ined. T h e scarcity of the one com -pa red w ith tha t of the oth er, in connection w ith thedifference in their respective costs of production, thatis, of the ex pen ses of mining and sm elting the ore, andof refining the m etal, establish betw een them a ve ryw ide difference as reg ard s their relative va lue . A nounce of pu re gold ha s alw ay s been, and prob ablyalw ay s w ill be, w orth more than an ounce of puresilve r. B ut the ratio of this difference, it m ust bemanifest, is not fixed by any law of nature, any moretha n the ratio betw een any tw o other comm odities.Nature does not say, that an ounce of gold shall al-w ay s be w orth so ma ny ounces of si lver, any morethan she says that a pound of copper shall always beworth so many pounds of iron, or a pound of cottonso many pounds of flour, and hence it is clear, that

there is no law of nature applicable to gold and silver,w hich is not equa lly applicable to all other com m odi-ties.

What nature, however, has left undone, man in hislimited w isdom ha s attem pted to accom plish, by theenac tme nt of law s fixing the ratio at w hich gold an dsilver shall be ex cha ng eab le for each other. Th esel a w s , when first enacted,were no doubt founded upon

the observation of the fact, that in the general m ark etof the commercial world, these two metals had, forlong periods to gether, preserved som ething like a fixedproportion, and it w as no doubt conceived, that ch ain-ing them together by statute, w ould preven t themfrom ever separating.



CURRENCY AN D BANKING. 9

W e learn from A da m Sm ith,* tha t prior to the dis-covery of the Am erican mines, w hich first b egan toshow its effects som ew here about the y ea r 1570, inthe diminished value of both the precious metals bythe new and annually augmenting supplies whichw ere derived fro n tha t fruitful source , the valu e ofpu re gold to pure silver w as established in the diffe-rent mints of Europe, at proportions varying from

one to ten , to one to tw elve; that is, one ounce of pu regold, w as declared to be the equivalent of ten to tw elv eounces of pu re silver; and in their respective coinagesthese proportions w ere consequently observed. A tabou t the middle of the 17th cen tury, tha t is, ab ou tthe year 1650, the ratio between gold and silver cameto be regu lated in the proportion of one to fourteen,and one to fifteen ounces of silver, no doubt occasionedby the fact, that although both metals had become

mo re ab un da nt in proportion to the dem and , and ha dboth been depreciated below their former va lue, yetsilver had depreciated more than gold, to an ex tentthat had created new proportions in the general m ar-ke t, w hich it w as the design of the n ew law s to followup .

From the period last mentioned, there does not ap-pear to have been any material change in the relative

value of gold and silver in the general market of thetrading world prior to the beginning of the presentce ntu ry , w he n a further depreciation of silver in refe-rence to gold began to show itself, so that by the year1S20, an ounce of gold came to be worth near sixteenounces of silver, of w hich the consequence w as, tha tall the gold coins of the United States, where the mintproportion had been fixed at one to fifteen, were ex-

ported from the cou ntry, to be ex cha nge d for theirproper equivalent.!

* Wealth of Nations, Book I. Chap. x i.| In corroboration of this fact, the following statement of the



10 A TREATISE ON

The author believes that he was one of the first, ifnot the first, writer in this country who called the at-tention of the public to this n ew c han ge , and ap pr e-hensiv e at the time, tha t the legislative folly of attem pt-ing to establish by law what nature herself could notestablish, would be repeated by a new enactment, heurged in D ecember, 1821, upon the late M r. L ow nd es,a representative in congress from South Carolina, andchairman of the committee of finance, the expediencyof abo lishing the coinage of eagles and their fractionalparts , and of substituting in their place new pieces, tow eigh respectively an oun ce, a half ounc e, and a qu ar-ter of an ounce of standa rd gold, un de r the full convic-tion that they would soon be introduced into circula-tion at their proper equivalent, without involving usin the absurdity of hav ing tw o legal tenders.* T h earguments presented to Mr. Lowndes in conversation

w ere at his particular request reduced to w riting, to-gether with answers to two points raised by him, andwere published in the National Gazette of 26th Janu-ar y , 1822. A copy of this pap er w ill be found in theAppendix , marked A.

The death, in the course of the last mentioned year,

coinage of Gold by the mint of the United States, at, and aboutthe period referred to, is adduced.

1 8 1 8 ,

1 8 1 9 ,1 8 2 0 ,

1 8 2 1 ,

1 8 2 2 ,

1 8 2 3 ,1 8 2 4 ,

$242,940,258,615,

1,319,030,189,325,

8 8 , 9 8 0 ,

7 2 , 4 2 5 ,9 3 , 2 0 0 .

This diminution in the coinage of gold after 1820 arose fromthe circumstance that nobody w ished to import gold into the

country to have it coined into eagles at ten dollars each, w henthe gold contained in an eagle was worth more than ten dollars** The ducat of Holland is current all over the continent of

Europe at its fair equivalent. Gold in France circulates at themarket rate of premium, silver being the ordinary currency.



CURRENCY AND BANKING. n

of Mr. Lowndes, who was one of the few individualsin con gress w ho ha d studied the subject of the co inag e,appeared to suspend the action of that body in regardto the alteration of the m int regulation s, an d altho ug hseveral propositions w ere at different periods sub se-quently submitted, yet nothing was done until the28th of Jun e, 1834, w hen the law usual ly kno w n asthe gold bill w as passed. A short history of theseproposit ions w as dr aw n up by the auth or in the lastnamed year, and as i t may be of service to those whoha ve a desire to stud y the subject, ex tracts therefromhave been placed in the Appendix marked B.

In connection with this subject, it may not be amissto remark, that the proportion of one to fifteen or six-teen in the relative value of gold to silver, does not byan y m ean s w ar ra nt the inference tha t there is jus t fif-teen or sixteen times as much silver as gold in exis-

tence. A da m Sm ith advan ces conclusive argu m entsto show that the qu an tity of silver at the time he w rotewas far greater than the proportion which it bore togold called for, and indeed any one may be convincedof this fact if he will reflect upon the very small valueof gold com pared w ith silver, tha t is consum ed in plateand ornam ents. T he relative value of no tw o com -modities determines their relative quantities, and it iseasy to be perceive d, tha t if a barsel of flour w erew orth ten dollars, and a bo x of Spanish segars tw en tydollars, it would not necessarily follow that there werein existence only tw ice as m an y barre ls of flour asthere were boxes of segars .



12 A TREA TISE ON

CHAPTER IV.

OF T HE BALANCE O F TRAD E, OR OF TH E CAUSES WH ICHOCCASION T H E TRANSMISSION OF T HE PRECIOUSMETALS FROM ONE COUNTRY TO ANOTHER.

IN a preceding chapter, it w as stated that the pre-cious metals are distributed by the operations of com-merce throughout the trading w orld, in such a w ayas to establish what is called a general level of cur-rencies. I shall now proceed to show the mode byw hich this distribution is accomplished, w hich is ac-cording to the laws of what is termed the balance oftrade.

It must be manifest to every observant mind, that

even under the most perfect level which the curren-cies of all commercial nations can attain, that is, undersuch a state of things as may be imagined where nomotive of profit could lead to the importation or ex-portation of the precious metals, except as relates tothe annual production of the mines, the prices of othercommodities will not be in all countries the same.Were this the case there could be no commerce, for

the only object of commerce is to transport commodi-ties from countries where they can be purchased fora comparatively small quantity of gold and silver; thatis, at a comparatively low price; to other countrieswhere they can be sold for a greater quantity of goldand silver; that is, at a higher price.* Any one can

* The reader will be pleased to keep in mind, that price inpolitical economy is the value of a thing expressed in money

only, and therefore differs from the term value, which expressesthe worth of things as compared with other things than gold andsilver. Th us w e w ould say that five dollars is the price of ahat, where money is to be paid for it, but we would say thatfive pairs of shoes are the value of a hat, if the hat is to be paidfor in that many shoes.



CURRENCY AND BANKING. 13

perceive that iron would not be imported into theU nited States from E n gl an d unless it could be soldhere at a higher price than it cost at the place of pro-duction , and th at cotton w ould not be ex po rted from theUnited States to Europe unless it could be sold thereat a higher price than it could be purchased for here.The prices of different articles, it is self-evident, inevery country, are regulated by causes peculiar to

them selves, such as the soil, climate, w ag es of labo r,degree of skill required, extent of population, capital,an d tax ation ; an d this it is w hich sets in mo tion thew hole m achinery of com merce. E v en in the case ofbarter w ith savag e nations, although gold and silverbe absent, yet the trader has reference in his calcula-tions to the metallic stan da rd, in order to enab le himto determ ine h ow m uch he can afford to give of w ha the has to dispose of, in exchange for the commodities

which he is to receive in payment.The foreign commerce of a nation is usually of two

kinds. The Jirst is that w herein the ex port and im-port trade are carried on by the sam e individu al, inthe sam e vessel, and in the prosecution of the sam evo ya ge . Such is the trade of the Un ited States w ithmost parts of the West Indies, South America, Africa,some parts of India, and some other countries. T h e

imports from those regions consist of the articles pur-chased with the proceeds of the outward cargoes, andthis trade is strictly an exchange of equal values, andalthou gh it m ay ex hibit w ha t is called a balan ce oftrade on one side or the other, yet. it calls for no pay-m ent. T he sam e is true of the w hale and other fish-eries, w herein althou gh the am oun t imp orted m ay farexceed in value the amount exported, yet no balanceof trad e is left to be pa id, the difference be ing m ad eup by the value of the labor expended by the crew,of the freight earned by the ship, and by the profits ofthe enterprise.

T h e second trade is that w herein the ex ports andimports are made by different classes of merchants,



14 A TREATISE ON

without any previous consultation or agreement withone another. Such is our trade w ith Great Britainand most of the other maritime nations of E urope.The exporters of cotton, rice, tobacco, flour, and theother commodities which form the bulk of our exportsto Europe, are very rarely the same individuals whoimport the dry goods, hardware, and the infinite vari-ety of other manufactures and productions which con-

stitute the bulk of our imports from Europe. Theformer ship their cargoes to foreign countries, withoutany knowledge of the quantity or value of the com-modities w hich the importing m erchants intend to or-der from abroad, and the latter send their ordersabroad far goods withoi.it any know ledge of the am ountfor w hich the exported cargoes w ill be sold. Theformer class, that is , the exporters, get paid for theircargoes by drawing bills of exchange upon the pro-ceeds in the hands of their foreign correspondents;and the latter class, or the importers, pay for theirgoods by purchasing and remitting these same bills.

Under a course of operations carried on by so manyindependent traders, it would indeed be miraculous ifthe exports and imports should be so exactly equal asto leave no balance one w ay or the other. In truth,experience shows that the exports will sometimes ex-

ceed the imports, and that sometimes the imports willexceed the exports, leaving a balance of trade in theformer case in favor of the country, and in the lattercase against it.

Let us now suppose, that in a given country wherethe currency is at its proper level, where no gold orsilver flow s out or flow s in, and w here consequentlyexchange w ould be at par, an excess of imports should

take place. What w ould be the first effect? Theanswer must be, a demand for more bills of exchangethan are for sale in the market, the effect of which is arise in the rate of exchange above par, which obvi-ously holds out an inducement for the exportation ofcommodities for w hich a sufficient inducement did not



CURRENCY AND BANKING. 1 5

previou sly ex ist. A rise in the exch ang e of one ortwo per cent, may sometimes determine shipments,which without such rise would not have been thoughtof; not that so small a profit w ould of itself induceshipments, but because one or two per cent, added tothe profit which might have been made without suchaddition, would elevate the gain to the height of theaverage mercantile rate of profit requisite to warrant

a shipm ent. A profit in adv anc e is a pow erful stim-ulus to exportation, especially where two thirds orthree fourths of the capital em ployed in the pu rchase ofthe ex ported comm odities can be imm ediately replacedby the sale of a bill of ex cha ng e. T he additional de -m an d , therefore for bills, to assist tow ard s pay ing th ebalance is met, we will suppose, at once by additionalex ports, it sometimes even happ ening that the remit-ting merchant, to save, as it is called, the premium on

bills, becomes himself an exporter.T h u s far it is manifest tha t the balan ce of tra de

occasions no exportation of the precious metals, andtha t conseq uently the gen eral level ef currencies isnot disturbed. B ut it m ay hap pen that the increasedde m an d for expo rtable comm odities arising from theaugmented premium on exchange, may raise theirprice to an extent equal to the rise in the price of bills,

and thus pu t an end to their ex portation, by takinga w a y the additional profit. A new ex pedien t is thenresorted to by capitalists to take advantage of the pre-m ium on ex chan ge, w hich is to obtain a credit ab roadup on w hich they m ay dra w bills, under the calcula-tion that at some future, not very distant period, theyw ill be able to replace the funds a t a low er rate ofex ch an ge , and thereb y realise a profit by the op era-tion. T he transmission, too , of public securities, b an k ,railroad, and canal stocks, and the extension of cre-dits by the consent of the foreign creditors up on allow -ing interest for the extended term, are all well knownlevers in the mechanism of trade, (to say nothing ofba nk rup tcy) , by w hich the tendency of an unfavora-



16 A TREATISE ON

ble balance of trade to cause an ex po rtation of theprecious m etals is frequently n eutralised. B ut it m ayhap pen , ho w eve r, that all these m easures com binedw ill not keep do w n the price of bills of ex cha ng e tothe rate w hich w ill render them more adv antag eou sto rem it than gold or silver. T ha t an ex po rtation ofthe precious m etals w ill then comm ence is quite ap pa -rent, bu t com pared w ith the w hole balance that ma y bed u e, it w ill be ex ceedingly trivial, as I w ill proceedto show.

W e w ill supp ose ten millions of dollars to be thecirculating m edium of the supposed debtor cou ntry,and that that is the amount which is requisite to cir-culate her commodities and to maintain her currencyat an equivalency with the currencies of other coun-tries. No sooner does this quantity become dimi-nished by the ex po rtation of an y pa rt of it , than a

scarc ity of m on ey beg ins to be felt. A scarcity ofmoney invariably occasions a fall in the prices of com-modities, as every body knows, and that fall operatess.s an incentive to exportation, inasmuch as domesticproducts, which were before too high to export , willnow afford a profit. A fall in the price of cotton ofone cent a pound has sometimes occasioned the expor-tation of imm ense qu antities in a short perio d; and it is

very clear that there is a price at which almost anyarticle might be ex ported to adv an tage , and that agra du al diminution of the currency , if continued longen ou gh , w ill even tually establish that price. It is idleto say that possibly the debtor country may not haveon ha nd a sufficiency of pro ducts to discha rge thedeb t, and that therefore she m ust be draine d of herprecious metals to the last dollar. T his can nev er be .If her w eal th or her pow ers of product ion had not

been co m m en sura te to her dem and for foreign com -m odities, she co uld not ha ve had sufficient credit torun deeply into debt. A t all eve nts, she w ould hav eon han d a large portion of the foreign com m oditiesin the purchase of which the debt was incurred, anda scarcity of money might even bring down prices so




low as to render the exportation of foreign commodities a profitable trad e. It m ight eve n be an object tosend back to the place of production the very commo-dities, the importation of which created the unfavo-rable balance . * It is quite probale that a very sm allreduction of the amount of coin would produce sucha fall in th e prices of com modities as w ould lead totheir exportation to an extent adequate to keep downth e price of bills so as to prev ent an y further ex po r-

tation of the preciou s m etals; bu t if this should not bethe case, and if the scarcity of money should continueto increase, those who had remittances to make wouldeither become ban krup t and m ake no remittances atall, or becom e so e m barra ssed as to default in theirpu nctu ality, e ither of w hich events w ould diminishthe demand for funds abroad, and stop pro lanto theex po rtation of gold and silver, t A nd here it m ay berem arke d by the w ay , that a real scarcity of m oneyis always accompanied by an artificial scarcity whichagg ra va te s the effects of the former. If, for instance,a million of dollars in coin be exported, so as to pro-duce an outcry about scarcity of money, timid peopleand speculators will withhold another million fromcirculation; the former because they are afraid to lendit, and the latter because they expect to profit by for-cing down the prices of property and commodities to

a still low er poin t, the effect of w hich w ould be todiminish the demand for the exportation of coin byreducing the prices of commodities.

B ut indepen dent of the tendency of the causes above

* British goods have frequently been sent back from the Uni-ted States to England, as affording the best market for them,and it is a very common thing for vessels to bring back from

the W est Indies part of their outw ard cargoes, ow ing to theirbeing w orth more at home than they could be sold for abroad.t All the propositions here laid dow n, have recently been

fully established as practical truth s in the United States , andespecially at New York even to the reshipping of British goodsto England.



18 A TREATISE ON

enu m erate d, to restrain the ex portation of specie, ano -ther operation simultaneously takes place, which addsto their efficiency. T h is is, the cessation of fresh im -ports, ow ing to the fall in prices of foreign com m oditie s,occasioned by the ex isting scarcity of m oney. T hiscessation, even tho ug h it be but for a short period ,affords time for the ex porta tion of the prod ucts of thecountry which had not previously been brought intom ark et; and although the tendency of an unfavora-

ble balance of trade is unquestionably to drive theprecious m etals from a debto r cou ntry; ye t in pointof fact it does not effect it, for the reasons above sta-ted, beyo nd a very limited ex tent. Bu t w ere this,however, not the case, an outward stream would soonbe m et by an inw ard one. T he low prices of dom es-tic products would soon invite the attention of foreign-ers, who, to obtain them, would bring into the coun-tr y , not foreign com m odities, w hich from their low

price could only be sold a t a loss, bu t th e prec iousm etals. * W hilst gold and silver w ould be flow ingout of the c oun try in some directions it w ould be flow -ing into it from oth ers, an d sooner or later th e eq ui-

* During the panic of 1834, when the scarcity of moneygreatly lowered the prices of commodities, the amount of specieimported into the United States for the purchase of cotton at thelow price of the period w as very great, as w ill appear from thefollowing official table.Table of Imports and Exports of gold and silver coin and bullion from

1821 to 1838, each year ending on 30th of September.

1 8 2 1

1 8 2 2

1 8 2 3

1 8 2 4

1 8 2 5

1 8 2 6

1 8 271 8 2 8

1829

I M P O R T E D .

$8,064,81)0

3,369,8465,097,896

6,473,0956,150,766

6,880,966

8,151,1307,489,741

7,403,602

E X P O R T E D .

S I ,478,059

10,810,180

6,372,987

7,014,5528,797,055

4,663,795

8,014,8808,243,476

4,924,020

1830

1831

1832

1833

1 8 3 4

1835

18361837

1838

I M P O R T E D .

8,155,964

7,304,9455,907,504

7,070,368+17,911,632

13,131,447

13,400,88110,506,414

17,747,116

P^XPORTED.

2,178,773

9 , 0 1 4 , 9 3 1

5 , 6 5 6 , 3 4 0

2 , 6 1 1 ,701

2,076,758

6,477,775

4 , 3 2 4 , 3 3 65 , 97 6 , 2 4 9

3 , 5 1 3 , 5 6 5

t A part of this amount was the result of the passage of the goldhill of 28th of Jun e of this ye ar, and to th e same bill is to be ascribedthe large importations of 1835 and 1836.




l ibrium would be restored, and the double currentarrested.

It may here be remarked, that the accounts currentbetween nations in their commercial dealings, that is,between the individual merchants of one country andthose of anothe r, w hich is the only sense in w hichwe speak of commercial transactions between nations,are not periodically settled like the accounts betweenindividuals of the same country, which are generally

settled by the actua l pay m en t of the balanc e. N a -tional accounts curre nt are nev er settled. T he balancemay be one way to-day and another way to-morrow,an d as there is no gen eral pa y da y, like the first ofJanuary, upon which a general balance is struck,facilities are afforded for w ar ding off such a pressureon the bill ma rke t as w ould ex ist if a pe riodicalpunctuality were rigidly enforced.

Having thus given a detail of the operations whichwould take place under an unfavorable balance oftrade, I will say a few words upon those which wouldoccur und er a favorable balance. An d in doing this,w e w ill take for illustration the sam e coun try tha t w ehave just been considering, and will suppose that anex cess of ex ports should take place. Of such a stateof thin gs, w h a t w ould be the first effect? T he an sw ermust be, a fall in the price of bills of exchange in the

m arket. M ore m oney w ould have to be dra w n forthan the amount required to pay for the imports, andthe competition of the bill drawers might reduce therate of ex chang e d ow n to the point at w hich it w ouldbe more profitable for them to import gold and silverfrom ab roa d, than to dra w bills. Still the q uan titythat would be thus imported, would be comparativelylimited. T h e ve ry ex istence of a foreign balance in

favor of the country, would be proof of the abilityof the nation to consume an additional amount offoreign commodities, and the gain which could bemade by the importing merchants of one or two percent, o n the ex ch ang e, by buy ing bills below par,in



2 0 A TREATISE ON

addition to the usual profits, would invite to more ex-tensive importations. Additional importations w ouldin fact take place, and the supp ly of these new com-modities would be met by a corresponding demand onthe pa rt of those w hose m ean s of' consum ption fromex traordinary crops or ex traord inary profits on theirbusiness, had thus become augmented.

Bu t a fall in the price of bills w ould ha ve a ten -dency to discourage the exports of domestic products,

and this discouragement, in its turn, would have theeffect of raisin g the price of bills by a dim inution ofthe supp ly in the m arket, and thereby of rem ovingthe motive for the importation of the precious metals.The importation of gold and silver, however, shouldit commence, would make money plentier than before,and thus raise the prices of com mo dities, foreign asw ell as dom estic. T his rise in price w ould encouragethe importation of foreign commodities, because tbey

could be sold at an increased profit, w hilst it w oulddiscourage the exportation of domestic products, bywhich means a part of the specie previously importedwould again be exported, in preference to the domes-tic products, w hich could only be procurable at anaug m ented price. It thu s app ear s, that a favorablebalanc e of tra de , althou gh it has a tendency to bringthe precious metals into a country, yet in point of fact

it does not effect it bey ond a limited am ou nt, resem -bling in this particular, the former case of an unfavo-rable balance; two streams might be flowing, one intothe country and one out of it, and sooner or later theequilibrium would be restored, and the level regained.

Thus it would be impossible to retain in any coun-try any more than its true share of the aggregate massof the gold and silver of the trading world, or to ex-clude from it an y portion of that share . N o h um an

contrivance or legislation could possibly effect either,and hence all the efforts which have been made in allpa rts of the w orld to alter w hat the natura l law s ofcomm erce hav e decreed, by prohibiting the ex porta-




tion of the precious metals under heavy penalties, orby attempting to encourage their importation by pro-tective or prohibitory duties on m erchand ise, or. byresorting to any other expedient, have proved utterlyfutile. M on ey , as has been said, like w ater, w ill findits level, and alth ou gh the former like the latter, m ayfor a period be forced into un na tural chann els, the de -viation cannot long continue.

And he re, I w ill take occasion to rem ark , that informing an estimate of the comparative value of theexports and imports of the United States, the customhouse returns, as they appear in their aggregates, arebut imperfect guides to determine the balance oftrad e. T he value of the ex po rts given is their valu eat the time and place of shipment, as furnished by theshipp ers un der o ath , in the form of manifests. T he

va lue of the im ports, is their cost ab roa d, as ascer-tained by the invoices, also furnished un de r oa th,subject to such revision by the custom house apprai-sers as m ay , in case of suspected fraud in the va lua-tion of goods chargeable with ad valorem duties, bedeem ed right and ju st. Th ese foreign invoices em -brac e the cost of the articles, and w hat are called theshipping charg es, that is, the charge s w ithou t thepayment of which they could not be put on shipboard,

but include no frieght, or insurance; and where theyare made out in Brazil, Buenos Ayres or other coun-tries, w here a depreciated paper currency exists, du eallowance is made for the depreciation.

N ow , as cargoes shipped abro ad from the UnitedStates, are burthened with the expenses of freight andinsurance, their value at foreign ports must generallybe augm ented by the am oun t of these expenses and

the profits on the vo ya ge , and consequen tly the nettproceeds of their sales mu st alw ay s furnish' a fundad eq ua te to the purchase of foreign com modities to agrea ter value tha n their cost at hom e. On this ac-count it necessarily follows, that where the trade of acou ntry is profitable, its imp orts will alw ay s exceed itsex po rts, and this too, jus t in the degree tha t it is profi-



22 A TREATISE ON

table, and nothing is clearer than that if the voyageout and home does not give a greater amount of im-portslhan of exports, the trade w ould be abandoned.Of this proposition there can be no dispute, and it isquite probable that an export of a hundred millions ofdollars would purchase abroad as many commoditiesas would show an import on the custom house booksof a hundred and twenty or more millions of dollars,

thus overthrow ing the theory of that class of reasonersw ho maintain that the balance of trade is against acountry when it imports more than it exports, andw ho consequently believe that a "nation is grow ingpoor when she is in reality growing rich.

But to make this matter perfectly plain, I will illus-trate it by a practical case that every body can under-stand.

A merchant in Philadelphia purchases one thou-sand barrels of flour at eight dollars per barrel, andships it to the West Indies. The custom house booksin this case would show an export of eight thousanddollars. On the arrival of the cargo abroad it sellsfor twelve dollars per barrel, and after paying freight,duties, commissions, and all other charges, leaves thenett proceeds ten thousand dollars. This sum isinvested in coffee, and brought home, where it is

entered upon the custom house books as an import ofthat amount. Here, then, w e w ould have an exportof eight thousand dollars and an import of ten thou-sand dollars, showing a clear gain of two thousanddollars, without leaving any balance due one way orthe other. A stronger illustration than this even, is tobe found in the operation of our w haling ships. Avessel with a cargo consisting of nothing but provi-sions sufficient to feed a crew for a voyage, and asmany staves, hoops, and headings, as will make casksenough to hold a cargo of oil, clears out at New Bed-ford for the South seas. The custom house booksshow an export of ten thousand dollars, perhaps, audwhen the ship returns with a cargo of oil, they giveus an import of fifty thousand doflars, thus show ing




what the superficial reasoners above referred to wouldcall a balance of trade again st the coun try of fortythousand d ollars, but w hich is a clear evidence of again to the owners and crew, and consequently to thecountry.

Bu t ev en if the custom h ouse books w ere to fur-nish accu rate statem en ts of the nett proceeds of thesales of the cargoes exported, as well as of the foreign

cost of the hom ew ard cargoes, they w ould not be suf-ficient to enable us to form a correct estimate of thereal balance of trad e. Debits and credits are crea tedin the foreign trade of every cou ntry , w hich nev erap pea r on the custom house books. Specie is im -ported and exported by emigrants and passengers intheir trunks, or secretly shipped by merchants to avoidpenalties or odiu m , or, ex posu re of their ope rations.Goods are sm uggled, and others are purch ased w ithfunds earned by vessels abroad, engaged in the carry-ing trad e, and thereby aug m ent the imp orts, w hilstships are frequently sold ab roa d, and thereb y au g-men t the ex ports. Large am oun ts of property arealso ex ported from some coun tries for w hich no pro -ceeds are to return, or at least, to return at an earlyday, such as happens in the case of foreign subsidies,the m aintena nce of troops and nav ies ab road , the

transmission of revenues to non-resident capitalists,and funds for the expenses of travellers in foreigncou ntries. To these ma y be add ed losses at sea, or byfires abr oa d, the bank rup tcy of the persons to w ho mthe ex ported com mo dities are sold, and investm entsin foreign loans and joint-stock co m pa nie s. In m ostof these cases property of some kind or other is sentabroad which appears on the custom house books

amongst the exports; and, although in many of themthe actual transmission for these specific objects maybe in the form of bills of exchange, yet it is manifest,that these bills could only be dr aw n up on shipm entsof property.

In the foregoing remarks it has been laid down asan axiom, that the price of bills of exchange is deter-



24 A TREATISE ON

m ined by the balance of trad e. Strictly speak ing,ho w ev er, this is not alw ay s the case, for this balanceis liable to be modified by w h at is called the b alanc eof pa ym en ts; and in tru th this latter principle it isw hich.regulates the daily rate of the exch anges. Ifall the merchandise exported and imported was to beimmediately paid for at the time of its changinghands , the balance of trade and the balance of pay-

m ents w ould be identical. B ut, in the intercoursebetween nations we know that this is not always thecase, and that circumstances occur to prevent theim m ediate influence of the balance be tw een im portsand exports from acting directly upon the exchanges.Amongst these circumstances are the following:—

1. Where the imported articles are bought on acredit, and are to be paid for at a distant time, whilstthe exported articles are sold for cash, or vice versa.

2. W he re in the case of both impo rts and ex portsthe sale is on credit, bu t the credits are not of thesame length.

3. W he re the articles shipped abr oad from one ofthe countries should not meet with a ready sale, andshould be kept on han d for a length of time w ithoutbeing drawn upon, whilst on the other side a promptsale is made, and bills drawn for the proceeds.

In either of these cases , the o peration of the balan ceof payments on the exchanges might be such as notonly to neutralise for a time the operation of thebalance of trade , but to turn the ex changes againstthe country w hich had the balance of trade in itsfavo r. A case in point can read ily be referred to.

If an account current were to be made out of thepas t state of debits and credits betw een the Un itedStates and Great Britain, it would no doubt be found,that from the date of planting the first British colonyin this hemisphere, we have owed a balance of tradethat has never been discharged, and w hich at timesmay have amounted to a hundred millions of dollarsor m ore ; and yet, ow ing to the credit tha t has beenex tended to u s, by w hich the pay-d ay has been de-




ferred,the ex chan ge has not alw ays been against us,bu thas , on the co ntra ry, been so controlled by the balanc eof payments as frequently to have been in our favor.*

C H A P T E R V .

ON THE PRINCIPLES OF EXCHANGE.

BILLS of exchange are those commercial instru-ments by which a merchant in one country or placedirects money which is subject to his control inano ther cou ntry or place to be paid over to a thirdpa rty . In the com m ercial transactions of every na -

tion, some of the merchants become indebted to otherm erch ants in foreign coun tries for com m odities pu r-chased there upon credit, whilst some others havefunds in those foreign countries arising from the saleof cargoes disposed of the re. If bills of ex chan ge d idnot ex ist, the debtor class of these m erchan ts w ou ldbe obliged to incur the expense and risk of transport-ing coin or bu llion to foreign cou ntries in discha rgeof their debts, and the creditor class w ould also beobliged to incur the same expense and risk in import-ing coin or bullion in p ay m en t of their cargoes soldabroad. By this double transmission, the m erchan ts,and consequently the nations to which they belonged,w ould be losers to an a m ou nt equ al to. all the ex -penses and risks so incurred, together with intereston their capitals for the time they were out of theirreach . N or could this be avoided unless the im-

porters and exporters were always the same identicalindividuals, in which case the merchandise purchased

* For a table of Imports and Exports of the United Statesfrom 1789 to 1839, see Appendix F.



26 A TREATISE ON

abroad would be paid for by the proceeds of them ercha ndise sold. B y the op eration , the n, of billsof exchange, the necessity of this double transmissionis entirely avo ided , and the funds ab ro ad , instead ofbein g sent ho m e, are transferred to those w ho ha vedebts to pay abroad, and who are thus exemptedfrom the expense and risk of sending coin or bullionin payment of their debts.

But this benefit, in which the whole nation partici-

pates , is not limited to the m ere applica tion of fundsin a n y given place to the pa ym en t of a deb t due intha t place. It m atters not w heth er the fund and debtboth stand on the bo oks of m erch ants at the sam eplace, or w hether the debt be due at Man chester andthe fund be at Pa ris. T he m agic po w er of bills ofexchange transfers the payer and receiver both toLondon, the great seat and centre of British and in-

deed of European commercial operations.But the merchants who make remittances of bil lsof exchange to foreign countries, to pay for merchan-dise purch ased the re, do not, it is manifest, proc urethose bills of exch ang e for noth ing. T he y m ust pur-chase them from those who have funds abroad todraw for, and in doing this they will endeavor toproc ure them at as che ap a rate as they can. It is,on the othe r h an d, the interest of those w ho hav e bills

for sale, to secure the highest price for them theycan, and it is this competition between buyer andseller that determines the market price, w hich, l ikethe market price of commodities, must always dependupon the proportion which the supply bears to thede m an d. If bills of ex cha ng e a re scarce, their pricew ill be hig h. If they are plen ty, their price w ill below . Th ere is , how ever, one peculiarity belonging

to a bill of ex ch an ge , w hich is not comm on to a nycom mo dity, and w hich oug ht alw ays to be kept inm ind in discussing th is subject. It is, that if it can-not be sold at a price that will suit its owner, he hasit in his power to avoid the necessity of a sale atgreat loss by importing his funds in coin; and if it




cann ot be purch ased at a price that w ill suit a p u r-chaser, the latter can avoid the necessity of a disad -van tageo us purchase by ex porting coin in paymentof his de bt. T h e ex istence of this pecu liarity placesa limit upon the fluctuations in the rate of exchange,w hic h cann ot for an y long period tog ethe r fall an dremain below par, or rise and remain above par, to agrea ter ex tent tha n to an am oun t equivalent to theex pe nse of tran sportin g the precious m etals from the

deb tor cou ntry to the creditor cou ntry. Fo r, if am ercha nt ow es a debt abroa d, and cannot procure abill of exchange at an advance above par equal to thefreight, insura nce , com mission, and brok erag e, an dto the value w hich he attaches to that certainty ofpu nctu ality in the fulfilment of his eng age m entabroad, which a set of bills of undoubted credit,sent by two or three different vessels affords, butwhich a shipment of coin cannot always furnish, howsolvent and prompt soever might be the underwritersin settling in case of loss, he w ill un qu estio nablytransmit coin as being the most economical mode ofm akin g a remittance.* An d so, on the other ha nd ,the drawer of a bill, if he cannot sell at a price whichw ill yield him as m uch m oney as the imp ortation ofcoin w ould do, taking into the acc ount, besides th echarges of importation, the interest for the time he

must wait before his money can arrive, and if moneybe scarce, the inconvenience or loss he w ould sustainby the delay , he w ill und oub tedly order his funds tobe shipped to him in coin, as the most ad va nta ge ou smode of getting them into his possession.

Of the correctness of these positions the re ca nn ot

* Specie was shipped from New York to England, at a los s,in October, 1839, in preference to bill3 at par, owing to the ap-

prehended difficulty of getting them discounted under the pres-sure of the London money market. Other shipments w eremade, at the same tim e, of specie, under the impression thatthe Bank of England was about to stop cash payments, in whichevent, the specie would have commanded a premium in London.The cost of freight and insurance on specie from the Un itedState3 to Europe, may be computed at one per cent.



2 8 A TREATISE ON

be a doubt, and w henever the market price of ex-change differs from these rates, it must have its causein one of the following circumstances.

If the exchange be above, it must either be that themerchants who have remittances to make are igno-rant of their business, and therefore pay more for abill than it is worth, or that small profits are notworth their attention, or that there is a penalty or adegree of odium attached to the exportation of coin

which they are not prepared to encounter, or that thepunctuality which is expected of them by their cor-respondents abroad is of a character that w ould notjustify the hazard of a miscarriage by a single ship.

If the exchange be below, it must be because theowner of the funds abroad cannot afford to wait thetime requisite for the transmission of the coin, orbecause in the actual state of the money market,money is worth to him more than the ordinary inter-est, or because there exists a penalty or a degree ofodium attached to the exportation of coin in the coun-try from which his fund is to be drawn.

It must, however, be remarked, that it sometimeshappens that bills are sold below the limits here de-signated in the following cases, viz:

1. Where the commanders of ships of war on for-eign stations have occasion to draw bills upon their

government, at ports of limited trade, or at which thecourse of trade does not call for such bills. I haveknow n a bill on the navy department draw n at aport in South America to be sold at twelve per cent,below the true par.

2. Where masters of vessels and supercargoes, atsuch ports, have not merchandise enough to fill uptheir vessels, and on that account find it for their in-terest to sell bills at a great discount, for the purposeof buying bulky commodities to bring home, andthereby earn a freight more than equivalent to theloss sustained on the bills.

3. Where masters of vessels enter such ports in dis-




tress, and are obliged to draw bills upon their ownersfor necessary repairs.

In w eal thy countr ies , how ever, w here bankers areprep ared w ith large capitals devoted to speculations inbillsof exchange,great fluctuations from the par are notlikely to take place, inasm uch as bills can alw ay s bebought from or sold to them , by allow ing a small profitbeyond the ex penses of expo rting or imp orting coin.T he trade of a banker in E uro pe is to study the ex -chang es not only betw een the place at w hich he residesand all other places, but also between all those placesand each other, by w hich m eans he is generally en-abled, by a combination of operations, by selling billson one place and by bu ying them on anoth er, notonly to raise the fund w ith w hich he d eals, but torealise a p rofit. T h u s, for instance, if he reside a tLondon, and can sell a bill on Hamburgh at half per

cent, premium, and buy one on Paris at half per cent,discount, and with the latter buy one through hiscorrespondent at Paris on Hamburgh at par, he willhave realised one per cent, by the transaction, with-out the employment of any capital; the bill remittedfrom Paris to Hamburgh arriving in time to meet thebill drawn upon his correspondent at the latter place.

Having in the foregoing remarks spoken of the par

of ex ch an ge , it is proper that the m ean ing of that termshould be explained.Exchange is an operation, which, strictly speaking,

has relation only to the precious metals, and everybill of ex change is in reality a mere order for the de -livery , on a certain da y , of a given qu an tity of go ldor silver. E x ch an ge is at par or equ ality, w hen amerchant in one country can purchase with an ounceof pure gold, or an ounce of pure silver, a bill at sightupon a foreign country, which will there put him inpossession of an ounce of pure gold or an ounce ofpu re silver, and the coins of full w eight of the tw ocountries which are the respective equivalents of anounce of pure gold or an ounce of pu re silver, w ill



SO A TREATISE ON

express tha t p a r . T h i s i s a n a x i o m in poli t ical econo-m y , a n d should never b e lost sight of, w h a t e v e r a p -p e a ra n c e s to th e con t ra ry m a y a t t imes b e presen ted .E x c h a n g e is above par w i i e n a grea te r quan t i ty is re -quired for th e p u rc h a se of a bil l that wil l command a no u n c e of pure gold o r pure s i lver ; a n d i t i s below parw h e n a less quant i ty is requ i red . N o w , if a l l t h e t r a -ding na t ions of the w o r l d w e r e t o u s e only o n e o fthose meta ls a s the i r currency, a n d if their coins wereof t h e sa me s t a n d a rd a s to p u r i t y , an d o f t he full mintw e i g h t , t h e science of e x c h a n g e w o u l d b e a s s imple a sthe plainest calculat ions in ar i thmet ic . B u t this n o tb e in g t h e case , each na t i on ha vin g i ts o w n s t a n d a rdof fineness, a n d its o w n par t icula r coins , some ha vin gone meta l a n d so me t h e other , a n d some both , t o c o n -st i tute their currencies; a n d t h e coins of some coun-t r ies be ing worn b y w e a r a n d tear more than those

of o thers , w i th out be ing prohibi ted f rom pass in g b yt a l e , a n d there be ing in some countr ies a se ignoragecharged o n t h e coins , whi ls t in others there is n o n e ,the subject i s invo lved in an obscur i ty which ve ryfew persons a r e disposed to t ake t h e t rouble to p e n e -t r a t e , a n d indeed which ve ry fe w persons have t h em e a n s of pene t ra t ing . Th is h a s been par t icular ly t h ecase in reference t o t he e x c h a n g e b e t w e e n t h e Uni ted

Sta tes a n d En g la n d , wh ic h , b e in g for many years pas t ,u p t o t h e presen t d a y , quoted in a l l the n e w s p a p e r s ,pr ices current , a n d correspondence, upon false princi-ples , h a s occasioned a wide-spread e r ro r , t h e origin ofwh ic h w i l l n o w b e e xp l a in e d .

B y a n ac t o f congress, passed on th e 31s t o f J u l y ,1789 , i t w a s declared , tha t t h e Brit ish pound ster l ing( w h i c h , a l t h o u g h n o t a t tha t t ime a coin , w a s t h ee q u iv a l e n t of t he q u a n t i t y o f gold contained in a

guinea, less the one and twentieth part, the guineabeing twenty-one shillings) should be taken as of thevalue of four Spanish silver dollars and fourty-fourhundredth parts of a dollar in estimating ad valoremduties upon British merchandise at our customhouses. Th is estimate w as founded upon the cir-




cumstance , that at that period, the Spanish dollar, theonly coin of tha t den om ination in circulation in theUnited States, was the well known equivalent in theBritish market, of four shillings and sixpence sterling,and very nearly such equivalent at the British mint.*

By another act of congress of 2d April, 1792, esta-blishing t he m int, an d auth orising a c oinage for theUnited States, i t w as provided , that there should be

silver dollars co ined, " each to be of the va lue of aSpanish milled do llar," to contain 17dw t. 8 grains ofstandard silver; and that the proportion which the goldand silver coins should bear to each other, should beth a to f l to 15 ,that is, that one ounce of pure gold sho uldbe the equivalent of fifteen ounces of pure silver.!

But there is no natural proportion between goldand silver, as has been observed on a former occasion,any more than there is between lead and iron, and it

is therefore very manifest that no law can permanentlyfix a par of exchan ge betw een them. W hen anychange in their relative value takes place in the mar-ket of the trading world, whether i t be by an in-

* The mint price of silver at that period, as well as at thepresent, was 5s. 2d. per ounce. Th e w eight of the dollar w as17dw t. 8 grains, hut somew hat inferior in quality to the Britishstandard, so that if sent to the mint, it would have produced

about 4s. 5$d. As an exportable foreign coin, it was probablyworth in the market an additional \d., there being at that time aprohibition against the exportation of British coins.

f The adoption of th is proportion was probably the resu lt ofa sort of average , founded upon the comparison of the mintproportions of several different countries. W hat they w ere atthat precise date, I cannot say, but, by some tables that I haveseen, it appears that the mint proportions in 1810, at the placesnamed, were as follows, and probably had been so for a longperiod.

~ " " V enice, 1 to 14 88-100.London, 1 to 15 13-62Bengal, 1 to 14 86 1.Madras, 1 to 13 872.Bombay, 1 to 15.

Leghorn, 1 to 14.53-100. Ch ina, 1 to 14 296.Am sterdam, no regulation: marke t rate, about 1 to 14 7-10.Hamburgh, no regulation: market rate, about 1 to 14 83-100.

Paris,Cadiz,Lisbon,Naples,Genoa,

11111

tototototo

15.65-129.16.15.7-10.14.5-10.14.53-100.



32 A TREATISE ON

creased or diminished supply, of one or the otherm etal, or, by an increased or diminished dem and forone or the other, the p ar becomes changed . Th isevent did in reality ta ke plac e, an d in process of tim e,an ounce of gold, as has been already stated, becamegradually worth more than fifteen ounces of silver,and finally reached the proportion of one to sixteen.With this gradual change in the relative value ofgold and silver, the silver dollar ceased to be theequivalent of four shillings and sixpence sterling, andconsequen tly the p oun d sterling becam e the equ iva-lent of m ore than four dollars a nd fourty-four hu n-dre dth pa rts of a dollar, for th e simple reason , th atany person who possessed the quantity of gold repre-sented by the pound sterling before the coinage ofthe sovereign, and now actually contained in that coin,could obtain for it more than four dollars and forty-four

hu nd red th parts of a dollar in silver. But the me rcan-tile usage did not conform to this chang e. T he me r-chan ts adhered to the old par , as if a pou nd sterling w asthe equ ivalent of four dollars and forty-four cents bysome unchang eable law of natu re, and for m an yye ars continued to ascribe the nom inal pre m ium onsterling bills of exchange, which was the mere expo-nent of this change in the relative value of gold andsilver, to the influence of the balance of tra de . T h e

delusion was partly removed by the act of congressof 14th J u ly , 1832, w hich raised the v alue of thepound sterling for the calculation of ad valoremduties at the custom house to $4.80, and by two sub^seque nt acts, one of 28th Ju n e, 1834, by w hich theBritish sovereign was made the equivalent in Ameri-can gold coins of $4. S7.O75+, and one of 18th Janu-ary, 1S37, by which it was made the equivalent of

$4.86.65+, which is now the true par on London ,corresponding within a very small fraction to 9h percent, prem ium on the old comp uted par.* I say

* The sign + at the end of the figures in this sentence, andwherever it oceurs, denotes that there is a fraction still remaining.




"p artly rem ov ed /' because, strange as it may appear,there are thousands of persons at this very day, whohave no other belief on this subject, than that thenominal premium quoted on exchange, is a real ad-vance which takes so much money out of theirpockets. To remove, how ever, the vestiges of thisdeep rooted error, the Chamber of Commerce ofNew York, early in the year 1S39, recommended tothe merchants of that city, to quote the exchange on

England in dollars and cents for the pound sterling,instead of designating the per centage above orbelow par; a recommendation which was soon afterfollowed up by the Chambers of Commerce of Phila-delphia and other places, and will perhaps in time begenerally adopted.*

* Sinee the appearance of the first edition of this book, theauthor has been politely furnished, by Joseph Perry Esq., ofthe General Po st Office at W ashington , w ith a very detailedstatement of the value of the sovereign in American currencyunder the different acts of congress, ascertained by algebraicalcalculations, from which it appears, that the par of the poundsterling, was

By the act of 2d April, 1792— $4.5657+ w hich w as 2 T \ percent above the computed par of $4.4444.

By the act of 28th Jun e, 1834, commonly called the goldbill— $4.87075+ which was 9.691875+ or within a small frac-tion of 9§ per cent, above the same computed par, and

By the act of 18th January, 1837, now in force— $4.8665+w hich is 9 .4 96 + or very nearly 9 j per cen t, above the samecomputed par.

T he British mint price of standard gold is £ 3 . 17s. }§\d. peroz. and consequently the weight of the sovereign, the coin ofone pound sterling is 123 .274 4+ grains. Th e British standardof gold is, 22 carats fine, that is , 11 parts pure metal and 1 partalloy, and consequently the quantity of pure gold contained ina sovereign is 113.001 grains.

The standard of gold in the United States by the ex isting

act of 18th January, 1837, is 21.60 carats fine, that is 9 partspure metal and 1 part alloy, and the weight of the eagle, thecoin of ten dollars, is 258 grains standard, or 232.2 grains puregold.

Now as the sovereign of full weight and standard puri-ty contains precisely as much pure gold as is contained is



34 A TREATISE ON

4.866563-f- parts of an eagle, it follows that the true par of thepound sterling is $4.866563-+- that is $4.86 and a fraction ofnearly f of a cent.

But it appears by the Report of the Director of the Mint ofthe United States of March 19, 1839, that by the latest assaysmade by him of the British gold coins, their standard does notexceed 915i thousandths, whereas by the British mint regula-tions, it ought to be 9 1 6 | thousandths, w hich is equal to 22carats. Tak ing this then as the true standard of the sovereign,it contains when of full weight only 112.8577 grains pure gold,and consequently the par of the pound sterljng thus fpund, is

but $4.860366, that is $4.86 and a very small fraction, equal to9.35-+- or 9 ^ per cent above the old computed par.

But this is not all. The act of congress of June 28, 1834, en-titled "An act regulating the value of certain foreign gold coinswithin the United States," declares that the sovereign when ofStandard purity, shall be a legal tender, at the rate of 94fT centsper pennyw eight. By this act w hich has never been altered, asovereign-of full weight and of the legal standard is worth inour gold currency the same as by the gold hill of 1834, abovereferred to, tha t is $4 .87 and a fraction, thus presenting the

anomaly of foreign coins having a higher value attached tothem than their intrinsic worth in the coins of the country.It so happens, how ever, that many of the sovereigns that

reach this country, have been somewhat worn, and on this ac-count, no doubt, in connection with the deficiency of purityabove referred to, they have been received and paid out by thebanks at $4.8 5.

For the benefit of practical men, the following documents aresubmitted.

PR ESEN T VALUE OF THE POUND STERLING IN DOLLARS ANDCENTS AT DIFFERENT RATES OF EXCHANGE ON THE COMPUTEDPAR O F $4.4444.

RATE.

Par.i

11 p e r c e n t . . . . . . .

4

h

Abovepar.

4.44444.45554.46664.47774.4888

4.50004.5111452224.53334.54444.5555

RATE.

3

3 per cent

h

43

43

5 per cent „i . . . . . .

Abovepar.

4.56664.57774.58884.60004.6U1

4.62224.63334.64444.65554.66664.6777




RATE.

I3T

6 per cent*

4•j

7 per cent

3

8 per cent

I3

9 per cent

Abovepar.

4.68884.70004.71114.72224.73334.74444.75554.7666

4.77774.78884.80004.81114.82224.83334.8444

RATE.

1

1

310 per cent

5s

11 per cent

T

i

x

Abovepar.

4.85554.86664.87774.88884.90004.91114.92224.9333

4.94444.9555.4.96664.97774.98885.00005.0111

T H E PA R OF EXCHANGE ON FOREIGN COUNTRIES.

Extract from the Report of the Secretary of the Treasury ofMay, 1838, on Exchanges.

The quotations of exchange on France, are so many franc9and centimes, (or hundredth parts of a franc,) payable in Francefor a dollar paid here. According to the regulations of the Frenchmint, the 3ilver franc should contain 69.453 troy grains of puresilver, equivalent to 18.708-1000 cents in silver currency ofthe United States, {not quite 1 8 | cents.) The quantity of puresilver in an American dollar, is equal to that in 5 francs 34.534-1000 centimes. But as foreign coins are not a legal tender inFrance , and as a seignorage of about 1 | per cent is chargedon silver coinage at the French mint, American dollars, whensold as bullion in France, are said to bring on an average notmore than 5 francs 26.25-1000 centim es. This is , by somew riters assumed as the par of exchange on Fran ce. Otherwriters assume 5 francs 34 centimes as about par.

The quotations of exchange on Holland, are so many cents aguilder; on Hamburgh, so many cents a mark banco; and onBremen, so many cents a rix dollar.

The exact value of the guilder of Holland, is 39.97-100 cents

of United States silver currency; but 40 cents are usually as-sumed as the par of exchange.

The mark banco of Hamburg is a money of account, equal to35.144-1000 cents United States currency.

The rix dollar of Bremen is a money of account, equal to80 cents and a very small fraction United States currency.



36 A TREA TISE ON

FROM TATK'S CAMBIST.

The par of exchange between London andParis , is 25 francs, 22 centimes per £ stg. in gold.

" is 25 " 57 " " in silver.Am sterdam, is 12 guilders, 09 centimes " in gold.

" is 11 " 97 " " in silver.Hamb urgh , is ,13 m 'cs banco, 10$ schillings, "Bremen is 609J Rix dollars for 100 £ stg. in gold.

CHAPTER VI .

ON THE STEADINESS OF TRADE IN COUNTRIESEMPLOYING A METALLIC CURRENCY.

I F the principles laid down in the preceding chap-ters be sound, as it is believed they are, it mustnecessarily follow that the operations of commerce incountries employing a metallic curency, are as regu-lar and as little liable to fluctuations as the nature ofthings will admit, and more than this can no wherebe looked for. That there w ill be occasional over-trading and over-speculation wherever there is credit,is too self-evident to require proof, and hence no

country in which credit exists, can be entirely exemptfrom individual bankruptcies. Foreign wars, domes-tic disturbances, extensive conflagrations, storms andhurricanes, the failure of crops, the insolvency offoreign debtors, and a variety of other causes, mayproduce individual or even extensive commercialembarrassment. Too much credit may even leadincautious men into extravagance of expenditure,which may bring on their ruin, but in none of thesecases is the currency chargeable with the catastrophe.The mischief, w hatever it may be, can only beascribed to the operations of credit; but as credit,when properly regulated, is far more influential in




producing good than evil, as will be shown hereafter,it is not to be ann ihilate d on acco unt of the misfor-tunes or imprudence of a com paratively few indi-viduals.

Such being the theory of this branch of my subject,I ha ve the satisfaction to state in rega rd to the pra c-tice under it, upon the testimony of a respectableAmerican merchant, who resided and carried on ex-

tensive operations for near twenty years at Gibraltar,where there has never been any but a metallic cur-rency, that he never knew during that whole period,such a thing as a gen eral pressure for m oney . H eha s kn ow n individuals fail from incautious specula-tions, or indiscreet advances, or expensive living; buthe never saw a time that money was not readily ob-tainable, at the ordinary rate of interest, by any mer-ch an t in good credit. H e assu red m e, tha t no such

thing as a general rise or fall in the prices of commo-dities, or property was known there; and that sosatisfied were the inhabitants of the advantages theyenjoyed from a metallic curre ncy , altho ugh attend edby the inconvenience of ke epin g in iron chests, an dof counting large sums in Spanish dollars and doub-loons, that several attempts to establish a bank therewere put down by almost common consent.

U po n this sam e subject, in reference to the city ofHavanna, more satisfactory evidence still, because inan official form, and more in de tai l, can be ad du ced.N . P. Trist, Esq., consul of the United States at thatport, in a letter addressed to the secretary of thetreasury under date of 19th October, 1838, and laidbefore the senate on the 21st of Ja n u ar y follow ing,an ne x ed to a repo rt from the com m ittee of finance,communicated many valuable particulars in referenceto the practical working of a metallic currency.

After describing the trade and importance of Cuba,Mr. Trist employs the following language:—

" These are tolerably sure evidences of a state ofactive indu stry and prosperous credit. N or a re they



38 A TREATISE ON

less steady than active. They exhibit no alterationsof feverish excitement and prostration; now rising tothe energy of delirium, now sinking to correspondentenervation. The sudden stoppage of the currentbusiness in all, or in any one of its branches, is athing as absolutely unknown in this island as thefreezing of one of its rivers; and its inhabitants pos-sess as little knowledge of the one phenomenon asthey do of the other. Nay, less: for they not only

read and hear of the freezing of our waters, as theydo of those monetary prodigies in which the streamsof industry and credit become arrested in the sameway, and with equal suddenness; but, by means ofthe ice which our country sends hither, they canform a clear conception of the one wonder, and of allthe horrors of navigation among its whirling andcrushing masses, while no such means of knowledge

can be brought home to their feelings in regard tothe other.

" I am here indulging in no exaggeration. It isthe literal truth; and for the proof that it is so, I referto the testimony of the leading merchants of all na-tions established here, which forms a portion of thedocuments accompanying this letter. It is strictlyand literally true, that such a thing as a monetaryconvulsion is absolutely unknown in any part of this

island, which covers an area of about forty-threethousand square miles; has a line of sea-coast ofabout sixteen hundred miles; has nine ports open toforeign commerce, one of which is ' a commercialcity, second to none in the new world, New Yorkonly excepted;' has a population amounting to aboutone million of souls, who, in the last year, maintaineda foreign exporting and importing business exceeding

forty-three millions of dollars, after paying taxes toan amount which, in the year 1827, (when its export-ing and importing business fell something short ofthirty-two millions,) exceeded fourteen millions, andthe rate of which has not since decreased; and the




government of which is an absolute monarchy, main-tained by the bayonet.

" Th is is the country the inhabitants of w hich ac-tually have not the slightest knowledge of what am onetary convulsion m eans; w here a general or a nextensive stoppage of its commercial movement,(using the words in their most comprehensive sense,embracing all branches of business,) not only has

never spontaneously occurred, but has never, for onesingle instant, been ex perienced at all; w here theutm ost effect th at any foreign disturbin g cau se, ho w -eve r terrific its rav ag es at ho m e, ha s ever been ableto produce, has been a momentary p au se— mo men -tary only, and merely prudential— in rega rd to theparticular branches of business, or rather the particu-lar individuals, intimately and directly connected withthe scene of the earthquake.

" T hi s, I a gain rep eat, is tru e to th e very letter.T h e recent convulsion, in w hich the w hole businessof our country, from the city of New York to therem otest village in the w est, ex hibited the spectacleof chaos come again, was literally unfelt here. Nonebut the mercantile class kn ew that any thing hadhappened; and of that class, it did not occasion amoment's uneasiness to any, except those whose

stability depended upon the punctual fulfilment ofengagements by merchants in the United States or inG reat Britain. Beyo nd these, and the few othersw ho m ay ha ve depe nded upo n credit facilities fromth em , I do not believe tha t the business of a singlem an in the island w as so m uch as sensibly slackenedby it for a single day, or that a single individualreceiv ed or spen t one dollar the less, or so m uch asever dreamed that any thing was the matter.

" F or ev idence up on this poin t, from person s farmore competent to give it than I can be, I again referto the acco m pany ing doc um ents. T he y afford proofof the fact. To estim ate the force of that fact, it isnecessary to take into consideration the ex tent and



4 0 A TREATISE ON

intim acy of the comm ercial connection be tw een thetw o countries. Of this a conception m ay be con-veyed in a few w ords. Of the two thousand fivehundred and twenty-four vessels of all nations,Spa nish included, w hich entered the ports of theisland from other pa rts of the w orld, during the lastyear , one thousand three hundred and nineteenwere Americans .

" H ere the n, are the facts. H er e is flourishingindustry, flourishing credit; above all, flourishingcommerce, if such a thing ex ists unde r the sun .These are facts, the reality of which is beyond allques t ion . "

Not w ishing, how eve r, to rest his statements uponhis own evidence alone, Mr. Trist addressed a circu-lar to a num ber of foreign m erch ants of the high estrespectability residing in Havanna, in which he pro-pound ed to them a num ber of inquiries, the answ ersto five of which he above alludes to as the documentsaccompanying his letter.

From these answ ers the follow ing particulars aregathered:—

First. T ha t the imports into the H av an na aremo stly on account of the foreign shipp ers, pe rha ps athird or a fourth being on home account.

Second. That these imports are mostly sold oncredit, varying from one to ten months, upon pro-missory notes w ithout en dorsers, w hich are paid atmaturity with great punctuality.

Third. That the rate of interest fluctuates accord-ing to the season.

One of the answers says,—" The usual rate of interest for good paper is f per

cent, a month, and the extreme points may be placedat | to 1 per cent.; but the latter rate is u n u su al ."

Another says,—" In spring, when the bulk of the crops is shipped,

it is som etimes difficult to get m on ey for no tes at 1$per cent.; and in autumn, when shipments are of




comparatively small amount, and foreign exchangeshigh, the rate of discount sometimes falls to h percent ."

The third says,—"The discount varies in ordinary times between £

and \\ per cent, per m onth. Fo r signatures in goodrep ute , the curren t rate scarcely ever ex ceeds 1 percen t . "

The fourth says,—

" T h e discount, is 1 per cent, a mon th, and fre-que ntly | on first rate pap er of m erchan ts or retailers,but very often the notes of planters cannot be cashedat less than 2 per cent, a month."

The fifth says,—" The ordinary discount upon good paper is from

I to 1 per cent. I ha ve som etimes kno w n the dis-count in our m arke t to be | per cent., and rarelyabove \\. It may be said that there are every yeartwo rates of discount in our market; the one fromJa nu ar y to Ju ne , w hen the rate is from I to 1 percent., the othe r from Ju ly to Decem ber, w he n it isfrom I to §."

Fourth. That at the market rate of discount thereis never any difficulty to obtain money.

Fifth. T ha t bills of exchan ge can alw ay s be soldat the current rate.

Sixth. T ha t no such thing as a general scarcity ofmoney is known.

Seventh. That individuals occasionally fail, butthat such a thing as a general discredit may be saidnot to be kno w n. Th e only exceptions w ere in 1836,occasioned by local speculation on sug ars, and in1829, when there was an extensive failure of the" retail dealers in dry goods, w ho had formed them -selves into companies, the individuals of which madeup for each othe r's deficiencies. In this w ay the yacquired great credit, and were enabled to make pur-chases with long terms of credit, extending from sixto tw elve mon ths. T he less regular trusted to the



4 3 A TREATISE ON

m ore , insomuch tha t th e latter, after a series of in-creasing ab use s, denied the ir liability for the former,and an almost gen eral suspension of pay m en ts tookplace among them."

Eighth. That the ordinary derangements of com-m erce in foreign cou ntries p roduc e no effect, ex cep tupon the parties immediately connected with it , asdra w ers or endorsers of protested bills. A violentand g eneral comm ercial crisis, ho w eve r, such as that

which took place in the United States in 1837, exer-cises a tem po rary influence. T h a t crisis w as felt inC uba , as it w as , in fact, almost over the w hole com-m ercial w orld, althou gh the ans w ers differ in rega rdto its inten sity, one affirming tha t it did not " sh ak ecredit and confidence to such a degree as to stop thecurrent business in those branches on which itweighed the most directly ."

C H A P T E R V I I .

OF THE DIFFERENT KINDS OF DEPRECIATION TOWHICH A METALLIC CURRENCY IS LIABLE.

IN discussions up on a m etallic curre ncy , the termdepreciation or diminution of value, is frequently em-ployed, and as it is necessary that the reader shouldbe acquainted with the different kinds of deprecia-tion to w hich reference m ay be h ad , they w ill behere pointed out.

The first is that general and gradual diminution inthe value of the precious m etals, w hich has resulted,

an d w hich m ay possibly hereafter result, from thediscovery of new mines, or from the discovery ofeconomical modes of extracting and refining the ore,by which the aggregate mass of gold and silver in the




commercial world has been, or may be, augmentedfaster than the dem and. T he most rem arkable dep re-ciation resulting from this cause tha t ha s eve r tak enplace, was that which commenced with the discoveryof the mines of America about the middle of thesixteenth century, and w hich has been generallyconsidered to have regularly continued, with someoccasional interruptions, down to the present period.*

T he second species of depreciation is that to which

the metallic currency of a country may occasionallybe for a short time subject, by an ex trao rdin ary im -portation of coin, not in the course of its regular dis-tribution throughout the commercial world, but bysome un usu al even t. A mem orable ex am ple of thisspecies of depreciation occurred in the U nited State ssom ew here abou t the yea r 1S05, at w hich t ime the rew as w ar betw een Great Bri tain and Spain. T h eSpanish government, not finding it easy to evade the

British cruisers in the Gulf of M ex ico , Avhich closelywatched the exports of coin from Vera Cruz, made aspecial contract w ith the house of H op e & Co. ofA m sterdam , of w hom it had obtained a loan, by w hichau tho rity w as furnished to that ho use to receive inM ex ico large am ou nts. In order to procure this coin,bills on Vera Cruz were sold in the United States byHo pe & Co. through their agen t, David Pa rrish ,

upo n terms favorable to the purc hasers, w ith theprivilege of importing cargoes of merchandise intoMexico, to a class of responsible merchants, whofitted ou t fast sailing vessels, w hich could elude theBritish ships of w ar, and by mean s of that arra ng e-ment, many millions of Spanish dollars found theirw ay into the Un ited S tates, not called for in the ordi-na ry course of trad e, and not merely in transitu onits way to Europe, for most of it was here exchanged

* Those who are desirous of being- particularly informed onthis subject, are referred to Smith's Wealth of Nations, Book I,chap, xi, Part III, where they will find the matter examinedwith great care and ability.



4 4 A TREATISE ON

for coffee and othe r m erc hand ise, and thu s e nte ring

for a time into th e circulation of the c ou nt ry, occa-sioned a depreciation of the currency to an ex tentplainly discernible.

A third species of depreciation is tha t w hich re-sults from the w ear and tear of the coins of a coun -try , by w hich they lose in w eigh t, and consequentlyin va lue . In some coun tries this dim inution in thew eight of the coins ha s been perm itted to exist to

such an ex tent before a new coinage has been ordered,as m aterially to affect the rate of ex ch an ge , the pa rof w hich calls for ounce against ounc e, and conse-qu en tly in such cases, the true par ha s differed fromthe nom inal pa r, precisely to an ex tent equ al to th edepreciation.

A fourth species of depreciation is that whicharises from the frauds of governments, by which theircoins, w hilst they retain the same denom ination, are

diminished in weight or in purity, or in both, so as toconta in a less qu an tity of gold or silver in them tha nbefore, w hilst th ey are d eclared to be legal tendersfor the discha rge of a debt for an eq ua l nu m be r ofpieces, con tracted before th e alteration took place.Many discreditable transactions of this species of fraudmight be enumerated, amongst which are the follow-ing:—

The successive frauds in France by which the livreor po un d of silver has been reduc ed to the livre orfranc, eq uiv alent to less th an one-fifth pa rt of a Sp a-nish dollar.

T he successive frauds in E ng lan d, by w hich thepound of stand ard silver, originally coined into tw en -ty equ al pa rts, called shillings, ha s been coined intosix ty-six equ al pa rts, also called shillings, of w hichtwenty are made a legal tender for the payment of a

debt contracted at a time when twenty shillings con-tained a pound of silver.

The recent fraud practised in the United States bythe act of 2Sth Ju n e , 1834, by w hich the gold coin




called the eagle w as reduced in w eigh t and d eteri-orated in pu rity. Prior to that yea r th e eagle con-tained 2475 grains of pu re gold. By that act it w a sreduc ed to 232 grains of pure gold. Prio r to tha t actits standard w as tw enty-tw o carats, that is, elevenpa rts of pu re m etal to one of alloy. B y tha t act itsstandard was reduced to about 21.58 pure metal to2.42 of alloy, the tw o operations reducing its va lue68 cen ts, tha t is, from ten dollars to nine dollars 32

cents, whilst it was made a legal tender for all debtscontracted before the 28th of Ju n e, 1834, as w ell asfor those contracted after that date for ten dollars.By the act of 18th Ja n u ar y , 1S37, this fraud w as slightlyrectified, by aug m enting the w eight of pu re gold inthe eagle to 232 } gra ins, as w ill be seen in the firstnote to Chapter 2, Book 4.

Ch ang es in the intrinsic va lue of the coins of a

cou ntry m ade in the m ann er here referred to, neces-sarily show themselves in the rate of the foreignex chan ges. A palpable exa m ple is now before ou reyes, in the case of the late alteration of our goldcoinage, by w hich the par of ex change on E ng lan d,when measured by gold, became altered to the wholeextent of the diminished weight of pure metal in theeagle. A s for ex am ple: prior to the 28th Ju n e , 1834 ,the British sovereign, which is the metallic pound

sterling, if coined at our mint, w ould hav e produc ed$4,565 an d a fraction in gold cu rren cy , an d conse -quen tly the latter w ould ha ve been the true par ofone poun d sterling m easu red by gold. U nde r thepresent coinage, the sam e British sovereign can becon verted into $4.86 an d a fraction in gold cu rren cy ,and consequently the latter is now the true par of onepoun d sterling, as w as p articularly show n a t p. -32.

A fifth species of depreciation is that which re-sults from the creation of paper money as a substi-tute for gold and silver, which operates upon thevalue of the total existing mass throughout the com-mercial world, precisely like the discovery of new



46 A TREATISE ON

mines. It w ill be shown in the proper place that theintroduction of paper money into any country neces-sarily drives out a portion of its metallic money, andthereby augments the quantity previously existing inother countries, the inevitable effect of w hich is, todepreciate it there below its previous value.

I am aware that the term fraud as applied to thereduction of the weight of pure gold in the Americaneagle, is not an acceptable term to many people.It is certainly a harsh expression, and Congress mighthave avoided the imputation conveyed by it had itenacted that the laws of the 23th of June, 1834, andthe 18th of January, 1837, should have had no appli-cation to contracts made anterior to the former date,thus leaving the rights of all creditors unimpaired. Itis true that up to this time, creditors have not sus-tained any material injury from the operation of these

laws, inasmuch as debtors have generally found it asprofitable to pay in silver, which creditors have at alltimes been obliged to receive, as in gold; but this isan incident which could not have been positivelyforeseen, and which may, in fact before long cease tooperate, for under the new proportions between goldand silver, the banks find it more advantageous to payin gold than in silver, the quantity of gold containedin the eagle of the present coinage, being w orth in

the m arkets of Europe , less than ten silver dollars.Tha t this is the case, may be inferred from the fact,that w here our merchants import specie from Europe,they give a preference to gold, and w here they ex -port specie they give a preference to silver, whichw ould not be the case if the legal proportions estab-lished an exact equivalency.

That this position, may not, however, rest upon

mere inference, I will establish it by proof which can-not be disputed.The price of Mexican dollars in London within the

last tw o years has fluctuated betw een 4s. 9£d,and 4*.d per ounce. They w ere quoted on the 271 h




February, 1838, at the former rate, and at the end ofDecember, 1839, at the latter. Since January, 1840,to the date of the last advices, (the 10th of April,) theprice has been 4*. lOid, and as American dollars areof the same standard as the Mexican, that is, nineparts pure silver to one of alloy, the same value maybe attached to them. Now as the weight of theAmerican dollar is 412i grains, its value in Britishmoney is at this period 4s. 2d., and consequently, thevalue of ten silver dollars is £2 Is. Sd.

But the quantity of gold contained in the eagle, ifsent to England and coined into British currencywould only be worth £2 Is. l^rf, as may be ascer-tained from the fact that the eagle contains 2321grains of pure gold, and the sovereign, or pound ster-ling, 113TTL8

T4 grains.For (omitting the fraction,) if 113 grains are equal

to £1, 2321 grains are equal to £2 Is. \\d.This difference of near seven pence sterling, equalto about fourteen cents, upon ten dollars, shows thata gold eagle is now worth one and four tenths of oneper cent less than ten silver dollars in England, andif it has not shown itself in the United States, it issimply on account of their legal forced equivalency,by which silver is undervalued as compared withgold, precisely as gold was undervalued as com-pared with silver, prior to the 28th of June, 1834.*

* If it be said that American dollars would not be as saleablein England as Mexican dollars, although of equal intrinsic value,on account of the greater notoriety of the former, I would reply,that this may be the case, and on that account I have no objec-tions, if the reader chooses, to reduce the estimate of the under-valuation of silver, one quarter or one half per cent, which hasbeen the premium in New York upon Mexican dollars, when

paid for in American silver or gold, from January, until May ofthe present year, remarking at the same time, that during thesame period, the weekly quotations of " The Philadelphia PriceCurrent" of Mexican dollars, and American half dollars in Phila-delphia depreciated paper currency, have been uniformly the



4 8 A TREATISE ON

It m att ers not th at at this da y the difference is of acom parativ ely trifling am ou nt. If it be bu t the ten thpa rt of one per cent, the charge is established. B uthow do we know that in the course of time the pro-portions betw een gold and silver m ay not fall backto one to fifteen as they stood forty ye ars ag o, inw hic h case not a deb t w ould be discharged in sil-ver, and consequently, creditors on all contracts, suchas bonds, ground-rent deeds, annuities, state, city, and

county loans as well as the loans of rail road, canal,and other corporations, contracted before the 28th ofJu ne , 1834, w ould be defrauded by law of six percent of the am ou nt of their debts? T his is a gra vequestion, and one in relation to w hich m ore w ill besaid in the chapter " On the impolicy of adhering toour present mint proportions between gold and silver,"in Book the Fourth.*

C H A P T E R V I I I .

ON THE " CREDIT SYSTEM," OR T H E INFLUENCE OFCREDIT IN PROMOTING NATIONAL WEALTH.

M U C H ha s b een said in the U nited States of lateyears in reference to the important agency of what iscalled the " credit sys tem ," in prom oting nationalwealth, but few persons comparatively have ex-am ined the subject w ith sufficient m inute nes s toenable them to form a clear concep tion of its m odeof operation. A s the subject is one, how eve r, w hich

deserves to be thoroughly understood, I will endea-vor to present it to the reader in such a way as can-not fail, I trust, to be intelligible.

* See also Appendix A and B .




The term credit is applied to th at confidencereposed by one individual in another, which inducesthe former to perm it th e latte r to ha ve a portion ofhis capital, to be used as he may think proper, w ith-out the immediate transfer of an equivalent, but uponhis stipulating to pay such e quiva lent at a futureperiod, together w ith a com pensation for the use ofthe capital during the time it is not under the controlof its ow ner. W he re the credit is given on a delivery

of capital in th e form of mon ey , it is called a loan,and the charge which is made for the use of it iscalled interest. W he re the credit is given on a de -livery of capital in the form of other commodities orprop erty than m oney , it is called a sale, and thecharge which is made for the use of it is called profit.In both cases the credited party is placed in posses-sion of something possessing intrinsic value, uponwhich industry can be employed, or by which it canbe sustain ed; for even in the case w he re the capitalconsists of money, it must be exchanged for mer-chandise, raw materials, utensils, food, or clothing,before it can be prod uctive ly em ployed by the bor-rower .

In countries where confidence between individualsdoes not extensively prevail, the credit system is butpartially kn ow n. H appily for our cou ntry, this con-

fidence has a lw ay s ex isted am ongst us, and for ages,am ongs t those from w hom w e are descended, and itis kno w n to all w ho are acquainted w ith the historyof the American colonies, that a system of credit wascomm enced by the mother country w ith the landingof the first pilgrim on ou r shores, an d has neve rceased to be continued to the present day. T heUnited States owe a vast share of their prosperity tothe credit system, and so manifest has this become to

every well informed mind, that there are few personswith notions so antiquated as not to confess, thatcredit, when regulated by the rules of prudence, and



5 0 A TREATISE ON

not abused, is one of the most powerful stimulants to

the production of national wealth.The first subject for inquiry now is, how does

credit operate in the production of national wealth?As this can best be shown by a practical illustrationfamiliar to most people, I w ill explain it somew hat indetail.

W e all know that a very large proportion of thesettlers of our western country reach their tracts of

land with no property in the w orld except an ax e, aspade, a hoe, a gun, a cow , a few household utensils,and a change or tw o of clothing. Th ey have paid ahundred dollars cash for eighty acres of land, thegovernment price for some years past, or they mayhave bought it on a credit from private individuals,at a higher price; but the land is generally coveredw ith limber, and is of no use in its present condition,for purposes of tillage. In this destitute condition,

they find it absolutely impossible to commence theclearing of their lands, unless somebody will trustthem with the articles of which they stand in need,until they produce a crop of some kind or other.They go to a neighboring merchant and satisfy himthat they are industrious, economical and honest, andthat if he w ill let them have on credit some of hiscapital, in the form of sugar, tea , coffee, flour, corn,

potatoes, seed, salt provisions, w inter clothing, andsuch other things as are absolutely indispensable fortheir subsistence, and for protecting themselves againstthe weather, they will pay him as soon as the landproduces. The merchant, w ho has located himselfin this spot for the very purpose of supplying thewants of the settlers, consents to the request,, andagrees to give to his new neighbors, credit for fifty ora hundred dollars w orth of things. W ith this bor-

row ed capital each settler begins his labors, and w henthe crops are harvested,,the merchant is paid in grainand other productions, and the settler finds himself,by the aid of this credit, in possession of a surplus,




sufficient in part to support his family for anotheryear, which he could not possibly have possessed,had the merchant refused to give him credit.

Here we see at once the agency of credit in creatinga new capital. T he settler w ithout the credit, w ouldhav e perished, or hav e dragged out a w retched life,whilst the merchant might have had a dead stocklying un em ploye d, producing n othing for its ow ne r,or for any body else.

W h a t has been here described in reference to thepoorest class of settlers, is equa lly true of those w hoemigrate to the western country with a moderatesha re of w ealth. T he re is scarcely an ind ividualamongst them, who for the purpose of extending theculture of his land, or adding to his improvements,does not, at some p eriod of the ye ar, purcha se goodsor implements on credit of the neighboring mer-cha nts, in anticipation of his nex t crop , thereb y ac-quiring the means of augmenting the products of hisfarm, and conseq uently of creating a capital w hichcould not ha ve ex isted but for the credit he obta ined .M ost especially is this tru e, in rega rd to a large pro-portion of the planters of the cotton grow ing states.Th ese plan ters, it is w ell kn ow n, are in the practiceof obtaining large supplies of clothing and subsistencefor the ir slaves , and of eve ry article for their o w n con-

sumption, upon credit from the neighboring mer-chants, in anticipation of the next year's crop; and itis hence manifest, th at the w ealth of those states iseminently promoted by the operation of credit.

An d no w , w hilst I am on this subject, i t m ay notbe amiss to trace to their source the further operationsof credit, by w hich the coun try me rchants have beenenabled to aid the settlers and planters in augmentingthe national w ealth. F e w or none of these traders,have a capital of their own adequate to carry onbusiness to the ex tent they do. T hey are themselvesobliged to obta in most of their supplies upo n creditfrom the wholesale merchants of the large interior



52 A TREATISE ON

tow ns a nd the Atlantic cities, w hilst these in turn

avail themselves more or less of credit with the Eu-ropean m anu facture rs. Thi s, it is true, is not thecase at the present day, as much as it formerly was,owing to the gradual accumulation of domestic capi-tal ; but, nevertheless, it not unfrequently hap pen sthat a settler in the remotest region of Missouriploug hs his land and prod uees his crop by mean s ofcredit obta ined , it m ay b e, thro ug h three or four suc-

cessive links, from a m anu facturer of ha rd w are inBirmingham, or of one of dry goods in Manchester.A nd ye t, w ith such facts before our eyes, there ar estill to be found am ongst us , a few rem ains of tha tweak-minded prejudice against foreign capital, whichw as at no ve ry distant day so univ ersal, that it w asdeemed by many of the states unwise to borrowforeign cap ital at five per cen t., that could be p ro -ductively employed at a profit of ten per cent., uponthe groun d that it w ould drain the coun try of specieequ al to the interest . H app ily, ho w eve r, new view shave broken in upon the minds of most of our legis-lators, and althou gh there are still law s prohibitingthe free introduction of foreign capital into some ofour local inve stm ents, yet foreign loans up on the se -curity of pub lic stocks and of those of im pro vem en tcom pan ies, and ban ks hav e of late been carried to

quite a sufficient extent.*It is not, however, to those engaged in agriculturealone , that credit is beneficial. T he m erch ant fre-quently undertakes a voyage w ith a cargo purchasedon credit, which, when successful, adds to the nationalw eal th. Th e manufacturer, too, w ho has physicalpo w er applicable to the production of com m odities,but no raw materials to work upon, finds himself, by

* It is computed that at this period (1840) upwards of a hun-dred millions of dollars of European capital, chiefly British, areinvested in such securities. Many persons estimate the amountat near two hundred millions, but that is probably an over esti-mate.




the aid of credit, enabled to procure the raw materialsof other people, to which he adds a value by theapplica tion of his labo r, and conse quen tly also au g-men ts the national w ealth. Th e same rem ark m ayapp ly to m echanics and even to da y laborers, an dthere is hardly in the community an individual en-gaged in any species of business who has not at someperiod found himself benefitted by the exercise ofcredit.

With such advantages resulting from the use ofcredit, so palpable and so well known to every body,it is not ex traordinary that the "cred it s ys tem " shouldbe so much ex tolled. It is indeed a grea t moralpower, without the employment of which our countrycould ne ver in so short a period of time hav e attaine dto its present advanced state of wealth and prosperity.Whilst seeing and acknowledging, however, this im-portant truth, we must not lose sight of another truthequally important, which is, that nothing but capital,tha t is, som ething w hich possesses an intrinsic va lue ,can possibly be the means of enabling the personwho obtains it on credit to produce a new commodityor a new value , and w e m ust be particularly carefulto rem em ber that the credit system thus ex tolled, isnot the banking system, as some would endeavor toinculcate in their speeches and writings.

C H A P T E R I X .

ON TH E LAWS WHICH REGULATE TH E HIRE OF CAPL

TAL , AND ON TH E IMPOLICY OF USURY LAWS.

W H E N a person has more capital than he wants toem ploy in his ow n particular business, he very na tu-rally prefers to let other people have the use of it, to



54 A TREATISE ON

permitting it to lie idle and unproductive, and for thisuse he will charge such sum per annum as the com-petition of the m arke t w ill enable him to obtain . Ifhis capital consist of lands or hou ses, the com pen sa-tion which he derives from its use is called rent. Ifit consists of ships, it is called freight. If it consistsof horses and carriages, it is called hire. If it consistsof railroads, bridges, or canals, it is called toll. If itconsists of commodities, it is called profit; and if it

consists of money, it is called interest. In all thesecases excep t the tw o last, the specific thing s lo anedor hired are returned to their prop rietors. In thecase of com m odities, a sum of m one y equ al in valueto the commodities purchased, with the seller's profitadded, is the uniform mode of replacing this speciesof hired capital. In the ease of m one y, ano ther su m ,though not consisting of the identical pieces of coin,equal in value to the amount of the sum loaned, with

the interest, is the uniform mode of replacing thisspecies of hired capital.

In all countries where the competition of the mar-ket is permitted to operate without legislative restric-tions, it is evid ent th at the cha rge for the use ofcapital in any of its forms can never be permanentlyor materially higher or lower than that med ium w hichpresents the common ground upon which it is the in-

terest of the capitalist and the person with whom hedeals, to meet. If land s, houses, horses, w ago ns,railroads, bridges, and canals, be abundant in pro-portion to the demand, the charge for the use of themw ill be proportionally low . If the y be scarce, it w illbe proportionally high . T he s am e is true of com-m odities, und er w hich hea d is included m erchandiseand produce of every description, and w hich, w iththe metallic m on ey, constitute w ha t is called the cir-

culating capital of a country, without which neitherlands, hou ses, ships, horses, w ago ns, railroad s, bridgesnor canals, would be of any immediate value.

Now although metall ic money consti tutes one of




the forms in w hich capital is hired b y person s w howish to employ capital in any industrious pursuit,ye t, as observ ed in the last chapte r, it is neve r theidentical thing that is wanted, except indeed by goldand silver ware manufacturers for the purpose ofm elting. M one y is merely hired as the instrum entby which raw materials, agricultural produce, orm erch and ise, are m ore conveniently to be obtainedby the borrower, or by those in his employ to whomhe has paid it a w a y as w ag es; and it m ust thereforebe very evident, that as a component part of the totalmass of the circulating capital, it is governed by thesame laws as those by which the rest of this mass isgov erned . In other w ord s, the rate of interest in acou ntry is determined by the agg regate qu antity ofcirculating cap ital, m etallic m oney itself included. Ifthat be abu nd an t, interest w ill be low , as in En glan d

and H ollan d; and if tha t be scarce interest w ill behigh, as in all the new states of our Union.The unfortunate existence, however, in many coun-

tries, and amongst them our own, of laws restrictingthe ch arge w hich the ow ner of capital in the formof m oney shall derive from its hire , disturbs in som edegree the na tura l operation of things, and prev entsthat uniform relation which profit and interest wouldotherw ise invariab ly bear to each other. B y im pos-ing a penalky upon loans at a higher rate of interesttha n six per cent, per an nu m , for ex am ple, the mostusu al ra te established by our state law s, cap ital iseither driven out to more favored qu arte rs, or pre-vented from flowing in. in either of which events themass of the circulating capital is diminished, and con-sequ ently the hire for its use aug m ented. In add itionto this, too, a burd ensom e tax is imposed up on the

industry of the country, by compelling those whohave not the best security to offer, which embraces alarge portion of the industrious classes, to resort tolenders, who in addition to the fair value of the mo-ney , and a reasonable allow ance for the risk of loan-



56 A TREATISE ON

ing on personal security, which would be the uniformm arket price in the absence of usury law s, must bepaid for the odium and risk they incur by violatingthe law s of the land. Th ere is no sound reason w hythe charge for the use of money should be fixed bylaw , that w ould not equ ally apply to fixing by lawthe ren t of lands and hou ses, or the freight of shipsthe hire of horses and c ar na ge s, or the profit on m er-chandise sold. T he lending of m one y for a yea r is

no thing bu t selling capital upon a credit for a yearand so convinced of the absurdity of discriminatingbe tw een a sale of m one y, and a sale of goods is alarge proportion of the capitalists of every cou ntry ,that evasions of the usury laws are every where prac-tised by expedients which it is not easy to prevent.Some of these expedients will be treated of in a fu-ture part of this work, but a very common one is thatpractised almost daily on the stock exchanges of New-York and Philadelphia, whereby under a fictitiouspurchase of stock for cash, and a fictitious sale on cre-dit of the sam e ideal stock, thro ugh the agen cy of abro ker, money is loaned at a rate as far above thelegal rate as covers the risk of trusting to pe rsonalsecurity, as w ell as the charge for the odium andhazard incurred by an illegal transaction.*

The se rem arks on the value of mo ney, as a com-

ponent part of the circulating capital of a country, itwill be observed, have reference to that general and

* This operation is thus performed: A borrower is w illing togive 12 per cent, per annum for the use of money, and he agreesto give $112 at twelve months' c redit for a stock w orth in themarket only $100, and stipulates with the broker, that contem-poraneously w ith the purchase he is to sell the stock at $100cash . Th e broker finds a lender w ho has money but no stock-

but who is willing to give §100 cash for stock, if he can con-temporaneously sell it at $112 for an approved note at tw elvemonths credit. Th e broker manages the negotiation, and thustwo persons are made to buy and sell what has no real exist-ence. Such transactions, however, are clearly illega l, but casesrarely occur in which an appeal is made to the law.




enduring state of things, which covers a period ofyea rs. T hu s, I w ould say, that capital is m oreplenty in the Un ited States in the year 1840 th an itw as in the ye ar 179S. In the latter yea r the Federa lgovernment could not borrow money at less thaneight per cent. It could no w borrow at five percent., and has even , at one period since the y ear 1815,bo rrow ed at four an d a half per cent. M ost of theAtlantic states, and some of the w estern states, ha ve

of late years borrowed moiifcy at five per cent., and itmay be remarked, that although the market price ofpublic stocks may be temporarily affected by va-rious cause s, yet no perm anen t influence can be e x -erted upon them , unless a diminution of the a gg re-gate mass of the circulating capital of the country,that is, of the national wealth, should take place.*The fluctuations in the money market of merchants

and stock-jobbers, and even at times in the market ofm ortga ges, by w hich sometimes a high rate of inte-rest is paid for cap ital, are generally of a tem po rarynature, and to be accounted for upon the principlethat w he rev er there is credit, and especially if th erebe banks, there will at times be over-trading andover-speculation. T he rate of interest upo n cap italmust in the long run be governed by the rate ofprofit to be m ade by its em ploy m ent; w hilst for

short periods, it will depend upon the ratio of thesupply to the demand, and upon the security offeredin the money market.

* Since the first edition of this w ork w as published, a greatdepression has taken place in the English and American mar-kets in the price of state stocks, putting an end for the presentto the possibility of obtaining loans at five per cent.



58 A TREATISE ON

CHAPTER X.

EXAMINATION OF THE COMMON OPINION RESPECTINGTHE SINKING OF CAPITAL.

T H E R E is a subject intimately connected with thatof money, which deserves a passing notice in a work

of this kin d. I allude to the com mon notion , that acommunity sustains no injury from the constructionof public w orks or improvem ents that turn out u n-prod uctive, inasmu ch as they afford em ploym ent tomany people without occasioning any loss of capital,the m oney not being sun k, but merely hav ingchanged han ds. To this error, w hich is more w idelyspread than many people imagine, may be ascribedthe loss of tens of millions of dollars of propertyin the Un ited S tates, and if not erad icated , it w illlead to the loss of tens of millions mo re. Im m en seexpenditures are annually made by the federal gov-ern m ent, by all the state go vern m ents, by coun ties,tow nsh ips, cities, tow ns, bo roug hs, and villages, byprivate corporations of every description, and by in-stitutions established for every imaginable purpose,l i terary, charitable, and religious, which would never

be made if this matter were perfectly understood; andas it is one that can be made plain by a very simpleillustration, I will present such a one to the reader.

In a former chapter it was shown that metallicm one y w as never emp loyed as capital for the carry -ing on of any branch of industry, except that of themanufacture of gold and silver ware, but was themere instrument by which capital, consisting of othercom modities, could be conven iently transferred fromha nd to ha nd . T he function, therefore, w hich mo neyperforms in the business operations of the commu-nit y, m ay be com pare d to the function performed bycarts, wagons, ships and railroad-cars, in transporting




from one possessor to another the commodities which

he needs to carry on his business. Now every bodycan perceive, that in performing the business oftransporting commodities, the vehicles here men-tioned are not destroyed or sunk until they are wornout, so neither is the money which performs the func-tion of conveying the commodities from the posses-sion of one person to that of another, destroyed orsunk. It is, therefore, clear, that although the com-

mon mode of expressing a loss by an abortive under-taking is that " money has been sunk," yet it is easyto be seen, that no money can ever have been sunk,but that the sinking has been of something else thanmoney. W hat tiiat something else has been w ill nowappear.

In Pennsylvania, as well as in other states, therehave been at times extraordinary excitements in re-ference to internal improvements. Turnpike roads,bridges, canals, and railroads, have each in their turncommanded popular favor, and have been exten-sively constructed, without a due examination oftheir cost and of their probable results. The conse-quence hay been, that some of these enterprises haveproved wholly abortive, and have been abandonedwithout being completed, or, if completed, have beenuseless as a source of income, and have consequently

occasioned to their proprietors a loss equal to thew hole expenditure. Now in all such cases, w hathas been the capital that has been sunk? I answ er,the raw materials of w hich the works w ere con-structed, such as stone, lime, wood, timber and iron,the food and drink, clothing and fuel of the laborersemployed upon the same, (for the procuring of whichthe money paid to them as wages only served as theinstrument,) the vehicles, implements, and tools wornout or deteriorated by the work, and the food con-sumed by the horses and cattle employed. All thesearticles, being forms of accumulated capital, possess-ing a value equivalent to the sum in money paid for



6 0 A TREATISE ON

the m , constitute the cap ital sun k, and the y are said

to have been sunk, because after they have been usedor consum ed, there is noth ing of valu e to be sho w nin their place. Th e process w hich ha s in realitytaken place has been the mere transmutation of stoneand lime, w ood and iron, from a form in w hich theypossessed a value into one in which they possess nova lu e, and the conversion of a large q ua ntity of breadand meat, whiskey and rum. butter and milk, sugar

and coffee, coats and jackets, coal and wood, hay andoats, into roads and canals, without the possibility ofa reconversion to those original elements.

But it may be said, that even admitting all this tobe true , still a vast nu m ber of peop le w ill ha ve beenemp loyed. G ranted ; but employed in produ cingnothing of va lu e, so tha t th eir in dus try has been ofno more benefit to the community than if it had beenemployed in turning grindstones where there was

noth ing to grind, or in digging ditches m erely to fillthem up again. It w ould hard ly be argued that hadit not been for this employment, these people wouldha ve remained idle. Th is w ould have been impos-sible. T he identical capital consu m ed in the abo rtiveenterprise would have been seeking for laborers insome other pursuit , and these laborers w ould hav eme t it on the w ay , or hav e taken the place of thosew ho did. These rem arks, it w ill be observed, hav ereference to cases where the whole enterprise hasfailed, such as hap pen ed m an y years ago , w ith a to talsinking of large c apita ls, in th e construction of thePhiladelph ia and Sus que han na, and the Chesapeakeand D elaw are canals. Th ey are, how ever, equal]yapplicable to partial failures of enterprises as far asthey go , and the only true test of the result of anim pro ve m en t, is to be found in its nett incom e. If

that be greater than the amou nt that could have beenderived from the employment of the same capital insome productive branch of agriculture, commerce, ormanufactures, the investment will have been a profit-




able on e. If it be m erely of an equal amount, i t willha ve bee n an indifferent investm en t, and if it be ofless amount, it will have been a positive loss to thecom m unity as w ell as to the proprietors. T he truthof this proposition can easily be seen by any one whow ill ap ply it to the case of a single farm. If a farm er,who has a thousand dollars which he can lend at sixper cent., or cause to p rodu ce him six per cent., bygrazing cattle or tilling more grou nd , should lay it

out in making a new road to facilitate his intercoursew ith the m arket, by w hich he should only save tw en-ty dollars a year in the reduced transportation of hispro du ce , it is clear that he w ould not be as w ell offby forty dollars a year, as if he had continued to usethe old road, and employed his capital in one of theother mo des. An entire state is but a large farm ,and what is true of one is true of the other.

But there is an argument which may here be urgedw ith some ap pa ren t force, and it is one that is en-titled to conside ration. It is tha t in estim ating theva lue of a road or ca na l, the w hole benefit to thecommunity resulting from it is not to be measured bythe m ere income w hich the ow ners or stockholdersde rive from it. A par t of the benefit is sha red b y thepublic, that is, by the producers and consumers of thecommodities which pass over the road or canal, and

by the persons w ho travel over it. It m ay , therefore,ve ry w ell ha pp en , say the objectors, that w hilst thestockholders of the road get only three per cent, div i-dends on their stock, the advantages which the com-munity gain may be equal to three, five, or seven percent. m ore. Le t us analyse this arg um en t, w hichappears to possess so much plausibility, and see towhat it will lead us.

The interest of money or capital is that sum whichis paid to the owner of money or capital for its use,and is, as w e hav e show n in ano ther place, that ratewhich is established by the competition of the market.When persons borrow capital for employment in any



6 2 A TREATISE ON

productive branch of industry, whether connectedwith agriculture, commerce, or manufactures, it isalw ays w ith the expectation that they can make outof it a sum beyond that which they pay for its use,and the average rate of interest may be consideredto be the rate which all judicious applications of capi-tal ought to produce. In the Atlantic states of theUnion, where capital is more abundant than in thewestern states, the annual net profits of capital, after

defraying all the expenses of w ages, rent, superin-tendence and other charges incident to the enterprise,may be estimated at about six per cent.,* and six percent, may therefore be considered, in the region ofcountry mentioned, as the profit which ought to beproduced from capital, and consequently in thosecases, w here a road or canal does not produce a benefitto the stockholders, equal to six per cent, upon theoutlay, there w ill have been a sinking of capital equalto the principal sum that ought to have yielded thedeficiency} and for this reason, that six per cent, w ouldhave been the profit derived from the employment ofthe capital in other pursuits.

The next question then which presents itself isthis. Can it be, that the public shall derive a benefitof three, five or seven per cent, per annum from theconstruction of a road or canal, whilst the proprie-

tors of the improvement derive only a profit of threeper cent?

It is a possible case, that a charter of incorporationmay have fixed the rates of toll on a road or canal solow, without any power on the part of the companyto raise them, as that the income arising therefromshall not be more than equivalent to three per cent,upon the expenditure. In such an instance, it might

happen that the public should enjoy an advantage

* The laws of New York establish the rate of interest atseven per cent. In all the other Atlantic states it is fixed at sixper cent.




equal to w hat has been named and even more. B ut,I ap preh en d, tha t no such cases ex ist in the Un itedStates; and I think I am warranted in saying, that nocompany has ever accepted of a charter which doesnot a llow a chance for a rev enu e ex ceed ing six percent., besides reserving a sum ad equ ate to keep thew orks in repair and pay all other ex penses. W he n,therefore, the income of a road or canal falls short ofan ave rage of six per cent., it m ust be , and can o nly

be, in consequence of its not being used to a sufficientex tent , th at is, in con seque nce of a sufficient portion ofthe public's not finding it to be for its interest to paythe toll, rath er tha n to transpo rt their com mo dities ortheir persons on some other route . T he only con-ceivable mode of ascertaining the utility to the publicof an improvement, is by the amount they are willingto p ay for its use; and if this am ou nt be equ ivalen tto not more than three per cent, of the capital ex-pe nd ed, it m ay be considered as an indisputablepoint, that the present loss to the com m unity by theinvestment is equal to at least one half of the capital.W he th er this shall ha v e resulted from a bad locationof the improvement, from the limited quantity andnum ber of comm odities and passengers that a re trans -ported over it, from an excess in the cost of the workover the estimates, from extraordinary damage or ob-

struction from freshets or dro ug hts, or other ca us es ,or from the road or canal being superseded or in-terfered w ith by a rival im prov em ent, it m atters not.T h e effect is precisely the sam e in either case. T h estockholders, and consequently the com m unity, ha venot only failed to reap the usual profit on a portion oftheir capital, but have seen it transmuted into a formw herein it can ne ver again be rendered capable ofproducing that profit.

Bu t it m ay be said that roads and canals in crea seth evalue of the lands through and near which they pass.T his may be som etimes tru e, but it m ust not be for-gotten that they also diminish the value of other lands



64 A TREATISE ON

thro ugh w hich they do not pass, by dra w ing off a

pa rt of their popu lation, and of the travelling w hichused to frequent old routes .* B ut after all, the re isno real va lue conferred upon the cou ntry at large bya road or canal in an economical point of view, butw ha t is to be measured by the actual reduction in theex pense of transporting its produce to m arket an dob tainin g its distant supp lies, an d in the facilitiesafforded to the con vey ance of passengers. W he re the

aggregate of these benefits is to the parties concernedof such valu e as to induce them to p ay to the c ap i-talists who have constructed the improvement forthe m , the sa m e interest for the use of their capita l,that they could have obtained by its employment inother pursuits, then, and then only, has the ex pen di-tur e been beneficial to the co un try. It is no dou btt rue , tha t turnp ike roads or rail ro ads are very con-venient and advantageous to those who reside on

their rout-1, and that they may all be willing at timesto pa y for the privilege of passing ove r them . B uteven the value of this convenience and advantage hasits limits. T he turn pik e road from Ph ilad elph ia toFran kford , a distance of six m iles, is ex trem ely con-venient in the winter season to all those who reside

* The following article is taken from a late E nglish new s-paper as being quite in point.

Effects of Railroads upon Tavern Property.— Previously to theopening of the Great W estern and the Southampton railroadsthere w ere eighty-tw o long stages passed through the tow n ofEgham daily , nearly all of w hich changed horses at the se-veral inns in the tow n. Now , the eighty-two are reduced to

four. Some of the inns have been closed, and several othersare about to be shut up . Th e following is a proof of the greatreduction which has taken place in the value of tavern and pub-lic house property:— Three years ago the Catherine Wheel InnEgham , w hich makes up thirty beds, and to which are attached

an acre and a half of garden ground, a bow ling green, largebarns, sheds, coach house, and stabling for upw ards of thirtyhorses , let for 250/. a year. It then carried on a profitable trade,and the proprietor realised a handsome l iving. The same pro-perty was let, a few days since, at 50/. a year.




on its border and in its vicinity; yet as they preferother roads in sum m er, and are n ot w illing to pa yfor its use in winter an aggregate sum equal to theinterest on the capital expended in its construction, itis manifest that the existence of the road is not con-sidered to be w orth to them that am ount. W ho coulddoubt that the investment of a thousand dollars in anomnibus to run from the Delaware to Schuylkillwould be a loss to the community as well as to the

ow ne r, if the public for w hose benefit it w as esta-blished, would prefer to walk rather than to pay forits use more than thirty dollars a year over and abovethe ex pen ses and repairs? I say " lo ss to the com-munity," because, had it not been for this misappli-cation of capital, sixty dollars m ight h av e been ob -tained for it on loan by the prop rietor, a nd con se-quently the aggregate w ealth of the com m unity w ouldhave been augmented to the additional extent ofthirty dollars.

T her e is still, how eve r, another po pular error ve ryprevale nt on this subject, w hich oug ht not to bepassed over w ithou t notice. It is, that altho ug hroads and canals may not produce to their proprietorsat the very m om ent of their com pletion, an incomeequal to the ordinary interest on capital, yet that theyw ill do it at some future period, say, thre e, five, or

ten yea rs hence. If a farmer w ere to ex pend a hu n-dred dollars to-day in the purchase of a wagon, whichhe did not expect to use for three, five, or ten years,he would be a very bad calculator, if he did not knowthat the interest on a hundred dollars or the profit hecould have made on that sum for that number ofyea rs, w ould add to its cost an am oun t preciselyequal to that interest or profit, and that the whole ofthis amount would be an uncompensated loss to him,besides what he might lose by the deterioration of thew ago n. Th e sam e is true of all other investm entsm ade in anticipation of future periods. One m illionof dollars expended on a road, that should not be



66 A TREATISE ON

wanted for eleven or twelve years, would cost two

millions of dollars at the expiration of that term,because money at compound interest of six per cent,per annum, doubles in about eleven years and eightmonths, and that sum would have been the amountin the hands of the capitalists had they employed itin any branch of productive industry.* If repairsshould also be required, the amount would make afurther addition to the cost of the road, unless they

were met by the receipt of a corresponding amountof tolls; and hence it is evident, that those who leaveout of view in their estimates of the judiciousness ofinvestments, the accumulating power of capital atcompound interest, are very unsafe counsellors. It istrue, that nobody would be so unwise as purposelyto construct a road or canal, a long time before it wasw anted at all, and hence so strong a case as the oneabove supposed, has probably never occurred. Still,

the principle here laid down is true as regards everyinvestment made in advance, to the extent of thatportion of the capital that does not yield the ordinaryincome. A regular interest account current wouldshow the true amount of the cost of the improvement,and if reference were had to this test of productive-ness more frequently than it is, it w ould be found thatmany investments which have been usually consi-dered productive, have been upon the w hole losingtransactions.

* The present value of a million of dollars payable elevenyears and e ight months hence, is five hundred thousand dollars,which of course would be the present loss, or sinking of capitalin the case supposed. If ten per cent, w ere taken as the annualprofit that could have been made on the employment of thecapital, (a profit which capital will earn in some parts of the"Western country,) the result would of course be much more

unfavorable to the community.




BOOK THE SECOND.

OF THE LAWS WHICH REGULATE A MIXED CURRENCYCOMPOSED OF THE PRECIOUS METALS, AND OF PA-PER CONVERTIBLE INTO COIN ON DEMAND.

IN the former part of this work I pointed out theprinciples by w hich a currency com posed entirely ofthe precious m etals is regulated . I come no w tospeak of the laws which regulate a currency com-posed of coin and convertible paper, and here I wishit to be distinctly understood, that by convertiblepaper, I mean notes issued by banks, payable tobea rer in coin on dem and . Pa pe r m one y issued by

gov ernm ents, like the paper of the N orth A m ericancolonies before the revo lution, or like the co ntinen talmoney of a subsequent period, or like the assignats ofFrance, or the actual paper money of some of thenations of Europe, not being payable in coin by theissuers at the pleas ure of the holder, belongs to an -other category, and is governed by laws peculiar toitself.

CHAPTER I .

OF BANKS OF DEPOSITE, OF BANKS OF DISCOUNT ANDOF BANKS OF CIRCULATION.

O F banks there are three distinct kinds, whollydifferent from each other, in their constitution, the iruses, their operations, and their influence upon the



68 A TREATISE ON

public prosperity, viz. banks ofdeposiie, banks ofdis-

count, and banks of circulation, or, as some ex pressit, banks of issue, of each of w hich I w ill speak inits turn.

J2 bank of deposite is an institution establishedsolely for the safe keeping of the coin and bullion ofindividuals, w hich w ould otherwise hav e to be kep tin iron chests or less secure receptac les, an d forfacilitating mercantile paym ents by the transfer up on

its books by checks or drafts of the va riou s am ou ntsstand ing to the credit of the d epositors, thus sav ingthe labor of repeated coun tings, and the ex pense ofrepeated transportation s of the precious m etals fromhouse to hou se, accompanied at the same time by adiminished risk from fire or pillage, and a diminishedw ea r and tear of the coins by friction. Such a b an k,it is manifest, is more app rop riate for a comm unityusing a currency of coin alone, than for one employ-

ing a mixed currency; and accordingly, we find sucha bank as having formerly existed at Amsterdam, andat the present day at Hamburgh, in which latter city,a deposite of standard silver of the weight of a marc,entitles the depositor to the credit of an am ou ntdenominated a marc banco, which is the unit of thecurrency of Hamburgh, in which all bills of exchangeand mercantile debts are payable, and which thepa rty w ho holds the credit m ay dra w out at his

pleasu re in m arcs w eight, or transfer to oth ers. Asregards the operations of this particular species ofbanks, the reader will perceive that they add nothingto the existing am ou nt of the curre ncy , and tha t th eytake no thing from it. T he credits on their boo ks re-present certain quantities of bullion ascertained byw eigh t, placed there for safe keep ing, w ithout an yauth ority on the part of the adm inistrators of the ba nkto lend it, or to apply it to any purpose whatever,until called for by its ow ne rs, or transferred by themto other persons; and hence it is clear, that such




ban ks ex ercise no influence w ha tev er over the c ur-rency, by contracting or expanding i ts amount.

A bank of discount is an institution possessing acapital in money, which the proprietors, for there areusually several, associated in part for the sake ofmaintaining a survivorship, lend to merchants andothers by discounting acceptances and promissorynotes, originating in the sale of merchandise andother pro pe rty, hav ing short periods to run . It also

receives on deposite, either by allowing interest ornot, as the agreem ent m ay be, the mo ney of otherpeo ple, repa yab le at fixed periods or on de m an d,which it also lends with its own capital in discount-ing com m ercial securities. Of this description ofbanks , are all the establishments in London, (exceptthe Bank of England,) and many of those of the prin-cipal cities on the continent of Europe known aspriva te banke rs. Several ban kers of the same de-scription, but better kno w n as extensive brokers, hav ealso at different periods in N ew Yo rk and Ph iladel-phia, carried on the business of lending their owncapitals and the capitals of others deposited withthem, and it is probable that in every commercialcommunity there are establishments of the kind upona larger or a smaller scale. A s such ba nk s do no -thing more than lend the money which actually

exists in the community, it is evident, that they, likeba nk s of depo site, ex ert no influence w ha teve r overthe currency, in expanding or contracting i ts amount,and that consequently they produce no eifects differ-ent from those which would result if the same moneyhad been loaned out by its individual proprietors,through the agency of brokers.

Some persons indeed suppose that where the money

of depositors is repayable on demand, an expansionof the currency takes place to the w hole ex tent ofsuch deposited sums, in case they have been loanedto others, inasm uch as the depositor as w ell as theperson to w ho m his money h as been loaned, has each



70 A TREATISE ON

the pow er to m ake purcha ses in the m arket for thesam e am ou nt , the righ t possessed by the former todra w m oney out of the ban k, giving him the sam ecom m and of funds as the actu al possession of m one yby the latter confers upon him . Bu t this is an e rror,for, if the depositor's money has been loaned out, itcan in no possible w ay be paid back to him , bu t bythe ba nk 's requiring the borrow er or some other ofits debtors to refund an equal amount, by which pro-

cess the aggregate mass of the currency is preserved,the sam e as before. B ank s w ell adm inistered, donot, ho w ev er, place them selves in the condition ofbeing obliged in order to me et the sud den dem and sof depositors, to call unexpectedly on their debtors.They keep on hand an amount of money unem-ployed, sufficient to meet any probable calls that maybe m ade upon the m , before the bills receivable held b ythem fall due. and like the mill pond which is supplied,w ith w ate r from the stream ab ov e, jus t as fast a s it isdischarged through the mill race below, they preservea uniform level in the curre ncy . N or is the m att erat all changed by the fact that bank credits or depo-sites are transferable by m ea ns of check s, from theaccount of one person to that of another, for it isclear, that if b y such transfers, one person becom espossessed of the command of funds, another parts

with it to the same amount, and consequently, thereis but one pow er of pu rchase in the m arket at an yone time, with the same money.

A bank of circulation is an institution estab lishedsolely for the purpose of lending credit, which is per-formed by ex chan ging its prom issory notes pay ab leto bea rer on dem and in coin, or giving transferablecredits on its book s, also pa ya ble on dema nd in coin,

for the prom issory notes of individuals, pa ya ble at afuture fixed day, the latter paying a per centage perannum equal to the interest on a loan of capital, forthe adv antag es they consider themselves as enjoyingby dealing in the m arke t w ith the credit of the ba nk




instead of their ow n. T he operations of such a ba nk ,it w ill be perc eive d, are different from those of the tw opreceding ones, inasm uch as the currency by the in-troduction into it of paper money and paper credits,createa ble at w ill, in addition to the coin w hich be -fore constituted the entire currency of the co un try ,admits of expansion and contraction, and conse-sequently of f luctuations such as are unknown undera metallic currency.

In the nine hundred banks and branches whichno w ex ist in the Un ited S tates,* all the opera tionsof these three distinct institutions are combined; and itis owing to this combination, by which dissimilarthings are confusedly mixed together, that the publicmind has been led into so much error upon the sub-ject of banking. An analytical exam ination can aloneenable any one to understand the true merits of this

important subject.From the foregoing definitions it will be seen thatbanks of deposit and banks of discount are of positiveadvantage to every country in which they are estab-blished . T h e former p rotects the gold and silver ofthe com m unity from the dan ger of robb ery and fire,as well as from loss by abrasion, as has already beenremarked, and at the same time greatly facilitatesthe operations of commerce by the convenience ofpayments in checks instead of payments in coin.The latter keeps the money of the community in con-stant employment by lending it to one borrower, asfast as it is paid bac k by an othe r. B ut it w ill bereadily seen, that such institutions do not hold outsufficient temptations for their frequent establishment,as corporations. To m aintain a bank of deposite, afund must be provided by government or individuals

to defray its expenses, inasmuch as no number of

* According to the report of the secretary of the treasury ofApril, 1840, the number w as 90 1, w ith a paid up capital ofnear #$60,000 ,000. See Appendix C.



72 A TREATISE ON

persons would assume the responsibility of takingcare of other peop le 's m oney, and of keeping theircash accounts, w ithout com pensation, and in regardto a bank of discount, it w ould scarcely be w orthw hile for a com pan y to become incorpo rated or topay the rent of a banking house, and the salaries of anu m be r of officers, to do tha t w hich the ind ividualscould do themselves or by the employment of brokersat a much less ex pen se, or, indeed, at no ex pen se at

all, as the brokerage is usually paid by the borrowers,unless a comparatively large amount of depositescould be relied on, at a low interest or at no interestat all. Banks of circulation ha ve , therefore, beenresorted to, as presenting the only certain, or ap p a-rently certain, prospects of emolument; and as thecredit requisite to give confidence to the paper couldnot be established without having for its basis a capi-

tal, m ore or less ex tensiv e, they hav e in e ve ry casebeen consolidated w ith a ba nk of discount. T o securethe popular favor too, as w ell as to derive a profitfrom the lending of the m oney of othe rs, they hav ealso taken upon themselves, w ithout charge to thepublic, tha t pa rt of the du ties of ba nk s of dep ositew hich relates to the ke eping of cash accoun ts w ithind ividu als, and transfers of credits on their books,but not that part which guarantees the safe keeping

of the coin and bullion of deposito rs, ex cep t in thefew cases w he re an agre em ent for special depositesis made.

B u t banks of circulation are themselves , whenproperly conducted, and when their operations areconfined to the legitimate objects of banking , andwhen their liability to comply with their contracts isstrictly enforced by the public, cap able of conferring

benefits upon a cou ntry. B y the creation of pape rmoney they enable the merchants to export a part ofthe metall ic m oney w hich w as previously requiredto circulate its comm odities, and the reb y con vert itinto active capital, yielding an an nu al income eq ual




to the ave rage profits of trade . T h e m ode in w hichthis is effected, I w ill en deav or to illustrate in deta ilin the succeeding chapter.

C H A P T E R I I .

OF THE OPERATIONS OF BANKS OF CIRCULATION.

IN a former part of this treatise* it was shown,tha t und er a metallic cu rren cy , it is not possible toretain in any country, for any length of time toge-ther, a larger amount of coin than that which is requi-site to place its currenc y upon a level w ith the cu r-

rencies of other countries; and it was also shown,that if by any extraordinary cause a greater amountshould at an y time be brought into any cou ntry, itw ould continu e but for a short tim e, and w ould gra-dually disappear by exportation, in the manner theredescribed, until the equilibrium should be restored.

What is true of a metallic currency, is equally trueof a mixed currency, consisting of coin and paperex change able for coin on dem and. T he aggregate

am oun t of the tw o com ponent parts cannot exceedfor any great length of time, the a m ou nt of coin w hichwould circulate if there was no paper, as I shall nowproceed to show.t

Let us suppose that, in a particular country, enjoy-

* Book I. Chap. 4.j - This expression must be qualified thu s. Every emission

of a paper currency in any country drives out a portion of itscoin, and augments the total amount of the currency of thew orld, in the same manner that an additional quantity of goldand silver from the mines would do it; and hence an emissionof paper money any w here m ust augment the currency everywhere, after time has been afforded for the distribution.



74 A TREATISE ON

ing a metallic currency, the quantity of coin requisite

to circulate its products and commodities, and tomaintain its currency upon a level with the currenciesof other countries, is ten millions of dollars, andthat the balance of trade and pay m ents is such atthe time of our supposition, that the ex cha nge is atpar. A ba nk of deposit, discoun t and circulation isestablished upon the corporate or joint-stock principle,with a capital of one million of dollars in coin, which

amount is of course to be taken from the ten millionsin circu lation. W e w ill suppose this cap ital all to bepaid in before the bank commences its operations.T he effect of this w ould be a tem porary pressure form oney , by w ithd raw ing one million of dollars fromcirculation. Th is pressure, how eve r, w ould be gra-dually relieved, as the ban k commenced discounting,and w ould w holly disapp ear after it had loaned ou ta million of dollars .* N ow it is manifest, tha t up tothe period at which the loans of the bank do not ex-ceed one million of dollars, its ope rations ha ve beensimply those of a bank of discount, for it has onlyloan ed the am ount of its cap ital, that is, of moneypreviously ex isting. It m ay indeed, hav e issuednotes, or given credits on its books for loans m ad e,instead of payin g out the iden tical gold and silverreceived from the stockholders; or, it may have given

notes, or credits, on a deposit of coin for the conveni-ence of the public; but such notes and credits in suchcases w ould be mere certificates tha t correspondingamounts of gold and silver were lying in the vaultsof the bank, belonging to the owners of such notes orcredits, held subject to their order, precisely as in thecase of special deposites. It might even ha pp en , tha tmillions of dollars in the form of notes an d cred its

* I am aw are that the usual practice of banks is to call intheir capitals by instalmen ts, and to lend out those instalmentsas fast as received, which is undoubtedly the best mode, if theloans were not so apt to be made to needy or speculating stock-holders, to enable them to pay up the subsequent instalments.




might be issued by the bank in exchange for specie,

without thus far exercising one single prerogative ofa bank of circulation, or influencing in the slightestdegree the state of the currency, any more than theBank of Hamburgh, already described, influences thecurrency of that city.

From this view of the subject, how clear is to beseen that what the bank has thus far performed, isnothing more than w hat the individuals w ho ow n the

capital of the bank, could themselves have performedmore cheaply, quite as securely, and perhaps moreadvantageously to the public, seeing that loans tounskilful and imprudent borrowers, of which indi-viduals are not so apt to be guilty as corporations,lead to a diminution of the wealth of a country,w hether it result from injudicious voyages, or fromany species of enterprise which converts productivecapital into properly which is not equally productive,or, from improvident sales of merchandise to personsnot entitled to credit. Incorporated or joint stockbanks, it is thought, ow ing to their directors not hav-ing a deep personal interest at stake, and ow ing totheir liability to be influenced as a board, by consider-ations w hich do not operate upon individuals, andespecially owing to the absolute impossibility of theirdevoting any large share of their time to the investi-

gation of the characters of all applicants for loans,cannot, in the nature of things, exercise the same dis-crimination in the choice of its borrow ers, as indivi-dual capitalists do.*

The circulating principle is now put into opera-

• If it be objected to this proposition, that the losses of thebanks in the United States are comparatively few, I would

reply, that this result is to be ascribed to the absence of a gene-ral bankrupt law, which would prevent those partial assign-ments for the benefit of endorsers at bank, by which banks

become preferred creditors in most cases of insolvency, andthereby get a larger share of the assets of their debtors, than

other creditors.



76 A TREATISE ON

tion by ou r sup pose d ba nk , by lending i(s credit in

addition to its capital. In other w ords , w itho uthaving any more money to lend, it undertakes todiscount notes at short periods, by giving to theborrowers not coin, or notes or credits absolutelyreprese nting coin in its va ults , as in the case of itsoriginal loans, but notes or credits prom ising to p aygold or silver on demand, founded upon a presump-tion that no such demand will be made, until thenotes, in the discount of w hich they w ere issued, orsome of the other notes discounted by the bank, willbe paid, and thus bring itito its coffers an equalam ou nt of specie. In other w ord s, the bank lends itscredit, and as this credit is just as valuable to any ofthe parties w ho are indebted to the ban k for the firstmillion, or for any subsequent sum loaned, as gold orsilver, any of them will be willing to receive it inpayment of debts or for merchandise sold, as readily

as co in, an d the noto riety of this fact, ad ded to theright of conversion .on de m an d, gives the notes an dtransferable ciedits of the bank a circulation with thepublic equivalen t to coin. E ve ry emission, ho w ev er,of these ba nk notes and credits is an au gm en tationof the curre ncy , and depreciates it below the gen erallevel.* L et us, for the sake of argu m ent, supposethe am oun t of this aug m entation to be ex tended in agiven time to one million of dolla rs, tha t bein g thesum requisite, w e w ill further supp ose, to occasionthe degree of depreciation that must exist before it isprofitable to ex po rt coin. T h e am ou nt of the cur-rency will then be eleven millions of dollars, th at is

* The depreciation of a currenny when it takes place mustnecessarily show itself in reference to every species of propertyand commodity, although it takes longer to reach some things

than others, so as to occasion a change in their price. A depre-ciation of the currency, in reference to particular things only,cannot be supposed, any more than a rise of the tides in refe-rence to some particular objects on the margin of a river, andnot to all others.




to say, ten m illions of coin, and one million of pape r.T he effect of this w ould inev itably be w ha t is calleda plen ty of money . T h e prices of all com m oditiesw ould rise, because there w ould be eleven purch asersin the m arke t, w here before there w ere but ten, or,w ha t amo un ts to the sam e thing , because the formerpu rcha sers w ould possess one tenth m ore m eans topu rchase w ith , tha n they possessed before. This riseof prices, op eratin g upon foreign as w ell as dom estic

com m odities, w ould lead to the imp ortation of add i-tional qu an tities of foreign m erchand ise. But no correspon ding ex port of dom estic products w ould takeplace, on account of their artificially high price, uponAvhich bills could be d ra w n to pay for the foreignim ports; and the consequence w ould be, that m oneywould be sent abroad in their stead, as presenting themost profitable species of ex po rt. But of the m oney

in circulation, it is evident that nobo dy w ould thinkof ex porting the pap er, w hich w ould have no valueabroad, and consequently, all the exports that wouldtake place, would be of coin.

The effect just described would as certainly takeplace as that water would find its level, and wouldcontinue until the export of coin was equal to theam ou nt of th e pa pe r issued, tha t is, to one million ofdollars, w hen the level w ould be again restored,

owing to the fact of the aggregate of the coin andpaper united being only ten millions of dollars, that is,nin e millions of coin and one million of paper.* F ur-ther emissions of bank notes or credits might thentak e place w ith precisely the same results, and pro -vided that the extent to which the issues are carriedis not so great as to drive out of the country too greata portion of the metallic cu rrenc y, by w hich the

convertibility of the paper into coin in case of a sud-

* Strictly speaking, the export would not be quite equal to theamount of the paper issued, for the reason assigned in the secondnote to this chapter, page 73.



78 ATREATISE ON

den panic occasioned by foreign war or domesticdisturbance, or by fear of insolvency, might be en-dangered, the operations of the bank are decidedlybeneficial to the country. It has disengaged froma comparatively unproductive employment, a capitalcapable of producing an annual profit to the nationequal to the average profits of capital, or, in otherwords, has substituted ^m expensive instrument ofcommerce by one costing less. And yet, by this

operation, nopermanent depreciation of thecurrencytakes place, because the total quantity of coin andpaper united isonly equal to thequantity of coin thatwould have circulated had there been nobank.

From these positions two conclusions are self-evident: first, that banks of circulation are onlybeneficial to a country when they occasion theexportation of coin; and secondly, that paper isonly

beneficial when its quantity does not exceed thequantity of coin which has been removed from thecurrency by exportation. The actual extent towhich this substitution vaay take place with safetyto a banking system is a matter which cannot bedetermined by any fixed proportions. Some personsfancy that the extent to which a bank may loanwithout danger of reaction depends entirely upon theextent of itscapital, and reason thus: if a bank withone million of dollars capital canwith safety loan amillion and a half, which is fifty per cent, increase,one with a capital of ten millions of dollars can loanto the extent of fifteen millions. Others imagine thatthe power of expansion in a bank always bears afixed proportion to theaverage amount of its depo-sites and circulation; whilst others again entertainthe idea that it depends upon theamount of coin it

has in itsvaults, and that if this be large, the amountof its issues may be proportionally large. All thesehypotheses, how ever, are fallacious. The real truthis , as has been shown, that the channels of circula-tion will only hold, without depredation, a certain




quantity of paper in addition to the quantity of cointha t m ust needs exist as the basis of the m ix ed cur-renc y, and this is equally tlnj case w hethe r the p aperbe issued by one ban k or by one thousa nd. Allattem pts to increase tha t qu antity permanently be-yond the quantity requisite to preserve an equiva-lency w ilh the general level, m ust, in th e natu re ofthing s, be futile. If the chan nels are m ade to over-

flow, depreciation of the whole mass (for where con-vertibility exists the coin is involved in the depre-ciation in comm on w ith the pa per) w ill necessarilytake place , follow ed by an ex portation of coin as anecessary effect from a cause , and all red un da nt issuesof notes w ill return upon the issuers for pa ym en t,w ith the sam e une rring certainty as the fabled stoneof Sysiphus rolled back upon the wretched straggler.

I t may, however, be here remarked, that the possiblecase might occur of a favorable balance of tradeex isting at the same time that an ex pansio n of thecurrency has taken place, the consequence of w hichw ould be, that the former, by occasioning a low rateof exchange, would arrest the tendency of the depre-ciated currenc y to relieve itself by ex porta tion. B utsuch a state of things could not long co ntin ue , an d itis m erely referred to as presen ting o ne of the ph e-

nom ena w hich w e occasionally w itness, and w hichsom etimes puzz le the head s of superficial reasonersso m uch tha t the y deny the ex istence of all fixedprinciples in political economy.

Th ere is, how eve r, one circumstance connectedwith the corrective power of exportation, which is ofvast im portance, and w hich renders the paper cur-rency of the United States m ore liable to ex cessive

depreciation than that of an y E uro pe an coun try. Iallude to the effect produced by a war with any pow-erful maritime nation, which by augmenting the ratesof freight and insu ranc e on specie, prevents the ap -plication of the remedy against over issues by theba nk s, at as early a stage of depreciation as w ould



80 A TREATISE ON

take place in time of peac e. T h us in a time of peac e,one per cent, would cover those charges betweenNo rth Am erica and E ur op e, w hereas in a time ofw ar , five or ten per cent, m ight be req uired , the in-evitable result of which would be, that the paper cur-renc y, althou gh conv ertible on dem and into coin,might be depreciated to the extent of five or ten percent, below the general level, and foreign bills of ex-

chan ge m ight rise to that e x tent abov e the real pa r,before the m erchants, ha ving remittances to m ak e,w ould find it ad va ntag eou s to ship specie, and con-sequ ently before an y reaction w ould be felt by thebanks . This fact ought to have weight with ourpub lic m en, as b eing on e. of the most fatal of theelements w hich m ake u p the aggregate of nationalsuffering, arising from a state of war, as may be wellremem bered by those w ho w itnessed the suspension

of specie payments in 1814 during our war withEngland, and its disastrous consequences.

C H A P T E R I I I .

OF THE PRINCIPLES BY WHICH THE PROFITS OFBANKS OF CIRCULATION ARE DETERMINED.

F R O M what has been said in the preceding chapter,ho w clearly is it to be perce ived, that the profit to bederived from supplying the paper currency of a coun-try, is a limited amoun t, and tha t if it be dividedam ongst a g reat n um ber of ban ks, and distributedover the surfaces of many large cap itals, its p rop or-tionate rate m ust be very sma ll. To m ake this m at-ter, ho w eve r, m ore p lain, for I consider a correct vie wof this branch of the subject as all-important in over-thro w ing the present errors of our bank ing system




I will illustrate it by reference to tne case of the samecountry, which was above supposed to require a cir-culating medium often millions of dollars.

Wi-;hout pretend ing to determ ine the precise e x -tent to w hich its coin might be safely sub stituted bypaper, I will suppose, for the sake of argument, thatone half of the former shall be exp orted , and thatconsequently the currency consists of five millions of

coin and five millions of pa pe r. Und er this state ofthings, the bank would be drawing interest on a sumfive times as large as its cap ital, even allow ing tha tit retained a sum equal to its whole capital of a mil-lion in its vaults in coin, to meet occasional demands.T he profits of its business w ould therefore be ve rygreat on acco unt of the small capital of w hich it w asthe income, and the consequence would no doubt be,as soon as the secret should become known to others,

that a second bank would be established.F ew of the projectors, how ever, of this new ba nk

w ou ld p roba bly believe th at the great profits m adeby the original bank were the result of a monopoly,and that they w ould not have been any greater inabso lute am ou nt, if its capital had been five m illionsinstead of one; bu t un de r de lusive notions th at thesame per centage of profit, or something near it,

would attach to a large capital as to a small one,they would probably establish their new bank witha cap ital, let it be supp osed , of tw o millions of dol-lars. N ow to m ake a propo rtionate profit equa l tothat enjoyed by the original bank, paper must beissued to the am ou nt of ten millions, and the bankaccordingly commences its operations by a profusionof loans. But the chan nels of circulation are alre ad yfull of the paper of the old bank, and there is no roomfor an y m ore. Issues, ho w ever, go on un til mon eybecomes plenty, and the currency becomes depre-ciated below the gene ral level, as in the case of theoriginal ban k. Pric es of all commodities rise ; foreignm erchan dise, by its high p rice, holds out induc em ents



82 A TREATISE ON

for im porta tion; domestic products becom e too de arfor exportation; bills of exchange rise, because thede m and for them to pa y for foreign com m odities in-creases faster than the supply; and as soon as theirprice in the m arket exceed s the am ount of the ex -pense of transm itting gold and silver ab roa d, a portionof the rema ining five millions of coin w ill be ex po rted.Then is the new bank first reminded of its mistakenview s. Its notes return upon it for pa ym en t in coin,

to be sent out of the cou ntry, and its neighbo r, too,the old bank, which has fiv6 millions of paper in cir-culation, feels the effects of this reaction, and both areobliged to call in a pa rt of their loan s, in ord er toavoid a w orse state of things. T he consequencesw ould be , a general scarcity of m oney , and a tem po-rary commercial em barrassment. T he result, how -ev er, w ould be found to b e, tha t a s five millions of

dollars w as the total am ou nt of pape r tha t could bekept in circulation without depreciation, the profitsof furnishing this am ou nt are now to be divided be-tw ee n tw o ban ks instead of being monopolised byone, and in such proportions as the particu lar influ-ence or management of each may be able to establish.

A similar effect precisely would follow the creationof every additional bank: and should the numberincrease to five or ten , the a gg reg ate profivt would

still be the sam e; for altho ug h the pap er curren cy offive millions would be occasionally augmented inqua ntity as each bank comm enced its operations, asha s been sho w n, yet in the long run it w ould settledo w n at the old amount. Bu t, notw ithstanding thecertainty of this fact, there would still be a perpetualendeavor on the part of some of these banks to getthe largest share of the profits of this supply of the

pape r currency by ex traordinary issues. T his, ho w -ever, it could not accomplish, if the public wouldalw ay s insist up on strict con vertibility, and if otherbanks were true to their interests by making a dailydemand upon each other for the payment of balances




occurring in their m utu al transactions, not in p ap er,but in coin.

And here I will remark, that precisely as eachbank of a city thus checks the issues of its neigh-bors , the united bank s of a city check the issues ofothe r neighbo ring cities. If the currenc y of a pa r-ticular city, Ph ilade lphia , for ex am ple, w ere to be-come depreciated below that of New York, the effect

would immediately be shown by a rise in the formercity in the prices of stocks, bills of exchange, andother securities of easy transmission, of which theconsequence w ould be, that am oun ts of these w ouldbe sent to Philad elphia for sale, and by that mean sthe banks of that city would be brought into debt tothe b anks of Ne w York, w hich w ould call for pa y-m en t of the balance in coin, and that w ould lead to

a contraction of the cu rren cy, until the equilibriu mw ould be again restored. It is precisely upon thesame principle that the general currency of thecountry is corrected by the influence of those offoreign cou ntries, and therefore, if an y obstruction tothe free exporta tion of coin should at an y time ex ist,either by the timidity of the holders of bank notes todem and their rights, or by the law s of a cou ntry, orby the exciting of public odium against the exporters,

either by banks, politicians, or otherwise, so as todete r them from ex po rting w hen it is profitable forthem to export, the currency must inevitably sustaindepreciation, and mischief must be the result.

In connection with this subject, it may here be alsorem arke d, that should the time ever arrive, w hen allthe principal commercial countries of the world shouldado pt the circulating bank ing system , the w hole of

the benefits resu lting from the substitution of pap erm oney for coin w ill vanish. T h e only reason w hythis sub stitution is no w produ ctive of profit to a nycountry w here ban ks of circulation exist, is, tha tthere are other coun tries in w hich there is no pa pe rm one y, and w hich are w illing to give other co m m o-



84 A TREATISE ON

dities for gold and silver. B u t on ly let them alladop t the policy of issuing bank notes in an equ alproportion, so as to preserve their respective cur-rencies upo n the same level, and it w ill at once beseen that the precious m etals w ill not flow out fromeither, and tha t the inevitable consequence w ill be,that the prices of commodities and property will beincreased all over the world, whilst not a dollar will

be added to their value. Every movement made inEurope towards the establishment of banks of circu-lation, is a step tow ards that terrible consu m m ation,when no domestic or foreign checks will longer existto prevent those unlimited expansions, which cannotpossibly exist without alternate contractions, subver-sive of the industry and prosperity of the wholecivilised world.

C H A P T E R I V .

OF THE SAFEST AND MOST PROFITABLE MODE OFINVESTING THE CAPITALS OF BANKS OF CIRCULA-

TION.

IT has been shown that banks of discount upon thecorp orate or joint-stock principle could not generallybe conducted to a profit, seeing that the income theyderive from the loan of capital would not be as greatas the income which the individual proprietors couldha ve derived from lending their mo ney w ithou t theagency of salaried officers and the rent and other ex-penses of a ba nk ing hou se. It has also been sho w n,that for the sam e reason , ba nk s w hich perform thedouble function of banks of discount and banks ofcirculation, can m ake no ban kin g profit by the merelending of their cap itals. All their profits are derived




from lending their credit; for, although where the rate

of interest is six per cent, per annum, the practice oftaking the interest beforehand, and charging sixty-

four days discount for the use of the money for sixty-

three days, as in Philadelphia and other places, the

actual rate received is 6^ per cent., yet the additional

four-tenths of one per cent, do not pay the proportion

of the whole expenses of the bank, which the amount

of its capital bears to the whole amount of its loans.

Indeed, a little reflection will enable any one to per-ceive, that not only do all the profits beyond legal

interest of a bank of discount and circulation, where

it is successful, arise from the loan of its credit, but

those profits must besides furnish a fund for making

up the loss incident to the lending of its capital.

Thus, if we suppose a bank of discount and circula-

tion with a capital of one million of dollars, having

loans out to the amount of one million and a half,

and the whole annual expenses of the bank to befifteen thousand dollars, or one per cent, upon the

amount of the loans, it will be seen that two thirds

of tiiis expense attaches to the lending of the capital,

and only one third to the lending of the credit of the

bank, so that if separate accounts were kept of the

expenses of each department of the institution, they

would show a gain upon the lending of credit and a

loss upon the lending of capital. If, therefore, thewhole operation be profitable, the profit must arise

from the lending of credit, and must consist' of what

remains after defraying the loss incident to the lend-

ing of the capital, which is precisely equal to the

excess of the expenses of bank agency in loans over

those of private agency, deducting the four-tenths

of one per cent, which a bank charges, more than

individuals would have a right to charge by law on

loans.* At all events, no one will pretend that banks

* The banks of Pennsylvania, and perhaps most other states,are authorised to charge one per cent, interest for sixty days,



86 A TREATISE ON

m ake more b y the loan of their capitals than indi-

vidu als could m ak e, and even on this admission it isapparent that all the peculiar profits of what isusually called banking arise from the loan of credit.*

N o w , if these positions be tru e, it follows as anecessary consequence, that the true policy of banksof discount and circulation is, to adopt the mosteconomical and safe mode of lending their capitals,so as to lose as little as possible by the ope ration .

L on g loan s, it is manifest, are attended w ith lessexpense than short ones, and the security of realestate or public funds is safer than the promissorynotes of indiv idua ls. One officer can sup erin tendloans on mortgage or investment in public secu-rities, collect the interest, and keep all the acc oun ts,as easily as four could attend to the discounting of anequal amount of notes at ninety days; and as to thedifference between the security of mortgages and pub-

lic stocks, and priva te pa pe r, no one can fail to seethe superiority of the former.

From these views, it is evident that banks of circu-lation derive no benefit w hate ver, but rather injury,from hav ing capitals to lend. W h y then , it m ay beasked, should they be connected w ith bank s of dis-count? Fo r no other reason than to give credit totheir notes, w hich w ould not be allow ed to get into

circulation as mone y unless the public w as assuredof a responsible endo rser. T h e bank of discount th usbecomes the guarantee of the bank of circulation, andas the solidity of the guarantee is what the publicmost look after, how plain is it to be seen that a capi-tal loaned upon real estate or state stocks would bea better security against insolvency than any promis-sory note s or bills of ex ch an ge could possibly be. In

and to receive it in advance. Indiv iduals can only charge sixper cent, per annum, without the right to receive it before hand,but the law in this case is seldom observed.

* Ex cept in those cases w here deposites constitute a largeportion of the amount loaned by the bank.




other words, a bank with a capital of one millionof dollars loaned upon well secured mortgages and

state stocks of undoubted solidity would offer a better

security for the payment of its notes, than one with an

equal capital loaned upon discounted notes and bills.

And not only is this true; not only would the credit

of its notes be more perfectly secured as far as the

public is concerned, but the interests of the stock-

holders themselves would be very greatly promoted

by such a mode of lending the capital, Jirst by adiminution in the expenses of management, and

secondly by a diminution of the risk of lending.

But this is not all. The individual borrowers

themselves, of the capitals of banks, would be greatly

benetitted by such a system. They would obtain

money at six per cent, per annum, instead of six per

cent, and four-tenths; they would be able to borrow

for such long periods at once, by giving the requisitesecurity, as would give time for the winding up of

the voyage or operation for the conducting of which

the loan was required, instead of asking for renewals

every sixty or ninety days, always accompanied with

a degree of uncertainty, and generally attended with

the additional tax of a loss of interest upon a balance

in bank, tacitly, if not expressly required as the price

of a continued accommodation; amounting, probably,

to as much as with the four-tenths of one per cent,

above referred to, may be equal to one per cent.

To this it may, perhaps, be objected, that all bor-

rowers have not real estate or state stocks to pledge

for loans of money. Farmers and manufacturers may

have lands, houses, and factories, but merchants may

not; and, at all events, it would deprive of the power

of borrowing capital of banks all those persons who

have no real estate or state stocks to offer as security.This is perfectly true, and it is precisely what ought

to be, for banks are bound to obtain as good security

on the loan of their capi/als as their individual pro-

prietors would demand; and we all know that indi-



SS A TREATISE ON

viduals rarely lend their capitals for long periods at

simple interest, as p erm anen t investm ents, upon themere personal security of persons engaged in trade,or ha za rdo us enterprises. If the y do occasionallyde pa rt from this rul e, it is because they hav e such aknowledge of the affairs of the borrower as to renderhis personal promise eq uiv alent, in their estim ation ,to a mortgage; and at all events they have a right torisk their o w n property if they choose, but as bank s

of discount stand towards the public in the position ofgu aran tee s to the b ank s of circulation, w ith w hichthey are un ited, they act unw isely if they accept ofan y but the m ost perfect secu rity, such as that af-forded by m ortgag e on real esta te, or by an invest-ment in undoubted public securities.

What has been said, let it be remembered, relatesonly to the loans of its capital by a bank, and I trustthat the reader will not fail to perceive the justice of

the rem arks. H e will at least perceive , that as far asthe lending of the capital of a bank goes, w hethe r theloans be made for sixty days or twelve months, whe-ther they be made on m ortgage or to the gove rnm ent,or upon promissory notes and bills of exchange, theeffect upon the curren cy is precisely the sam e. N ei-ther mode makes money more or less abundant thanthe oth er; inasm uch as that w hich has been loaned

is precisely the am ou nt w hich previously ex isted inthe com m unity , and is, indeed , the precise am oun twhich the individual stockholders of the bank wouldhave had to loan, had they not associated together asa ba nk . T he qu estion, then , is a simple question asto the borrow ers, and w hilst those w ho could notgive landed security for loans might think themselvesdeprived of a right to which they are entitled; yet itis evid ent, that the holders of bank notes and ban k

credits, and the owners of the capital, and all the restof the community, who are to a man interested inthe safe employmen t of the capital which belongsto the whole society, are manifestly benefitted. In




truth, however, borrowers have no rights as regardsthe capital of a ba nk w hich they do not possess asregard s the capital of an individua l; and any onewould see how preposterous it would be for a bor-rower of money to insist with an individual upon hisright to borrow his capital upon a promissory note,when the individual should refuse to lend in anyother way than upon mortgage.

I am aw ar e that a plausible objection to this rea -soning might be raised w ith reference to the ba nk ingsystem as carried on in the United Sta tes, by assert-ing the fact, that were it not for the demand of bor-row ers w ho h ave no real estate to offer as secu rity,there would probably not be employment for onehalf the ba nkin g capital now ex isting in the Un itedStates. T his, how eve r, proves nothing more than

that there is in existence double the amount of bank-ing capital required to sustain the credit of the papercurrency, which I have shown to be the only advan-tage derived from bank capitals, seeing that as far asthe capitals go , nobody gains by their am ou nt beingloaned through corporate agencies, rather than bytheir individua l prop rietors. If the fact be that ne arlyall the capitals of all our banks are loaned out uponpersonal security in the discounting of promissory

notes and bills of ex ch an ge , it is quite clear tha t thestockholders are not as secure from loss, and tha ttheir profits are not as great, as they would be if onehalf their capitals w ere returned to them , and loanedout by themselves individually upon landed security.There can be no doubt that in the United Statesgreat mischief results from so large a portion of thedebts of the community being in the form of promis-

sory notes discounted by the banks, instead of perma-nent loans, ow ing to the tem ptation of ban ks to ex -pa nd , arising from the broad field upon w hich the ysuppo se they can contract in case of need, w hich ism uch larg er th an it w ould be if all their cap itals w ereloaned out upon perm anen t securities. I say , " sup -



90 A TREATISE ON

pose they can c on trac t," because the fact of their beingable to con tract at all times , m ay be considered asfully disproved by the stoppages of payment in 1837by all the banks, and in 1839 by all the banks to thesouth of New York.

C H A P T E R V .

OF THE LEGITIMATE OPERATIONS OF BANKS OFCIRCULATION.

H A V I N G disposed of the question of the safest modeof em ploying the capitals of ban ks, I now come to

the que stion, w ha t is the legitima te function of abank of circulation, considered in its distinctive char-acter as a bank without any capital to lend?

The manifest answer to this question is, to lend itscredit in such a way as to produce the greatest pos-sible benefit to itself without injuring the public.

T he mod e in w hich a ban k lends its credit is toex cha nge its ow n promissory notes payab le on d e-mand, for the promissory notes or acceptances ofindividu als pa ya ble at a future period, dedu cting iheinterest for the time which the latter have to runbefore they become due, and allowing no interest onits ow n notes for the time that m ay elapse beforetheir paym ent is dem anded. In making this ex -change, the profits of the batik depend entirely uponthe length of time that its notes re m ain abr oa d, andits ability to meet them dep end s of course upon the

length of time w hich the notes hav e to run in ex -chang e for w hich they w ere issued. If ban k notesbe issued only upon the principles laid d ow n in aformer chapter as mere substitutes for coin exported,and w ithout augmenting in any degree the amo unt




of the curre ncy , they w ill rem ain in p erm an en t cir-culation, unless in case of a panic, or discredit, whichoccasions a run upon the ba nk , and w ill constitute asource of permanent profit; for although some ofthem may be constantly returning in payment ofdebts, yet they are sent out again as fast as they comein, in the disco unt of oth er bills or acc eptance s. A sto the length of time which the discounted papershould have to run, experience must decide, the bankhaving regard to the possibility of a panic, as well asto the action of o ther neighboring ban ks, seeing tha tan over-issue by anyone of them, by depreciating thecurre ncy , m ay occasion a te m porary reaction uponother banks as well as itself, and disturb even thosetha t are the most prudently conducted. T he pra c-tice of the b ank s in the Un ited S tates prior to the w arof 1812, w as generally to limit their loans to paper

not hav ing more than sixty-three day s to run. Sincethat time , loans have been m ade at longer perio ds,ex tending sometimes even to four and six m onth s,and to this circum stance is no dou bt to be ascribed,in a great deg ree, the frequent revulsions that ha vesince taken place in our currency, and especially thatwhich eventuated in a general stoppage of speciepa ym en ts in M ay , 1S37.* It must be manifest, tha tthe power of a bank !o meet any extraordinary emer-gency must depend upon the comm and it has overits loans, and if the experience of other countries canbe considered as any guide, that of England andFr an ce m ay both be referred to, w here discounts ofpape r ha ving more than sixty or a hundred days torun , are w holly discountenan ced. A similar prac tice

• To this circumstance may also be mainly ascribed the prac-

tice which of late years has generally prevailed of long creditson merchandise sold. Eight months are now given, w here for-merly only four were required, the effect of which is to doublethe stocks of dealers w ho buy on credit, and to double theamount of outstanding debts. When long notes are discountedby banks, long credits will be given by the merchants.



92 A TREATISE ON

in the Un ited States could not fail to be produc tiveof much benefit to the community, as a means of cor-recting with promptness any accidental expansion ofthe currency.

But in order to render legiiimate the operations ofa bank of circulation, its loans should not only be forsho rt pe riods, but shou ld be confined solely to the dis-counting of what is called business paper, that is, pro -missory notes and acceptances received by the holders

for m erchandise and prop erty sold. If none othersw ere discounted, the ex pan sion of the pap er systemwould only be in proportion to the expansion of busi-ness. When this was extended, so as to call for morecurren cy, as at particular seasons of the yea r, morecurrency would be created; and when business wasdim inished , as at other seasons, so a s to requ ire lesscurrency, the excess would be absorbed by the pay-

m ents m ade back to the ban ks. In these op erations,the level of the cu rrency w ould not be disturbed, soas to produce a depreciation; for although therewould at times be a greater quantity of bank notes inexistence than at other times, yet this quantity wouldbe in exact proportion to the increased demand,arising from an increase of transactions. T h u s w ouldthe elasticity of the banking principle accommodateitself to the state of commercial wants. Money would

alw ays be procurable, w hen it w as really w anted,and it would never be so plenty as to depreciate thecurre ncy . Th e holders of real pa per could alw ay sget it discounted, and even those, whose sales of mer-chandise to the country should not put them in pos-session of notes or acceptances pay able by residentde bto rs, could als>>, w ithou t an y violation of the legi-tim ate principles of b an kin g, get discounts for shortperiods on the hypothecation of such foreign paper.

But it is absolutely necessary upon sound bankingprinciples, that no paper except that received forpro pe rty sold should be discoun ted. Fictitious oraccom m odation nates are not as safe investm ents for




a bank as real notes. A real note given by A to B.,for five thousand dollars, for a hundred hogsheads of

sugar sold and delivered, endorsed by the latter, and

discounted by a bank, is guaranteed by B., who has

five thousand dollars in cash, the proceeds of the note,

less the discount, and by A. who has five thousand

dollars worth of sugar. Of this there is no doubt. An

accommodation note drawn by C. to D. may have upon

it two names apparently as solvent, but there is no

certainty that the two together possess any thing

more than the sum loaned by the bank. And this is

not all. The discounting of a real note is merely

anticipating a capital previously existing, whereas

the discounting of an accommodation note is lending

capital to one who did not possess it before. The

borrower of money on an accommodation note must

require it to pay an old debt, in which case his con-

trol over it is parted with, or, for some new operation,agricultural, commercial, manufacturing, or specula-

tive, which in the nature of things may not be termi-

nated in a short time, and in neither case is he the

sort of borrower that a bank can rely upon to enable

it to meet, under all circumstances, its notes payable

on demand. Nor is this yet all. The discounting of

notes given for property sold, does not encourage

over-trading, like the discounting of accommodation

notes. The latter, if the proceeds be not applied topay old debts, places at the disposal of borrowers the

means of speculating which they did not before

possess. Speculation raises prices, and stimulates

speculative sales and transfers, by which the regular

business of the community is disturbed, only to be

followed by a reaction.

From this view of the subject it may easily be seen,

how absolutely essential it is for the interest of thepublic, that banks of circulation should retain unim-

paired their control over their loans. So soon, there-

fore, as they exchange their promissory notes payable

on demand in gold and silver, not for the promissory



94 A TREATISE ON

notes of individuals given for property sold, and pay-able at short periods, but for notes payable at distantperiods, or for notes understood expressly or implied-ly, to be rene w able in w hole or in pa rt, they annih i-late their po w er, and place them selves at the m ercyof the pub lic. T h ey are liable to be called upon forthe pay m ent of their notes faster than their debtorsare bound or are able to pay them; and instead of

fulfilling their engagements promptly and in goodfaith, they are obliged to resort to discreditable ex -pedients, to deter the hold ers of their note s from de -manding payment .

In the preceding rem arks , I hav e only spoken ofbank notes as being the form in which banks of cir-culation lend their c redit, but this w as done to sim-plify the subject. All tha t ha s been said in rela tionto bank notes, applies equally to that other species of

obligation which is expressed by the term bank creditor depo sit w hen it arises from the discoun ting of anote, for it must be manifest that the same profit re-sults to a bank, where such a credit or deposit remainsundrawn for , as where an equal amount remains incirculation in the form of ba nk note s, and that theability to pay such a liability depends, as in the caseof note s, upon th e length of time for w hich discou nts

are made.

C H A P T E R V I .

EXAMINATION OF THE COMMON OPINION THATBANKS CREATE CAPITAL.

A VERY general error prevails with the public,arising from a want of analytical examination of thesubject, w hich is, that b ank s hav e the pow er to create




capital. As this error lies at the bottom of the wholesystem of false reason ing w ith w hich the speeches inlegislative bodies, and the columns of newspapers arefilled, and as its eradication is of vital importance tothe country", an d must precede an y real reform in thebanking system, I shall enter in detail into its inves-tigation, and solicit the reader's particular attention.

W ha t is capital? T he capital of a com m unity isthat ag gregate mass of things possessing ex cha ng e-able va lue , w hich are destined to supp ly the n eces-saries, the comforts, and the luxuries of life, or, whichare intended to be employed in the production ofother things w ith such ultimate view . Hen ce lands,houses, workshops, factories, rail-roads, canals, pro-visions, clothing, fuel, me rchand ise, ra w m aterials ofevery kind, ships, utensils, machinery, and other sucharticles, including gold and silver, are cap ital. If the

farmer wishes to cultivate more fields, or to cultivatehis present fields mo re highly, or to ma ke im pro ve-m ents on his farm, or ex ten d his ope rations in an yw ay , the capital he stands in need of, is land, cattle ,horses, sheep, implements, seed, food and clothing.If a m anufacturer desires to enlarge his o peration s,he requires buildings, m achin ery, raw m aterials, andsubsistence for his w ork m en. If a m erchan t pro -poses to ex tend his comm erce, he w an ts ships, car-goes of agricultural produce, or merchandise, andprovisions for his crew . T he money w hich is w antedby each of these operator s to deal w ith , as w ell as topay the wages of those whom he employs, is only theinstrument by w hich he and his laborers are enabledto procure some of the articles above enumerated, sotha t it is man ifest that the pow er of any given po pu -lation to set add itional industry in m otion , is limited

by the am ou nt of its capital us above described. N owit is very evident, that the mere emission of banknotes adds nothing to the mass of capital prev iouslyex isting. It creates neither lands , houses, m ac hin ery ,ships, raw materials, provisions, raiment, gold, silver,



96 ATREATISE ON

or any other conceivable thing that comes under thedenomination of capital. In fact, a bank note isnothing but a promise to deliver on demand a certainquanti ty of gold or silver which is capital, and it iseasily to be seen, that a promise to deliver capital isnot capital itself, and that no conceivable number ofsuch promises can ever constitute one atom of thething promised. As well might it be asserted to ahungry man, that a baker 's promise to deliver a loaf

of bread, was bread itself, or to a shivering man on acold day, that a tailor's promise to deliver a suit ofclothes would protect him from the weather as wellas the suit itself. The matter is so plain, that no onecan fail to perceive the truth of these positions.

How then , it may be asked, do the issues of papercredits by banks of circulation operate upon the com-muni ty , and produce that appearance of increasingweal th in places w here they ha ve been established?This is an impo rtant question, and if closely examined,wi l l be found to lead to an answ er, calculated to dis-pel much of the delusion under which the publiclabors, as to a supposed magic power of productionconferred upon a number of individuals by an act ofincorporation. It is this. Th ese issues facilitate thetransfer of the ex isting capital, that is, of things pos-sessing exchangeable value, by creating an additional

set of dealers w ith ban k notes in their hands, andw ho are thereby enabled to purchase with the creditof the bank, what they could not purchase so conve-niently wilh their own credit. A bank note indeedm ay be considered as a draft in favor of the borrower ,given by a bank upon the public at large, to deliverhim a certain amount of capital of any description hema y w a n t ; the bank promising any one who mayhonor its draft, to pay on demand an equal value in

gold and silver. Or, the bank may be imagined asborrowing upon its promissory note, a certain amountof capital from A, and handing it over to B, takingin payment the promissory note of the latter, and




charg ing a comm ission for its agen cy. T ha t thisis the case, will be made plain from the followingstatement.

Let us suppose a bank with a capital of one millionof do llars. After this is all loaned o ut, it is ve ryevident that the bank has no m ore capital to lend. Aoffers a note for discoun t, havin g six ty da ys to ru n,for one tho usand dolla rs, an d the b ank discounts it,

by giving one thousa nd dollars of its ow n notes pa y-able on dem and.* Th ese notes, as I have show n, arenot capital, but a promise to deliver capital, and it isonly because the bank supposes that no demand willbe made upon it before the expiration of sixty days,when A's note will become due, that it considersitself safe in exchanging notes with A for that lengthof time. If the notes come back for pa ym en t beforeA 's note is paid, it is evident that the bank cann otfulfil its prom ises to deliver capital, w ithou t borro w -ing from sam e one else, or w ithou t com pelling someof its other debtors to p ay , and w ha t is true of A 'snote is true of all the other notes which the bank maydiscount in exchange for its own notes.

A then, it is clear, has not borrow ed capital of theba nk , as all the other b orrow ers did w ho precededhim . H e has m erely borrow ed the credit of the ba nk.

And the question may now be very naturally asked,why should he be willing to borrow the credit of thebank at the rate of six per cent, per annum, when heha s found his ow n credit so good th at the b an k w ouldtake it, as is prove d by their trusting him for six tyda ys w ith one thousa nd dollars of their notes? T hoan sw er to this question is, that the credit of the ba nkis of greater notoriety than the credit of A . E v e ry

body will trust the bank because its capital is known,or assum ed to ex ist, and because every body has hea rdof the bank, and has not heard of A, and consequentlythere are persons who will trust the bank, who would

* The discount will of course be deducted.



98 A TREATISE ON

no t trust A ; or, because a confidence ex ists, tha t aba nk note w ill, for an indefinite period , con tinue topass from hand to ha nd , as equ ivalen t to the m etal,w hic h, upo n its face, it promises to pa y on de m au d.This universal confidence in the credit of the bank itis, in connection with the known fact, that these notesw ill pa y the deb ts du e to the ba nk for the million ofdollars "first loaned as read ily as gold and silver, w hichrenders them universally receivable; and as everybody who holds them knows that he can at any timeprocure whatever he wishes to buy with them, noone is in a hu rry to send them in for pa ym en t, an don tha t account they rem ain ont in circulation for along or short tim e, by w hich the bank gains intere st,whilst the holders of its notes lose no more than theyw ould lose upon an eq ual balanc e kept on hand ingold or silver. Bu t there is ano ther reason w h y the

credit of the bank is worth at least a part of the pricew hich A pa ys for it. It is susceptible like coins, ofdivisions and sub-divisions into very small fractions,w hilst security is afforded for p unc tual pa ym en t bythe perp etua l succession inc ident to a ch arte r, or b ythe survivorship of one or more of several copartners,and facilities are granted by having certain hours oneach day at w hich pay m ent m ay be dem anded, sothat no time is lost in making a second or third call,which would be very apt to happen with the notes ofindividuals not acting as banke rs. Pe rha ps the cer-tain knowledge of the fact that banks during certainhours are to be found open and ready to meet demandswithout a moment's delay, does as much to keep theirnotes out in circulation as any thing else; for any onecan see, if there were no banking hours, and if a callmight have to be repeated, people at a distance would

receive notes w ith reluctance, and w ould send themin for payment before they actually needed themoney, for fear of disappointment on the day it wasw a n t e d .

B ut it m ay be said tha t A , w he n he got his note




discounted, did not want to purchase goods by retail,bu t by w holesale, and that therefore, he gained no -thing by the privilege he possessed of taking sm allba nk notes. W h y did he not then purchase the goodshe w ante d of the holder directly by using his ow ncredit and giving his ow n note , instead of giving thebank one per cent., the discount of his note for sixtydays, for the use of their notes? I ans w er for the

ve ry simple reason , tha t he found that he could pu r-chase goods with the credit of the bank upon betterterms than he could upon his ow n credit. Up on noother principle would he have gone to the bank for adiscount; for surely no man would give one per cent,to a bank for swapping notes for one thousand dollarsif the bank's notes would not buy more than his ownindiv idua l note at six ty day s for a tho usand dollarsw ou ld buy . If it should be said that the object of A

in getting the discount w as to pa y an old deb t, thecase w ould not be altered. T he credit of the ban k isw or th to him in this case as mu ch as in the former,the creditor being willing to receive it^s money, forthe same reason that the sellers of goods a bov e r e-ferred to w ere w illing to receive it, because its no to-riety rendered it universally receivable by others.

In no case then can the issues of a bank of circula-tion constitute capital; and we think the reader willnow be ready to acknowledge, that all that a bank ofcirculation does effect, is the mere lending of itscredit to individuals, to enable them to procure uponbetter terms, and in a more expeditious and conveni-ent m od e, the capital of o thers, than they could w iththeir ow n credit W he ther this facility be beneficialor otherwise will appear hereafter.



10 0 A TREATISE ON

CHAPTER VIL

ON THE STRICT CONVERTIBILITY OF BANK NOTESAND CREDITS.

BUT i t m ay be asked, ho w are banks to ascertain

the precise limits beyond w hich the y cannot ex ten dtheir issues without endangering their solvency anddepreciating the curren cy, and of course injuring thepublic? And w hat guara ntee has the public, w ho ,from the natu re of thing?, can k no w nothing of thesta te of their issues at all tim es, th at their confidencewill not be misplaced?

T he ans w er to this question is not easily to bearrived at. In the var iou s investigations before the

British House of Commons in reference to the Bankof E ng la n d, rules for prud en t issues ha ve been laiddo w n by different directors, w ith a varie ty w hichshow ed th at all did not possess a scientific acq ua int-ance w ith the principles of ban king . In the m ana ge-ment of the numerous banks of the United States, aninexcusable ignorance of first principles has beenrepe atedly m anifested, and hence, w e have seen

repeated expansions and contractions of a highly pre-judicial natu re. Thes e ex pansions and contractions,however, with the fluctuations in prices necessarilyaccompanying them, would exist only to a l imitedex ten t, if there w ere a real bona fide convertibility;and I wish it to be distinctly understood that all myremarks favoring banks of circulation, are foundedupon the supposition of such convertibility.

How then is absolute convertibility to be attained?

I an sw er, by the joint co-operation of the ba nk s, ofthe public, and of the legislatures.

Th e duties w hich the banks hav e to perform ar e,first, to deal honestly w ith their creditors, by kee pingthe-mselves in a condition at all times to m eet the ir



CURRENCY AND BANKING. lOf

liabilities, and by prom ptly pa yin g on de m and , inacceptable coin, their notes or deposites for anyam ou nt that m a y b e called for, w ithout the slightestintimation by the looks, words, or deeds of theirofficers, that they w ould rath er not pay , and conse-qu en tly, by despising those miserable and discredit-able expedients so frequently resorted to by banks onthe eve of insolvency, of gaining time by a uselessdelay in counting out small coins, or in weighing

gold pieces; secondly, by scrupulously avoiding tothrow obstructions in the way of a free exportation ofcoin, eithe r by refusing facilities for the packin g upat the bank of sums however large, or by disqualify-ing the exporters from their equal rights with otherswhen applying for discounts; thirdly, by calling uponeach other for the payment of daily balances in coin,in order that each bank may be restricted within its

proper sphere; and, fourthly, by confining them-selves to the legitimate p ursu its of ba nk ing , and bycarefully watching the political horizon, to see thatno event like war, civil commotion, or governmentalinterference with the currency, is likely to find themunprepared.

An honest observance of these rules would of itselfestablish true conv ertibility, but unfo rtunately ex pe -rience h as given too m uch reason to fear, that them oral sense of corpo rations cannot be relied upon forthe protection of the public. T he ignorance of som e,the specu lative avarice of o ther s, the favoritism inci-dent to most, and the desire common to all, to amasslarge profits, are constantly operating to effect an ex-pansion of the currency to the utmost limits of tension;and how ever prudently and w isely conducted m aybe m an y of the se institutions, their influence and ex -

am ple a re lost u pon the rest, and w hen a calam itybefalls the cou ntry b y a general stoppage of p ay m en ts,they are made to share in the common catastrophe.

The duties which the public have to perform, as acheck upo n this perp etual tendency to over-issue, are



102 A TREATISE ON

incum bent on every citizen; and he w ho w ithholdshis co-operation, w hen he has a m otive to act, be-comes a participator in the w rong. T he y are, simply,for every man who wishes to convert bank notes ordepo sites into coin, either for the purp ose of conv e-nience or ex portation, and w hethe r the amo unt belarge or small, to make his demand without beinginfluenced by fear, favor, or affection, or throughan y false or m istaken delicacy tow ard s the directors

of ban ks, or their debtors w ho might in consequencethereo f be called upon for an earlier reim bu rsem en t.H ere , aga in, unfortunately, ex perience dem onstrates,that the independence and moral firmness of mostm erch ants is not proof a gainst the influences w hic hm ay be brought to bear against the m . On the oneha nd , they find their discounts interfered w ith, an dtheir comm ercial operations c rippled; w hilst on the

othe r, they discover that a clamor is raised aga instthem by those debtors to the ba nks w ho purch asecommodities from them, as soon as they feel the pres-sure occasioned by a dim inution of disco unts, conse-quent upon a heavy demand for specie.*

T h e only true resort, therefore, that can be appe aledto for abso lute conv ertibility is legislation. B ut ho wis this legislation to be ex pressed? B y forfeiting thecha rters of bank s that do not pay their notes. T he

legislature of Ne w York in M ay , 1837, absolved itsbank's from this penalty for one year. By imposinga penalty of twelve or twenty-four per cent, per an-num, upon notes and deposites not paid in coin.Such provisions were wholly inoperative in thosestates w here they prevailed, du ring the late gene ralsuspension , by the evasion of the ban ks, and by po-pular clamor raised against individuals who de-

manded their rights, and cannot be relied upon, eitherto prev ent a g eneral s topp age , or to enforce a res um p-

* Whenever gold and silver legal tenders are both saleableat a premium, it is proof of the absence of true convertibility.




tion w ith prom ptness. T he true and only ans w er is ,by establishing individual liability, such as thatw hich ex ists with all the joint-stock ban ks of En gla nd ,an d all the private banks of that coun try as w ell a sof Europe .*

W ith such a convertibility as this w ould accom-plish, w e should run com paratively very lit tle risk ofex pan sions and their consequent contractions, or of analterna te plenty and scarcity of m one y. T n e over-

trading of each particular bank would be checkedby the prud en t rega rd to self-interest w hich w ouldoperate upon its managers; and if recklessness shouldcharacterise the conduct of one, or a dozen, or ahu nd red ba nk s, i t or they w ould simply fail, likeindiv idua l tra ders, and m ake an assignment of theirproperty, without producing the catastrophe of agene ral suspension of specie pay m ents. To prev entth e failure of ba nk s altogeth er is impossible. T h e

most that can be done, is to prevent a generalstoppage.

But in laying down this proposition, I am far fromim ag ining the presen t possibility of its adop tion in theU nited States. T h e principle of limited liability byacts of incorporation, and by laws authorising limitedpartnerships, is too deeply rooted in our system to be

* Mr. McCulloch in his Commercial Dictionary, edition of1834, pages 109 and 110, has the follow ing remarks. " B a das our system of country banking undoubtedly is, w e shouldbe exceedingly sorry to see any attempt made to improve it, bythe adoption of even the best parts of the American system1."****** »t Tha t part of the American system which limitsthe responsibility of the partners in a bank to the amoun t of theirshares, seems to us to be in the last degree objectionable. Itaffords a'strong temptation to the commission of fraud, and wehave yet to learn, that it possesses a single countervailing ad-vantage. W e have been assured by those well acquainted w ith

the facts, that it has been productive of the most mischievousconsequences."

For an able exposition of the principles of individual liability,see the article G, in the Appendix, by James Cox Esq., of Phi-ladelphia, now first published.



1 0 4 A TREATISE ON

now eradicated; and as I believe the most practicable

scheme of reform to which legislation can be appliedat this d ay , is to be found in the policy of the NewYo rk general bank ing law , I w ill in a future cha ptergive my reason s for believing tha t plan to be bette rcalculated, if m ade general through out the Un ion, togive stability to the curre ncy , than an y other tha twould be likely to meet a general acceptance.

C H A P T E R V I I I .

OF THE VARIOUS MODES RESORTED TO BY SOMEBANKS TO AUGMENT THEIR DIVIDENDS.

EVERY sound thinker who has taken notice of thehigh rates of dividends that w ere declared by m an yof the banks throughout the United States, duringthe ye ars 1836, 1837, and 1838, w hilst their nu m be rw as increasing, and w hen, upon every know n prin-ciple, their dividends oug ht to h ave decreased , m ustbe satisfied in his own mind, that these extraordi-nary dividends did not result from the legitimate ope-rations of banking, that is, from the lending of moneyor credit a t the rate of interest authorised by la w .The charters of most of our banks restrict theiroperation to the lending of money and to trading anddea ling in bills of ex ch an ge , gold and silver bullion ,and certain specified public securities; and hence, allother transactions are in violation of the laws. I havestated in a former chapter, that the charge of one halfper cent, interest taken beforehand, in connection

w ith the practice of cha rging interest for sixty-fourday s upon a note pay able in sixty day s w ith threedays grace, is equal to 6 T \ per cent, per annum, andthis it is evident is all that a bank has a right to claim




for the use of its money or credit. Modern competi-

tion, however, has operated upon some, and led them

to adopt numerous modes of getting more than this

rate. Amongst these are the following:

1. The practice of giving a preference in their dis-

counts to those customers, who by agreement, express

or implied, stipulate to leave in the bank, never to be

drawn for, a certain proportion of the amount bor-rowed; by which virtually the bank receives interest

for money or credit which it does not lend. Exam-

ples have been known wherein a sum equal to t\veiiTty, thirty, or forty per cent, has been expected to

remain as a permanent undrawn balance, thus adding

to the profits of the bank, by a sheer evasion of the

laws against usury. Borrowers upon such terms are

seldom to be found amongst the most responsible

traders, but can always be had in abundance amongstthat class of needy men, who, without such a facility,

would be obliged to borrow in the open market at a

higher rate of interest. If this principle had been

extended to the loans of all the banks of the United

States, amounting in 1838 to upwards of $500,000,000

as far as five per cent, upon an average, the banks

would have derived from it a profit equal to the inte-

rest on twenty-five millions of dollars, that is, up-wards of a million and a half of dollars.

2. The practice of discounting notes, and instead

of giving cash for the net proceeds, giving post notes

payable at thirty or sixty days date, by which means

the bank gains a profit equal to the interest for the

time the note has to run. In other words, if a bank

discounts a note having ninety days to run, and gives

in exchange for it a post note payable in thirty days,

it receives interest for ninety days for the loan of

money for sixty days, inasmuch as the post note is

not money until it becomes due, as will hereafter be

shown. The extent to which this practice has been

carried throughout the United States is very great,

and it is defended upon the ground that the emission



106 A TREATISE ON

of post notes enables m erchants w ho ha ve remittancesto m ake to dista nt poin ts, to effect th at object m oresecurely and conveniently than by the transmission ofbank notes payable to bearer, on account of thesec urity afforded by the former's bein g only tran sferableby endo rsem ent. T his is true , but it is manifest thatthis end w ould be as com pletely attained by a postnote payable in three days after date, as by one pay-

able in sixty day s. Bu t this is not all. Post notesat long d ate s, not only enab le ba nk s to profit b yevading the laws against usury, but they enableban ks to raise m oney for their ow n use w hen theyare embarrassed, without appearing to borrow, afacility which renders them less careful of expansionsof the currency than they otherwise would be.*

3. The practice of lending the notes of a bank

w ith an ex press understanding that the borrow er isnot to put them into circulation within a certain dis-tance of the place w he re the bank is located, orwithin a certain time from their coming into his pos-session, by w hich m eans the ban k w ould receiveinterest for the time that would thus intervene, with-out having m ade an y loan. A n ex am ple of thisspecies of contract was exposed in the examination ofthe affairs of the Chelsea bank ne ar Bosto n, in 1837,

tw o of the directors of w hich borrow ed the notes ofthe ban k w hich they w ere not to put in circulation,but which they were to pledge for money borrowed,elsewhere, and i t was probably with the view of pre-venting a resort to such expedients, that the legis-lature of Massachusetts in that year prohibited banksfrom issuing notes that are not to go into immediatecirculation.

4. T h e practice of discounting note s, and insteadof paying the net proceeds in money, stipulating

* The banks of New York are prohibited from issuing postno tes. Some of those of Philadelphia entered very deeply intoth is branch of business in the years 1838 and 1839, abroad as•well as at home, and became greatly embarrassed by it.




with the borrower that he is to take the notes of dis-tant ba nk s, kn ow n to be in the m arke t at a discount.T his e x ped ient ha s been ex tensively resorted to allove r the U nited S tates , an d in some cases in su chflagrant violation of the law s agin st us ur y, as to beaccom panied by a regular barg ain to purch ase backby the bank, at the market rate of discount, the verypap er just handed to the borrow er. N ay , transac-tions hav e been even conducted in so barefaced a

m ann er, that discounts hav e been m ade payab le indistant p ape r w hich the b ank did not possess, andw hich she purchased back at a discount, thus su b-stituting a constructive sale and purchase of whatpossessed no existence, for the sake of avoiding adirect usurious transaction. M an y flagrant ex am plesof the expedients here described, extending to nearlyall the banks of Providence, were exposed by a com-mittee of the legislature of Rhode Island in June,is:?6, in a report, a copy of which accompanied thesecretary of the treasury's report on the condition ofcertain banks, of January 4, 1837.

5. The practice of discounting domestic or inlandbills of exchange, hy which advantage has beentaken under the color of exchange, to charge, besidesthe legal interest, and a fair cha rge for collecting, th emost extortionate rates of profit, having no real rela-

tion to the actua l ex pen se of collecting, bu t only tothe necessities of borrow ers.* In the ex am ination ,

* The following article which appeared in a newspaper inDecember, 1839, is important as regards this practice.

Important Legal Decision.—TheCincinnati Gazette containsa notice of the decision of a case at Columbus, Ohio, whichattracted much attention on account of the principles involved.The facts were briefly these:

Paddleford wrote to the cashier of the bank, inquiring if theywould discount a note with his and other names mentioned, pay-able east 6 or 8 mon ths. The cashier replied, that the bank w asnot discounting, but his bill w ith the names mentioned for $,5000,at 6 months payable in New York, Philadelphia, or Baltimore,would be purchased at their usual rates, and the procceeds paid



108 A TREATISE ON

by a committee of the legislature of N ew York^ in1838, of the affairs of one of the city banks, somegross malpractices of that institution were developed.It w as proved to have charged from five to ten percent, exchange on the collection of drafts, when themarket rate of exchange on similar drafts w as notmore than from three to six ; had discounted paperwith the express understanding that the party accom-

in their own bil ls, if intended for circulation or in a check eastat the usual premium: and he endorsed a printed blank form ofa bill, Paddleford and the other person signed the blank paperfilled up only w ith the sum , and he sent it to th e cashier in alette r requesting him to remit the proceeds to him in an easterncheck, less the premium. T he paper w as received at the bank ,and filled up w ith the name of their ow n correspondent in NewYork, the cashier of a bank as a draw ee, in their own favor.The drawer never had funds in his han ds. Deducting the in-terest for six months and four days, and one per cent, they re-

mitted him the net proceeds in a check on New York less \\per cent, premium, and ordered a notice to be furnished to himof the name of the drawee, and of the time and place of payment,which notice was duly received.

The charter of the bank prohibits them from taking more thanat the rate of 6 per cent, per annum on their loans or discounts.The defendants, the securities, (Paddleford not having beenserved with process) set up as a defence, that this bill was dis-counted at a higher rate than 6 per cent, per annum, and there-fore was agains t the charter, Hnlawful and void. T he bank

claimed that the b ill w as fairly purchased in the market, andtha t one per cent, w as retained as ex change. Th e court in-structed the jury that the bank could buy and sell exchange atany fair rate agreed upon, without violating its charter; and ifthe transaction before them w as a real purchase of a bill at 1per cent, exchange and interest off, the bank could recover, butif the intention was to get a greater compensation for the use ofthe money than at the rate of 6 per cent, per annum, and theform of the bill was resorted to, to cover up that design, then thecontract was unlawful, and the defendants must have a verdict;tha t the jury should be governed by the real transaction, nomatter what form it assumed.

This decision seems to cut up by the roots, the business ofdiscounting fictitious bills of exchange by banks similarly re-stricted, merely for the purpose of exacting high interest underthe name of exchange.



CU RR EN CY A N D BA N K IN G . 1Q 9

modated was not to receive cash for the net proceeds,but a draft at par upon some distant place, w orth inthe market one to three per cent, less than the rate atwhich it was taken; and had even purchased backtheir ow n drafts at such a rate of discount. W h a tthis bank did, has been done, more or less, by a largeportion of the ban ks in the Un ited State s, and theevil has become so extensive that funds which should

be devoted to the discounting of real paper payableon the spot, have been d iverted to the purch ase offictitious bills, created for the very purpose of raisingmoney, and not in the ordinary course of trade.

6. T he practice resorted to by some ban ks , of dis-counting notes in the m arke t, throu gh the instrum en-tality of bro kers, at usu rious interest, instead of dis-counting them at law ful interest, in the regular w ay .

Th e N ew York bank above referred to, w as provedto have discounted at usurious interest out of doors,the very notes that had been offered to the bank andbeen rejected by the board of directors.

7. 'J he prac tice of speculatin g in stocks, and , inthe case of some of the Mississippi banks and others,transacting the business of cotton factors, and cottonexporters .

S. Th e practice of buy ing up the depreciated pa -

per of other banks, under a suspension of specie pay-m ents, and holding it until redeemed in coin. L ar gesum s w ere invested, in 183S, by some of the Ph ila-delphia and N ew York ban ks, in purchases of thenotes of the Mississippi banks from ten to twenty-fiveper cent, discount, and loaned to the latter at par fortheir bonds payable at a subsequent period.

.0. The practice adopted by many of the banks ofN ew En glan d, and perhaps of other places, of lend-ing to brokers on interest, repa yab le on dem and , alarge proportion of the amount which banks in otherplaces consider themselves bound to keep on hand, incoin, to meet possible demands.

10. If to these items be added the amount of profit



H O A TREATISE ON

made by the banks during the late suspension, bydrawing interest on money that belonged to theircreditors and not to themselves, we shall have thetrue sources from w hich the large dividends w erederived. W hat proportion of the w hole interestreceived is to be ascribed to this source, is not pre-cisely ascertainable; but this much may be known•with certainty, that it was equal to the income arisingfrom that proportion of the aggregate mass of loansmade by all the banks, that exceeded the amountthat could have been sustained under a convertiblecurrency.

CHAPTER IX .

O F T HE CREATION O F BANKS WIT HO UT CAPITALS,OR OF FRAUDULENT BANKS.

THE term fraudulent bank is intended to be appliedto a bank commenced w ithout capital, or w hat is the

same thing, a bank, the stock of which is held bypersons who have not the means of paying for it, andwho have consequently been obliged to hypothecateit to the bank as collateral security for stock notesdiscounted to meet the instalments as severally calledfor. The mode by w hich such a bank may be esta-blished w ithout capital is this:—

Books are opened to receive subscriptions to thecapital stock, each share of w hich is to be $100, of

which $5 per share is to be paid at the time of sub-scribing. The capital is to consist of 1000 shares,equal to $100,000. The stock is taken, not by capi-talists, as a mode of investment, but by persons whosubscribe as a matter of speculation, with the view ofselling out at a profit. The first instalment, amounting



CURRENCY AND BANKING. \\l

to $5000 be ing pa id in, the directors are chosen fromamongst these very speculators, who are expected tom ake the pay m ent of the ensuing instalments com eeasy to them selves and their con stituen ts. A secondinstalment of $10 is called for, but as the holders ofthe stock hav e no more m oney to pay in, they offernotes for disco un t, and p ledge their stock to the ba nkas collateral secu rity. T he third, fourth, fifth, and all

subsequen t instalments are paid in a similar m ann erby stock notes; and, finally, the stock-holders obtainan add itional discount for the original $5 per sha repaid in, w hich m ay have been originally borrow ed,and thus we have a bank with a nominal capital of$100,000, but possessing not one dollar of real capital.

Such a ba nk , ho w eve r, in its operations thus far,m ust be a losing concern. T he ex penses of m an ag e-m ent w ould compel the stockholders to pay in d is-

counts more than they would receive in dividends,and the next step of the directors would of course be,to issue bank notes in ex change for the prom issorynotes of indiv idua ls. In the first instance they w ou ldprob ably discount their ow n notes or the notes of otherstockholders, in w hich case, if the notes of the ban kcould be got into circulation, which experience showsthey could be, if the directors were adroit and active,

the borrowers of them would be enabled to commandthe capital of other people, to carry on business with.It is, perhaps, not probable that many of the banks ofthe United States have been entirely established uponthis principle, but no small number of them have beenpartially so, and it must be evident that so far as anypa rt of the capital of a ban k ha s been loaned to astockholder upon the hypothecation of his stock, henot being entitled to credit upon his mere personal

security, so far the capital of the bank is diminished,and so far the public are deprived of the securitywhich the nominal amount of the capital promises toafford.

The same deficiency of security might exist in



113 A TREATISE ON

case there w ere tw o b ank s established upon similarprinciples, and the stock of each w as pledged w iththe other by two speculating sets of holders whochanged position.

The following account of banks established in partupo n this fraudulent principle is ex tracte d from areport made to the legislature of North Carolina,during the session of 1S2S-29:—

"The legislature having laid down, in the charters

of the seve ral bunk s, certain fundam ental articles forthe government thereof, the committee assumed thesearticles as the basis of their investiga tions, and p ro -ceeded accordingly to inquire, in the first place, whe-ther the stock of the several banks had been raised inthe m ann er required by their char ters. T h e evidencereceived by the com mittee on this p oint, show s thatthe cha rters of the bank s w ere disregarded and vio-lated in the very creation of their capital.

" The charter of the Bank of Cape Fear, enactedin 1804, autho rised tha t corporation to raise a capitalstock of §5250.000; and the charter of the NewbernB an k , enacted in the same y ear, autho rised that ban kto raise a capital stock of $200,000; both chartersdirecting th e ca pital to be paid by the stockho ldersin gold or silver. T he undersigned ha ve receivedno evidence as to the mode in which these banks got

into operation. It w ould seem, how ever, that theycontemplated, at the outset, an evasion of the provi-sions of their cha rters. It is in evidence to the un -dersigned, that soon after they w ent into o pera tion,they contrived to get possession of nearly all thepa pe r mo ney w hich had been issued on the faith ofthe state, which being at the time a legal tender,enabled them to evade demands for specie, whichthey did, by thrusting this ragged paper at those whopresented their notes for specie. In 1807, $25,00 0w as added to the capital stock of each of these ba nk s;in 1S14, their charters w ere exten ded , and they w ereauthorised to increase their respective capitals to




),000 each, viz., the Newbern Bank was author-ised to raise an addition to its stock of $575,000, and

the Bank of Cape Fear, an addition of $525,000. It

is in evidence to the undersigned, that the whole of

this additional stock was manufactured by the banks

themselves, and that, in many instances, favored

individuals were permitted to acquire stock by sub-

scribing their names, and putting their notes into

bank, without advancing a single dollar of actualcapital. It follows, that the whole amount of the

interest drawn from the people, on the loans made on

this fictitious capital, was a foul and illegal extortion.

The effect of the transaction was the same as if the

pretended stockholders had individually executed

their notes of hand, without interest, to the amount

of the notes which they issued from the bank, and

exchanged them with the people for their notes,

bearing interest and renewable every ninety days.Taking the issues made on this fabricated capital to

be in proportion with those made on the former capi-

tal, they must have put into circulation, on the faith

of the assumed stock, between three and four millions

of notes; and thus, a parcel of individuals, under the

name of stockholders, but who, in fact, held no stock,

contrived to exchange their notes, without interest,

to the amount of three or four millions, for the notesof the people, bearing an interest of more than six

per cent.; and while the property of the people was

pledged for the payment of the notes they had given

to the stockholders, there was not. a dollar or an atom

of property pledged to them for the payment of the

notes they had received from the stockholders; so that

for the use of their notes, which, intrinsically, were

of no value at all, the stockholders of these two banks

have drawn from the people, by way of interestsomething like $200,000 annually."



114 A TREATISE ON

C H A P T E R X .

ON THE EFFECTS OF BANKS DEALING IN EXCHANGE.

T H E proper business of a bank of discount is tolend mon ey. T ha t of a ban k of circulation is to lendcredit, and the technical idea of banking excludes all

transactions other than that of lending. Th is w asformerly so w ell understood in the United States,tha t the discounting of notes or acceptances pa yab leon the spot w as the sole m ode in w hich the cap italand credit of the b anks w ere e m ploy ed; and if, b y"way of accommodating their customers they occa-sionally discounted a note or acceptance payable at adistant place, it w as alw ay s done upon the sam e

terms as if it were payable on the spot, the banks notcalculating upon any profit in the way of exchange,but relying upon getting their money back again bysup plyin g ano ther custom er w ith a check or draft atpar. T he ordinary ex change transactions betw eendifferent cities and states were left to individual com-petition w hich established the m ark et ra te , as it doesin all other countries of the world, and as it mustinva riably do w herev er it is not interfered w ith by

artificial causes.Such w as the state of things that existed prior to

the establishm ent of the late bank of the U nitedStates. T ha t institution, at some period subs eque ntto the comm encement of its operations in Fe bru ary ,1817, entered upon the business of a dealer in inlandbills of ex ch an ge by bu yin g and selling bills upon allpoints w here its branches w ere located, upon terms

tha t gav e it a profit on the transaction. T his p rac-tice proba bly ga ve rise to the gene ral custom no wprevailing amongst banks of buying and selling billsof ex chan ge; and as the custom app ears to be onewhich facilitates the operations of trade, the public



CURRENCY AND BANKING. H 5

has overlooked the mischief which results from its

ex ercise. It is of this mischief I now propose tospeak, and I beg the reader's attention to the remarksI am about to offer.

I t has been sho w n, in the chapter on ex cha nge ,that the competition of the market will always settlethe rate of premium or discount on bills, according asthe proportion may vary between the supply and thedem and. No body need ever be apprehensive that

the rate can ever be forced unreasonably high by thecom bination of sellers, or forced u nre aso nably lowby the com bination of bu yers . E ac h p arty has hisremedy, as we have shown, against undue exactions,by the right that can nev er be tak en from him , oftransm itting coin instead of a bill. Under this freecom petition of the m ark et, it m ust be manifest tha tthe profit on bills, w he re there is on e, goes into thepocke ts of the right peo ple, tha t is, of those w ho arefairly entitled to it; and that the loss on bills, w he rethere is one, also falls upon the right people, that is,upon those who ought to bear it; and in this mannerequal justice is done to every individual, and the com-mercial w ealth is consequ ently distributed throu ghthe na tura l and legitim ate chan nels. If, at one sea-son of the y ea r, for instance , bills at N atc he z on N ewYork sell for tw o per cent, prem ium , this ad va nta ge

fairly belongs to the seller. If at ano the r seaso nthey sell at tw o per cent, discoun t, this loss goes intothe pocket of the buyer of the bill as a profit, andfairly belongs to him . A ny one, ho w eve r, can per-ceive that this question of profit and loss on exchangeis a private affair betw een one set of dealers an danother, and as far as the public is concerned, it is am atter in w hich, as a body, they h av e no interest.It is of no sort of consequence to the com m unity atlarge, whether the rate of exchange on inland bills isat the ma x im um or minimum price, or w hether Aor B pu ts a profit into his pocke t, but it is of gre atconsequence to the com m unity that the profit should



11 6 A TREATISE ON

go into the right pockets, and that the inland ex-changes should be carried on at the least possibleexpense to the country.

Let us now see how far the interference of banksin the operations of exchange disturbs the naturalcourse of things.

And here I will remark, in the first place, that thecomp etition of ban ks operates upon the bill m ark etin a manner wholly different from that of individuals,

ow ing to the pow er they possess of contracting thecurrency w hen they w an t to bu y, and of ex pan dingit w hen they w ant to sell. By the ex ercise of thispow er they can accomplish w hat individuals cannotaccomplish, for these latter, having but a givenam ount of money to purchase w ith, cannot augm entits qu an tity at pl ea su re , and their influence in thegeneral com petition, therefore, can only be propor-

tioned to their actual cash. Can an y one dou bt theoperation of this principle who has noticed the effectupon the price of cotton, universally admitted to haveexisted throughou t the cotton grow ing states, duringthe years 1S37 and 1838, by the dealings of banks inthe purchase of cotton? Does not eve ry body kn owtha t the price of cotton w as kept a cent or mo re perpound, by the issues of banks, higher than individualcom petition could hav e k ep t it? An d if so grea t a

rise as ten or fifteen per cent, could be created in cot-ton, is it not easy to be seen how readily a rise in therate of inland bills of ex ch an ge , of a qu arte r or halfper cent., could be effected?

Th e mischievous tendency, how eve r, of ban ks deal-ing in ex chan ge, is greatly augm ented w here banksha ve branches, or enter into ex tensive com binationsfor a united system of action. Let us , for insta nce ,

suppose a large bank in a northern citiy w ith b ranch es,or agencies at the principal sou thern ports , of suf-ficient ex tent of cap ital to op erate upon the value ofthe currency at those ports. L et us supp ose, them other bank , at the seasons f6r shipm ents of cotton



CURRENCY ANDBANKING. H7

to the north, to give orders to its branches to buy thebills drawn upon those shipments at the cheapest

rates that they can be obtained at. Any one can

perceive at a glance, that the withholding of discounts

for a few days, will make money scarce, and thereby

depress the price of bills below the previous rate. At

this new price the branches may buy, and transmit

these hills to the mother bank, which in a short time

afier is drawn upon by the branches at a higher rate

of exchange, which they were enabled to obtain by

making money plenty, whilst in the case of the pur-

chase of foreign bills drawn upon shipments of cotton

to Europe, the mother bank by adopting the same

expedient, or, what amounts to the same thing, by

selling those bills on a credit at a higher price than

the current cash rate with interest added, makes an

additional profit. That such expedients as are here

brought into view, may be, if they have not alreadybeen, practised by some of our banks can hardly be

questioned, and the mischief thence resulting, far

more than counterbalances all the benefit to indivi-

duals which an equalising of the exchanges can pos-

sibly accomplish.

But it may be said, that, without the agency of

banks, there would not be the same facility in nego-

tiating bills. This objection is not borne out by the

experience of Europe, where bills of exchange can

at all times and at all places be negotiated upon the

most favorable terms, through individual capitalists,

who have no control over the currency in augmenting

or diminishing its quantity; and there is not the

slightest reason for supposing that equal facilities

would not exist in this country through private com-

petition, if the ground were not already occupied by

banks possessing by their very power of expansionand contraction, the ability to annihilate all private

competition. It may also, perhaps, be said, that the

agency of banks between buyers and sellers is af-

forded at a cheaper rate than that of individual capi-



118 A TREATISE ON

talists w ould be . Th is assertion m ay ve ry w ell bedou bted, w he n w e reflect upon the monopoly thebanks at present enjoy, and the facility that exists fortheir combining to fix prices; and even if it weretrue , the small adv antag e gained b y this circumstancewould be greatly overbalanced by the mischievouspower to which I have alluded, of depressing or rais-ing the ma rket price of bills, by contractions and ex -pansions of the currency.

It is, ho w ev er, in the interference w ith the foreignexc hanges of a country that the pow er of b anks ismost to be deprec ated. U pon this subject, the au th oradva nced some view s in an essay published by himin the ye ar 1828, w hich so entirely correspond w iththose which he at present entertains, that he has con-cluded to transcribe them , rathe r th an to adopt an ynew phraseology. Th e essay w as in answ er to one

written a short time before, by a friend of the Bankof the Un ited States, w ith the design, am ong st otherthing s, of show ing the imp ortance to the cou ntry ofthe pow er exercised by the bank of dealing in ex -cha ng e.* Th e follow ing are ex tracts:

" T h is is the course that m atters take under a cur-rency composed entirely of coin, or a sound mixedcurrency composed of coin and paper exc han gea blefor coin, bu t it m ust be kep t in m ind, tha t un de r sucha currency, actual shipments of specie from onecountry to another, do not take place to any verygreat ex tent. A very slight com parative diminutionof the qua ntity of coin circulating in a c ou ntry ,creates a scarcity of m one y, and this operates ve rysoon upon the prices of all commodities, by reducingthem in the market ."

11 This part ia l export , however, and tendency of

* Th e essay last mentioned, appeared in the National Ga-zette, of 10th April, 1828, under the title of " T h e Cu rren cy ."The reply was published in the Philadelphia Gazette, of 17thApril, 1828, under the title of "O n Ex cha nge." Both essayswere republished in the Free Trade Advocate in 1829.



CURRENCY AND BANKING. n g

the coin to go ab roa d, is the only check upo n ove r-trading. It indicates that m ore comm odities hav ebeen imported than exported, and warns the importerof an approaching fall in the prices of the articles inw hich he deals, w hich induces him to counterm andor diminish his orders, and in the nex t ye ar to im portless; and this operation brings back the sm all qu an -tity of coin, which, by its removal, had diminished the

currency below the quantity which was requisite tomaintain it upon a level with the currencies of othercountries. F ro m this view of the subject, it is ap pa -rent, that exchange may be looked upon as the beamof a pair of scales, very nicely balanced , and em-ployed in ascertaining the value from day to day ofthe impo rts and ex ports of a coun try. T he slightestdeparture from the equilibrium shows itself in thefall and rise in the price of bills, and the assayer of

the m int does not keep his eyes more steadily fixedupon the balances in which he weighs his gold, thanshould the merchants keep theirs fixed upon the rateof exchange."

" If these things be true, it would seem to follow,that the most free and unrestricted competition possi-ble in the bill market, would be the best calculated toprevent over-trading in the banks as well as indi-

vidu als , for from such free com petition the. earliestindications of an excess of imports, or of a depreci-ating currency, w ould show themselves. T h at theoperation of the Bank of the United States is to inter-fere with, and to a certain extent to destroy this com-petition, and consequ ently the check w hich oug ht tobe suffered to operate monthly, weekly, and evendaily w ith its w arn ing voice, is adm itted in the fol-low ing sentence. ' Its principal ad va nta ge , and thatw hich m akes the ban k p ursu e it, is, that this stock ofexchange operates like a lever to keep the exchangem ark et easy , to pre vent the excessive price of bills,and to enable the merchants to calculate with reason-able p robab ility the h abitua l cost of their rem ittances. '



120 A TREATISE ON

B y this lang uag e, w e und erstand, not only that theba nk is desirous of effecting som ething like a steadyprice in exchange throughout the year, but that itdoes actually possess the po w er so to do. T ha t thispower is not, however, always exercised in such away, as to prevent ' the excessive price of bills,' isevident from the admitted fact, that bills on Londonha ve been so high , that a m erch an t could afford toship dollars at a less ex pense than the p rem ium on

bills, and indeed so much less, that it was an object ofspeculation to ship coin for the sole purpose of d ra w -ing bills upon it.

" W e cannot therefore but conclude, that the dealingin bills of exchange by the bank, upon the principlesprofessed, removes the great check upon over-tradingand over-issues of paper, created by the free competi-tion of the ex cha nge m arke t. T o this it m ay be

replied, how can a dealer w ho only p urchases fivemillions of dollars value of bills in a year, disturb thecompetit ion, when the probable amount negotiatedm a y b e six or eight t imes that am ount? W e answ er,by that po w er of pu rchasing, possessed, bu t not ofnecessity fully exercised by the bank, which is knownto every dr aw er of a bill, and also by that m oralinfluence, which silently operates, and compels thedrawers of bills to keep up the price very near thatfixed by the ba nk , throu gh fear that m ercantile d is-credit w ould accom pany any offer to dra w at a p ricem uch below it. T h e fact, ho w eve r, of a control overthe rate of ex cha ng e is adm itted in the above q uo ta-tion , and therefore nee ds no further evidence of itsexistence.

" But let us ex am ine and see w heth er the benefitsflow ing from this dealing in ex cha ng e by the ba nk,

be in reality such, as they are described to be, by theessay in question. lIn the south it furnishes capitalfor facilitating trade.' Does this mean, that becausethe bank is a buyer of bills in that quarter of theU nion , it therefore issues mo re ban k notes tha n are




called for in the ordin ary course of discounts? If so ,the tendency of such over issues is to depreciate thecurrency, and w hatev er m ay be the favor donethereb y to the s outhern plan ters, factors or m er-ch an ts, there is certainly a positive injury inflictedUpon all the rest of the co m m un ity. If, how ev er, thetendency be not to enlarge the issues of bank notes,ho w is an y capital afforded to facilitate tra de , inaddition to. that w hich w ould be procu rable by thesam e plan ters, factors or m erc ha nts , by offering fordiscount the promissory noter or acceptances of in-dividuals, to whom their bills would have been sold,if the bank w ere not a dealer in ex change? ' To thenorth it supplies a safe and undoubted remittance'This is un qu estio nab ly tr ue , inasm uch as it affords toall those who are willing to pay for increased security,an op po rtun ity of fulfilling their eng ag em en ts in

E ur op e, w ithout dan ger of defalcation. Th is benefit,which by the way, we humbly conceive to be theonly real one of a general nature, which results fromthe power of the bank to deal in exchange, could,however, be conferred by the bank in a way far lessinjurious to the public, than the one now pursued,and tha t w ould be, by the simple opera tion ofguaran teeing bills for a stipulated commission.

"To the .southern merchants it affords anotherbuyer o f bills, to the northern another seller, w iden-ing in both cases the field of com petition." Thisto be sure appea rs p lausible, but w e appreh end w illnot stand the test of analysis. T h e b an k it w ouldseem goes into the market at Richmond, Charleston,Savannah, and New Orleans, to purchase the billsupo n Euro pe , draw n upon the shipments of producem ade from those ports. T he imm ediate buye rs of

those bills, if the ba nk w as not a dealer in ex ch an ge ,w ould be, either the importing m erchants on the spot,or the importing merchants in the northern cities.T he ban k, w e w ill allow , by its competition, raisesthe price of bills above what it would otherwise be,



12 2 A TREA TISE ON

because it is a speculator with a large capital, whichbuys, not because it stands in need of bills, but becauseit is sure it can m ake mon ey by the pu rchas e, ow ingto its pow er of controlling the m ark et price. T hi s,too, w e w ill adm it, benefits the dr aw er of the bill,andpe rha ps in a ver y trifling degree the planter, w hogets a be tter price for his crops on accou nt of the in-creased prem ium on bills. B ut is not the im portin gmerchant of the south, as well as the importing mer-

chant of the north, injured by this operation preciselyin the degree tha t the others are beRefitted? A re the ynot comp elled to give m ore for their bills, than the yw ould otherw ise have given? An d w hy should thenan institution, general in its nature, take merit toitself, for taxing one portion of the community for thebenefit of anothe r? An d ho w is the ban k a 'newseller to the north?' Does she offer any more bills inthe northern cities, than would be offered there for

sale, w ithout her intervention? W e appreh end notto the va lue of a dollar. She occupies the m ere plac e,w hich, w ithout her, w ould be occupied by a num berof individ uals; and it is self-evident tha t her age ncyin the matter, so far from widening the. field of com-petition, actua lly restricts it, and raises the price ofex change as much above w hat i t w ould be, if shewere not a dealer in bills, as the profit she obtains byher operations.

" B u t after all, w hy should the ban k und ertake tobe the arbiter of ex chan ge? W h y should she be par-ticularly careful that exchange should not be too high,rath er than that it should not be too low ? A s far assome of our own citizens are the drawers, and othersthe pu rch asers of bills, it is of no sort of conseq uence tothe public, w hat is their precise rate. T o the partiesthemselves it is indeed of moment, inasmuch as what

comes out of the pocket of one goes into that of theother; but the country is neither richer nor poorer forthe operation, and the parties themselves are quite asable to adjust the rate as the ban k. A s far, ho w eve r,




as bills are wanted for the account of foreigners, forgoods sold in the country, it is of advantage to the

country, that exchange should be high, inasmuch as

thereby the balances due them would be paid by a

less amount of bills. But, notwithstanding this, the

bank should not attempt to interfere with the natural

course of exxhange, any more than a government

should interfere with the natural course of trade.

" Upon every view of the subject which we have

been able to take, we consider all profits made by thebank upon its foreign exchange transactions, beyond

the amount of a fair charge for guarantee, and bro-

kerage for bringing buyers and sellers together, as a

tax upon the consumption of the country, for which

no equivalent service is rendered. We also consider

that its dealing in exchange, and accumulating large

stocks in Europe, which can only be done, we ap-

prehend, by extra issues of paper, prejudicial to thecurrency, and consequently to the nation, is destruc-tive of the only imaginable check upon over-tradingand over-banking, inasmuch as it conceals for longperiods together, the real state of the competition ofthe market, the only guide by which merchants andbanks can regulate their transactions, with advantageto the country. If it should be asked, w hether thereis any difference in the effect produced by the opera-

tions of the bank, from that which would beproducedby the operations of private speculators, we wouldreply, that there is a most essential one. Indpendentof the powerful force of a huge c apital, w hich givesa weight in the market , that no moderate number ofour citizens could bring to bear, the bank after itbuys bills, has power to make an addition to thecurrency, the immediate effect of which is to raisethe price of those bills, and thus afford a profit bytheir sale. Indiv idual speculators, on the contrary,add nothing to the mass of the currency, and theiroperations must, in the nature of things, have but avery slight effect upon the market price of ex change . "



124 A TREA TISE ON

CHAPTER XI .

EXAMINATION OF THE COMMON OPINION THAT THEESTABLISHMENT OF BANKS IN THE WESTERNSTATES, UPON EASTERN CAPITAL, IS BENEFICIALTO THOSE STATES.

I T is an opinion very frequently expressed>that theestablishment of banks in the western and south-western country, has been a great source of pros-perity to the cit ies and towns where they havebeen located as evinced by the improvements tow hich they hav e given rise, and by the com-mercial and manufacturing activity that has beendisplaye d. Cincinn ati, Lo uisville, N ashv ille, N at-

che z, V icksbu rg, and nu m ero us other places, it issaid, owe a large share of their prosperity to theestablishment of banks; and as these have all beenbanks of circulation, it is concluded that thereforebanks of circulation must have powers to create na-tional w ealth, w hich I hav e denied to them . Le t usexamine this doctrine.

It has been sh ow n in a former cha pter, that n o-

thin g but capital, tha t is, som ething possessing anintrinsic va lue , can possibly be the m ean s of settingindustry in mo tion, and that ban ks have not the p ow erof creating such capital by a m ere issue of prom is-sory notes. It m ay , the n, fairly be concluded , tha t asfar as any real prosperity has been ascribed to thecircu lating principle of the ba nk s established in theplaces that have been mentioned, the position is falla-cious, and w ithout a shad ow of foundation. B ut, atthe same tim e, I am p repa red to adm it, that as far asthe capitals of the ban ks referred to h ave been su b-scribed by cap italists residing in the A tlantic cities,those cities and tow ns h a v e' re ap e d all the benefitsresulting from the borrowing of a foreign capital,




w ha tev er they may be. T he simple fact of that capi-tal's being nominally what is called " a money capi-ta l , " is of no sort of co nsequ ence in the estim ate ofthe benefits; for, in truth, although subscribed inmoney, it was never in the form of coin in the actualpossession of the w estern ba nk s, but a fund in theAtlantic cities, dra w n upon and sold to the w esternm erch ants as a rem ittance to pay up their ex istingdebts, or to purchase new supplies of goods. It w as

thu s a capital subscribed, nom inally in m on ey, butreally paid up in dry-goods, hardware, and groceries;and the effect, therefore, upon the prosperity of thewestern towns, was precisely the same as that of ob-taining from individua l m erch ants, or in any otherw ay upon credit, an equal am oun t of m erchan dise,with this difference, that the credit might not cost asmuch through the process of a b an k, as if ob tainedthrough a purchase of goods in the ordinary way.

This difference in the cost of the credit, ho w ev er,is all the benefit that the western cities and towns canhave reaped from borrowing foreign capital throughbank charters, rather than through the ordinary chan-nels of purch asing goods on credit. W h at it m ayhave amounted to, it is not easy to ascertain; but as aset off to it, it may very fairly be assumed, that in thescram ble for discounts made on the first openin g of

the banks, the loans of capital and credit were not asjudiciously made for the general interests of thecountry, as sales of merchandise would have beenby the eastern merchants, as is shown by the factthat immense sums were loaned to planters whoembarked in speculations in lands and slaves, and tomerchants who embarked in shipments of cotton, andw ho ultimately been me e m barrassed or ruined b ythese operations. E ve ry one rem em bers that thesouthwestern banks were the last to resume speciepayments after the late suspension; and it is wellknown to many, that they were only enabled to do itw hen they did, by borrow ing large sum s from the



126 A TREATISE ON

eastern cities, or by the emission of post notes payableat distant periods with which they absorbed a part of

their immediate liabilities. If any stronger proof

were wanted of injudicious and improvident loans on

the part of many of those banks, it may perhaps be

found in the second failure that has taken place with

all of them since their resumption in January, 1839,

and in the expression of public opinion manifested on

the stock exchanges of New York and Philadelphia

at a recent period, which places the stocks of all ofthem below par, and of some of them very con-

siderably below it.* If these facts be conclusive as

* The following western and southwestern bank stocks weresold at New York and Philadelphia, where a large amount ofthem are owned, between the 1st of September, 1839, and the1st of January, 1840, as low as theprices specified in the firstcolumn. Thesales at Philadelphia were made prior to the sus-

pension of specie payments on the 9th of October, so that inboth cases thespecie price is given.The second column gives the lowest and highest prices be-

tween the 1st of January and the 1st of May, 1840.

Lafayette B'k, Cincinnati,Franklin Bank, "Commercial Bank, "Ohio Life &Trust Co. "Bank of Kentucky,

Northern B'k of Kentucky,Louisville Bank,Illinois State Bank,Union Bank ofTennessee,Planter's Bank of Tenn.Planter's Bank of Missis-

sippi, Natchez,

Per cent.6065

no sales.6554

8080547074

50Commercial Bank ofNatchez,Grand Gulf Bank ofMiss.Vicksburgh Bank, Miss.Memphis B ank, Tennessee,N . O.Canal &B'king Co." " Commercial Bank," " GasBank,

4022

no sales.u( t

u

Per cent.no sales.75 to 8085 " 95*72 " 8049 " 59

81 " 85*75 " 80*55 " 6464 " 73*72 " 75*

20 « 33*5036 " 377 " 176 5 *

60 " 707034*

Capitals paid.$1,000,000.

1,000,000.1,000,000.

628,594.4,679,404.

2,895,685.1,150,000.

2,554,939.2,247,985.

4,200,140.1,507,750.1,467,750.4,000,000.

535,333,4,000,000.3,000,000.1,854,455,

* These sales w ere m ade at Philadelphia, in paper currency, depreciatedfrom 8 to 5 perc e n t , therange between January and May.




to indiscreet a nd im prov ident loan s, all the mischiefwhich I have in other parts of this work traced to thesam e cause in other places, m ust be equally pred i-cated of the western and southwestern banks; and itwill not perhaps be difficult for the reader to admit,tha t all the benefit w hich the w estern and sou th-w estern states have derived from the establishm entam ongst them of ban ks constructed upon foreigncapital over and above the benefits which those stateswould have derived from their merchants buying andselling an eq ua l am ou nt of foreign goods on cre dit,has been more than counterbalan ced by the evilsresultin g from incautious loans of capital an d credit.

CHAPTER XII .

ON THE CIRCULATION OF SMALL BANK NOTES.

IT must be manifest to all who will reflect upon thesubject, that the currency of the United States isex posed to dan gers from over-ex pansions to w hichthat of Great Britain is not in the same degree liable.

The distance from the American to the Europeancontinen t is so gre at, tha t even after the ge ne ralestablishmen t of steam pack ets, a m onth w ould berequisite for obtaining a supply of the precious metalsund er a panic , w hich could be obtained in E ng lan dfrom the a djacen t pa rts of the continen t in four orfive days , and it w ould therefore seem to be sou ndpolicy for the state legislatures of our Union to autho-

Tt is supposed that a t least fifteen millions of dollars of Ph ila-delphia and New York capital have been invested in the stocksof the western and south-western banks and internal improvement companies, but chiefly in banks, which accounts in somedegree for the present embarrassment of those two cities.



128 A TREATISE ON

rise no m easures to be pursued by our bank s w hichcan have a tendency to diminish the metallic basis ofour paper currency so greatly, as to endanger its con-ver tibility. It is self-evident, that ju st in p ropo rtionto the d im inu tive size of bank notes autho rised in aco un try, w ill be the sup ply and consequ ent circula-tion of gold and silver. In F ran ce , w here no ban knote is allowed to be issued of a less denominationthan five hu nd red francs, (equal to abo ut ninety-four

dollars of our money,) the whole of the retail transac-tions of a community of thirty millions of people,nea rly doub le our pop ulation , are carried on by theprecious m etals.* In E ng lan d, no note of a lessdenomination than five pounds sterling (equal totw enty-four dollars and upw ards,) can be issued bythe Hank of E ng lan d, or by any joint-stock or priva teba nk ; so tha t in that cou ntry too, the m inor chan nelsof circulation are kep t w ell filled w ilh gold, so tha t

on any emergency , a large fund can be m ade avail-able to meet any reaction of the banking system,before the necessity occurs of orde ring bullion fromabroad.

In the Un ited S tates, unfo rtuna tely, the b lindnessof the legislatures and the pub lic, and the avarice ofthe b an ke rs, has at all times, since the ex istence ofbanks , led to the emission of notes of a m uch lossdenom ination. W ith the exception of the Bank ofthe United States, incorpo rated by congress in 1S16,and the Pennsylvania Bank of the United States,chartered in 1S36, w hich w ere not allow ed to issuenotes of a less denom ination than ten dollars, and ofthe-new bank-of Missouri, which can issue none of aless denomination than twenty dollars, there has pro-bab ly been no ba nk chartered by an y of the stateswhich has not been authorised to issue five dollar

* Silver is .virtually the currency of France. Gold beingundervalued at the mint in relation to silver, commands a smallpremium in the market, when wanted for travellers or exporta-tion.




notes. The consequence of this policy has been,that the stock.of the precious metals in the country

has at all times been much less than it would have

been, had the policy intended by congress in 1816

been preserved by the state. I say " intended" be-

cause the prohibition was evaded by the issue by the

bank, of checks for live dollars drawn by the branches

upon each other, which answered all the purposes of

five dollar notes.But although, by the exclusion of all notes of a less

denomination than ten dollars, the security of our

paper currency would be greatly strengthened in case

of an unexpected panic, yet the design of this chapter

is more particularly to inveigh against the growing

propensities in some of our legislative bodies to author-

ise the emission c-f notes of a denomination less even

than five dollars, a policy which, if adopted by all the

states, will fill not only all the arteries of circulation,but even the very smallest veins, with paper, and

drive from the country the few coins which the five

dollar notes have spared.

A short sketch of the history of small bank notes

may not be without interest.

Prior to the suspension of specie payments in

August, 1814, I am not aware that any notes of a

less denomination than five dollars were any whereissued, although there may have been in a few of the

states. By that event, specie disappeared wholly

from circulation in all the states except those of New

England, where the banks, coerced by efficient laws

and public opinion combined, continued to fulfil their

engagements, and its place was supplied by emissions

of notes by banks from three dollars down to twenty-

five cents, some with the sanction of law, granted for

the especial occasion, and some without it; and byother emissions from all sorts of corporations, public

officers, private institutions, and even by individuals,

who generously accommodated the public with their

credit for sums as small as five cents, in the hope that



13 0 A TREATISE ON

the notes w ould be w orn out. or lost, and that theyshould never be troubled with a demand for theirpay m ent. Th is w retched state of things continuedfor some time after the restora tion of specie pay m en tsin F eb ru ar y , 1817. An incubu s app eared to be fast-ened upon the community, which no combination ofindividuals could shake off, and which continued for alonge r or shorter time , accord ing as legislative inter-ference w as delayed. In P enn sylva nia, w her e, from

the multiplicity of banks, this evil was of great mag-nitude, an act was passed on the 22d of March, 1S17,proh ibiting, und er a pena lty, the emission or circula-tion of any notes or tickets in the nature of banknotes, of a less denomination than five dollars, ex-cepting by ban ks duly auth orised ; and also prohibit-ing, after the first day of October following, any bankfrom issuing such notes: a privilege which had beengran ted by act of 28th D ecember, 1S14. Th is law ,being partially carried into effect, expelled from circu-lation the principal part of the miserable trash againstwhich it was directed, and the silver fractions of adollar began to make their appearance from the pock-ets and strong box es of the p ublic, w he re they hadbee n concealed for near three yea rs. Still the curewas not complete, owing to evasions of the law,and to the introduction of small notes and tickets of

neighboring states. T he banks of Penn sylva nia,having ceased after the first of October to issue notesof a less denomination than five dollars, the neighbor-ing s tates of Delaw are, N ew Jersey, and N ew York,sent us an abundant supply and the chief effect of thelaw app eared to be , not to give u s a circulation ofspecie in the place of small notes, but to fasten uponus a set of notes not kno w n to the public, for ano therset that w as kn ow n. An d yet, w ith this fact staring

them in the face, the Senate of Pennsylvania rejected,by a vote of 16 to 15, on the 9th of M arch , 1820, abill introduced into that body b y the autho r, w ho w asthen a member, prohibiting the circulation of all notes




of a less denomination than five dollars, wheresoeveror by whomsoever issued.

After the defeat of this measure, which was op-posed most strenuously on the ground that if the smallnotes were expelled, the people in the interior wherethey chiefly circulated, would be wholly destitute ofch an ge ; and advocated on the gro und , that so far fromthis being the effect, the immediate and necessaryconsequence w ould be, that every ma n w ho had in

his pocket a dollar in pa pe r w ou ld find it instan tlyconverted into a dollar iu silver, the subject was per-mitted to sleep for a number of years; and it was notuntil the 12th of A pril, 1S2S, that Pe nn sylv ania w asconvinced of the impolicy of a measure which pre-ven ted specie from flow ing in upo n her citizens. T h eact of th a t,d at e fixed upon the 1st of Jan u ar y , 1829,as the period for enforcing the prohibition, and it wasnot without great apprehensions of a repeal beforethe appo inted da y, that the friends of a w holesom ecurrency saw numerous petitions with that object pre-sented to the legislature in the preceding m on th ofDecember. H app ily, how ever, these evidences ofigno rance an d folly w ere disrega rded by the legisla-ture. T h e la w w en t into opera tion, the flood of fo-reign pape r w as forced back upo n its issuers, an d, asif by m agic, silver w as imm ediately seen to circulate

in abun dan ce in those counties w here before therewas nothing but paper.The successful issue of this experiment in Pennsyl-

vania was followed in subsequent years by a numberof other states, w hich in turn proscribed notes unde rfive dollars; and their total ex pulsion from all the statesof the Union m ight reasonably have been exp ectedin the course of a few years, had it not been for theunfo rtunate suspension of specie pay m ents in M a y ,1S37, which again deluged the country from one endto the other with a flood of small notes and tickets,from three dollars dow n to five cents, and ex tinguishe din some of our legislatures the lights of science which



132 A TREATISE ON

so much p ains had been for so ma ny yea rs take n,by the intelligent few , to kindle into a flame. N ewYork has backslided by authorising, by a recent act,the emission by her ow n ba nk s of notes of a less de -nomination than five dollars, and as far as she is con-cerned, has proclaimed her unwillingness to assist inreta inin g in the coun try a prop er specie basis for thehuge mass of paper money which her banks fabricate.The state of Maine, too, has fallen off by a similar re-

crean t step, and indications ha ve also elsew here ap -pea red of a similar delinq uen cy. Still it is to be hop edthat this retrograde movement will be of limitedex ten t, and th at the ex am ple of those states w hichentertain sounder views of a currency will ultimatelyop erate upon the rest, and convince them that theprofit of private corporations should never be made tooutweigh the substantial interests of the community,

by placing the stability of the currenc y in a constantstate of jeopardy.*

* During the suspension of specie payments which commencedon 9th October, 1839, and which still continues in all the Statessouth and west of New York, small notes as low as $1, issuedby the banks of Delaware and New Jersey, have been currentin Penn sylvan ia. No notes under five dollars having beenissued by bank corporations or individuals in Pennsylvania.



CURRENCY AND BANKING. 1 3 3

BOOK THE THIRD.

OF THE LAWS WHICH REGULATE A CURRENCY COM-POSED EN TIR EL Y OF INCONV ERTIBLE BANK PAPER.

IN the first book I described the operation of a cur-rency purely metallic, and in the second th at of amixed currency of coin and bank notes strictly con-vertible on dem an d into coin. I come now to describethe operation of a currency consisting wholly of incon-vertible bank paper.

It has been shown that under a currency purelym etallic, the fluctuations w hich can take place in itsqua ntity and value are circumscribed w ithin narro wlimits, and that consequently the greatest possiblestability which the nature of things will admit, existsin the operations of comm erce. It has also been sh ow n,tha t u nder ban ks of circulation conducted upon theprinciple of strict convertibility, although there is anoccasional liability to temporary fluctuations, yet thatthese are not pe rha ps so great as altogether to neu -tralise the benefits which the community derives from

their operation s. It is only w hen ba nk s, by their in-ordinate expansions, destroy convertibility and endan-ger their solvency, or w hat is w orse, bring on a gene-ral stoppage of specie payments, that they are guiltyof high offences against the community, and are justlyob no x iou s to the ch arg e of inflicting m isery on th ecountry. Previo us, how ever, to ex am ining the ope-rations of a currency after a suspension by the banks,I w ill call the attention of the read er to tha t state ofdelusion and apparent prosperity which invariablyprecedes it, and w hich, w ith sagacious m inds, is easilydistinguished from a state of real prosperity.



13 4 A TREATISE ON

CHAPTER I .

OF TH E CAREER USUALLY RUN BY BANKS OF CIRCULA-TION PREVIOUS TO A GENERAL STOPPAGE OF PAY-MENT.

H A V I N G show n that ban ks of circulation, as such ,neither create nor lend capital, and that what they dolend is their credit, by m ean s of w hich the cap ital ofindividuals is circulated with more facility and lesssecurity than it w ould be w ithout their instrum entality,I come now to ex am ine this question, upon w hichmost of the pop ular delusion h an g s: Does not theincreased activity given to b usine ss, occasioned bybanks lending their credit very freely, tend to the pro-

motion of public prosperity, and to the production ofw ealth , faster than w ould otherw ise take place? T heanswer will appear in the sequel, and will not befound in accordance with the cherished opinions of theday.

By the operation of such bank issues the credit ofthe ba nk s is placed at the disposal equa lly of all w hoborrow from them . Consequently, the inexp erienced,the unskilful, the incautiou s, and the spec ulative, are

placed upon a level, in their purc hase s, w ith the ex -perienced, the skilful, and the pru dent. T he result ofthis equality is, that some men are able to bu y w hobefore were not able owing to a deficiency of credit.*M ore competitors are broug ht into the m arket, andprices rise from the spirit of speculation, which neverfails to be engendered by the facility of procuring them ean s to speculate w ith. In add ition to this local rise

* This is especially the case where banks of circulation areestablished with little or no capital, or where the directors lendthe credit of the bank to themselves, of which such numerousexamples have been lately furnished, in Massachusetts, Missis-sippi, Louisiana, and other states.




w hich takes place from the competition of new deal-ers in the immediate neighborhood of the banks, ageneral rise takes place from the expansion of thecurrency, owing to the abundance of the paper whichhas been thrown amongst the community by the ori-ginal borro w ers from the ban ks. Th is rise goes onwith every new emission of paper, and appearing tothe pub lic, w hich is not acquainted w ith the internal

operations of banks, like an increase in value, thespirit of speculation is ex cited am ong st all classes ofthe community, and purchases are made for no otherreason than that the buyers suppose they can sell thene x t day at a profit. Indu strious persons aba nd onproductive emp loyments to pursue speculation, w hich ,however profitable it may be to the successful opera-tor, does not at all add to the wealth of the community,seeing that w ha t is gained by one m an is lost byanother. Ex trav ag an ce and lux ury are increased inproportion to the increasing abundance of paper credits,because, as prices rise, all who have property or com-modities on hand think they are getting richer everyday . M erchan ts em bark in more extensive enterpri-ses; manufacturers extend their establishments; fann-ers build houses tha t are not w ante d, and ornam enttheir farms; railroads, canals, and every other species

of internal im prov em ent, are prem aturely projected.All these operations give employment to the laboringclasses, and for a time ex hibit the semblance of accu-m ulating w ealth. E ve ry n ew sale of property orcommodities on credit creates new promissory notesor ob ligations, and these create a new dem and form ore discoun ts, w hilst m ore currency is required tocirculate the same commodities at their augmented

price.** Abundant evidence of the truth of th is proposition is fur-

nished by the treasury documents in reference to the augmenta-tion of the currency w hich took place during the two years w hichpreceded the general stoppage in May, 1837, as will appear fromthe following statement, giving the amount of the circulation



136 A TREATISE ON

B ut there is a final limit to this delusion. T he de -preciation of the currency has become so great, fromthese ex trao rdin ary issues, tha t timid people becomealarmed, and make a run upon the banks, whilst coinis also dem ande d for ex portation . T he ba nk s arecalled upon to p ay their note s, an d they in tu rn callupon their debtors, who are by this means firstaw ake ned from their dream s. M oney becomes scarce,and prices of pro pe rty and com modities fall. T heoperation which the banks require is merely that thosewith whom they exchanged notes upon such unequalterms, shall ex chan ge back aga in. B ut w ith this de-mand the merchant canno t com ply, because he haslong since p arted w ith his bank notes, and h as intheir place a store full of goods, w hich he ha s beeninduced to import or purchase, on account of the highprices created by the issues of the banks, but which

he canno t n ow sell w ithou t a loss that w ill renderhim insolvent. Or he has parted w ith his ban k notesin exchange for goods which he has sold to countrymerchants, who cannot pay him owing to the fact thatthe planters or farmers whom they trusted have over-planted or over-farmed, or over-speculated in lands,or over-exp ended. Th e manufacturer pleads thesam e inability, because the sam e high prices and ap -pea ran ce of universal prosperity induced him to erectbuildings and machinery, not required under a dimi-nished dem and for goods, w hich he cannot now d is-pose of at any price; whilst the farmer or planterconfesses, that the temporary rise in the prices of landagricultural produce, and slaves, which he thoughtwas a permanent rise in value, had induced him to

and deposites of all the banks in the United Sta tes, according to

returns nearest to the periods mentioned.

Circulation. Deposites. Totals.

J a n . 1, 1 8 3 5 , $ 1 0 3 , 6 9 2 , 4 9 5 $ 8 3 , 0 8 1 , 3 6 5 $ 1 8 6 , 7 7 3 , 8 6 0

J a n . 1, 1 8 3 6 , 1 4 0 , 3 0 1, 0 3 8 1 1 5 , 1 0 4 , 4 4 0 2 5 5 , 4 0 5 , 4 7 8

J a n . 1, 1 8 3 7 , 1 4 9 , 1 8 6 , 8 9 0 1 2 7 , 3 9 7 , 18 5 2 7 6 , 5 8 4 , 0 7 5




invest in unprod uctive imp rovem ents on his estate,and in the purchase of slaves and new lands, thenotes which he had received from the banks; or, thathis belief in his app aren tly gro w ing w ealth had ledhim into extravagance and luxurious expenditures.

The speculators in railroads and canals, who sub-scribed to those improvements, not because they hadcap ital to inv est, but because they fancied that thedelusion under which they labored was a reality, andthat consequently they would be able to sell theirstock at an adv anc ed price, cannot pay their no tes,because they can find no purchasers with actual capi-tal who are willing to take their bad bargains offtheir han ds. A t this w inding up of the c atastrop he,it is discovered that during the whole of this operation,consumption had been increasing faster than produc-tion— that the com m unity is poorer in the end than

w hen it beg an — that instead of food and clothing ithas railroads and canals adequate for the transporta-tion of double the qua ntity of produce and m erch an-dise that there is to be transp orted— and that thew hole of the appe arance of prosperity w hich w asexhibited while the currency was gradually increas-ing in qu an tity, w as like that app earan ce of w ealthand affluence which the spendthrift exhibits whilstrunn ing throug h his estate, and like it, destined to befollowed by a period of distress and inactivity.*

* In confirmation of these vie^vs, as well as of others ex-pressed in this work, the following remarks of the Bishop ofLlandaff (Coplesto n), are presented. They are contained in anote to a volume published in London, in February, 1840, page322, entitled "Letters of the Earl of Dudley, to the Bishop'ofLlandaff."

" T h is letter (dated 17th Ju ne, 1822) relates to a paper in

the Quarterly Review on the Currency Question, w hich w asreprinted as a pamphlet in 1830. Th at paper w as w ritten byme after long study of the subject, and nearly tw enty years ofexperience since it w as w ritten have confirmed me in the opi-nions there maintained, and have, I think, proved the correct-ness of its reasoning: but mankind are unwilling to believe that



1 3 8 fA TREATISE ON

But even admitting all this to be true, it may be

argued, that at any rate banks of circulation, by libe-ral issues of their notes, make what is called money

plenty. That they make it plenty with those who

first get their paper is undoubtedly true, as is evinced

by the speculative operations which have been above

described; but as soon as time has been afforded for

that general rise in the prices of property and com-

modities which is inseparable from increased issues

of paper after it has become diffused throughout thecirculation, the plenty disappears. It requires, at the

what skilful practical men find difficult and perplexing, can beresolved into a few simple principles, theforgetfulness of whichhad caused all the difficulty. The temporary prosperity alsowhich springs from anextensive paper currency not only blindsthe eyes of the public at large, but raises up numerous interestsamong individuals whose profits depend upon a continuance ofthe delusion. Thepatient is accordingly flattered by nostrums

which give immediate ease, but really increase the malady;until at length a crisis comes, w hich demands a desperate re-medy. The alternative is, either a debasement of the coinage(which is national bankruptcy, i. e. paying so much in thepound—and this hasbeen theusual remedy for insolvency withall the governments of Europe,) or a severe reaction on thevictims of thedelusion, which causes embarrassment and stag-nation in trade, and ruin to thousands who lived and flourishedupon theideal property. Adreadful dilemm a! Am erica is nowsuffering under it, and is probably doomed to undergo greaterconvulsions before the cure can be effected, boundless as herphysical resources are.

" Unfortunately too, insuch a state of things, a large party areever prone to run into the opposite extrem e. Struck w ith dis-may at the fatal consequences of excess, they preach up, nottemperance, but total abstinence . They are for no paper money.Thus it ever is— Dum vitant siulli vitia, in contraria currunt.They are disposed to any thing except moderation. The plaintruth is, that convertibility at thewill of theholder is the onesufficient security against depreciation:— and if ever this con-vertibility is restrained, either by the law (as it was in England

for more than 20 years) or by public opinion equivalent to law(a s it hasbeen for many years in America,) the system becomesbloated and plethoric, although exhibiting many of the outwardappearances of health; and a course of depletion must be sub-mitted to, with all its mortifications, in order tosave life."




new prices, the w hole e xisting qu antity of currencyto circulate the commodities which at the old pricesw er e circulated by the original qu an tity , an d a scarcityof money is just as likely to be felt under a depreci-ated currency as und er a sound on e, as soon as theexpansion has ceased by the banks refusing to extendtheir discounts any further, and more especially whenthey begin to contract their loans.* T h e case is pre -cisely the same as would exist if all the specie in theworld were suddenly doubled, the effect of whichwould be that i t would require two ounces of gold orsilver to purchase as much of all other commoditiesas could previously ha ve been p urchased w ith on e.M on ey w ould be no m ore plenty than before. Goldand s ilver w ould be more plenty, but m oney w ouldnot be , for the simple rea son , th at the prices of pro -perty and commodities would be expressed by double

the nu m ber of coins; and any one can perceive tha tthe disappearance of any portion of the augmentedqu an tity of specie w ould occasion a scarcity of m on ey ,even though it were true that the quantity still left incirculation shou ld be fifty per cent, m ore than thequantity which existed before the doubling tookplace.t Th is w ould continue until the excess shouldbe carried off by ma nufacturers or ex porta tion, w he n

prices would fall to their old rates.In reference to a gene ral suspension of speciepayments , a very s ingular phenomenon sometimes

• The truth of this proposition was most remarkably illus-trated in this country for six months prior to the stoppage ofspecie payments in May, 1837. Although the amount of the cur-rency was greater than it had ever been before in the UnitedSta tes, yet the scarcity of money w as so great, than in all thecomm ercial cities of the north it w ould readily command fromone to three per cent, a month.

I In stating the effect of a doubling of the curreney, I do notintend positively to declare that the prices of property and com-modities would be precisely doubled. Th e proportion mightbe different, but the one I have assumed is the plainest for illus-tration.



140 A TREATISE ON

presents itself, w hich is w ort h being noticed inthis place . It w ill ap pe ar to the reade r at first sightas quite incredible, and ye t it is dem onstrably tru e.It is, that a mixed currency, w hilst the paper portionof it is nominally, and to a certain extent really con-vertib le, m ay be imm ediately before a gene ral stop-page of specie payments absolutely more depreciatedthan it is imm ediately after the stoppag e, w hen the

pa pe r is not convertible at all. T he reason is this—before the stoppage the currency is composed of twoelements, coin and paper; after the stoppage, it iscomposed of nothing but paper, and consequently theagg rega te m ass of the w hole is diminished to the w holeextent of the specie thus withdrawn from circulation;and as depreciation in such case is the result of qu an -tity, its degree must diminish with every reduc-tion of the mass whether the reduction be of the me-

tallic or the pap er portion. T his is the reason w h yafter a stopp age of specie pay m en ts, prices do notalw ay s rise and sometimes even fall , w hich gives co-lor to the idea entertained by m an y, that the differ-ence betw ee n specie and pap er is occasioned by anenhancement in the value of the former, and not bythe depreciation of the latter, and hence we see underan inconvertible pape r cu rrenc y, specie quo ted at a

p remium.

C H A P T E R I I .

OF FLUCTUATIONS IN THE MARKET PRICE OF SPECIEAND OF BILLS OF EXCHANGE UNDER AN INCON-VERTIBLE PAPER CURRENCY.

As soon as a general stoppage of specie paymentsby the ba nk s ha s taken place, it is evident that the




only conceivable check to over-issues has ceased toexist, and that the public has no means whatever ofprotecting itself against a still greater depreciation ofthe currency . T he issues of each ban k not being re-gulated as before by a comm on stand ard, an d ha vin gin fact no standard of any kind to be referred to, theinev itable consequence is, that their qu antity and va -lue fluctuate according to the urgent wants of bor-rowers, or to the ignorance or knavery of the issuers.

Were it not for the system adopted in the large com-m ercial tow ns a nd cities, of the ba nk s agre eingamongst themselves to pay interest on balances, therew ould be in large cities as ma ny currencies as ba nk s,and of as m any different deg rees of depreciation; bu tthe practice abo ve alluded to, establishes a uniformcurrency at each place, w ithout, how eve r, hav ingan y positive reference to the cu rrency of an y othe r

place.*This diversity of valu e in the curren cies of differentplaces, soon shows itself in the market prices of com-m odities. At that point w here the currency is mo stin excess, the prices of every species of property,such as gold and silver, m erch andise, stocks, foreignand domestic bills of ex ch an ge , pro duce , and realprop erty, w ill be highest; and at that point w herethe cu rren cy has been least in ex cess the prices of

those things w ill be low est. At all impo rtan t pointsthe scale of excess will be quickly shown by them arket price of specie, and the rate of exc han ge onforeign coun tries, and as a general rule , this m ay beconsidered to be conclusive as to the degree of depre-ciation.

Of this general principle, however, there are modi-fications. In the cha pter on E x ch an g e, in Boo k

• During the suspension of 1837, the banks of Philadelphiapaid interest to each other at the rate of 4 per cen t. Soon afterthe suspension of October 1839, they fixed the rate at 5 percent. The true policy in both cases w ould have been to haveadopted 6 per cent, the rate they charge other borrowers.



142 A TREATISE ON

First, it was shown that the rate of exchange betweentwo countries or places may vary according as thebalance of trade may be one way or the other, to anextent equal to the expenses of transmitting the pre-cious metals from one country or place to the other.The influence which belongs to the balance of trade,is not destroyed by a suspension of specie payments:and, consequently, its operation may sometimes bedisplayed in such a way as to augment or to diminishthe apparent difference in the degree of depreciationbetween two places. Thus, suppose under a suspen-sion of specie payments, the currency of Philadelpniato be depreciated five per cent., and that of New Or-leans seven per cent., at a period when there was nobalance of trade due one way or the other, the differ-ence of depreciation would be of course two percent.,and nominal exchange at Philadelphia on New Or-

leans would be at two per cent, discount. It is wellknown, that at the season of the year when the cottoncrop comes into the New Orleans market, say fromOctober to May, there is a demand in the northerncities for bills on New Orleans to remit for the pur-chase of cotton. If we suppose this demand to affectthe market price of bills to the extent of two percent., the consequence would be, that bills at Phi-

ladelphia on New Orleans would rise at that seasonto nominal par, and there would consequently be pre-sented the appearance of an equality in the currency;whereas, in point of fact, there would be still existingthe original difference in the degree of depreciation.So, on the other hand, were the course of trade at theopposite season of the year to augment the supply ofbills on New Orleans in the Philadelphia market, soas to occasion a fall of two per cent, below the rate

existing before the late supposed rise, the exchangewould be nominally four per cent, below par, andyet the real difference in depreciation would be asbefore, but two per cent. What is here said of thetrade between Philadelphia and New Orleans, is




equally applicable to that betw een an y other tw oplaces; and whatever may be the influence of the ba-lance of trade upon the rate of ex chan ge, that am oun tshould be added to, or subtracted from, the m ark etrate of exc han ge , as the case m ay be, in order to arriv eat the difference in depreciation.

It is proper, ho w eve r, here to rem ark , that und eran inconv ertible pape r cu rren cy , the rise and fall ofexchange are not limited, as under a metallic or mixed

curr enc y,by the expen ses of transporting coin, and theym ay consequen tly exceed it, as I shall proceed to sho w .

Under an inconvertible paper currency, althoughits dep reciation for a long period togethe r is best tobe measured by what is called the premium on specieyet it is clear that if at any particular place an extra-ordin ary dem and for specie w ere suddenly to arise,for domestic or foreign purposes, the paper currency;and the specie in the market remaining the same inqu antity, specie w ould rise as com pared w ith pape r,and thus the currency would appear to be depreciatedm ore than it w as at the period before the rise. A ndso on the other hand, if a large importation of speciew ere suddenly to take place, the pap er currenc y an dthe demand for specie remaining the same, a fall wouldtake place in specie, and thus the currency would ap-pe ar to be less depreciated th an before the fall. A

knowledge of these facts, and the uncertainty of anylong continued fixed relation betw een specie and p a-per at any pa rticular place, occasions m erchan ts som e-times to sell bills at a low er ra te , and at o ther times tobu y them at a higher rate , than they w ould undera metallic or mix ed currency. As regards N ew Yo rkand Philadelphia, betw een w hich tw o cit ies advicesof the state of the m ark ets m ay be transm itted in six

hours , the difference would hardly be perceptible; butbetw een Ne w Y ork and Mobile , or N ew Orleans, itmight be double or treble under an inconvertible cur-rency, to what it would be under a metallic or mixedcurrency, and this may account in part (or the remark-



144 A TREATISE ON

able and sudde n fluctuations w hich took place at N ew -

Yo rk, in the e x cha ng es on those cities, du ring the sus-pension in the years 1837 and 1838.*

In reference to this subject of a high ex cha ng e un deran inconvertible paper currency, a very general errorprevails of ascribing the whole of it to the balance oftrad e. Fr om the 1st of Ju ly , 1837, to the 14th ofA pril , 1838, exc hange at N ew York on Philade lphiaat sight gra du ally fell from 5 to 1, to 4 | to 5 per cent,

discount. Prio r to the suspension of specie pa ym en tsin M ay 1837, it w as n ever m ore than a qua rter percent, abo ve or below pa r, for the simple reason , tha tspecie could be sent from one city to the other, at anexpense less than a quarter per cent, and i t was there-fore very evident that no balance of trade could occa-sion so great an ex chan ge as 4 | to 5 per cent. B utnotwithstanding this self-evident truth, the great bodyof superficial reasoners ascribed it to that cause, and

they w ere led so to do , from being acqu ainted w iththe fact, that the ba nk s of Ph iladelp hia w ere largely

* Rates of exchange at Ne w York on New Orleans and Mo-bile, payable in New York currency, as also the rate of premiumon half dollars, at the dates respectively mentioned.

1837. New Orleans.

July 1,Aug. 1,Sept. 2,Oct. 7,Nov. 4,Dec. 2,1838.Jan. 6,Feb . 3,M'ch. 3, 4~ " 5April 7, 6 " 7

" 2 1 , 10 " 12" 28, 8 " 10

M ay, 5, 8 " 10" 12," 19,

7 to lO per ct. d isc't.10 "10 "

5 " 6 "

2 "3 i "

8 " 108 " 1 0

Mob ile. Prem. on HalfDollars.

No t quoted in the 10^ to H iNew York Price 8 " " 8£Current until 1838. I

5^ to 6 per ct. disc't. 2J

1217

2520202012

^' 13

20

' 30' 22' 22' 22• 15

iIpar.




indebted to the banks of New York, sometimes evento the ex tent of a million and a half of dollars. The irerror consisted in mistaking the effect for the cause.T he rate of exch ange w hich represented the greaterdepreciation of the currency of Philadelphia over thatof N ew Yo rk, w as the cause of the balance and notthe balance the cause of the rate of ex cha nge . T h esuperiority of the cu rrency of N ew Yo rk, being nearerin value to specie than that of Ph ilade lph ia, w as the

result of a gradu al diminution of its qu anti ty, w hichw as comm enced in Aug ust, 1837. Th is diminutionby making money more scarce and consequently morevaluable in New York than in Philadelphia, occa-sioned a fall in the former city in the prices of everyspecies of merchandise and stocks and bills of ex-cha nge to such an ex tent as to m ak e it an object forPhila delp hia m erchants and speculators to go to N ew

Yo rk to pu rcha se, and at the same tim e occasionedthe transmission to Ph iladelp hia of a large qu an tity ofm ercha ndise to be sold at auction., Th ese opera tionscreated a debt in favor of New York against Philadel-phia; the evidences of which came into possession ofthe N ew York ban ks by the discount or collectionof Philadelphia pa pe r; and as the N ew Y ork bank sw hich resumed pay m ent on the 23d of A pril, knewth at on the resum ption of specie pay m en ts in Ph ila-

delphia, which they expected soon to follow, theam oun t w ould be payable in specie; they permittedit to lie und raw n for, althoug h not be aring interest,rath er than to incur a loss by the purchase of specieat Philadelphia equal to the extent of the deprecia-tion of the currency of that city, considering it, in fact,-as nea rly equiv alent to coin in their ow n va ults , andas a pa rt of the funds upon w hich th ey relied to

enable themselves to resume or to sustain specie pay-m ents. N o such effect could ha ve been produced byany balance existing against Philadelphia, had hercurrency been as near the standard as that of N ewYo rk, for as an equal value w ould h ave ex isted in



146 A TREATISE ON

the money of both places, and consequently an equalscale of prices, there could have been no motive forthe transmission of merchandise, stocks, "or bills ofexchange, from one place to the other for sale, exceptthat w hich ordinarily exists, and w hich at all times,under a sound currency, leads to a mutual and equi-valent interchange of commodities and property. *

The remarks which have here been made in refer-ence to the domestic exchanges will apply with equal

force to the foreign exchanges of the country. Foreignbills will show in their market price the relative degreesof the depreciation of the currency of the places atw hich they are sold. If there be a favprable or un-favorable balance of trade , capable, under a soundmixed or metallic currency, of depressing or raisingthe price of bills one or two per cent, below or abovepar, that amount will subtract from, or add to the

rate of depreciation, and consequently make it appearless or greater than the true ra te. In like manner, alsomay the m arket rate of exchange fluctuate to a great-er extent than under a mixed or metallic currency, ow -ing to the uncertain continuance of the same degree ofdepreciation at the place w here bills are draw n. Thusif the currency of New York under a suspension forexample, were five per cent, depreciated below the goldstandard of London, w hilst the course of trade w as such

that, under a convertible currency, the exchangewould be at par, the paper money rate of exchangeon London w ould be five per cent premium. Now ,if there were all at once to arise a strong probabilitythat w ithin a short period the banks of New Yorkwould resume specie payments, it might be more ad-vantageous for the holder of a bill on London to selleven as low as the paper money par, which would be

* Upon the resumption of payments by the Philadelphia bank s,on 13th August, 1838, the exchange at New York on Ph iladel-phia fell to I to $, and from tha t period up to the suspensionof October, 1839, it was at no time below i and was frequentlyat par.




in fact, five per cent, below the true par , than to imp ort

gold for the amount of his bill; for the simple reason,tha t by the time his gold could get there, the ba nk sm ight have resumed pa ym ent, in w hich event he couldobtain no premium for it , and would consequently bethe loser of all the ex pen ses of importation. It w asthe gradual diminution of the currency of New York,attended by a great p ressure, w hich by degrees re-duced the prem ium on specie, and ga ve assurance ofan early resumption of specie payments, which in themonth of February, 1838, reduced the exchange onEngland five or six per.cent below the true par, whichcould not hav e hap pen ed in o rdinary tim es, unde r ametallic or mixed currency.*

So also on the other ha nd , if the currency of N ewYork were five per cent, depreciated below the goldstandard of London, and the paper money rate of ex-ch an ge , as in the former case , w ere at five per cent,

prem ium , tha t is, at the true par, it m ight, if the cur-rency were expanding, be more advantageous for theholder of a bill on Lo ndo n if he had d ebts to pay ,which could be discharged with paper money, to im-port gold than to sell his bill at five per cent, abovetha t true pa r, for the simple reason tha t the price ofspecie might rise to such a premium as to afford himan additional profit over a nd abo ve the ex penses ofimportation, which could not have happened under amixed or metallic currency.

* On the 10th of February, 1838, nominal exchange on Lon-don at New York w as quoted at 7 to 8 per cent, premium, beingan average of 7£. Th e true par as has been shown is ne ar9 Jpercent, advance on the old computed par. The price of specieon the same day, payable in New York currency, w as 3J percent, premium, and consequently exchange on London, if paidfor in coin, w as 4 per cent, nominal premium, w hich w as in re-

ality 5\ per cent, below the true par.



14 8 A TREATISE ON

CHAPTER III .

OF T HE TRUE CHARACTER AND EFFECTS OF A GENE-RAL SUSPENSION OF PAYMENTS BY THE BANKS,AND THEIR OBLIGATIONS UNDER IT.

W H E N an individual bank fails by mismanagement

or over-trading, so that it cannot pay its notes ordeposites, we say that the bank has broke; but wheneight hundred or a thousand banks do the same thing,we call it suspending specie payments, as if therewere any thing but specie of which a stoppage ofpayment by a bank or any individual could be predi-cated. Fo r all the ba nk s, therefore, of a co un try, tostop together, call it what we may, it is nothing morenor less than a general ban krup tcy, und er w hich the

ba nk s find them selve s in the precise con dition ofindividual traders, who, when they meet with tempo-rary embarrasments, are obliged to call upon theircreditors for an extension of time . Be tw een them ode, how ever , in w hich the tw o parties mak e theappeal to their creditors for this extension, there is ave ry w ide difference. T h e indiv idua l trad er solicitsit as a favor which his creditor may grant or with-hold at his pleasure; and if, in his opinion, his estateis ample for the ultimate payment of the whole of hisdebts, he stipulates to pay interest for the time he isto be indulged , and durin g w hich his creditor is tobe kept out of his property.

On the other hand, banks, when they default intheir pay m en ts, not only nev er ask the indulgence oftheir creditors for any specified extension of time, butthey do not even think themselves under obligations

to pa y interest to their creditors for the funds the yforcibly detain from them ;* nay , they very frequently,

* Since the first edition of this w ork was printed, one excep-




in the midst of their insolvency, declare dividends of

the v ery profits w hich actually belong to their credi-tors, who, and not the stockholders, are entitled tointerest for their w ithholde n funds. E x ce ptin gwhere legislative enactments have forbidden divi-dends under a suspension of payments, instances areextremely rare wherein a sense of justice on the partof the directors of banks has led them to refrain fromsuch manifest injustice, and the consequence has

been , that a direct induce m ent is the reby createdfor taking no steps towards a resumption of payment,for fear of diminishing the profits of lending otherpeo ple's m one y, w hilst refusing to allow interest forits use.*

From these remarks, it may be inferred, that I con-sider a resumption of payment by solvent banks, afterthey have stopped , as n ot of so difficult accom plish-m ent as m any persons ima gine. T he fact is even so,

and the chief delay that takes place with most ofthem is the simple result of a calculation of profit andloss. It is not profitable to resume expeditiously.This is with such banks the whole pith of the ques-tion, and that I m ay not be considered as assertinga proposition unsusceptible of proof, I will establishit thus:—

tion to the generality of this remark has been presented in thecase of the Branch Bank of Darien in Georgia, located at Mil-ledgeville, which stopped payment a second time on the 27th ofMarch, 1839. Th e directors, in announcing the fact to the pub-lic, gave notice, that the bank would pay an interest of sevenper cent, upon all sums of one hundred dollars and over, de-posited in the bills of said bank during the suspension.

* During the suspension of 1837 and 1838, all the banksof Pennsylvania made dividends, although it was prohibited inthe charters of most of them. After the suspension, w hichtook place in Philadelphia, in October, 1839, most of the banks

of that city resolved not to declare dividends, until the pleasureof the Legislature could be know n. By an act authorising thecontinuance of the suspension until the 15th of January, 1841,permission was granted to make dividends, contrary to everyprinciple of justice and equity.



150 A TREATISE ON

A bank with a capital of ten millions of dollars, hasloans out at the time of the suspension to the amount,w e w ill supp ose , of fifteen millions. Of this fifteenmillions, we will suppose three to constitute that ex-cess, w hich, in conjunction w ith the ex cesses issued bythe other ba nk s, ha s caused the depreciation of thecurrency, terminating in the stoppage, and conse-quently, that that is the amount of immediate liabili-ties, w hich, if they w ere put out of the w ay , w ould

restore the bank to a sound condition, seeing thatunde r the securest conduct, i t can a lw ay s m aintainwithout danger of reaction, loans amounting to twelvemillions.

The first and most natural mode that presents itselfto accomplish this end is to call upon the debtors ofthe ban 1, for the payment of three millions of dollars.One could hardly sup pose, that any bank ha vingloan s out to the am ou nt of fifteen m illions, could notw ithin a reasonably short period collect tw en ty percent, of the am ou nt, seeing the fact to be , tha t pape rm one y m ust n eeds be ple nty , as is proved from thevery necessity of diminishing its amount in conse-quence of its being in excess; and more especiallywould this be true, if any large part of the loans madeby the bank was upon a pledge of stocks of any kind;for it must be manifest that all such stocks are saleable

for cash at th e m arke t price; and if a loss should occurupon a forced or unex pected sale, the ow ner w ouldhave no right to complain, because such was the con-tingency under which he pledged them.

B ut let us suppose, w ha t is most com mon ly urgedupon such occasions, that the debtors of the bank cannot pay at all w ithout a long indulgence as to tim e,and that if their stocks are sold at forced prices, theba nk w ill lose a large pa rt of the security she holdsfor the debt. I c an see no objection to a cred itor, ifhe finds it consistent with his interest, accommoda-ting his debtor by a postponem ent of his de m and s.It is done every da y, and is jus t as legitimate w he n




performed by a corporation, as when performed by

an individual. But in either case, the party who

grants the accommodation, must take care that in

effecting it, he adheres to the rules of honesty. The

means by which he effects his purpose, must be his

own, which he has authority to dispose of. No cre-

ditor would have a right to indulge a debtor, by with-

holding money from a third party without his con-

sent, and without paying him interest for the use of if,

and especially if he was himself deriving an interestfrom the indulged creditor.

And now I would ask, if this be true in reference

to individuals, upon what principle has a corporation

a right, to accommodate its own debtors, for the pur-

pose of securing its debts, at the expense of its credi-

tors, the public? If, indeed, in the indulgence shown,

by banks to their debtors, there was a waiving of the

interest, the public might have some corresponding

return for their own loss, inasmuch as some bank cre-

ditors might also be bank debtors. But we never hear

of any such generosity. Every dollar is demanded

for every day's indulgence, where the parties are sol-

vent; and when those who feel themselves aggrieved

complain, that by the depreciation of the currency

they have to pay an increased price for all they pur-

chase, they are considered as quite unreasonable for

not being willing to submit to some sacrifice for thepublic good, which means in this case the good of the

stockholders of the banks.

Now cannot any one perceive, that, if the bank in

question had acted with a strict regard to justice when

it resolved to accommodate its debtors, it would at

once have borrowed three millions of dollars, or such

part of that sum as it could not have collected from

its debtors, for such length of time as would have en-

abled it to afford the requisite relief? Cannot anyone perceive, that such a course would have restored

the currency, without depriving any one of his just

rights? The matter is too plain to admit of dispute.



1 52 A TREATISE ON

W hy then is it not resorted to in such emergencies?

B ecau se, as I ha ve said, it is not profitable.But it may be said, that some banks could not bor-

row . T his is highly proba ble. But it is hard ly pos-sible that any bank should be in such bad credit thatit could not borrow its own notes or the claims of itsdep ositors, up on some term s satisfactory to the hold-ers, which is all that it wants to absorb the excess ofits issues. If there should be a ny such ba nk s, the

sooner they are found out the bette r, and the soonertheir notes are rejected from the circulation, the soonerwould the currency be restored.

Bu t this is not all. An inconvertible currenc y trans -fers from the pockets of cred itors to those of thei rdebtors w ithout an equiva lent, a sum equal to theex tent of the depreciation. T hu s in N ew York andPhil ad elp hia , all notes for m erchan dise given beforethe stoppa ge of the bank s in M ay 1837, and w hich

fell due before the resumption, were paid in paperfrom ten to one per cent, depreciated according to thedate , and in those cases w here the receivers of thispa pe r w ere indebted to foreign m erch ants, to w homthey were obliged to make remittances, this loss wasw holly uncom pensated.* It w as, in fact, an abstrac-tion of this a m ou nt from their pockets, precisely ofthe same nature as would have resulted from the de-base m ent of the coin to the sam e ex tent by the go-vernm ent. T he same rem ark m ay w ith the sametruth be made in reference to the payment of all otherdebts , the creditor being deprived of a certain portionof the gold or silver, or its equ ivalen t, w hich by hiscontract he w as entitled to receive. A nd how standsthe case w ith reference to th at la rge po rtion of thecommunity who live upon fixed incomes, such as theinterest upon mortgages, state loans, ground rents,

* One merchant informed me, that he had lost upon his re-mittances during the suspension of 1837, $520,000, in the ex -change. Others lost much more.




salaries, and wages, which they have not the powerto increase so as to meet the increased prices of food,

clothing, fuel, &c? They are all losers precisely in the

same way and to the same extent as the creditors

that have been referred to, to the whole extent of their

receipts.

In refutation of these positions, it is all idle to say,

that the expenses of living are not augmented by a

depreciated currency. It is not possible that it can be

otherwise, and although in small transactions the factmay not be very observable, yet no sound thinker

will maintain that a ten dollar bank note worth in the

market nine silver dollars, will buy as much of any

thing as ten silver dollars, which can be converted

when the owner pleases into eleven dollars of bank

notes.

In like manner, it would be equally idle to say,

that the great mass of persons gain as much as theylose by the depreciation of the currency. This is

only true of those who owe just as much as they are

indebted to others at the time of the stoppage of the

banks, and of those whose business is of such a

nature, as enables them to charge for what they have

to sell, an additional price equal to the depreciation.

All others who cannot do this, are obliged to pay

more for all the articles required for their subsistence,

without any corresponding return, and have there-fore just ground for complaining of a system which

operates so greatly to their prejudice.

But there is one class of persons upon whom the

depreciation of a currency falls, who have a para-

mount right to complain. I mean foreigners to whom

debts are due by individuals, and who cannot, by any

means, direct or indirect, remunerate themselves for

the loss. Every one such whose debts are remittedin bills of exchange purchased with the depreciated

currency, loses precisely the amount of the deprecia-

tion. And what shall be said of that large class of

creditors, who constitute the foreign holders of the



15 4 A TREATISE ON

public debt of one of o ur states, and w ho w ere com-

pelled to receive, durin g the late suspension, theamount of their interest, not in coin or its equivalent,for the payment of which the faith of the state waspledged, but in depreciated pape r? I blush for thecredit of my native state, Pennsylvania, when I recol-lect that the governments of New York, Ohio, In-dian a, and probably some other states, consideredthem selves boun d in ho nor to pay the foreign inte-rest on their debts in the equivalent of specie, whilstshe, for a less sum than a hun dred thousa nd dollars,was willing to be stigmatised all over Europe, asguilty of a breach of public faith, the notoriety ofwhich cannot fail to influence the future value of herstock abroa d, unless she m akes the reparation so m ani-festly and so justly due.*

C H A P T E R I V .

OF THE CRIMINALITY OF BANKS IN AUGMENTINGTHEIR ISSUES AFTER A SUSPENSION OF PAYMENTS.

BUT however culpable banks render themselves bynot, im m ediately, after a general suspension, a doptingm easu res for a resum ption, accom panied by the pa y-m en t of interest to all w ho are forcibly w ithh eld fromthe possession of their pro pe rty, yet they are far lessculpable than those, w hich , after the rem oval of allchecks upon issues, take ad va nta ge of the ignorance

* On the 10th of June , 1839, after the publication of the first

edition of this work, the Legislature of Pennsylvania made pro-vision for paying to the holders of her loans, the loss incurredby them on the depreciated paper given in payment of the inte-rest falling due during the suspension of 1837, but the amounthas not yet been paid. See Appendix , I.




or forbearance of the p ublic, an d ex pa nd their circula-tion, so as greatly to depreciate the curren cy belowthe rate at w hic h the suspension found it. T h e effectof such a course is to re-prod uce, bu t w ith far moregenerality, the scene described in the first chapter ofthis book, under the head of the career usually run byban ks before a suspen sion. Speculation, over trad ing ,and ex trava gan ce, are all m ultiplied, as every new ad-dit ion of the currency appears to augment what peo-

ple suppose to be the m ass of w ealth . M ore especiallyis such a state of the currency apt to inflict miseryand ruin upon the landholders throughout the coun-try , w ho , by a rise in the pap er m one y price of land ,w hich the y fancy to be a real rise in va lue, are in-duced to m ake purch ases, upo n credit, by givingm ortgag es pa ya ble at a future d ay in coin, for anamount perhaps double the metall ic value of the pro-

perty.T h e only ex am ples of the state of thing s here de -scribed, that need be referred to, are the following:—

1. The suspension of cash payments by the Bankof England and all the county banks, which tookplace in 1797 , an d con tinued until 18 21 , in the courseof which time the depreciation at one period was asgreat as twenty-five per cent.

During the gradual process of this depreciation, the

prices of commodities gradually rose, by which meansthe actual incomes of persons living upo n the fundsor annuities, was proportionately decreased, whilstlands and rents also rose, so th at lon g leases w ererene w ed at higher rates than before. T he revulsionresulting from this state of things, was disastrous inthe ex trem e. T he gradu al contraction of the cur-rency produced a fall of prices, a prostration of trade,

and a gene ral distress throu gho ut the m anu facturingdistricts. The new rents contracted for in a currencyworth fifteen shillings in the pound, could not be paidin coin, after the res um ption ; an d thus the ag ricul-tural interest was embarrassed, whilst the augmen-



15 6 A TREAT ISE ON

tation of the n ation al d ebt raised by subscription indepreciated pa per, and of the national ex penses oc -casioned by the increased prices of na va l and militarysupplies immensely added to the burthens of thepeople.

2. T he second ex am ple referred to, is the supensionof pay m ents by all the bank s of the U nited Sta tes,south of N ew En gla nd , in Au gust, 1814, and w hichcontinued until Fe bru ary , IS 17. Tho se w ho can

remember the events of that period will not haveforgotten the abus e of the public forbearance ex hi-bited by them upon that occasion. T he sanction ofthe community was extended to them during the con-tinuance of the war then existing with Great Britain,on account of the belief that their condition was forcedupon them by the peculiar circumstances of the coun-try ; but no sooner had peace returned in th e earlypart of 1815, than all their pledges were violated, and

instead of manifesting by their actions a desire toco ntrac t their loans so as to place them selves in asituation for com plying w ith their obligations, theyactually expanded "the currency by extraordinary is-sues, w hilst there w as no ex isting check upon them ,until its depreciation became so great that speculationand overtrading in all their disastrous forms, involvedthe c oun try in a scene of w retche dne ss, from w hic h

it did not recover in ten years.*3. The third example referred to is that which tookplace in some pa rts of the United State s after thegeneral suspension of pay m ents in M ay , 1837. Inthe state of Mississippi was this criminal conduct dis-played to the greate st extent. N ot only w ere ne wbanks established, but those which previously existedwere guilty of the most unjustifiable issues of paper,

* For a particular history of the money crisis of this period, seea report made to the Senate of Pennsylvania on the 29th ofJanuary, 1820, by the author of this treatise, Appendix, H.See also Gouge on Banking.





158 A TREATISE ON

CHAPTER V.

OF THE COST TO A COMMUNITY, PECUNIARY ANDMORAL, OF BANKS OF CIRCULATION, COMPAREDWITH THE BENEFITS DERIVED FROM THEM.

H A V I N G shown in former chapters that banks of

circulation neither create capital nor make money per-manently plenty, nor promote national wealth by the

facilities they afford to the circulation of the existing

capital, which are the three particulars upon which

their importance to a country is generally considered

to rest, and that in reality, their only power to do

good is limited to the simple operation of substituting

their paper for a portion of the coin which would be

required for the currency if there were no banks, by

which a country gains a sum equal to the profit earnedupon the amount so substituted employed in com-

merce, and the advantage arising from the employ-

ment of a medium, for large payments and for inland

Some estimate may be placed on the situation of things inMississippi from the fact that on a single offering day, upwardsof 5000 notes were tendered the Union Bank for discount,amounting in the aggregate to about $15,000,000! Great dis-

tress must prevail, and the. w orst may not yethave come. It isa bitter thing towake up from thedream of exhaustless w ealthto the reality ofembarrassment and a future poverty and labor.Such we.fear hasbeen the fate ofmany, and we trust that theirbacks may bestrengthened to the burthen."

From the Raym ond (Miss,) Times of — Sept. 1839.— " Goodplantations with every improvement and convenience, such ashouses, gins, and negro cabins have been often sold at from $2to $5 peracre."

From the Nashville Whig of— jlpril, 1840.—" Wew ere inform-

ed last evening, by a gentleman just from V icksburgh, who hadbeen over a considerable portion of the country in the vicinityof that city, that five out of every six of thecotton farms werenow vacated and lying a barren w aste— farms, too,which but ayear or twoago , w ere w orth from $10,000 to§50,000.




transmission more convenient than coin, I come nowto inquire what is the probable amount of this gain inthe United States, and whether the expenses incurredin the support of, and the evils constantly liable to re-sult from, the abuse of the circulating banking system,do or do not cou nterbalance this ga in. In the resultof this inquiry, every individual in the community isinterested; and as I ha ve no m otive in this investiga -tion but the establishment of truth, I beg the reader to

w atch my arg um en ts and positions closely, in orderthat he may detect any untenable or erroneous posi-tions, should such be advanced.

It is perhaps no easy matter to ascertain with anyreasonable certainty the amount of currency requiredfor the use of the population of the United States,now supposed to amount to about sixteen millions ofsouls* T he only estimates hitherto ma de, hav e beenfounded upo n ra the r a sort of conjecture than up onan y accurate kno w ledge respecting the fact. As re-gards the specie portion of it, there is no existing docu-m ent that can throw any light upon its am ount. T hekn ow n fact that much is imported, w hich does not ap -pear on the custom house books, and that most of theplate manufactured in the country is made from meltedcoins, add ed to the probab ility that more is at this timeho arde d by timid people than in ordinary tim es, arising

from the late suspension of specie pa ym en ts by thebanks, precludes the possibility of any exact estimateand w he the r the true am ou nt be fifty millions of dol-lars or a hu nd red millions of dollars, or some interm e-diate or even g reater sum , it is not possible preciselyto determine. The common impression appears to be,and it may possibly be as near the truth as any othersum that could be design ated, that it is at th is time

about eighty millions of dollars.** This amount w as assumed by Mr. W ebster in a speech early

in 1838. The secretary of the treasury , in his report on the fi-nances of 3d December, 1838, assum es it to be from eighty-fiveto ninety millions of dollars.



160 A TREA TISE ON

In regard to the extent of the paper portion of the

currency, the statistical documents which have appear-ed at tim es from the treasu ry dep artm ent, ha ve beenimperfect, from the want of uniformity in the dates atwhich the different bank statements have been madeou t, as w ell as uniformity in the m ode of the bank sstating their accounts, the absence of w hich rende rsthem not easily und erstoo d. Fro m the different esti-m ates that have ap peare d, it may , perha ps, be assum -ing a fair amount, to take the actual paper currencyat one hun dred millions of dollars; and w e shall ac-cordingly reason upon the presum ption that ba nk s, bythe su bstitution of their pape r in the place of coin, en-able the country to employ that sum as com mercial cap -ital, and of course to add to the wealth of the countrythe annual profit resulting therefrom.*

T he nex t point to be considered is, how m uch isthe probable annual gain made upon this sum from its

em ploym ent as comm ercial capital, instead of its be ingemployed in the comparatively unprofitable service ofa circulating medium.

W e find that upon the security of state and otherstocks of indubitable credit, we have borrowed capitalin E ur op e at five per. cent per an nu m . But cap italwould not be sought for at that rate of interest, unlessa profit could be made beyond five per cent, by its

employment in some productive branch of industryconnected with agriculture, commerce, or manufac-tures; for without such productive employment, therecould be no accum ulation of national w ea lth, and, con-sequ ently, no m ean s of payin g the interest. It w ouldpe rha ps, be a fair supposition to assum e in the UnitedState ten per cent, per an nu m as the ave rage retu rnupon the em ploym ent of capital including the c om -pensation for the services of the undertaker of an en-

terprise; and the profit, therefore, that the country

* Mr. Webster assumed this as the amount in the speech re-ferred to in the foregoing note. See also Appendix. (C)



CURRENCY AND BANKING. i g l

w ould derive from conve rting one hu ndre d millionsof dollars of capital unprod uctively em ployed , intocapital producing ten per cent., would be ten millionsof dollars. In addition to this, the country would savean am ount equal to the an nu al w ear and tear of ahundred millions of dollars in coin, the amount ofwhich, however, is too small to be noticed in a calcu-lation of this kind.*

Here, then, we have ten millions of dollars per an-

nu m as the w hole am oun t standing to the credit ofthe circulating banking system, which is equal tosixty two and a half cents per head of the population,estimating it at sixteen millions of souls. And no w ,let us look at the debit side of the account, in order toascertain the cost at which this great paper system ismaintained, in order that, by striking the balance, wemay be enabled to determine, with a clear and unpre-

judiced view of the subject, whether the country is oris not,.upon the whole, a gainer by the system.The cost of the circulating banking system may be

considered under two heads pecuniary and moral.Under the pecuniary head, the first thing that

strikes us, is the expense of maintaining nine hundredbanks and branches, comprising the salaries of thepresidents, cashiers, tellers, clerks, book kee pers, po r-ters, w atchm en, and runn ers, the rent of the bank ing

* The director of the mint, in a report made to the Presidentof the United States, in 1826, computes the loss from abrasionof gold coins at two per cent, in fifty years, and silver coins atonly one per cent.; from w hich it w ould appear that silver isthe most economical currency of the two.

In a report made to the Senate of the United States in 1830by a committee of w hich Mr. Sandford w as chairman, it is as-serted that half dollars and half eagles willcirculate for one hun-

dred years, and dollars and eagles for two hundred years, w ith-out being so much worn or defaced, as not to serve the purposesof a currency.

Mr. Gallatin, in his pamphlet on the currency, estimates theloss at seventy thousand dollars per annum, at the very utmost,in a coinage of forty millions.



162 A TREAT ISE ON

hou ses or the interest of the cap ital invested in the m ,

the cost of cop per plates, note pa pe r, acco unt boo ks,blank checks, stationery, fuel, postages, and the nu-merous elements which constitute the annual outlaysof a ba nk of circulation. If the ex pen ses of each b an kw ere to be estimated at $2 500 pe r a nn um , (a largeproportion of the country banks being small ones,) onan average, we should have $2,250,000, as the cost oftheir support.

T his ho w ev er is but a small portion of the cost ofba nk s of circulation. T h e principal item consists inthe pecu nia ry loss sustained by the public in the su s-pension of industry occasioned by the derangement ofbusiness consequent upon expansions and contractionsof the cu rren cy , w hich nev er fail to unsettle the ordi-nary transactions of commerce; by the waste of capi-tal arising from its faulty distribution in times ofspeculative excitement, by which immense sums are

ex pende d on railroads and c anals, and other improv e-ments which have been improvidently projected, andhave never been completed, or have not been worthafter they w ere finished as m uch as they cost; an dby the unproductive consumption from ex travag anc ein living , tha t nev er fails to be eng end ered by an e x -pansion of the currency and its attendant facility ofborrowing, which gives the appearance of augmenting

wealth, to persons who are really going behind hand.Every one acquainted with the simplest principles ofpolitical econom y, kn ow s, that every da y's labor thatis lost, is a loss to the com m un ity equ ivalent to theva lue of a d ay 's labo r, for the plain reason that avalu e fails to be produced w hich w ould ha ve beenproduced, and that this loss occurs, whether the laborbe lost in agric ulture , com m erce, or m anufactures. Ina former chapter it has been shown, that a million of

dollars expended on a rail-road or canal left uncom-pleted, is as much a loss to the community, as if thefood, clothing, utensils, and m aterials co nsum ed b ythe laborers w hilst engaged on the w ork, w ere con-




sumed by fire or any other process; and that an im-

provement which costs two millions of dollars, and isonly worth one million after it is completed, that is,will only yield an income equal to onehalf the incomewhich conld have been derived from the capital em-ployed in other pursuits, is as much a loss of capitalas if one million of silver dollars had been thrown intothe sea. And every oneknows tha t the man who ex-pends in living three thousand dollars a year , who can

really afford tospend but two, is an unproductive con-sumer of the public wealth to the extent of this ex-cess. What all these i tems w ould am oun t to, it isnot possible to ascertain, but it is hardly likely thatany body who has watched the wasteful and lavishexpenditure of capital in the United States, upon turn -pike roads, canals, and railroads, know n to have theirorigin in bank facilities and bank expansions, thathave turned out worthless or partially so,* who has

* As a specimen of unproductive expenditures on Railroadsand Canals, as fax as the same can be ascertained from the mar-ket prices of stocks, the following table of actual sales as report-ed by the Board of Brokers, of New York, is given.

Sales at New York, of Stocks, in the months of November 1839,andApril 1840.

Nov. 1S39. April 1840. Capitals.

Delaware & Hudson Canal,Mohawk & Hudson RailrPattersonBoston & ProvidenceNew JerseyPr'dence & StoningtonBoston & WorcesterHarlemUtica & SchenectadyLong Island

Utica & SyracuseAuburn and Syracuse

I'er Cent.

49 to 66

Per Ctnt.

74 to'd, 43 '

" 42

" 92 '

" 73 •

" 12 '

" 99 '

" 32 '

" 105 '

" 52 '

" 98 '" 50 '

' 53

' 48

' 97

' 85

' 17

' 100

' 42

' 115

' 100

C6 "

41 "9 0 "

8 0 "

13 "

107 "

45 "

121 "51 "

110 "47 "

6942968219

4712553

114

$1,500,0001,100,000

500,0001,780,0001,500,0001,300,0001,750,0001,100,0002,000,0001,500,000

800,000400,000Only three out of 12 have commanded par.A recent report made to the Legislature of New York, gives

the following as the net profit in 1839, of some of the foregoingroads, viz:



16 4 A TREATISE ON

seen the prostration of bu siness, w hich resulted fromthe suspensions of 1814, 1S37 and 183P, and from thenumerous expansions and contractions which havetaken place w ith less disastrous results at variou s othe rperiods, and w ho has noticed the grow th of lux uryand extravagance created by the facility of borrowingpaper money of banks; it is hardly likely, I say, thatany body who has been an observer of all these ef-fects, w ould doub t that they w ere quite equal upon

an average of years to the remaining seven and a halfmillions of dollars which stand at the credit of the cir-culating bank ing system. H e certainly wo uld notdoubt this, if he w ere told, w hat is the fact, that ifonly one-tenth part of the population should have in-creased their expenses five dollars each per annum, inconsequence of the cause w e hav e alluded to, thisam oun t w ould be exceeded. To these items of pecu-niar y cost, m ay be added the loss to the com m unityby bank failures and by forgeries,* and the expensesincident to the prosecution of the offenders, by the lossof ban k notes burn t or otherw ise destroyed , by thesupport of brokers who deal in uncurrent bank notesby the sacrifices m ade by the igno rant in the sale ofsuch no tes,and the variou s frauds practised upon them .

So m uch for the p ecu nia ry cost of the circu latingban king system. L et us no w ex am ine into its mo ral

cost.

Mohawk & Hudson, $ 58,279 equal to about 5.3 per ct. on capHa rlem , - - 12,816 " " 1.2 » "Utica & Schenectady, 223,720 " " H .2Long Island, - 5,755 " " 3.8Utica & Syracuse, 90,856 " " 11.3Auburn & Syracuse, 25,900 " " 6.5

* Bicknell's Counterfeit Detector and Bank N ote List, of 1stJa n. 1839, contains the names of 54 banks that had failed at dif-

ferent tim es; of 20 fictiturus banks, the pretended notes of whichare in circulation; of 43 banks besides, for the notes of whichthere is no sale; of 254 banks, the notes of w hich have beencounterfeited or altered; and 1395 descriptions of counterfeitedand altered notes then supposed to be in circulation, from onedollar to five hundred.




And hero we are first met, by the distress of mind

and suffering e xperienced in times of contraction, bythe tens of thousands of persons who have accommo-dation loans from ban ks, every time a note comesround, arising from the uncertainty of its renewal,and the apprehended necessity of being obliged toraise funds elsew here , w ithou t having satisfactorysecu rity to offer. To this must be ad ded, all the men-tal suffering of those w ho ha ve become em barra ssedby over-trading and over-speculation, into which theyw ere seduced by the facility of bank loans and theex pansion of the currenc y, or w ho , although prudent inthemselves, have been embarrassed by the overtra-ding of others. T he misery originatin g in these cau-ses, which was experienced in the United Statesdu ring the yea rs 18.47, 1838, and 1S39, w as of incal-culable am ou nt, as m ay readily be inferred from thefact, that in the city of N ew York alone, nea rly one

thousand failures took place between January andJuly of the year first above named, which could notha ve hap pen ed had there been no banks of circula-tion. *

The second item in the moral cost of banks of cir-culation is the temptation to forgery, by which som any ingenious m echanics, calculated by their skilland dex terity to be valuable citizens, hav e ruinedthem selves, and aug m ented the num ber of the con-victs in our prisons.

A third is, the tem ptation the y hold out to artfuland designing men to create banks with fictitiouscapitals, by which the intelligent and cautious, as wellas the ignorant and un w ary , are deceived, and in-duced to give currency to notes w hich represent nocapital w hateve r. T he ex tent to w hich this practicehas been carried is probably m uch greater than isco m -

* In the month of O ctober, 1839, the rate of interest on thebest commercial paper in the New York market, was at timesfrom 3 to 5 per cent, a month, evincing a d istress greater thanwas ever before known in that city.



16 6 A TREAT ISE ON

monly supposed, and had it not been for the investi-

gations made by officers or committees of the legisla-ture s of several of the States in the ye ar 1S38, intothe transactions of some of their banks, the publicm ight long hav e rem ained in ignorance of it. *

A fourth is, the tem ptation to a violation of tru thby discolored statem ents of the condition of the b an ksmade periodically to the legislatures, especially as tothe amount of specie in the vaults, the same sum

being frequently reported by different ban ks on thesam e da y as com posing part of the assets of each, byw hich the m oral sense becomes blunted, and som e-times even prepared for perjury.

A fifth is, the temptation constantly existing to aug-ment the profits of banks, by resorting to evasionsif not positive breaches of the law s against u su ry , andby var ious ex tortions and impositions. Specimens ofthis description of offence were exposed in abundance

in the chapter on the expedients resorted to by somebanks to augment their dividends.

A six th is, the spirit of speculation and gam blingin stocks, engendered by the facility of borrowing thecredit of bank s throu gh the m eans of post notes orotherwise, by which imprudent and sanguine men,not only abandon industrious pu rsuits, and lose alltheir p rop erty and that of other peo ple besides, bu t

are frequently driven by despe ration to frauds, an deven forgeries.A seven th is, the tem ptation held out to directors

and officers of banks to become dealers in stocks, them arke t price of w hich they hav e it in their pow er ina great measure to control by their action on the cur-

* See the Financial Register, for the Reports made to the Le-gislature of Massachusetts, upon the affairs of the Common-wealth, Lafayette, Hancock, Fulton, Kilby, Norfolk, Commer-cial and Rox bury Banks, for the most astounding disclosures.See also the same w ork for a statement of the affairs of theLumberman's Bank of Pennsylvania, and the Brandon Bank ofMississippi.




rency, or, by their speculations in it from the facilitiesafforded to themselves, a consequence of which some-times is, that false entries are m ade in the books ofthe banks, concealments practised, accounts over-d ra w n , m oney abstrac ted, and even false certificatesof stock issued, as they hav e been by the officers ofother corporations. N um ero us notices in papers ofabscon ding presidents, cashiers and tellers of ba nk s,have appeared in the papers in 1838, 1839 and 1S40,

the frauds practised by some of whom have reachedthe amount of half a million, and in one case, of up-wards of a whole million of dollars.

A nd an eighth item is, the tendency to destroy allm oral sense of justice and rectitude by absolving eachindiv idua l from personal liability, for the acts of thecorporation, by w hich m ean s, caution in the choiceof borro w ers, prudence in the am ou nt of loans, a re-

gard to the interests of the public in the distributionof the favors of the bank, are lost sight of, in conse-quence of which banks are frequently turned intomere loan offices for the accommodation of the offi-cers and directors and their immediate friends, orlend their capitals to a few , to the ex clusion of themany; and when, by their expansions, they cause anexplosion, in the currency, a callousness is displayedas to the obligation of pay ing honest deb ts, as if alegislative act of incorporation could absolve menfrom the discharge of their moral duties, of which thepayment of debts, where there is ability, is one.

A nd after all let u s ask , for w hat purpose is thispecun iary and moral sacrifice made? It ha s bee nshow n th at bank s of circulation canno t create capi-tal, or make mo ney perm anen tly plenty, and so far,therefore, as the employment of the industry of the

country, or the commerce of trade are concerned, noadvantage whatever is gained by their establishment.T he an sw er is, it is m ade in order th at the stock-holders of ban ks m ay hav e a chance of deriving tw oor three per cent, interest for their capita ls bey ond



16 8 A TREATISE ON

legal interest, or, that speculators w ho generally ori-

ginate bajiks, may make their fortunes, by selling, ata profit to others the stock for which they subscribed,but pe rha ps never paid. If w e assum e $350,000,000in round num bers as the actua l a m oun t of the capi-tals, real and nominal of all the banks in the UnitedStates, it will result that to the mere hope of gainingseven to ten millions of dollars per annum, are to beascribed all the disasters w hich have resulted to the

co un try from an inflated system of paper m one y. Isay " t o the hope of ga inin g," because the hope innu m erou s cases has not been realized, if the gen eraldep reciation in the m arke t prices of ban k stocks, isan indication of the general belief of the public, that alarge portion of their capitals h as been lost by m is-management, by frauds and by the insolvency ofborrowers .

C H A P T E R V I .

OF THE DIFFERENT KINDS OF DEPRECIATION TOWHICH AN INCONVERTIBLE PAPER CURRENCY IS

LIABLE.

So long as bank notes are convertible into coin onde m an d, they are liable to dep recia tion, or a fall invalue, in common with the gold and silver for whichthey are interch ang eab le, from all the causes w hichwe have shown capable of producing that efFect tipona curre ncy pure ly m etallic. Bu t in addition to this,the y ar e suscep tible them selves of deprec iation from

excessive issues, and in such event involve the metal-lic portion of the currency in the same depreciation.Thi s sort of depreciation arisin g from ex cessive is-sues, produces the same effect upon a mixed currency,




as the excessive importation of bullion would upon am etallic curren cy. Th ere is, ho w ev er, this differencebetw een them. Th e one can alw ays be removedsooner or later by the exportation of the superabund-ant metal , whilst the other cannot always be removedby a contraction of ban k loans, as the several ex am -ples of a general suspension of specie payments inthe United States have sufficiently established.

When bank notes cease to be convertible into coin,

by a general suspension of specie payments, the cur-rency m ay, for a long period toge ther, rema in w ithou tan y deprec iation, ex cept that w hich is the result ofthe excessive issues which occasioned the suspension.D uring the long suspension of p aym ent by the B an kof E ng lan d from 1707 to 1821, no pa rt of the de pr e-ciation ap pe ars to ha ve resulted from an y w an t ofconfidence in the ultimate ability of the bank to pay

its no tes, for ha d such w an t of confidence been dis-played, i t would probably h^ve shown itself immedi-ately after the stoppage. Such, ho w eve r, w as notthe fact. T h e ba nk , by restricting its issues, for som etime after that eve nt, to an am ou nt ve ry little e x -ceeding their accustomed extent, kept up the value ofits pap er, so nea rly to par , that the m arke t price ofgold for tw o ye ars after the suspension , pa ya ble inbank notes, did not exceed the mint price, which

could not have happened, if any discredit had accom-panied the depreciation.*

The same may be said of the two general suspen-sions of specie payment which took place in the Uni-ted States in 1814 and 1837. W ith the excep tion ofa com paratively few ba nk s, the unsou ndness, or im-

* For authority on this subject, see the Bullion Report of

1810, sect. 1, which will be found in the Financial Register.For a part of th is time, bank notes w ere even at a small pre-mium. See M 'Culloch's Commercial D ictionary, article Bankof England, now in the course of publication in Ph iladelphia ,under the editorial supervision of Professor V ethake, author ofa treatise on the Principles of Political Economy.



170 A TREATISE ON

prudent conduct of which was too apparent to be con-

cealed, no w an t of confidence as to ultima te so lvencyappears to have entered into the estimate of the de-preciation. T he am ou nt of excessive issues in eachplace, appears to have determined the depreciation ofthe currency of that place, and we have seen that justin proportion to the absorption of the exce ss, the de -preciation disappeared.

Th ere is, how ever, a reason w hy bank notes a re

not necessarily involved un de r a g eneral suspensionof specie payments, in a depreciation arising from dis-credit. T he public is alw ay s indebted to the ban ks to anamount far greater than the banks are indebted to thepub lic, and as a ba nk note w ill be received by the ba nkthat issues it in discharge of a debt, there always ex-ists, except in a case of an ex tensive bank ruptcy am ongthe borrow ers, a de m and for notes greater tha n thesup ply. H erein consists the difference b etw een pap er

m oney issued by ba nk s, and pape r m oney issued bygo vern m ents. T h e former is accompanied by a legalobligation on the par t of a responsible bo rrow er, toretur n it, or an equ al sum of coin to the bank at aspecified time with interest, whilst the latter is uncon-nected with any such stipulation, and in most casesforms a much larger supply than is wanted for pay-m ents of debts and taxe s to the gov ernm ent.

A second cause of depreciation to w hich ba nk notesare liable, is a want of confidence in their ultimate re-demption, or in their redemption at any fixed or defi-nite period . T he effect of this dep reciatio n, w he re thew an t of confidence referred to is ve ry con siderable,is to hro w the notes entirely out of circulation, ex ceptpe rha ps in the imm ediate vicinity of the ba nk . In thisev en t they a re bo ug ht u p by capitalists to hold until theban kca nco llecti tsdeb ts, upon the very fair presum ptionth at the w hole of the capital of the stockh olders mu st b esu nk before an y loss can attach to the cred itors ofthe bank, it must have been a miserably managed insti-tution, that cannot sooner or latter contrive to pay its



C U R R E N C Y A N D B A N K I N G . 171

notes, even thou gh the stockholders should sink theirw ho le capital. In estim ating the ex tent of this d e-preciation, the purch asers of such b an k notes w ouldpro bably exp ect a full rem uneration for the risk th eywould run of not being paid at all, and ample interestfor the longest period of time that they might possiblyhave to wait, before that fact could be ascertained-, andit is mo re than prob able, that am ongst these pu rch a-sers would be found many solvent debtors of the bank

w ho w ould postpone the pay m ent of their debts, andplead inability in order to profit by the low est stageof the depreciation.*

* As a specimen of the extent to which Bank notes may bedepreciated by the mismanagement of Banks, the following quo-tations are given.

From the New Orleans Price Current and Com mercial Intelli-gencer of the 25th April 1840.

Mates of Specie, Bank Notes, &c.Specie,Alabama State Bank and Branches,Tennessee Banks,Arkansas Banks,Pensacola, Florida,Life & Tru st, Florida,Planters, Agricultural & Commercial

of Natchez, on demand, (fives)

Do. do. branches , on demand,Natchez Railroad,West Feliciana, at WoodvilleBank of Port Gibson, (fives)Commercial Bank Manchester,Do. Rodney,Union Bank of Mississippi,Commercial Bank of ColumbusGrand Gulf Railroad Co.Lake W ash'gton & Deer C reek,Commercial & Railroad Bank

Vicksburgh,Post Notes.

Comm ercial, A gricultural, & PlantersBanks, Natchez, 12 months, springof 1839, bearing interest, „ 30

5 t

3 - '

42

'

3 0 •

2 0 '

2 0 '

5 '

1 0 •

75 '

1 6 '

1 0 *

1 0 '

3 5 '

5 5 «

3 0 '

5 0 '

5 5 '

o 6 per ct. premium

' 4 | d i s co u n t .' 6

' 3 5 '

' 2 5

' 2 5 '

' 1 0 '

' 2 0

' 8 0

' 2 0 '

' 1 5 <

' 1 5 '

' 4 5

' 6 0

' 4 0 '

* 5 5 *

* 6 0 '

55 60

" 40



172 A TREATISE ON

Union Bank of Mississippi,bearing interest, " 55 " 60 discount,

Woodville, Manchester & PortGibson, " 30 " 40

Rodney, do 35 " 45 "Na tchez Rail Road, do 75 " 80 "Commercial & Railroad Bank

V icksburgh, 55 " 60Bank of V icksburgh, 60 " 70W aterwo rks Bank of do. 60 to 70C itize ns'B an k of Madison County 80 " 85

Tombigbee Rail Road Co. 75 " 85Brandon Bank, 93 " 95

All these banks are in the state of Mississippi, except the fivefirst named.




BOOK FOURTH.

H A V I N G , in the foregoing three books , laid beforethe reader the law s w hich regulate a metallic, a m ix ed,and an inconvertible paper currency, respectively,toge ther w ith such collateral subjects as app eared to

m e to be necessary to a full un ders tand ing of the w holequestion, I shall, in the present book, invite his atten-tion to a few m atters of a m iscellaneous cha racter,which do not exclusively belong to either of the fore-going classifications, and the substance of which willbe found in the heading of the several chapters.

C H A P T E R I .

EXAM INATION OF THE QUESTION, OF WH AT DOES ACURRENCY CONSIST?

T H E R E is, per hap s, no subject upon w hich more va -

rious and more erroneou s opinions p revail, than th atw hich w e now propose to ex amine. Th e expansionof the currency, the contraction of the currency, thedepreciation of the curren cy, are every day ex pre s-sions, and yet very few persons can precisely point outthe real elements of which the currency is composed.In many public documents, of late years, in whichreference is made to the currency, one would be ledto infer, that the coin in possession of the public, and

the bank notes in circulation, constituted the whole ofthe currency; and that, consequently, the currencywas depreciated or improved according as these twoelements w ere augm ented or diminished. N ew spa-



174 A TREATISE ON

per w riters and editors, too, generally take this ground,and it is really amusing to see the frequent attemptsthat are made by them, to illuminate the public mindas to the condition of certain banks, by a mere state-ment of their notes in circulation, without discrimina-ting betw een post notes and notes payable on dem and,and leaving out of view entirely, the amount ofdepo-sites and other immediate liabilities of the banks.

The most palpable error, however, that prevails in

relation to this subject, is the notion entertained bymany, that bonds, bills of exchange, and promissorynotes, constitute a part of the currency. If this betrue, currency, or, what is the same thing, money,would become plenty in proportion to the multiplica-tion of these evidences of* debt; whereas, every manof observation knows, that just in proportion as theyare multiplied, currency or money becomes scarce,owing to the demand that arises for the means of pay-ing them w hen they have reached m aturity, or arebecoming due. Indeed, so far are these securitiesfrom constituting any part of the currency, that theyeven require a portion of that which is currencyalw ays to be kept on hand by the persons who arebound for their payment, in order to meet them at theappointed time. The most that can be said of thisclass of obligations is, that they arc contracts for the

payment of currency or money, at a future day, andas far as they are negotiated or assigned by endorse-ment, in the course of business, they constitute a por-tion of those various substitutes for currency, by w hichthe country in which they are used is saved from theexpense of maintaining a larger metallic or paper ma-chinery for carrying on its trade. Their operation,in fact, may be compared to that of the clearing houseof London, w hereat, by the daily meeting of the clerks

of all the bankers, to make a mutual exchange of theacceptances of the principals of each, instead of a pay-ment in money, w hich would be necessary if eachacceptance wero paid at each banker's counter, a very




large amount of currency is economised, to the greatbenefit of all the parties.

Nor is the opinion less erroneous of those who sup-pose th at public securities and the certificates of ba nk ,can al, and railroad stocks, an d such evidences of pro -pe rty, are currency. The se are in truth nothing bu ttitles for pro pe rty of a pa rticu lar sort, and no m oreconstitute a part of the currency than the deeds for

lands and houses which the owners of that species ofproperty possess.W ith these p reliminary rem arks, I w ill now state

in the first place, that the currency of a country inw hich there is no pa pe r m one y, consists, and consistsonly , of gold an d silver, and an y other com m oditywhich constitutes a legal tender, and which everycreditor is obliged by law to accept in discharge of adebt. T h us , in V irginia, in the year 1618, tobaccow as m ade a legal tender at three shillings per po un d;and in M assachusetts in 164 1, corn w as made a legaltender at a f ixed p rice; and in 1643, W am po m pea g(an article of traffic w ith the Ind ians) w as investedwith the same power in payment of debts to theamount of forty shillings, the white at eight a penny,the black at four a penny, except for county rales.—T hu s, also, in M ary lan d, so late as 1732, an act w as

passed making tobacco a legal tender at one penny apou nd, and In dian corn at tw enty pence a bushel. Inall these cases, the articles thus m ade a legal tende r,constituted a part of the currency as much as goldan d silver; b ut as such abs urd regu lations could notbut ha ve led to the im m ediate production of e x tra-ordinary quantities of the articles named, it is presu-mable that they are to be regarded as the mere folliesof a moment.*

* For a highly interesting and instructive history of the me-dium of trade", before the introduction of paper money into theAm erican Colonies, and of the paper money issued by the va-rious colonies, see " History of Paper Money and Banking," byWilliam M. Gouge.



176 A TREA TISE ON

In countries at the present d ay , w hich carry on theiraffairs w ithou t pa pe r m one y, gold and silver are theonly curren cy. In some, one m etal alone is used, andin oth ers, both metals at certain fixed proportions. Insom e coun tries too, the legal coins alone of the natio nare curre nt, w hilst in oth ers foreign coins circulateupo n the s am e footing as the coins of the co un try.Copper, too, is the currency of some countries, foreven large amounts; but this metal constitutes so

small a portion of the currency of most countries, thatit is lost sight of, in discussions of this sort, preciselyas it is lost sight of, w hen em ploy ed in the alloy ofsilver coins.

In countries where government paper money exists,but w here ban ks hav e not been introduced, the ele-ments which compose the currency are necessarilyincreased in nu m be r. T h ey consist of not only gold

and silver, but of the promises of the government todeliver at a future fixed, or at an indefinite pe riod ,certain quantities of those metals, accompanied bythre ats of pun ishm ent against all w ho should refuseto accept of the same in pay m ent of debts. Such w asthe character of the paper money issued by the colo-nial governm ents of Pen nsylv ania and other states,prior to the American revolution, and such was thatof the three hund red and six ty millions of dollars of

continental m one y, issued by the Am erican congressin seven y ea rs, com men ciug w ith 1775 and end ingwith 1781.* Such also w as the character of the assig-nats of revolutionary France, and such is that, proba-bly , of the actual pap er m oney of some n ations ofcontinental Eu rop e. La rge issues, how ever, soon de-preciate the currency, drive out of circulation the me-tallic portion of it, and leave nothing but promises be-hind, which are rarely redeemed.

It may here not be out of place to remark, that the

* See Gouge on Banking for a particular history of the con-tinental paper money.




British exchequer bills, and the treasury notes of theUn ited States, both of w hich are pay able w ith inter-est, hav e not the character of pape r m oney. T he yare merely evidences of a temporary debt of the go-vernments which issue them, are sold in market likepub lic stocks, an d ha ve no more influence in au g-m enting the mass of the cu rrency , tha n the bo nds,acceptances, or promissory notes of individuals.

C H A P T E R I I .

EXAMINATION OF TH E Q.UESTION, OF WHAT DOES ACURRENCY CONSIST? CONTINUED.

IN countries where there is no government paperm one y ex isting, as is the present case in G reat B ritain,Fr an ce , and the Un ited States, the curren cy consistsof those gold and silver coins w hich people are obligedto accept by law in discharge of deb ts, and of suchpromises of banks or bankers to deliver certain quan-tities of those coins on demand whenever called upon,

as the public or the great body of creditors are willingto accept in lieu of the coins themselves.*

* The notes of the Bank of England are made by law a legaltender, except in the payment of its own debts, but no suchmeasures can be practised in the United States, w here by theFederal Constitution, it is declared, that no state " shall coinmoney, emit bills of credit, make any thing but gold and silvercoin a tender in payment of de bts ," &c. The authority of Con-gress over the currency, is limited by the same instrument to

the simple power, " to coin money, to regulate the value there-of, and of foreign co ins." In the exercise of this pow er, itauthorised by act of 2d April, 1792, the coining of silver dollarsto contain 371] grains of pure, or 416 grains of standard silver,(the standard being 892.4 thousandths) half dollars, quarterdollars, dimes, and half dimes, containing respectively, one half,one fourth, one tenth, and one twentieth part of the silver con-






to rem ark , that that portion of the coin w hich is atan y time not in the actual possession of indiv idua ls,bu t lying in the vaults of the ba nk s, and for the pa y-ment of which on demand the public is in possession

pure silver in the troy pound of 12 ounces of standard silver;and the five franc pieces of France, w hen of no t less purenessthan 10 ounces and 16 dwts. in 12 ounces troy weight of stand-ard silver, and w eighing not less than 384 grains each, at the

rate of 93 cents each."And by act of 28th June, 1834, it is enacted, "That from andafter the 31st of July next, the following gold coins shall passcurrent as money w ithin the United Sta tes, and be receivablein all payments by w eight, for the payment of all debts anddemands, at the rates following, that is to say, the gold coinsof Great Britain, Portugal, and Brazil, of not less than 22 caratsfine, at the rate of 94 cents and T

8ff of a cent per pennyw eight;

the gold coins of France, nine-tenths fine, at the rate of 93cents and j \ of a cent per pennyw eight; and the gold coins

of Spain, Mexico, and Columbia, of the fineness of 20 carats 3grains and ^ of a grain at the rate of 89 cents and ?s of a centper pennyweight."

There are no legal tenders now ex isting by law , but thoseenumerated.

In England, silver is not a legal tender for any sum exceed-ing forty shillings.

The following statement, by the Director of the U. S. Mint,showing the fineness and value of certain gold and silver coins,was communicated to Congress on the 7th April, 1840, by theSecretary of the Treasury.

GOLD COINS.Fineness in Value pr. dwt.thousandths

Great Britain , sovereign, 915 5 cts. 94 62Fran ce, pieces of 40 and 20 francs, 899 92 92Spain, doubloon and parts,Mexico, do.Peru, do.Chili, do.Columbia, doubloons of Bogota

" do. of PopoyanNew Grenada, doubloons, 1837, '3 8 , 871Bolivia, do-Central America, do.La Plata, do.Portugal, Johannes and half

866866868868870

858871870830815914

8 9 518 9 5 1

89 7189 718 9 9 2

8 8 6 89 0 0 2

8 9 9 285 79

8 4 2 49 4 4 6



180 A TREA TISE ON

of the promises of the banks, is not to be consideredas a part of the currency, if the promises whichrepresent it are estimated as a part. Thu s, if a bankhas $500,000 in specie in her vaults, and has pro-mises out payable on demand for $1,000,000, in esti-mating the currency as far as this bank is concerned,the specie would not be added to the amount of thepromises, and thus make an aggregate of $1,500,000,

currency. In making up an aggregate statement ofthe two elements of the currency, it is not materialwhether the specie in the banks be counted, if at thesame time the amount of the promises which repre-sent it be reduced in the estimate to an equal extent,or, w hether that specie be not counted, and the amountof the promises remains w ithout reduction. Theaggregate result is the same, but I nevertheless givea preference, for the sake of simplicity, to the latter

mode of stating the case, and would therefore say,that the metallic portion of the currency, we are exa-mining, consists alone of the coins in the hands andpockets of the public.

Fineness in Value pr. dwt.thousandths

Portugal crown (of 5000 reis) andhalf since 1838, 914 cts. 94 46

Brazil, piece of 6400 re is, of 1838, 914 94 46S I L V E R C O I N S .

Fineness in Value pr. oz.thousandths

Spain, dollar of the peninsula, 900 cts. 116 36" pillar dollar of Spanish Am erica, 898 116 10

France, crown, (ceased to becoined in 1793), 909 117 53

" five frank piece, 900 116 36Mexico, dollar, average of various

mints, and in the proportionusually presented here , 897 115 97

Peru and North and South Peru dollar, 901 116 49Chili, dollar, 906 117 13Cen tral Am erica, dollar, 896 115 84Braz il, restamped dollar of 960 reis , 898 116 10





182 A TREATISE ON

that individuals may frequently find it their interest toreceive distant b an k notes in ex cha nge for goods, orin paym ent of deb ts. B ut in the great mass of cases,the notes of distant banks are sold in the market forcurrency just like bills of exchange, thus proving, thatnot only do they not constitute any portion of the cur-rency, bu t that they even require a large am ount ofw ha t is cu rrency , to be held by brok ers, for the pu r-

pose of buying them, and thus rendering them availa-ble to their owners.H avin g thus , as I conceive, settled tw o imp ortant

points in reference to the promises of banks whichconstitute a portion of the curre ncy , I com e now toex am ine those promises them selves, and to see w here inthey consist.

The promises of banks for the payment of coin ondemand, consist of,

First: Bank notes promising to pay to the bearer ondem and, a cer tain sum of m oney,and w hich are alw aysneg otiable by m ere delive ry, therein differing from theordinary promissory notes of individuals, which aredrawn to order, and are negotiable by endorsement.

Secondly: Ban k credits, or w hat are m ore com m onlycalled deposites, being those am ou nts w hich stand tothe credit of parties on the books of banks, and which

are at all t imes payable on demand in coin, the sameas ba nk notes, or w hich m ay , if the parties prefer it, beat any time converted into bank notes.

It is essential, how ev er, as in the case of ba nk notesin order that these credits shall constitute a part of thecurrency, that they be payable on demand, for thevery plain reason, that a deposite payable at a futureday stands upon the same footing precisely, as a postnote of a bank payable at a future day, and cannot beavailable as m one y before it is due, any more tha nany othe r debt. H ence the deposits of our saving sbanks which are only payable at future periods, afterdue notice give n, constitute no pa rt of the curren cy.The same is true of those deposites which have been



CURRENCY AND BANKING. 1S 3

for some years habitually received by some of theN e w E ng lan d b ank s, for fixed periods at a stipulatedinterest,* and those which some of the banks in otherstates, and especially in the southwestern, have foundit for their interest since the late money crisis, to acceptfor definite periods from holders of their no tes , w how ere w illing to give time for their claims upo n thepayment of interest, or from others who were willing

to assist them by loans of money. And it may also berem ark ed , that as far as an y portion of the depositsstands to the credit of parties, such as trustees, execu-tors and administrators of estates, guardians of minorchildren, officers of co urts, an d othe rs, w ho have de-posited a fund to m eet future dem and s, but w ithou tany immediate intention or authority to use it, so farthey are to be view ed in the sam e light as depositspaya ble at a future d ay , and not as currency. T h us ,if ten thousand dollars be deposited in a bank by theassignee of an esta te, to rem ain until a dividend is de -clared arnoi.gst c reditors six ty da ys hen ce, the ban kcould lend th at money for six ty d ays w ithout au g-menting the currency, and for this simple reason, thatthe depositor, had, upon the hypothesis assumed, part-ed w ith his right to the sam e fund for six ty d ay s; an dtherefore stood upon the same footing as other depos-

itors whose claims were payable, not on demand, butat a future fixed day.

A nd here I w ill beg the read er to m ark well thedistinction between a deposit in a bank of discount,and a deposit in a bank of circulation. T he formerconstitutes no part of the currency, as I have assertedin the first chapter of the second book, for the simplereason that, although the depositor may have the right

to draw out his coin on demand, yet this right is in-

* By a statement made of the condition of the banks of Mas-sachusetts, in October, 1837, it appeared that the cash depositedbearing interest was $5,318,484, whilst that not bearing interestw as but §8,231,58 ).



184 A TREATISE ON

sepa rably connected w ith the obligation on the pa rtof somebody else, to pay into the hands of*the bankersimultaneously an equal a m ount, in order that thebanker 's stock of cash in hand to meet daily or unex-pected calls m ay rem ain iindim inished. In the caseof a bank of circulation the matter is widely different.The depositor may be paid the amount of his depos-ite in ban k notes, w ithou t its be ing essential to suchpay m ents that any debtor of the ban k should be ob-liged simultaneously to discharge his debt, the opera-tion being merely the substitution of one form of bankcredit for an othe r, an d it is therefore in reference tosuch a bank that these remarks are made.

I am aware that in estimating bank deposites as apart of the currency, I am advancing a doctrine uponw hic h a difference of opinion ex ists among st intelli-gent men, and for the full establishment of which

some elucidations m ay be necessary. I first assertedthis opin ion, in the ye ar 1S2 1, in a repo rt on the re -ne w al of bank charters, m ade to the senate of Pe nn-sylv ania , and I ha ve neve r seen an y reason since tobelieve that it was erroneous.

B an k deposites, as they are called, originate in thefollow ing four w ay s:—

First. Where a party deposites specie in a bank.Secondly. Where he deposites bank notes.Thirdly. Where he deposites a note for collection,

and the am ou nt , after it is collected, is placed to hiscredit.

Fourthly. Where he gets a note discounted, andthe net proceeds are passed to his credit.

In either of these cases, the depo sitor ha s a right tod ra w out from the ba nk either in coin or ba nk notes,without giving a moment's notice, the whole amount

standing to his credit.* H e stand s, therefore, upo n

* If there be any private stipulation with a depositor whosedeposites arise from his having been accommodated with dis-counts, that he is to leave a certain amount undraw n for, thatamount is to be considered as a deferred debt of the bank , andnot as currency.




precisely the sam e footing, as re ga rds h is po w er ofoperating in the money market, or in the purchase ofmerchandise, as any other person who possesses banknotes, seeing, that if those with whom he deals shouldprefer bank notes, he can just as readily pay them inthat w ay , by sending to the ban k, as by giving thema check. So true is it, that deposites constitute cur-rency as much as bank notes, that in all our commer-

cial cities, no othe r cur rency is used in all ex tensivetransactions. In all the cities of the U nited State s,nearly all payments of money, except in very smallsums in retail transactions, are made in checks onban ks, and it is very clear tha t if deposites w ere notas much currency in the money market as bank notes,all dealers and traders w ould be furnished w ith thelatter, instead of the former. In truth deposites areno thin g bu t specie or ban k no tes, left in the keep ingof the banks for the convenience of the owner.

B ut aga in. L et us test the sound ness of this vie w ,by a few hypo thetical cases. Suppo se the bank s inN ew York should all at once unite in aug m entin gtheir discounts to the am ou nt of five millions of dol-lars, by which process their immediate liabilitiesw ould be in a m om ent augm ented to that extent inthe form of depo sites. W ould the cur renc y of N ew

Y0rk be ex panded ? W ould m oney be more plentythan before? W ould com petitors in the m arket w ithrea dy cash in hand be multiplied? If the an sw er tothese questions be in the affirmative, and it is difficultto see how they could be otherwise, would the expan-sion of the currency amount to five millions of dollars,or only to the sum which should be equal to theam oun t of the ba nk notes that might be draw n outby the holders of these deposites, which would in allprobab ility be b ut a small portion of the w ho le fivemillions? N o one w ill, I think, contend that the ex -pansion was not equal to the whole five millions, andit would consequently follow, that to restore the cur-rency to its former position, a contraction of five m il-






Ap ril, 1838, to $2,322,186 , and the jlep os ites to$11,492,4S6.I apprehend that no m erchant in N ew York, w ho

felt the pressure of tha t process, considered th at a re-duction of the deposites to the extent of four and aquarter millions of dollars, was no diminution of thecurrency; and if we take into consideration the largeam ou nt of these note s, w hich m ust, at all tim es, becirculating at a distance from the city of Ne w Y ork ,we shall also be satisfied, that deposites not only forma pa rt of the currency of that city, bu t a ve ry largepart of it.

An ex am ination of the condition of the banks ofPhiladelphia, would also show an excess of depositesover circulation. By a statem ent of the condition ofthe fifteen banks of the city and liberties, on the 3d ofN ove m ber, 1838, (exclusive of the Ban k of the U ni-

ted States), made to the legislature, it appears that theamount of their notes in circulation was $4,522,883,whilst the amount of their deposites was $6,813,503.On the 1st of November, of the same year, the circu-lation of the B an k of the Un ited States (exclusiveof post notes), was $8,499,37S, and the deposites$8,591,235, but of these notes, by far the largest pro-portion were circulating at a distance from Philadel-ph ia, and , con seque ntly, formed no part of the c ur-rency of that city.

H av ing thu s, as I co nceive, established the prop o-sitions laid down in the early part of this chapter, Iw ill, in the ne x t, ende avor to elucidate a m atter ofvery great practical imp ortance, to w hich the atten-tion of congress and the state legislatures has neveryet been particularly directed, relating to the ag gre -gate amount of the currency at any particular period.



18 8 A TREATISE ON

CHAPTER III .

ON TH E IMPORTANCE OF HAVING UNIFORM PERIOD I-CAL STATEMENTS OF THE CONDITION OF THECURRENCY.

W H EN we consider the importance which the pre-sent banking system of the United States is capableof exerting over the property and industry, and con-sequen tly the p rosperity of the co un try, it w ouldseem to be bu t reasonable tha t the pub lic, w ho m ustalw ay s be the victims of a vicious course of policy,should at least be furnished with some means of ac-qu iring a kno w ledge of their position, in order tha tthey might be prepared to escape from a threatened

ca tastro ph e, or at least to m itigate its force. Su ch ,ho w ev er, is not the fortunate condit-ion of the peopleof this coun try, and they seem to be de stined to befor ever deprived of all opportunity of becoming ac-quainted w ith those prem onitory indications, w hichusually precede a convulsion in the money concernsof a nation. T h e truth of this rem ark w ill occur tomost peo ple, w ho recollect the fact, tha t the sus pe n-

sion of specie p aym ents in M ay , 1837, came up onthe coun try, like a sudden clap of thun der on a clearda y, and ov erw helmed every body w ith surprise. Isay, every body, for the ex ceptions w ere ex tremelyrare, of those w h o , a m on th before it occurred) ha dthe slightest apprehension of such an event.

Th is w an t of kno w ledge arises, from the circum -stance, that the nine hun dred ban ks and branches nowop era ting in the U nited State s, are the offspring ofsix and twenty states, three territorial, and one gene-ral government, between which there has neverbeen any system of uniform action in relation to theterm s of charter s of ba nk s, or in reference to uniformperiodical returns of their condition as to liabilities





190 A TREATISE ON

deficient. The re is a w an t of that specification ofdebts and resources, w hich no ex ertion of the secretarycan remedy, by which the immediate liabilities of thebanks can be distinguished from their deferred liabili-ties and their imm ediate resources from their deferredresources, without a knowledge of which, as we haveshown in the preceding chapter, it is not possible toarrive at a true knowledge of the condition of the cur-

rency. It is to be hoped tha t this m atter w ill attra ctthe attention of congress and the state legislatures, an dthat they may be induced to unite in some commonsystem of action, by w hich all the b an ks of the cou ntryshall be required to m ak e quarte rly statem ents of theiraffairs at the sam e specified da tes, and upon a planuniform and simple, th at n o one w ho is acqu ainted w itha common account current can fail to understandthem.

B ut, even if such statem ents as are here recom m end-ed, w ere to be periodically furnished, it w ou ld requ iresome skill in accounts to present their aggregates insuch a form, as would show the true extent of the cur-rency. Those w ho have exam ined the treasury tablesand statements must have perceived that the mere ad-ding togethe r of the deposites and circulation of allthe banks would not give the true amount of the pa-

per portion of the currency. A large am ou nt of thebank notes returned by the different banks as in circu-lation, hav e been deposited, by those into w hose han dsthey passed, in other banks than those by which theyw ere issued, and conseq uently, so long as they rem ainthe re, they ap pe ar on the statemen ts of those ban ksas deposites. T h u s, if a person dra w out from theBank of North America notes of that bank for $1000,the proceeds of a discounted no te, the accounts of

that bank would show an increase of its notes incirculation to the ex tent of $1000. If the sam e no teswere then immediately deposited in the Bank of Penn-sylvania, they would be reported by that bank as anincrease of its deposiles to the am ou nt of $ 10 00 . In




such even t, it is evident that the same $100 0 w ouldappear twice as swelling the currency to that amountonce in the form of note s in circu lation , and once inthe form of deposites, w he rea s it is equa lly evidentthat the currency could only have been augment-ed one single $1000. It follow s, from this view ofthe subject, that in making out an aggregate statementof the circulation, there must be deduc ted from the

'aggregate amount of the notes in circulation, the totalam ou nt of notes reported in the different bank state-ments as " notes of other banks on hand."

It may, however, be said, that these banks did notcome into possession of these notes by means of de-pnites as above assumed, but that they were ex-Ciianged for notes of their ow n. G ran ted, but thism ak es no difference in the result. T he b as ks w hichreceived them, would report an increase of their owncirculation to the ex tent of $1000, and if " the notesof other bank s on ha n d " w ere not deducted, therew ou ld app ear, as in the first case, a double au gm en-tation of the currency to the extent of $1000.

But it may be further said, that these banks did notobtain possession of these notes in either of the twomodes specified, but that they were paid to them indischarge of deb ts. Is the na ture of the case changed

by this fact? N ot at all. An issue of bank notes tothe am ou nt of $1 000, can not possibly aug m ent thecurrency to the amount of $2000, and if we regard thebank ing system as one w ho le, just as if it consistedof a principal bank and branches, we can easily see,that if any of its members were in possession of anynotes issued by any other of its members, they wouldbe in possession of itself. It would have been absurd

to call the notes of the late Bank of the Un ited Statesin possession of the New York branch, notes in circu-lation, and to have included them in the a m ou nt ofthe currency.

So also, in estima ting the agg rega te am ount of thecu rren cy , must the am ou nt of specie in possession of






m eans of ascertaining , and for this p urpo se, I w ouldstate the account as follows.

Circulation, $140,301,038Deposites, 115,104,440

255,405,478Deducting notes of other banks on hand, 32,115,138

Leaves, $223,290,340

Such would appear to be the actual amount of thecurr enc y as furnished by the above table. B ut inas-much as no distinction is made, between notes ordeposites payable on demand, and post notes, ordeposites pay ab le at a future period; the accou nt isdeficient in a very im po rtan t elemen t of ex actn ess.

For it can be seen, that if the deferred liabilitiesshould have amounted to thirty or forty millions ofdollars, the true amo unt of the currency w ould ha vebeen diminished precisely to that extent.

In regard to the tw o a m ou nts ex pressed, by theterms " due by other b an k s," and " due to otherbanks," standing on opposite sides of the account, itmust be obvious, that they are quantities neutralisingeach other, for the a m ou nt due by all the banks to

each other, m ust be precisely equal to the am ou ntdue to all the bank s by each other. T he differencebetw een these tw o am ou nts in the table before us,arises no doubt from the fact, that owing to thedistance of the ba nks from one ano ther, there m ustalways be on the route between them,funds in tran-situ, which although charged by the remitting bankto the account of the one to which they were remitted,

cannot hav e yet app eare d on the books of the otheras a credit.



19 4 A TREATISE ON

CHAPTER IV.

ON THE IMPOLICY OF ADHERING TO OUR PRESENTMINT PROPORTIONS BETWEEN GOLD AND SILVER.

IT may be assumed as a principle that will hardlybe disputed , that the soundness of a m ixed curre ncy

of coin and pa per such as w e are likely ever to ha vein the Un ited States, does not depend upon the factw he the r gold or silver be the basis. A currency m aybe quite as sound w he re silver is the only or chiefm etal tha t circulates, as w he re gold is the only orchief m etal. Th is is eviden t from the well kno w nfact, that the currency of France which is of silver, isnot more liable to fluctuate than that of Great Britainw hich is of gold. I might even argu e that it w as inpoint of fact less fluctuating, but as all I wish toestablish is equality, it is not necessary that I shouldtake that ground.

It would seem that the great object of our act ofJu n e , 1834, w as to establish a gold curre ncy , und erthe belief that the tendency of gold to drive paper outof circulation would be stronger than that of silver;and on that account the mint proportions were

chang ed w ith the professed object of draw ing goldinto the cou ntry in preference to silver, w hen thecourse of trade should lead to the importation of theprecious m etals. Th ere can be no dou bt, that hadcongress possessed the right of prohibiting the circu-lation throughout the United States of bank notes ofa less deno m ination than ten dollars, a gold cu rren cycould have been introduced in the place of five dollarnotes; but as it possessed no such power, and asthere w as not the slightest proba bility that all thestate legislatures would have co-operated in bringingabout such a result, the measure was, to say the leastof i t premature.

But even admitting that all notes of a less denomi-




nation than ten or even twenty dollars could havebeen proscribed, I w ould a sk, w heth er such a m eas urew ould hav e ex em pted the currency from all liabilityto fluctuations? T his question can perh aps best beanswered by referring to the experience of Great Bri-tain. In that cou ntry, no note is issued by the Ba nkof England, or by any joint-stock or private bank, ofa less denom ination than five pounds sterling, equ alto upwards of twenty'-four dollars, and yet England

has been subject to many great fluctuations in her cur-renc y, one of w hich , that of 1797, brough t all herbanks to a stoppage of specie payments; and anotherof w hich in 1825, w as very near bringing abou t thesam e result. It is not then the fact, of a m ixed cur-rency having gold or silver for its basis, which deter-m ines its stability. Our ow n ex perie nce of forty-fiveyears out of fifty-one since the establishment of the go-

vernment, during the whole of which time silver wasalmost the exclusive metal that circulated, is sufficientto settle th at qu estion , and no one , it is pre su m ed , w illm aintain the proposition, that the interests of the grea tm ass of the people are not as w ell promoted by therigh t of de m an din g silver for a bank no te, as of de -m and ing gold. Indeed , if w e take into considerationthe universa l kno w ledge w hich prevails as to silvercoins, the familiarity of ev ery body w ith dollars an dhalf dollars, the vast num ber of p ersons w ho seldomhave five dollars in money on hand at a time, the lessliability of being cheated with silver than with gold,and the additional fact that many existing groundren t dee ds, bonds, and m ortgages, ex pressly call forpa ym en t in silver dollars, it w ould not be ha za rdin gtoo much to say, that silver is a more convenient coinfor the peop le of the United States than gold. If then

it can be sho w n, that the possession of a gold curren cyin preference to a silver on e, w ould be not only pr o-ductive of no positive benefit to the community, butwould be attended with positive mischief to the greatinterests of the country, all parties ought to unite inabandoning the project.



196 A TREATISE ON

An d this brings m e to the point, to w hich the pr e-ceding remarks were designed to be introductory.

Prior to the passage of the gold bill above referredto, the metallic currency of the United States had beenvirtu ally, as above stated, a currency of silver sincethe establishment of the government, gold very rarelyap pe arin g, w hilst that of G reat Britain w as of gold.T he consequence w as , that the currency of each w as

indepen dent of the other, and the contraction or ex -pansion of each did not necessarily act upon theother. T he contraction in E ng lan d, w hich p recededthe resump tion of specie pa ym en ts, in 18 21 , after along suspension of tw enty-four ye ars, produced no co n-vulsion on this side of the Atlantic; nor did our con-traction , distressing an d du rab le as it w as , after therem ov al of the pub lic deposites from the Bank of theUnited States, on the 1st of October, 1833, which

broug ht do w n the prices of stocks from 20 to 50 percent., and led to the im portation of 3,793 , 293 do llarsin silver from En glan d alone, durin g the y ear end -ing on 30th Septem ber, 1834, produce an y co nv ul-sion w hatev er in that coun try.* Such w ould hav e

* During the contraction last referred to, which occasioned apanic that continued from October, 1833, to Ju ly , 1834, ex -change upon London, at New York, the market of which regu-

lates the rate for all the other cities, fell greatly below the or-dinary lim its. In Feb ruary , 1834, the pressure for money w asso great, that bills were sold, for a short period, as low as one totwo per cent, below the nominal par of that period, which was,in reality, nine to ten per cent, below the true par. A great fall,also, took place in every species of stocks, property and mer-chandise, w hilst the. discount on good commercial paper rose totwo or three per cent, a month.

Notwithstanding this great pressure, however, it was not feltat all in England, except, perhaps, in the diminished remittan-

ces of merchants, so that her currency remained not only w ith-out the sligh test contraction, but actually experienced an aug -m enta tion ,! to the great advantage of our shippers, w hose cotton

+ Aggregate amount of notes circulated in England and Wales, bythe Bank of Enghnd, by private banks, and by joint stock banks andtheir brandies, at the following dates, as published in a table appen-





198 A TREATISE ON

imported,* still a long perseverance in the law willgive us a gold currency, but it will be most dearly

purchased. It will so closely ally our fortunes with

those of Great Brittian, that no convulsion can take

* Tables of theimports and exports of gold andsilver coin andbullion, for the last five years.

I . GOLD BULLION.

Imports.1834, . . . . $141,1811835, . . . . 665,4571836, - 1,913,137

1837, - . . . 536,5491838, 230,392

Exports.none.none.

$25,777101,563

none.

Total imports of gold bulliorDo. exports do.

Excess of imports,

$ 3 , 4 8 6 , 7 1 6

l ,

- - -

-

I I . COLD COIN.

1 8 3 4 , . . . .

1 8 3 5 , . . . .

1 8 3 6 , -

1 8 3 7 , -

1 8 3 8 , . . . .

T o t a l i m p o r t s of g o l d c o i n ,

D o . e x p o r t s do.

E x c e s s of i m p o r t s , -

Imports.$2,786,006

1,669,7305,318,7251,895,265

11,431,840

$23,101,566

. . .-

I I I . SILVER BULLION.

1 8 3 4 , - - - -1 8 3 5 ,

1 8 3 6 , -1 8 3 7 , . . . .1 8 3 8 , . . . .

Imports,$168,330

765,283318,350594,291392,843

$127,340

- $3,486,716127,340

- $3,359,376

Exports.$64,349625,679275,940

1,828,653736,264

$3,530,885

$23,101,5663,530,885

$19,570,681

Exports.none.

none.$52,6955,6002,500

$2,239,097 $60,795





2 0 0 A TREATISE ON

If th ere be any fallacy in this reas on ing , it is notintention ally adv anc ed. T he subject is a gra ve an dimportant one, and merits the attention of all who aredesiro us to ke ep ou r coun try free from foreign alli-ance s, w he ther they be pec uniary or political; an dshould congress be convinced th at a false step ha s beenm ad e, let that step be retraced. L et the stand ard ofthe gold coin be restored to its former high grade, cor-responding w ith those of Great Britain, Portu gal andB razil, that is, eleven parts of p ure gold to one p artof alloy, and let there be no coins struck at the mintbut ounces, half ounces, and qua rter ounces, w ithoutan y fixed legal prop ortio ns to silver, but left to find the irway into circulation at their fair market equivalency, asgold coins do in France and other countries of Europe.By having coins of familiar and well known iveightsthe peop le w ould form right conceptions of the true

nature of money; and as the bullion dealers and bro-ke rs in all the cities w ould quo te the price of ouncesof gold as they do of sovereigns, they would be at alltimes current at their m arke t valu e, and could neverbe driven from the country by our own legislation,or that of other states.

CHAPTER V.

ON TH E SUPERIORITY OF TH E NEW YORK GENERALBANKING LAW OVER THE PRESENT BANKINGSYSTEM.

H A V I N G , in a former cha pte r, prom ised to give m yreasons for believing the principles of the Ne w Yo rkban kin g law to be better calculated, if m ade gen eralthroughout the Union, to give stability to the currencythan any other that would be likely to meet a general








ment of the association, unless the articles of associa-tion shall ha ve declared that the shareh older shall beliable.

Fro m this abstract of the law , it w ill app ear, tha tthe security of noteholders is alone provided for, andth at no provision is ma de for the protection of thedepositors, who are left as in other banks, in case of afailure, on the footing of com m on creditors. T hisdistinction is founded upo n the soun dest principles ofpolicy. B an k notes invested w ith the charac ter ofm on ey , from the very na ture of the use they are de -signed to perform, must necessarily pass from handto hand in the transactions of business, w ith a rap i-dity and unive rsality, w hich preclude the possibilityof a close inq uiry into the respon sibility of the d ra w -ers; and there is therefore as good a reason w hy th epublic should be protected against loss from the circu-

lation of paper m one y, as w hy they should be pro -tected again st loss from th e circulation of m etallicmoney, which is the design of establishing and main-taining a mint at the public ex pense. * T he case ho w -ev er is w idely different w ith depo sitors. T h e indi-

* In this position the author is sustained by the opinion ofMr. McCulloch, whose celebrity as a political Economist, iswell known throughout the United States, as employed in thefollowing1 passages.

" I t is quite illusory to expect .o make any real improvementupon the system of country banking in England, by the mereintroduction of a plan for allowing banking establishments withlarge capitals to be set on foot. There have alw ays been, andare at this moment, a great number of such establishments inEng land. W ha t is really w anted, is the adoption of a system,that w ill exclude the possibility of notes being discredited, by pre-venting all individuals or associations from issuing such as havenot been guaranteed. * * * * " Th e truth is, as already stated,

that it is not possible to guard against loss and fraud, from theproceedings of the country bankers, otherwise, than by compel-ling them to give security for their issues." * * * The truthcan not be too often repeated, that it is quite impossible ever toorganise secure banks of issue— and it is w ith such only thatthe legislature has any right to interfere, except by obliging themto give security for their notes. Every other scheme, how care-







206 A TREATISE ON, &c

jinitum, as notes can be comparatively under the oldsystem, it is manifest that the banks organised underit, have not the power to augment the currency to theextent that the others have, inasmuch as, like banksof discount, they can only meet the claims of depo-sitors by compelling some of their debtors to pay upa corresponding amount, it being understood, as inthe case of those banks, that the usual stock of money

is alw ays to be kept on hand to meet occasional or un-expected demands. *In reference to the other provisions of the law, they

must speak for themselves.t If the numerous banksthat have been organised under it, and w hich aredaily increasing in number, act wisely, they willinvest nearly the whole of their capitals in fixedsecurities^ and will be careful not to force into

circulation a larger amount of their notes than thecurrency can readily bear without reaction. Theyw ill also take especial care, that in lending the moneyof depositors, they w ill discount nothing but businesspaper, having a short time to run , or they may, ifovertaken by a panic, find themselves in the hands ofthe comptroller before they are aware of it.§

* A clear illustration of the difference here adverted to, is con-tained in an unpublished pam phlet on the reform of the cur-

rency of England, which the author has read, in the followingparagraph:

" The business of banking is one thing: that of issuing apaper money is another thing . There is no necessary connec-tion between the tw o. The bankers in London and Paris arebankers strictly so called. They are lenders of their own andof other people's money. Th ey must obtain it by industry orloan before they can lend it. Th ey do not make it. Th e busi-ness of making and then issuing a paper money on loan, is verydifferent from that of obtaining a paper money on loan, and then

re-lending it."t A copy will be found in the Appendix, marked D.X The whole of the capital of the Bank of England is invested

in a loan to the government, and no part of it ever appears inthe monthly statements of the assets and liabilities of the bank.

§ For an account of the practical working of this system, seeAppendix J.





203 APPENDIX.

ye ar 1820, gold w as coined at our m int to the valu eof $1,319,030, and durin g the ye ar 182 1, to theam oun t of $185,32 5, yet not a gold coin is an y w hereto be seen in circulation.

During the last session of congress, this subject ofthe disappearance of gold was considered by a com-m ittee, w ho m ade a report, recomm ending an alter-ation of the legal proportions, so a s to m ake themcorrespond with the proportions which were at thatlime supposed to ex ist in E ur op e. A t the presentsession, the sam e m atter w ill probably come beforethe committee, to whom the subject of the coinage hasbeen referred; and as it is an im po rtant on e, a fewobservations in relation to it may not at this time beinappropriate.

Any attempt to fix by law, what cannot be fixedby nature, carries on its face an air of absurdity.

Without animadvert ing upon the policy which ledour predecessors to follow the footsteps of m an y ofthe Eu ropean nations, and w hich m ay perhaps bejustified by the then ex isting state of the cou ntry , itis certainly not the part of wisdom to pursue a course,which the lights of science and experience so clearlyprov e to be unso und . T he v ery fact that gold andsilver have departed from the proportions establishedby our laws, is ample proof that no such laws shouldever have been enacted; and the certainty of a futurechange, is equally conclusive against any furtherlegislation on the subject. E ve n since the da te of thereport of the comm ittee abo ve referred to, a more w ideseparation betw een the tw o metals has taken plac e;and had a law been enacted a year ago, agreeably totheir suggestion, it m ight possibly ha ve required anadditional one in the present year to give it effect.

The truth is, that until the physical and moral causes,w hich operate upon a curre ncy , shall com bine toestablish an immutable relation between gold andsilver, law s to determine their relative v alue can benothing more than tem porary ex pedients, at w ar w ith









212 APPENDIX.

should be left to find their v alu e in m ark et like a llother comm odities. T h e adva ntag e of such coinsover the eagles w ould be, that as every body w ouldsoon become acquainted w ith their w eight, w ithoutbeing obliged to resort to books in order to ascertainthe precise number of pennyweights and grains con-tained in them, the mode of estimating their value insilver w ould soon become fam iliar, an d those w hopossessed them would have less difficulty in exchang-

ing them for their proper equivalents, than theyw ould h ave w ith any coin, of w hich the w eight couldnot be universally and read ily recollected. T he cir-cumstance of the British and American standardsbeing the sam e, w ould render this course the m oreadvisa ble. T he quo tations of the price of gold an dsilver, w hich are brough t by every ship, w ould keepus as regularly advised of the value of an ounce ofgold, as of a barrel of flour; and there is every reasonto believe, tha t as the fluctuations in the relativevalue of the two metals are not diurnal or monthly,nor even always annual, the proposed coins wouldfind their way very readily into circulation.

It is a fact, familiar to all who are acquainted withthe affairs of the w estern cou ntry, tha t depreciatedbank notes pass am ongst the m erchants there, w ithperfect facility for wha t they are worth; and to such

a system has this practice been reduced, that thenewspapers regularly publish the prices current ofbank notes at the principal money markets to be re-ferred to as the scale of valu e. So w ould it be w ithgold coins of a well known weight and standard,•which might even maintain for a long period togethersom ething like a settled proportion to silver. A n ad -ditional reason why eagles cannot readily pass by

w eig ht, is that the idea of their being by law theeq uiv alent of ten silver dollars, is so deep ly rooted inthe minds of the community, that it would be next toimpossible to eradicate it. Th ose only w ho u nde r-stand the subject, or w hose trade rende rs the m con-







APPENDIX. 215

just as much subject to the laws of exportation, as itwould be, if i t was denominated a French crown, anddeclared by our law s to be the equiva lent of 110 cents;and so would an eagle be just as liable to exportation,if it w as called by an y other na m e, and declared b ylaw to be the equivalent of eleven dollars.

2. That if the seignorage was charged upon one ofthem only, it would be difficult to foresee upon which

of them it ought to be charged; for in the course of theensuing five ye ars , it is quite as possible tha t silverwill rise in relation to gold, as that gold will rise inrelation to silver.

3. T ha t if it be placed upo n gold only, und er theimpression that goldmight rise still further, it oughtto be ascertained, in order to render it effective, howfar gold will rise, which is impossible; for unless theseignorage be equal to the extent of the departure of

gold from the proportions existing at the time of fixingthe seiguorage, it would be of no avail. A seignorageof six per cent, on the present eagles, had it be enoriginally imposed, w ould not hav e preven ted theirexportation; for at $10 60-100 a-piece, they wouldconstitute a more profitable remittance to GreatBritain, than bills purchased at the present rate of ex-change.

A very small seignorage on gold, therefore, mightanswer no purpose, as a measure restrictive of expor-tation; for if it were limited to one or two per cent, achange in the relative value of gold and silver abroadto that oxtent, would neutralise it, if gold should be-come more valuable, whilst a high seignorage wouldunquestionably be productive of injurious consequen-ces. This will be shown from the following illustra-tions, founded upon the assumption of one to sixteen

as the new mint proportions, deducting Jive per cen tfor the seignorage, the market proportions being alsoone to sixteen.

First. So long as the market and mint proportionsof the two metals remain exactly the same, gold may



216 APPENDIX.

be coined as fast as it is brought into the country; forif the ho lder of one hun dred oun ces can get it promptlycoined at the m int into n inety-five ounces of pieces,which are declared by law to be a legal tender of theequivalent of sixteen hundred ounces of silver, it willbe the sam e thing to him , w he the r he does so, or sellsit in the market for sixteen hundred ounces of silver.

Secondly. In case gold and silver should vary in the

market, and assume a greater difference than the newmint proportions of one to sixteen, the event attempt-ed to be guarded against, then no more gold wouldbe sent to the mint; for the possessor of one hundredounces of th at m etal, w ho could ex cha ng e it in them ark et for even a sm all fraction m ore tha n six teenhundred ounces of silver, would not be willing to haveit coined into ninety-five oun ces, w hich he could bylaw only pass for 1600 ounces of silver. As reg ard s

the coins w hich had been previou sly emitted, theyw ou ld continue to circulate, until ninety-five ou ncesof them would sell as bullion for more than 1600ounces of silver, and they w ould then be ex ported ,because the possessor of them would in that case beab le to sell them in the m ark et for m ore than their lega lva lue . Th is ev en t, if the coins w ere new, would hap-pen when the new market proportions should be about

one to seventeen; bu t if the y w ere old, clipped, orworn, i t would not happen until afterwards.Thirdly. A high seignorage on gold would operate

as a bounty on counterfeiting, and might even besufficient to induce ing eniou s ro gues to m anu facturegold coins of full weight and of the true standard.—T his m ight be done to ad va nta ge in those" countriesfrom w hich w e should derive- our gold w hen restoredto circulation, and w e m ight perh aps impo rt eaglesof foreign manufacture of lawful weight and purity, ata cheaper rate than that at w hich they could be pro-cured at our m int, in the sam e m an ne r as, it is su p-posed , ma ny a cask of copper cents has been imp orted.

Fourthly. If, ho w ev er, on the other h an d, gold, in-





2 1 8 APPENDIX.

nice calculation would vary a trifle from these pro-

portions.H U SK I SSO N .

B.

HISTORY OF THE GOLD COINAGE OF THE UNITED

STATES.

From the Philadelphia Examiner, Vol. 2,of October15, 1834.

T H E GOLD COINAGE.—The party aspect which has

been attempted to be given to the bill passed by

Congress in themonth of Ju ne last, altering the rela-tive value ofgold andsilver, hasrendered thepresentmoment rather nnpropitious for an investigation intoits real m erits. Like theAmerican system, it islookedupon as a measure by which one's devotion to a par-ticular man is to be tested; and the same repug-nancy to listen toargum ents against thetariff, which,a few years ago, wasexhibited by the friends ofMr. Clay, is now displayed as regards listening toarguments against the gold bill, by the friends ofGeneral Jackson. It is true, that all who approvedthe gold bill were notfriends ofGeneral Jackson, andthat all who opposed it w ere not his foes, but as thevote' incongress was made, in a great degree, a partyvote, the party which so turned it to account areusing every effort to reap the fruits of their policy.Tru th , however , has a power which no party man-

agement can permanently counteract, and the timewill come when those who now think that an act ofcongress has showered gold upon the Gountry, will













224 APPENDIX.

would have expelled every silver dollar and half dol-lar from the country, in the course of a single year.Ne ither of these suggestions w as acted up on , nor

w as the subject resum ed at the nex t session of con gress.On the 2d of F eb rua ry, 1821, how ever, a second re-port was presented to the house of representatives, byM r. W hitm an , on the part of a comm ittee to w hichhad been referred a resolution directing an inq uiry .T his report w as also accom panied by a bill, simply

providing for the reduction of the eagle and its frac-tions to the weight prescribed by the bill of Mr.Lovvndes, leaving the silver coins unto uch ed. T hisreduction was equal to an increase in the value ofgold of 4 per cent, w hich w as at that time consideredto be equal to the chan ge in the relative valu e be -tw een that m etal and silver, w hich had occasionedthe ex portation of the eagles. Th is is proved by the

repo rt, w hich ad van ces as an argu m ent in favor ofthe change, that three half eagles, worth in the UnitedStates, $1 5, w ere w orth in Spain or Po rtug al, $1 6, inFra nc e, $ l 5 i , and in Eng land $15 1-5. Th is billlike its predecessor, remained without being acted on,and the ex portation of gold coins continued until earlyin the year 1822, when not one was to be seen in cir-culation, although six millions of dollars had beencoined at the m int, of w hich $1,319 ,030 w ere struck

in 1820, and $185,32 5 in 1821 . H ad the m easurethen recommended been adopted, the bill would haveproved inope rative, for at a subsequent period, a great-er change than four per cent, in the relative value ofgold and silver took place, which has ever since con-tinued to exist, and which would have carried off thenew coins.

T he d eath , in the year 1822, of M r. L ow nd es, w ho

was one of the few individuals in congress who hadturned his attention to the subject of the coinage, andthe reluctance of that body to intermeddle w ith asubject of so delicate a na tu re , jointly com bined to







APPENDIX. 227

offered anoth er resolution , w hich w as agreed to, in the

fol lowing words:" Resolved, That a select committee be appointed

to consider the state of the current coins, and to rep ortsuch amendments of the existing laws concerningcoins as may be deemed expedient."

In compliance with this resolution, Mr. Sanford,onthe 11th of Ja n ua ry , 1830, m ade an able repo rt, con-taining a fund of interesting and useful scientific mat-

ter in reference to gold, silver, and copper coins, leav-ing the question of a change in the relative value ofgold and silver, unnoticed, with the view, no doubt,of w aitin g for the com mu nication of the s ecreta ry ofthe treasury, called for on that subject.

That communication was made by Mr. Ingham onthe 4th of M ay , 1S30, und er the title of a " re p o rtfrom the secretary of the treas ury, respecting the rela-tive value of gold and silver, & c."— It w as dra w n upwith great ability, and was the result of much scienti-fic and historical research, eventuating in a convictionon the mind of the secretary, that it was not clearlyadvisable to act on the subject, but recommending, forreasons given at length, that if congress should other-wise decide, the ratio of 1 to 15.625 would be as nearas could be ascertained, the proportions betw een thetw o metals w hich w ould m ake them circulate inter-

changeably .On the 9th of Decem ber, 1S30, M r. Sanford ren ew edhis resolution of the preceding session, which wasadopted as follows:

" Resolved, T ha t a select comm ittee be appo intedto consider the state of the current coins, and to reportsuch amendments to the existing laws concerningcoins, as m a y b e deemed ex ped ient ."

In conformity with this resolution, Mr. Sanford, aschairman, of the committee, reported, on the 15th ofthe sam e m on th, a bill entitled " An act conce rningthe gold coins of the United S ta te s." T his bill re-duced the w eight of the eagle (and of halves an d







230 APPENDIX.

lative va lue to w hich gold and silver are liable, incomm on w ith all other co m mo dities, and that a la wm ade to-day might prove inoperative to-m orrow , orwhat would be worse, might require to be changed sofrequently, as to leave the coinage of the country in adisturbed or unsettled sta te, highly prejudicial to thatconfidence betw een man an d m an, w hich ought toexist in reference to contracts for future payments.

3. T ha t it is an absu rdity to h av e mo re legal ten-de rs th an one, from the impossibility of establishing animmutable equivalency between two; and that assilver w as better kno w n to our citizens than gold, es-pecially to the great body of the laboring peo ple,w as more conv enient for small p aym ents, w as lessliable to be counterfeited, and was the money in whichmost contracts for future distant payments were stipu-lated to be m ad e, it w ould be un w ise to enact a law

the effect of which might be to expel all the silver fromthe country.4. T ha t if a ne w proportion corresponding to the

present market proportion, were to be adopted, and itshould so .ha pp en that the m arket proportion shouldhereafter fall back to w ard s the rate of 1 to 1 5, the in-evitable effect would be to drive the silver out of thecountry whenever the course of trade should warrantexports of coin, and for the identical reason that goldhad been before driven out.

5. That a law declaring that an existing debt for$10 , which, at the time of the contract, meant ten sil-ver dollars, or a gold coin weighing 247£ grains of finegold, shall now be discharged with a gold coin retain-ing the same nam e, but w eighing only 232 grains offine gold, is a law im pairin g the obligation of con tractsand is a breach of the public faith as relates to all pub-

lic creditors and salary officers.6. That should the event take place of silver being

driven out of the country, its absence would be mostsensibly felt in all the small money transaciions of thecommunity, owing to the inconvenience, even if they



APPENDIX. 231

could be had in sufficient abundance, of a gold coinof so low a denomination as one dollar.

7. That this inconvenience would press so heavily

upon the public, that they would call out for a change

in the laws, or what is quite probable, that they would

fly to one dollar bank notes, as a remedy for the evil,

and thus render the currency as bad as it was in 1S1G,

in those states where the banks did not pay their notes

in coin.

8. That if congress should, in order to prevent this

calamity, alter the law, it would not be by increasing

the weight of the eagle, but by diminishing the weight

of the dollar, and thus, we should lay the foundation

for a gradual depreciation of the currency, which at

some future day might be employed to the perpetra-

tion of the same species of frauds upon public and

private creditors, as have marked the course of all

governments that have tampered with their coinage.We are aware that in making these remarks we are

treading upon the toes of many of the readers of this

Journal in Georgia and North Carolina, and other

states where gold is produced, who will not relish a

doctrine that seems to be at war with their pecuniary

interests. We can not, however, permit our reverence

for what we conceive to be the truth, to be smothered

by any private considerations. We would have pre-

vented the passage of the gold bill, had we been able,

believing it to be pregnant with great future evils to

the country, and unattended with one single benefit

to compensate for the mischief it is likely to produce.

We think we can demonstrate, that as a means of

breaking up the paper system, it is utterly futile, and

that as a means, of putting money into the pockets of

the owners of gold mines, beyond that inappreciable

sum resulting from the increased value given to thewhole supply of gold in the commercial world by the

new demand for the American circulation], it will be

found wholly delusive. We have, however, said

enough for one occasion, and shall resume the sub-





APPENDIX. 233

ducers of gold are now enabled to get 6 2-3 per cent. *more for their gold than they used to get under the

old law, seeing that 232 grains of pure gold are now

declared to be the equivalent of ten dollars, whereas,

under the old law, 2471 grains were the equivalent of

that sum. This assertion would have been true,had the

old law prohibited the producers of gold from receiv-

ing for their gold more than ten dollars for e-very 247§

grains; but this was not the case. From the very

first moment that gold made its appearance in NorthCarolina, up to the present time, it has commanded a

price in the market above the mint price; that is, one

ounce of gold has exchanged for more than fifteen

ounces of silver, or, what is the same thing, 2471

grains of pure gold have been exchanged for more

than ten dollars. We have no official data to refer to,

by which we can ascertain precisely the price at

which gold has been sold at different periods at thedifferent mines, but it is fair to presume, that it was

as near to the Philadelphia market price as it is now,

and as it will hereafter be. If, then, we can ascertain

what has been the Philadelphia market price since the

year 1S24, we shall be able to throw some light on

this subject, for let it be remembered, that whatever

that price has been, it has gone into the pockets of the

producers of gold, deducting the expense of transpor-

tation to Philadelphia, where the mint is located—anexpense which must be borne by them hereafter, as

heretofore. Fortunately upon this point we have evi-

dence that no one will dispute, for, as it comes from a

strong advocate of the gold bill, it can not be sus-

pected of unfairness.

From the Washington Globe.

"The fol lowing s tatement of actual sales, made by

the United States Bank, will show how she has soldforeign gold:

* The precise per centage is 6.681, which is a fraction morethan 6.;.



2 3 4

Jan. 5, 1S2S,Jan. 3, 1829,Jan. 2, 1830,Jan. 4 , 1831,Jan. 4, 1832,Jan. 3 , 1833,

APPENDIX.

Guineas.

per cent.

948 4

7354837

Sovereigns.

per cent.

10

S i8364837

Portugues Gold,

per cent.

64

54

44

3

54

34" Th ese are a few only out of thousand s of sales

m ade by the Ba nk of the Un ited States. Th ey go ashigh as ten per cent."

H er e, then , w e see it show n that foreign gold hasbeen sold by the B an k of the United Sta tes, at theperiods mentioned, at a premium varying from 3 fo 10per cent. T he reason w hy B ritish gold sold highertha n Po rtugu ese gold, w hich is of the same sta nd ard ,(22 ca rats fine, that is, 11 pa rts pu re metal to one p art

alloy), is, that guineas and sovereigns are cash imme-diately on their arrival in En gla nd , even thoug hsom ew hat l ighter than full w eight, w herea s, Portu -guese gold w ould be available only as bullion. N o w ,as American gold coins at the periods referred to wereof the same standard as the Portuguese, and, likethem, only available in foreign countries as bullion, itis fair to presum e that the price of American goldw a s , in the Philadelphia market, the same as that ofthe Portuguese.

It would, then, appear, that American gold wasw orth , in Philadelphia,from 1S28 to 1833 ,a prem iumvarying from 3 to 64per cent., or upon an average, afraction above 44 per cent. In othe r w ord s, w e seethat one ounce of gold has uniformly been sold formore than fifteen ounces of silver, an d in one casefor very near sixteen ounces. N ow it must be ap pa -

rent, that unless the producer of gold gets for his com-modity at the mint 6 2-3 and a fraction per cent, morethan he used to get in the market, he is not a gainerby the chang e to the ex tent asserted. B ut the new-m int price is only 6.681 per cent, more than the old





236 APPENDIX.

oun ce of 480 grains as m ay be ascertained from the

fact tha t 232 gra ins (the w eight of pur e gold in aneagle of the new coinage) is the equivalent by law of10 dollars.*

The difference between these two prices is 42 centsand 4-10ths of a cent, per oun ce, w hich is equ al to 2per cent, and a fraction, and it thus still appears tha tthe present mint price is that mu ch high er than theold m arke t price, an d consequen tly tha t the prod ucer

of gold ga ins 2 dollars a nd a fraction on ev ery 100dollars by the new proportion.We say it appears so, and for the sim ple reason

that the fact in reality is not so. To prove this, w em ust ascertain w heth er the 20 dollars 69 cents spokenof as the present price of an ounce of pure gold, arethe sam e k ind of dollars as those spoken of, w he re$20,26 6-10 are stated to have been the price of puregold un der the old law . Fo r it must be very evident

that the term dollar is in itself no sign of fixed quan-tity or value, and that as quantities and values are thething s reg arde d in all sales and purc hases, and no tmere denominations, it is absolutely necessary thatthis point should be determined before any correctopinion can be formed.

Under the old law , a dollar w as represented by asilver coin con taining 416 grains of standa rd silver,

or, b y 24 grains and 75-100 of a grain of pu re gold,that being the tenth part of the quantity of pure goldcontained in an eagle of the old coinage.

A dollar under the new law is represented also by416 grains of standard silver, or, by 23 grains and 20-100 of a grain of pure gold, that being the tenth partof the qu an tity of pu re gold contained in an eagle ofthe new coinage.

It thus appears that the dollar spoken of at the two

different periods, contains the same quantify of silver,but a different quantity of gold, and it is therefore evi-

* If 232grains are equal to $10, 480 grains are equal to $20,69.







APPENDIX. 239

the dim inution of w eight m ight be. If 5 per cent,w ere deducted from the w eight of coins, all com m o-dities w ould rise in price 5 per cent. N obody w ouldgain by the change, except the class of debtors owingm one y at the time, and nobod y w ould lose, but theclass of creditors, the former by being enab led to dis-cha rge a debt w ith less metal tha n they had con-tracted to pa y, and the latter by being com pelled toaccept it . Bu t all ne w contracts and eng agem ents

w ould hav e reference to the new coins, w hich w ouldpossess a value precisely in proportion to the quantityof pure metal contained in them.

It may, however, be thought that during the t imewhich must elapse before the standard is changedfrom silver to gold, by the expulsion of the silver, theproducer of gold would be benefitted to the extent oftwo per cent, and a fraction, by his ability to obtain

8607 grain s of stan da rd silver for an ounce of pu regold. B ut this is no t so, for the effect of the law is todepreciate the value of the silver down to the levelof the gold, for, let it be remembered, that to increasethe price of g old, w hich w as the design of the goldbill, is to decrease the price of silver. The law w hichsays, that a number of gold coins which contain oneoun ce of pu re gold, shall pass for no more tha nthe num ber of silver coins that contain S6O7 gra ins

of standard silver, at the same time declares, that thenu m be r of silver coins w hich contain 8607 grains ofstan da rd silver shall pass for no more than the nu m -ber of gold coins that contain one ounce of pure gold.So lon g, therefore, as the tw o m etals circulate inter-changeably, the one possesses no more value in ex-cha ng e, than the o ther, and conseq uently, a num berof coins containing 8607 grains of standard silver,

w ill purchase no more than a num ber of coins con-tain ing one ounce of pure gold. It is only for ex -po rtation, or consum ption in m anufactures, that thesilver w ould possess the superior va lue referred to ,an d this superior value w ould benefit only the ex -



240 APPENDIX.

porting m erch ant, and not the produ cer of gold. I tis true , ho w ev er, tha t after silver should h av e becomescarce, i t w ould comm and a premium in the m arket ,as gold used to do, in which case 8607 grains ofstan dard w ould no longer be procurab le for one oun ceof pu re gold, and conseq uently the produc er of goldw ould not ha ve even the sha do w of a benefit fromthe change.

Is there then no advantage to result to the southern

produ cers of gold, from the ope rations of the m eas uresof the great alchym ists w ho h av e broug ht back thegolden age? W e reply, none w hate ver, ex cept that tri-fling and almost inappreciable one to w hich w e adv ert-e d a t the com m encem ent of this article, arising from thefact, that a new demand for gold has been created byits adoption as the Am erican stand ard. W ha t thisw ill am oun t to mu st be conjectural, but w e shouldsuppose , w hen w e adv ert to the actua l stock of goldcoin and bullion n ow in existence in E ur op e, A sia,Africa, N orth and South Am erica, the accu m ulationof centuries, that the dem and for the Am erican m ar-ket can have no perceptible influence in raising thevalue of the w hole m ass.— W hatever that r ise m ayb e , however, it will go to the benefit of the domesticproducer of gold, but that is all he will derive from ameasure fraught with infinite mischief to the country,

and accompanied by a breach of the public faith.N O T E .

After w riting the foregoing article, w e w ere fur-nished by a respectable brok er of this city, w ith astatem ent of the price of A m erica n gold, du ring theyea rs for w hich w e ha ve abo ve given the prices offoreign gold, which is as follows:

Buying price. Selling price,per cent. prem. per cent. prem.1828, Ja n . 19, 5 to 5$ 71829, « 1, 5 to 6 611S30 , « 1, 3J to 4§ 5



APPENDIX. 341

1 8 3 1 , " 1, 2i to 3 4 to 5

1 8 3 2 , « 13, 2h 3i

An average of these rates is 3# for the buyingprice, and 5 per cent, for the selling pric e, giving am ed ium of 4g per cen t, w hich is sufficiently nea r to4i per cent, for our purpose.



242 APPENDI X.

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APPENDIX. 243

THE NEW YORK GENERAL BANKING LAW.

AN ACT TO AUTHORISE THE BUSINESS OF BANKING PA SS-

ED APKIL 1 8 , 1S 38 .

The people of the State of New York, represented insenate and assembly, do enact as follows-.

§ 1. The comptroller is hereby authorised and re-quired to cause to be engraved and printed in the bestmanner, to guard against counterfeiting, such quantityof circulating n ote s, in the similitude of ba nk notes inblanks of the different denominations authorised to be

issued by the incorpo rated bank s of this state , as hemay from time to time deem necessary to carry intoeffect the provisions of this act, and of such form as hem ay prescribe. Such blank circulating notes shall becountersigned, numbered, and registered, in properbooks to be provided and kept for that purpose in theoffice of said comptroller, under his direction, by suchperson or persons as the said comptroller shall appoint

for that pu rpose; so tha t each denom ination of su chnotes circulating shall all be of the same similitude an dbea r the uniform sign ature of such register; or on eof such registers.

§ 2. W hen eve r an y person or association of person s,formed for the purpose of banking under the provis-ions of this act, shall legally transfer to the comptrollerany portion of the public debt now created or hereafterto be created by the Un ited States or by this state, or

such other states of the Un ited States as shall be a p -proved by the comptroller, such person or associa-tion of perso ns shall be entitled to receive from thecomptroller an equal amount of such circulating notes



244 APPENDIX.

of different deno m inatio ns, registered and coun tersign-

ed as aforesaid; bat such public debt shall in all casesbe, or be m ade to be , eq ua l to a stock of this sta te,producing five per cent, per annum, and it shall notbe lawful for the comptroller to take any stock at arate above its par value.

§ 3. Such person or association of persons are here-by authorised, after having executed and signed suchcirculating no tes in the m ann er required by la w , tom ake them obligatory promissory notes pa yable ondemand, at the place of business within this state, ofsuch person or a ssociation, to loan and circulate thesam e a s m oney according to the ordina ry course ofban king business as regulated by the law s and usagesof this state.

§ 4. In case the m ake r or m ak ers of an y such circu-lating notes countersigned and registered as aforesaid,shall at any time, hereafter, on lawful demand during

the usual hours of business, between the hours oftenand three o'clock, at the place where such note is pay-able, fail or refuse to redeem such note in the lawfulm oney of the United States , the holder of such no tem aking such dem and m ay cause the same to be pro-tested for non-payment by a notary public, under hisseal of office in the usual manner; and the comptrolleron rece iving and filing in his office such pro test, shallforthw ith give notice in w riting to the maker or mak ersof such note to pay the sa m e: and if he or they shallom it to do so for ten days after such notice, the co m p-troller shall immediately thereupon, (unless he shallbe satisfied that the re is a good an d legal defenceagainst the payment of such note or notes,) give no-tice in the state paper that all the circulating notes is-sued by such person or association will be redeemedout of the trust funds in his hands for that purpose;

and it shall be law ful for the com ptroller to ap ply thesaid trust funds belong ing to the m aker or m ake rs ofsuch protested notes to the payment and redemptionof such notes, with costs of protest, and to adopt such





246 APPENDIX.

w hich case all such bills or notes issued by the saidperson or association of p erson s, shall be stam ped ontheir face, " Secured by pledge of pub lic stocks an dreal es tate ."

§ 8 . Such mortgages shall be only upon im pro ve d,productive, unincurnbered lands within this state,worth, independently of any buildings thereon, atleast doub le th e am ou nt for w hich they shall be som ortg ag ed; and the com ptroller shall prescribe such

regulations for ascertaining the title and the valueof such lands as he m ay deem necessary; and suchm ortgage s shall be pa yab le w ithin such time as thecomptroller may direct.

§ 9. T h e com ptroller m ay,, in his discretion, rea s-sign the said bonds and mortgages, or any of them, tothe pe.son or association who transferred the same,on receiving other approved bonds and mortgages ofequal amount; and when any sum of the principal ofthe bond s an d mortgag es transferred to the comptrollershall be paid to him, he shall notify the person or as-sociation tha t transferred the bon ds and m ortga ges ofsuch payment, and may pay the same to such personor association on receiving other approved bonds andmortgages of equal amount.

§ 10. The person or association of persons assigningsuch bonds and mortgages to the comptroller, may

receive the an nu al interest to accrue thereo n, unlessdefault shall be m ade in pa yin g the bills or notes tobe countersigned as aforesaid, or unless in the opinionof the comp troller the bonds and m ortgage s or stocksso pledged shall become an insufficient security for thepayment of such bills or notes.

§ 11. In case such person or association of persons,sha ll fail or refuse to pay such bills or no tes on de -

m an d in the m an ne r specified in the 4th. section ofthis act, the com ptroller, after the ten d a y s ' noticetherein mentioned, may proceed to sell at public auc-tion, the pub lic stocks so pledged or th e bonds an dmortgages so assigned, or any or either of them, and



APPENDIX. 247

out of the proceeds of such sale shall pay and cancelthe said bills or no tes, default in pa yin g w hich shallhave been made as aforesaid; but nothing in this actcontained shall be considered as implying any pledgeon the part of the state for the payment of said bills ornotes, beyond the proper application of the securitiespledged to the comptroller for their redemption.

§ 12. T he public debt, and bonds, and m ortgages,to be deposited w ith the comp troller by an y such per-

son or association, shall be held by him ex clusivelyfor the redemption of the bills or notes of such personor association put in circulation as m on ey , until thesame are paid.

§ 13. T h e plates, dies, and m aterials to be procuredby the comptroller for the printing and making of thecirculating notes provided for hereby, shall remain inhis custody and under his direction; and the expenses

necessarily incu rred in ex ecu ting the prov isions of thisact, shall be aud ited and settled by the com ptroller,and paid out of any moneys in tht treasury not other-w ise approp riated; and for the purpose of reim bur-sing the sam e, the said com ptroller is h ereb y au th o-rised and required to charge against and receive fromsuch person or association applying for such circula-ting notes, such rate per cent, thereo n a s m ay be suf-ficient for that pu rpo se, an d as m ay be ju st and rea-

sonable.§ 1 1. It shall not be law ful for the com ptroller, or

other officer, to countersign bills or notes for any per-son or association of persons, to an amount in the ag-grega te ex ceeding the public debt, or public debt an dbonds and m ortgages at their value , as provided in the2d section of this act, deposited with the comptrollerby such person or association; and an y com ptroller

or other officer who shall violate the provisions ofthis section, shall, upon conviction, be adjudged guiltyof a m isdem eanor, and shall be pun ished by a finenot less tha n five th ousa nd dollars, or be imp risonednot less than five years, or by both such fine and im-prisonment.



248 APPENDIX.

§ 15. Any number of persons may associate to es-tablish offices of discount, deposite, and circulation,upon the terms and conditions, and subject to the lia-bilities prescribed in this act; but the aggregateam ou nt of the capital stock of an y such associationshall not be less than one hundred thousand dollars.

§ 16. Such person s, und er their han ds and seals,shall make a certificate which shall specify:—

1. T he nam e assum ed to distinguish such associa-

tion, and to be used in its dealings.2. The place where the operations of discount and

deposke of such association are to be carried on, de-signating the particular city, town, or village.

3. The amount of the capital stock of such associ-ation, and the num ber of shares into w hich the sameshall be divided.

4. The names and places of residence of the share-hold ers, an d th e nu m ber of share s held by each ofthem respectively.

5. The period at which such association shall com-m ence and termin ate; w hich certificate shall be prove dor ack no w ledg ed and recorded in the office of the clerkof the county where any office of such associationshall be establish ed, and a copy thereof filed in theoffice of the secretary of state.

§ 17. T h e certificate req uired by the last preced-

ing section to be recorded and filed in the office of theclerk of the county an d secretary of state as afore-said, or copies thereof, duly certified by either of thoseofficers, m ay be used as evidence in all co urts an dplaces for and against any such association.

§ 18. Such association shall have power to carry onthe b usiness of ban kin g, by discounting bills, notes,and other evidences of debt; by receiving deposites;by buying and selling gold and silver bullion, foreign

coins and bills of exchange in the manner specified intheir articles of association for the purpose authorisedb y this ac t; by loaning m oney on real an d personalsecurity; and by exercising such incidental powers as



APPENDIX. 249

shall be necessary to carry on such business; to choose

one of their number as president of such association,and to appoint a cashier, and such other officers and

agents as their business may require, and to remove

such president, cashier, officers and agents at pleasure,

and appoint others in their place.

§ 19. The shares of said association shall be deemed

personal property, and shall be transferable on the

books of the association in such manner as may be

agreed on in the articles of association, and everyperson becoming a shareholder by such transfer, shall,

in proportion to his shares, succeed to all the rights and

liabilities of prior shareholders; and no change shall be

made in the articles of association, by which the rights,

remedies, or security of its existing creditors shall be

weakened or impaired. Such association shall not be

dissolved by the death or insanity of any of the

shareholders therein.

§ 20. It shall be lawful for any association of per-

sons organised under this act by their articles of asso-

ciation, to provide for an increase of their capital and

of the number of the associates, from time to time, as

they may think proper.

§21. Contracts made by any such association, and

all notes and bills by them issued and put in circula-

tion as money, shall be signed by the president or

vice president and cashier thereof; and all suits, actions,and proceedings brought or prosecuted by or on be-

half of such association-, may be brought or prosecu-

ted in the name of the president thereof; and no such

suit, action, or proceeding, shall abate by reason of

the death, resignation, or removal from office of such

president, but may be continued and prosecuted ac-

cording to such rule as the courts of law or equity

may direct, in the name of his successor in office,

who shall exercise the powers, enjoy the rights, anddischarge the duties of his predecessor.

§ 22. All persons having demands against any such

association, may maintain actions against the presi-



250 APPENDIX.

dent thereof; which suits or actions shall not abate by

reason of the de ath , resignation, o r rem ova l fromoffice of such p resident, bu t m ay be c on tinue d andprosecuted to judgment against his successor; and alljud gm ents and decrees obtained or rendered againstsuch president for any debt or liability of such asso-ciation , shall be enforced only aga inst the joint p ro -perty of the association, and which property shall beliable to be tak en and sold by execu tion un der an ysuch judgment or decree.

§ 23 . No shareh older of an y such association shallbe liable in his individual capacity for any contract,debt, or engagement of such association, unless thearticles of association by him signed shall have de -clared that the shareholder shall be so liable.

§ 24. It shall be lawful for such association to pur-ch ase , ho ld, arid convey rea l estate for the follow ingpurposes:—

1. Such as shall be necessary for its immediate ac-commodation in the convenient transaction of its busi-ness; or

2. Such as shall be m ortgag ed to it in good faith,by w ay of security for loans m ade by , or money s du eto such association; or

3. Such as sh all be con vey ed to it in satisfactionof debts previously contracted in the course of its

dealings; or4. Such as it shall purc hase at sales un de r ju d g -m en ts, decrees, or m ortga ges held b y such association.

5. The said association shall not purchase, hold, orconvey real estate in any other case or for any otherpu rpo se; and all con vey anc es of such real estate shall bemade to the president, or such other officer as shall beindicated for th at pu rpo se in the articles of association;and which president or officer, and his successors,from tim e to tim e, m ay sell, assign, and convey thesame, free from any claim thereon, against any of theshareholders, or any person claiming under them.

§ 25 . U pon the application of creditors or sh are -



APPENDIX. 251

holders of any such association, "whose debts or sharesshall amount to one thousand dollars, and statingfacts, verified by affidavit, the chancellor may, in hisdiscretion, order a strict ex am inatio n to be m ade byone of the masters of his court of all the affairs ofsuch association, for the purp ose of ascertaining thesafety of its investments, and the prudence of its ma-nagement; and the result of every such examination,together with the opinion of the master and of the

chancellor thereon, shall be published in such manneras the chancellor shall direct, w ho shall mak e suchorder in respect to the ex pense s of such ex am inationand publication as he may deem proper.

§ 26. S uch association shall on the first M on da ysof Ja n u ar y and July in every year after ha ving com -menced the business of banking as prescribed by thisact, make out and transmit to the comptroller, in the

form to be provided by him , a full statement of theaffairs of the association, verified by the oa th of thepresident or cashier, which statement shall contain

1. The amount of the capital stock paid in accord-ing to the provisions of this act, or secured to be paid.

2. The value of the real estate of the association,specifying w hat portion is occupied by the associa-tion as necessary to the transaction of its business.

3. The shares of stock held by such association;

w he the r absolutely or as collateral sec urity ; specify-ing each kind and description of stock, and the num-ber and value of the shares of each.

4. The amount of debts due to the association,specifying such as are due from monied or other cor-porations or associations; and also specifying theamount secured by bond and mortgage or judgment;and the a m ou nt w hich oug ht to be included in the

computation of losses.5. T he am ou nt of debts due by such association;specifying such as are payable on demand, and suchas are due to monied or other corporations or asso-ciations.



252 APPENDIX.

6. The amount of claims against the associationnot acknowledged by its debts.

7. T he am ou nt of notes, bills, or other evidencesof debt, issued by such association.

8. The amount of ihe losses of the association;specifying whether charged on its capital or profits,since its last p receding statem en ts, and of its dividend sdeclared and made during the same period.

9. The average amount in each month during the

preceding six m onths of the debts du e to and fromthe association; the average amount of specie posses-sed by the same during each m onth , and the am oun tof bills and notes issued by such association and pu tin circulation as m one y, and outstandin g against theassociation, on the first day of each of the precedingsix months.

10. The average amount in each month duringthe preceding six months due to the association, fromall the shareholders in the association; also the great-est am ou nt du e the association in each of the saidpreceding six m on ths, from all the shareholders insuch association.

11. The amount which the capital of the said as-sociation has been increased during the preceding sixm on ths, if the re shall ha ve been an y increase of thesaid capital; and the nam es of any persons w ho m ay

become parties to the said articles of association, ormay have withdrawn therefrom since their last re-port .

It shall be the du ty of th e com ptroller to cause thestatement required to be made by this section, to bepublished in a new spa per printed in the countyw her e the place of business dif such association issituate, and in the state paper; the expense of which

shall be paid by such association.§ 27. If such association shall neglect.tc make outand transmit the statement required in the last pre-ceding section, for one month beyond the period whenth e sam e is req uire d to be m ad e, or shall violate an y



APPENDIX. 253

of the prov isions of this act, such association m ay beproceeded against and dissolved by the court of chan-cery, in the same m anner as an y m oneyed corpo rationmay be proceeded against and dissolved.

§ 28. If an y portion of the original cap ital of an ysuch association shall be w ith d ra w n for an y pu rposewhatever whilst any debts of the association remainunsatisfied, no dividen ds or profits on the shares of t hecapita l stock of the association shall therea fter be

made until the deficit of capital shall have been madegoo d, either by subscription of the sh areho lders, orout of the subsequently accruing profits of the asso-ciation; and if it shall appear that any such dividendshav e been m ad e, it shall be the du ty of the chan cel-lor to make the necessary orders and decrees forclosing the affairs of the association, and distributingits property and effects among its creditors and share-

holders.§ 29. Such association shall be liable to p ay theholder of every bill or note put in circulation as mo-ney, the payment of which shall have been demandedand refused, damages for non-payment thereof, inlieu of intere st, at an d after the rate of fourteen percent, per an num , from the time of such refusal un tilthe payment of such evidence of debt, and the dama-ges thereon.

§ 30. The president and cashier of every associationformed pursuant to the provisions of this act, shall atall times keep a true and correct list of the names ofthe shareholders of such association, and shall file acopy of such list in the office of the clerk of the countywhere any office of such association may be located,and also in the office of the comptroller, ©n the firstM ond ays of Ja nu ar y and July in every ye ar.

§ 31. It shall not be law ful for an y associationformed un de r the provisions of this act, to m ak e an yof its bills or notes of a den om ination less th an onethou sand dollars, to be put in circulation as m on ey,pa ya ble at a ny other place tha n at the office w he re



254 APPENDIX.

the business of the association is carried on and con-ducted.

§ 32. The legislature may at any time alter or re-peal this act.

§ 33. No association of persons authorised to carryon the business of banking under this act, shall at anytime, for the space of tw enty da ys, ha ve on hand attheir place of business, less than tw elve an d a halfper cent, in specie on the amount of the bills or notes

in circulation as money.Stale of New York, Secretary's Office.

T his bill havin g been app roved and signed by the go-vern or of this state, on the 18th of A pril, 1838,1 do he re-by certify that the same became a law on that day.

JOHN A. Dix , Secretary of Stale.[See Appendix J.]

E.

LETTER FROM THE AUTHOR TO JOHN W. CO WE LL, ESQ.,

AGENT OF THE BANK OF ENGLAND IN THE UNITED

STATES.

Philadelphia, Jlpril 15, 1S39.M y D EA R S I R :

As you are upon the eve of departure for England,after, as I understand, a highly successful issue toyour financial mission to this country, I take occasionto han d yo u a copy of the " Tre atise on Cu rrency

and Banking," of whieh you have seen a few of theearly cha pters, in the hopes that you w ill f ind th em ,in the m ain, in accordance w ith your ow n view s ofthose im porta nt subjects. I am the m ore inclined tothis ex pec tation, from recollecting th e tenor of the



APPENDIX. 255

frequent conversations I ha ve h ad w ith y ou , fromw hich I need hardly say , I derived mu ch valua ble,instructive, and practical information, as well as froma perusal of the unpublished pamphlet, with a copyof w hich you favored m e, setting forth you r indivi-dual opinions upon the best system of reform for thepaper currency of England.

In re gard to the latter subject, I am free to confess,th at the United States ha ve a deep interest in its dis-

cussion, and they w ill ow e much to the political econo-mist or statesman, who shall be so fortunate, as suc-cessfully to advocate a reform that shall prevent fluc-tuations in the currenc y of G reat Britain. It w assome y ea rs since rem arke d in our congress, by a m em -ber, that the barom eter of the m oney m arke t of theUnited States w as hang ing up in the stock exch angeof Lo ndo n. Since the conflagration of tha t.bu ildin g,I would say that the barometer has been hanging upin the " pa rl o u r" of the ban k of En gla nd; an d intruth,* so closely allied are our tw o currencies by theill-advised change in our gold coinage, which tookplace in the ye ar 1834, tha t it is impossible tha t an yexpansion or contraction of the currency can takeplace in En gl an d, tha t w ill not be felt h ere; in the onecase, inviting our banks to extend their discounts, andthereby excite overtrading and speculation, and in the

other ca se, compelling them to contract their loa ns,and thereby produce a general commercial embarrass-ment .

The plan you have suggested, and to which I haveabove referred, appears to me to be eminently adaptedto accomplish the end proposed; and if the paper cur-rency of this coun try w ere unde r the control of asingle legislative body, as it is in England, instead ofthirty bodies, as it is, I w ould recom m end it as thebest plan 1 ha ve yet m et w ith, for enabling the pu b-lic to enjoy all the benefits of a paper circulation,without any of its evils.

According to that plan, as I understand it, the mint



256 APPENDIX.

is to issue certificates for suras of one pound, fivepou nd s, and any greater denom ination, upon a depo-site of gold of equal amount; and such fixed propor-tion of the gold so deposited, as may be ascertained,from experience, to be the amount that may, withthe most perfect safety, be w ithd raw n by ex po rtationfrom the metallic portion of the currency, is to be im-mediately invested in the public funds, by commis-sioners appointed for that pu rpose. By this process,

the following results will be effected:First. T he mix ed cu rrency, after the ex portation

of the gold above referred to , w ill be precisely equa lto the quantity of coin that would have existed in thecountry, had there been no mint certificates.

Secondly. The country would derive the profitsresulting from the em ploym ent of a certain am ou nt ofcapital in commercial pursuits , which would other-w ise ha ve b een unprofitably emp loyed as currency.

Thirdly. The public, and not private corporations,or individuals, would enjoy a profit resulting from thecirculation of the paper money, precisely equal to theaccruing interest on the public debt held by the com-missioners; and,

Fourthly. T he country w ould be ent irely exem ptedfrom an y fluctuation in the curre ncy , other than th atto which a metallic currency is liable; it being neces-

sarily incident to the plan, that w he ne ve r m int cer-tificates should be returned for payment in gold, thecommissioners should obtain in the market, by a saleof public securities, an a m ou nt of coin precisely equa lto that which was invested, on the issue of the notesso returned.

Against the soundness of this plan, I am not able tosee any objections. H ow far a gene ral panic, arising

from w ar , or dom estic disturba nce , m ight rende r itdifficult to sell pub lic securities in a time of em erg en cy ,yo u are better able to jud ge than I am . Certain is it ,however, that no depression of the stock market couldresult from a reaction of an ex pa nd ed state of the



APPENDIX. 257

curren cy , the most frequent cause of depressions atthe present day, for, as there would be no expansion,there could be no reaction.

Before pa rting , I can not omit the occasion to say toyou, that, although the political horizon is, at thismoment, somewhat over cast , I can not persuademyself that two countries like Great Britain and theUn ited States, so peculiarly ada pted to sup ply eachother 's wants, and whose mutual interest i t so mani-

festly is to maintain an eternal friendship, can, at thisenlightened da y, be guilty of the folly of going to w ar.And now, wishing you a safe and expeditious voyage,

I subscribe myself, very truly and respectfully,Your friend and servant,

C O N D Y R A G U E T .



2 5 8 APPENDIX.

F.

Imports and Exports of the United States, from the 1st of October,1789, to the 30th of September, 1838 , taken from documentsaccompanying the Secretary of the Treasury's annual Report toCongress, of the 3d of December, 1839.

Ys

179017911792

179317941795

1796179717981799180018011802180318041805

1806180718081809

1810181118121813181418151816

18171818181918201821

Total value

of Imports.

$23,000,000

29,200,000

31,500,000

31,100,000

34,600,000

69,756,268

81,436,16475,379,406

68,551,700

79,069,148

91,252,768

111,363,511

76,333,333

64,666,666

85,000,000

120,600,000

129,410,000138,500,000

56,990,000

59,400,000

85,400,000

53,400,000

77,030,000

22,005,000

12,965,000

113,041,274

147,103,000

99,250,000

121,750,000

87,125,000

74,450,000

62,585,724

Total value

of Exports.

$20,205,156

19,012,041

20,753,098

26,109,572

33,026,233

47,989,472

67,064,09756,850,006

61,527,097

78,665,522

70,971,780

94,115,925

72,483,160

55,800,033

77,699,074

95,566,021

101,536,963108,343,150

22,430,960

52,203,231

66,757,974

61,316,831

38,527,236

27,855,997

6,927,441

52,557,753

81,920,452

87,671,569

93,281,133

70,142,521

69,691,669

64,974,382

Domestic.

$19,666,000

18,500,000

19,000,000

24,000,000

26,500,000

39,500,000

40,764,09729,850,026

28,527,097

33,142,522

31,840,903

47,473,204

36,708,189

42,205,961

41,467,477

42,387,002

41,253,72748,699,592

9,433,546

31,405,700

42,366,679

45,294,041

30,032,109

25,008,152

6,782,272

45,974,403

64,781,896

68,313,500

73,854,437

50,976,838

51,683,640

43,671,894

Foreign.

$539,156

512,041

1,753,098

2,109,572

6,526,233

8,489,472

26,300,00027,000,000

33,000,000

45,523,000

39,130,877

46,642,721

35,774,971

13,594,072

36,231,597

53,179,013

60,283,23659,643,558

12,997,414

20,797,531

24,391,295

16,022,790

8,495,127

2,847,845

145,169

6,583,350

17,138,556

19,358,069

19,426,696

19,165,683

18,008,029

21,302,488



APPENDIX, 259

YeTotal valueof Imports. Total valueof Exports. Domestic. Foreign.

1 8 2 2

1 8 2 3

1 8 2 4

1 8 2 5

1 8 2 6

1 8 2 7

1 8 2 8

1 8 2 91 8 3 0

1 8 3 1

1 8 3 2

1 8 3 3

1 8 3 4

1 8 3 5

1 8 3 6

1 8 3 7

1 8 3 8

$ 8 3 , 2 4 1 , 5 1 1

77,579,267

8 0 , 5 4 9 , 0 07

96,340,075

84,974,477

79,4 8 4 , 0 6 8

8 8 , 5 0 9 , 8 2 4

74, 4 9 2 , 5 2770,876,920

1 0 3 , 1 9 1 , 1 2 4

1 0 1 , 0 2 9 , 2 6 6

1 0 8 , 1 1 8 , 3 1 1

1 2 6 , 5 2 1 , 33 2

1 4 9 , 8 9 5 ,742

1 8 9 , 9 8 0 , 0 3 5

1 4 0 , 9 8 9 , 2 17

113,717,404

$ 7 2 , 1 6 0 , 3 8 7

74, 6 9 9 , 0 3 0

75,986,657

99 , 5 3 5 , 3 8 8

77,595,322

8 2 , 3 2 4 , 8 27

72,264,686

72,358,67173, 8 4 9 , 5 0 8

8 1 , 3 1 0 , 5 8 3

87,176,943

9 0 , 1 4 0 , 4 33

104,336,973

121,693,577

1 2 8 , 6 6 3 , 0 4 0

117,419,376

1 0 8 , 4 8 6 , 6 1 6

$ 4 9 , 87 4 , 1 8 5

47,155,408

5 0 , 6 4 9 , 5 0 0

66,944,745

5 3 , 0 5 5 ,710

5 8 , 9 2 1 , 6 9 1

5 0 , 6 6 9 , 6 6 9

55,700,1935 9 , 4 6 2 , 0 2 9

61,277,057

63,137,470

70,317,698

8 1 , 0 3 4 , 1 6 2

1 0 1 , 1 8 9 , 0 8 2

1 0 6 , 9 1 6 , 6 8 0

9 5 , 5 6 4 , 4 1 4

9 6 , 0 33 , 8 2 1

$ 2 2 , 2 8 6 , 2 0 2

27,5 4 3 , 6 2 2

25,337,157

3 2 , 5 9 0 , 6 4 3

2 4 , 5 3 9 , 6 1 2

2 3 , 4 0 3 , 1 3 6

2 1 , 5 9 5 , 0 17

16,658,47814,387,479

2 0 , 0 3 3 , 5 2 6

2 4 , 0 3 9 , 473

19,822,735

2 3 , 3 1 2 , 8 1 1

2 0 , 5 0 4 , 4 9 5

2 1 ,746 , 3 6 0

2 1 , 8 5 4 , 9 6 2

12,452,795

1839* 157,609,560 | 118,359,004 | 100,951,004 | 17,408,000

NOTE.

For the early years the aggregate of the value of imports doesnot appear on the official statement, and has been estimated atdifferent amounts by different persons,'and thus that column willnot alw ays correspond w ith former reports. But the differencewill not be found so great as to affect materially any generalresult. [In former reports it is stated, that prior to the 1st of

October 1820, the official returns do not show the value of im-ports. Previous to 1796, the returns of exports did not dis-criminate between domestic and foreign productions.— Author.]

* The imports and exports, for 1839, are estimated thus by thesecretary, the exact returns not having been received by him.—Author.



260 APPENDIX.

G.

ON UNLIMITED LIABILITY.

By James Cox Esq. of Philadelphia.

T H E question of the extent of the liability of indi-viduals, and of their natural right to limit that liability,is one which, in its moral as well as in its economicalaspects and relations, is of the highest interest and im-portance, and the satisfactory solution of which is in-timately connected with the investigation of thosegen eral and fundam ental principles of justice a nd ofexpediency, which should form the basis of all posi-tive enactments.

Prominent among the many plausible yet shallowfallacies which have, with a zeal and a perseverancew or thy of a better cau se, been urged in favor of thedevice of a limitation of individual liability— of a re-striction upon personal responsibility— is the vain andcontradictory assumption that the adoption and exten-sion of this systom of restraints is required by an en-lightened adherence to the doctrines of the free trade

theo ry— a theory in the general truth of the conclu-sions of which there is, as we think, no sufficient rea-son to doubt.

What would be the condition of individuals livingin a state of the largest liberty consistent w ith theprotection of each in the enjoyment of his naturalrights, and under the control of no laws except suchas m ight be necessa ry to enforce tha t perfo rmance ofengag em ents w hich is required by a regard to thepa ram ou nt obligations of m orali ty, and to the de m and sof justice? A . B . and C. w ou ld, as it is perfectlymanifest, trade with each other upon the condition ofthe natural and unlimited liability of eac h. A nd



APPENDIX. 261

should A. B . and C. associate together in order to tra dew ith D. E . an d F. , it w ould still, in strict conformitywith the moral law, be upon the basis of the naturaland unrestrained responsibility of each, not m erelyfor the conseq uences of his ow n individ ual actio ns,bu t for those of the association of w hich he w as am em ber. An d from this condition of na tura l and in-herent obligation, from this state of subjection to themoral law, neither A. B. nor C. could, by his own un-

aided act or by his individual effort, liberate himself.To effect this, the efficacy of positive enactmentsm ust b e called to his assistance. Recourse mu st beha d to far fetched and fanciful an alo gie s, to subtile re -finements and to legal figments. Privilege usurps theplace of right. R igh ts cease to be enjoyed upon theonly proper condition of the full performance of du-ties. Perfect freedom is no longer d em and ed upo nthe sole grou nd of perfect responsibility. L ibe rty an dliability are rent asunder; an appeal must be made tothe legislative pow er to pu t a limitation upon thatw hich w as before unlimited— to restrict that which,in a state of freedom, w as unrestraine d. T he v eryexpression of " limited l iabil i ty" betrays the weak-ness of the arg um en t; w hilst it suggests, and of neces-sity im plies, from the force of the term s, the idea , notof freedom, but of restraint and of restriction.

W e are thu s irresistibly led to the conclusion th atthe fancied adv ocacy of the right freely to tra de incom m odities, resolves itself into an arg um en t for thelimitation of that which, but for the intervention ofthe law , and the interference of the law -m ak ers,w ould be unlimited— for the restriction of that w hic h,in the absence of positive and special enactments,w ould be unrestricted. T he argu m ent for restraints

is not the less remarkable as occasionally proceedingfrom those w ho thrust themselves forw ard as the se-lect and chosen champions of the beneficent doctrinesof commercial freedom; and who complacently as-



262 APPENDIX.

sume to themselves the character of the freest of thefree.

"T here seems to prevail," says M r. Tooke, "am ongthose who incline to the introduction of the comman-dites" (or limited liability) " system, a vague noticethat something like a right exists, onthe part of indi-viduals, to circumscribe their liability" * * « and thatit is only by the special interference of the law of part-nership that they are prevented from exercising that

right, that the law is an interference w ith w hat wouldotherw ise be the free, and probably, therefore, the bestdirection of capital in trade." * * * " On the slightestreflection, how ever, it must be obvious that the com-mandite is a privilege, and has not the shadow offoundation as a natural right. The general, if notuniversal, rule of commercial transactions is, that theindividual is liable to the full ex tent of his means, forthe engagements entered into by himself, or on hisbehalf, or jointly w ith others, and it is only by the in-tervention of a special law that he can be shieldedfrom the more general one." And whilst this interpo-sition must be considered as granting " a privilege, itoperates as a distinct inducement— a premium— toindividuals to employ the inferior,, instead of the betterinstrument for carrying on the trade of the country."

But, possibly, it m ay be objected that individuals

are at liberty, by mutual agreement, to limit their re-sponsibility. This, how ever, in the sense intended, isa mere groundless assertion, w ithout force or founda-tion. For, although it should be admitted that an in-dividual may, in the performance of a specific con-tract, limit his liability to the ex tent of the pledgedsecurity, it w ould by no means necessarily follow thathe can thus restrict and restrain his general liability.This liability, as w e have seen, is the result of natural

obligation. It arises from the operation of the morallaw . It is binding upon the one party, from themere force of moral considerations; and it is entirely



APPENDIX. 263

ind epe nd ent of the claim of the other pa rty. It resultsfrom the very nature of man as a m o ra l agent. Tobe relieved from its practical operation > recoursemust be had to artificial distinctions, and to legal fic-tions. T h e proposition attem pted to be sustained isneither more nor less than that men are born under aliability even less tha n tha t of corporations. Fo r thelatter being, by a legal refinement, considered as arti-ficial persons, are responsible to the whole extent of

their corporate pro pe rty. It is true tha t the m ostread y resources of these artificial persons are frequentlyfound to consist in an available fund of public credu-lity.

" If it should be urged that when a person intrustsproperty to another, he knowingly undertakes the riskof that other's insolvency, and that if the contingentloss happens, he has no claims to justice on the other,the answer is this: that whatever may be thought ofthese claims, they are not the grou nds upon w hich thedebtor is obliged to pa y. Th e debtor alw ays engagesto pa y, and the engagem ent is enforced by mo rality: theengagement, therefore, is binding, whatever risk ano-ther m an m ay incur by relying upon it. T he causesw hich h av e occasioned a person's insolvency, althou ghthe y grea tly affect his ch ara cte r, do not affect h is ob -ligations; the duty to repay w hen he has the po w er

is the sam e; w heth er the insolvency w as occasionedby his fault or his m isfor tun e." B eing then able topa y, " d o e s the legal discharge ex em pt him from theobligation to pay? N o : and for this reaso n, that thelegal discharge is not a m oral disc har ge; that as theduty to pay at all was not founded primarily on thela w ," the law cannot cancel the obligation.

If then individuals can, un der no circumstance s,ex cept those of a distinct and special contrac t, be jus ti-fied in limiting their responsibility to each other, muchless can th ey limit it in reference to third pa rtie s, an dleast of all, can the banker and the bank debtor have,as has been most absurdly assume d, a natura l and



264 APPENDIX.

indefeasible right to imp ose, for th e prom otion of the irown interested and sordid purposes, upon wholeclasses— upon the mass of the com m unity— the ab -solute necessity of receiving, in payment of their dues,the promissory notes of associations made up of irre-sponsible persons. A nd va in and frivolous is theassertion tha t, as ba nk notes are not a legal tend er,their circulation is the consequence of their voluntaryreception. Fo r , w hatever bank notes m ay be by

law, it cannot be denied that they are virtually, prac-tically, and in fact, a legal tende r. In cases inn um er-able there is no option , an d their circulation is thu sm ade com pulsory. A s is notorious, the great m assof the people are , at all tim es, totally w itho ut po w erto refuse them . P ap er forms almo st the w hole ofthe circulating me dium , and the only real altern ativeoffered to a large proportion of the laboring andm ech anical classes is to accept of ba nk no tes, or tocease from their occupations. T hu s there is restingupo n the su prem e autho rity the same obligation toprevent the circulation of worthless paper, as there isto preserve the purity of the coin. A nd the duty isthe more binding , inasm uch as the c oun try has sus-tain ed far m ore injury from the issue of fraudulen tprom ises, than from the circulation of base coin. T h egrea t " com m odity of con trac t" should not be left to

fluctuate in value at the caprice, or to gratify the cu-pidity of irresponsible or unprincipled parties.

Obligation is involved in the very nature of thatw hic h is morally good. " Obligation to action andrectitude of action are obviously coincident and iden-tic al. " If m en are m orally responsible for the con-sequences of their own actions, and for those of theiragents, (a proposition which will hardly be contested,)

then should the legal liability be com m ensu rate w iththe moral obligation.But it has been said: " Grant to your neighbor the

sam e secure ex ercise of the rights of' perso n an d ofproperty that you desire for yourself." And aga in :



APPENDIX. 265

" i f the abolition of restrictions will tend to enable

men m ore rapidly to im prove their condition, therecan be no moral objection to the passage of a lawgranting to all men permission to trade with eachother upon such term s as they m ay agree upon am ongthem selve s." T ha t is to sa y: secure to others, bym eans of positive enactments directly at variance w ithall sound and settled principles of moral and inherentaccountability, the same legal exemption from theperformance of duty — the same licence to disregardthe requirem ents of moral rectitude— w hich you de -sire for yourself, and the clim ax of perfect freedomw ill then be atta ined. A w ill be at liberty to defraudB , becau se B w ill be free to cheat C, w ho , in his tu rn ,m ay , w ith im pun ity, defraud A. Th e reciprocationof dishonesty is thus m ade p erfect— the circle of deceitis complete. T ha n w hich, w e are told, " nothingwould tend more to promote the cause of morality!"

It is not at all surprising that such a chain of argu-ment should assume, as its first link, the truth of theproposition that "the abolition of restrictions," bywhich is intended the granting of exemptions, " willtend to ena ble m en more rapidly to im prove theircondition;" thus proving the point at issue, by simplytaking it for granted; and instead of reasoning directlyfor the expediency of a measure from its justice,adopting the inverted process— the retrograde andcrab-like procedure of inferring its justice from itsassumed expediency. Ne ither, under the circum-stances, need it be an occasion of wonder, that whilstm en are discoursing upo n the tru th and beneficenttendency of the doctrines of free trade, and expatiatingup on the ad va nta ge s to ensue to society from " theabolition of restri ctio ns," they should also be foundpleading for •' the passage of a law granting to all

men" exemptions, to which, in the absence of all in-terference, on the part of the law -m ake rs, w ith thenatural state of perfect freedom upon the natural con-



266 APPENDIX.

dition of perfect respon sibility, they could m ake no

valid claim whatever.The doctrine of a limitation of liability thus strikes,as it is perfectly pla in, at the ve ry found ations ofm oral rectitude. It assum es the right of indiv idua lsto release themselves, and the possibility of theirbeing released by others , from the bond of m oral ob -ligation; of being relieved from all other than a verylimited measure of responsibility for the consequencesof their ow n acts, or of those of their autho rised an d

accredited agen ts. A n assum ption, as w e hav e justseen, as little in accordance w ith soun d principles ofinteg rity, as it is irreconcilable w ith an un rese rve dobedience to po sitive precepts of the highest possi-ble auth ority. T he dog m a ha s as slender a basis inna tural eq uity, as it deriv es little sup po rt from en -lightened view s of ex pedien cy. He nce the entirecorrectness of the rem ark of a practical bank er, of

excellent understanding and of great experience, that" the commandile principle seems to involve some-thing very nearly approaching to injustice, inasmuchas in the case of the insolvency of a concern, it tendsto remove a portion of the loss, which must be borneby some pa rty , from those w ho ha ve volun tarily en-gaged in the concern, who have had the means ofw atching and controlling its progress, and w ho w ouldhave been the sole participators in the benefits of its

success, for the purpose of throwing it upon thosewho had no means of insight into the state of the con-cern, no pow er over the m anage m ent of it , and noshare in its adv antag e. T he partne rs m ay be bu tslightly injured, w hilst the creditors are ruin ed . T hedifficulties too of guarding against fraud and intricatelegislation are ve ry g re at ." A nd w he re these diffi-culties have been in any considerable degree sur-m oun ted, it ha s u sually been only by subjecting theprivilege to such qualifications, and by imposing uponthe exemption itself such restraints as have renderedit almost nugatory and altogether unacceptable to the



AFPENDIX. 267

parties desiring to profit by the limitation of theirnatural liability.

If such, then, is the true character of all devicesintended to limit the liability of individuals, to putrestraints upon the responsibility of moral agents, andto grant legal exemptions from the weight of naturalobligations, ho w ha ppe ns it tha t " the nicest con-science is not offended by ho lding stock in incorpo-rated institutions? " T he answ er, in its application to

incorporations for trading and banking purposes, theonly description of associations contemplated, is obvi-ous. E v e n of conscientious persons, some ha ve neverha d the subject practically brou ght ho m e to them —have never had their attention aroused and stimulatedto a serious investiga tion of the m erits of the q ues-tion. Some are unconsciously biassed and sw ayed byinterested motives; or they are influenced by plausi-

ble fallacies and by specious sophistries. M an y arecontent to take things as they find them, without beingat the pains to inquire into the truth of w ha t theym ay persuade themselves are merely theoretical re-finements and m etaphysical abstractions. A nd of allit may be affirmed, such is the wide spread sway ofvicious legislation, and especially in relation to theright to issue currency, that a strict adherence to un-doubted principles— a rigid observance of m ax im s

which, in a different and a better state of society,w ould bind the conscience— becomes, in a great de -gree, impracticable and superorogatory.

W hils t the objection noticed, furnishes not even apalliation, much less a justification of a system equallyat v arianc e w ith the dictates of justice , w ith theprom ptings of ex pedien cy, and w ith th at naturalorder of things to advoca te and to sustain w hich is

the aim and the object of the political philosopher, itaffords one of the strongest arguments against the pro-longed existence of a policy fraught with evils of suchmagnitude, and obnoxious to objections so serious.

The efficient principle of liability thus brought into



268 APPENDIX.

view is one highly con servative , and from the freeand unrestrained operation of which individuals, nei-ther singly no r in their associate capacity , should ev erbe perm itted to feel them selves em ancip ated. U po nits uncontro lled influence, in conjunction w ith tha t ofits antagonist principle— the love of gain— dep endthe strength and conclusiveness of the arguments insupport of the beneficent doctrines of commercial free-dom.

Fr ee trade m ay b e defined to be that system , un de rwhich every one is left in the enjoyment of his natu-ral liberty of ma kin g such a disposition of his pro-perty, and of giving such a direction to his industry,as m ay to himself ap pe ar mo st conducive to his inte-rests. It is that state of the la w in w hich m en , su b-ject m erely to the requ irements of truth and of ju s-tice, are allow ed to trade together as the y like, it beingreasonably presumed that, in the vast majority ofcases, individual sagac ity, sharp ene d by com petitionand by individual interest, will secure to the commu-nity the ultimate attainment of results more positivelyand diffusively beneficial, than can possibly flow fromthe interference of the (so called) collective wisdomof legislators. Up on the " te n ta ti v e " efforts of inte -rested parties reliance may securely be reposed for asatisfactory adjustm ent of conflicting claim s, and for

the establishment and co ntinuance of that na tura lorder of things which alone can be permanently andgenerally adv antag eou s. Th is freedom, how ever, de -generates into a wild and unrestrained licence; indi-vidual sagacity ceases to be a solid and secure groundof confidence, w he n a ny one of the leading and influ-ential principles, by which moral and responsibleag en ts are gov erned , is impaired or w eak ene d in its

natural and heal thy act ion— w hen men cease to be ,under all contingencies, answerable for their doings—w he n the love of gain is inordinately stim ulated bythe hope of high profits; whilst the fear of loss isbanished by the facility with which much of that loss



APPENDIX. 269

m ay be throw n upon o thers— upon those w ho , underno circumstances, would have participated in thegains. The natural equilibrium of wisely balancedm otives is disturbe d. T he jus t equipoise of conflict-ing influences is des troye d. T h e spirit of enterp riseis und uly ex cited, an d the public is thus dep rived ofthe stability an d se curity resulting from the sa luta ryoperation of a na tura l principle— the fear of loss—implanted in our natures for w ise purpo ses; and w hich ,

in all cases of individu al risk, un de rtake n and prose -cuted under a sense of unlimited individual liability,constitutes a most wholesome restraint upon everyscheme of doubtful utility— upo n every project ofquestionable legality.

Thus it is that a writer, displaying a perfect famili-arit y w ith all the practical details of the subject, asw ell a s a full com prehension of the gre at m oral an d

econo mical principles involve d in its discussion, ad -verting to the admitted truth that the spirit of specu-lation is alre ady " too str on g, " ex presses his convic-tions in the follow ing unreserved lang ua ge: " G r e a tdan ger is to be app rehen ded from any step that w ouldtend to give unnatural inducement to persons notbred to, and not acquainted w ith m ercantile pursuits,to em bark their property in such concerns. W ithoutthe least hesitation, I pronounce it to be a scheme full

of danger to the interests of the commerce and manu-factures of this country," (England) "placing themin a position of extreme hazard and likely to producethe most ex tensive mischief, if ado pted ." And aga in:" An y thing that w ould attract capital in an unnaturalw a y to speculative objects, I consider to be very dis-adv anta geo us." And he concludes his sum m ary of ob-jections against the scheme with the observation that:

" In my opinion there is no sound or safe system thatcan admit of limited liability."So also a practical and most judicious writer of

ample experience, and enjoying every opportunity ofthe most extended observation: " In proportion as the



270 APPENDIX.

consequences of failure are rendered less serious, mustwe not expect that concerns will be undertaken witha more speculative feeling, and be conducted with lessvigilance and sobriety? We should consider w ell thetendency which the sense of limited responsibilityhas to elicit the spirit of gam bling."

As the principle of the limitation of the liability ofindividuals is thus obnox ious to the heaviest objec-tions on the score of its evident and injurious tendency

to promote an artificial distribution of the nationalcapital, and thus to diminish its productiveness and toprevent its rapid accumulation, thereby retarding thenatural progress of society, so its influence is no lesssinister upon the moral and intellectual character ofindividuals. " Removing the risk of general liabilityw ould, in the existing state of society, have a ten-dency to separate still more than they are now, the

partner bringing capital from the partner bringinglabor. The idleness of the capitalist is now checkedby the risk in w hich it involves the monied partners .The natural laziness of mankind would induce capi-talists to unite in large partnerships for the most ordi-nary business matters, doing little or nothing them-selves; and leaving the managem ent to subalterns.The check upon this is the unlimited liability underthe ex isting law , and the result of thus superseding

industry in the principal, w ould be to deteriorate thetalents and characters of the mercantile and manufac-turing c lasses." The question, too, it may be addedin the w ords of an eminent moralist, " is not w hethersome men," in view of the risks to be incurred," would not prefer indolence to the calls of just ice,"now so commonly disregarded, "but whether thepublic should judge accurately respecting what those

calls are."If then the principles of free trade, w hich are bu tthe principles of justice, of equality and of commonsense, do not admit of unnecessary restraints uponthe liberty of human action, much less, w hen properly



APPENDIX. 271

understood, can they sanction or tolerate a limitationof individual liability.

The nature of the arguments frequently employedby the cham pion s of the doc trine of a limitation ofliability, especially in its application to associationsof individuals for the manufacture and the issue of apaper currency, furnishes abundant evidence of theprevailing confusion of ideas in the discussion of eco-

nomical questions; of the inability to discriminatebetween things possessing some few points of resem-blan ce, yet in their real na tur e perfectly d istinct; and ofthe toocom mon deficiency of ana lytical sagacity, in con-sidering as identical, propositions essentially different.Assuming, since it cannot beproved, tha t the opinion iscorrect that partnerships for comm ercial and m an u-facturing purposes— for dealing in com mo dities pos-sessed of intrinsic value— for tradin g in co rn, cottonor coin, m ay be safely and beneficially formed up onthe principle of a limitation of liability; does it, there-fore, follow that the same principle is equally appli-cable to associations for the manufacture and the issue ofpap er promises— of promises intended as a substitutefor coin— of promises w hich , in the actual condition ofaffairs, no man can conveniently refuse, and which nom an can, w ith entire safety, take? Is the gra nt of a b an k

credit, or the issue of a species of curren cy w hich , w hilstit requires little expenditure of labor or of capital for itsproduction, by the facility with which it is exchangedfor articles possessed of intrinsic value, is in the high-est degree profitable to the issuer, and thus holds outthe strongest ind ucem ents to over-produ ction, an over-production, the constant tendency to which is feebly,if at all, restrained by the apprehension of the remotecontingency of possible and ultim ate loss— is this pro-cess to be com pared w ith the production of com m o-dities? Or is the trade in promises to be put uponthe same footing with the exchange of material pro-ducts— w ith the trade in real, not representative



272 APPENDIX.

values? Is that w hich m ay be true of the subs tance ,necessarily true of the shadow also?

The fallacy of the argument usually employed inthe defence of a most pernicious and demoralizingdoctrine, in its application to the question of the riglitto issue cu rrenc y, consists in the dex terous em ploy-ment of the term money in its double sense of coin,and of promises to puy coin. A nd, because it m ay

possibly be admitted that the trade in coin, as in cornor in cotton, may properly be conducted upon certainprinciple s, it is cunn ingly or ig norantly inferred tha tthe same conclusion is applicable to the trade in pro-mises. The truth of the proposition A is conceded,and .the artifice or the blu nd er consists in tak ing forgranted that the proposition B is identical with A,an d th at it is, therefore, equa lly true. Th is is oneam ong the m any instances of attem pts, m ade by in-

terested p artie s, or by deluded pa rtisa ns, to mystifyclearly ascertained principles, and to pervert estab-lished doctrines. If the major proposition is tru e, them inor is so also. If the trade in capital— if the bor-row ing and lending of coin, of metallic mo ney pos-sessed of intrinsic and indestructible valu e— can notsafely be allowed with a limitation of the liabilityof the dea lers, m uch less can the trade in m ere pro-

mises.T o the plan of subjecting associations for ba nk ingpurposes to the regulation and restraint resultingfrom the natural and quiet operation of the equitableand salutary principle of the unlimited liability ofindividuals,it has been objected that the multiplicationof banks being thereby effectually stayed, a wholesomecompetition is prevented.

The answer to this objection is as easy as it is con-clusive. W e asse rt, as that w hich can not be disproved,tha t the m ultiplication of b ank s ha s no w he re beenin this w ay imp roperly or und uly checked. On thecontrary, under the application of the principle assailed





274 APPENDIX.

the promotion of the interests, not of the borro w ers, asis too often the case in this co un try , but of the ow ners ofban k capital. An d there is no reason to believe thatstockholders have in Scotland suffered as much as thesam e class of capitalists ha ve end ured in this co untry ;whilst the losses of the public have been in a greatlydiminished ratio.

T h u s , also, in E ng lan d w he re previous to 1826 com-panies for banking purposes were not allowed to con-

sist of more than six pa rtne rs, and w he re, as in Scot-lan d, the unlimited liability of the associated individ ualslies at the foundation of the system , such , since the re -peal of the restriction upon the num be r of partne rs, h asbeen the rapidity w ith w hich these associations ha veincreased, that there w ere in 1836, in addition to se-vera l hundred private b an ks, 101 joint stock com panieswith very numerous branches. Of these 45 were re-

gistered in one yea r alone, and counting their branc hes"which are often removed from the parent establish-m ent, and conduct all sorts of ba nk ing business, it ma ysafejy be affirmed th at considerab ly m ore tha n 20 0ban king establishments w ere set on. foot in E ng lan dand W ales in 18 36 ." H enc e, w hilst, by the mostenlightened and strenuou s ad vocates of the joint stockba nk ing system , it ha s been freely and unreserve dlyadm itted that "t oo m any b a n k s" have been established,

by o thers, this increase has been represented as ' 'a la rm -ing," and the speculative spirit which thus developeditself, has been correctly characterised as a "m a n ia ," tothe prevalence of which there proved to be no seriousobstacle, either in the unrestrained responsibility of theshareh older, or in the ex istence of a pow erful nation alba nk , possessed of monopoly privileg es, and sustain edby the w hole force of govern m ent patrona ge an d of

government influence.A re the re not the n, it m ay confidently be aske d,ample and satisfactory reasons for admitting-the entirepropriety of the conclusion draw n by Mr. Quin, w ho ,at the close of his most elaborate abstract and review



APPENDIX. 275

of the evidence taken before the Parliamentary com-mittee of 1832, remarks: " If men with sufficient cap-itals are already found in abundance disposed to em-bark in the banking trade at the risk of their own for-tunes, there is no reason why speculators should beallowed to establish banks of issue upon a less respon-sible system."

But again, vye affirm, without the fear of refutation,

that the beneficial tendency of competition to preventexcessive production, in its application to associations,not for the manufac ture of articles requ iring for theircreation the expenditure of capital and the applicationof industry, but for the making and the issuing of cur-renc y-o f promises to p ay— of paper costing com para-tively nothing, has never yet been demonstrated. Ithas merely been taken for granted. In the case ofcommodities possessing not a rep resenta tive, bu t an

intrinsic va lue , the public are in ge nera l, secure from anover-production from the simple consideration that nom an w ill know ingly co ntinue to produce and to bring tom ark et an article w hich does not realize to the pro -ducer the cost of production, together with at least theordina ry return upon the investment of capital, andthe ordina ry rew ard for the application of labor. A ndshould an individ ual, from inex perien ce, from igno -

ran ce , or from any other cau se, fall into the error of in-creasing the supply beyond the effective dem and — be-yon d the dem and of those able and w illing to pu rch ase,he w ould soon become satisfied of his mistake ; andw ou ld be obliged, at his ow n ex pense , to correct the er-ror. N ow w ha t is true of one individual is true ofm an y. W ha t is true of m any , is true of the mass. T hu sw e m ay safely trust to " th e spo ntaneou s operation ofprivate interests," for the proper apportionment of thesupply to the demand; and all interference of the gov-ernors with the governed must prove to be not mere-ly ill advised and uncalled for, but ultimately and ab-solutely pernicious.

W idely different, ho w ever, is- the case, w he n w eproceed to an investigation of the causes which ope-



276 APPENDIX.

rate upon the man ufacture of ban k prom ises; to ex -am ine into the m otives w hich influence in the issue ofa curre ncy possessed of little or no intrinsic valu e.Here the gain to the issuer is immediate, is considera-ble, is ce rtain ; w hilst the cost of production is rela -tively insignificant, an d the loss of profit consequentupon a re-action, is future, distant, contingent and un-certain. It m ay be avoided. It m ay be thro w n, as

it usually is, upon the shoulders of the pub lic— and infew instances is the return of paper upon the issueratte nd ed w ith a p ositive loss. Its effect is simp ly adim inution of anticipated profits. T h e actu al loss isincurred by those bank debtors who may be compelledto m ake he av y sacrifices in order to sustain their creditan d to honor their eng agem ents; or by those b ank cred i-tors, w ho are in possession of obligations w hich are

disregarded— of promises w hich are not performed.T h u s there exists eve ry induc em ent to banks to lendtheir credit, and to increase the supply of their paper;that is to say, there is every stimulus to an expansion;w hilst , on the other ha nd, inasmuch as bank credit inthe form of bank notes, so long at least as the ultimatesolvency of a bank is thought not to be impaired, isto the borro w er just as available as capital, the de-m an d is limited only by the ex tent of the opp ortunities,

or of the supposed opp ortun ities, for profitably em ploy -ing capital; that is to say, it is practically unlimited." T h e constant tenden cy, therefore, of banks is to lendtoo much, and to put too many notes in circulation. '7

Fancifully and absurdly to compare banks of issue— paper mints— to " shoe sho ps," as has been done bysom e, and to assum e tha t the one are subject to thesam e influences, and are governed by the same ge n-

eral laws as the other, may, to the unreflecting and tothe superficial, presen t an appe arance of plausibilityand of acuteness; but to the mind of the philosophicalinquirer, who perceives the entire absence of anyanalogy upon w hich to rest a parallelism of arg um en t,such far-fetched comparisons can bring no conviction.



APPENDIX. 277

It is not m erely a dem onstrable truth , but a truththat has again and again been dem onstrated, that ban ksissuing pap er really and thorough ly convertible canneither ex pa nd nor contract the gene ral m ass of thecurrency to an a m ount permanently grea ter, or per-manently less, than it would be with a medium ex-clusively metallic; and that, therefore, the averagequa ntity of the currency, and consequently the a verag e

money values, or prices of real estate and of commo-dities generally, will in any given country be the sameor nearly the same, whether the currency consists ex-clusively of convertible paper, or of coin; or whetherit is com pound ed in a ny conceivable proportions ofbo th. Bu t it is equ ally tru e, in fact, it cann ot be de -nied, that in this country the convertibility of paper isat all times exceedingly imperfect; and that there isconstant danger of this imperfect convertibility ceasing

altogether.N eith er, after the ex perienc e of all coun tries em -

ploying a pap er m edium , can there " any doubt beentertained that an ex cess of pape r m one y, evenwhen freely convertible into specie, may exist for sometime unredressed; and although the check of converti-bility must ultimately prevail, very considerable effectson prices m ay be produced in the in te rv al. " A nd as

this redundancy, however hurtful it may be, is surelyand inevitably followed by a deficiency still morepern iciou s, " it is of great consequence that a pa pe rcurrency should not only be subject to repression fromw ithou t, but be placed under such a system of m ana ge-ment as will prevent any excess in quantity from be-ing issued ." Bu t the only " sy ste m " w hich can pos-sibly accom plish this most desirable object— the onlypolicy at all entitled to be termed preventive—will be

found to consist in an entire separation of the inc om pat-ible functions of b an ks of issue and of ban ks of disco unt.A paper currency, if such a currency is thought tobe indispensable or desirable, should be furnished byban ks purely of issue, autom atically ex pand ing and



278 APPENDIX.

contracting the circulation simply in reference to thedemand for paper in exchange for the precious metalsand the demand for the metals in exchange for paper.On the other ha nd , com m ercial securities should bediscounted, as is the practice in London, by banks notof issue, bu t of discount an d deposite— by ba nk s not" trenching on the pero gative s of sovereignty by coin-ing m one y" — but by banks w hich are properly m ere

borro w ers and lenders of cap ital, an d dealers in coin.The functions of banks of discount are in their na-

ture purely co m m ercial, an d the only supervision eithernecessary or justifiable on the part of gov ernm ent, istha t the parties to con tracts should be held strictly re -sponsible for their perform ance . B an ks of issue, onthe contrary, cannot be kept too distinct in their ope-rations not m erely from all m ercantile dealing s, bu t

they should be remov ed from all sym path y w ith mo neylenders and money borrowers.The inevitable consequence of combining the issue

of paper money w ith the proper and the appropriatebusiness of ba nks of discount, is to ag gra va te com m er-cial em barrassm ents, and to give redoubled intensityto commercial revulsions.

The system of paper money banking as it exists inthis co un try, and the prom inen t feature of w hich is

the confiding to associations of irresponsible trad ersand speculators the discharge of one of the most im-po rtant and vital functions of sove reignty, an d thu sgiving to interested parties the control over the great"c om m od ity of con tract," is a system evil in its es-sence, vicious in its very constitution, and irremedia-bly and irresistibly pernic ious in its influences, ten -dencies and consequences.

In the fabrication and the issue of promises to paythere w ill be, as has been already sho w n, a constanttendency to excess, because the manufacture costscom parative ly little or no thin g; beca use the issue ishighly lucrative; and because the performance of thepromise can be evaded, and, as is perfectly notorious,



AFPENDIX. 279

constantly is evad ed, w hen eve r it becomes b urde n-som e; or the bu rde n w illj at all ev en ts, be shifted tothe shoulders of others. " Convertibility at the w illof the hold ers, and a sense of this po w er in them , onthe p art of the issuer is no t, as ex perienc e h as prove dand is proving, any restraint in the way of over-issue.It is not a pre ve ntiv e, bu t a painful m etho d of cu re.—And it appears to exercise no more influence on themind of the issuer than the fear of future punishment

is found to exercise on the majority of those who arein full possession of health an d vi go r." On the con-trary, the production and the supply of material com-modities, possessed of intrinsic value, will not ordina-rily be in ex ces s; because the creation of such pro -ducts involves an expenditure of capital, and the em-ploym ent of indu stry; and because an ex cess in thesupply,'by causing a fall in price, whilst it benefits the

con sum er, entails a certain loss upon the produ cer.But it is said that, under a system of free compe-tition, banks of issue will effectually eheck each other,and thus prevent all undue expansions in the volumeof the cu rren cy, and all injurious fluctuations in thevalue of its denominations.

N o w , adm itting, ( the admission being in direct con-tradiction to all observa tion and to all ex perience,)that the ban ks of a com m unity ordinarily act, not incombination and in concert, but in competition and inconflict w ith each oth er; still, as the object com m onto all bank s, conducted w ith a reference to the pro m o-tion of the interests of the share hold ers, is, as far aspossible, to ex tend their circulation an d to lend theircredit, and thus to swell their profits, this competitioncan manifestly have ultimately no other effect than tosecure to each bank its just proportional share of the

ge ne ral circulating m ass , an d, also, its propo rtionalshare of a ny increase in tha t circulation— of an y ad-dition to the general mass; and the only consequenceof an individual bank magnanimously declining to



280 APPENDIX.

take its portion of growing profits, would be " that therejected business would go to some other bank."

Thus i t is that , as with an expanding currency,banks emulously blow up the inflation, so, whenthe subse que nt and surely consequen t reaction hascommenced, and when, from the external pressure ofa dem and for coin to be ex po rted , con stituting theonly really operative check upon excessive issues,

they are compelled to contract, they vie with eachother in the haste w ith w hich they curtail. T h e com-pe tition , so far as it ha s an ex istence, consists at onetime in a struggle to push out, and at another time ina co nvu lsive effort to dr aw in as m any notes as possi-ble. Th is very elasticity of the circulation— this p ow -er of suddenly expanding and contracting its volume,w hich has so often been repre sented as forming oneof its highest recommendations, thus rendering it emi-

nently dange rous and ex plosive, and conferring up onit unequalled powers of mischief. This is the consti-tutional disease, the incurable taint inherent in thesystem, and against the destructive consequences ofwhich no effective preventive has hitherto been, or islikely hereafter to be discovered, short of such a radi-cal change as shall abolish the exercise of the abstractright to issue, and th us suppress all pap er m one y; or

as shall bring about an entire and complete separationbetween the conflicting, the incompatible and the irre-concilable functions of banks of issue and of banks ofdiscount— of issuers of currency and of mere dealersin capital. Hence the entire correctness of the obser-vation of one of the most able of our ow n w riters,and on e, too, of the most discrim inating and logicalof reasoners : "Tha t the general tendency 'to an ex -pansion of the currency, to be succeeded of' course bya contraction of it, is m uch mo re considerab le w he remany than where a few banks are competing witheach other to obtain as large a portion of the circula-tion as they respectively ca n ." H en ce, also, the just-ness of the conclusion of a foreign au tho rity: " T h a t



APPENDIX. 281

the more banks are multiplied, the greater is thechance of fluctuations in their issues, and consequentlyin prices, credit a nd so fo rth ." It is no t, on th at ac -cou nt, the less true tha t so long as the system is al-low ed to ex ist, in the lang uag e of the sam e distin-guished econom ist, " If the nam es of the pa rtne rs indeposite banks, or in banks issuing notes on security,be given; and if these partners be bound jointly andseverally to the whole extent of their fortunes fortheir engagements, nothing more can be done by lawfor the protection of the public interests. E v e ry thin gelse should b e left to indiv idua l sagac ity an d pr u -d e n c e . "

T hu s the g uara ntee against abuse s, as it is perfectlyeviden t, is found not in the com petition, bu t in thethorough responsibility of the parties for whose bene-fit the issues are made, and who derive the whole of

the profit accruing from the gainful process of convert-ing pape r into m oney— of exc hangin g promises forcommodities.

In this unrestrained responsibility, and not, as isfrequently and absurdly taken for granted, in anyam oun t of competition real or im agi nary , lies m uc hof the secret of the comparative stability, solidity andsecu rity of the Scotch ba nk ing associations. T o insist,

ho w ev er, upon the interference of the Leg islature toregulate the number of banks , as it w ould be ju stlyliable to othe r objections, so it w ould be to ad vo ca tethe odious scheme of granting monopolies and ex clu-sive priv ileg es; and to all the evils inh eren t in ou rpresent vicious banking system, to add the abuses ofspecial an d of part ial legislation. " T he pro per objectsof go ve rnm ent ," as stated by a w riter of the mostpen etratin g sagacity, and one of the most pow erful

and conclusive reasoners in favor of the free tradethe ory , " are to provide that pa per m oney be perfectlysecure, and at all times convertible into the coin whichit represents; and that the danger of over issuesshould be met b y ad equa te preventive, or reme dial





APPENDIX. 283

right m ay be classed am ong those w hich ha ve beenterm ed natural. A similar concession might be m adeas to the right to coin metallic mon ey. It is not, ho w -ever, the less true that both the justice and the expe-diency of the unrestrained and unconditional exerciseof the right has been assumed, rather than attemptedto be proved . In former and in barb arou s ages, po w -erful individua ls hav e been allow ed to coin m on ey ;

but at more civilized periods, and among enlightenednations, the right to coin has alw ay s and eve ryw herebeen assumed and exercised by the suprem e au tho -rity, to the entire exclusion of all participation of indi-vidu als in the discha rge of a function prop erly describedas sovereign. He nce, although it m ay be pushing theargument too far to assert that there are " no groundsfor any claim of na tura l right in an y individua l tofurnish, by his ow n notes, the w hole or a ny part of

the currency of the co un try ," it is undo ubtedly trueth at the a rgu m en t in favor of the policy of gove rn-ment assuming to itself the exclusive control over them etallic m oney of the cou ntry, is, at least, equallyconclusive against allowing individuals to manufac-ture and to issue that which forms, and which is in-tended to form, the almost universal substitute forthat money.

T h u s the righ t to issue the sub stitutes for m etallicmoney, intended to circulate in the place, and as therepresentatives of the precious metals, can be derivedonly from the right to coin that m etallic m on ey." The exclusive power of regulating the metallic cur-rency of the country would seem necessarily to imply,or m ore prope rly to include, as pa rt of itself, a p o werto decide ho w far that currency sho uld be ex clusive— ho w far an y substitute should interfere w ith it, an d

w ha t that substitute should b e ." If this w ere nott rue , it m ust necessarily follow tha t the prerog ativeof coining money, which has every where been exer-cised by the sovereignty, m ight be restrained, impe ded ,cou nteracted and defeated by the action of individ u-



284 APPENDIX.

als or of associations. In the w ords of M r. To ok e, apractical and scientific writer of the highest reputation:" H ith e rt o the legislature ha s restricted individualsunder the severest penalties, from establishing privatemints , and uttering metallic money of intrinsic andindestructible va lue ; ye t, w ith a degree of inconsistencyw hich strikes us as most ex traordin ary the more at-tentively w e consider it , our law -m akers h av e per-mitted individu als to establish priva te ba nk s of cir-

culation— and to utter paper m oney w hich a breathof panic may at any time destroy. On the sameprinciple that the government protects the publicagainst the probable insecurity which might arisefrom individuals being permitted to utter metallic cur-rency, it should guard against the more probable, naycertain insecurity which is created when individualsutter a pap er curren cy. In eve ry civilized co un try,

supplying and regulating the circulating medium is afunction of the sovereign prerogative*" A nd the a u-thor of the admirable " Essay on V al ue ," w ho isamong the most able and zealous of the advocates ofthe doctrines of free trade in their widest application,states it as an obvious a nd incontestable tru th, tha tgovernment having undertaken the supply of the cur-ren cy , " in order to facilitate or insure the accom -plishment of its purpo ses, private persons m ay b e

very properly restrained from any proceedings whichw ould tend to defeat th em ." * * * * " I f then go-ver nm ent has determ ined, for an y reason , to hav e am etallic cur ren cy , consisting of certain coins, herewould be a plain ground for restricting the dealer inmoney from such issues of paper as would defeat thedesign."

" The business of banking," observes an acnte rea-

soner and a practical ba nk er, " is one thing; tha t ofissuing a pape r m oney is ano ther thing. Th er e is nonecessary connection betw een the tw o. T he bankersin L ond on and Pa ris are b ank ers strictly so called.They are lenders of their own and other people's



APPENDIX. 285

m one y. T he y must obtain it by industry or by loan ,before they can lend it. T he y do not make it. Thebusiness of m aking and then issuing a pap er m oneyon loan is very different from that of obtaining a paperm oney on loan, and then re-lending it. " T he tw oop eration s, althoug h thus ctearly distinct and w idelydifferent, ar e, by those w ho find their account in thepresent vicious system, sedulously sough t to be con-

founded. T o ba nk s of issue is confided the creationof the circulating m ediu m . T h e office of bank s ofdiscount is to assist in the distribution of that me-diu m . T he duty of the former is to issue the circula-tion upo n such principles as shall cause its a m ou nt,and the valu e of its deno m inations to v ary , as theyw ou ld, w ere the currency metallic. T he only objectof the latter is so to use their availab le funds, as to

secure upon their employment the highest rate ofprofit.Thus it is that in all civilized countries the issue of

notes for circulation is alw ay s w ith the consent, ex -press or implied, of the supreme authority, which, atits discretion, reg ulate s and restrains this issue. H encein all cases in which the discharge of this importantfunction has been committed to individuals, or to asso-ciations, there arise the qu estion s— W hat are the con-ditions up on w hich the trust shall be delegated?What are the regulations and restraints proper to beimposed for the protection of the public? Evid en tlysuch , and such only , a s, w hile they interfere in thesmallest possible deg ree w ith the free app lication ofcap ital, and the na tu ral direction of industry shallhav e for their object to assim ilate, in all desirab leproperties, these issues to a currency composed of the

precious m etals, and as far as practicable to conferupon the former the steadiness and the stability invalue which, being inherent in the latter, have madethem the universally received m edium of ex cha ng e,and the "c om m od ity of con tract" preferred to allothe rs. Prom ine nt and most efficacious am ong these



286 APPENDIX.

conditions is the unlimited individual liability of theissuing parties.

Le t it be observed, how ever, that w hilst the unlimi-ted responsibility of individua ls is, w ith entire pro-priety , represented as furnishing to the public a ve rystrong guarantee against fraud; and as holding out tonoteholders and to depositors increased protectionaga inst all da ng er of ultim ate loss; the principle affordslittle or no security against those alternate expansionsand contractions in the volum e of the curren cy, an dthose fluctuations in the value or purchasing power ofits den om inations , w hich tend to give to all com m er-cial undertakings a gambling character; but which areinseparable from the issue, by trading associations, ofpap er substitutes for m etallic m one y; and w hich ne -cessarily flow from a system of banking and of cur-rency essentially vicious in its constitution, and defec-

tive in the very elem ents of its orga nisation . W eadmit the correctness of the assertion of Sir H. Par-nell: " That all the public has lost by bank failures inScotland, since banks were first established, amountsto £36,444, and that no such thing ever occurs inScotland as a pa ni c. " W e are satisfied of the truthof the facts stated by M r. M 'Culloc h, tha t " I n 1793and in 1825, w hen so m any of the En glish countrybanks were swept off, there was not a single establish-

ment in Scotland that gave w a y ." And w e m ay verysatisfactorily account for much of this superior sta-bility, by the then greater freedom in Scotland of theba nk ing bus iness : this freedom being enjoyed up onthe only prope r condition of the tho roug h responsi-bility of the associated pa rties. W e are convinced ofthe accuracy of the statement made by the first Lordof the T rea sur y and by the Chancellor of the E n g -

lish Ex ch eq ue r: " T ha t the Scotch banks hav e stoodfirm amidst all the convulsions in the money marketin E n g la n d ." It is, no dou bt, tru e, as affirmed by M r.Gilbart, a ban k m anag er of great ex perience an d apractical w riter of established repu tation , tha t " T he



APPENDIX. 287

enactment which renders the whole property of everyshareholder answ erable for the debts of the ba nk isve ry ju st and satisfactory. It is satisfactory to thepublic and satisfactory to the sha reh old er." It canno t be denied that w hilst in 1837 and 1838, ba nk cre-ditors were every where in this country defrauded bythe depreciation of bank paper, and by the non per-formance of bank prom ises; and w hilst the same thing

has again partially occurred in 1839; in Gre at B ritain" neither depositors nor noteholders have lost a shil-l i n g / ' M r. Bailey, a w riter of the very highest cha-racter for p ow er of logical discrim ination, an d for pen e-trating sagacity and analy tical skill, is clearly in theright when he asserts that the legislature "actedw isely in not interfering to lesse n," by the gra nt ofexceptions, " the liability of indiv idua ls." M r. N or-m an , a prominent director of the B ank of En gla nd

and a writer of signal ability, was, no doubt, cor-rectly informed, w he n h e adm itted th e "g en er al soli-dity of the Scotch ba nk s," w hen he stated, t h a t " insol-vency w as a lmost unknow n am ong them ;" and w henhe referred to their well established reputation as " se-cure places of deposite."

All these authorities (and their number might easilybe ex tende d) are direct in the testimony w hich the ybear to the justice and the expediency of the princi-ple of the unrestrained liability of individuals; andtheir evidence is conclusive as to the beneficial natureof the results spring ing from its practical app lication.It is, ho w eve r, not on that account the less true th atthe only infallible test of the soundness of any schemeof pap er issues, is to be found in the iden tity of thephenomena with those which would take place witha currency purely and exclusively metallic, and " it is

as issuers of paper money that the Scotch banksare chiefly open to criticism. In tim es of prospe ritythey push out their notes and credits to an undue ex-tent, and are consequently compelled to diminishthem as violently w hen circumstances alter— thus in-



288 APPENDIX.

flirting on the public oscillations in the currency muchmore violent than could occur with a metallic circu-lation,or withpaper regulated on sound principles."

Of the Scotch banks, as of all others assuming thedischarge of incompatible functions, and organisedupo n the u nsoun d and pernicious system of m akin gtheir credit issues in competition, and in the discountof commercial securities bearing interest, it may with

tru th be affirmed t ha t " in periods of ex citem ent andrising prices, the y stimu late speculation u nd uly , an dafford a spectacle of specious and factitious pros pe rity ;w hile, w hen the recoil takes p lace, they sw eep thesolvent and comparatively prudent trader into thesame net with the rash adventurer, and lead to awfuland w ide-spread ru in ." He nce it is that in periodsof com m ercial difficulty, " no co un try is said to suffer

from insolvency mo re severely th an Scotland, w hilstof M anches ter , " w h er e banks of issue have neverex isted until recently, and then to a small e x te n t, " itis rem arke d that " it furnishes an interesting and in-structive contrast ."

It is also notorious and n ot denied th at in S cotlandthe use of gold is almost un kn ow n, and that und erthe appearance of a nominal competit ion, a real com-bination exists against demands for specie and for the

maintenance of an exclusive paper currency." There is no principle in the law better settled than

that whatever has an obvious tendency to encourageguilty n egligence , fraud or crim e, is contrary to pub licpolicy ." An d such, in the v ery natu re of things, isthe tendency of allowing the trader, and especiallythe ba nk er, to limit, to thro w off, or in an y w ay torestrict his natural responsibility or his legal liability.

Fr om this liability there should be no escape , " noteve n by ex press promise or special accep tance an ymore than by notice."



APPENDIX. 289

H.

HISTORY OF TH E MONEY CRISIS OF 1 8 1 8 .

Extracts from the report of the Com mittee of the Senate of Pennsyl-vania, appointed to inquire into the extent and causes o f the present

general distress.

IN the Senate of Pennsylvania, December 8, 1819.A motion was made by Mr. Raguet and Mr. Grosh,and read as follows, to wit:

Whereas it appears that a scene of distress andpecuniary embarrassment unex am pled informer yea rs ,has been of late e x hibited thro ug ho ut this co m m on-w ealth. And w here as, at a period of general cala-

m ity, it is na tural for the people to ex pect from thelegislature such an investigation into the causes whichha ve produced the evils und er w hich they labor, asmay be likely to mitigate their sufferings, or at leastto prevent their recurrence. An d w here as, a properregard for the interests of posterity, as well as of ourconstituents requires, that an exposition of the actualcondition of ou r suffering fellow citizens, as w ell as

of the causes w hich hav e been instru m ental in p ro-duc ing their distress, should be recorded in du rablech arac ters on the jou rna ls of this hou se. Th erefore,

Be it resolved, T ha t a com m ittee be appo inted toinquire into the extent and causes of the present gene-ral distress, and to recommend to the consideration ofthe legislature, such measures as in their opinion maybe calculated to alleviate the public suffering, and toprevent the recurrence of a similar state of things.

On m otion, m ade on the 10th of Decem ber, saidresolution w as again read , considered and ado pted,and

Ordered, That Messrs. Raguet, Hurst , Eichelber-



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ger, Markley, M'Meens, Rogers and Breck, be acommittee for the purpose therein expressed.

January 29 ,18 20 . M r. R ag uet from the foregoingcom m ittee, m ade report , w hich w as read as follows,to wit .

In the performance of a du ty of such high imp ort-ance as that which has been entrusted to your com-mittee, they have felt it incumbent on them to enter at

large into the investigation of the subject contem-plated by their appointment, in order that the peopleof the presen t d ay m ay be correctly informed as tothe extent and causes of the evils by which they areoppressed, and that the records of the house may befurnished with a document, which may afford evi-dence at a future day of the miseries which it is pos-sible to inflict upon a people by errors in legislation

and by the bad administration of incorporated insti-tutions.In ascertaining the extent of the public distress,

yo ur com m ittee ha s had no difficulties to encounter.Members of the legislature from various quarters ofthe state have been consulted in relation to this sub-ject, and their w ritten testimony in ans w er to inter-rogatories add ressed to them by the com m ittee, ha sagreed w ith scarcely an ex ception, upon all m aterial

points. W ith such a respectable w eight of evidenceadded to that which has been derived from the pro-thonotaries, recorders and sheriffs of the differentcoun ties, from an intercourse w ith num erou s pri-vate citizens residing in different parts of the state, asw ell as from the va rious petitions presented to theleg islature, your com m ittee can safely assert, tha t adistress unexampled in our country since the period

of its indep ende nce, preva ils throug ho ut the com m on-w ea lth. Th is distress ex hibits itself un der the variedforms of

1. Ruinous sacrifices of landed property at sheriff'ssales, whereby in many cases lands and houses havebee n sold at less than a half, a third , or a fourth of



APPENDIX. 291

their former va lue , thereb y dep riving of their hom esand of the fruits of laborious yea rs, a vast n um ber ofour industrious farmers, some of whom have beendriven to seek in the uncultivated forests of the west,that shelter of which they have been deprived in theirnative state.

2. Force d sales of m ercha ndise , household goods,farming stock and utensils, at prices far belo w thecost of production, by which numerous families have

been deprived of the common necessaries of life, andof the implements of their trade.

3. Numerous bankruptcies and pecuniary embar-rassments of every description, as well among theagricultural and manufacturing, as the mercantileclasses.

5. A general scarcity of money throughout thecountry, w hich rende rs it almost impossible for the

husbandman or other owner of real estate to borroweven at a usurious interest, and where landed securityof the m ost indu bitab le ch arac ter is offered as a pled ge.A similar difficulty of procuring on loan had existedin the m etropolis previou s to O ctober last, bu t ha ssince then been partially removed.

5. A gen eral suspension of labor, the only legiti-m ate source of w ealth , in ou r cities and tow ns, byw hich thousand s of our most useful citizens are ren -

dered destitute of the m ean s of support, and are re-duced to the extremity of poverty and despair.

6. An almost entire cessation of the usual circula-tion of com mod ities, and a consequ ent stagnation ofbusiness, which is limited to the mere purchase andsale of the necessaries of life, and of such articlesof consumption as are absolutely required by theseason.

7. An universal suspension of all large manufac-turing operations, by which in addition to the dis-missal of the numerous productive laborers heretoforeengaged therein, who could find no other employ



292 APPENDIX.

merit, the public loses the revenue of the capitalinvested in machinery and buildings.

8. Usurious extortions, whereby corporations insti-tuted for ba nk ing , insurance and other purposes, inviolation of la w , possess them selve s of the prod uctsof industry without granting an equivalent.

9. T he overflow ing of our prisons w ith insolventdebtors, most of whom are confined for trifling sums,Avhereby the community loses a portion of its effect-ive labor, and is compelled to support families bycha rity, w ho hav e thus been deprived of their pro -tectors.

10. N um erou s law suits upon the dockets of ourcourts and of our justices of the peace, which lead toex tra va ga nt costs an d the loss of a great portion ofvaluable time.

11. V ex atio us losses arising from the depreciation

and fluctuation in the value of bank notes, the impo-sitions of brokers and the frauds of counterfeiters.

12. A general inability in the community to meetwith punctuality, the payment of their debts evenfor family expenses, which is experienced as well bythose w ho are w ealthy in prope rty, as by those w hohave hitherto relied upon their current receipts todischarge their current engagements.

With such a mass of evils to oppress them, it can-no t be w ond ered at that the people should be dispi-rited, and that they should look to their repres enta -tives for relief. Their patient endurance of sufferings,which can only be imagined by those who havehabitually intermingled with them at their homesand by their fire sides, m erits the com m endation ofthe legislature, and prefers a pow erful claim to theirinterference.

H av ing thus enum erated the most p rom inent fea-tures of the gen eral distress, yo ur comm ittee w illproceed to point out the cause which in their opinionha s occasioned it. T h a t cause is to be found chiefly



APPENDIX. 293

in the abuse s of the ban king system, w hich abusesconsist, first, in the excessive nu m ber of ba nk s, andsecondly, in their unive rsal bad adm inistration. Fo rthe first of these abuses the people have to reproachthemselves, for having urged the legislature to departfrom that truly republican doctrine, which influencedthe deliberations of our early assemblies, and w hic htaught that the incorporation of the mo nied interest

already sufficiently powerful of itself was but thecreation of odious aristocracies, hostile to the spiritof free governm ent, and subversive of the rightsa?id liberties of the peop le. T he second ab use , themismanagement of banks, is to be ascribed to a gene-ral ignorance of the true theory of currency andba nk ing , and to the avarice of speculators, desirousof acqu iring the pro pe rty of oth ers, by an artificialrise in the nominal value of stock, and by the sharingof usurious dividends.

In order that this subject may be clearly understood,your committee have thought that the following con-cise history of ban king in Pen nsy lvan ia, w ould beacceptable.

The first bank which was established in the state,and indeed in the United S tates, w as the B ank ofNorth America, which was chartered by congress on

the 31st da y of Decem ber, 178 1, w ith a capital notto exceed ten millions of dollars, and without anylim its being assigned as to its du ration. Thi s ch arterw as confirmed by the state of Pe nn sylv an ia, on the1st day of A pril, 1782. Th is bank comm enced andcontinued its operations upon a capital paid in of$400,000, and as its credit stood high, and the Unionwas deficient in a circulating medium, it was enabled

to extend its issues vastly beyond the amount of itscap ital. T he ex ten t of its loans m ay be inferredfrom the rate of its dividen ds, w hich w ere as high as12 and ev en 16 per cent, per an nu m . T he ex ten-sive and distant circulation of the notes of this bankoccasioned by the disbursements of the general govern-



294 APPENDIX.

m ent w hich w as a hea vy borrow er, emboldened i tsdirectors, and led them to overstep the bounds of dis-cretion. T h e chan nels of circulation beco m ing ove r-charged w ith pap er, and the public beginning to d oubtthe ability of the b ank to redeem its notes on dem an d,natu rally led to the consequences, w hic h, w ith theun erri ng certainty of fate, w ill sooner or later resultfrom an evtra vag ant emission of paper. T he notesreturned for payment, and with the diminution of its

specie means, the bank to sustain its credit, was com-pelled to resort to the m easu re of calling upo n itsdebtors for pay m en t. T his reduction of ba nk loa nsoperated in its day, in precisely the same manner thatw e ha ve seen it in ours. A general pressure for m o-ney, bankruptcies, usurious extortions, the disappear-ance oi specie, an d an impossibility of procu ring loa nsat legal interest, w ere am ong the evils attend ant upo nit. F or the truth of this assertion, yo ur com m itteebeg leave to refer to the journals of the House of Re-presentatives of the 21st and 23d d ay so f M arc h, 1785,by which it will appear, that so great were the evilswhich resulted from the operations of this bank, thata petition from a number of inhabitants of Philadel-ph ia and of the counties of Chester and Buc ks w erepresented to the legislature, pra yin g for a repea l ofits cha rter. Th ese petitions w ere referred to a com -

mittee, who on the 25th of the same month reported*th at a bill should be broug ht in to repeal the ch arte r,which was accordingly done at the ensuing session,on the 13th day of September, 1785. T he ban khowever claiming the right of prosecuting its businessun der the cha rter w hich it held from congress, con-tinued its opera tions, and the legislature a t a sub se-quent date, viz. on the 17th day of March, 1787,revived its charter, limiting its capital to 2,000,000 ofdollars, (of w hich ab ou t 830,000 only w ere raised,)and its duration to fourteen ye ars. T his cha rter ha s

* See the report at full length in Journal of 28th March, 1785.



APPENDIX. 295

been since extended for two successive periods offourteen and ten ye ars , on the 29th of M arc h, 1799,and the 28th of M arch , 1814, and w ill ex pire on the17th day of March, 1825.

On the 25th day of Fe bru ary , 17 91, the first b an kof the United States was chartered by congress witha cap ital of ten m illions of dolla rs, an d located atPhiladelphia. I ts charter expired w ithout renew al

on the 4th day of March, 1811.On the 30th day of Ma rch , 1793 , the B an k of

Pennsylvania was incorporated for twenty years.Th e charter w as renew ed on the 14th of Fe bru ary ,1810, for tw en ty ye ars longer, w ith an increase ofcapital w hich is now $2,500,000, and w ill ex pire the4th of M arch , 1833. T his ba nk w as authorised toha ve bran che s, of w hich it established four, viz. a t

Lan caster, Re ading , Ea ston and Pittsb urgh , the lastof which has been discontinued.On the 5th of M arch, 1804, the Philadelphia B an k

was chartered, after having been some time in opera-tion w ithou t a charte r, to continue until 1st of M ay ,1814, w ith a capital not to ex ceed tw o millions ofdollars; of which 1,800,000 w ere raised. On the1st day of March, 1806, it was renewed for 10 years,and w ill ex pire on the 1st day of M ay , 1824. I t w asauthorised by an act of 3d M arc h, 1809, to institutebranches, of which it established four, viz. at Wilkes-barre, Washington, Columbia and Harr isburg, thelast two of which have been withdrawn.

On the 16th of M arch , 1809, the Fa rm ers and M e-chanics' bank was incorporated, with a capital of1,250,000 dollars, to continue until the 1st of M a y ,1824.

Some two or three years prior to the expiration ofthe charter of the Bank of the United States, applica-tion was made to congress for its renewal; whichhaving failed, overtures were made to the legislatureof Pen nsylv ania, but w ithout success. T he anx ietydisplayed by the stockholders of this bank to continue



296 APPENDIX.

their business, and the successful appearance of theirdividends added to the location of branches by thePennsylvania Bank in the country, very naturallyexcited the attention of the pub lic, and particula rlyof the inhabitants of some of the interior counties ofthe state, w ho fancied tha t much of the prosperity ofcities was to be traced to the establishment of banks,and that if that w ere the case, there w as no reasonw h y the cou ntry should not participate in their ad -van tage s. Such considerations as these, urged on bythe desire of acc um ulating w ealth w itho ut the dullex ercise of labor, engen dered a spirit of speculation.It was supposed that the mere establishment of bankswould of itself create capital, that a bare promise topay money, was money itself, and that a nominalrise in the prices of lan d an d com m odities, ever at-tendant upon a plenty of money, was a real increase

of substantial w ealth. T he theory w as plausible,and too w ell succeeded. Th e Fa rm er s' Ba nk, w itha capital of $300 ,000 dollars, w as established in thecounty of Lancaster, in the beginning of the year1810, an d w as accom panied by several others in thecity, as well as in other parts of the state.

These early symptoms of a mania for banking in-duced the legislature, on the 19th of March, 1810, toenact a law prohibiting unincorpo rated associationsfrom issuing notes, or pursuing any of the operationsof banks , but in defiance of its prov isions, the systemw as persevered in, and even com panies incorporatedfor the purp ose of con structing b ridges , depa rted fromthe spirit of their ch arte rs, converted them selves intobanks, and emitted notes for circulation.

T he evils, how eve r, w hich w ould hav e flow ed fromthis ban king spirit, w ould soon ha ve been checked ,

by the usual corrective, viz. the return of the notesfor payment, had not the w ar w hich w as declaredin Ju ne , 1812, interposed. Prio r to that period, theemissions of our b an ks w ere regulated w ith a con-stant regard to their liability to be called upon for the



APPENDIX. 297

payment of their notes in coin. The periodical de-mand for dollars for the China and India trade, w hichregularly occurred every spring, w as a check uponthe overtrading spirit, w hich has always characterisedcorporations exempt from individual responsibility.The m erchants at that day , w ere not afraid to demandtheir rights, and those who held claims upon thebanks in the nature of notes or deposites, w ould make

a demand for an hundred thousand dollars, with lesshesitation than they now display in asking for a singlethousand. Banks were then, w hat they should al-w ays be, the servants of the public, and until theyare again reduced to the relation in which they oughtto stand to the community, their operations must evercontinue to be injurious. Without liability toprompt payment, uninfluenced by any considera-

tions of fear, forbearance, or delicacy, on Ike partof the public, the community has no guaranteeagainst a depreciated and fluctuating currency .

The w ar, as might naturally be expected, put atemporary stop to the exportation of specie, and there-by removed the only sure check against inordinateissues of paper, w hich can possibly exist. This ces-sation of the returning of notes for payment, had theeffect of inviting the banks to enlarge their issues.

Loans were made to government to an immenseamount, and to individuals vastly beyond w hat theabsence of foreign commerce justified, and a gradualdepreciation of the currency w as the result. Theincrease of dividends and the facility with whichthey appeared to be made, extended throughout thew hole commonw ealth the spirit of speculation, alreadyintroduced into some counties. The apparent suc-

cess of the Farmers' Bank of Lancaster, which fromthe enormous extent of its issues, was enabled todivide upwards of twelve per cent, per annum; andto accom modate its stockholders with loans to dou-ble the amount of their stock, had a pow erful influ-ence upon the public mind. A bank by many was



298 APPENDIX.

no longer regard ed a s an in strum ent by w inch thesurplus wealth of capitalists could be conveniently-loaned to their industrious fellow citizens, bu t as amint in which money could be coined at pleasure, forthose w ho did not possess it before. Under thesedelusive impressions,associations of individuals spr angup in every q ua rter , holding out inducem ents to thefarmer, the m erchant, the manu facturer and m echa-nic, to aba nd on the dull pursuits of a labo rious life,for the golden dreams of an artificial fortune.

The liability however to individual ruin, attendantupon unc harte red cop artnerships , restrained in a de -gree, the banking mania, and impelled the projectorsto ap ply for a legislative sanction. During the sessionof 18 12 -1 3, a bill to incorporate tw enty-five institu-tions, the cap itals of w hich am oun ted to 9,525,000dolla rs, w as passed by both houses of the Leg islature

by a ba re majority of one vote in each. T h e bill w asreturned by the governo r w ith his objections, w hichw ere sensible and cogent, and on a reconsiderationthe votes w ere 38 to 40 . A t the following session thesubject w as renew ed w ith increased ardo r, and a billauthorising the incorporation of forty-one banking in-stitutions w ith capitals am ounting to up w ard s of 17,000,000 of dollars, w as passed by a large m ajority.—Th is bill w as also returne d by the governo r w ith ad-ditional objections, bu t tw o thirds of both house s(many members of which were pledged to their con-stitutents to that effect) agreeing on its passage, it be-came a law on the 21st of March 1814, and thus wasinflicted upon the com m onw ealth an evil of a m oredisastrous na ture than ha s ever been exp erienced byits citizens. U nde r this law thirty-seven ba nk s, fourof which were established in Philadelphia, actually

w ent into ope ration, the charters of w hich w ill ex -pire on the 1st of April, 1S25.

T he imm ediate comm encement of a num ber of thesebanks , with scarcely a bona fide capital equ al to thefirst instalment, for the convenient mode of discount-



APPENDIX. 299

ing stock notes to meet the subsequent paymentswas soon discovered, increased the m ass of pa pe rcredits already too redundant, and depreciated thewhole circulating medium so far below a specie value,as to excite a want of confidence in its convertibility.In the absence of a foreign demand for specie a do-mestic one arose. Th e law s of the N ew E ng landstates had been so rigorous upon the subject of bankswhich were liable to a penalty of 12 per cent, per an-nu m for the no n-pa ym ent of their notes, tha t no de -preciation of their currency took place. T he conse-quence thereof w as , that the difference betw een theN ew En glan d prices of com m odities, stocks and foreignbills of exchange, and those of Pennsylvania wasequal to the extent of the depreciation of the currencyof the latter, and as our bank notes were at that timeredeemable on demand, the most profitable remittance

w hich could be made to New En gland in exchan gefor her comm odities w as specie, and this dem and crea-ted a run upon the ban ks, w hich they w ere not ableto w ithstand . T h e situation of the southern and ofthe western banks was precisely similar to that of ourow n. All had over issued, and a general depreciationhad ensued. T he same causes produced the sam eeffects, and a general stoppage of payment of all theban ks in the United States, ex cept those of N ew E n g -land , took place in A ugu st and Septem ber, 1814.—Th e N ew En glan d dem and, it is true, w as increasedby two causes, viz: first, by facilities in foreign tradethrough neutral vessels, which were afforded them byan ex em ption from the blockade of the e nem y, andsecondly, by a w ell grounded apprehension, that thesouthern b ank s from their ex tensive emissions w ouldnecessarily become' em barrassed . Certain it is, ho w -

ever, tha t all these cause s com bined , could not hav eprod uced a general suspension of p ay m en t, had ourbanks observed the same caution in their issues asthat which characterised the banks of the Easternstates.



300 APPENDIX.

At the time of the suspension of our city banks apublic meeting of merchants and others was held,who publicly sanctioned the measure, under a pledgegiven by the banks, that as soon as the war was ter-minated, specie payments would be resumed. Thatthis measure was intended, is evident from the cur-tailment of loans immediately consequent upon thesuspension.

But unhappily the redemption of the pledge wasnot demanded by the public at the stipulated time,and the banks urged on by cupidity, and losing sightof moral obligation in their lust for profit, launchedout into an extent of issues, unexampled in the annalsof folly. The fulfilling of a promise to pay money,by tendering another promiseequally false, sanctionedby the public acquiescence, led to the organization ofadditional banks, under the act of March 1814, which

had not until then been attempted to be formed, and ascene of indiscretion in the loaning of bank creditswas every where exhibited, which realised the anti-cipations of those who had foretold the ruinous effectsof the paper system. Money lost its value. The notesof the city banks became depreciated 20 per cent, andthose of the country banks from 25 to 50, and specieso entirely disappeared from circulation, that even thefractional parts of a dollar were substituted by smallnotes and tickets, issued by banks, corporations andindividuals. The depreciation of money enhancingthe prices of every species of property and commodity,appeared like a real rise in value, and led to all theconsequences which are ever attendant upon a grad-ual advance of prices. The false delusions of artifi-cial wealth increased the demand of the farmer forforeign productions, and led him to consume in anti-

cipation of his crops. The country trader seduced bya demand for more than his ordinary supply of mer-chandise, was tempted to the extension of his credit,and filled his store at the most extravagant prices withgoods vastly beyond what the actual resources of his



APPENDIX. 301

customers could pay for, whilst the importing mer-chant having no guide to ascertain the real wants ofthe community but the eagerness of retailers to pur-chase his com m odities, sent orders ab road for a su pplyof m anu factures w holly disproportion ed to the effectivedem and of the cou ntry. Indiv idua ls of eve ry profes-sion were tempted to embark in speculation, and thewhole community was l i teral ly plunged into debt.—

The plenty of money, as it was called, was so pro-fuse, that the managers of the banks were fearful theycould not find a demand for all they could fabricate,an d it w as no unfrequent occurrence to he ar solicita-tions used to individuals to become borrowers, underpromises as to indulgence, the most tempting.

Such con tinued to be the state of thin gs un til to -w ar ds the close of the yea r 1815. A t tha t time thedoctrine so generally taught and so generally receivedby the great mass of the com m unity, that the pape rcurrency was not depreciated but that specie had risenin va lue , began to be aba ndo ned . T he intelligent pa rtof the people became convinced, that although thenominal prices of property and commodities had beenadv anc ed, the substantial w ealth of society had abso-lutely dim inished, and the evils a tten dan t upo n a de-preciated and a perpetually fluctuating currency were

universally acknow ledged. E ac h city, tow n and coun-ty, had its own local currency, bearing no equivalen-cy with, or a fixed proportion to any other; the conse-quence of which was, that a new and extensive classof brokers sprang into existence, who have ever sincebeen supported at the expense of those who have beendefrauded by the ban ks of their just and indispu tablerights. Counterfeiters also added to the m ass of pa pe rin circulatio n, and the difficulty of detection w he re somany signatures were current, invited to an increaseof their numbers.

The plan about this time projected of establishinga national bank with a commanding capital, held forthan expectation, that the desired restoration of the cur-



302 APPENDIX.

rency w as abou t to be effected. Pe tition s in favor ofthe measure were presented to congress, and the gen-eral government weary of the embarrassments tow hich its fiscal concerns had been subjected, from acurrency varying not only in every state but in almostevery village, (for the banking system had by thistime extended itself through the middle, southern andwestern states) chartered the present Bank of the

United States with a capital of thirty five millions ofdollars on the 10th day of A pril, 1816, w ith corp oratepowers which will expire on the 3d of March, 1836.

N o sooner w as this m easure adop ted, than the nu-m erou s city ba nk s, alarm ed for their safety, resolvedupon a retrograde movement, and with the reductionof their loan s, comm enced a reaction, w hich w as ac -com panied by great m ercantile distress. T h e resu ltof this procedu re, ho w ev er, w as a gradu al meliorationof the currency ,' insom uch tha t by the m onth of Ju lyof that year the depreciation of the notes of the banksin Ph iladelph ia w as b roug ht to 7 or 8 per cent, and bythe month of December to considerably less.

The Bank of the United States, the subscriptions towhich were opened on the 1st Monday of July, 1816,commenced its operations about the 1st of January,1817, and had it been conducted w ith the discretion

an d w isdom w hich w ere essential to so pow erful amachine, its influence might have been productive ofthe most ha pp y results. T he public w as aw are thatthe currency of the state banks was still depreciatedfrom ex cess, and that noth ing bu t a further re duc tionof their issues, could remove its unsoundness; and yetwith this fact, evident to the most limited capacity, thedirectors of the new ba nk fancied, that if they could onlypersuade the city banks to call that a sound currencyw hich w as in reality an unsou nd on e, the evil of de -preciation would be cured, and they accordingly pro-posed to them to enter into an agreement to resumespecie p ay m en ts on the 21st of Fe br ua ry follow ing.T h e city ba nk s, sensible that their p ow er over th e



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com m unity w as so great, that few individuals w ouldhave the boldness to make large demands upon themfor coin, and relying upon that forbearance which hadhitherto been extended to them by an injured public,w ho had been for tw o years and a half pay ing them6 per cent, per annum for the use of their dishonoredbills, consented to the arra ng em en t, and specie pa y-ments were accordingly nominally resumed on the

appointed day . W e say nominally, because in pointof fact, a bona fide resumption did not take place asis evident from the well known circumstance, that fora long time after tha t period, American as well asforeign coins would command on the spot a price incity bank notes above their nominal value. Deprecia-tion can as well result from the forbearanee of the pub-lic to de m and their rights , as from the refusal of th ebanks to pay their engagements; and the arrangementalluded to, w as not an y real resump tion of cash p ay -ments, but a mere change of one species of inconver-tibility for ano ther. No sooner, ho w ever, had the di-rectors of the national bank succeeded in the desirableobject of rendering depreciated paper an equivalentfor their o w n conv ertible n otes, tha n, instead of re -flecting from an acquaintance with general principles,and from the experience of the past, that the channels

of circulation could contain w ithou t dep reciation, buta limited am ou nt of pap er credits, and that tha t am ou ntw as alread y in those chan nels, they began to add tothe mass already red un da nt, by emissions of their ow nnotes; and in the course of a few months added to themass of bank loans an amount greatly beyond the re-ductions w hich had been m ade. By this mean s thecurren cy, although nominally convertible, was depre-

ciated below its former low state, and w as thro w nback, instead of being advanced on the road of resto-ratio n; and thus w as rendered nug atory all the painand embarrassment which the public had suffered fromthe former curtailments of the state banks.

This unwise procedure of replunging the people in-



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to the debts from w hich they had been partially ex -tricated, and of involving others who had hitherto es-caped, was continued for-a time; but the dreadful dayof retribution at length arrived. The bank discoveredalmost too late, that its issues had been extended be-yond the limits of safety, and tha t it w as com pletelyin the po w er of its creditors. It also foresaw tha t thepa ym en t of that portion of the L ouisia na deb t, re -

deem able on the 21st of October 1S18, w hich w as heldby foreigners, might occasion a demand for a consid-erable amount of coin, that the enhanced prices ofChina, India and other goods occasioned by the de-preciation of the currency from the over issues ofitself and the state banks, would lead to a demandfor specie, and that as it was professedly a specie bank,liable, und er a pena lty of 12 per cent, per an nu m topay its notes on demand, the same delicacy and for-bearance would not be extended towards it as to thestate bank s. Th ese considerations impelled it to seekits own safety, and from that moment a system of re-duciion com men ced. Th is reduction ope rating upo nthe state banks, which had not profited by the oppor-tunity afforded them of contracting their loans whilstthe other w as ex tend ing, obliged them also to dim inishtheir transactions, and a general curtailm ent ensu ed,

w hich has not yet had its consum m ation. T he se-verity of the second pressure comm enced in the cityin October IS 18, and w as continued w itho ut interm is-sion for a year; at the expiration of which time it issaid tha t the reductions m ade there by the nation alban k alone hav e exceeded seven millions of dollars, andthose by the other banks probably two or four more.The reductions of the country banks during the threelast years may be inferred from the following statementwhich exhibits the amount of their notes in circulationat four different periods.

N ove m ber 1, 1S16, $4,756,460Do. 1S17, 3,782,760Do. 181S, 3,011,153Do. 1819, 1,31S,976



APPENDIX. 305

From the foregoing history i t will be seen, what in-fluence has been produced upon the affairs of thecom m unity by the operations of the ban king system .Real prop erty has been raised in nom inal va lue, andthousands of individuals have been led into specula-tions, w ho w ithou t the facility of ba nk loans w ouldnev er hav e been thus seduced. T he gradu al nom inalrise in the price of land, has produced an artificial ap-

peara nce of increasing w ealth w hich has led to theindulging of extravagance and luxury, and to the neg-lect of productive industry. Fo reign imp ortation an ddom estic c onsum ption ha ve thus been carried to anex ten t, far b eyon d w h at the actual resources of thecountry and people would justify, and in pursuing ashadow the community has lost sight of the sub-stance. * * * * * * *

Your committee is sensibly impressed with the dan-gers which may hereafter arise from the renewal andcreation of bank charters, and as they hav e deemedit to be within the limits embraced by the resolutionunder which they act, they take the liberty of givingto the Senate their ideas of the provisions which shouldbe incorporated in every charter of a bank hereaftersanctioned by the legislature. T he y are as follow s:

First. A penalty of twelve per cent, per annum

in addition to a forfeiture of the charter, should be im-posed upon the amount of all notes and deposits notredeemed in specie on demand.

Secondly. No bank should be allow ed at any timeto loan more than fifty per cent, beyond the amount ofits capital.

Thirdly. AH profits above six per cent, shouldbe equally divided between the stockholders and the

state, the amount accruing to the latter to be specifi-cally appro priated to internal impro vem ents. T h ejustice of this provision is founded upon the consider-ation, that although high dividends have been m ade,yet none but the original subscriber gets the benefitof them, for all subsequent purchasers are compelled to



306 APPENDIX.

pay for the stock a speculative advance upon its parvalue, at least equivalent to the extraordinary interest.

Fourthly. No director except the president shouldbe re-eligible for more than three years, in any periodof six, and none should be entitled to loans beyond alimited amount.

Fifthly. The affairs of the bank and the privateaccounts of the directors should at all times be open

to the inspection of the legislature.Sixthly. No note for less than five dollars should

be issued, inasmuch as no solid system of paper creditscan any where exist, unless the minor channels of cir-culation are exclusively supplied with coin.

Without such provisions as these, the propriety ofwhich has been established by the dear bought expe-rience of the past, your committee conceive, that it willbe impossible to guard the public in future, againstthe evils of excessive issues, which, whenever theyare made, must sooner or later re-act upon the commu-nity, with effects in a greatex or less degree, similar tothose which our fellow citizens now so unhappily ex-perience.

PRICES AT LONDON OP AMERICAN SECURITIES, AT THE

DIFFERENT DATES MENTIONED.

October 23d, 1838.New York Fives - - - 91 to 95Pennsylvania " - 92 " 96Louisiana " 95 " 96$Alabama « - 83 " 84Indiana " . . . 83* « 84i



APPENDIX. 307

Ohio (1856) SixesMississippiVirginiaIllinois

a

u

<(

S. Carolina, Sterling 1Alabama "

N . York Fives,Penn'a "

Louisiana "Alabama "

Do. "Indiana "

u u

Ohio Sixes,

Illinois "Mas's Fives,

Maryland "

--

-

-

Fivesu

April18451S54

18441863

1859

1864

1850

18701868

Mississippi stocks,

tou

aa

a

u

toa

u

30th,

1860,

1865,

1852,1868,

1860,

------1840

8674

9068

80

658 0

90§

75101

8 0

--

-

-

-

-

to 87" 76

uu

a

a

a

to 91?u

a

n

no quotation

iooi93

95

833959 3

St'g

St'g

St'g\

" 101$" 94

" 96

" 84ia

" 94

bonds.

bonds.

bonds.

From the New York American. Extract from a letter dated London,April 30lA, 1840.

" We are in some respects mending in the Ameri-can Stock Market. United States Bank shares aredone at 15/. 15*. to day, and there are two or threebuyers at 15/. 10s. Pennsylvania stock is very heavy,

and holders are loud in their expressions of dissatis-faction at the legislature for not passing the bill fortaxes. Several parties have sold in alarm—and thereis now some in the market of 1856, at 75. This is abad state of things, when we have four millions ofdollars pledged here for the United States Bank, and$400,000 for the Girard, and new loans making. Ifthere had been any care evinced by that state formaintaining its credit, no doubt we should have had

a considerable and rational improvement. The stateof money, and the opening of the continental marketfor the stock, would have enabled the French bank-ers to add Pennsylvania to their administration of



308 APPENDIX.

American stocks, and it would have given satisfactionto all.

J .

NEW YORK GENERAL BANKING LAW.

Extract from the annual Report of the Com ptroller made to the Legig-

lature of New York in January, 1840.

OPERATIONS UNDER THE ACT TO AUTHORISE THE

BUSINESS OF BANKING.

T H E press of business under this act existing at thetime the present comptroller came into office and whichcon tinue d to increase until very recen tly, rendered itindispensably necessary to employ additional aid.T he re are now engaged five registers and a book-keeper, and yet it has been necessary to pay a largeamount to clerks for services out of office hours, andto other individuals for nu m berin g circulating notes.

At times, w ith all the force w hich could w ith prop rietybe put in requisition, the demand for notes could notbe supplied prom ptly. T ha t dem and has now abatedan d it is supp osed that hereafter a less nu m be r of re-gisters may be able to answer all calls for bills withina reasonable time.

With a view to arrive at some degree of certaintyin regard to the title and value of the real estate mort-gaged, and to the accuracy of the conveyances, all thebonds and mortgages, with the deductions of title andappraisals of the land, which had been received insecurity or depo site, previous to the period w hen thepresent comptroller took charge of the office, were



APPENDIX. 309

subm itted to a professional gentlem an of high s tand ingfor a thorou gh and critical ex am ination , to the endth at all defects or om issions m ight be supp lied. T h eresult of that ex am inatio n show ed its necessity andthe propriety of a similar course thereafter, and there-fore all papers relating to the pledge of real estate havebeen strictly ex am ined and approv ed, before an y cir-culating notes w ere delivered upon such securities.

All the defects that w ere discovered hav e been su p-plied, and there is every reason for believing that thetitles to pro perty mortg aged are valid, the app raisalsgenerally fair and reason able, and that the pap ers arein due form.

Some m onths since, one of the associations w hichha d elected to deposite state stocks and secu rities'onreal estate under the seven th section of the act, andh ad received bills stam ped on their face " secured

by pledge of public stocks and real es ta te ," appliedfor a further am ou nt of bills to be stam ped " se cu re dby the pledge of public stocks," tendering at the timeof dem and other stocks as a security on w hich thebills stam ped as last m entioned w ere to be issued. T h eclaim being contrary to the decision of the late comp-troller, and in w hich the present co mp troller ac qu i-esced, the receipt of the stocks and the delivery of the

bills w as declined. W hereu po n an application w asmade by the association to the Supreme Court for pro-cess to compel a compliance with such demand, whichafter arg um en t of counsel on both sides, resulted inthe aw ard of an al ternat ive m andam us. Th e comp-troller, under these circumstances,came to the conclu-sion to yield to the alte rna tive of issuing bills on stocksonly to the association a pp lyin g— a ne w accoun twas opened with the same institution with a view to

keep the two discriptions of bills separate, as well asthe securities on w hich they w ere issued. Sev eralother associations have been furnished circulating notesin like manner since that period.

In regard to receiving the stocks of othe r state s, the re



310 APPENDIX.

ha s been a w ide difference of opinion betw een person sengaged in banking and the comptroller, as to theam ou nt at w hich those stocks should be received inpled ge. T he act havin g vested a discretion in thecomptroller, in the receiving, and also in respect to theamount at which they might be received, constitutedthat officer the gu ard ian of the inte rest of the bill ho lder;and in m aintainin g an d protecting tha t interest, it is not

surprising that there should have arisen a collision ofopinion on the question of valu e. It w as , am ong otherthings, alleged " that the late comptroller had decidedto ad m it or receive the six per cent stocks of other statesat par , or as eq ua l to the five per cents of this sta te, an dthat purchases had been made with reference to thatdecision. As the prices of stocks ha d m ateria lly declin-ed in ma rke t, and could not w ith propriety be receivedat that rate , to rem ove all ground of com plaints arising

from misapprehensions, the comptroller on the 9thM arch last, ga ve public notice as follow s: " N o ti ce topersons forming associations und er the general b an k-ing law—

" To meet the inquiries that are constantly made re-specting the principles which govern the comptrollerin rece iving stocks as collateral security for circula tingnotes, he think s proper to state— that the stocks of this

state, and those of the United States, at or about fiveper cent, will be received at par value, and notes willbe delivered to an equ al am ou nt on such stock beingdepo sited; and tha t stocks of other States of the U nitedState s, w ill be received or not according to c ircum -stances existing at the time they shall be offered, andwhen received will be estimated at a rate not exceed-ing the market value, and notes will be deliveredaccordingly.'* Since w hich six per cent, stocks of othe r

states hav e been received from time to tim e, at 9 5, 90,85, 80 , and 70 per cent, and five per cent stocks a tnearly corresponding ra tes.— Th e entire amou nt re-ceived is $4,9 S4 ,700 33-100, of w hich $47 8,200 38-100are of this state $1,099,000 of Arkansas, $872,000 of



APPENDIX. 311

Michigan, $1,045,000 of Illinois, $1,043,000 of Indi-ana, $10,000 of Ohio, $69,000 of Missouri, $207,000of A labam a, $110,000 of M aine , $50,000 of K entu cky ,and $1500 of United States.

Fully to carry into effect the manifest intention ofth e Le gislatu re, by providing an am ple security forall circulating bills delivered to the associations, it be-came a duty to fix a price at all times approxima-ting to the actual market value of the different stocksoffered and to do this, and at the sam e time to givegen eral satisfaction to depo sitors, imp osed a du ty ofextreme delicacy and much perplexity. There seemedto be no mea ns w ithin reach, by w hich the a ctualvalue of stocks could be ascertained with any tolerabledegree of certainty. Stocks w ere evidently continu-ally on the decline, and the comptroller felt it to be hisduty to keep at or below the supposed value in mar-

ke t, for the reason tha t the disposal of the stockspledged will most probably be called for at a time ofthe greatest p ecu nia ry difficulty, and the sale m ustbe promptly made at whatever sacrifice, to meet im-me diate dem ands that adm it of no delay. In ratin gthe value of stocks, this consideration has been steadi-ly kept in view, to the end that, under the most ad-verse circumstances, there should be an ad eq ua te re-dem ption fund; a m atter of vital importance to thestability of the system, as well as to retain the confi-dence of the com m unity, w hich has been so stronglymanifested in favor of the circulation of these banks.

To some of the associations a larger amount of cir-culating notes has been delivered than the presentestimated value of the stocks pledged will warrant,and in such cases the dividends on the stock will beretained to increase the security, agreeably to the fifth

section of the act. T he stocks received ha ve been m ad epayable to the comptroller in trust for the institutiondepositing, or ha ve been assigned in w riting, or a nendorsement made upon each bond, specifying that thesame has been deposited in pledge for circulating notesby the association making the deposite; this was done



312 APPENDIX.

to prevent any unauthorised transfer of the securities.Although this is not in accordance w ith the customamong dealers in such securities, which authorisestransfers by delivery, yet it has been deemed prudentto adopt every practicable measure tending to thesafety of the deposite. As transferred or endorsed,these securities cannot become again negotiable with-out the signature and seal of the comptroller.

Beside this guard, and a safe place of deposite,the farther precaution has been taken to provide asuitable book, in w hich a general description of eachcertificate of state stock or bond is entered, in orderthat if any of the securities should be missing, a de-scription and notice could be given to the proper officerof the state which issued the paper, and thereby pre-vent its payment to the holder. These measures aresupposed to be all that are necessary for the safe

keeping of the securities deposited. Less precautionseemed required in relation to the bonds and mort-gages, as that class of securities is assigned to thecomptroller, and the mortgages and assignments there-of have been duly recorded in the counties where thelands conveyed by them are situated, and notice ofthe assignment given to the obligors, and an acknow-ledgment of the amount due thereon taken of the

mortgagors, where the mortgages were of long stand-ing.The joint committee appointed to examine the

Treasurer's accounts and the accounts in the CanalRoom, has been invited to extend its examination tothe Bank Department. The invitation w as accepted,and a general examination has been had in relation tothe situation of the securities, the manner of keepingthe books and the general condition of that depart-

ment.The past year has not furnished a fair criterion by

w hich to judge of the operation of the system. Abouthalf of the new banks have been in business but a fewmonths, embracing a period of unusual derangementof the currency. As part of them , at least, w ere formed



APPENDIX. 313

and put in operation without due preparation, andhave been managed by officers of limited experience,it c ould scarcely pro ve oth erw ise th an th at difficultyand em barrassm ent should attend their operation. I tis an ex perim ent; an d a m uch longer period of tim ew ill be requ ired than h as ye t been given fully to testthe practical effects of the system. A restriction whichhad existed for m any years w as suddenly rem ove d;

the right of banking by complying with certain condi-tions w as opened to all; the occasion has been seizedwith avidity; 134 certificates of the formation of asso-ciations have been filed, seventy of which have com-menced business, and also three private individu albanks, making seventy-three new banks.

Such securities as are m entioned in the act h av ebeen sought, obtained and deposited to the am oun tof $7,168,50 7, an d upon w hic h over $6,000,000 incirculating notes have been issued from the officew ithin the last fifteen m on ths. A sort of ba nk ingmania seemed to prevail which alarmed the commu-nity at its ex ten t and possible results. T h e co m p-troller felt th at noth ing short of the mo st rigid pe r-form ance of the du ty assigned to him in relation tothe securities pledge d, w ould sustain that confidenceupo n w hich the w hole circulation of the free ba nk s

depends. One bank has been w oun d up w ithout lossto the holders of its bills; tw o others are now com ingto tha t po int, and it is confidently believed tha t th eresult w ill be the sam e. If in times like these the re -demption fund proves adequate to its object, addition-al confidence w ill be accorded to this class of circu la-tion. D uring the influx of this ne w m ediu m in theabsence of organ ization an d concert am on g the ne wbanks, it is not surprising that the emission should be-come somewhat depreciated, more especially when itis considered h ow ex trem ely difficult it ha s been topreserv e the safety fund circulation of the cou ntry ban ksfrom a like dep reciation, notw ithstand ing an organ i-zation of years standing, and the great experience of



314 APPENDIX.

the officers of these ins titutions , an d the privilege ofavailing themselves to some extent of the aid of theState by receiving its deposites.

T he hea vy expen ses incident to the organizationof so large a nu m ber of institutions, ha ve w ith fewexceptions, been paid on the draft of the comptroller,at sight. Such pa rt of their circulation a s has beenreturned for redemption has been promptly met, ex-

cept by those associations in New York now closing.The amount of circulation of the safety fund banks,as appears by the report of the bank commissioners,Ja n . 1st, 1839, w as - $19,373,149 00T he a m ou nt of circulating no tes of free

ba nk s, Ja n . 1st, 1839, w as - 396,300 00

M ak in g the w hole circulation of thestate, on the 1st of Ja n . 1839 - $19,769,449 00

The total amount of circulating notesissued up to the 1st Dec. 1839.

$6,012,019 00Est imated amount of

safety fund notes incirculation on 1st Dec.1839 - - 12,000,000 00

M ak in g the entire circulation on 1st ofDec. 1839, - 18,012,019 00

By this it is shown that the circulationhas dim inished . . . $1,757,440 00A nd it is ap pa ren t th at as tha t of the free ba nk s

expanded, that of the safety fund institutions con-tracted in abo ut the same proportion. T he aggre-gate of circulation of the state, (allowing all the notes

delivered to the new banks to be out,) does not equalthe aggreg ate of 1st Ja n u ar y, 183 9, by the sum abovestated,

This does not include the amount of post notesissued by a very limited number of the free banks.—The comptroller has not deemed that a legitimate is-



APPENDIX. 315

sue, and ha s therefore dircouragecl the practice, andit is believed that it has not obtained to any consider-able extent.

Sqch issues if allow ed by law , w ill opera te inju-riously upon the credit of the new system. No pledgeis made for the redemption of that species of paper afact un kn ow n to m an y, and therefore its circulationis dec eptive.

Arrangements were made in the month of Sep-tem ber last w ith th e deposite b ank in this city, toreceive the bills of the associations from the treasurerin deposite at par, which enabled him to receive thosebills for all sum s due to the state. Th is arra ng em en tput the bills of this description on an eq ua l footingw ith the safety fund bills, so far as regarded themoneys receivable for the general and other funds ofthe state, (except the canal fund,) and large sums

ha ve been received by the treasure r in that kind ofpa pe r. As to receiving the bills of the free banks fortolls on the canal, the commissioners of the canalfund found that by the existing law, they were onlyauthorised to deposite the mo neys belonging to thatfund with "safe incorporated moneyed institutionsof this state;" consequently the canal board are com-pelled to select incorporated banks to receive tolls

dur ing the season of navigation . H av ing no rightto direct what description of money or paper theselected ba nk s should receive for tolls, the com ptrol-ler, in his com m unication, requested them to receiveall kinds of bills prov ided they could do so w itho utloss; and directions w ere given to the collectors toreceive all kinds of bills which the deposite bankwould receive of them.

Many of these banks have received of the collec-

tors the bills of the associations in their vicinity, andsome of those that w ere more remote. N ew bank sw ere springing into existence as if by m agic , and apart making no provision for the redemption of theirbills in New York or Albany, the deposite banks felt



316 APPENDIX.

unw ill ing to receive notes abo ut w hich they couldkn ow little or nothing . H ad the comm issioners ofthe canal fund been able to give time to con vert thene w currency, an arrangem ent might hav e been madeto receive the m . B ut th e constant heav y drafts ofthe can al com missioners in favor of the con tractors ,during a period of unprecedented pecuniary distress,placed it beyond their po w er to ex tend the time re-quisite to m ak e such conversion. W hile no direc -tions, therefore, could be given to receive the notesof the free b anks for tolls, for the reason s m entio ned ,many of the deposite banks have taken freely of suchas hav e taken the precaution to m ake arrangem entsto redeem their bills at New York or Albany, at simi-lar rates as the safety fund b an ks . H ad all adoptedthis cou rse, there w ould hav e been little if an y diffi-cu lty in the reception of the bills of all, in ord inary

times . It is confidently hoped t ha t hereafter, w he nthe associations shall have had time to perfect a sys-tem of redem ption and give a fair standing to theirseveral institutions, no such difficulty will then beexperienced.

It is one of the first and m ost sacred obligations ofthese associations and all other institutions enjoyingthe privilege of supplying a currency for the country,to render that currency equal to gold and silver at its

place of pay m ent. A s a debtor cannot w ell be re -quired to pay at tw o or m ore places, because thatwould require a double provision for his debts; andas the place of paym ent m ay be , and often is, distantfrom the po int to w hich the curren cy is carried bythe course of trade, there will naturally and necessa-rily be a depreciation in such curren cy equ al to theexpense of transporting gold and silver to such point.This is reasonable, but any farther depreciation isunjust to the com m unity w hich ha s to sustain it.—T he g reat question then arises ho w is this to be pre-vented in r egard to the circulating notes issued bythe banking associations under the general law.



APPENDIX. 317

A recent arra ng em en t into w hich th e safety fundbanks , and many of the associations have entered,h as prove d in practice so successful in its op era tion ,that nothing more seems required than to give it thesanction of la w , and there by com pel its un iversaladoption by all the associations, to render their notesa sound and safe curre ncy , equal to gold an d silverin every pa rt of the sta te, ab ating the slight deduction

justified by the distances of the respective associationsfrom the place w here their notes m a y b e concentrated.The following might be substantially the provisionsof such law . T he ban king associations should ea chbe req uired to ap point a delegate to m eet at somecentral point in the state to represen t them , and themajority of such delegates to select some bank orba nk ing association in the city of A lban y as an ex -change agen t, and agree w ith it upon the term s on

which it would perform the duties of the agency.Should the associations neglect to ma ke su ch selec-tion and ag reem en t, som e state officer or officersshould be authorised to do it for them.

T he agenc y being established, ev ery associationshould be at liberty to send to it the notes of all theothers for ex change and redem ption. On a givenda y in each w eek the ex chang e agent should assort,

count and arrange in separate packages all the notesreceived at the age ncy , adjust the balan ces be tw ee nthe different associations, seal each pa ck ag e, and givenotices by mail to the resp ective assoc iations, of theamount due from each, which notices should requirethe balances to be paid at the agency, at times to bead ap ted to the distance of the deb tor associationfrom it. T h e associations at and east of U tica m ightbe required to pay in ten days after mailing the no-

tice; those at and east of R och ester in fifteen d ay s;those at and east of Buffalo in eigh teen d ay s; thoseat and south of Whitehall fifteen days; those at NewYork eight d ays ; those at Pon ghke epsie and northof it five da ys . Th eir times of pa ym en t w ould of



318 APPENDIX.

course be regulated according to distances and facilityof intercourse, and the same principle may be appliedto all the counties in the state.

In case of a default to p ay a balanc e a t the a p-pointed tim e, the ex cha nge age nt shall furnish proof ofthe fact to the comptroller, w ho should be authorisedim m ediate ly to dispose of so m uch of the securitiesdeposited w ith him , by such defaulting association,

as shall be necessary to pay such balances, and there-up on redeem its notes sealed up , take them into hispossession, and cancel the sam e. Bu t if the co m p-troller should be of opinion that at the time, and un-der the circumstances, w hen such balances accrued,the securities deposited with him might not be imme-diately availab le to redeem the w hole circulation ofany defaulting association, he might be authorised topay a just proportion on the amount of notes so sealed

u p , and in tha t case the notes sealed up should bedelivered to him for the purpose of making such pro-port ionate paym ent to ow ners of them. T he comp-troller m ay be authorised w he n no doubt is enter-tained of the sufficiency of such securities, to advancefrom the treasury the sum necessary to dischargesuch ba lance s, to be refunded, w ith seven per cent,interest, with all costs and charges, out of the sale ofthe securities of the delinqu ent association. U pon

the occurrence of such default, if the balance be notpaid within ten days, with the interest, costs andcharges the attorney-general should be required toap ply to th e chan cellor, or a vice chan cellor, for anorder, which such officer should be authorised togrant, to restrain the officers and agents of such asso-ciation from transacting an y business, ex cept th e pa y-m ent of its notes then in circulation, an d to receive

payment of debts due to it.Upon granting such order, the officer to direct

som e m aster in chan cery or some other p rope r per -son , to be d esignated, at the ex pense of the associa-tion, to ex am ine into and report forthw ith the condi-



APPENDIX. 319

tion of the same; and on such report coming in, theco urt to be autho rised to dissolve the association an dap po int a receive r to tak e ch arg e of the effects an dpa y the debts. Th is plan w ill abu nda ntly secure theholders of the circulating notes , an d enab le the m atall times promptly to convert them into cash at a dis-count equ al to the tim e allow ed for pa ym en t of ba-lances, which may be from i of one per cent, to 1 percent, and w ill not probably ex ceed the latter am oun t.It at the same time affords a reasonable time to theassociations to m eet their balances, and sav e themthe necessity of providing funds in the principal citiesto m eet any larger am oun t. T he clause requiringthem to keep 12£ per cent, of the amount of their cir-culation in specie at the place of their business, maybe so modified as to allow of a deposite to their creditat the agen cy for redeem ing their notes, as an equ i-

valent .The rates at which compensation may be made to

the exchange agency, in case no agreement be madeby the associations, should be Hmitert by the act.

It is believed th at such a plan w ould rend er thecirculation of these associations all that their mostard en t friends ha ve anticipate d; no good reason canbe perceived w hy the proposed system of redemp tion

m ight not be applied also to the safety fund ba nk s,thereby at once placing the whole circulation of thestate on the same footing.

T he follow ing is also subm itted as necessary am en d-ments to the act authorizing the business of banking,v iz :

1. No circulating notes to be delivered to an y as-sociation or indiv idu al, until satisfactory proof shallbe produced to the comptroller, showing that the ca-

pital paid in or secured to be paid in, am oun ts to$ 100,000.

2. N o stocks, other than such as hav e bee n, orshall be issued by the au tho rity of, and for the re -dem ption of w hich the faith of the United States or



320 APPENDIX.

of this state is or shall be pledged, shall be receivedin security for circulating n otes , ex cept w he re satis-factory evidence shall be ad duced th at such stockscannot be procured without the payment of an exor-bitant price.

3. Individu al b ank ers, w ho shall comm ence b usi-ness after 1st Jan ua ry , 1840, shall comply w ith thesam e regu lations w hich are app licable to associations.

Such ban kers w ho ha d com menced business beforethat day shall hereafter make semi-annual reports inlike manner as associations, and comply with all re-gulations prescribed by law for associations.

4. Bonds and mortgages made direct to the comp-troller by the president or other officers of the asso-ciations, or individual bankers, shall be valid, andsuch bonds and mortgages in such cases may hereaf-ter be received in like m an ne r as if transferred ac*

cording to the 7th section of the act aforesaid.5. No association or individual banker shall make,

issue, or put in circulation as money, any notes, billsor other evidences of deb t, ex cep t such a s shall beobtained from the comptroller according to law.

6. M utilated circulating notes m ay be returnedand othe rs issued in lieu of them , if the securities shallbe .sufficient to w arr an t it.

7. All protest fees shall be paid by the person pro-cur ing the services to be performed , and for w hichfees the association or individ ual banker shall beliable. N o pa rt of the pledged fund shall be app liedin paym en t of such fees. T he re shall be bu t a singlefee for protest allowed on all bills held by the samepe rson , or pers ons, join tly interested at the time ofprotest.

8. When the dividend on stocks, or interest on

m ortgages shall be retained by the com ptroller, heshall receive the sam e and deposite it in som e safeban k or association in tru st for the institution orbanker to whom it belongs, at the highest rate of in-terest w hich can be ob tained, to rem ain in depositetill the securities will authorise it to be paid over.



APPENDIX. 321

9. T he comm ittee annu ally appointed to ex am inethe trea sur er's accoun ts, shall also ex am ine all thesecurities, account books and other papers which maybe necessary , in their opinion; to enab le the m to r e-port the true state an d condition of that de par tm en tto the legislature.

NOTE BY THE AUTHOR.

During the late session of the New York Legisla-ture , two laws were passed relating to the FreeBanks, copies of which could not be procured in time,but, the principal features of which are as follows:

From the New York Journal of Comm erce of 25th April.

Redemption of Country Bank Notes.— The billpassed b y the assembly on Tue sd ay in relation to

this subject, provides that every bank, banking asso-ciation and individual banker, except those in thecities of New York, Albany and Brooklyn, shall ap-point an agent in the city of N ew Yo rk for the re -demption of their notes, at a rate of discount notexceeding one half of one per cent.; that the bank,ban kin g association or individual ban ker, w hoseagent shall neglect or refuse to redeem such notes ondemand shall pay interest on the same at the rate of20 per cent, per annum; and if such redemption andpa ym en t of interest is not m ade w ithin 20 day s afterdemand, such bank, banking association or individualbanker, shall be liable to be proceeded against by thebank commissioners; that every association and indi-vidual banker who shall hereafter commence busi-ness, shall appoint an agent before receiving anycirculating notes from the com ptroller. T ha t an y

number of banks, banking associations and privatebankers, may, by agreement associate to raise a jointfund to be placed in the hands of the common agentfor the redem ption of their notes in the city of N ewY ork ; and also the circulating notes of other ba nk s,



322 APPENDIX.

banking associations and individual bankers; andthat no b an k, ba nk ing association or indiv idualba nk er, shall pu rchase , buy in or take u p , their cir-culating notes at an am ou nt less than w hat pu rpo rtsto be due thereon, at any other place or in any othermanner than is directed by the present bill.

From the New York C ommercial advertiser of May 20th.

Act to amend the act authorising the business ofbanking.— The second section of the act is am end edso as to authorise the issue of notes by the comptrollerto an amount equal to that of stocks of this state de-posited w ith him by an y person or association— suchstocks to be equal to a five per cent stock of this state,and not to be taken at a rate above their par value,or above their current market value.

Stocks now held by the comptroller may hereafterbe transferred to and received by him at their marketvalue.

No association shall commence business until stocksto the amount of $100,000 have been deposited.

No person or association shall put in circulationan y note not pa yab le on dem and . V iolation of thisprovision punishable with fine and imprisonment, asa misdemeanor.

Comptroller shall receive mu tilated notes, and issueothers in place of them.

Thirty-third section of the act repealed.When the securities deposited with the comptroller

are in his judgment insufficient, he may receive thedividends on stocks and interest on bonds and m ort-gag es, and deposite the sam e in some ban k of A lban yin tru st, at such ra te of interest as he m ay deem m ost

advan tageous; to be w ithdraw n and paid over w henthe sufficiency of the security shall render it proper.T he joint comm ittee appointed to ex am ine accounts

of the treasurer shall also examine securities depositedwith the comptroller, and books and papers.



APPENDIX. 323

President of any bank ing association m ay e x ecutebonds an d m ortgag es to the com ptroller, as security forcirculating bills.

Fees for protest of circulating notes to be paid bythe person a t w hose instance the protest is m ade — as-sociation to be liable therefor— but not the securitiesdeposited.

Bankers and associations made liable to inspection

and supervision of the bank commissioners.Refusal to subm it book s and pa pers for ex am inationor to be examined under oath, or any violation of law,subjects parties to the same proceedings as in the caseof incorporated banks.

A n additional ba nk comm issioner app ointed , to bepaid out of interest of securities deposited.

Bodies corporate may receive and hold transferableshares in stocks of banking associations, the same asin other stocks.

THE END.

Documents

Currency and Banking - Raguet