GENERAL HISTORY OJ. Jill MOST PROMINENT I3ANKS UN UUROPE: PARTICULARITY TUB BANK:- u* ENGLAND AND FRANCE, THE RISE AND PROGRESS OF THE BANK OF NORTH AMERICA; A KULL HISTORY OF THK LATE AND PRESENT BANK OF THE UNITED STATES: TO WHICH It ADDED, A STATISTICAL AND COMPARATIVE VIEW OF TIIL MONEYED INSTITUTIONS OF NEW YORK, AND TWENTY-FOUR OTH1CR PRINCIPAL CITIES OF THE UNITED STATES. Compiled from various standard works, official sources, aiid private correspondence. ALSO, A. HAMILTON'S REPORT TO CONGRESS ON CURRENCY, Presented while Secretary : and AloBUFFIE'S REPORT ON CURRENCY, Presented to the last Congress. BY THOMAS H. GODDARD, ACCOUNTANT. NEW YORK H. 0. SLEIGHT, CLINTON HALL, G. & C. & H. CARVILL, 108 BROADWAY. 1831. Southern District of New York, ss. BE IT REMEMBERED, that on the twenty fifth day of January, A. D. 1831, in the fifty-firth year of the independence of the United States of America, Thomas H. Goddard, of the said district, hath deposited in this office the title of a book, the right whereof lie claims as author and pro- prietor, in the words following, to wit : " A general history of the most prominent banks in Europe ; particu- larly the banks of England and France : the rise and progress of the bank of North America : a full history of the late and present bank of the United States. To which is added, a statistical and comparative view of the mo- neyed institutions of New York, and twenty-four of the principal cities of the United States. Compiled from various standard works, official sources, and private correspon- dence- Also, A. Hamilton's Report to Congress on Currency, presented while Secretary : McDuffie's Report of Currency, presented to the last Congress. By Thomas H. God- dard, Accountant." In conformity to the act of congress of the United States, entitled " An act for the encouragement of learning, by securing the copies of maps, charts, and books, to the au- thors and proprietors of such copies, during the time therein mentioned ;" And also to an act entitled " An act supplementary to an act entitled ' An act for the encourage- ment of learning, by securing the copies of maps, charts, and books, to the authors and proprietors of such copies, during the times therein mentioned,' and extending the benefits thereof to the arts of designing, engraving, and etching historical and other prints." FREDERICK J . BETTS, Clerk of the Snvthern District of JVc*, York ADVERTISEMENT IN tliis work the author does not aim at originality, or to give a learned dissertation on the multiform principles, or complex science, of banking. This has been done effectu- ally by more competent hands. But his whole object is to give a plain business statement of things as they have been, and are : to trace the rise and progress of important mo- neyed institutions, and show what effects they have pro- duced upon commerce, upon arts, upon agriculture, and upon society in general, and the beneficial results upon each, when properly managed : and to delineate the deleterious conse- quences they are capable of, and necessarily do produce, when intrusted to unskillful agents. The facts adduced have been drawn from different ency- clopedias, and other authorities equally valuable ; and during the investigation, reference has been made to every source within his reach, which could in any way elucidate the sub- ject. The Bank of England, having been continued by prudent hands, standing alone, has sustained itself, and al- most or quite sustained the government, for a period of nearly a century and a half, down to the present day: while that of France, having been taken into the hands of government, was ruined, and almost prostrated the government itself. IV ADVERTISEMENT. The history of the institutions of our own country will be found to contain important facts, hitherto locked up in pon- derous folios, and consequently accessible to but few. The learned and able report of the immortal Hamilton, presented to congress shortly after the formation of the government, together with the luminous report on currencies presented to the last congress by Mr. McDuffie, form an aggregate state- ment of statistical information not to be found in any other work extant. CONTENTS PAGE Banks, definition of, 9 Bank of Venice, 10 " of Genoa, . ... 11 " of Amsterdam, ....... 12 " of England established, 15 Charter renewed, 17 Advances to government 1776, and charter again renewed, 18 Charter renewed in 1800, 19 Amount of circulation, ..... 19 Bank of France established, 20 j Changed to a government establishment, . . 21 Company of the West, 22 Senegal Company, 22 General receipt of the king's revenue transferred, . 23 Restriction of specie and plate, .... 24 Bank notes reduced in value, .... 25 Bank failed, 25 New Bank of France, 27 Banking system of Scotland, 28 Private Provincial Banks, 41 Bank of North America, 48 A. Hamilton's Report on Currency, .... 51 Late United States Bank, 94 Present United States Bank, 98 Report of the present Bank of the United States, . . 99 Exposition of ditto, 106 McDuffie's Report, 129 Statistical and comparative view of the moneyed institu- tions of the United States, . 182 New York City Banks, . . . . . . 185 Delaware and Hudson Canal, .... 186 Marine Insurance, ...... 193 Fire Insurance, 194 Other Institutions, ...... 195 Progress of stocks in New York City, . . . 196 CONTENTS. PAGE Albany, Banks, 197 Insurance, , . 198 Troy. Banks, 199 New Haven. Banks, . 200 Insurance, .... 200 Hartford, Conn. Banks, 201 New London. Banks and Insurance, . . 202 Newport, R. L Banks, 203 Providence. Banks and Insurance, . . 204 Boston, Mass. Banks, 205 Insurance, .... 206 Salem. Banks and Insurance, . 208 Portland. Banks and Insurance, 209 Portsmouth, N. H. Banks, 210 New Jersey. Banks, Philadelphia. Banks, Insurance, .... 213 Baltimore. Banks, 214 Insurance, .... 215 District of Columbia. Banks, &c 216 Richmond, Va. Banks, &c. .... 217 Norfolk. Banks, &c 218 Charleston. Banks, &c 219 North Carolina. Banks, .... 220 Augusta. Banks, &c. .... 221 Savannah. Banks, &c. .... 222 New Orleans. Banks, 223 Insurance, .... 224 Grand Recapitulation, . 225 Elements of Exchange, 229 Description of British Stocks, 249 ERRATUM. Page 252, tenth line from the top, for " This stock (six millions),' 1 read " This stock (eight millions)." HISTORY or BANKING INSTITUTIONS OF EUROPE AND THE UNITED STATES BANKS. IN commercial language a bank is a repository, or an es- tablishment, for the purpose of receiving the money of indi- viduals ; either to keep it in security, or to improve it by traf- ficking in goods, bullion, or bills of exchange ; and it may be either of a public or of a private nature. A public bank is generally regulated by certain laws, enacted by the govern- ment of the state, which constitute its charter, limit its capi- tal, and establish the rules by which it is to conduct business. A private bank, on the other hand, is merely a contract among individuals, for carrying on a trade in money and bills ; and the responsibility of the partners is the only secu- rity of those who transact business with it. Banks are properly commercial institutions, which, by af- fording credits, or issuing notes, as the representative of money, enable merchants, with greater facility, to buy and sell commodities, at home or abroad. The produce of one country is thus exchanged with that of another, by means of a medium, to which an ideal value is attached ; hence the great utility of banking establishments, in all commercial countries. Among the ancients the term banker implied something different from its modern signification, and con- veyed an idea corresponding with the profession of an agent, broker, or money lender. Bankers were called Argentarii and Numularii, by the Romans ; and they loaned out the money of private persons on interest ; wrote the necessary deeds, and assisted in buying and selling all kinds of pro- 10 BANK OF VENICE. perty. The first establishment of banking, in a regular and systematic form, took place at Venice about the middle of the twelfth century ; and it arose from the necessities of the state. Duke Vitale, Mitchel II., being involved in expensive wars with the empire of the west, and the Grecian Manuel, embarrassed the finances of the republic ; and to relieve it from the pressure of its difficulties, he had recourse to a forced loan, the contributors to which were made creditors, and received interest, at the rate of four per cent, per annum. The Chamber of Loans was established for the manage- ment of this fund, and regular payment of the interest: which, gradually improving its plan, at last formed itself into the more perfect institution of THE BANK OF VENICE, This celebrated bank has served as a model to almost every similar establishment in succeeding ages ; its capital was 5,000,000 ducats, or $4,800#00, for which the republic is security. It is, properly, a board of deposit, credit, and interest. By an edict of the state, all payments of wholesale merchandise, and bills of exchange, must be made in banco, or bank notes ; and all debtors must lodge their money in the bank, that their creditors may re- ceive payment in banco ; which is done by transferring the amount from the one to that of the other, or by writing off the sum from the account of the debtor, and placing it to that of the creditor. Payments are made in this manner without the intervention of gold or silver ; but there are exceptions to this rule in cases of retail trade, or when foreigners wish to carry off the precious metals. All the riches of the state thus flowed into the bank ; and, through various channels, were again diffused among traders, to give activity to the ex- tensive commerce of this once opulent, and powerful city. From its good faith, and the regularity of its transactions, the bank of Venice has always maintained a high character in Europe, and on some occasions, its obligations have been more esteemed than the bonds of kings. JJAXK OP ST. GEORGE. I 1 During two centuries and a half the bank of Venice was unrivalled ; for so gradual is the progress of improvement, that human knowledge is only matured by the experience of ages and it was not until the year 1401, that the magis- trates of Barcelona established a bank in that city. It was called the Table of Exchange, and was properly a bank of exchange and deposit. Foreign bills were negotiated with the same liberality as those of the citizens, and accommoda- tions were extended to strangers as well as to natives. It was altogether calculated for the encouragement of both ex- ternal and internal commerce, and the funds of the city were pledged as security for the responsibility of the bank. In the year 1407, the bank of Genoa commenced ; but previous to this time, the republic borrowed large sums of money from the citizens, assigning certain branches of the revenue for the payment of the interest, and a board of ma- nagement, composed of the most respectable citizens, was appointed to conduct the loans, pay the interest, and account to government for the funds intrusted to its care. From this circumstance, the Genoese claim the merit of establishing a bank as early as the Venetians ; but it is evident that the transactions of this board were only an approximation to bankiu r- In process of time, however, the multiplicity and extent of these funds induced disorder and confusion, and it was deemed expedient to consolidate the whole into one ca- pital stock, to be managed by a bank called the CHAMBER OF ST. GEORGE, to be governed by eight protectors, annually chosen, elected by the creditors and stockholders. Under this form of government, the affairs of the bank were prospe- rously conducted ; but the further increase of the public debts, the accessions of towns and territories, among which was the little kingdom of Corsica, made the business of the bank much more complex ; and the inconvenience of an- nual successions of new protectors becoming apparent, deter- mined the Genoese, in the year 1444. to elect eight new BAMi OF AMSTERDAM. governors for the management of the bank, of which only two were to go out every year. Before the discovery of the passage to the Indias, by the Cape of Good Hope, the Venetians enjoyed a monopoly of the lucrative trade of the east, by means of the Mamelukes of Egypt, with whom they were leagued by policy and inter- est, which diffused oppulence and wealth throughout Italy. This extensive commerce created and gave circulation to bills of exchange, the credit and currency of which were univer- sally acknowledged when they bore the signature of the banks of Italy, and for several centuries there were no other establishments of the kind in Europe. The BANK OF AMSTERDAM was established on the 31st of January, 1609. The magistrates of the city, under autho- rity of the states, declared themselves the perpetual cashiers of the inhabitants, and that all payments above 600 gilders, but afterwards reduced to 300, and bills of exchange, shall be made in the bank ; which obliged merchants to open ac- counts with it for the payment of their foreign bills. The extensive commerce of Amsterdam involved such *ti variety of transactions, that the expediency of regulating them be- came evident, and no measure could more effectually secure property, check lawsuits, and prevent frauds, than the esta- blishment of a bank office, in which all receipts and pay- ments were registered in books kept open for the purpose. Dr. Smith ascribes the origin of this bank to the debased state of the current coin which the trade of Amsterdam brought from all quarters of Europe, and which was sold at a reduction of nine per cent, below the money of the mint. Merchants, in such cases, could not always find standard money to pay bills of exchange, the value of which was al- ways uncertain ; and accordingly operated against the United Provinces with foreign nations. But as the bank re- ceived the debased, light, or worn coin, at its intrinsic value, HI the good money of the country, and gave credit for the Amount in its books, an invariable standard was thus esta- BANK OP AMSTERDAM. 13 blished, that tended greatly to simplify and facilitate the ope- rations of commerce. The beneficial effects of this establish- ment in Holland were soon perceived, and bank money im- mediately bore a premium, or agio, which is a term to denote the diiference of price between the money of the bank and the coin of the country. When we consider that coin is only a representative of commodities, and that its utility arises only from its being a generally acknowledged standard of value, by which m inkind in the civilized state of society are enabled to calculate the price of articles of%xchange, it is not surprising that bank receipts, which repr sent property also, and at the same time not liable to risk, danger, or deteri- oration of any kind, should be held in higher estimation than coin, which is exposed to robbery, and all sorts of casualties. In all countries, w'lere banks have been regular in their transactions, and their responsibility undoubted, their paper has carried a premium, more or less, according to circum- stances, and the agio of Amsterdam was generally about five per cent. The amount, of capital of the bank of Amsterdam was never exactly ascertained. It was originally constituted by deposits of coin, and there was full value in its coffers for all the credits and receipts it issued. The bank, however, gave credit and receipts also upon deposits of gold and silver bul- lion, at the rate of five per cent, less than the mint price of such bullion, which was restored to the owner if he called for it within six months, upon paying one fourth per cent, ii the deposit was in silver, or one half per cent, if in gold. But if the term of six months was allowed to expire, the bank re- tained the bullion at the price stated in its books. The advantage of making deposits in this bank is two- fold : first, the credit enables the merchant to pay his bills of exchange ; second, the receipt gives him an opportunity of selling his bullion at an advance price, if the market should fluctuate in his favor. Although none can draw out bul- lion without producing a receipt, and reassigning bank money 14 BANK OF AMSTERDAM. eqnal to the price at which the hullion had been received, yet it is not absolutely necessary that both credit and receipt should always remain in the hands of the same person ; as he who has the receipt will find bank money to buy at the market price, to enable him to relieve the bullion, and the owner of the credit will at all times find receipts in abun- dance ; but to prevent any extraordinary rise in the price of bank money, or receipts, which speculation or other causes might sometimes induce, the bank adopted the resolution of selling bank morfcy for the current coin, at an agio of five per cent., and buying it at the rate of four. The city is guaranty that there shall always be full value in the bank to answer all its demands ; and as the directors, who are annually changed, compare the treasure with the books, under solemn oath ; so that there can be no probability of fraud. . The four reigning burgomasters are invested with the di- rection of the bank, and the city of Amsterdam derives a considerable revenue from it, which arises from the following sources : for all deposits, a fourth or half per cent, must be paid ; from every person who opens an account, a fee of ten gilders is exacted, and for every additional account, three gilders three stivers ; for every transfer, two stivers, or six stivers if the transfer be less than three hundred gilders. If any person shall overdraw his account, he is^fined three per cent, on the amount, and his order is set aside. There is also a considerable profit on the sale of foreign coin, or bul- lion, which is always kept till it can be sold to advantage ; and likewise by selling bank money, at five per cent. agio, and buying it at four. Through these various resources, the bank of Amsterdam became rich and prosperous, and it was supposed to retain in its repositories more gold and silver than any other establishment of the kind in Europe.* 15 BANK OF ENGLAND, CHARTERED IN THE YEAR 1694. Previous to the year 1694 there were only four considera- ble banks in Europe ; but on the 27th July, of that year, a charter w;s granted by William and Mary, for establishing the bank of England ; which, for opulence, and extent of circu- lation, is now the greatest in the world. *The charter was granted for the term of twelve years, and the corporation was deterrninable on a year's notice. The original capital, sub- scribed by the proprietors, was 1,200,000 sterling, or $5,333,333^ iai consideration of loaning to the government the same sum, 1,200,000 ; for which they received an interest of eight per cent, amounting to $426,666f . By an act of parliament, in the 8th and 9th of William, they were allowed to enlarge their capital stock to 2,201,171.10, or $9,782,984.44. At this time the bank agreed to deliver up to the govern- ment, so many exchequer bills as amounted to 2,000 5 000 or $8,888,888.88. and to accept an annuity therefor, of the sum of 100,000, or $444,444.44. The bank then agreed to lend to government, by contract, on demand, 1,000,000, or $4,444,444.44. In order to enable them to circulate exchequer bills, they established what is now called bank circulation ; the nature of which may be understood by what follows : The compa- ny of the bank are obliged to keep cash in hand, sufficient, not only to answer their common, but also any extraordinary de- mand that may be made upon them ; and what they have over they employ in the trade of the company. But when the bank entered into the above contract, as they did not keep unemployed a larger sum of money than what they deemed 16 BANK OF ENGLAND. necessary to answer their ordinary demands, they could not conveniently take out of their current cash, so large a sum as a million, without embarrassment ; they therefore in- vented the following 1 , which answered all the purposes, and shows the profound financial skill with which they managed : They opened a subscription for a million, which they re- new annually ; wherein the subscribers advance ten per cent, and enter into a contract to pay the remainder, or any part thereof, whenever the bank shall call upon them, under pe- nalty of forfeiture.of the ten per cent, so advanced. In con- sideration of which, the bank pays the subscribers 4 percent, interest, for the money paid in ; and j per cent, for the whole sum they agree to furnish ; and in case a call should be made upon them for the whole, or any part thereof, the bank fur- ther agrees to pay them at the rate of 5 per cent, per annum for such sum, until paid ; which they are under obligation to do, at the end of the year. By this means, the bank obtains all the purposes of keeping a million of money by them j and the subscribers, if no call is made upon them, (which is in general the case,) receive 6| per cent, for the money ad- vanced ; yet the company gains 23,500 by the contract : as will appear by the following account, viz : The bank receives from the government, for the advance of a million, 30,000 ; and they pay the subscribers, who ad- vance 100,000 and agree to pay, when called upon, 900,000 more 6,500; making a clear gain to the bank of 23,500, or $104,444.44. Bank stock may not improperly be called a trading stock, since with this they deal largely in foreign gold and silver, and in discounting bills of exchange ; besides which, they are allowed by the government large sums annually for the management of the annuities paid at their office. In terms of the act of 7 An.ie, chapter 7, the bank ad- vanced on the original annuity, 100,000, the sum of 400.000, or $1,777,777.7 7 And there had been paid into the exchequer, in all, 1,600,000, Tn pursuance of the same act, the bank cancelled exchequer BANK OF ENGLAND. 17 bills to the amount of 1,755,027.17.101, or $7,800,123.96, at 6 per cent, interest, and was allowed to double its capital. In the year 1708, the advances to the government amount- ed to 3,375,027.17.10*, or $15,000,123.96, and the capital of the bank now is 4,402,343 00 00 In 1709 there was paid in 656,204 01 9 In 1710 there was paid in 501,448 12 11 So that the capital is now 5,559,995 14 08 or $24,700,092.11. By the 3d of George 1, chapter 8, the bank cancelled 2,000,000 of exchequer bills, which made the advances to government 5,375,027.17.10^, or $23,889,012.84. By the 8th of George 1, chapter 21, the bank purchased South Sea Company stock 4,000,000, or $17,777,777.77. To enable the bank to effect this purchase, it increased its capital by subscription, in the year 1722, 3,400,000, and at this time the bank had advanced to the state, in various ways, in all 9,375,027.17.10^ or $41,666,790.62 ; though its capital stock was only 8,959,995.14.8, or $39,822,203.22. Thus it appears by this statement, that the bank had ad- vanced a larger sum to the state than the whole amount of its capital, on which it paid a dividend to the proprietors, and this circumstance shows that the bank possessed an undivided capital, which had accumulated from its establishment, which is the fact ; and it has continued to have an undivided capital ever since ; for in the year 1746, the bank had ad- vanced to government, on different occasions, the sum of 11,686,800, or $51,941,333.33, and the capital on which it had divided had been raised by several calls, to 10,780,000, or $47,911,111.11. In pursuance of the 4th George 3, chapter 25, the bank paid to government, for the renewal of its charter, the sum of 110,000, or $488,888.88. 3 18 BANK OF ENGLAND. At the same time it advanced towards the supplies on ex- chequer bills 1,000,000, or $4,444,444.44, to be paid in the year 1766. The charter was then renewed to the year 1786, and the dividend in 1767 was raised to 5 percent,, which on its now capital amounts to $2,635,111.10. Soon after the establishment of the bank, it assisted go- vernment, in anticipation of the land and malt taxes, and also by advances on exchequer bills, and other securities. In 1781, the advances in this way amounted to 8,000,000, in addition to the permanent debt of 11,686,800, making in all 19,686,800, or $87,496,888.88. On condition of advancing 2,000,000, or $8,888,888.88, on exchequer bills, at 3 per cent, interest, to be paid off from the sinking fund within three years, the bank obtained an extension of its charter to the year 1812. To enable it to make good, this advance, a call was made of eight per cent, on its capital; which was now increased to 11,642,400, or $51,744,444; and the dividend settled at 6 per cent., amounting to $3,104,646; and the total advance to government, on the land and malt taxes, and exchequer bills, amounted to 9,991,678, or $44,407,457.77 ; but in 1786, the sum was reduced to 6,634,872, or $29,488,320 ; and from thence, to 1793, the amount of these advances have fluctuated, from seven to nine millions. In 1788, the dividend was raised to 7 per cent., which con- tinued to be the rate until 1807. The dividend, from 1767, to 1787, inclusive, at 5 1 per cent, per annum, is $56,868,880 ; and from 1788 to 1807, both inclusive, at 7 per cent, per annum, is $72,442,220. BANK OP ENGLAND. 19 In the year 1800, the charter was renewed, by the 40th George 3, chapter 28 ; and continued to 1835, on condition of advancing to the public service 3,000,000, or $13,333,333.33. without interest, for six years, ending in 1806. In that year, it was stipulated, by 46 George 3, chapter 4, that these three millions should remain with the public, until six months after ,1 definitive treaty of peace, at three per cent, interest, during the war ; which is a present to the nation, of 60,000, or $266,666.66, and which shows the resources, and profitable trade of the bank of England. The circulation of the notes of this bank, in the years 1787 was 8,688,570, or $38,615,866.66 1790 was 10,217,360, or 45,410,488.88 1795 was 13,539,160, or 60,174,044.44 1796 was 11,030,010, or 49,022,711.11 1805 was 18,397,880, or 81,768,355.55 1806 was 17,093,570, or 75,971,422.22 1807 was 16,621,390, or 73,872,844.44 1810 was 21,000,000, or 93,333,333.33 In 1797 the bank suspended specie payments ; and an act was passed for that purpose ; which suspension was renewed annually. From the report of a committee, appointed in this year, to inquire into the state of the bank, the total credits were 17,597,293, or $78,210,191.10. The debt owing by government 13,770,390, or $61,201,733.33. Thus leaving a balance in favor of the bank, 3,826,903, or $17,008,457.77. Since that time the profits of the bank have been consi- derably augmented ; and the proprietors have received bo- nuses, in addition to 7 per cent. ; but, in April, 1807, the permanent dividend was fixed at 10 per cent, per annum ; which, for twenty-two years, up to 1829, inclusive, is $113,837,768. 20 BANK OF FRANCE. Thus has this wonderful institution withstood the ravages of time ! the convulsions of nations ! the wreck of em- pires ! the vicissitudes of war and peace ! diffusing life, light, and heat, throughout the immense regions of the body politic, from age to age, down to the present day ! And its sta- bility is now believed to be commensurate with the British empire. From the above well managed and prosperous institution, we will now turn our eyes to a rival institution, nearly si- multaneous in its origin ; which bid fair to supersede its com- petitor ; and, for a time, outvied it in the magnitude of its operations, and the splendor of its achievements ; but, in a few short years, from bad management, exploded ; spread- ing devastation and horror in its progress ; convulsing the nation to its centre ; and had well nigh sapped the vitals of the throne. BANK OF FRANCE, CHARTERED IN THE YEAR 1716. The French nation, though less enterprising than the English, in every thing relative to commerce, have yet, in some respects, successfully imitated them. But, in the par- ticular instance of banking, they have not been so fortunate ; owing, more to causes connected with their political institu- tions, than to any want of knowledge, genius, or activity in the people. In the year 1716 a bank was established in Paris, by the celebrated John Law, of Lauriston. The object of this bank, according to Mr. Law's professions, was to increase the circu- lation of money ; To put a stop to the progress of usury ; To facilitate the exchange between Paris and the pro- vinces ; Augment the circulation of manufactures ; BANK OP FRANCE. 21 And to enable the people to pay, the more easily, the heavy taxes to which they were subjected. The letters patent, establishing this bank, stipulated, that the stock should consist of 1200 shares, of 5,000 livres each, at the rate of 40 livres the mark ; so that each share was worth 250 sterling, and the whole stock of the bank at 300,000 sterling, or $1,333,333.33. The regulations of this bank were wise and salutary. It was declared, that the bank securities belonging to, as well as the money lodged by foreigners, should not be subject to confiscation, even in case of war with the nations to which the proprietors belonged. The bank, of which Mr. Law and his brother William were the proprietors, assumed the firm of THE GENERAL BANK OF LAW & COMPANY; and the affairs of the bank were so prosperous, that, at a general meeting, on the 20th December, 1717, a dividend was declared of 7Jper cent., for six months, amounting to $100,000. There can be no doubt, but this bank would soon have ri- valled that of Amsterdam, or of England, and produced con- sequences equally beneficial to France : but the strong arm of power interfered, and changed the institution from a pri- vate, to a public concern. By an edict of council, bearing date the 4th December, 1718, the public were informed, that his majesty had taken Mr. Law's bank into his own hands, under the name of THE ROYAL BANK ; of which, Mr. Law was appointed dkector general ; and branches were established in different cities. The bank now proceeded on public credit, or in other words, was entirely dependent on the will of the sovereign; and as the schemes of monarchs are seldom guided by mo- deration or reason, it embraced objects so magnificent,'so vast, and extensive, that all Europe looked on with anxiety, and trembled for the issue ! It was proposed to vest the whole privileges, effects, and possessions of foreign trading companies, the Great Farms, 22 BANK OF FRANCE. the mint, the general receipt of the king's revenues, and the management and property of the bank, in one great com- party ; which, having in their hands all the trade, taxes, and royal revenues of the kingdom, might multiply the notes of the bank to any extent they pleased. Accordingly, a company was formed in 1717, under the name of THE COMPANY OF THE WEST, to which was granted the province of Louisiana, and from this circumstance, the operations of the company obtained the name of the MISSISSIPPI SYSTEM. Of this company 200,000 shares were issued, at the rate of 500 livres each, amounting to 100,000,000 livres, or $18,750,000. On the 4th September, 1718, THE FARM OF TOBACCO was made over to the Company of the West, on their agree- ing to pay to the king rent in advance, 2,020,000 livres, or $378,750. On the 15th December following, they obtained the charter and effects of the SENEGAL COMPANY; but the most important grant they obtained, was in May, 1719, when an edict was published, transferring to them the exclusive privilege of trading to the East Indies, China, and the South seas, on condition of paying the lawful debts of these companies, now dissolved. On this condition, the Company of the West as- sumed the titleof THE COMPANY OF THE INDIES, and 50,000 new shares were constituted, at the rate of 550 livres each, amounting to 27,500,000 livres, or $5,156,250, to be employed in building vessels, in satisfying the creditors of the old companies, and in preparations for the general trade ; and from the vain expectation of possessing a lucra- tive branch of commerce, the price of a share rose in the market to 1000 livres, or $187.50. On the 25th July, 1719, the mint was made over to the company, for a consideration of 50,000,000 livres, or $9,375,000, to be paid to the king. BANK OF FRANCE. 23 In order to raise that sum 50,000 new shares were ordered, at the rate of 1000 livres, amounting to 50,000,000 livres, or $9,375,000. On the 27th of August following, the great farms were made over to the company, on their agreeing to pay in ad- vance of rent to the king for them 3,500,000 livres, or $656,250. And, on the 31st of same month, they obtained the gene- ral receipt of other branches of the king's revenue. The company now promised an annual dividend of 200 livres on a share. There was now 301,000 shares, which, at 200 livres each, amounted to 60,240,000 livres, or $11,295,000. In consideration of which, the price rose in the market to 5,000 livres, or $937.50. The company now agreeing to lend the king, to pay off his creditors 1,500,000,000 livres, or $281,250,000, at 3 per cent, interest, created, in September and October, 300,000 new shares, at 5,000 livres each, amounting to 1,500,000,000 livres, or $281,250,000. The company's capital was now 601,200 shares ; which, at 5,000 livres each, is 3006,000,000 livres, or $563,625,000. And the annual income arose as follows, viz. Interest from the king, 48,000,000 livres, Farms, mint taxes, &c., 39,000,000 From the general trade, 44,000,000 131,000,000 livres, or $24,562,500. From so great a revenue they could well afford to pay 200 livres on a share, as a dividend ; which, on their present capital, amounted to 120,240,000 livres, or $22,545,000. The infatuation, which at this time prevailed in France, was so great, as to raise the price of shares to 10,000 livres each, or $1,875. 24 BANK OF FRANCE. Tiie original proprietors acquired immense fortunes. Mo- ney was abundant ; agriculture, manufactures and com- merce flourished ; and the government were enabled to re- lieve the people from taxes, to the amount of 87,000,000 livres, or $16,312,500. Notwithstanding, the general confidence in the stability of the bank, and India company, there were individuals who held a different opinion ; and they converted their paper into specie, which they either hoarded up, or shipped to other countries ; and this occasioned a run upon the bank, until there was not enough left in France, for the common pur- poses of circulation. To avert the danger, which now threatened the whole sys- tem, several edicts were passed, restricting payments in spe- cie ; prohibiting the manufacture of plate, without the royal license ; and declaring, that all rents, taxes, and customs, should be paid in notes, the value of which, was to remain always invariable ; while the standard of coin was kept in constant fluctuation. But the restriction was carried to its greatest height by the edict of 27th February, 1720, which prohibited indivi- duals, and secular or religious communities, from having in their possession more than 500 livres in specie, under penalty of confiscation, fine, and imprisonment. These measures had the effect of throwing into the bank in specie, between the months of February and April, 1720, the sum of 300,000,000 livres, or $56,250,000. The royal bank was now incorporated with the company of the Indies, and the king remained guaranty of the notes, of which none were to be fabricated in future, except by an edict of council. The profits of the bank, since his majesty had taken it into his own hands, in December, 1718, were given up to the company ; and as they were supposed to be immense, the public entertained a high idea of the company's opulence. BANK OF FRANCE. 25 At this period, the credit of France was at its height ; but it soon experienced a reverse, (hat involved thousands in mi- sery and distress. The ministry, who were opposed to no law, represented to the regent that it was necessary to equalize the value of paper currency, and the coin, by either raising the denomi- nation of the latter to 130 livres the mark, or reducing the former one half. This absurd notion prevailed in the council, and it was re- solved to diminish the value of the bank notes, and the India company's actions, that a just proportion between them and the coin might be maintained. For that purpose, an edict was passed on the 21st May, 1720, ordering that shares should be reduced to 8000 livres, and on the 1st of July, 7500 livres, and so on 500 livres a month, till the 1st of December, when they were to be fixed at 5000 livres. It ordered, also, that bank notes should be reduced as 10 to 8, bul that on the first, day of July they should be further reduced those of 10,000 livres to 7,500, and so on month- ly, at the rate of 500 livres, until December, when they should remain fixed. This impolitic, and disgraceful measure, was followed with corresponding consequences : the notes lost all credit, and the whole paper fabric fell to the ground. Mr. Law's system was overturned ; and, in its ruin, involved thousands, who had converted their property into bank currency, on the faith and declarations of government, which had solemnly en- gaged, that, whatever should change the coin, the bank notes should always remain the same, and be paid in full. At this time, the notes in circulation, amounted to tne enormous sum of 2,235,085.590 Jivres, or $419,078,535.62. And, as they would not pass for any fixed value, the distress of the people became extreme, and threatened the very exist- ence of government. 4 26 BANK OP FRANCE. To alleviate, in some measure, the evils existing", the bank was shut for a few days, under pretence of examining the ac- counts ; but was opened again on the 10th June, for the ex- change of notes of 10 livres ; and notes of 100 livres were to be changed into small notes ; but only one to be brought by each person, coming for that purpose. The 17th July was fixed for the payment of notes of 100 livres ; but the concourse of people was so great, that a scene of riot and confusion took place, which was only quelled by a military force. To absorb, however, the immense amount of paper, with which the nation was deluged, the government had .recourse to granting annuities to the holders of bank paper. Accordingly 25,000,000 of perpetual annuities, at the rate of forty years purchase, and 400,000 at the rate of twenty- five years purchase, were constituted. Books of account cur- rent, and transfers of 600,000,000 were opened at the bank j and in August, 8,000,000 more, of perpetual annuities, at the rate of fifty years purchase, were issued. By these means, 2,000,000,000 were expected to be re- turned, amounting to $375,000,000, but the discredit of the paper, and the unfavourable nature of the terms, made the people hesitate. And an edbt was passed on the 15th August, that notes of 10,000 and 1,000 livres should have no currency, except for the purchase of annui- ties and bank accounts. And a further edict passed 1st No- vember, prohibiting all payments in notes. Thus terminated Mr. Law's celebrated banking system ; which, though founded on principles calculated for stability, could not resist the perfidy, or folly, of a despotic govern- ment. But France had reaped some advantage from its es- tablishment, in her agriculture, her manufactures, and com- merce ; and the people had become more industrious, and better acquainted with the principles of trade, by the abun- dance of the circulating medium, which it had produced. BANK OF FRANCE. 27 It is unnecessary to follow our inquiries as to the banking establishments of the French, through the period of the revo- lution, as a new and important institution for that purpose, under the sanction of the imperial republic, has superseded all others in France. The regulations of this bank were decreed by the law of 24th Germaine, year 12, (1804) and are as follows : 1st. The association formed in Paris, under the title of THE BANK OF FRANCE. This institution shalHiave the exclusive privilege of issuing cash notes. 2d. The capital of the bank shall consist of 4,500 shares, at 1000 francs each, which, at 25 francs the pound sterling, is 1,800,000, or $8,000,000, as primitive capital, subject to increase, through the medium Preserved funds. The bank shall discount bills of ex- change, notes, or bonds, but not to carry on any kind of com- merce, except in money matters. The annual dividend shall not exceed 6 per cent, yearly. The benefits over and above the annual dividend shall be converted into reserved funds. The rules for the direction of this bank are similar to those in the United States. Any person forging the notes of this bank, are liable to capital punishment. The dividend on this bank, up to 1830, inclusive, at 6 per cent., is $12,480,000. The rules and regulations of this bank, are well calculated for its security and prosperity ; but whether any institution of this kind can nourish in a despotic country, where the funds are liable to be diverted from their original purpose, by the in- I fluence of power, is extremely questionable. It is well known, that all mercantile associations derive their stability and credit from a strict observance of the rules by which they are constituted, as the confidence of mankind can be firmly placed only on what is known, fixed, and de- terminate ; and there are no establishments more inviolable than banking companies. 28 BANKING SYSTEM OP SCOTLAND. Theutillry ofbau:: -r v : :?- if aiTovJIrifr?* circa medium, representing properly, tho quantity of which is only limited by the necessity that occasions if, or in other words, by the demand induced by the diversified operations of com- merce. As this substitute for money can be fabricated at little ex- pense, it may be deemed an artificial and inexhaustible mine for supplying the deficiency of the precious metals, or alto- gether supplanting them, as a circulating medium. As gold and silver, however, have so long represented pro- perty, the habits of mankind have attached an idea of value to them, which is almost universal ; and it is only among polished nations that i>nnk bills are current ; but to civilized society they are of the highest importance, and the invention of the banking system introduced a new era in the annals of commerce. THE BANKING SYSTEM OF SCOTLAND. The banking system of Scotland presents three great, and leading features ; it offers to the frugal a safe, and at the same time a profitable depository for their savings ; the industrious it furnishes with loans, advanced upon cash- credits; and the public at large it provides with a safe, economical, and convenient circulating medium. The uti- lity of the two former functions is too manifest to admit of dis- pute; but with regard to the latter function, that of providing a circulating medium, it is strenuously contended, that this is not an essential feature of, but merely an adjunct to, the sys- tem. Those who hold this opinion, urge, that although the Scotch system of banking be good, as it stands at present, it would be still better without this adjunct, which they repre- sent as an unnecessary and even injurious excrescence. From these views we must take the liberty of expressing our BAXII;NC[SYSTEM]OF SCOTLAND. 29 unequi vocal r'brent : far from f ej excrescense, which might, be lopped or, h not with a tage, at leasr, without injury, we consider it as the hinge on which the whole system practically turns. Our readers need scarcely be reminded, that a very large proportion of the most important transactions of those banks, receiving deposits, and advancing loans upon cash credits, is conducted through the medium of branches, dispersed throughout the various dis- tricts of that country; the expense of maintaing these local establishments inconsiderable; and would, unquestionably, exceed any profit which could accrue to tli2 parent bank, from its deposits, and cash credit transactions alone ; the loss, thus occasioned, is now maJe up to the parent banks by the profit derived from the circulation of their notes. If the pa- rent banks were deprived of this source of emolument, it cannot admit of a doubt, that all or at least nearly all the branches would be relinquished* In some towns and popu- lous places, they might clear their expenses, and maintain their ground, even if this premium were withdrawn ; but for the poorer and more thinly populated districts, where the ac- commodation which they furnish is most wanted, and per- haps most useful, they would infallibly disappear. The wit- nesses examined by the committee of the house of commons, appointed to inquire into the principles and practical operation of thesystem, were very closely questioned as to this point ; and their uniform answer was, that, without the profit arising from the circulation of a paper currency, under five pound?, the branch banks could not be continued ; the commission of one per cent., (which is the difference between the interest al- lowed upon deposits, and that charged on advances made under cash credits,) not being, of itself, sufficient to defray the unavoidable expenses of such establishments, in thinly populated districts and small towns, where the amount of the business transacted is necessarily limited. It was suggested, by some of the members composing that committee, that, either by allowing so much less interest upon deposits, or 30 RANKING SYSTEM OF SCOTLAND. charging so much more interest on cash credit loans, the banks of Scotland might make up for the loss which would be occasioned by the discontinuance of paper money. This suggestion the witnesses effectually rebutted, by observ- ing, that either of these two modes of supplying the defalca- tion which would arise from the withdrawal of a paper currency, would inevitably prove fatal, at least to the cash credit branch of the system. The interest allowed upon de- posits is always reduced to the lowest rate at which it can be maintained, without driving away the capital now intrusted to the management of the Scotch bankers : an additional reduction, even of a trifling amount, might, and unques- ably would, force a very considerable proportion of the whole body of depositors to withdraw their funds, and to seek out for another, and more profitable channel of investment. The interest now allowed upon bank deposits is less, by ten shil- lings per cent., than could be obtained on private loans j but the superior credit of the banks, as well as various other ad- vantages, incident to this mode of investment, induce capi- talists to give it the preference. If, however, the rate of in- terest, already below the average level of what is obtained on private loans, should be still further reduced, it is certain that the capitalist would no longer transact his affairs through the medium of the banks, but would, rather than consent to a further sacrifice, expose himself to the risk and inconvenience of dealing directly with the private borrower. Any at- tempt, therefore, to augment the profits of the Scotch banks, by reducing the rate of interest allowed upon deposits, still further below the average rate of interest in the general mo- ney market of the empire, would unavoidably fail. It would, indeed, appear about as rational, as well as effectual, as an attempt, by means of a sieve, to keep the water of one side of a stream higher than the level of the same channel on the other side. The bankers of Scotland have hitherto enjoyed the reputation of being, not only tolerably well acquainted with their own business, but, also pretty much alive to their BANKING SYSTEM OF SCOTLAND. 31 own interests ; and we may, therefore, be well assured that this wary, sagacious, and intelligent class of traders, never al- low a rate of interest upon deposits which exceeds by a sin- gle shilling what is necessary, in order to retain the capital now intrusted to their management. Comparing the loss which would be sustained from the withdrawal of a very considerable portion of the money which now passes through their hands, with the profit which would accrue from reducing the rate of interest allowed upon the remainder, they ar- rive at the practical conclusion, that the former would more than counterbalance the latter. Equally futile would prove the endeavor to make up the deficiency of revenue, occasioned by the suppression of a pa- per circulating medium, by the imposition of a higher rate of interest than is now charged upon loans advanced on cash credits. The rate of interest charged upon these loans is al- ready somewhat above the average of the money market. The borrowers are willing to bear this extra charge rather than encounter the trouble and delay which generally embarrass all applications to private capitalists ; but if the banks should raise the interest charged upon cash credit loans, still higher above the average level of the money market, it would in- evitably have the effect of driving at least a very large pro- portion of the class of borrowers, to deal directly with the class of lenders ; and the additional profit which would ac- crue on the loans advanced to the lesser number, which might perhaps still continue to deal with the bank, would not countervail the unavoidable loss of a large portion of its present custom. In either of these cases, the practical result would be precisely the same ; if the banks reduced too low the rate of interest upon deposits, they would have less to lend ; if they charged too high an interest upon loans, they would diminish the number of borrowers : and hence would unavoidably follow the discontinuance of the various branches now maintained by the parent institutions, 32 BANKING SYSTEM OF SCOTLAND. It must, no doubt, be admitted, that the establishment of joint stock companies, for the purpose of employing in dis- counting bills of exchange such balances as might be placed at their disposal by their customers, would be an important improvement upon our present practice of banking. Com- mercial capitalists would by this means be furnished with safe depositories for such small balances as would be required for conducting their daily transactions ; the aggregate of these balances would afford a supply of capital for the purpose of discounting good bills of exchange; and the credit of joint stock companies would secure the resources of these institu- tions from being crippled by the influence of those circum- stances which so often influence the customers of private banks to withdraw their balances with the abruptness of ter- ror. But although t his would be a great improvement on our subsisting practice, it would still fall infinitely short of the efficiency and utility of the system, which, for upwards of a century, has prevailed on the other side of the Tweed ; and, in spite of old Hesiod's maxim, no statesman, who is master of his craft, will content himself with half an advantage, when the whole is practically within his reach. No commu- nity can derive from banking all the advantages which the practice is capable of yielding, until establishments have been every where organized, on principles which must attract to these reservoirs the accumulated savings of each district, to be then laid out in encouraging enterprise, and developing the resources of productive industry. "With regard to the first of these points "It is astonishing," observes Mr. Scrope, '-to what shifts and expedients persons are driven in England, for the utili- zation of whatever small sums they have saved, in conse- quence of the English banks not allowing interest upon depo- sits. The establishment of savings banks was of incalcu- lable advantage in this respect, but the amount of deposits in them being limited to one hundred and fifty pounds, the dif- ficulty of placing out larger sums with safety has led to much BANKING SYSTEM OF SCOTLAND. 33 destruction of capital, and great individual misery. In a small country district, within the cognizance of the writer, two attorneys have successively failed, within a few years one of the other ; the first to an amount of near one hundred thousand pounds the second of more than two hundred thousand. The creditors of both, on examination, were found to consist almost wholly of old servants, retired trades- men, and farmers, and the widows and orphans of such per- sons, who had deposited their small fortunes with either at- torney, on his personal responsibility. It cannot be doubted, that had there been a bank of acknowledged security in this district, which, like the Scotch banks, allowed a fair interest on deposits of any amount, the greater part, if not the whole of this property, would have been lodged there in safety, and hundreds of individuals preserved in a state of comfort, who are now reduced in their old age to the wretched condition of parish paupers." Our own experience enables us fully to corroborate this statement ; we have personally witnessed several instances of a similar kind, in which either the failure of insolvent at- torneys, or country banks which allowed interest upon depo- sits, has overwhelmed a very large proportion of the inhabit- ants of whole districts at once with poverty and despair. But however useful the northern banks may be, as depositories for the savings of the economical classes, they are still more valuable to the public, on account of the encouragement which, through their system of cash credits, they hold out to enterprize and industry. Their managers are impelled by the most powerful motives to exert themselves in discovering a lucrative method of laying out the capital placed in their hands ; this being the only way in which they can get back the interest which they allow upon deposits. It is their prime object and business to search for instruments fit to ren- der productive the capital intrusted to their management ; and these instruments can be found only in that class of men who, possessing a reputation for integrity and industry, are D 34 BANKING SYSTEM OF SCOTLAND. destitute of the capital required for the undertakings in which their enterprize may lead them to engage. The bankers are to the full as anxious to discover persons of this descrip- tion, in order to lend, as these persons themselves can pos- sibly be to find out capitalists from whom they may borrow, It is this saving of capital, on the one hand, and encourage- ment to industry, on the other, which have mainly contri- buted to advances which Scotland is acknowledged to have made in wealth and prosperity within the last hundred years. Before the introduction of the present banking system, the people of that country had no safe depositories in which they could have placed small savings ; hence their savings were hoarded up, and remained unproductive, both to the owners and the community. Under the operation of the present system, every shilling which an economical member of the community is enabled to save, is instantly carried to the local bank, whence it passes into the hands of some industrious and enterprising person, who will employ it profitably. Another observation may be added in this place. Banks, which, by their credit and known solidity, have conciliated public confidence so far as to attract into their coffers the ag- gregate savings of each district, in the form of deposits Lear- ing interest, are equally useful every where ; they stimulate to industry and economy the artisan and mechanic, as w r ell as the agricultural laborer. But the practice of granting cash credits appears less indispensable for the purposes of the com- mercial, than for the wants of the agricultural classes. The little shopkeepers or tradesmen of fair character, can easily get goods on credit from some wholesale dealer ; the want of capital does not, therefore, utterly preclude any individual belonging to this class from commencing business on his own account ; but the farmer who wants capital, has no resource of this kind ; whatever improvements he may desire to ac- complish, must be delayed in every instance ; and in the greater number of cases altogether relinquished, because he cannot command the means required to carry them into exe- BANKING SYSTEM OF SCOTLAND. 35 cution. It may be said that this impediment to agricultural improvement might be obviated by a loan, advanced to the farmer by some private friend, or by a bank; but granting that the necessary accommodation could be thus obtained, it is clear that it would be much more expensive to the party ac- commodated than a cash credit of equal efficiency. Under the system of cash credits, a maximum is fixed above which the borrower is not allowed to draw upon the bank : but he is not obliged to take the whole of this at once, and, in con- sequence pay interest upon it ; he draws it out gradually, as his necessities require, and interest is charged only from the time when each particular sum is drawn out ; on the other hand, he is not only allowed, but expected, to pay into the bank the proceeds of the produce of his farm, which from time to time he disposes of in the market ; and on these payments interest is also allowed on the credit side of his account. Hence it necessarily follows, that the farmer who conducts his affairs with the aid of a cash credit, never pays interest for more money than he actually employs in his business, nor keeps a pound lying idle and unproductive in his desk. This economy of capital forms a peculiar feature of the banking system of the north, and gives the industrious classes there, in all their operations, a very great advantage over ours. When an English farmer sells any portion of his produce, he has generally no alternative which can serve his purposes better than to keep the proceeds locked up in his drawer until the next rent day. He may, it is true, lodge it in the hands of some country banker but then he can get no interest for it, and, besides, the banker may fail. The result of this absence of the stimulus of profit on the one hand, combined with the fear of loss on the other, is, that a very large portion of the capital employed in agriculture, in this country, remains, during intervals of considerable length, absolutely idle. The individual loss thus incurred by each farmer, is by no means inconsiderable, and the aggregate loss of the public is, unquestionably, of very great amount. 36 BANKING SYSTEM OF SCOTLAND. Under the operation of the banking system of our northern neighbors, on the contrary, the whole mass of capital is in a constant state of circulation ; no portion, however minute, remains for the space of one day stagnant. The Scottish system of banking may therefore claim the merit of pro- ducing the greatest practical result?, with the least expend- iture of means. Compared with England, the amount of capital employed in productive industry, in the sister king- dom, appears inconsiderable ; but the facility as well as ra- pidity with which this capital circulates, more than compen- sates for this deficiency : and taking into consideration the different extent of the surfaces over which they are spread, it may be asserted, on the best grounds, that the scanty capi- tal of Scotland yields annually a larger produce, both to the owners and the public at large, than the much more abun- dant capital of England ; it being well known, that under the operation of the system of deposits arid cash credits, a given extent of land may be equally well cultivated with two thirds, or perhaps one half of the capital which would be re- quired for a similar purpose in England, where it may be as- sumed that, combining time with amount, one half of the whole farming capital remains in a state of stagnation, and, by consequence, unproductive. It is also clear, that under the northern system, capital must be more equally diffused than it is in England ; the surplus of the wealthy farmer passes without delay into the bank reservoir, whence it finds its way into the hands of his less opulent neighbor, who stands in need of temporary assistance. In England, the agriculturalist who possesses capital sufficient to meet the most expensive seasons or emergencies, must at certain times have a considerable portion lying dead upon his hands ; while the tillage of farms in his vicinity, occupied by less fortunate persons, languishes for want of funds. Hence a double injury : the rich agriculturalist loses from an overplus, and the poor one from a defective supply of capital. Under the Scottish system, on the contrary, the supply is invariablv BANKING SYSTEM OF SCOTLAND. 37 and regularly proportioned to the wants of each individual, at every season ; the rich man need not be at the expense of more capital than can be profitably absorbed in his business ; and his poor neighbor, of fair reputation for honesty and in- dustry, may always command an abundant supply. It must at the same time be manifest, that pecuniary ac- commodation, by way of private loan, is not only more ex- pensive when procured, but incalculably more difficult to be obtained, than it is under the cash-credit system of Scotland. Private individuals who lend upon personal security, incur at all times a very considerable risk of losing their money ; fully occupied, in general, with their own pursuits, they have no leisure to watch the conduct of their debtors ; and if they enjoyed the leisure required for this purpose, they possess no means of acquiring much information as to this point, which may be useful to them ; hence it occurs that, in nine cases out of ten, money lent upon personal security is finally lost to the owner. Speaking in general terms, we may there- fore say that the practice is unknown in England ; however industrious and steady a poor man may show himself in this country, he can rarely, if ever, obtain a loan of money upon his own personal security ; and still more rarely can he pre- vail upon any persons of substance to become bound for him, if he should meet with a capitalist willing to accommodate him on these terms. But the money lent under cash-credits is advanced upon a system which almost infallibly insures its repayment. It is the first object of a Scotch banker to ascer- tain the character of the person who applies to him for a cash- credit ; and, from the moment in which this accommodation is granted, it becomes his regular and incessant business to watch with the utmost care, the conduct and proceedings of his debtor ; and to enable him to accomplish this object, he requires little further aid than that which is furnished him by his own books. By examining the accounts of any per- son accommodated with a cash-credit, he can tell at once and at any period, whether his debtor is relaxing in industry, and 33 BANKING SYSTEM OP SCOTLAND. whether, in consequence, any portion of the capital lent runs the risk of being lost. The moment such a person ceases to pay into, as well as draw from the bank, the suspicions of the manager become excited, an explanation is instantly de- manded, and if this should not prove satisfactory, the cash- credit is withdrawn, and the payment of the balance rigo- rously enforced. By glancing their eyes once or twice a week over their books, the managers can ascertain what their cash-credit debtors are about, and how they are going on, very nearly as well as if they accompanied them to every fair or market in the district. The moment any commodity is sold, the proceeds are eagerly taken to the bank ; firstly, be- cause this tends very materially to sustiin the credit of the borrower ; and secondly, because he is unwilling to lose, even fora single day, the interest which accrues upon deposits from the hour in which they are lodged. The managers of the Scotch banks thus constitute a species of social police, infi- nitely superior to any thing that has been ever known in any other part of the world : they form a corps of thoroughly or- ganized and vigilant what shall we call them ? spies, im- pelled by the strong impulse of interest to watch with the most careful attention, the conduct and proceedings of the classes engaged in productive industry. The prodigious in- fluence which such a system of vigilant inspection and con- trol must exercise over the whole of the industrious popula- tion, is far too palpable to render it necessary for us to do more than to point it out to the attention of the public. To the influence of this admirably organized system may justly be ascribed, in perhaps a more especial manner, the rapidity with which agriculture has advanced in Scotland, since the middle of the last century. Whenever the land- owners of any district determined upon commencing a career of improvement, their first measure has generally been to encourage the introduction of a branch bank ; and few are the instances in which the advantages anticipated from this preliminary step have not been realizad. The small sums BANKING SYSTEM OF SCOTLAND. 39 saved by the working classes were regularly deposited in the local bank, whence tbcy found their way in larger masses among the farmers of tbc district. Having passed through the hands of tli2 farmers, this capital, in the form of wages, came a second time into the pockets of the laboring classes, who added to their previous deposits every shilling which they could save from their weekly earnings. There is, there- fore, good ground for asserting that a very large portion of the territory of Scotland has been reclaimed and improved not only by the labor, but also by the savings, of the working peasantry : a result which has been alike beneficial to all the parties interested in the cultivation of the soil. To the landlord it has proved the source of an augmented rent ; to the farmer it has yielded a handsome profit, over and above the interest paid for the capital which he borrowed of the bank, for the purpose of carrying on his improvements, and to the working classes it has proved the means of furnishing, not only constant employment, but a higher compensation for their labor. The capital saved and de- posited in the banks by this class has enabled the farmers of every district to undertake agricultural improvements : this has created an additional demand for labor, and raised wages ; and the economy thus encouraged by banks for deposits, has produced a reaction highly favorable to the con- dition of the body of laborers. London Quarterly Review. The paper circulation of Scotland is carried on, first, by chartered banks : and second, by private establishments. FIRST CHARTERED BANKS. There are three corporate bodies by whom notes are issued "the Bank of Scotland," u the Royal Bank ;" and "the British Linen Company." The latter, though origi- nally intended for manufacturing purposes, was afterwards converted into a banking establishment. 40 BANKING SYSTEM OF SCOTLAND. A short account of the bank of Scotland is given in the general report of the kingdom.* It is sufficient here to ob- serve, that, after several augmentations, its capital now amounts to 1,500,000 ; of which only one million has been paid up. The remaining 500,000 may be called for ; but there is no reason to suppose it will be necessary, as its pre- sent capital, with the large deposits it receives, is fully ade- quate to the business it carries on. Each share consists of 1,000 of old Scotch money, or 83.6.8 fc sterling : and as shares now sell for 200 sterling, there is a profit on each to the amount of 116.13.4. The interest per share is 7.18.4., being only about 4 per cent. This proves the high estimation in which the interest of the stock of that bank is held, in consequence of the ability and success with which its affairs are conducted. Indeed, there is not a more advan- tageous mode of investing money than in the stock of that bank; for, in addition to the annual dividends, it has, at va- rious times, been enabled to give bonuses to its proprietors, to the amount, it is said, of about 200,000. The Royal Bankhas a similar capital, namely, 1,500,000, which is all paid up. It divides annually, 150,000, in pro- portion to which income is the price of its stock. Its affairs are likewise conducted with much prudence and economy. The British Linen Company, an account of which is given in the general report of Scotland.! has a capital of 500,000, with which it carries on a great extent of business, in a most successful manner. It has paid up all its capital, the annual dividend on which is 9 per cent. Its stock now sells for 246 per 100 ; furnishing an immense profit to the origi- nal proprietors, besides several bonuses which have been di- vided amongst them. On the whole, the "chartered banks" of Scotland carry on their business with capitals to the amount of 3,000,000, (to which 500,000 might be added by the Bank of Scot- * See General Report of Scotland, v. 5, p. 341. t General Report of Scotland, v. 5, p. 439. BANKING SYSTEM OF SCOTLAND. 41 land, if necessary ;) and by the excellence of their manage- ment, they have not only essentially benefited their country, but enriched themselves. SECOND PRIVATE, OR PROVINCIAL BANKS. In Scotland, there are no restrictions in regard to the num- ber of partners in a banking establishment, issuing notes. It may consist of one, or of a thousand proprietors. This is certainly going too far ; for the security of one, two, or three individuals must always be precarious ; and the greater the number of partners, the less is the risk of fraud. One man may do, what it would be difficult to persuade twenty to con- cur in. This error, though it has not hitherto occasioned any material public injury, ought to be corrected by law. It is a great advantage, however, attending the Scotch sys- tem of banking, that there is no precise limit to the number of partners who can join in the same concern. Thus, num- bers being interested in the prosperity of the bank, its circu- lation and credit are augmented ; and a greater quantum of prosperity being involved in the concern, there is hardly any possible risk of public loss. There are, in Scotland, besides the three chartered banks, twenty-six private banking establishments, issuing promis- sory notes. Several of these have branches situated at a con- siderable distance from the mother bank.* The number of partners, exclusive of the three chartered banks, may be stated at 1400, or, on an average, 53. One (the Commercial Bank of Scotland,) has no less a number than 606 partners; others, where the business is small, have only two or three. In order to give an idea of the excellent management of the Scotch private or provincial banks, the following account of the Aberdeen bank has been procured. This bank was established in 1767, with a nominal ca- pital of 100,000, in two hundred shares, of 500 each. * The number of banks in Scotland, public and private, is 29 ; but they have, in all, about 100 branches, scattered over the whole kingdom, emanating from them. 6 42 BANKING SYSTEM OF SCOTLAND. Only 150 per share, or 30,000 in all, were originally paid in; and no future call has, ever since, been made on the part- ners. The annual dividends were, at first, 20 per share ; for many years they were 40, and they are now 60. Instead of any extra dividends, it has been the usage to add a bonus to the stock of each partner. In this way, not only has the original capital of 500 per share been paid up, but also the capital since it has been doubled, for it now amounts to 1000 per share. The partners were originally about 160 in number ; and in the first contract, the number of shares to be held by each individual was limited. But when the contract was renewed, that clause was done away. The number of partners is now about 80. Several shares stand in the name of the company. The highest price hitherto given for any share, has been 1,500; and the price varies from that sum down to 1,400, according to the opinion of the parties buying and selling at the time. A very large sum, now only at 3 per cent., has been lodged with the bank, in consequence of the high idea entertained of the prudence and good conduct with which the affairs of the company are managed. The directors are thus enabled to be sufficiently liberal in the credits they give, and the loans they furnish, to the commercial, manufacturing, and agricul- tural interests. Among the unchartered establishments, " The Commercial Banking Company of Scotland" ought to be particularly mentioned, as it is distinguished, not only by the number of its partners, (606,) but by the spirit and success with which its operations are conducted. It commenced business on the 25th of March, 1810, with a capital of three millions, of which it has only been necessary to call for 500,000. Its dividend is at the rate of six per cent., and its stock already sells for 150 per share. Its profits could afford a larger di- vidend, but it prefers laying up an annual sum, to guard against contingencies. BANKING SYSTEM OF ,-X'OTLAND. 43 It would be in vain attempting, in a short work of this de- scription, to enter into the details of the management of these most valuable institutions. But I cannot deny myself the satisfaction of explaining the public advantages desirable from these establishments, including the chartered com- panies. 1. From the licenses the private companies are obliged to take out, and the stamps on the notes of both the chartered and the unchartered banks, considerable sums are received by government. 2. They are of great use to private individuals, furnish- ing them with a place of security, where they can safely de- posit small, or even large sums ; receiving for them a mode- ratejtfiterest, formerly at the rate of 4 per cent., but now re- duced to 3 or 31 per cent. The whole, however, or any part of the sum thus placed, can be obtained whenever it is de- manded. The result is very satisfactory. These deposits in the various Scotch banking establishments amount, in all, to several millions sterling, (from 15 to 20 millions,) and thus the banks are enabled to be of greater use to the indus- try of the country, than if they relied upon their own capi- tals alone. 3. The advantages derived from these establishments by the agriculture of Scotland, is of the highest importance. The celebrated Sir James Stewart, in hfe work on Political Economy, says, "To the banks of Scotland the improve- ment of that country is entirely owing?* 4. In common with all other such institutions, the bank- ing establishments of Scotland are highly favorable to com- merce and manufactures, enabling them to be carried on to an extent which would otherwise be impracticable. This has been greatly owing to the banks giving what are called CASH ACCOUNTS. Credits of this kind are frequently granted * Stewart's Political Economy, last ed. vol. iii. p. 197. Without going- BO far, it may be safely asserted, that to the improvement of Scotland they have essentially contributed. 44 BANKING SYSTEM OP SCOTLAND. by banks and bankers in other countries. But the readiness with which money is advanced without the intervention of bills, and the easy manner in which these banks accept of repayment (discounting the interest as each sum as paid in) are peculiar to them. The operations on such credits are principally carried on by making of drafts, or passing of checks, as if the banks held money of the dealers. The system of cash accounts, conducted as it is in Scotland, has been the principal cause, both of the great trade of the banking companies there, and of the great benefits which the country has derived from them. 5. These banks are of much use in collecting the great revenue which Scotland, for so small a country, produces, and afterwards remitting it to the English treasury. 6. The number of banks is a great check upon the forge- ry of notes, which can hardly escape speedy detection, from the rapidity with which they immediately return to the bank, or the branch that issued them.* And In the last place, a number of banks is a great means of securing an adequate limitation. No bank, with a number of rivals, can issue notes beyond the real demand ; for they im- mediately revert on the issues. No inordinate circulation can take place where the several banRs make weekly ex- changes, and receive payment of the balances in cash, or by bills, at short dates on London. But the most extraordinary circumstance is this, that with twenty-six banks issuing notes, there has not been, since the year 1776, a period of fifty-six years, a single failure, with the exception of one,t where the stopping occasioned any general alarm, as is so frequently in England or Ireland ; or * The more extended the circulation of a bank, the more liable it is to have its notes forged. t This was the Ayr Bank, or Douglas, Heron, and Company, which stopped in the year 1772, but which was never declared bankrupt, and which ulti- mately paid all its notes and other demands upon it. The ruin of that bank was owing to the grossest mismanagement ; and its failure occasioned a general alarm and much private distress. BANKING SYSTEM OF SCOTLAND. 46 any discredit thrown on the other banks by whom notes were issued. As to public loss, hardly any has been expe- rienced, even where a stoppage did take place, of which, in fifty years, there were only six instances ; whereas, in Eng- land, seventy-one banks stopped in one year. On the whole the banking establishments of Scotland produce the finest specimens of practical economy to be met with in Europe : for though, in the circulation of Scotland, scarcely any gold is to be met with, yet industry, agriculture, manufactures, and commerce, flourish more than if the pro- duce of all the mines of Mexico and Peru were circulated in it. If the same system of banking establishments which Scotland now enjoys were extended to England and Ire- land, these countries possessing such a superiority of soil and climate, would rise to a degree of prosperity hitherto unex- ampled. It evidently appears, from the preceding short account of the circulation of Scotland, that the advantages of which it is productive is a matter not of speculation, but of experi- ence ; for it has now been carried on with almost uninter- rupted success for above half a century, and during periods of considerable commercial as well as political difficulty. It would be of great public importance, if the Bank of Eng- land adopted the plan that has been found so useful in Scot- land, that of granting " cash accounts? the nature of which is this : a bond, say for one thousand pounds, is subscribed by one responsible person, and two or more sureties, to the ex- tent of that sum ; the principal in the bond is entitled to draw as he may find it necessary, and he pays in, from time to time, such sums as he receives from his debtors. The account is settled yearly, or half yearly ; and the interest, at the rate of five per cent, for the sum drawn out, beyond what is peri- odically paid in, is charged to his debit in the new account. It is calculated in the Scotch banks, that about one third part of the sum advanced to their customers, is issued on cash ac- counts. This furnishes a most useful means of augmenting 46 BANKING SYSTEM OF SCOTLAND. a paper currency, being entirely independent of commercial discounts, equally, if not more secure, and where the notes issued are likely to remain longer in circulation. In this way, persons unconnected with trade, may be accommodated ; and by this new source of circulation, the Bank of England might become as useful to the agricultural class of the com- munity, as originally it was intended to have been, when it was anticipated that it would render " the gentry rich, and the farmer flourishing." Dr. Adam Smith, in his " Wealth of Nations," (book ii. chap. 2.) has taken some trouble to explain the advantages of granting these credits, which he considers to be, perhaps, the principal cause, both of the great trade and circulation of these banking companies, and of the benefit which the coun- try has derived from them. With the advantage of such a credit, he observes that a merchant can, without any impru- dence, have at all times in his warehouse a larger quantity of goods than otherwise he could venture upon ; and can thereby make both a greater profit himself, and give constant employ- ment to a greater number of industrious people, who prepare his goods for the market. In a recent publication,* the nature of these credits is more minutely explained. Such credits, we are informed, merely give the option to the principal in the bond, of drawing out upon interest, the notes of the bank ; and the very great proportion of these credits are frequently unused, from the in- ability of the parties to employ the money profitably. The bankers exercise due deliberation before any credit of this kind is granted; and as it is generally found to exist for a considerable number of years, it is only given upon such se- curity as is likely to continue permanently good for their amount. The bank account of the principal is always open to the inspection of the sureties, who may withdraw their guaranty, if the principal is mismanaging or imprudent. * Muir's Review of the Banking System of Great Britain. BANKING SYSTEM OP SCOTLAND. 47 The sureties are also liable for bill transactions with the bank, to the amount of the whole sum subscribed, but no further. Among the many numerous advantages attending credit ac- counts, they enable many to enter upon useful undertakings, requiring outlay for a considerable period, who might other- wise have been unable, or afraid to do so. If a young man gets his sureties to sign a bill at three or four months date, instead of signing a bond for a credit account, he must be dependent upon the caprice or convenience of the bank for its renewal for such periods as might be desirable, in any protracted operations he may have embarked in, upon the faith of this credit by bills ; whereas in the case of bonds, the banks seldom if ever call them up, so long as the principal continues to keep an operative account, or the sureties and himself remain good for the amount. At all events it is pro- vided for in the bond, that such warning shall be given before it is put in force, as may enable the parties to get a similar accommodation at some other bank, or to dispose of their property, without the disadvantages of sudden or pressing de- mands for repayment. Since the act of George 3, c. 74., cash credits have been frequently granted on the security of lands, and this practice might certainly be greatly extended with much public benefit. On the whole, the granting of cash accounts cannot be too strongly recommended to the attention of the Bank of Eng- land. If the plan were adopted, it might resolve to discount bills under 60 days at 4 per cent. : and all bills of a longer duration at 4i per cent. and might charge 5 per cent, on all money advanced on cash accounts. This would place the system of granting loans or credits on the most advantageous footing possible, and would prove equally beneficial to the bank and to the public.* * From the author's experience as a director of the Bank of Scotland, he is fully satisfied of the great advantages derivable from cash accounts. 48 BANK OP NORTH AMERICA. The preceding article leaves nothing to be wished for, as well with regard to the history of the most prominent bank- ing institutions in Europe, as to the correctness of the general view of these operations, and their beneficial influence on in- dustry and commerce. We now proceed to detail the institutions of the United States. The first of these is the BAN^XOF NORTH AMERICA. It owes its origin to the vigorous mind and enterprising genius of Robert Morris, Esq. who conceived the idea of it when superintendent of the public finances, and submitted to con- gress in the month of May, in the year 1781, the plan for establishing a national bank of North America. Agreeably to this plan, the capital was to consist of 1000 shares, of $400 each, $400,000, payable in gold and silver, to be increased by new subscrip- tions, from time to time, at the pleasure of the directors. The directors, twelve in number, were to be chosen by the stock- holders, and were to be intrusted with the management of the institution. The notes of the bank, payable on demand, to be made a legal tender in the discharge of duties and taxes, &c. On the 26th May, of the same year, congress approved of the plan, and passed several resolutions, by which they pledged themselves to support the proposed insti- tution ; to incorporate the subscribers, under the name of the president, directors, and company of the Bank of North Ame- rica ; to recommend to the several states the prevention of similar establishments within their respective jurisdictions, during the war ; to receive the notes of the institution in payment of taxes, duties, and debts, due to the United States, and to use their influence with the several legislatures, to have laws passed, which should make it felony to counterfeit the notes of the bank, &c. After this, subscriptions were immediately opened, during the summer and autumn of the same year. In November, directors were chosen. In December, congress, conformable HANK OF NORTH AMKK1 49 to their former resolves, passed an ordinance which created the subscribers to the bank a corporation for ever, under the title of " The President, Directors, and Company of the Bank of North America." The original features of the plan were preserved, but the bank was restricted from holding" property exceeding the amount of $10,000,000. The institution commenced its operations in the month of January following, and Robert Morris, who may be justly styled the father of the system of credit, and paper circu- lation, in the United States, succeeded in securing to it the good will and confidence of the people at large, by various judicious measures, of which a circular letter, addressed to the governors of the several states, explaining the object of the institution, and the certain advantages to be derived from it, was not the least effectual. ' Thus the first bank in the United States came into existence, and such was its happy and immediate influence on the public finances, and on com- mercial concerns in general, that it may be justly doubted whether, without its seasonable aid, the revolutionary struggle for independence could have been brought at all to a satis- factory termination. The United States, for several years, were constantly indebted to the bank, to a larger sum than the stock they owned ; nor could the various devices for cre- ating a revenue have answered their end, or the army have been fed and clothed, or any degree of order and punctuality maintained in the dispatch of public affairs, but for the great facility in the management of business, and the restoration of confidence, which were created by this institution. The sense of the great utility of the bank, was so universal, that Massachusetts and Pennsylvania corroborated the ordinances of congress, by additional charters, and Rhode Island, Con- necticut, and Delaware passed laws for the purpose of pre- venting the counterfeiting of its notes. Yet when peace had been concluded, and the pressure of the times was over, there were not wanting those who viewed the prosperous state of the affairs of the bank with a jealous eye. and conjured up 7 50 BANK OF NORTH AMERICA- imaginary fears of an overbearing oppression, an alarming foreign influence, and fictitious credit, from temporary punc- tuality ; of a created scarcity of specie ; possible commercial convulsions, from the stopping of discounts ; partial favors, and comparative disadvantages, under which distant traders labored : as if, in a moral community, the bare possibility of abuse could ever furnish a good argument against the decided utility of a thing ; or as if a benefit were to be relinquished, because all cannot be benefited alike. And so effectually were these objections against the institution urged, that on the 13th of September, 1785, the legislature of Pennsylvania actually repealed their charter ! The repeal was persevered in by the succeeding legisla- lature, notwithstanding innumerable petitions to the contrary, and vast efforts to enlighten their proceedings. The bank, however, continued its usual operations under the charter from congress, and in the enjoyment of corpo- rate rights, which, it was presumed, could not be arbitrarily wrested from them, after having been once legally bestowed. The legislature which met in December, 1786, at last thought proper to renew the charter of the bank, and passed an act to that effect, on the 7th March, 1787, by which, how- ever, the term of the charter was limited to fourteen years, and the capacity of the corporate body of holding property, restricted to two millions of dollars. The same charter was extended for the term of fourteen years more, by an act passed on the 20th March, 1799. The capital of this bank has been from time to time in- creased. It is now 2,000 shares of $400 each $800,000, It has usually divided 12 per cent, on the original price of the shares ; which, taking the medium capital from the com- mencement, will make the sum total of the dividend amount to $3,456,000. Thus has this institution existed under the double security of a perpetual charter from congress, and a charter from the states, with laws in its favor from several states, after having HAMILTON':- UI:I'RT. 51 sustained the burden and heat of the days of a triumphant revolutionary struggle continued for nearly half a century, and is now a flourishing institution, REPORT OF ALEXANDER HAMILTON, (WHILE SECRETARY OF THE TREASURY,) 0>rlTHE SUBJECT OF A NATIONAL BANK. Read in the House of Representatives, Dec. 13th, 1790, Treasury Department, Dec. 13. 1790. IN obedience to the order of the HOUSE OF REPRESENTA- TIVES, of the ninth day of August last, requiring- the SECRETARY OF THE TREASURY to prepare and report, on this day, such further provision as may, in his opinion, be necessary for establishing the PUBLIC CREDIT the said Secretary further RESPECTFULLY REPORTS, THAT, from a conviction that a National Bank is an in- stitution of primary importance to the prosperous administra- tion of the finances, and would be of the greatest utility in the operations connected with the support of the public credit, his attention has been drawn to devising the plan of such an institution, upon a scale which will entitle it to the confi- dence, and be likely to render it equal to the exigencies, of the public. 52 HAMILTON'S REPORT. Previously to entering upon the detail of this plan, he en- treats the indulgence of the house, towards some prelimina- ry reflections naturally arising out of the subject, which he hopes will be deemed neither useless nor out of place. Pub- lic opinion being the ultimate arbiter of every measure of government, it can scarcely appear improper, in deference to that, to accompany the origination of any new proposition with explanations, which the superior information of those to whom it is immediately addressed, would render super- fluous. It is a fact well understood, that public banks have found admission and patronage among the principal and most en- lightened commercial nations. They have successively ob- tained in Italy, Germany, Holland, England, and France, as well as in the United States. And it is a circumstance which cannot but have considerable weight, in a candid esti- mate of their tendency, that, after an experience of centu- ries, there exists not a question about their utility in the countries in which they have been so long established. Theorists and men of business unite in the acknowledgment of it. Trade and industry, wherever they have been tried, have been indebted to them for important aid. And government has been repeatedly under the greatest obligations to them, in dangerous and distressing emergencies. That of the United States, as well in some of the most critical conjunctures of the late war, as since the peace, has received assistance from those established among us, with which it could not have dispensed. With this two-fold evidence before us, it might be expected, that there would be a perfect union of opinions in their fa- vor. Yet doubts have been entertained ; jealousies and pre- judices have circulated ; and though the experiment is every day dissipating them, within the spheres in which effects are best known ; yet there are still persons by whom they have not been entirely renounced. To give a full and accurate Qi view of the subject, would be to make a treatise of a report; but there are certain aspects in which it may be cursorily ex- hibited, which may perhaps conduce to a just impression of its merits. These will involve a comparison of the advan- tages, with the disadvantages, real or supposod, of such insti- tutions. The following are among the principal advantages of a bank : First. The augmentation of the active or productive capi- tal of a country. Gold and silver, where they are employed merely as the instruments of exchange and alienation, have been, not improperly, denominated dead stock ; but when deposited in banks, to become the basis of a paper circula- tion, which takes their character and place, as the signs or representatives of value, they then acquire life, or, in other words, an active and productive quality. This idea, which appears rather subtile and abstract, in a general form, may be made obvious and palpable, by entering into a few par- ticulars. It is evident, for instance, that the money which a merchant keeps in his chest, waiting for a favorable oppor- tunity to employ it, produces nothing till that opportunity arrives. But if, instead of locking it up in this manner, he either deposits it in a bank, or invests it in the stock of a bank, it yields a profit during the interval, in which he par- takes or not, according to the choice he may have made of being a depositor or a proprietor ; and when any advanta- geous speculation offers, in order to be able to embrace it, he has only to withdraw his money, if a depositor ; or if a pro- prietor, to obtain a loan from the bank, or to dispose of his stock ; an alternative seldom or never attended with difficul- ty, when the affairs of the institution are in a prosperous train. His money thus deposited or invested, is a fund upon which himself and others can borrow to a much larger amount. It is a well established fact, that banks in good credit can circulate a far greater sum than the actual quan- tum of their capital in gold and silver. The extent of the possible excess seems indeterminate ; though it has been con - jecturally stated at the proportions of two and three to one. This faculty is produced in various ways. First A great pro- portion of the notes which are issued, and pass current as cash, are indefinitely suspended in circulation, from the con- fidence which each holder has, that he can at any moment turn them into gold and silver. Secondly Every loan which a bank makes, is, in its first shape, a credit given to the borrower on its books, the amount of which it stands ready to pay, either in its own notes, or in gold or silver, at his option. But, in a great number of cases, no actual pay- ment is made in either. The borrower frequently, by a check or order, transfers his credit to some other person, to whom he has a payment to make ; who, in his turn, is as often content with a similar credit, because he is satisfied that he can, whenever he pleases, either convert it into cash, or pass it to some other hand, as an equivalent for it. And in this manner the credit keeps circulating, performing, in every stage, the office of money, till it is extinguished by a discount with some person who has a payment to make to the bank, to an equal or greater amount. Thus large sums are lent and paid, frequently through a variety of hands, without the intervention of a single piece of coin. Thirdly There is always a large quantity of gold and silver in the repositories of the bank, besides its own stock, which is placed there with a view, partly to its safe keeping, and partly to the accom- modation of an institution, which is itself a source of general accommodation. These deposits are of immense consequence in the operations of a bank. Though liable to be redrawn at any moment, experience proves, that the money so much oftener changes proprietors than place, and that what is drawn out is generally so speedily replaced, as to authorize the counting upon the sums deposited, as an effective fund ; which, concurring with the stock of the bank, enables it to extend its loans?, and to answer all the demands for coin. HAMILTON S REPORT. 55 whether in consequence of those loans, or arising from the occasional return of its notes. These different circumstances explain the manner in which the ability of a bank to circulate a greater sum than its actual capital in coin, is acquired. This, however, must be gradual ; and must be preceded by a firm establishment of confidence ; a confidence which may be bestowed on the most rational grounds ; since the excess in question will always be bottomed on good security of one kind or another. This every well conducted bank carefully requires, before it will consent to advance either its money or its credit ; and where there is an auxiliary capital, (as will be the case in the plan hereafter submitted,) which, together with the capital in coin, define the boundary that shall not be exceeded by the en- gagements of the bank, the security may, consistently with all the maxims of a reasonable circumspection, be regarded as complete. The same circumstances illustrate the truth of the position, that it is one of the properties of banks to increase the .active capital of a country. This, in other words, is the sum of them The money of one individual, while he is waiting for an opportunity to employ it, by being either deposited in the bank for safe keeping, or invested in its stock, is in a condition to administer to the wants of others, without being put out of his own reach, when occasion presents. This yields an extra profit, arising from what is paid for the use of his money by others, when he could not himself make use of it ; and keeps the money itself in a state of incessant ac- tivity. In the almost infinite vicissitudes and competitions of mercantile enterprise, there never can be danger of an in- termission of demand, or that the money will remain for a moment idle in the vaults of the bank. This additional em- ployment given to money, and the faculty of a bank to lend and circulate a greater sum than the amount of its stock in coin, are, to all the purposes of trade and industry, an abso- lute increase of capital. Purchases and undertaking?, in 56 general, can be carried on by any given sum of bank paper or credit, as effectually as by an equal sum of gold and silver. And thus by contributing to enlarge the mass of industrious and commercial enterprise, banks become nurseries of na- tional wealth : a consequence, as satisfactorily verified by ex- perience, as it is clearly deducible in theory. Secondly. Greater facility to the government in obtaining pecuniary aids, especially in sudden emergencies. This is another, and an undisputed advantage of public banks ; one which, as already remarked, has been realized in signal in- stances among ourselves. The reason is obvious : The ca- pitals of a great number of individuals are, by this operation, collected to a point, and placed under one direction. The mass formed by this union is, in a certain sense, magnified by the credit attached to it. And while this mass is always ready, and can at once be put in motion in aid of the govern- ment, the interest of the bank to afford that aid, independent of regard to the public safety and welfare, is a sure pledge for its disposition to go as far in its compliances, as can in pru- dence be desired. There is in the nature of things, as will be more particularly noticed in another place, an intimate con- nection of interest between the government and the bank of a nation. Thirdly. The facilitating of the payment of taxes. This advantage is produced in two ways. Those who are in a situation to have access to the bank, can have the assistance of loans to answer with punctuality the public calls upon them. This accommodation has been sensibly felt in the payment of the duties heretofore laid, by those who reside where establishments of this nature exist. This, however, though an extensive, is not a universal benefit. The other way in which the effect here contemplated is produced, and in which the benefit is general, is the increasing of the quan- tity of circulating medium, and the quickening of circula- tion. The manner in which the first happens, has already been traced. The last may require some illustration. When HAMILTONS REPORT. & payments are to be made between different places, having an intercourse of business with each other, if there happen to be no private bills at market, and there are no bank notes which have a currency in both, the consequence is, that coin must be remitted. This is attended with trouble, delay, ex- pense, and risk. If, on the contrary, there are bank notes current in both places, the transmission of these by the post, or any other speedy or convenient conveyance, answers the purpose ; and these again, in the alternations of demand, are frequently returned very soon after to the place from whence they were first sent ; whence the transportation and retrans- portation of the metals are obviated, and a more convenient, and more expeditious medium of payment is substituted. Nor is this all the metals, instead of being suspended from their Usual functions, during this process of vibration from place to place, continue in activity, and administer still to the ordi- nary circulation ; which of course is prevented from suffer- ing either diminution or stagnation. These circumstances are additional causes of what, in a practical sense, or to the purposes of business, may be called greater plenty of money. And it is evident, that whatever enhances the quantity of circulating money, adds to the ease with which every indus- trious member of the community may acquire that portion of it of which he stands in need ; and enables him the better to pay his taxes, as well as to supply his other wants. Even where the circulation of the bank paper is not general, it must still have the same effect, though in a less degree. FoT whatever furnishes additional supplies to the channels of cir- culation, in one quarter, naturally contributes to keep the streams fuller elsewhere. This last view of the subject, serves both to illustrate the position, that banks tend to facilitate the payment of taxes, and to exemplify their utility to busi- ness of every kind, in which money is an agent. It would be to intrude too much on the patience of the house, to prolong the details of the advantages of banks ; es- pecially as all those which might still be particularized, are 8 58 HAMILTON'S REPORT. readily to be inferred as consequences from those which have been enumerated. Their disadvantages, real or supposed, are now to be reviewed. The most serious of the charges which have been brought against them, are That they serve to increase usury : That they tend to prevent other kinds of lending : That they furnish temptations to overtrading : That they afford aid to ignorant adventurers, who disturb the natural and beneficial course of trade : That they give to bankrupt and fraudulent traders a fic- titious credit, which enables them to maintain false appear- ances, and to extend their impositions : And lastly, That they have a tendency to banish gold and silver from the country. There is great reason to believe, that on a close and candid survey, it will be discovered, that these charges are either without foundation, or that, as far as the evils they suggest have been found to exist, they have proceeded from other, or partial, or temporary causes ; are not inherent in the nature, and permanent tendency, of such institutions ; or are more than counterbalanced by opposite advantages. This survey shall be had, in the order in which the charges have been stated. The first of them is That banks serve to increase usury. It is a truth, which ought not to be denied, that the method of conducting business, which is essential to bank operations, has among us, in particular instances, given occasion to usu- rious transactions. The punctuality in payments, which they necessarily exact, has sometimes obliged those who have ad- ventured beyond both their capital and credit, to procure money, at any price, and consequently to resort f o usurers for aid. But experience and practice gradually bring a cure to this evil. A general habit of punctuality among traders, is the natural consequence of the necessity of observing it with the bank ; a circumstance which itself more than compensates HAMILTONS REPORT. for any occasional ill which may have sprung from that ne- cessity, in the particular under consideration. As far, there- fore, as traders depend on each other for pecuniary supplies, they can calculate their expectations with greater certainty ; and are in proportionally less danger of disappointments, which might compel them to have recourse to so pernicious an expedient as that of borrowing at usury ; the mischiefs of which, after a few examples, naturally inspire great care in all but men of desperate circumstances, to avoid the possibi- lity of being subjected to them. One, and not the least of the evils incident to the use of that expedient, if the fact be known, or even strongly suspected, is loss of credit with the bank itself. The directors of a bank too,' though in order to extend its business and its popularity, in the infancy of an institution, they may be tempted to go further in accommodation than the strict rules of prudence will warrant, grow more circum- spect of course, as its affairs become better established, and as the evils of too great facility are experimentally demon- strated. They become more attentive to the situation and conduct of those with whom they deal ; they observe more narrowly their operations and pursuits ; they economize the credit they give to those of suspicious solidity ; they refuse it to those whose career is more manifestly hazardous : in a word, in the course of practice, from the very nature of things, the interest will make it the policy of a bank, to succor the wary and industrious ; to discredit the rash and unthrifty ; to discountenance both usurious lenders and usurious bor- rowers. There is a leading view, in which the tendency of banks will be seen to be, to abridge, rather than to promote, usury. This relates to their property of increasing the quantity, and quickening the circulation, of money. If it be evident, that usury will prevail or diminish, according to the proportion which the demand for borrowing bears to the quantity of money at market to be lent ; whatever has the property just *JO HAMILTON'S REPORT. mentioned, whether it be in the shape of paper or coin, by contributing to render the supply more equal to the demand, must tend to counteract the progress of usury. But bank lending, it is pretended, is an impediment to other kinds of lending ; which, .by confining the resource of borrowing to a particular class, leaves the rest of the commu- nity more destitute, and therefore more exposed to the extor- tions of usurers. As the profits of bank stock exceed the le- gal rate of interest, the possessors of money, it is argued, prefer investing it in that article, to lending it at this rate ; to which there are the additional motives of a more prompt command of the capital, and of more frequent and exact returns, with- out trouble or perplexity in the collection. This constitutes the second charge which has been enumerated. The fact on which this charge rests, is not to to be admit- ted without several qualifications ; particularly in reference to the state of things in this country. First The great bulk of the stock of a bank, will consist of the funds of men in trade, among ourselves, and moneyed foreigners ; the former of whom could not spare their capitals out of their reach, to be invested in loans for long periods, on mortgages or personal security ; and the latter of whom would not be willing to be subjected to the casualties, delays, and embarrassments, of such a disposition of their money in a distant country. Secondly, There will always be a considerable proportion of those who are properly the money lenders of a country, who, from that spirit of caution which usually characterizes this description of men, will incline rather to vest their funds in mortgages on real estate, than in the stock of a bank, which they are apt to consider as a more precarious security. These considerations serve in a material degree to narrow the foundation of the objection, as to the point of fact. But there is a more satisfactory answer to it. The effect sup- posed, as far as it has existence, is temporary. The reverse of it takes place in the general and permanent operation of the thing. HAMILTON'S REPORT. M The capital of every public bank will of course be re- stricted within a certain defined limit. It is the province of legislative prudence so to adjust this limit, that while it will not be too contracted for the demand, which the course of busi- ness may create, and for the security which the public ought to have for the solidity of the paper which may be issued by the bank, it will still be within the compass of the pecuniary resources of the community ; so that there may be an easy practicability of completing the subscriptions to it. When this is once done, the supposed effect of necessity ceases. There is then no longer room for the investment of any ad- ditional capital. Stock may indeed change hands by one person selling and another buying ; but the money which the buyer takes out of the common mass to purchase the stock, the seller receives and restores to it. Hence the future sur- pluses which may accumulate must take their natural course, and lending at interest must go on as if there were no such institution. It must indeed flow in a more copious stream. The bank furnishes an extraordinary supply for borrowers, within its immediate sphere. A larger supply consequently remains for borrowers elsewhere. In proportion as the circulation of the bank is extended, there is an augmentation of the aggre- gate mass of money for answering the aggregate mass of de- mand. Hence greater facility in obtaining it for every pur- pose. It ought not to escape without a remark, that as far as the citizens of other countries become adventurers in the bank, there is a positive increase of the gold and silver of the country. It is true, that from this a half-yearly rent is drawn back, accruing from the dividends upon the stock : but as this rent arises from the employment of the capital, by our own citizens, it is probable, that it is more than replaced by the profits of that employment. It is also likely, that a part of it is. in the course of trade, converted into the products of our 62 HAMILTON'S REPORT. country : and it may even prove an incentive, in some cases, to emigration to a country in which the character of citizen is as easy to be acquired, as it is estimable and important. This view of the subject furnishes an answer to an objection which has been deduced from the circumstance here taken notice of ; namely, the income resulting to foreigners from the part of the stock owned by them, which has been repre- sented as tending to drain the country of its specie. In this objection, the original investment of the capital, and the con- stant use of it afterwards, seem both to have been overlooked. That banks furnish temptations to overtrading, is the third of the enumerated objections. This must mean, that by af- fording additional aid to mercantile enterprise, they induce the merchant sometimes to adventure beyond the prudent or salutary point. But the very statement of the thing shows, that the subject of the charge is an occasional ill, incident to a general good. Credit of every land, (as a species of which only can bank-lending have the effect supposed,) must be, in different degrees, chargeable with the same inconvenience. It is even applicable to gold and silver, when they abound in circulation. But would it be wise on this account to decry the precious metals ; to root out credit ; or to prescribe the means of that enterprise, which is the main spring of trade, and a principal source of national wealth, because it now and then runs into excesses, of which overtrading is one ? If the abuses of a beneficial thing, are to determine its condemnation, there is scarcely a source of public prosperity which will not speedily be closed. In every case, the evil is to be compared with the good ; and in the present case, such a comparison will issue in this, that the new and increased energies derived to commercial enterprise, from the aid of banks, are a source of general profit and advantage ; which greatly outweigh the partial ills of the overtrading of a few individuals, at particular times, or of numbers in particular conjunctures. HAMILTON'S REPORT. 63 The fourth and fifth charges may be considered together : These relate to the aid which is sometimes afforded by banks to unskillful adventurers and fraudulent traders. These charges also have some degree of foundation, though far less than has been pretended ; and they add to the instances of partial ills, connected with more extensive and overba- lancing benefits. The practice of giving fictitious credit to improper persons, is one of those evils which experience, guided by interest, speedily corrects. The bank itself is in so much jeopardy of being a sufferer by it, that it has the strongest of all induce- ments to be on its guard. It may not only be injured imme diately by the delinquencies of the persons to whom such credit is given ; but eventually, by the incapacities of others, whom their impositions or failures may have ruined. Nor is there much danger of a bank's being betrayed into this error from want of information : The directors them- selves being for the most part selected from the class of tra- ders, are to be expected to possess individually, an accurate knowledge of the characters and situations of those who come within that description. And they have, in addition to this, the course of dealing of the persons themselves with the bank, to assist their judgment, which is in most cases a good index of the state in which those persons are. The artifices and shifts, which those in desperate or declining circum- stances, are obliged to employ to keep up the countenance which the rules of the bank require, and the train of their connections, are so many prognostics, not difficult to be in- terpreted, of the fate which awaits them. Hence it not un- frequently happens, that banks are the first to discover the unsoundness of such characters, and by withholding credit, to announce to the public they are not entitled to it. If banks, in spite of every precaution, are sometimes be- trayed into giving a false credit to the persons described, they more frequently enable honest and industrious men, of small, or perhaps of no capital, to undertake and prosecute business. 64 with advantage to themselves and to the community ; and assist merchants of both capital and credit, who meet with fortuitous and unforeseen shocks, which might, without such helps, prove fatal to them and to others, to make head against their misfortunes, and finally to retrieve their affairs ; circum- stances which form no inconsiderable encomium on the uti- lity of banks. But the last, and heaviest charge, is still to be examined : this is, that banks tend to banish the gold and silver out of the country. The force of this objection rests upon their being an engine of paper credit, which by furnishing a substitute for the me- tals, is supposed to promote their exportation. It is an ob- jection which, if it has any foundation, lies not against banks peculiarly, but against every species of paper credit. The most common answer given to it is, that the thing supposed is of little or no consequence ; that it is immaterial what serves the purpose of money ; whether paper, or gold and silver ; that the effect of both upon industry is the same ; and that the intrinsic wealth of a nation is to be measured, not by the abundance of the precious metals contained in it, but by the quantity of the productions of its labor and in dustry. This answer is not destitute of solidity, though not entirely satisfactory. It is certain, that the vivification of industry, by a full circulation, with the aid of a proper and well regulated paper credit, may more than compensate for the loss of a part of the gold and silver of a nation, if the consequence of avoid- ing that loss should be a scanty or defective circulation. But the positive, and permanent increase or decrease of the precious metals in a country, can hardly ever be a matter of indifference. As the commodity taken in lieu of every other, it is a species of the most effective wealth ; and as the money of the world, it is of great concern to the state that it possesses a sufficiency of it to face any demands which the protection of its external interests may create. HAMILTON'S REPORT. 65 The objection seems to admit of another and a more con- clusive answer, which controverts the fact itself. A nation that has no mines of its own, must derive the precious me- tals from others ; generally speaking, in exchange for the products of its labor and industry. The quantity it will pos- sess will, therefore, in the ordinary course of things, be regu- lated by the favorable or unfavorable balance of its trade ; that is, by the proportion between its abilities to supply fo- reigners, and its wants of them ; between the amount of its exportations, and that of its importations. Hence the state of its agriculture and manufactures ; the quantity and quality of its labor and industry ; must, in the main, influence and determine the increase or decrease of its gold and silver. If this be true, the inference seems to be, that well consti- tuted banks favor the increase of the precious metals. It has been shown, that they augment, in different ways, the active capital of a country. This it is which generates employ- ment ; which animates and expands labor and industry. Every addition which is made to it, by contributing to put in motion a greater quantity of both, tends to create a greater quantity of the products of both. And by furnishing more materials for exportation, conduces to a favorable balance of trade, and consequently to the introduction and increase of gold and silver. This conclusion appears to be drawn from solid premises. There are, however, objections to be made to it. It may be said, that as bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals as a medium of circulation, which, in the case of a wrong balance, might restrain, in some degree, their exporta- tion ; and it may be added, that from the same cause, in the- same case, it would retard those economical and parsimonious reforms in the manner of living, which the scarcity of money is calculated to produce, and which might be necessary to rec- tify such wrong balance. 9 66 HAMILTON'S REPORT. There is, perhaps, some truth in both these observations : but they appear to be of a nature rather to form exceptions to the generality of the conclusion, than to overthrow it. The state of things in which the absolute exigencies of circula- tion can be supposed to resist with any effect the urgent de- mands for specie which a wrong balance of trade may occa- sion, presents an extreme case. And a situation in which a too expensive manner of living of a community, compared with its means, can stand in need of a corrective, from dis- tress or necessity, is one which perhaps rarely results but from extraordinary and adventitious causes ; such, for example, as a national revolution, which unsettles all the established ha- bits of a people, and inflames the appetite for extravagance, by the illusions of an ideal wealth, engendered by the conti- nual multiplication of a depreciating currency, or some simi- lar cause. There is good reason to believe, that where the laws are wise and well executed, and the inviolability of pro- perty and contracts maintained, the economy of a people will, in the general course of things, correspond with its means. The support of industry, is probably in every case of more consequence towards correcting a wrong balance of trade, than any practicable retrenchments in the expenses of fami- lies or individuals ; and the stagnation of it would be likely to have more effect in prolonging, than any such savings in shortening, its continuance. That stagnation is a natural consequence of an inadequate medium, which, without the aid of bank circulation, would, in the cases supposed, be se- verely felt. It also deserves notice, that as the circulation of a bank is .always in a compound ratio to the fund upon which it de- pends, and to the demand for it ; and as that fund is itself affected by the exportation of the metals, there is no danger of its being overstocked, as in the case of paper issued at the pleasure of the government, or of its preventing the conse- quences of any unfavorable balance from being sufficiently 67 felt to produce the reforms alluded to, as far as circumstances may require and admit. Nothing can be more fallible than the comparisons which have been made between different countries, to illustrate the truth of the position under consideration. The comparative quantity of gold and silver in different countries, depends upon an infinite variety of facts and combinations, all of which ought to be known, in order to judge whether the ex- istence or non-existence of paper currencies, has any share in the relative proportions they contain. The mass and value of the productions of the labor and industry of each, com- pared with its wants ; the nature of its establishments abroad; the kind of wars in which it is usually engaged ; the rela- tions it bears to the countries which are the original possess- ors of those metals ; the privileges it enjoys in their trade ; these, and a number of other circumstances, are all to be taken into the account, and render the investigation too com- plex to justify any reliance on the vague and general sur- mises which have been hitherto hazarded on the point. In the foregoing discussion, the objection has been consi- dered as applying to the permanent expulsion and diminu- tion of the metals. Their temporary exportation, for par- ticular purposes, has not been contemplated. This, it must be confessed, is facilitated by banks, from the faculty banks possess of supplying their place. But their utility is in no- thing more conspicuous than in these very cases. They ena- ble the government to pay its foreign debts, and to answer any exigencies which the external concerns of the commu- nity may have produced. They enable the merchant to sup- port his credit, (on which the prosperity of trade depends,) when special circumstances prevent remittances in other modes. They enable him also to prosecute enterprises, which ultimately tend to an augmentation of the species of wealth in question. It is evident, thsrf gold and silver may often be employed in procuring commodities abroad ; which, in a cir- cuitous commerce, replace the original fund with considerable 68 HAMILTON'S REPORT. addition. But it is not to be inferred from this facility given to temporary exportation, that banks, which are so friendly to trade and industry, are in their general tendency inimical to the increase of the precious metals. These several views of the subject, appear sufficient to im- press a full conviction of the utility of banks, and to demon- strate that they are of great importance, not only in relation to the administration of the finances, but in the general sys- tem of the political economy. The judgment of many concerning them, has, no doubt, been perplexed by the misinterpretation of appearances, which were to be ascribed to other causes. The general devasta- tion of personal property, occasioned by the late war. natu- rally produced on the one hand, a great demand for money ; and on the other, a great deficiency of it to answer the de- mand. Some injudicious laws, which grew out of the public distresses, by impairing confidence, and causing a part of the inadequate sum in the country to be locked up, aggravated the evil ; the dissipated habits contracted by many indivi- duals during the war, which after the peace plunged them into expenses beyond their incomes ; the number of adven- turers without capital, and in many instances without infor- mation, who at that epoch rushed into trade, and were obliged to make any sacrifices to support a transient credit ; the em- ployment of considerable sums in speculations upon the pub- lic debt, which from its unsettled state was incapable of be- coming itself a substitute : all these circumstances concur- ring, necessarily led to usurious borrowing ; produced most of the inconveniences, and were the true cause of most of the appearances which, where banks were established, have been by some erroneously placed to their account : a mistake which they might easily have avoided, by turning their eyes towards places where there were none ; and where, never- theless, the same evils woulc^Jiave been perceived to exist, even in a greater degree than where those institutions had obtained. HAMILTONS REPORT. 09 These evils have either ceased, or been greatly mitigated. Their more complete extinction may be looked for from that additional security to property which the constitution of the United States happily gives ; (a circumstance of prodigious moment in the scale, both of public and private prosperity,) from the attraction of foreign capital, under the auspices of that security, to be employed upon objects, and in enterprises, for which the state of this country opens a wide .and inviting field ; from the consistency and stability which the public debt is fast acquiring, as well in the public opinion at home and abroad, as in fact ; from the augmentation of capital which that circumstance and the quarter yearly payment of interest will afford ; and from the more copious circulation which will be likely to be created by a well constitutioned na- tional bank. The establishment of banks in this country, seems to be recommended by reasons of a peculiar nature. Previously to the revolution, circulation was in a great measure carried on [by paper emitted by the several local governments. In Pennsylvania alone, the quantity of it was near a million and a half of dollars. This auxiliary may be said to be now at an end. And it is generally supposed, that there has been for some time past a deficiency of circulating medium. How far that deficiency is to be considered as real or imaginary, is not susceptible of demonstration : but there are circumstances and appearances which, in relation to the country at large, countenance the supposition of its reality. The circumstances are, besides the fact just mentioned respecting paper emissions, the vast tracts of waste land, and the little advanced state of manufactures. The progressive settlement of the former, while it promises ample retribution, in the generation of future resources, diminishes or obstructs, in the mean time, the active wealth of the country. It not only draws off a part of the circulating money, and places it in a more passive state, but it diverts into its own channels a portion of that species of labor and industry which would 70 HAMILTON'S REPORT. otherwise be employed in furnishing materials for foreign trade ; and which, by contributing to a favorable balance, would assist the introduction of specie. In the early periods of new settlements, the settlers not only furnish no surplus for exportation, but they consume a part of that which is pro- duced by the labor of others. The same thing is a cause that manufactures do not advance, or advance slowly. And not- withstanding some hypotheses to the contrary, there are many things to induce a suspicion, that the precious metals will not abound in any country which has not mines or va- riety of manufactures. They have been sometimes acquired by the sword ; but the modern system of war has expelled this resource ; and it is one upon which it is to be hoped the United States will never be inclined to rely. The appearances alluded to are, greater prevalency of di- rect barter, in the more interior districts of the country, which, however, has been for some time past gradually lessening ; and greater difficulty generally in the advantageous alienation of improved real estate ; which also has of late diminished, but is still seriously felt in different parts of the Union. The difficulty of getting money, which has been a general com- plaint, is not added to the number ; because it is the com- plaint of all tunes, and one in which imagination must ever have too great scope to permit an appeal to it. If the supposition of such a deficiency be in any degree founded, and some aid to circulation be desirable, it remains to inquire what ought to be the nature of that aid ? The emitting of paper money by the authority of govern- ment, is wisely prohibited to the individual states, by the na- tional constitution ; and the spirit of that prohibition ought not to be disregarded by the government of the United States. Though paper emissions, under a general autho- rity, might have some advantages not applicable, and be free from some disadvantages which are applicable, to the like emissions by the states separately ; yet they are of a na- ture so liable to abuse, and it may even be affirmed, so cer- 71 tain of being abused ; that the wisdom of the government will be shown in never trusting itself with the use of so se- ducing and dangerous an expedient. In times of tranquillity, it might have no ill consequence ; it might even perhaps be managed in a way to be productive of good ; but in great and trying emergencies, there is almost a moral certainty of its becoming mischievous. The stamping of paper is an ope- ration so much easier than the laying of taxes, that a go- vernment, in the practice of paper emissions, would rarely fail in any such emergency, to indulge itself too far in the employment of that resource, to avoid, as much as possible, one less auspicious to present popularity. If it should not even be carried so far as to be rendered an absolute bubble, it would at least be likely to be extended to a degree, which would occasion an inflated and artificial state of things, in- compatible with the regular and prosperous course of the po- litical economy. Among other material differences between a paper curren- cy, issued by the mere authority of government, and one issued by a bank, payable in coin, is this : that in the first case, there is no standard to which an appeal can be made, as to the quantity which will only satisfy, or which will sur- charge the circulation ; in the last, that standard results from the demand. If more should be issued than is necessary, it will return upon the bank. Its emissions, as elsewhere inti- mated, must always be in a compound ratio to the fund and the demand : Whence it is evident, that there is a limitation in the nature of the thing ; while the discretion of the go- vernment is the only measure of the extent of emissions by its own authority. This consideration further illustrates the danger of emis- sions of that sort, and the preference which is due to bank paper. The payment of the interest of the public debt, at thirteen different places, is a weighty reason, peculiar to our immedi- ate situation, for desiring a bank circulation. Without a pa- 72 per, in general currency, equivalent to gold and silver, a considerable proportion of the specie of the country must always be suspended from circulation, and left to accu- mulate, preparatorily, to each day of payment ; and as often as one approaches, there must, in several cases, be an actual transportation of the metals at both expense and risk, from their natural and proper reservoirs, to distant places. This necessity will be felt very injuriously to the trade of some of the states, and will embarrass not a little, the operations of the treasury in those states. It will also obstruct those ne- gotiations, between different parts of the Union, by the in- strumentality of treasury bills, which have already afforded valuable accommodations to trade in general. Assuming it then as a consequence, from what has been said, that a national bank is a desirable institution, two in- quiries emerge Is there no such institution, already in be- ing, which has a claim to that character, and which super- sedes the propriety or necessity of another? If there be none, what are the principles upon which one ought to be established ? There are at present three banks in the United States : that of North America, established in the city of Philadel- phia; that of New York, established in the city of New York ; that of Massachusetts, established in the town of Boston. Of these three, the first is the only one which has at any time had a direct relation to the government of the United States. The bank of North America originated in a resolution of congress of the 26th of May, 1781, founded upon a proposi- tion of the superintendant of finance, which was afterwards carried into execution by an ordinance of the 31st of De- cember following, entitled " An ordinance to incorporate the subscribers to the Bank of North America/' The aid afforded to the United States by this institution, during the remaining period of the war, was of essential consequence ; and its conduct towards them since the peace. HAMILTON'S REPORT. 73 has not weakened its title to their patronage and favor. So far its pretensions to the character in question are respectable ; but there are circumstances which militate against them ; and considerations which indicate the propriety of an establish- ment on different principles. The directors of this bank, on behalf of their constitu- ents, have since accepted and acted under a new charter from the state of Pennsylvania, materially variant from their original one ; and which so narrows the foundation of the institution, as to render it an incompetent basis for the ex- tensive purposes of a national bank. The limit assigned by the ordinance of congress to the stock of the bank, is ten millions of dollars. The last char- ter of Pennsylvania confines it to two millions. Questions naturally arise, whether there be not a direct repugnancy be- tween two charters so differently circumstanced ; and whe- ther the acceptance of the one, is not to be deemed a virtual surrender of the other ? But perhaps it is neither advisable nor necessary, to attempt a solution of them. There is nothing in the acts of congress, which imply an exclusive right in the institution to which they relate, except during the term of the war. There is therefore nothing, if the public good require it, which prevents the establishment of another. It may, however, be incidentally remarked, that in the general opinion of the citizens of the United States, the bank of North America has taken the station of a bank of Pennsylvania only. This is a strong argument for a new institution, or for a renovation of the old, to restore it to the situation in which it originally stood, in the view of the United States. But though the ordinance of congress contains no grant of exclusive privileges, there may be room to alledge, that the government of the United States ought not, in point of can- dor and equity, to establish any rival or interfering institu- tion, in prejudice of the one already established ; especially 10 74 as this has, from services rendered, well founded claims to pro- tection and regard. The justice of such an observation ought, within proper bounds, to be admitted. A new establishment of the sort ought not to be made without cogent and sincere reasons of public good. And in the manner of doing it, every facility should be given to a consolidation of the old with the new, upon terms not injurious to the parties concerned. But there is no ground to maintain, that in a case in which the govern- ment has made no condition restricting its authority, it ought voluntarily to restrict it, through regard to the interests of a particular institution, when those of the state dictate a differ- ent course ; especially too, after such circumstances have in- tervened, as characterize the actual situation of the bank of North America. j The inducements to a new disposition of the thing are now to be considered. The first of them which occurs is, the at least ambiguous situation in which the bank of North America has placed itself, by the acceptance of its last char- ter : If this has rendered it the mere bank of a particular state, liable to dissolution at the expiration of fourteen years, to which term the act of that state has restricted its dura- tion ; it would be neither fit nor expedient, to accept it as an equivalent for a bank of the United States. * The restriction of its capital also, which, according to the same supposition, cannot be extended beyond two millions of dollars, is a conclusive reason for a different establishment. So small a capital promises neither the requisite aid to govern- ment, nor the requisite security to the community. It may answer very well the purposes of local accommodation, but is an inadequate foundation for a circulation coextensive with the United States ; embracing the whole of their revenues, and affecting every individual into whose hands the paper may come. And inadequate as such a capital would be to the essential ends of a national bank, it is liable to be rendered still more HAMILTON'S REPORT. 75 so, by that principle of the constitution of the bank of North America, contained equally in its old, and in its new charter, which leaves the increase of the actual capital at any time, (now far short of the allowed extent,) to the discretion of the directors or stockholders. It is naturally to be expected, that the allurements of an advanced price of stock, and of large dividends, may disincline those who are interested, to an ex- tension of capital ; from which they will be apt to fear a diminution of profits. And from this circumstance, the in- terest and accommodation of the public, (as well indvidually as collectively,) are made more subordinate to the interest, real or imagined, of the stockholders, than they ought to be. It is true, that unless the latter be consulted, there can be no bank (in the sense at least in which institutions of this kind, worthy of confidence, can be established in this country). But it does not follow, that this is alone to be consulted, or that it even ought to be paramount. ^ Public utility is more truly the object of public banks, than private profit. And it is the business of government, to constitute them on such principles, that while the latter will result, in a sufficient degree, to afford competent motives to engage in them, the former be not made subservient to it. To effect this, a principal object of attention ought to be to give free scope to the creation of an ample capi- tal ; and with this view, fixing the bounds which are deemed safe and convenient, to leave no discretion either to stop short of them, or to overpass them. The want of this precaution, in the establishment of the bank of North America, is a fur- ther, and an important reason, for desiring one differently constituted. v There may be room at first sight, for a supposition, that as the profits of the bank will bear a proportion to the extent of its operations ; and as, for this reason, the interest of the stock- holders will not be disadvantageous^ affected by any neces- sary augmentations of capital ; there is no cause to appre- hend that they will be indisposed to such augmentations. But most men, in matters of this nature, prefer the cer- 76 HAMILTON'S REPORT, tainties they enjoy, to probabilities depending on untried ex- periments ; especially when these promise rather that they will not be injured, than that they will be benefited. ^From the influence of this principle, and a desire of en- hancing its profits, the directors of a bank will be more apt to overstrain its faculties, in an attempt to face the additional de- mands which the course of business may create, than to set on foot new subscriptions; which may hazard a diminution of the profits, and even a temporary reduction of the price of stock. Banks are among the best expedients for lowering the rate of interest in a country ; but to have this effect, their capitals must be completely equal to all the demands of business, and such as will tend to remove the idea, that the accommoda- tions they afford are in any degree favors ; an idea very apt to accompany the parsimonious dispensation of contracted funds. In this, as in every other case, the plenty of the com- modity ought to beget a moderation of the price. * The want of a principle of rotation, in the constitution of the bank of North America, is another argument for a varia- tion of the establishment. Scarcely one of the reasons which militate against this principle in the constitution of a country, is applicable to that of a bank ; while there are strong rea- sons in favor of it, in relation to the one, which do not apply to the other. The knowledge to be derived from experience, is the only circumstance common to both, which pleads against rotation in the directing officers of a bank. But the objects of the government of a nation, and those of the government of a bank, are so widely different, as greatly to weaken the force of that consideration, in refer- ence to the latter. Almost every important case of legisla- tion requires, towards a right decision, a general and accurate acquaintance with the affairs of the state ; and habits of thinking, seldom acquired but from a familiarity with public concerns. The administration of a bank, on the contrary, is regulated by a few simple fixed maxims, the application of 77 which is not difficult to any man of judgment, especially if instructed in the principles of trade. It is, in general, a con- stant succession of the same details. But though this be the case, the idea of the advantages of experience is not to be slighted : room ought to be left for the regular transmission of official information ; and for this purpose, the head of the direction ought to be excepted from the principle of rotation. With this exception, and with the aid of the information of the subordinate officers, there can be no danger of any ill effects from want of experience, or knowledge ; especially as the periodical exclusion ought not to reach the whole of the directors at one time. v The argument in favor of the principle of rotation is this ; that by lessening the danger of combinations among the di- rectors, to make the institution subservient to party views, or to the accommodation, preferably, of any particular set of men, it will render the public confidence more firm, stable, and unqualified. When it is considered, that the directors of a bank are not elected by the great body of the community, in which a diversity of views will naturally prevail, at dif- ferent conjunctures ; but by a small and select class of men, among whom it is far more easy to cultivate a steady ad- herence to the same persons and objects ; and that those direc- tors have it in their power so immediately to conciliate, by obliging the most influential of this class, it is easy to per- ceive, that without the principle of rotation, changes in that body can rarely happen, but as a concession which they may themselves think it expedient to make to public opinion. ^The continual administration of an institution of this kind, by the same persons, will never fail, with or without cause, from their conduct, to excite distrust and discontent. The necessary secrecy of their transactions, gives unlimited scope to imagination to infer that something is, or may be, wrong. And this inevitable mystery is a solid reason for in- serting inthe constitution of a bank the necessity of a change 78 HAMILTON'S REPORT. of men. As neither the mass of the parties interested, nor the public in general, can be permitted to be witnesses of the interior management of the directors, it is reasonable that both should have that check upon their conduct, and that security against the pre valency of a partial or pernicious sys- tem, which will be produced by the certainty of periodical changes. "'Such too is the delicacy of the credit of a bank, that every thing which can fortify confidence and repel sus- picion, without injuring its operations, ought carefully to be sought after in its formation. A further consideration in favor of a change, is the im- proper rule, by which the right of voting for directors is regu- lated in the plan upon which the bank of North America was originally constituted ; namely, a vote for each share, and the want of a rule in the last charter ; unless the silence of it on that point may signify that every stockholder is to have an equal and a single vote, which would be a rule in a different extreme, not less erroneous. It is of importance that a rule should be established on this head, as it is one of those things which ought not to be left to discretion ; and it is consequently of equal importance, that the rule should be a proper one. ^ A vote for each share, renders a combination between a few principal stockholders, to monopolize the power and benefits of the bank, too easy. An equal vote to each stockholder, however great or small his interest in the institution, allows not that degree of weight to large stockholders, which it is reasonable they should have, and which perhaps their secu- rity, and that of the bank, require. A prudent mean is to be preferred. A conviction of this, has produced a by-law of the corporation of the bank of North America, which evi- dently aims at such a mean. But a reflection arises here, that a like majority with that which enacted this law, may at any moment repeal it. 'The last inducement which shall be mentioned, is the want of precautions to guard against a foreign influence in- sinuating itself into the direction of the bank. It seems HAMILTON'S REPORT. 79 scarcely reconcileable with a due caution, to permit, that any but citizens should be eligible, as directors of a national bank, or that non-resident foreigners should be able to influence the appointment of directors, by the votes of their proxies. In the event, however, of an incorporation of the bank of North America, in the plan, it may be necessary to qualify this prin- ciple, so as to leave the right of foreigners, who now hold shares of its stock, unimpaired, but without the power of transmitting the privileges in question to foreign alienees. It is to be considered that such a bank is not a mere mat- ter of private property, but a political machine of the great- est importance to the state. There are other variations from the constitution of the bank of North America, not of inconsiderable moment, which appear desirable, but which are not of magnitude enough to claim a preliminary discussion : These will be seen in the plan which will be submitted in the sequel. If the objections which have been stated to the constitution of the bank of North America, are admitted to be well founded, they will nevertheless not derogate from the merit of the main design, or of the services which that bank has rendered, or of the benefits which it has produced. The creation of such an institution, at the time it took place, was a measure dictated by wisdom. Its utility has been amply evinced by its fruits American independence owes much to it. And it is very conceivable, that reasons of the moment, may have rendered those features in it inexpedient, which a revision with a permanent view, suggests as desirable. The order of the subject, leads next to an inquiry into the principles upon which a national bank ought to be or- ganized. The situation of the United States naturally inspires a wish that the form of the institution cofild admit of a plu- rality of branches. But various considerations discourage from pursuing this idea. The complexity of such a plan would be apt to inspire doubts, which might deter from ad- 80 venturing in it : And the practicability of a safe and orderly administration, though not to be abandoned as desperate, cannot be so manifest in perspective, as to promise the remo- val of those doubts, or to justify the government in adopting the idea as an original experiment. The most that would seem advisable, on this point, is to insert a provision, which may lead to it hereafter, if experience shall more clearly de- monstrate its utility, and satisfy those who may have the di- rection, that it may be adopted with safety. It is certain, that it would have some advantages, both peculiar and important. Besides more general accommodation, it would lessen the danger of a run upon the bank. The argument against it is, that each branch must be un- der a distinct, though subordinate direction, to which a consi- derable latitude of discretion must of necessity be intrusted. And as the property of the whole institution would be liable for the engagements of each part ; that, and its credit, would be at stake upon the prudence of the directors of every part. The mismanagement of either branch might hazard serious disorder in the whole. Another wish, dictated by the particular situation of the country, is, that the bank could be so constituted as to be made an immediate instrument of loans to the proprietors of land ; but this wish also yields to the difficulty of accom- plishing it. Land is alone an unfit fund for a bank circula- tion : If the notes issued upon it were not to be payable in coin, on demand, or at a short date, this would amount to nothing more than a repetition of the paper emissions, which are now exploded by the general voice. If the notes are to be payable in coin, the land must first be converted into it, by sale or mortgage. The difficulty of effecting the latter, is the very thing which begets the desire of finding another resource ; and the former would not be practicable on a sud- den emergency, but with sacrifices which would make the cure worse than the disease. Neither is the idea of consti- tuting the fund partly of coin and partly of land, free from HAMILTON'S REPORT. 81 impediments : these two species of property do not, lor the most part, unite in the same hands. Will tiie moneyed man consent to enter into a partnership with the landholder, by which the latter will share in the profits which will be made by the money of the former ? The money, it is evident, will be the agent or efficient cause of the profits the land can only be regarded as a additional security. It is not dif- ficult to foresee, that a union on such terms, will not readily be formed. If the landholders are to procure the money by sale or mortgage of a part of their lands, this they can as well do, when the stock consists wholly of money, as if it were to be compounded of money and land. To procure for the landholders the assistance of loans is the great desideratum. Supposing other difficulties surmounted, and a fund created, composed partly of coin and partly of land, yet the benefit contemplated could only then be ob- tained, by the bank's advancing them its notes for the whole, or part of the value of the lands they had subscribed to the stock. If this advance was small, the relief aimed at would not be given ; if it was large, the quantity of notes issued would be a cause of distrust, and, if received at all, they would be likely to return speedily upon the bank for pay- ment ; which, after exhausting its coin, might be under the necessity of turning its lands into money, at any price that could be obtained for them, to the irreparable prejudice of the proprietors. Considerations of public advantage suggest a further wish, which is, that the bank could be established upon principles that would cause the profits of it to redound to the immediate benefit of the state. This is contemplated by many who speak of a national bank, but the idea seems liable to insu- perable objections. To attach full confidence to an institu- tion of this nature, it appears to be an essential ingredient in its structure, that it shall be under a private, not a jmblic di- rection, under the guidance of individual interest, not of public policy ; which would be supposed to be. and in cer- 11 HAMILTON'S REPORT. tain emergencies, under a feeble or too sanguine administra- tion, would really be, liable to being too much influenced by public necessity. The suspicion of this, would most pro- bably be a canker that would continually corrode the vitals of the credit of the bank, and would be most likely to prove fatal in those situations in which the public good would re- quire that they should be most sound and vigorous. It would, indeed, be little less than a miracle, should the credit of the bank be at the disposal of the government, if, in a long series of time, there was not experienced a calamitous abuse of it. It is true, that it would be the real interest of the government not to abuse it ; its genuine policy to husband and cherish it with the most guarded circumspection, as an inestimable trea- sure. But what government ever uniformly consulted its true interests, in opposition to the temptations of momentary ex- igencies ? What nation was ever blessed with a constant succession of upright and wise administrators ? The keen, steady, and as it were magnetic sense of their own interest as proprietors, in the directors of a bank, point- ing invariable to its true pole, the prosperity of the institu- tion, is the only security that can always be relied upon for a carefwl and prudent administration. It is, therefore, the only basis on which an enlightened, unqualified, and perma- nent confidence, can be expected to be erected and main- tained. The precedents of the banks established in several cities of Europe : Amsterdam, Hamburg, and others ; may seem to militate against this position. Without a precise know- ledge of all the peculiarities of their respective constitutions, it is difficult to pronounce how far this may be the case. That of Amsterdam, however, which we best know, is rather under a municipal than a governmental direction. Par- ticular magistrates of the city, not officers of the republic, have the management of it. It is also a bank of deposit, not of loan, or circulation ; consequently, less liable to abuse, as well as less useful. Its general business consists in receiving S3 money for safe keeping, which if not called for within a cer- tain time, becomes a part of its stock, and irreclaimable: But a credit is given for it on the books of the bank, which, being transferable, answers all the purposes of money. The directors being magistrates of the city, and the stock- holders, in general, its most influential citizens ; it is evident, that the principle of private interest must be prevalent in the management of the bank. And it is equally evident, that from the nature of its operations, that principle is less essential to it, than to an institution constituted with a view to the accom- modation of the public and individuals, by direct loans and a paper circulation. As far as may concern the aid of the bank, within the pro- per limits, a good government has nothing more to wish for, than it will always possess ; though the management be in the hands of private individuals. As the institution, if rightly constituted, must depend for its renovation from time to time on the pleasure of the government, it will not be likely to feel a disposition to render itself by its conduct, unworthy of public patronage. The government too, in the adminis- tration of its finances, has it in its power to reciprocate bene- fits to the bank, of not less importance than those which the bank affords to the government, and which, besides, are never unattended with an immediate and adequate compen- sation. Independent of these more particular considerations, the natural weight and influence of a good government will always go far towards procuring a compliance with its de- sires ; and as the directors will usually be composed of some of the most discreet, respectable, and well-informed citizens, it can hardly ever be difficult to make them sensible of the force of the inducements which ought to stimulate their ex- ertions. It will not follow, from what has been said, that the stato may not be the holder of a part of the stock of a bank, and consequently a sharer in the profits of it. It will only follow, that it ought not to desire any participation in the direction 84 HAMILTON'S REPORT. of it, and therefore ought not to own the whole or a principal part of the stock ; for if the mass of the property should be- long to the public, and if the direction of it should be in pri- vate hands, this would be to commit the interests of the state to persons not interested, or not enough interested in their proper management. There is one thing, however, which the government owes to itself and the community ; at least to all that part of it who are not stockholders ; which is to reserve to itself a right of ascertaining, as often as may be necessary, the state of the bank, excluding, however, all pretension to control. This right forms an article in the primitive constitution of the bank of North America, and its propriety stands upon the clearest reasons. If the paper of a bank is to be permitted to insinuate itself into ah 1 the revenues and receipts of a country ; if it is even to be tolerated as the substitute for gold and sil- ver, in all the transactions of business ; it becomes, in either view, a national concern of the first magnitude. As such, the ordinary rules of prudence require that the government should possess the means of ascertaining, whenever it thinks fit, that so delicate a trust is executed with fidelity and care. A right of this nature is not only desirable as it respects the government, but it ought to be equally so to all those con- cerned in the institution, as an additional title to public and private confidence, and as a thing which can only be formi- dable to practices that imply mismanagement. The pre- sumption must always be, that the characters who would be intrusted with the exercise of this right on behalf of the go- vernment, will not be deficient in the discretion which it may require ; at least the admitting of this presumption cannot be deemed too great a return of confidence for that very large portion of it which the government is required to place in the bank. Abandoning, therefore, ideas which however agreeable or desirable, are neither practicable nor safe, the following plan HAMILTON'S REPORT. S5 lor the constitution of a national bank, is respectfully sub- mitted to the consideration of the house. I. The capital stock of the bank shall not exceed ten mil- lions of dollars, divided into twenty-five thousand shares, each share being' four hundred dollars ; to raise which sum, sub- scriptions shall be opened on the first Monday of April next, and shall continue open until the whole shall be subscribed. Bodies politic, as well as individuals, may subscribe. I 1 . The amount of each share shall be payable, one fourth in gold and silver coin, and three fourths in that part of the public debt, which, according to the loan proposed by the act making provision for the debt of the United States, shall bear an accruing interest at the time of payment of six per centum per annum. III. The respective sums subscribed, shall be payable in four equal parts, as well specie as debt, in succession, and at the distance of six calendar months from each other ; the first payment to be made at the time of subscription. If there shall be a failure in any subsequent payment, the party failing shall lose the benefit of any dividend which may have accrued prior to the time for making such payment, and during the delay of the same. IV. The subscribers to the bank, and their successors, shall be incorporated, and shall so continue, until the final redemption of that part of its stock which shall consist of the public debt. V. The capacity of the corporation to hold real and per- sonal estate, shall be limited to fifteen millions of dollars, in- cluding the amount of its capital or original stock. The lands and tenements which it shall be permitted to hold, shall be only such as shall be requisite for the immediate accom- modation of the institution ; and such as shall have been bona fide mortgaged to it by way of security, or conveyed to it in satisfaction of debts previously contracted, in the usual course of its dealings, or purchased at sales upon judgments which shall have been obtained for such debts. 86 HAMILTON'S REPORT. VI. The totality of the debts of the company, whether by bond, bill, note, or other contract, (credits for deposits except- ed,) shall never exceed the amount of its capital stock. In case of excess, the directors under whose administration it shall happen, shall be liable for it in their private or separate capacities. Those who may have dissented, may excuse themselves from this responsibility, by immediately giving no- tice of the fact and their dissent, to the president of the United States, and to the stockholders, at a general meeting to be called by the president of the bank, at their request. VII. The company may sell or demise its lands and tene- ments or may sell the whole or any part of the public debt, whereof its stock shall consist ; but shall trade in nothing except bills of exchange, gold and silver bullion, or in the sale of goods pledged for money lent ; nor shall take more than at the rate of six per centum per annum, upon its loans or discounts. VIII. No loan shall be made by the bank, for the use or on account of the government of the United States, or of either of them, to an amount exceeding fifty thousand dollars, or of any foreign prince or state, unless previously authorized by a law of the United States. IX. The stock of the bank shall be transferrable according to such rules as shall be instituted by the company in that behalf. X. The affairs of the bank shall be under the manage- ment of twenty-five directors, one of whom shall be the pre- sident. And there shall be on the first Monday of January, in each year, a choice of directors, by a plurality of suffrages of the stockholders, to serve for a year. The directors, at their first meeting after each election, shall choose one of their number as president. XI. The number of votes to which each stockholder shall be entitled, shall be according to the number of shares he shall hold, in the proportions following : that is to say, for one share, and not more than two shares, one vote ; for HAMILTON'S REPORT. 87 every two shares, above two, and not exceeding ten, one vote : for every four shares above ten, and not exceeding thirty, one vote ; for every six shares above thirty, and not exceeding sixty, one vote ; for every eight shares above sixty, and not exceeding one hundred, one vote ; and for every ten shares above one hundred, one vote : but no person, copartnership, or body politic, shall be entitled to a greater number than thirty votes. And after the first election, no share or shares shall confer a right of suffrage, which shall not have been holden three calendar months previous to the day of election. Stockholders actually resident within the United States, and none other, may vote inflections by proxy. XII. Not more than three fourths of the directors in office, exclusive of the president, shall be eligible for the next suc- ceeding year. But the director who shall be president at the time of an election, may be always re-elected. XIII. None but a stockholder, being a citizen of the United States, shall be eligible as a director. XIV. Any number of stockholders not less than sixty, who together shall be proprietors of two hundred shares, or up- wards, shall have power at any time to call a general meet- ing of the stockholders, for purposes relative to the institution ; giving at least six weeks' notice, in two public gazettes of the place where the bank is kept, and specifying, in such notice, the object of the meeting. XV. In case of the death, resignation, absence from the United States, or removal of a director by the stockholders, his place may be filled by a new choice for the remainder of the year. XVI. No director shall be entitled to any emolument, un- less the same shall have been allowed by the stockholders, at a general meeting. The stockholders shall make such com- pensation to the president, for his extraordinary attendance at the bank, as shall appear to them reasonable. XVII. Not less than seven directors shall constitute a board for the transaction of business. 88 XVIII. Every cashier, or treasurer, before he enters on the duties of his office, shall be required to give bond, with two or more sureties, to the satisfaction of the directors, in a sum not less than twenty thousand dollars, with condition for his good behaviour. XIX. Half yearly dividends shall be made of so much of the profits of the bank, as shall appear to the directors ad- visable. And once in every three years the directors shall lay before the stockholders, at a general meeting, for their in- formation, an exact and particular statement of the debts which shall have remained unpaid, after the expiration of the original credit, for a period of treble the term of that credit, and of the surplus of profit, if any, after deducting losses and dividends. XX. The bills and notes of the bank originally made pay- able, or which shall have become payable on demand, in gold and silver coin, shall be receivable in all payments to the United States. XXL The officer at the head of the treasury department of the United States, shall be furnished from time to time, as often as he may require, not exceeding once a week, with statements of the amount of the capital stock of the bank, and of the debts due to the same, of the moneys deposited therein, of the notes in circulation, and of the cash in hand; and shall have a right to inspect such general accounts in the books of the bank, as shall relate to the said statements ; provided that this shall not be construed to imply a right of inspecting the account of any private individual or individu- als, with the bank. XXII. No similar institution shall be established by any future act of the United States, dining the continuance of the one hereby proposed to be established. XXIII. It shall be lawful for the directors of the bank to establish offices, wheresoever they shall think fit, within the United States, for the purpose of discount and deposit only, and upon the same terms, and in the same manner, as shall HAMILTON ; S KEPUlti. 89 be practised at the bank, and to commit the management of the said offices, and the making of the said discounts, either to agents specially appointed by them, or to such persons as may be chosen by the stockholders residing at the place where any such office shall be, under such agreements, and subject to such regulations as they shall deem proper ; not being contrary to law, or to the constitution of the bank. XXIV. And lastly The president of the United States shall be authorized to cause a subscription to be made to the stock of the said company, on behalf of the United States, to an amount not exceeding two millions of dollars, to be paid out of the moneys which shall be borrowed by virtue of either of the acts, the one entitled " An act making provi- sion for the debt of the United States," and the other entitled ;: An act making provision for the reduction of the public debt," borrowing of the bank an equal sum, to be applied to the purposes for which the said moneys shall have been pro- cured, reimbursable in ten years by equal annual instal- ments ; or at any time sooner, or in any greater proportions, that the government may think fit. The reasons for the several provisions contained in the foregoing plan, have been so far anticipated, and will, for the most part, be so readily suggested by the nature of those pro- visions, that any comments which need further be made, will be both few and concise. The combination of a portion of the public debt, in the formation of the capital, is the principal thing of which ail explanation is requisite. The chief object of this is, to en- able the creation of a capital sufficiently large to be the basis of an extensive circulation, and an adequate security for it, As has been elsewh ere remarked, the original plan of the bank of North America, contemplated a capital of ten mil lions of dollars, which is certainly not too broad a foundation for the extensive operations to which a national bank is des- tined. But to collect such a sum in this country in gold and silver, into one depository, may, without hesitation, be pre- 12 90 HAMILTON'S REPORT, nounced impracticable. Hence the necessity oi' an auxiliary > which the public debt at once presents. This part of the fund will be always ready to come in aid of the specie. It will more and more command a ready sale : and can therefore expeditiously be turned into coin, if an ex- igency of the bank should at any time require it. This quali- ty of prompt convertibility into coin, renders it an equivalent for that necessary agent of bank circulation; and distin- guishes it from a fund in land, of which the sale would gene- rally be far less compendious, and at great disadvantage. The quarter-yearly receipts of interest, will also be an actual addition to the specie fund, during the intervals between them and the half-yearly dividends of profits. The objection to combining land with specie, resulting from their not being generally in possession of the same persons, does not apply to the debt, which will always be found in considerable quan- tity among the moneyed and trading people. The debt composing part of the capital, besides its collate- ral effect in enabling the bank to extend its operations, and consequently to enlarge its profits, will produce a direct an- nual revenue of six per centum from the government, which will enter into the half-yearly dividends received by the stockholders. When the present price of the public debt is considered, and the effect which its conversion into bank stock, incorpo- rated with a specie fund, would, in all probability, have to accelerate its rise to the proper point, it will easily be disco- vered, that the operation presents in its outset a very considera- ble advantage to those who may become subscribers; and from the influence which that rise would have on the general mass of the debt, a proportional benefit to all the public creditors, and in a sense which has been more than once adverted to, to the community at large. There is an important fact, which exemplifies the fitness of the public debt, for a bank fund, and which may serve to remove doubts in some minds on this point. It is this, tha HAMILTON'S REPORT. 'Ji the bank of England, on its first erection, rested wholly on that foundation. The subscribers to a loan to government of one million two hundred thousand pounds sterling, were in- corporated as a bank ; of which the debt created by the loan and the interest upon it, were the sole fund. The subsequent augmentations of its capital, which now amounts to between eleven and twelve millions of pounds sterling, have been of the same nature. The confining of the right of the bank to contract debts to the amount of its capital, is an important precaution, which is not to be found in the constitution of the bank of North America, and which, while the fund consists wholly of coin, would be a restriction attended with inconveniencies, but would be free from any, if the composition of it should be such as is now proposed. The restriction exists in the estab- lishment of the bank of England, and as a source of securi- ty, is worthy of imitation. The consequence of exceeding the limit there is, that each stockholder is liable for the ex- cess, in proportion to his interest in the bank. When it is considered, that the directors owe their appointments to the choice of the stockholders, a responsibility of this kind on the part of the latter, does not appear unreasonable. But on the other hand it may be deemed a hardship upon those who may have dissented from the choice. And there are many among us, whom it might perhaps discourage from becoming concerned in the institution. These reasons have induced the placing of the responsibility upon the directors, by whom the limit prescribed should be transgressed. The interdiction of loans on account of the United States, or of any particular state, beyond the moderate sum specified, or of any foreign power, will serve as a barrier to executive encroachments, and to combinations inauspicious to the safety, or contrary to the policy of the Union. The limitation of the rate of interest is dictated by the consideration, that different rates prevail in different parts of the Union ; and as the operations of the bank may extend HAMILTON'S REPORT. through the whole, some rule seems to be necessary. There is room for a question, whether the limitation ought not rather to be to five, than to six per cent., as proposed. It may with safety, be taken for granted, that the former rate would yield an ample dividend ; perhaps as much as the latter, by the extension which it would give to business. The natural effect of low interest is to increase trade and industry ; be- cause undertakings of every kind can be prosecuted with greater advantage. This is a truth generally admitted ; but it is requisite to have analyzed the subject in all its re- lations, to be able to form a just conception of the extent of that effect. Such an analysis cannot but satisfy an intelli- gent mind, that the difference of one per cent, in the rate at which money may be had, is often capable of making an essential change for the better, in the situation of any coun- try or place. Every thing, therefore, which tends to lower the rate of interest, is peculiarly worthy of the cares of legislators. And though laws which violently sink the legal rate of interest greatly below the market level, are not to be commended, be- cause they are not calculated to answer their aim ; yet, what- ever has a tendency to effect a reduction, without violence to the natural course of things, ought to be attended to and pur- sued. Banks are among the means most proper to accom- plish this end ; and the moderation of the rate at which their discounts are made, is a material ingredient towards it ; with which their own interest, viewed on an enlarged and perma- nent scale, does not appear to clash. But as the most obvious ideas are apt to have greater force than those which depend on complex and remote combina- tions, there would be danger that the persons whose funds must constitute the stock of the bank, would be diffident of the sufficiency of the profits to be expected, if the rate of loans and discounts were to be placed below the point to which they have been accustomed ; and might, on this account, be indisposed to embarking in the plan. There is, it is true. HAMILTON ri UUl'ullX. ( J3 one reflection, which, in regard to men actually engaged in trade, ought to be a security against this danger ; it is this, that the accommodations which they might derive in the way of their business, at a low rate, would more than indemnify them for any difference in the dividend ; supposing even that some diminution of it were to be the consequence. But upon the whole, the hazard of contrary reasoning among the mass of moneyed men, is a powerful argument against the experi- ment. The institutions of the kind already existing, add to the difficulty of making it. Mature reflection, and a large capital, may, of themselves, lead to the desired end. The last thing which requires any explanatory remark, is the authority proposed to be given to the president, to sub- scribe to the amount of two millions of dollars, on account of the public. The main design of this is, to enlarge the specie fund of the bank, and to enable it to give a more early ex- tension to its operations. Though it is proposed to borrow with one hand what is lent with the other, yet the disburse- ment of what is borrowed will be progressive, and bank notes may be thrown into circulation instead of the gold and silver. Besides, there is to be an annual reimbursement of a part of the sum borrowed, which will finally operate as an actual in- vestment of so much specie. In addition to the inducements '.o this measure, which result from the general interest of the government to enlarge the sphere of the utility of the bank, there is this more particular consideration, to wit : that as far as the dividend on the stock shall exceed the interest paid on the loan, there is a positive profit. The secretary begs leave to conclude with this general ob- servation that if the bank of North America shall come for- ward with any propositions, which have for their object the ingrafting upon that institution the characteristics which shall appear to the legislature necessary to the due extent and safety of a national bank, there are, in his judgment, weighty inducements to giving every reasonable facility to the mea- ure. Not only the pretensions of that institution, from its > LATE BANK OF THE UNITED STATED, original relation to the government of the United States, and from the services it has rendered, are such as to claim a dis- position favorable to it, if those who are interested in it are willing, on their part, to place it on a footing satisfactory to the government, and equal to the purposes of a bank of the United States ; but its co-operation would materially accelerate the accomplishment of the great object, and the collision which might otherwise arise, might, in a variety of ways, prove equally disagreeable and injurious. The incorporation or union here contemplated, may be effected in different modes, under the auspices of an act of the United States, if it shall be desired by the Bank of North America, upon terms which shall appear expedient to the government. All which is humbly submitted. ALEXANDER HAMILTON, Secretary of the Treasury. THE LATE BANK OF THE UNITED STATES. This institution, though no longer existing, has rendered to government, and to the community at large, so many es- sential services, that its history will not be uninteresting. The idea of it was conceived immediately after the adoption of the present constitution, by Alexander Hamilton, Esq., then secretary of the treasury. The acute intellect and enlarged mind of this man, caused him to master every subject to which his attention was directed, and to embrace it in all its details and consequences, whether immediate or remote. It had not escaped him, that the work of the revolution would remain unfinished, without a solemn compact, which should give to the new born political society consistency and shape, and unite its wide spread members into a well organized commonwealth. His efforts, therefore, as his writings testify, had been directed towards effecting the formation of a conti BANK UP THE LMTED fcTATEc. 95 lution, and causing it to be adopted. But when this was at tained, he perceived further, that in order to give permanency to the new fabric, it was necessary to render it respected abroad, and to strengthen it by the support of self-interest at home ; he perceived that it was necessary to raise the edifice of public credit, and that this could only be attempted with success, by raising it on the basis of justice and good faith. This required that the general government should acknow- ledge the debts contracted during the revolutionary struggle, make provision for the regular discharge of the accruing in- terest, and for an ultimate payment of the principal itself. They were consequently funded ; a system of revenue was created, to meet the future expenditures ; and nothing could be happier than the further idea of establishing a NATIONAL BANK, the stock of which was chiefly to consist in public se- curities, in order to procure at once to those securities a great market value, give precision and method to the fiscal ope- rations of the new government, and blend its stability with the comforts of individual existence. It would also have the advantage of turning credit into capital, and enable the coun- try to procure from abroad the innumerable things which were wanted, to start with vigor in the career of industry, though nearly exhausted with the efforts to attain inde- pendence. The plan of such a bank was therefore submitted to con- gress on the 13th December, 1790. It was opposed in con- gress, by the party then in the minority, but who have since come into favor, chiefly on the ground of the presumed un- constitutionality of the measure proposed. The power of creating a bank, or any corporate body whatever, not having been expressly delegated to congress, it was contended that no such power was possessed. The cabinet was divided on the question, as well as the public councils. The then secre- tary of state in particular argued, that though the constitu- tion, in a summary manner, granted to congress power to pass such laws as were necessary to carry the specified 96 LATE BANK OF THE UNITED STATES. powers into effect, yet this clause could only be considered as applicable to acts, in justification of which there could be pleaded an absolute, paramount, and irresistible necessity : not to those which, like the bank proposed, would only rest on the grounds of expediency, superior convenience; precedent, and general usefulness. The manly understanding, however, of the secretary of the treasury, and the practical wisdom of the august chief then at the head of the nation, could not be swayed by gram- matical considerations so futile. The former investigated the question, and refuted the pretended constitutional objection, with a force of reasoning which could not fail to remove all doubts on the subject from every sound and unprejudiced mind ; and the latter, consequently, gave his sanction to the act of congress incorporating the bank, which passed into a law on the 25th February, of the year following. Agreeable to this law, the capital stock of the Bank of the United States was limited to 25,000 shares of $400 each, $10,000,000, payable one fourth in gold and silver, and three fourths in public securities, bearing an interest of six and three per cent. The corporation were restricted from contracting debts be- yond the amount of their capital, and from holding property exceeding in value $15,000,000, or real estate more than necessary for the convenient trans- acting of their business. The affairs of this bank were to be managed by twenty-four directors, to be elected by the stock- holders. Only citizens of the United States, and stockholders,, were eligible as such. Only three fourths of their number could be re-elected every succesding year ; and several other regulations were contained in the charter, generally well calculated to guard against political danger from this national establishment, to extend its usefulness, and confirm its so- lidity. The duration of the bank was limited to the 4th of March, 1.811. LATE BANK OF THE UNITED STATE.-. 97 The subscriptions were filled as soon as opened. The government, conformably to the right reserved in the charter, subscribed for 5000 shares, equal to $2,000,000. and the bank went into immediate operation. The divi- dends were semi-annually. Its stock, a great proportion of which was held in Europe, soon rose considerably above par, and the institution proved always convenient ; on some occasions eminently useful to the government, and not less beneficial to the public, at large. This bank made an average annual dividend of eight and one third per cent., during the continuance of its charter oi twenty years, amounting to $1.6,666,666 ; and from a report of the trustees of that institution, made a few months since, the public are given to expect further divi- dend. It is now a well known historical fact, that in the infancy of our republic, we were but little respected by foreign nations, and by some scarcely acknowledged, until we had established a sound and efficient national system of finance. This bank, exhibiting the profound wisdom of its projectors, tended greatly to establish not only stability of character at home, but to command respect abroad. \Besides the facilities afforded to the government, the public at large reaped an advantage from this institution, during its existence, as above stated, to the amount of $16,666,666 ; and it is altogether doubtful, whether, under the then situation of the country, an equal sum could have been realized from an investment, in the ordinary course of the then business, to double the amount. Yet \yhen the period of the termination of its charter ar- rived, and the stockholders applied to congress for the re- newal of it, the same objection of unconstitutionality, which had been successfully combated twenty years before, was again revived. The institution had become the more invi* dious to the party in power, for having been, at its very ori- gin, unsuccessfully opposed by their principal leader ; an op- position, which perhaps even then arose from the desirfe of 13 98 BANK OP THE UNITED STATES. signalizing a system of political principles and measures, dif- ferent from those which were adopted. When the subject came now again under discussion, the force of sound argu- ment, the considerations of general usefulness, and the un- questionable fiscal expediency of the renewal of the charter, could not be expected to prevail against unfriendly senti- ments of so long standing. An impulse was given accordingly, the renewal of the charter refused, and the institution dissolved. The public prosperity might have received a severe shock, and the go- vernment itself been exposed to difficulties and embarrass- ments, much more serious than those under which it must now necessarily labor, from the want of a national bank, if the same course of deliberate prudence, which has marked the conduct of the late Bank of the U. States throughout, had not been also pursued in their mode of withdrawing from bu- siness. But they proceeded in this work so slowly, and acted towards individual debtors, and towards other banks on which they had claims, with so much liberal forbearance, that time was gained to supply the public with the circulating medium of new bank credits, in lieu of those to be withdrawn ; a con- duct which was moreover dictated by the interests of the ex- piring institution itself, and signally favored by the general stagnation of commerce, at the period in which it took place. BANK OF THE UNITED STATES. The present BANK OF THE UNITED STATES, located at Philadelphia, with branches in the several states, was created by an act of congress of the 3d March, 18 16, to endure twenty years, composed of 350,000 shares of $100 each. The United States hold in five per cent, stock; 70,000 shares, $ 7,000,000 Individuals hold 280.000 share?. 28.000,000 $35,000.000 BANK OP THE UNITED STATES. 99 The president of the bank at New York, is ex officio loan officer of the United States, for the state of New York. This bank collects the revenue of the United Spates, and pays the debts of the United States in every commercial city where a branch is established. Its dividends, from the commencement to the present year, (1 830,) inclusive, amount to $70.10, making $24,535,000. Although this institution has been assailed by foes within and foes without, and sustained severe losses, it has continued an undeviating course, shedding light, health, activity, and vigor throughout the body politic. And while it sustains and enlivens the fiscal concerns of the nation, it gives em- ployment to many thousands of persons in its operations constantly bearing on its fore front, in bold relief, this impe- rative language to the powers that be: " Sta per te ipsum, et permitte nos essc solos." The history of this institution is fully detailed, and its prosperous condition clearly manifest, from the following statement, extracted from their own authorized publication. REPORT on the condition of the BANK OF THE UNFTED STATES, by the committee of inspection and investiga- tion ; and afterwards adopted by the stockholders. At a triennial meeting of the stockholders of the Bank of the United States, held by adjournment at their hall in the city of Philadelphia, on Tuesday, the 1st of October, 1822 THOMAS ELLICOTT, Esq., in the Chair, and WILLIAM MEREDITH, Secretary. The following report of the committee of inspection and investigation, appointed agreeably to the resolution of the stockholders, at the meeting held on the 2d of September. 1822, having been adopted, it was " Resolved that the re- port, with its appendix, be published in the public papers : 1UU BANK OF THE UNITED STATi>. and that the president and directors of the Bank ol the United States do also cause the same to he published in pam- phlet form, and that a copy thereof be held at the disposal of each stockholder/' Your committee, to whom was referred an examination of the condition of the bank. Report, That they have carefully considered and diligently investi- gated the subject confided to them. But, before submitting any opinion or statement in detail, as to its actual situation, they beg leave to refer to the luminous exposition of the president, hereto appended, containing a fund of information in rela- tion to the institution in connection with various topics of sound speculation and practical utilit)^ which cannot fail to prove highly interesting to the stockholders and to the pub- lic ; while, at the same time, they illustrate the consoling truth that the most appalling difficulties may be surmounted by the steady application of industry, integrity, and talent. In compliance with the provisions of the 13th article of the llth section of the charter, your committee have ascer- tained that the suspended debts at the bank, and its various branches, are Dolls. Cts. Upon personal and other than stock secu- rities, 6,401,255 90 And upon loans secured by pledges of stock. - 4,017,050 76 Together amounting to 10,418,306 66 Your committee are decidedly of opinion, that the loss to the Bank upon this debt, together with overdrafts, counterfeit checks, and from all other sources, cannot exceed 3,743,899 dollars, a loss arising partly from the peculiar situation of the. BANK OF Till-: LXITED STATE,-. HlJ moneyed relations of the country, but principally from a mis- placed confidence in unworthy agents. But your committee feel gratified in saying, that a fund more than sufficient has been derived from the previous profits of the bank, and spe- cifically pledged, and set apart to meet this loss ; besides which it possesses a surplus of 971,425 dollars 41 cents, arising from a balance which stood to the credit of the profit and loss account on the 1st of July last, from interest which has actually accrued, but which has not yet been paid, upon that portion of the suspended debts which it is confidently believed will be ultimately obtained, and from the advance above par upon 37,954 shares United States Bank stock, held by the bank, estimated as worth four dollars per share above the par value. The preceding facts, with the following analysis, your committee feel assured will render the conviction irresistible, that the Bank of the United States has now arrived at that point when its capital may be declared to be sound and en- tire, while it possesses contingent interests of nearly one mil- lion of dollars, to be applied to such objects as the future ad- ministrators of its affairs may deem advisable. Dolls. Cts. DR. Bank of the United States, to stock- holders, for capital paid in, - 34,992,139 63 The sum paid, but not yet extinguished, for bonus, premium on four millions of 5 per cent, government stock, and for banking- houses, provided for, and to be extinguished by the semi-annual appropriation of 60,000 dollars, 2,015,802 15 Estimate of all the losses of the bank, up to the present period, 3,743,899 00 Balance. - 971,425 41 41,723,266 19 102 BANK OP THE UNITED STATES. CR. Bank of the United States, by capi- tal paid in, - The sum which has been paid on bonus, premium on four millions 5 per cent, govern- ment stock and banking houses, and which will be extinguished by a semi-annual ap- propriation of 60,000 dollars, Value of banking houses which have cost 834,922 dollars 15 cents, but which, at the expiration of the charter, will not then stand on the books of the bank at a value more than - Contingent fund of 3,550,000 dollars, which will be increased by the transfer of 193,899 dollars from the balance of the pro- fit and loss account as it stood on the 1st of July last, to cover the losses sustained, - The balance that will remain of what ap- peared to the credit of the profit and loss account on the 1st of July, after having transferred to contingent fund, 193,899 dol- lars, The interest which has accrued on suspended debts amounting to 1,279,520 54 After deducting interest on that portion which is deemed bad of - 511,808 20 Advance above par on 37,954 shares of stock of the Bank of the United States, which it holds say four dollars,, per share, Dolls. Cts. 34,992,139 63 1,620,000 00 395,802 15 3,743.899 00 51.897 07 767,712 34 151,816 00 41.723.266 19 BANK OF THE UNITED STATES. 103 in addition to the above, the committee deem it proper to exhibit the following brief view of the present actual situa- tion of the funds of the bank, and of their distribution : Dolls. Cls. The capital of the bank paid in is - 34,992,139 63 The circulation of bank notes, amounts to 5,456,891 90 The deposits are, - 6,776,492 74 Unclaimed dividends, 129,741 28 Amount due to sundry banks, in current ac- count, and to individuals in Europe, 1,964,898 36 Fund reserved to cover the losses sustained by the bank, - - 3,743,899 00 Profit and loss account, after having trans- ferred to contingent fund 193,899 dollars, 51,897 07 Interest, discounts, &c., received from 1st of July to September, - 388,237 01 The total amount of funds, are 53,504,196 99 Which are distributed as follows : In United States 5 per cent, stock, - 11,000,000 00 United States 6 percent, stock, 2,020,469 27 Loans on personal security, - - 26,236,150 88 Loans secured by bank stock, 5,974,725 80 Loans secured by mortgage, 8,000 00 Due by state banks, bearing interest, 739,918 76 Real estate taken for debt, part of which is productive, - 587,102 38 Amount due by sundry state banks, &c., in current account, - , 910,950 97 Paid on account of bonus, and premium on 5 per cent, stock, 1,180,880 00 Banking house in Philadelphia, and branches cost 834,922 15 Notes of state banks on hand, 664,642 56 Specie in United States Bank and branches, 3,346,434 22 53,504.196 99 1U4 liANK OF THE UNITED STATES. It might be deemed prudent to abstain from expressing an opinion upon the future prospects of the bank, leaving each individual to draw his own inferences from the facts- exhibited ; yet your committee are unwilling to omit the ex- pression of what they believe to be a well grounded hope, that the profits of the bank, and its public utility will continue to increase with the gradual development of its resources. If the bank has, under the embarrassment and perplexity in which it has been placed, not only sustained its own credit, but that of the circulating medium of the country, with which its interest and prosperity are indissolubly connected, it can scarcely be doubted, that these difficulties being sur- mounted, and a more ample field opened for the exercise of its energies, an increase of profit will result from a correspond- ing extension of its business. And whilst your committee have found it impracticable to view this institution, in any other light, than as an establishment to effect great national objects, they have been compelled to remark that, though these objects have been most fully attained, the institution it- self has not received the support, which it is clearly the interest of the nation to afford. The past history of the bank has proved that, where a sense of moral obligation is wanting, the existing laws are inadequate to deter the agents of the bank from the commis- sion of frauds upon its vaults. Your committee therefore advise that the president and directors present to congress u respectful memorial, praying 1st, The enactment of effi- cacious laws, that adequate punishments may be inflicted upon such agents of the bank as may be guilty of malversa- tion in office. 2dly, That they ask an alteration in that part of the charter which requires that all the notes of the bank which are payable on demand shall be received in pay- ment of debts due to the government, inasmuch as this re- quisition, as heretofore construed, has not only the tendency to prevent the bank from restoring to some sections of the country a sound circulating medium, but it may occur that BANK OF THE UNITED STATES. 105 the bank cannot safely place to the credit of the government, in cash, notes at one office, which, according to the contract on the face of them, are payable at a different and distant office alone, and where only funds have been placed for their redemption. Though your committee are aware, that not only the con- venience of the public but the interest of the institution re- quire an additional emission of its notes, and although they believe, that with a reasonable degree of exertion on the part of the cashier, these may be executed and put in circulation, while the business of the bank is confined to its present limit ; yet they are satisfied that a considerable extension of the or- dinary business of the institution, would render it wholly im- possible for its officers to perform this service : it is therefore respectfully suggested, that congress be prayed also to pass a law, authorizing other agents of the bank to sign its notes, and in the mean time the committee recommend that the best means in the power of the president and directors be taken, to put in circulation a large additional amount of notes, not exceeding the denomination of twenty dollars. Your committee have not discovered that any serious con- sequences have resulted to the interests of the bank (except those which have been followed by a public exposure) from a want of obedience in distant agents ; they nevertheless deem it proper to advise, that the president and directors of the parent bank keep steadily in view the absolute necessity of enforcing its own orders through all the various depart- ments of the institution ; without which, neither harmony can be expected in its administration, nor security to the in- terests of its stockholders. Your committee feel much gratification in being able to state, that the current expenses of the bank have been essen- tially reduced since the year 1819, and while it might be sup- posed that the present embarrassed state of the commerce of the country, and the limited amount of interest heretofore divided upon the capital of the bank, are strong admonitions 14 106 BANK OF THE UNITED STATES. to your agents to observe the most rigid economy ; yet, inas- much as the splendid edifice in which you are assembled, is now so nearly completed, they cannot but recommend that it be finished, provided the expense shall not exceed 25,000 dollars. In taking into view the business of the bank as connected with its different offices, the committee think it right to re- commend to the continued attention of the president and di- rectors the necessity of withdrawing those branches which are found to be unprofitable, and transferring their funds to those offices which shall seem to require additional capital. Your committee take great pleasure in unanimously de- claring that the circumstances of the bank fully realize the anticipations of the stockholders, as expressed at their last meeting, in regard to the president, who, by his talents, dis- interestedness, and assiduity, has placed its affairs in an at- titude so safe and prosperous, as that the burden of duty de- volving upon his successor will be comparatively light. THOS. ELLICOTT, Chairman of the Committee of Inspection and Investigation. Bank of the United States, Oct. 1st, 1822. EXPOSITION. The stockholders generally have never had any view of the progress of the bank submitted to them. At the trien- nial meeting, in 1819, it was my intention to have given them such a view. I was, however, advised that it would be more expedient to reserve the communication for a com- mittee, and my opinion was cheerfully surrendered. But as it is my determination in a few months to quit the station with which you have honored me, and as my silence on a former occasion has kept you, as well as the public, in a great measure ignorant of the difficulties in which I found the bank, and has subjected the administration, of which I have BANK OF THE I'NITKH STAT! LOT been a member, to censures which were unfounded, and which have fallen in many instances from the lips of the very persons who were the authors of the errors and mismanage- ments, to use no harsher language, by which this institution was brought to the verge of bankruptcy and ruin, I will now present to you a short view of the progress and present state of the bank. You will probably raise a committee of inspec- tion and investigation, and as far as any facts or circum- stances which I shall present may be deemed material, their accuracy or error may be ascertained. The institution commenced active banking operations about the 1st of January, 1817, and in the course of that year established eighteen branches, being all that have been established. One was projected at Augusta, but on recon- sideration was abandoned. The report of the committee of congress, made in December, 1818, has made you fully ac- quainted with so many of the leading details of the previous management, and the lapse of time has made them so much less interesting than they would have been at an earlier day, that I mean to do little more, in relation to the period which preceded 1819, than present the results as they will be ex- hibited in the state of the bank when I came into it. The bank, immediately on its commencement, did a very extensive business, imported vast sums of specie, paid its notes and those of the offices, without reference to the places where they were payable, at the bank, and all the principal offices north of the Potomac, while they were, under the charter, necessarily received every where in payment of debts to the government of the United States ; and drafts were given without limit, on the parent bank and northern offices, by the western offices, at par or at a premium merely nominal. As soon as the notes of the southern or western offices were paid or received by the bank and northern offices, they were re- turned to them, and reissued in perpetual succession. An ac- companying exhibit will show the enormous amount of the notes of southern and western offices, which became 108 BANK OF THE UNITED STATES. chargeable on the bank, directly and indirectly, through the northern offices. The result was, that the bank and the great northern offices were drained of their capital ; and on the 20th of July, 1818, only eighteen months after the insti- tution began its operations, it was obliged to commence a rapid and heavy curtailment of the business of the bank and its offices. During all this time it had the advantage of im- mense government deposits. At the moment these curtail- ments were ordered, the government deposits in the bank and its branches, including the deposits of public officers, amounted to eight millions of dollars,* and they had been larger at pre- ceding periods. Curtailments were ordered, from time to time, at the southern and western offices, to the amount of seven millions of dollars, and at the parent bank to the amount of two millions, though at the latter they were made to the amount of $3.600,000, and upwards, between the 30th of July, 1818, and the 1st April, 1819. No curtailments were or- dered at the offices of New York and Boston, because there was no room for them ; yet necessity obliged them to reduce their business very much. The curtailments at all points, within the abovementioned dates,t being eight months, were $6,530,159.49. Yet after these immense and rapid curtail- ments, the most sensible and vital points (Philadelphia, New York, and Boston) were infinitely in worse condition than when the remedy was devised. An accompanying exhibit will show the distribution of capital at the close of this period. At that moment the discount line of the important office at Boston was only $94,584.37. And when in this wretched state, the southern and western circulation was pouring in upon these weak points, and the government at liberty, according to the prac- tice of the time, to draw on either office or the bank for the gross amount of its deposits, throughout the whole establish- * Seethe monthly statements, of the 6th and 30th July, 1818. t I refer to the monthly statements of the 30th July, 1818. and 1st April, 1819. BANK OF THE UNITED STATES. 109 ment, whether south, north, east, or west. The southern and western offices were not restrained from issuing their notes, which they did most profusely. The curtailments, in many instances, resulted merely in a change of debts, bear- ing interest for debts due by local banks, or the notes of local banks, on neither of which was interest received. The western offices curtailed their discounted paper, but they pur- chased what were called race horse bills, to a greater amount than their curtailments. The bank itself continued during the whole period, to purchase and collect drafts on the south- ern, and even western offices, though almost the whole active capital already lay in these quarters of the Union, and though the great object of the curtailments was to draw funds from these points. The debt due in Kentucky and Ohio, instead of being reduced, was within this period actually increased upwards of half a million of dollars. An accompanying ex- hibit will show, that instead of getting relief from the south- ern and western offices generally, where curtailments had been ordered, the bank was still further exhausted by the in- tervening operations. At the commencement of this period, (a period com- mencing with the order for curtailments, and ending March, 1819,) the bank was indebted to Baring, Brothers & Co., Reed, Irving & Co., Adams, Robertson & Co., and Thomas Wilson & Co., the sum of $1,586,345.47, growing princi- pally, if not entirely, out of its specie operations. Of this sum, the greater part was paid during^ this period. It had, however, contracted new debts with Baring, Brothers per cent, loan, and if a little more be necessary, it will soon be supplied from the suspended debt. I think, therefore, if the bank find it necessary to part with a million and a half of this loan, it ought to do it with regret ; but it should on no account part with more. The unextinguished part of the premium of this loan is about 4| per cent., and the last Lon- don quotations are 95 a 96, and the exchange in favor of Lon- don 10 to 10|- per cent. It is obvious, therefore, that at the lowest quotations now or at any other time, of this stock, it would realize the cost, in connection with the rate of ex- change, the rise of which against this country, is supposed to be the principal cause of the depression of this stock. There is one error in relation to this subject which it may be worth explaining. It is supposed by some, that, because the go- vernment of the United States have not been enabled to convert their six per cent, stocks into fives, that a five per cent, stock is deemed undesirable abroad : but the govern- ment has never offered a stock like that which the bank holds in exchange for the sixes. It has offered a stock re- deemable in eight or ten years. The stock held by the bank is not redeemable in less than thirteen years and three months. No stronger proof can be given that the sixes would be exchanged for such a stock, than the fact that it is quoted higher than the average of the six per cents, in the London market. The bank, by a resolution of the 28th day of November. 1816, agreed to remit to the holders of the capital stock of the Bank, residing in Europe, the dividends which should be de- clared thereon, free of expense. This was deemed a very disadvantageous and burthensome engagement on the part of the Bank advice of eminent counsel has been taken, to know whether the bank was bound to continue these remit- tances, and it has been advised that it was not bound longer than it should desire to do so from its own views of expediency ov 126 BANK OF TliE UNITED advantage. It was determined therefore to discontinue this agency except as to those who had made regular requisi- tions, or who should do so by a given day. As to these it was thought better that the bank should make the sacrifice which these remittances required, than incur the suspicion of having misled th > holders of stock who had made the re quisition, perhaps, under the impression, that the regulation was not disadvantageous to the bank, and that it would be permanent ; as to all others there was no pretence of claim. There is one case of 3540 shares which is under considera tion, which the bank has heretofore determined not to be en- titled to this privilege, but the parties have urged a reconside- ration of it. If this be embraced, the number of shares on which the bank has determined to continue remittances will be 15,330 shares. If they be excluded, the number will be 11,790 shares. With these facts, and an inspection of the documents which are referred to, and ready to be exhibited, the stock- holders will be able to form an opinion for themselves, with all the lights and information which I have, or of which the subject is susceptible, of the state of the bank, and may offer their advice and express their opinions accordingly. LANGDON CHEVES, President of the Bank of the United States. "Bank United States, Sept. 25, 1822. ' The committee of inspection and investigation appointed in pursuance of a resolution adopted at the meeting of the stockholders, met agreeably to adjournment. Mr. Cheves continued the proof of his statements, and closed at 12 when, on motion of Mr. Hamilton, the following resolution was unanimously adopted : " Resolved, That, in the opinion of this committee, Mr. Cheves has fully and satisfactorily proved the facts detailed in his statement of the past and present condition of the BANK OF THE UNITED STATES. bank, submitted by him to the stockholders, on the 2d Sep- tember, and now in the possession of this committee." I do hereby certify that the above is a correct extract from the minutes of the committee of stockholders of the bank of the United States, signed by the chairman and secretary, and deposited in this bank for safe keeping. J. ANDREWS, Assistant Cashier. Bank United States, October 17, 1822. M^DUFFIE'S REPORT. House of Representatives, April 13, 1830. Mr. M'Duffie, from the Committee of Ways and Means, to which the subject had been referred, made the following REPORT : The Committee of Ways and Means, to whom was re- ferred so much of the message of the president as re- lates to the Bank of the United States, beg leave to rr port : That they have bestowed upon the subject all the atten- tion demanded by its intrinsic importance, and now respect- fully submit the result of their deliberations to the considera- tion of the house. There are few subjects, having reference to the policy of an established government, so vitally connected with the health of the body politic, or in which the pecuniary interests of society are so extensively and deeply involved. No one of the attributes of sovereignty carries with it a more solemn responsibility, or calls in requisition a higher degree of wisdom, than the power of regulating the common cur- rency, and thus fixing the general standard of value for a great commercial community, composed of confederated 17 130 BANK OF THE UNITED STATE*?. Such being, in the opinion of the committee, the high and delicate trust exclusively committed to congress by the con- stitution, they have proceeded to discharge the duty assigned to them with a corresponding sense of its magnitude and difficulty. The most simple and obvious analysis of the subject, as it is presented by the message of the president, exhibits the following questions for the decision of the national legislature : 1. Has congress the constitutional power to incorporate a bank, such as that of the United States 1- 2. Is it expedient to establish and maintain such an insti- tution 1 3. Is it expedient to establish a " national bank, founded upon the credit of the government and its revenues ?" I. If the concurrence of all the departments of the govern- ment, at different periods of our history, under every admi- nistration, and during the ascendancy of both the great po- litical parties into which the country was divided, soon after the adoption of the present constitution, shall be regarded as having the authority ascribed to such sanctions by the com- mon consent of all well regulated communities, the consti- tutional power of congress to incorporate a bank, may be as- sumed as a postulate no longer open to controversy. In a little more than two years after the government went into operation, and at a period when most of the distinguished members of the federal convention were either in the executive or legislative councils, the act incorporating the first bank of the United States passed both branches of congress, by large majorities, and received the deliberate sanction of Pre- sident Washington, who had then recently presided over the deliberations of the convention. The constitutional power of congress to pass the act of incorporation was thoroughly in- vestigated, both in the executive cabinet and in congress, under circumstances in all respects propitious to a dispas- sionate decision. There was at that time no organization of political parties, and the question was, therefore, decided .by I'.ANK OP THE UNITED STAT i 131 iliose who, from their knowledge and experience, were pecu- liarly qualified to decide correctly; and who were entirely free from the influence of that party excitement and prejudice which would justly impair, in the estimation of posterity, the authority of a legislative interpretation of the constitutional charter. No persons can he more competent to give a just construction to the constitution, than those who had a prin- cipal agency in framing it ; and no administration can claim a more perfect exemption from all those influences which sometimes pervert the judgments even of the most wise and patriotic, than that of the father of his country, during the firs! term of his service. Such were the circumstances under which all the branches of the national legislature solemnly determined that the power of creating a national bank was vested in congress, by the con- stitution. The bank, thus created, continued its operations for twenty years the period for which its charter was granted during which time, public and private credit were raised from a prostrate to a very elevated condition, and the finances of the nation were placed upon the most solid foundation. When the charter expired in 1811, congress refused to renew it, principally owing, as the committe believe, to the then existing state of political parties. Soon after the bank was chartered, the two great parties that have since divided the country began to assume an organized existence. Mr. Jefferson and Mr. Madison, the former in the executive ca- binet, and the latter in congress, had been opposed to the establishment of the bank, on constitutional grounds, and being placed at the head of the party most favorable to the extension of the powers of the government, by implication, the bank question came to be regarded as, in some degree, the test of political principle. When Mr. Jefferson came into power upon the strong tide of a great political revolution, the odium of the alien and se- dition laws, was, in part, communicated to the Bank of the United States ; and although he gave his official sane tion to an net creating a new branch of that institution at BANK OF THE UNITED STATES. New Orleans, and to another to punish the counterfeiting of its bills, yet when the question of renewing the charter came before congress, it was discussed as a party question. And though some of the most distinguished republicans, including Mr. Gallatin, then secretary of the treasury, and Mr. Craw- ford, then a member of the senate, were decidedly in favor of the renewal, sustaining the measure by able arguments, the votes in both branches of congress were distinctly marked as party votes. At no time, since the commencement of the government, has there existed a more violent party excite- ment, than that which marked the period under review. It was the period of the embargo, non-intercourse, and other commercial restrictions ; when the undiscriminating opposi- tion of the leaders of the federal party to the measures adopted by the administration, to vindicate our rights against British aggression, had caused the great majority of the American people to view these leaders as the apologists of a nation, already regarded in the light of a public enemy. When to these circumstances we add, that the stock of the bank was principally held by British subjects, and Americans of the un- popular party, the house will readily perceive how great were the national and party prejudices, which must have been ar- rayed against the proposition to renew its charter. It was stated by Mr. Clay, in a speech delivered in the senate, that seven-tenths of the stock belonged to British subjects, and that certain English noblemen, and a late lord chancellor, were among the very largest of the stockholders. With all these difficulties to encounter, the proposition for renewing the charter was lost only by the casting vote of the president of I lie senate, and by a majority of a single vote in the house of representatives . In less than three years after the expiration of the charter the war with Great Britain having taken place in the mean time the circulating medium became so disordered, the pub- lic finances so deranged, and the public credit so impaired, vhat the enlightened patriot. Mr. Dallas, who then presided UAA'K STAJ . 14 1 J ionsj which have a decided interest to abuse their power. By a course of liberal discounts and excessive issues for a few years, followed by a sudden calling in of their debts, and contraction of their issues, they would have the power of transferring the property of their debtors to themselves, almost without limit. Debts contracted when their discounts were liberal, and the currency of course depreciated, would be col- lected when their discounts were almost suspended, and the currency of course unnaturally appreciated ; and in this way the property of the community might pass under the ham- mer, from its rightful owners to the banks, for less than one half its intrinsic value. If the committee have not greatly mistaken the matter, there is more of history than of specu- lation in what they have here presented to the consideration of the house. It is impossible to form any thing like an accurate estimate of the injuries and losses sustained by the community, in various ways, by the disorders and fluctuations of the cur- rency, in the period which intervened between the expiration of the old bank charter, and the establishment of the present bank. But some tolerable notion may be formed of the losses sustained by the government, in its fiscal operations, during the war. The committee have given this part of the subject an at- tentive and careful examination, and they cannot estimate the pecuniary losses of the government, sustained exclusively for the want of a sound currency and an efficient system of finance, at a sum less than forty-six millions of dollars. If they shah 1 make this apparent, the house will have something like a standard for estimating the individual losses of the community. The government borrowed, during the short period of the war, eighty millions of dollars, at an average discount of fifteen per cent., giving certificates of stock, amounting to eighty millions of dollars, in exchange for sixty-eight millions 150 BANK OF THE UNITED STATES. of dollars, in such bank paper as could be obtained. In this statement, treasury notes are considered as stock, at twenty per cent, discount. Upon the very face of the transaction, therefore, there was a loss of twelve millions of dollars, which would in all probability have been saved, if the treasury had been aided by such an institution as the Bank of the United States. But the sum of sixty-eight millions of dollars, re- ceived by the government, was in a depreciated currency, not more than half as valuable as that in which the stock given in exchange for it has been and will be redeemed. Here, then, is another loss of thirty-four millions, resulting, incon- testibly and exclusively, from the depreciation of the cur- rency, and making, with the sum lost by the discount, forty- six millions of dollars. While, then, the government sus- tained this great pecuniary loss in less than three years of war, amounting annually to more than the current expenses of the government in time of peace, it is worth while to in- quire, who were the persons who profited to this enormous amount, by the derangement of the currency ? It will be found that the whole benefit of this speculation upon the ne- cessities of the government, was realized by stockjobbers and money brokers, the very same class of persons who profited so largely by the business of commercial exchanges, in con- sequence of the disorders of the currency, and who have the same interest in the recurrence of those disorders, as lawyers have in litigation, or physicians in the diseases of the human frame. Having presented these general views of the evils which existed previous to the establishment of the Bank of the United States, it remains for the committee to inquire how far this institution has effected a remedy of those evils. The first great question which arises under this branch of the inquiry is, whether or no the bank has corrected the dis- orders of the circulating medium, by providing a paper cur- rency, convertible into specie at the pleasure of the holder, nnd of equal value with specie at all points of the Union ? SANK OF THE UNITED STATES. 151 The chief magistrate, in that part of his first message which relates to the Bank of the United States, expresses the opinion, that " it has failed in the great end of establishing a uniform and sound currency." After giving to this opinion all the consideration to which it is so justly entitled, from the eminent station and high character of the citizen by whom it is entertained, the committee are constrained to express their respectful but decided dissent from it. It is true, that the bank does not, in all cases, redeem the bills issued by any- one of its branches, indiscriminately at all the other branches : and it is in reference to this fact, as the committee presume, that the president expresses the opinion that the institution has failed to establish "a uniform and sound currency." It is confidently believed, that no one of the persons who were principally instrumental in establishing the bank, ever entertained an idea that it would attempt to redeem its bills at any of its offices, other than those by which they should be respectively issued. The charter certainly contains no such requirement, and it would have been highly inexpedient if it had, to say nothing of its obvious injustice. The inevitable effect of such a requirement, would have been to compel the bank to perform the whole of the commercial exchanges of the country, without any compensation. It would not be more unjust to require a rail road company to transport all the productions of the country without compensation. No institution could stand such an operation ; and it was the in- judicious attempt of the first direction of the bank to do it, that principally contributed to the embarrassments of 1819. A committee was appointed by the house of representatives, in that year, to investigate the management of the bank ; and in the report of that committee, as well as in the discussions to which it gave rise in the house, this attempt of the direc- tion to redeem the bills of the institution, indiscriminately, at all its branches, was indicated as one of the causes of the existing embarrassment. No one who participated in the de- bate, pretended to alledge that the bank was bound to redeem BANK OF THE UNITED STATES. its bills indiscriminately, or that it was expedient that it should do so. The most that any one did. was to apologize for the unwise attempt. But it yet remains for the committee to show that this in- discriminate redeem ability of the bills of all the branches of the bank, is not necessary to " the establishment of a uni- form and sound currency." Human wisdom has never effected, in any other country, a nearer approach to uniformity in the currency, than that which is made by the use of the precious metals. If, there- fore, it can be shown that the bills of the United States Bank are of equal value with silver at all points of the Union, it would seem that the proposition is clearly made out, that the bank has accomplished " the great end of establishing a uniform and sound currency." It is not denied that the bills of the mother bank, and of all its branches, are invariabl}" and promptly redeemed in specie, whenever presented at the offices by which they have been respectively issued, and at which, upon their face, they purport to be payable. Nor is it denied that the bills of the bank, and of all the branches, are equal to specie in their respective spheres of circulation. Bills, for example, issued by the mother bank, are admitted to be equal to silver in Pennsylvania, and all those parts of the ad- jacent states of which Philadelphia is the market. But it is contended that these bills, not being redeemable at Charles- ton and New Orleans, are not of equal value with silver to the merchant who wishes to purchase cotton with them, in those cities. Now, if the Philadelphia merchant had silver, instead of bank bills, he certainly could not effect his pur- chases with it in Charleston or New Orleans, without having the silver conveyed to those places ; and it is equally certain that he could not have it conveyed there, without paying for its transportation and insurance. These expenses constitute the natural rate of exchange between those cities, and indi- cate the exact sum which the merchant would give as a pre- mium for ti bill of exchange, to avoid the trouble and delay BANK OF THE UNITED STATES. 153 of transporting his specie. It is obvious, therefore, that even for these distant operations of commerce, silver would be no more valuable than the bills of the bank : for these would purchase a bill of exchange on either of the cities mentioned, precisely as well as silver. If the operation should be re- versed, and the planter of Louisiana or South Carolina should desire to place his funds in Philadelphia, with a view to pur- chase merchandise, he would find the bills of the branch bank in either of those states, entirely equivalent to silver in effecting his object. Even, therefore, if the bank had riot reduced the rate of the exchanges, it might be safely asserted, that its bills would be of equal value with silver at every point in the Union, and for every purpose, whether local or general. But it is impossible to exhibit any thing like a just view of the beneficial operations of the bank, without adverting to the great reduction it has effected, and the steadiness it has superinduced, in the rate of the commercial exchanges of the country. Though this branch of the business of the bank has been the subject of more complaint, perhaps, than any other, the committee have no hesitation in saying, it has been productive of the most signal benefits to the community } and deserves the highest commendation. It has been already stated that it has saved the community from the immense losses resulting from a high and fluctuating state of the ex- changes. It now remains to show its effect in equalizing the currency. In this respect it has been productive of re- sults more salutary than were anticipated by the most san- guine advocates of the policy of establishing the bank. It has actually furnished a circulating medium more uniform than specie. This proposition is susceptible of the clearest demonstration. If the whole circulating medium were spe- cie, a planter of Louisiana, who should desire to purchase merchandise in Philadelphia, would be obliged to pay one per cent, either for a bill of exchange on this latter place, or for the transportation and insurance of his specie. His specie at 20 154 BANK OF THE UNITED STATES. New Orleans, where he he had no present use for it, would be worth one per cent, less to him than it would be in Phila- delphia, where he had a demand for it. But, by the aid of the Bank of the United States, one half of the expense of transporting specie is now saved to him. The bank, for one half of one per cent, will give him a draft upon the mother bank at Philadelphia, with which he can draw either the bills of that bank, or specie, at his pleasure. In like manner, the bank and its branches will give drafts from any point of the Union to any other where offices exist, at a per centage greatly less than it would cost to transport specie, and in many instances at par. If the merchant or planter, however, does not choose to purchase a draft from the bank, but prefers transmitting the bills of the office where he resides to any distant point, for commercial purposes, although these bills are not strictly redeemable at the point to which they are transmitted, yet, as they are receivable in payment of all dues to the government, persons will be generally found willing to take them at par ; and if they should not, the bank will receive them frequently at par, and always at a discount mueh less than would pay the expense of transporting specie. The fact that the bills of the bank and its branches are in- discriminately receivable at the custom houses and land offices, in payment of duties, and for the public lands, has an effect in giving uniformity to the value of these bills, which merits a more full and distinct explanation. For all the purposes of the revenue, it gives to the national currency that perfect uniformity, that ideal perfection, to which a currency of gold and silver, in so extensive a coun- try, could have no pretensions. A bill issued at Missouri is of equal value with specie at Boston, in payment of duties ; and the same is true of all other places, however distant, where the bank issues bills, and the government collects its revenue. When it is, moreover, considered, that the bank performs with the most scrupulous punctuality, the stipula- tion to transfer the funds of the government to any point BANK OP THE UNITED STATER. 155 where they may be wanted, free of expense, it must be ap- parent that the committee are correct, to the very letter, in stating that the bank has furnished, both to the government and to the people, a currency of absolutely uniform value in all places^ for all the purposes of paying the public contributions, and disbursing" the public revenue. And, when it is recollected, that the government annually collects and disburses more than twenty-three millions of dollars, those who are at all familiar with the subject will at once perceive, that bills, which are of absolutely uniform value for this vast operation, must be very nearly so for all the pur- poses of general commerce. Upon the whole, then, it may be confidently asserted, that no country in the world has a circulating medium of greater uniformity than the United States ; and that no country of any thing like the same geographical extent, has a currency at all comparable to that of the United States on the score of uniformity. The committee have seen the statement of an intelligent traveller, who has visited almost every part of Europe, exhibiting the great variations of the currency in different parts of the same empire or kingdom. In Russia, the bills of the bank of St. Petersburg!! have a very limited circulation. At Riga, and throughout Courland, Livournia, and all the southern parts of the empire, the currency is ex- clusively of silver coins. In Denmark, the notes of the Bank of Copenhagen are current only in Zealand, the other islands, and Jutland, but will not pass at all in Sieswic and Holstein, which constitute the best portion of the kingdom. Since the congress of Vienna, Germany is divided into thirty -nine separate states, each having a distinct currency, though re- presented in the Diet at Frankfort. Out of the territory in which these several currencies are issued, they are mere arti- cles of merchandise; which circumstance has given rise in every town to a numerous and distinct class of tradesmen, called money changers. How far these separate and uncon- nected currencies have a tendency to embarrass commerce, BANK OF THE UNITED STATES. may be inferred from the fact, that a traveller going from St. Petersburgh to Calais will lose, upon the unavoidable changes of money, an average of six per cent. In France, the bills of the bank are of such large denominations as to be adapted only to the greater operations of commerce, and are princi- pally confined to the bankers and extensive traders in Paris. The general currency is silver ; and to avoid the trouble of carrying this to distant parts of the kingdom, gold pieces, or bills of exchange, which are preferable, are purchased at a premium of from one and a half to four per cent. After this brief review of the currencies of Eiirope, the committee will barely state, as a conclusive vindication of our currency from the imputation of unsoundness, that there is no point in the Union, at which a bill of the United States Bank, issued at the opposite extremity of the country, is at a discount of more than one fourth of one per cent. In confirmation of the views here presented, as to the com- parative uniformity of the currency furnished by the bank, and, also, as to the obligation of the bank to redeem its bills indiscriminately at all the offices, the committee will present a few brief extracts from the speech of a statesman, whose opinions have every title to authority on these important sub- jects. Mr. Lowndes, in discussing the question how far the bank had performed the great duty for which it was created, used the following decided language in 1819, when the cur- rency had not reached the point of uniformity it has now attained, by one half of one per cent. " The great object of the government in chartering the bank, was to provide a currency which should have that de- gree of stability and uniformity in its value, which is required by the interests both of our commerce and revenue. A cur- rency, equally valuable at every place and every time, cannot be provided by human wisdom. The nearest approach to this object has been generally supposed to be afforded by the employment of gold and silver, as the measures of value. The 14th congress did not aim at ideal perfection ; they BANK OF THK I'MTKh STATES. !"" wished to combine with the conveniences of bank circulation a uniformity of value equal to that which was possessed by the precious metals ; and the means which they employed to secure this uniformity were simple and effectual, by enjoin- ing, under a heavy penalty, the payment of all its notes in coin, upon demand. In the report, indeed, the notes of the national bank are said to be now ' on the same footing with those of local banks.' Of the footing on which local bank notes stood, he should speak hereafter : but the price current upon his table informed him, that the greatest discount on branch notes on the United States, was three fourths of one per cent. This was a value much more uniform than that which coin could be expected to have in so extensive a country. He had been lately looking into a book on political economy, which had been published here, with high, and, in respect to its clearness and precision, with just commendations the work of Mr. Tracy. " He inferred from one of his chapters, that the difference of exchange between Marseilles and Paris was often from two to three per cent. If, with all the facilities afforded by the in- ternal improvements in which France is so rich, with a cur- rency consisting almost exclusively of gold and silver, the variation in the value of money is three times greater in her territory than on our continent, can it be said, that in this respect, the bank has not fulfilled the objects of its institution? Before its establishment, the value of bank notes, even in the commercial states, had varied twenty per cent, from each other ; and, as none of them bore a fixed proportion to the precious metals, or to any natural standard, it was impossible to assign any limit to their depreciation. You have required that the currency furnished by the national bank should be every where convertible into silver, and it is so. You have expected that it should be as uniform as coin, and it is more so. He would not detain the committee by reading a paper, which he had prepared with that intention, containing the state of exchange, since the establishment of the bank, with 158 BANK OP THE UNITED STATKS. England, France, and Holland, for he found himself occupy- ing much more of their time than he had expected. But he believed that any member, who should turn his attention to the subject, would remark its steadiness during that period. He thought himself justified in drawing from this fact a con- clusion highly favorable to the bank." In reference to the great depreciation of the paper of the local banks, previous to the establishment of that of the United States, he said : " Did the interests or duty of the government of the United States permit that this currency should be received by it? Some dissatisfaction was expressed because the branch notes of the United States Bank were at a discount of three fourths of one per cent. He read from a price current the state of the market for bank notes, by which it appeared that notes, which were insisted to be in very good credit, varied from a discount of two and a half, to one of seven, fifteen, twenty-five, and even thirty per cent. Was our revenue to be received in these notes ? How were they to be employed ? They might be expended in the district in which they were issued. But was the expenditure of every district to be exactly limited to its revenue ? What became of the Union if it were so ? He spoke of the thing, and not the name. Our Union might dissolve in imbecility, as well as be destroyed by violence. Did not union imply, that the resources of one state, its money as well as its men, might be employed for the defense of another ? " But, if the government were willing to bear the loss of a depreciated and unequal currency, it must neglect the plainest principle of the constitution in doing so equality of taxation. The committee must * well remember, that, before the esta- blishment of the national bank, such was the unequal value of currency in the different states, that the merchants paid duties varying fifteen per cent from each other, on the same articles.' " BANK OF THE UNITED STATES. 159 On the question whether the.bank was bound to redeem, indiscriminately, the bills of all its branches, he said : " He should not argue that the bank was not bound to pay its notes, indiscriminately, at all its offices. He believed that nobody now contended that it was." " It was no unfair account of the practical operation of the sys- tem of which he was speaking, to say, that it gave to the branches where the exchange was unfavorable, the entire disposition of the specie of those branches where the ex- change was favorable. Upwards of six millions of specie have been sent to the branch of New York, besides the amount which has been paid by the subscribers of the bank there ; but, in issuing notes which the bank of New York has been obliged to redeem, every branch throughout the country has drawn upon a fund, with whose condition, at the time, he could not be acquainted." * " Such a system might be expected to produce inconvenient changes in the distribution of bank capital, an extreme facility of ob- taining loans at one time, and unexpected contractions of dis- count at another." * * * " Whenever the state of exchange is unfavorable, whenever the just principles of banking require a reduction of discounts, then, under this system of indiscriminate payment of its notes, the bank has nothing to fear from a draft of specie, and is encouraged to lend to every applicant. Wherever the exchange is favorable, and on the sound principles of banking, an enlarged accom- modation might be given to the community there the flow of notes from every state whose exchange is unfavorable, contracts or suspends all the operations of the bank. Thus, wherever discounts should be enlarged, the tendency of this system is to reduce them, and to enlarge them wherever they should be reduced." Independently of the gross injustice of requiring the bank to perform all the exchanges of this extensive confederacy without any compensation, these enlightened views show most conclusively its inexpediency and injustice, as it regards 160 BANK OF THE UNITED STATES. the different sections of the Union. It would inevitably ren- der those parts of the Union where the bank issues were pru- dent and moderate, tributary to those where the issues were injudicious and excessive. Tn this way, the very inequality in the currency, which the bank was designed to correct, would be perpetuated by the vain attempt to make it perform impossibilities. The power of annihilating space, of trans- porting money or any other article to the most distant points , without the loss of time or the application of labor, belongs to no human institution. But the salutary agency of the Bank of the United States, in furnishing a sound and uniform currency, is not confined to that portion of the currency which consists of its own bills. One of the most important purposes which the bank was de- signed to accomplish, and which, it is confidently believed, no other human agency could have effected, under our federa- tive system of government, was the enforcement of specie payments on the part of numerous local banks, deriving their charters from the several states, and whose paper, irre- deemable in specie, and illimitable in its quantity, constituted the almost entire currency of the country. Amidst a com- bination of the greatest difficulties, the bank has almost com- pletely succeeded in the performance of this arduous, delicate, and painful duty. With exceptions, too inconsiderable to merit notice, all the state banks in the Union have resumed specie payments. Their bills, in the respective spheres of their circulation, are of equal value with gold and silver ; while, for all the operations of commerce, beyond that sphere, the bills or checks of the Bank of the United States are even more valuable than specie. And even in the very few in- stances in which the paper of state banks is depreciated, those banks are winding up their concerns ; and it may be safely said, that no citizen of the Union is under the neces- sity of taking depreciated paper, because a sound currency cannot be obtained. North Carolina is believed to be the only state where paper of the local banks is irredeemable in BANK OF THE UNITED STATE*. 101 specie, and consequently depreciated. Even there, the de- preciation is only one or two per cent., and what is more im- portant, the paper of the Bank of the United States can be obtained by all those who desire it, and have an equivalent to give for it. The committee are aware, that the opinion is entertained by some, that the local banks would, at some time or other, either voluntarily or by the coercion of the state legislatures, have resumed specie payments. In the very nature of things this would seem to be an impossibility. It must be remembered that no banks ever made such large dividends as were realized by the local institutions, during the suspension of specie payments. A rich and abundant harvest of profit was opened to them, which the resumption of specie payments must inevitably blast. While permitted to give their own notes, bearing no interest, and not redeem- able in specie, in exchange for better notes bearing interest, it is obvious, that the more paper they issued, the higher would be their profits. The most powerful motive that can operate upon moneyed corporations would have existed, to prevent the state banks from putting an end to the very state of things, from which their excessive profits proceeded. Their very nature must have been changed, therefore, before they could have been induced to co-operate, voluntarily, in the restora- tion of the currency. It is quite as improbable that the state legislatures would have compelled the banks to do their duty. It has already been stated that the tendency of a depreciated currency to attract importations to the points of greatest de- preciation, and to lighten the relative burdens of federal tax- ation, would naturally produce, among the states, a rivalry in the business of excessive bank issues. But there remains to be stated a cause, of more general operation, which would have prevented the interposition of the state legislatures to correct those issues. The banks were, directly and indirectly, the creditors of the whole community, and the resumption of specie pay ments necessarily involved a general cui-taihuont ot'disn.uiiN. 162 BANK OF THE UNITED STATES. *? and withdrawal of credit, which would produce a general and distressing pressure upon the entire class of debtors. These constituted the largest portion of the population of all the states where specie payments were suspended, and bank issues excessive. Those, therefore, who controlled public opinion in the states where the depreciation of the local pa- per was greatest, were interested in the perpetuation of the evil. Deep and deleterious, therefore, as the disease evidently was in many of the states, their legislatures could not have been expected to apply a remedy, so painful as the compulsion of specie payments would have been, without the aid of the Bank of the United States. And here it is wor- thy of special remark, that, while that bank has compelled the local banks to resume specie payments, it has most mate- rially contributed, by its direct aid and liberal arrangements, to enable them to do so, and that with the least possible em- barrassment to themselves, and distress to the community. If the state legislatures had been ever so anxious to compel the banks to resume specie payments, and the banks ever so wil- ling to make the effort, the committee are decidedly of the opinion that they could not have done it, unaided by the bank of the United States, without producing a degree of distress incomparably greater than has been actually expe- rienced. They will conclude their remarks on this branch of the subject by the obvious reflection, that if congress, at the close of the war, had left it to the states to restore the disor- dered currency, this important function of sovereignty would have been left with those from whom the constitution has ex- pressly taken it, and by whom it could not be beneficially or effectually exercised. But another idea, of considerable plau- sibility, is not without its advocates. It is said that this go- vernment, by making the resumption and continuance of specie payments the condition upon which the state banks should receive the government deposits, might have restored the currency to a state of uniformity. Without stopping to their reasons for believing that specie payments could not B A N K uP T H K i; N IT E D ST AT 1 I * ' > have been restored in this way, and that, even if they could, a uniform currency of general credit, throughout the Union ; would not have been provided, the committee will proceed to give their reasons for thinking that such a connection between the federal government and the state banks would be exceed- ingly dangerous to the purity of both. While there is a national bank, bound by its charter to perform certain stipu- lated duties, and entitled to receive the government deposits as a compensation fixed by the law creating the charter, and only to be forfeited by the failure to perform those duties, there is nothing in the connection at all inconsistent with the in- dependence of the bank, and the purity of the government. The country has a deep interest that the bank should main- tain specie payments, and the government an additional in- terest that it should keep the public funds safely, and transfer them, free of expense, wherever they may be wanted. The government, therefore, has no power over the bank, but the salutary power of enforcing a compliance with the terms of its charter. Every thing is fixed by the law, and nothing- left to arbitrary discretion. It is true, that the secretary of the treasury, with the sanction of congress, would have the power to prevent the bank from using its power unjustly and oppressively, and to punish any attempt, on the part of the directors, to bring the pecuniary influence of the institution to bear upon the politics of the country, by withdrawing the government deposits from the offending branches. But this power would not be lightly exercised by the treasury, as its exercise would necessarily be subject to be reviewed by con- gress. It is, in its nature, a salutary corrective, creating no undue dependence on the part of the bank. But the state of things would be widely different, if there was no national bank, and it was left to the discretion of the secretary of the treasury to select the local banks in which the government deposits should be made. All the state banks would, in that case be competitors for the favors of the treasury : and no one, who will duly consider the nature of J3AAK OF THE UNITED STATi>, this sort of patronage, can fail to perceive, that, in the hands of an ambitious man, not possessed of perfect purity and un- bending integrity, it would be imminently dangerous to the public liberty. The state banks would enter the lists of po- litical controversy, with a view to obtain this patronage : and very little sagacity is required to foresee, that, if there should ever happen to be an administration disposed to use its patronage to perpetuate its power, the public funds would be put in jeopardy by being deposited in banks unworthy of confidence, and the most extensive corruption brought to bear upon the elections throughout the Union. A state of things more adverse to the government a power more liable to be abused can scarcely be imagined. If five millions of dol- lars were annually placed in the hands of the secretary of the treasury, to be distributed at his discretion, for the purposes of internal improvement, it would not invest him with a more dangerous and corrupting power. In connection with this branch of the subject, the commit- tee will briefly examine the grounds of complaint, some- i imes made against the Bank of the United States. It is alledged that this bank, avails itself of the government de- posits, consisting in some places principally of local paper, makes heavy and oppressive drafts on the local banks for specie, and thus compels them to curtail their discounts, to the great injury of the community. In the first place it is to be remarked, that one of the highest duties of the bank the great object for which it was established was to prevent the excessive issues of local paper ; and this duty can only be performed, by enforcing upon the state banks the pay- ment of specie for any excess in their issues. But the com- mittee are induced to believe, that this complaint is principally owing, so far as it now exists, to the fact, that the operations of the federal treasury are mistaken for the operations of the bank, because the bank is the agent by whom those opera- lions are performed. This institution receives the govern- ment deposit? in the paper of the local banks, certainly in no BANK OF THE UNITED JSTATi 165 spirit of hostility to those banks. On the contrary, it tends to give them credit, and is designed to have that effect. But the Bank of the United States is not only bound to pay in specie, or its own bills, what it receives for the government, in local paper, but to transfer the funds to any part of the Union, where they may be required for disbursement. Let it be as- sumed, that the government collects annually, at the custom house in Charleston, one million of dollars in local bank notes, and disburses in South Carolina only one hundred thousand, it would result from this, that the government would have nine hundred thousand dollars of local bank paper deposited in the Charleston branch, which the bank would be bound by its charter, and for the national benefit, to transfer perhaps to Washington or Norfolk. As this pa- per would not answer the purpose of the government at those places, the bank would be, of course, compelled to provide specie, or bills that will command specie at those places. It is obvious, then, that it is the inequality in the collection and disbursement of the revenue, that produces the evil in ques- tion, tf ail the revenue collected in Charleston were dis- bursed in the state, no drafts would be made upon the local banks for specie. The Bank of the United States, so far from being justly obnoxious to any complaint on this score, has greatly mitigated the action of the treasury upon the lo- cal banks, by means of the liberal arrangements which its large capital and numerous branches have enabled it to make with them. The degree in which that institution has re- duced the rate of exchange, may be fairly assumed as that, in which it has mitigated the action of the treasury upon the state banks. If, for example, there existed no national bank, and the deposits of the revenue collected in Charleston were made in one of the local banks, what would be the effect of transferring, annually, nine hundred thousand dollars to Washington and Norfolk? The local banks, having no branches at either of those places, instead of transmitting drafts. ,is is now generally done, would be compelled to trans- 166 BANK OF THE UNITED STATES. mit specie. The bank in which the government deposits were made, would consequently be under the necessity of de- manding specie from all the other banks, in a manner, and to an extent, much more oppressive than any tiling that can be imputed to the Bank of the United States. If, to avoid these specie drafts, the local banks should purchase bills on Wash- ington or Norfolk, they would probably cost five or six per cent, even in a tolerable state of the currency, which would be a loss to the banks almost to the full extent of the pre- mium. Although the expediency of renewing the charter of the present bank is not a question now submitted for the de- cision of congress, the committee consider it so far involved in the matter referred to them, as to render it their duty to present some considerations bearing on that question, in ad- dition to what they have said en the general expediency of maintaining such an institution. If a national bank, simi- lar to the presnt, be a necessary and proper agent for the accomplishment of the great purposes heretofore indicated, the only remaining question would seem to be, whether the charter of the present stockholders should be renewed, or a new set of stockholders incorporated. In considering this question, congress will of course be governed, in some degree, by the terms on which the present stockholders will agree to accept a renewal of their charter. But, as the committee have satisfactory reasons for believing that terms eminently advantageous to the government can be obtained, they will proceed to some other inquiries. What then would be the effect of refusing to renew the present charter? And, in the first place, what are the inducements for pursuing that course ? It is sometimes alledged that the present stockholders are large capitalists, and, as the stock of the bank is some twenty per cent, above par, that a renewal of the charter would be equi- valent to a grant to them of twenty per cent, upon their capital. It is true, that a small proportion of the capital of the com HANK OF THE UNITED STATEfc. U)< pany belongs to very wealthy men. Something more than two millions of that owned in the United States belongs to persons holding upwards of one hundred thousand dollars each. It is also true that foreigners own seven millions, or one- fifthof the capital. But, on the other hand, it is to be remarked that the government, in trust for the people of the United States, holds seven millions ; and that persons owning less than five thousand dollars each, hold four millions six hun- dred and eighty-two thousand ; and that persons owning be- tween five and ten thousand dollars each, hold upwards of three millions. It is also worthy of remark, that a very con- siderable portion of the stock very nearly six millions is held by trustees and guardians, for the use of females and or- phan children, and charitable and other institutions. Of the twenty-eight millions of the stock which is owned by in- dividuals, only three millions four hundred and fifty-three thousand is now held by the original subscribers. All the rest has been purchased at the market prices a large portion of it probably when those prices were higher than at pre- sent. Most of the investments made by wills, and deeds, and decrees in equity for the use of females and minors, are be- lieved to have been made when the stock was greatly above par. From this brief analysis, it will appear that there is nothing in the character or situation of the stockholders, Avhich should make it desirable to deprive them of the advan- tage which they have fairly gained, by an application of their capital to purposes highly beneficial, as the committee have attempted to show to the government and people of the United States. If foreigners own seven millions of the stock of the bank, our own government owns as much ; if wealthy men own more than two millions, men in moderate circum- stances own between seven and eight millions ; and widows, orphans, and institutions devoted to charitable and other pur- poses, own nearly six millions. But the objection that the stock is owned by men of large capital would apply with equal, if not greater force, to am 168 BANK OF THE UNITED STATES. bank that could be organized. In the very nature of things, men who have large surplus capitals are the principal subscri- bers at the first organization of a bank. Farmers and planters, merchants and manufacturers, having an active em- ployment for their capitals, do not choose to be the first ad- venturers in a bank project. Accordingly, when the present bank went into operation, it is believed that most of the capi- tal was owned by large capitalists, and under a much more unequal distribution than exists at present. The large amount of stock now held in trust for females and minors, has been principally, if not entirely, purchased since the bank went into operation ; and the same remark is generally applicable to that stock in the hands of small holders. It is only when the character of a bank is fully established, and when its stock assumes a steady value, that these descrip- tions of persons make investments in it. It is morally certain, therefore, that, if another distinct in- stitution were created, on the expiration of the present char- ter, there would be a much greater portion of its capital sub- scribed by men of large fortunes, than is now owned by per- sons of this description, of the stock of the United States Bank. Indeed, it might be confidently predicted, that the large capitalists who now hold stock in that bank, would, from their local position, and other advantages, be the first to forestall the subscriptions to the new bank, while the small stockholders scattered over the country, would be probably excluded, and the females and minors, and others interested in trust investments made by decrees in equity, would be almost necessarily excluded, as the sanction of a court could scarcely be obtained, after the passage of the new act of in- corporation, in time to authorize a subscription. To destroy the existing bank, therefore, after it has rendered such signal services to the country, merely with a view to in- corporate another, would be an act rather of cruelty and caprice, than of justice and wisdom, as it regards the present stockholders. It is no light matter to depreciate the property BANK OP THE UNITED STATES. 169 of individuals, honestly obtained, and usefully employed, to the extent of five millions six hundred thousand dollars, and the property of the government, to the extent of one million four hundred thousand dollars, purely for the sake of change. It would indicate a fondness for experiment, which a wise government will not indulge upon slight considera- tions. But the great injury which would result from the refusal of congress to renew the charter of the present bank, would, be- yond all question, be that which would result to the commu- nity at large. It would be difficult to estimate the extent of the distress which would naturally and necessarily result from the sudden withdrawal of more than forty millions of credit, which the community now enjoy from the bank. But this would not be the full extent of the operation. The Bank of the United States, in winding up its concerns, would not only withdraw its own paper from circulation; and call in -its debts, but would unavoidably make such heavy drafts on the^local institutions for specie, as very greatly to curtail their discounts. The pressure upon the active, industrious, and enterprising classes, who depend most upon the facilities of bank credit, would be tremendous. A vast amount of- pro- perty would change hands at half its value, passing under the hammer, from the merchants, manufacturers, and farmers, to the large moneyed capitalists, who always stand ready to avail themselves of the pecuniary embarrassments of the community. The largest stockholders of the present bank, the very persons whose present lawful gains it would be the object of some to cut off, having a large surplus money capi- tal thrown upon their hands, would be the first to speculate upon the distresses of the community, and build up princely fortunes upon the ruins of the industrious and active classes. On the other hand, the females and minors, and persons in moderate circumstances, who hold stock in the institution, would sustain an injury, in no degree mitigated by the gene- ral distress of the community. 22 170 BANK OF THE UNITED STATES. A very grave and solemn question will be presented to congress, when they come to decide upon the expediency of renewing the charter of the present bank. That institution has succeeded in carrying the country through the painful process necessary to cure a deep seated disease in the na- tional currency. The nation, after having suffered the almost convulsive agonies of this necessary remedy, is now restored to perfect health. In this state of things it will be for congress to decide, whether it is the part of wisdom to ex- pose the country to a degree of suffering almost equal to that which it has already suffered, for the purpose of bringing back that very derangement of the currency which has been remedied by a process as necessary as it was distressing. If the Bank of the United States were destroyed, and the local institutions left without its restraining influence, the cur- rency would almost certainly relapse into a state of unsound- ness. The very pressure which the present bank, in wind- ing up its concerns, would make upon the local institutions, would compel them either to curtail their discounts when most needed, or to suspend specie payments. It is not difficult to predict which of these alternatives they would adopt, under the circumstances in which they would be placed. The im- perious wants of a suffering community would call for dis- counts, in language which could not be disregarded. The public necessities would demand, and public opinion would sanction, the suspension, or at least an evasion, of specie pay- ments. But, even if this desperate resort could be avoided in a pe- riod of peace and general prosperity, neither reason nor ex- perience will permit us to doubt, that a state of war would speedily bring about all the evils which so fatally affected the credit of the government, and the national currency, during the late war with Great Britain. We should be again driven to the same miserable round of financial expedient, which, in little more than two years, brought a wealthy community almost to the very brink of a declared national bankruptcy. BANK OP THE UNITED STATES. 171 and placed the government completely at the mercy of specu- lating stockjobbers. The committee feel warranted, by the past experience of the country, in expressing it as their deliberate opinion, that, in a period of war, the financial resources of the country could not be drawn into efficient operation without the aid of a national bank, and that the local banks would certainly re- sort to a suspension of specie payments. The maxim is emi- nently true in modern times, that money is the sinew of mi- litary power. In this view of the subject, it does appear to the committee, that no one of the institutions of the country, not excepting the army or navy, is of more vital importance than a national bank. It has this decided advantage over the army and navy, while they are of scarcely any value except in war, the bank is not less useful than either of them in war, and is also eminently useful in peace. It has another advantage still greater. If, like the army or navy, it should cost the nation millions annually to sustain it, the expedi- ency of the expenditure might be doubted. But, when it actually saves to the government and to the country, as the committee have heretofore attempted to show, more millions annually, than are expended in supporting both the army and navy, it would seem that, if there was one measure of national policy, upon which all the political parties of the country should be brought to unite, by the impressive lessons of experience, it is that of maintaining a national bank. It is due to the persons who for the last ten years have been concerned in the administration of the bank, to state, that they have performed the delicate and difficult trust com- mitted to them, in such a manner as at the same time to ac- complish the great national ends for which it was established, and promote the permanent interest of the stockholders, with the least practicable pressure upon the local banks. As far as the committee are enabled to form an opinion from careful inquiry, the bank has been liberal and indulgent in its deal- ings with these institution!?, and, with scarcely an exception, 172 BANK OF THE UNITED STATES. now stands in the most amicable relation to them. Some of those institutions have borne the most disinterested and une- quivocal testimony in favor of the bank. It is but strict justice also to remark, that the direction of the mother bank appears to have abstained, with scrupulous care, from bringing the power and influence of the bank to bear upon political questions, and to have selected, for the di- rection of the various branches, business men, in no way con- nected with party politics. The committee advert to this part of the conduct of the directors, not only with a view to its commendation, but for the purpose of expressing their strong and decided conviction that the usefulness and stability of such an institution will materially depend upon a steady and undeviating adherence to the policy of excluding party politics and political partizans from all participation in its management. It is gratifying to conclude this branch of the subject by stating, that the affairs of the present bank, under the able, efficient, and faithful guidance of its two last presi- dents and their associates, have been brought from a state of great embarrassment into a condition of the highest prosperi- ty. Having succeeded in restoring the paper of the local banks to a sound state, its resources are now such as to justi- fy the directors in extending the issue and circulation of its paper so as to satisfy the wants of the community, both as it regards bank accommodations and a circulating medium. Upon the soundest principles of banking, the very ample re- sources of the institution would justify the directors in grant- ing accommodations to a much greater extent than they have yet done ; and though they have increased the circula- tion of their paper from four and a half to fourteen millions, since January, 1823, they are ready and willing to increase it still further, by discounting bills of exchange, and other busi- ness paper. It is believed that the discounts and issues of the institution are now actually limited by the want of applica- tions resting upon these, the only substantial and safe founda- tions of bank credit and circulation. HANK OF THE UNITED STATES. I / 3 III. Having said tlms much on the constitutional ity and expediency of an incorporated national bank, the only ques- tion which remains to be examined by the committee is the expediency of establishing a "national bank, founded upon the credit of the government and its revenues." It is presumed to have been the intention of the president, in suggesting the inquiry as to a bank founded upon the credit and revenues of the government, to be understood as having allusion to a bank of discount and deposit. Such a bank, it is taken for granted, would have branches established in various parts of the Union, similar to those now esta- blished by the Bank of the United States, and co-extensive with them. The great object of furnishing a national cur- rency could not be accomplished, with an approach to uni- formity, without the agency of such branches ; and another object, second only in importance to the one just stated, the extension of the commercial facilities of bank accommoda- tions to the different parts of the Union, could not be at all affected without such agency. If there should be simply a great central bank established at the seat of government, without branches to connect its operations with the various points of the commerce of the Union, the promise to pay specie for its notes, whenever presented, would be almost purely nominal. Of what consequence would it be to a merchant or planter of Louisiana, or a manufacturer or farmer of Maine, that he could obtain specie for bills of the national bank, on presenting them at the city of Washing- ton a place wholly unconnected either with Louisiana or Maine by any sort of commercial intercourse, and where, consequently, these bills would never come in the regular course of trade? A promise to pay specie at a place so re- mote from the place of circulation, and where the bills would never come but at a great expense, and for the sole purpose of being presented for payment, would neither give credit to the notes, nor operate as an effective check upon excessive issues. Whatever credit such notes might have, at a distance from 174 BANK OP THE UNITED STATES. the place of issue, \> ould not be because they were redeema- ble at the pleasure of the holder for such would not be the fact ; but principally because of the ultimate responsibility of the government, and of their being receivable in payment of all dues to the treasury. They would rest, therefore, upon almost precisely the same basis of credit as the paper money of our revolution, the assignats of revolutionary France, and the treasury notes of the late war. These were receivable in discharge of debts due to the treasury, and government was of course ultimately responsible for their payment ; yet the two former depreciated almost to nothing, and the latter, though bearing interest, sunk to twenty per cent, below par. But the notes of a central government bank, without branches, would be subject to depreciation from a cause which constitutes a conclusive objection to such an institution. There would be nothing to limit excessive issues but the discretion and prudence of the government or of the di- rection. Human wisdom has never devised any adequate security against the excessive issues, and, consequently, the depreciation of bank paper, but its actual, and easy, and prompt convertibility into specie, at the pleasure of the holder. Experience has shown, that where the paper of a bank is by any means habitually circulated at places remote from the point where it is issued, and not connected with it by a regular commercial intercourse, there will not exist that easy and prompt convertibility which is so essential to the credit of bank paper. When bank bills are confined to their appropriate sphere of circulation, a redundant issue is cer- tainly and immediately followed by a run upon the bank for specie. This timely admonition is as useful to the bank as it is to the community : for it enables the directors to avoid, with unfailing certainty, an excess equally injurious to both, and which no human sagacity could anticipate or prevent by calculation merely. Whatever, therefore, in a system of bank circulation, prevents the reflux of redundant issues, BANK OF THE UNITED STATES. 175 necessarily destroys the only adequate security against these injurious and ruinous excesses. But a government bank, without branches, would be ob- noxious to another objection which could not be obviated. Its loans would be confined to the District of Columbia ; or, if extended to the various parts of the Union to say nothing of the inconvenience to which it would expose those at a dis- tance, who obtained accommodations they would be una- voidably granted without any knowledge of the circum- stances of the persons upon whose credit the government would depend for repayment. It would in fact be, for all useful purposes, a mere district bank. These views of the subject have brought the committee to the conclusion, that, if a government bank should be esta- blished, it would have at least as many branches as the Bank of the United States, and probably a much greater number. Few administrations would have the firmness to resist an ap- plication to establish a branch, coming from any quarter of the Union, however injudicious the location might be, upon correct principles of commerce and banking. The Bank of the United States now employs five hundred agents, in the various parts of the Union where its offices are established. From this fact some idea may be formed of the very great addition which would be made to the patron- age of the executive government by the establishment of such a bank as the one under consideration. But the patronage resulting from the appointment the annual appointment of those agents, great as it would doubtless be, would be insignificant and harmless when com- pared with that which would result from the dispensation of bank accommodations to the standing amount of at least fifty millions of dollars ! The mind almost instinctively shrinks from the contemplation of an idea so ominous to the purity of the government and the liberties of the people. No go- vernment, of which the committee have any knowledge, except perhaps, the despotism of Russia, was ever invested 176 BANK OP THE UNITED STATES. with a patronage at once so prodigious in its influence and so dangerous in its character. In the most desperate financial extremities, no other European government has ever ven- tured upon an experiment so perilous. If the whole patron- age of the English monarchy were concentrated in the hands of the American executive, it may be well doubted whether the public liberty would be so much endangered by it as it would by this vast pecuniary machine, which would place in the hands of every administration fifty millions of dollars, as a fund for rewarding political partizans. Without assuming that a corrupt use would be made of this new species of government patronage, a very slight ac- quaintance with the practice of all political parties, whatever may be their professions, will be sufficient to satisfy any re- flecting mind, that all the evil consequences of corruption would flow from its exercise. Have not our political con- tests too frequently degenerated into a selfish scramble for the offices of the country ? Are there not those who sincerely and honestly believe that these offices are legitimate ob- jects of political warfare, and the rightful reward of the victo- rious party ? And disinterested and patriotic as the great body of every political party is admitted to be, the fact is no less true than it is lamentable, that the most devoted and ac- tive partizans are very often mere soldiers of fortune, who watch the political signs, and enlist, at the eleventh hour, under the banners of the party most likely to prove success- ful. Such being, more or less, the composition of all political parties, what would be the probable use made of fifty millions of bank patronage, by a political party who conscientiously held the doctrine that all the offices in the gift of the execu- tive should be divided among the partizans of a successful political leader ? Would not the same principle be even more applicable to bank loans ? And would not the treasury of the United States, under the sanctifying influence of party delu- sion and party infatuation, be literally plundered by nierce- BANK OF Till: TMTKU STATES. 177 nary retainers, bankrupts in fortunes, and adventurers in politics I Even if the administration should be ever so much dis- posed to restrain the abuse of this patronage, it would be ut- terly impracticable to exercise any efficient control over the great number of bank directors who would be scattered over the Union, and who, upon all the known principles of hu- man nature, it may be confidently predicted, would princi- pally consist of busy and officious political partizans. Such would be the depositaries acting, not under the public eye, but under the protecting mystery of a sort of concealment and secrecy deemed indispensable in banking operations to whom, not only the whole treasury of the Union would be confided, to be squandered, perhaps, in pro- fligate favoritism, but the tremendous power of putting the whole property of the nation under mortgage, for the redemp- tion of the bills issued at their discretion. To say nothing of the utter insecurity of the public revenues under such a system, a new species of legislative power, unknown to the constitution, would be committed to these irresponsible bank directors, of which no human sagacity can predict the conse- quences* A just analysis of the operation of granting loans by this government bank, in exchange for notes of private individu- als, will show, that it involves the exercise, on the part of the directors of the twofold power of appropriating the public re- venue in the most dangerous of all forms discretionary loans and of pledging the responsibility of the government to an unlimited extent, for the payment of the debts at the same time created against it. These are among the highest functions of legislative power, and have been expressly and exclusively vested in congress. Unless, therefore, it be as- sumed, that congress may rightfully transfer the powers with which it is invested to these batik directors, it will be difficult to find any warrant, either in the letter or spirit of the consti- tution, for the creation of this tremendous engine of pecu- 23 178 BANK OF THE UNITED STATES. niary influence. It may, indeed, be doubted, whether all the branches of the legislative authority united have any consti- tutional power to lend the public revenue, either to individu- als, corporations, or states, without referenced the objects to which it shall be applied. But whatever may be the power of congress on this subject, it appears to the committee to be inexpedient, in every view of the question, that the govern- ment should be converted into a great money lender. There is no species of trade in which it would be wise for the go- vernment to embark ; but of all the variety of pursuits known to human enterprise, that of lending money by the govern- ment to the citizens of the country would be fraught with the most pernicious consequences. In the first place, it is a business to which, in the very na- ture of things, no government is adapted, and, least of all, a popular government. There is no employment of capital that requires a more vigilant and skillful superintendence. Nothing but the active motive of individual interest can sup- ply the watchfulness necessary to secure a banking institu- tion against the grossest frauds and imposition?. In pecu- niary transactions, few men are to be found who will serve others, in cases involving the exercise of discretionary powers, with the same fidelity that they would serve themselves; and, when we consider the strong motives, both of private friend- ship and political attachment, which would operate on the di- rectors of a government bank, to bestow its favors without impartiality or prudence, it requires but little sagacity to fore- see that enormous losses would be annually sustained by the insolvency of the government debtors. All governments have found it expedient to place the pub- lic treasury under the guardianship of a high and confideii tial officer, aided, in the enforcement of a rigid responsibility, by a system of checks and counterchecks, operating upon all the subordinate officers concerned in collecting and disbursing the public revenue. Such is our own system. No discretion is vested in the chief officer of the treasury, much lens in those T:\XK IIF Tin: i MTI'.D STATES. 179 tliaf, are subordinate, in the appropriation of a single dollar of the public money. "No money can be drawn from the treasury but in consequence of appropriations made by law.'' How far these wise and provident safeguards, and this consti- tutional barrier, would be prostrated, by placing not only the public revenue, but the public credit, at the disposal of some hundreds of bank directors in various parts of the Union, is a very grave question for the consideration of the house. Our own experience has demonstrated the great danger of having large masses of the community indebted to the go- vernment. It was a deep conviction of this danger that in- duced congress to abolish the system of credit sales in the disposition of public lands. Congress has been compelled to yield to the pressing importunities of the purchasers of these lands, by granting them not only repeated indulgencies, but by the remitting some millions of the debt. What then, would be the situation of the government, with a debt of fifty millions diffused throughout the country, and due to it from the most active, enterprising, and influential classes of the community ? Nothing that has happened can be more cer- tain than that every unfavorable vicissitude in trade, every period of commercial distress and embarrassment, would give rise to importunate and clamorous calls for indulgence, and for an injudicious extension of discounts, which no adminis- tration would have the firmness to resist. Every one who has witnessed the urgency and unanimity with which the representatives of the states indebted for public lands, have pressed the claims of their citizens for indulgence and remis- sion, must be satisfied, that if the citizens of all the states should become indebted much more largely for bank loans, the government would have scarcely any faculty of resist- ance, when appeals for indulgence should come from all quarters of the Union, sustained by the strong plea of public distress and embarrassment. The policy of extending indulgence to the public debtors, and of granting more liberal loans to the community, would, 180 BANK OF TTTE UNITED STATES. in the natural course of tilings, become the favorite of those who aspired to popular favor. Political parties would come to be divided upon the question of observing towards the public debtors a strict banking policy, indispensable to the main- tenance of specie payments on the one hand, or a liberal go- vernment policy, necessarily involving a suspension of specie payments on the other. And when it is considered that the whole class of debtors, always the most numerous and active portion of the community, would be naturally in favor of in- creasing bank issues, and extending bank indulgences, it can scarcely be doubted that specie payments would be suspended in the first great pecuniary exigency, growing out of the em- barrassments in our commerce, or deficiencies in our revenue. The government therefore, which is under the most sacred obligations to constrain all the banks to maintain specie pay- ments, with a view to the uniformity and soundness of the currency, would, by its own example, perpetuate the great na- tional evil of a fluctuating and depreciated circulating me- dium. These evils which would be so highly probable in time of peace, would be almost certain in the event of war. The temptation to supply the federal treasury, by the easy process of bank issues, rather than resort to the unpopular process of internal taxation, would be too fascinating to be resisted. We should thus experience, what every nation has experienced in like circumstances, the manifold evils of a mere paper cur- rency, having no relation to any standard of intrinsic value. In these views the committee are fully sustained by the opinion of Mr. Lowndes, expressed in 1819. These are his words : " That the destruction of the (United States) Bank would be followed by the establishment of paper money, he firmly believed ; he might almost say he knew." It was an extremity from which the house would recoil, if now pro- posed ; but if the resolutions on the table were, passed, it would very soon be proposed. The subject was too large for an incidental discussion. Gentlemen thought the amount of BANK OF TITR UNITED STATES. 181 government paper might be limited, and depreciation pre- vented , by the rate of interest which should be exacted. In- adequate every where, the security was particularly ineffectual in the United States. But the inevitable tendency of a government bank to in- volve the country in a paper system, is not, in the opinion of the committee, the greatest objection to it. The powerful, and in the hands of a bad administration, the irresistible and corrupting influence which it would exercise over the elections of the country, constitutes an objection more imposing than all others united. No matter by what means an administra- tion might get into power with such a tremendous engine in their hands, it would be almost impossible to displace them without some miraculous dispensation of Providence. Deeply impressed with the conviction, that the weak point of a free government is the absorbing tendency of executive patronage, and sincerely believing that the proposed bank would invest that branch of the government with a weight of moneyed influence, more dangerous in its character and more powerful in its operation than the entire mass of its pre- sent patronage, the committee have felt that they were im- periously called upon by the highest considerations of public duty, to express the views they have presented, with a frank- ness and freedom demanded by the occasion. It is at the same time due to their own feelings, that they should state, unequivocally, their [conviction, that the suggestion of the chief magistrate, which they have thus freely examined, pro- ceeded from motives of the most disinterested patriotism, and was exclusively designed to promote the welfare of the coun- try. This is not the mere formal and heartless homage some- times offered up to official station either from courtesy or in- terest, but a tribute which is eminently due, and cheerfully rendered, to the exalted character of the distinguished indi- vidual on whom it is bestowed. STATISTICAL AND COMPARATIVE VIEW OK THE MONEYED INSTITUTIONS OF NEW YORK, AND TWENTY-FOUR OF THE PRINCIPAL CITIES OF THE UNITED STATES : Showing the amount of each share, and the product of each institution, from the 1st of January, 1830, to the 1st of January, 1831. Compiled from official sources, private correspondence, and personal investigation. BANKINCi INSTITUTIONS OF THE 185 -i -M -#j j > !> >i>>>>%> > t*C ^sgSISSsSsgS'S w tf o PH H a fCDO^nmc^ ic^i-HC^Tf^MTj. I i i O^ ( ! i I M ! g PI irri cT o o kn o CD co ro en kntD-^fmCDCCCO^^ CO CO CO CO CO CO CO CO CO < UNITEP STATES. O CO i S 00 ~ i o ^ 13 I ",". ^' "S, Al g I I o~g *f "g- 1^ to o i_iCM a , of Alb Bank, anics' iercial fll.lli S > -"c ? ^. ' > * g^^ gl 198 BANKING INSTITUTIONS OF THE I a 2 UNITED STATES. ]99 200 BANK1NC, INSTITUTIONS OF THE 'l 1 >>>> o**-. <=> <=><=>docn o o ) O O >oo o m kfj o in |0 O n< co e4" g %, III W I "^ jrltKll I11 S .| 1 a g^M^J^ rt\ 3 flN TO fct ^> rt\ 2 H 00^- UNITRD STATF.S. W 55 " sr ^g a -^ S 3 bfl .^J &fl = a 2 " I fl . - llflllijpi *o <^ o cK3 S 2 o w "" ^^o^^Oi^ 8Qii^^ 212 BANKING INSTITUTIONS OF THE I >H ^ ^ ^ w PL, Amount of dividend. Time and of divide Amount of capital. kO O O O O> CO i"-< ^ O H3 O^ r-H O^ ! SSi ) ^t* O O < -^oooooooo - S OO O ^ <>J 1 O> (M s . -Ss Is "^t 1 o o o ^n t^- o ^ 5 a I .. BX1J S fc .g-^'So -"3 EH I i HI E |I|J |--iH*-i lill d isil | r g>- i !li! linn g 4-|.s S .M^s . .o ^ 1 ^S"^ ^ i|s| rili?" """" ^"^u...... ...... -o^isS2.2 o 1 - 1 ^ oj.S 'o g~ V! UNITED STATKS. :|g > o -*J< GO -jr 1 o o~j CD "- o o o I tO ^ C* i# TT CO CO g ^MCO ft I* rcTo"o"o"< i lO-^IMOOtOCO 8S8S a7 3 s' 1 i,, s' Ifitii Icg^^^^lS^ o ^^ TT g- 1 1 S2 , 36 rt $ a "S '2 -5- 511 s irn Illl 213 o o o o 3' EC I JIM S HiOO CO 03 CO N CO CO C^COCOCO >-a co_ ^ Q 5 OOOQ CO (MCOCOOt r-a sss i s-- 5 g^2 s" a w g I H to S2 % UNITED STATES. 215 JJ. -^co J C =Qfc S^i fed *% BANKING INSTITUTIONS OF THE > O O O C<1 O O O O I (M > O Ui^^OOOOO O cT 10" crT M c4 S ( 1 1 IlilHI -!-> Pf sj ? iifli^ ' 'If Htftfl 2' I 218 BANKING INSTITUTIONS OF THE 2; I I O 3 S .-H" Of o o o 888 S 888 tf> a 1^ o BJSJ; o I s s p i 'I ajf II TJ 1 fc II S'o 0> X 3* BS ^ s, ^_ ^ 1 ^. O S-C .2 g- S o 5|852B g'.ginj^ iiiff SJJfi SJ'S'S'T UNITED STATIC 1 I ^2 1 .. c fl s a rt rt a s 888 ~88"8 m CD co o c> & i> M ^ o ' O> T3 5? ** o T3 C js c^ >vc a c E-<1 H S ^S tf '> I i'Kl'i niii i ss, a'-s. ,^2 H^Q i.cg^Kig i's3|jfl p ^ r KM STA7 ' TaM 'P *s I g,ss 5^2S 58 1| 111 . 222 BANKING INSTITUTIONS OF THF. 23 s tf o w o II g S ^^ ufooof SO o o o o> cTco" o" i-T d ^t* "^t 1 to ;O i I CO CO c*r oF *^* JOO 8SS w <*' I 0> Oi . II g ^ * + 'g ^ tj fKiifjfl s M S3 g *8 | ^a ST -3 3-2 UNITED STATES. o~^ bb bii >> 3532* C-^rQ a l^^l 8-8888 o< 04 M< c-* g ^ t~- c^ ^ af 223 - % 224 BANKING INSTITUTIONS OF THE UNITED STATES. 225 t~- W m -4 CO I O 0 o c^ m (>* s 5.^e o?o^S c^^ ori^ SSj" 1 S" SS^O^-^ CO -H to o o o o ' I'CNI" tD"o"cT i o t^ m oo In o m noo i^2 ! g! 18 S8 PcT ^"c5" 10 n in cs i ' 226 BANKING INSTITUTIONS OF THE 1 EH P O i 2 g CD" O t- CM n cscoooi ^< " o* ofcTcr i>To*' J o ooioc^ tooc O t^ 00 CO ^t 1 CO ^* fwT 3 t- CT3 cfo"o"o" o~o C^ O 00 O O O 22$ BANKING INSTITUTIONS, &C. 5 O ia cf B^8 ill 8! o"o o vn i iO CD ' ^(Ml I 1 gf 3 88 ofcTcT 888 -T rf 1 a- 3 ! CAROL s . i ' O 1 w . ^ 1 s i. i't 1' g _ S ' 1 i -6 |f . s * 1 il ST3"G, >ss. Tj-Ou, JfWj : 9 in oo 2 Eo O '^ cSss III s II J? s s| e* to! ELEMENTS OF EXCHANGE WITH THE REGULATION OF BILLS AND PROMISSORY NOTES, IN ENGLAND AND THE UNITED STATES. FROM KELLY'S CAMBIST. ELEMENTS OF EXCHANGE. 1. BILLS OF EXCHANGE. A BILL of exchange is a written order for the payment of a certain sum of money at an appointed time. It is a mer- cantile contract, in which four persons are mostly concerned, viz. 1. The drawer, who receives the value, and is also called the maker and seller of the bill. 2. His debtor in a distant place, upon whom the bill is drawn, and who is called the drawee. He is also called the acceptor, when he accepts the bill, which is an engagement to pay it when due. 3. The person who gives value for the bill, who is called the buyer, taker, and remitter. 4. The person to whom it is ordered to be paid, who is called the payee, and who may, by indorsement, pass it to any other person. Most mercantile payments are made in bills of exchange, which generally pass from hand to hand, until due, like any other circulating medium ; and the person who at any time has a bill in his possession, is called the holder. When the holder of a bill disposes of it he writes his name on the back, which is called indorsing ; and the payee should be the first indorser. If the bill be indorsed in favor of any particular person, it is called a special indorsement, and the person to whom it is thus made payable is called the indorsee, who must also indorse the bill if he negotiates it. Any person may indorse a bill, and every indorser (as well 232 ELEMENTS OF EXCHANGE. as the acceptor or payee) is a security lor the bill, and may therefore be sued for payment. The term of a bill varies, according to the agreement be- tween the parties, or the custom of countries. Some bills are drawn at sight ; others at a certain number of days or months after sight or after date ; and some at usance, which is the customary or usual term between different places. Days of grace are a certain number of days granted to the acceptor after the term of a bill is expired. In the British dominions three days are allowed. In reckoning when a bill, payable after date, becomes due, the day on which it is dated is not included ; and if it be a bill payable after sight, the day of presentment is not in- cluded. When the term is expressed in months, calendar months are understood ; and when a month is longer than the succeeding, it is a rule not to go, in the computation, into a third month. Thus, if a bill be dated the 28th, 29th, 30th, or 31st of January, and payable one month after date, the term equally expires on the last day of February, to which the days of grace must, of course, be added : and, therefore the bill becomes due on the 3d of March. No bill of exchange drawn in Great Britain or Ireland can be negotiated, presented for payment, or in any way admit- ted as good in these countries, that is not written on a proper stamp ; and any person drawing, accepting, or paying such a bill, is liable to a penalty. LAWS OF EXCHANGE. The following laws have been selected from the first le- gal authorities, and likewise examined and approved by se- veral experienced merchants, bankers, and notaries ; and though these laws apply chiefly to the British dominions, yet they do not differ essentially from the regulations of other commercial countries, with respect to accepting indorsing, paying, protesting ', and recovering, bills.' ELEMENTS OF EXCHANGE. A< KPT1NG BILLS. 233 When a bill is piesented for acceptance, it is generally left until tlie next day, and the common way of accepting is, for the drawee to write his name at the bottom, or across the body of the bill, with the word accepted. An acceptance however, in a slighter way, has been heretofore deemed bind- ing ; thus, had the drawee written his name upon any part of the bill, or the initials of his name, or the day of the month, or merely the word accepted^ he was considered lia- ble : but, by an act of parliament, passed in 1819, it was declared, -'that no person shall be bound or charged as acceptor of an inland or foreign bill of exchange, otherwise than by an acceptance of such bill of exchange written there- on, or on some OEC part of such bill, if the same shall con- sist of more than one part." When two or more persons are in partnership, the accept- ance of one binds all the others, if the bill concerns their joint trade ; but if it should be made known to the person Avho recives the bill, that it concerns the acceptor only in a distinct interest, he alone, as acceptor, can be sued. A clerk, or servant, may accept a bill for his master, when he has authority for that purpose, or if he usually transacts business of this nature for him ; and his acceptance binds the master. But if the bill be drawn nominally on the servant, direct- ing him to place it to the account of his master, and if the servant should accept it generally, without specifying that he does it for his master's account, the acceptance binds the ser- vant only, and not his employer. When a bill is drawn for the account of a third person, and is accepted as such, and he fails without making provision for its payment, the acceptor must discharge the bill, and can have no recourse against the drawer. A bill may be accepted to be paid at a longer period than is mentioned in the bill, or to pay a part of the sum only : such an acceptance is binding on him who makes it ; but the 30 234 ELEMENTS OF EXCHANGE. holder is at liberty to take it as it is offered, or to act as if ac- ceptance had been entirely refused. The acceptance may direct payment to be made at a place different from that mentioned in the bill, as at the house of a banker ; in which case, if the holder should neglect to de- mand payment within a reasonable time, and the banker should afterwards fail, the holder must sustain the loss. When a bill has been once accepted, the acceptance can- not be revoked, though the drawer should be found to have failed before the date of the acceptance. INDORSING BILLS. Bills payable to bearer are transferred by simple delivery, and without any 'indorsement ; but in order to transfer a bill payable to order, the holder must express his order of paying to another person, which is always done by an indorsement. An indorsement may be blank or special. A blank in dorsement consists only of the indorsees name, and the bill then becomes transferable by simple delivery ; a special in- dorsement orders the money to be paid to some particular person, or to his order : a blank indorsement may always be filled up with any person's name, so as to make it special. An indorsement may take place at any time after the bill is issued, even after the day of payment is elapsed. A person who receives a bill with a blank indorsement may take it as indorsee, negotiate it again, or demand payment on his own account, or he may receive the money as agent, or for the account of the indorser ; and the latter, notwithstand- ing his indorsement, may still appear as holder in an action against the drawer or acceptor. A special indorsement need not contain the words, to order ^ and the bill is negotiable ; it may also be restrictive, giving authority to the indorsee, to receive the money for the in- dorser, but not transfer tiie bill again to another. An indorsement for part of the money only is not valid, except with regard to him who makes it ; the drawer and ac- ceptor are not bound by it. KI.KMK.YT.->' (>K K.Vri! AX(;K. 235 When the holder of a hill dies, his e.\eniU>rs may indorse it ; but, by so doing, they become answerable to their indor- see personally,- and not as executors. PAYING BILLS. Bills should be presented for payment, as well as for ac- ceptance, during the usual hours of business, which are gene- rally considered to be from nine o'clock in the morning till six in the evening. The common mode of payment among merchants is by a draft on a banker for the exact amount of the bill, and signed by the drawee; but any paper whatever may be refused, except Bank of England notes : and the Bank receives no other, PROTESTING BILLS, When acceptance or payment has been refused, the holder of the bill should give regular and immediate notice to all the parties to whom he intends to resort for payment ; and if, on account of unnecessary delay, a loss should be incurred by the failure of any of the parties, the holder must bear the loss, With respect to the manner in which notices of non-ac- ceptance or non-payment are to be given, a difference exists between inland and foreign bills. For foreign bills a protest is indispensably necessary : thus a public notary is to appear with the bill, and to demand either acceptance or payment; and on being refused, he is to draw up an instrument, called a protest, expressing that ac- ceptance or payment has been demanded and refused, and that the holder of the bill intends to recover any damages which he may sustain in consequence. This instrument is admitted, in foreign countries, as a legal proof of the fact. The protest on a foreign bill should be made in time to be sent off on the next post day to the place where it was drawn or negotiated ; and if it be for non-payment, the bill must he sent with the protest. ELEMENTS OF EXCHANGE. As to inland bills, a protest is not absolutely necessary to entitle the holder to recover the amount of the bill from the drawer or indorsee: it is sufficient that he give notice, by let- ter or otherwise, that acceptance or payment has been re- fused, and that he does not mean to give credit to the drawee. According to the practice of the London merchants, a pro- test is hardly ever made for non-acceptance of an inland bill ; it is only noted, and, if not paid when it becomes due, it is then protested for non-payment. Notice, however, must be given of the non-acceptance and noting, otherwise the holder takes the risk upon himself: and if the protest for non-pay- ment should be omitted, the holder cannot recover either da- mages or interest, but merely the amount of the bill. If the person who is to accept has absconded, or cannot be found- at the place mentioned in the bill, protest is to be made in the same manner as if acceptance had been refused. When an original bill is lost, and another cannot be had of the drawer, a protest may be made on a copy ; but if a bill left for acceptance be lost, the person with whom it was left must bind himself to payment, or else a protest may be made out immediately. It is customary, as a precaution against accident or mis- carriage, to draw three copies of a foreign bill, and to send them by different posts. They are denominated the first, second, and third of exchange ; and when any one of them is paid, the rest become void, and of no value. When the acceptor of a bill becomes insolvent, or absconds before the term of payment is expired, the holder may cause a notary to demand better security, and, on that being re- fused, to protest the bill for want of it. In such cases, how- ever, the most general practice is to wait the regular time till the bill becomes due. The damages incurred by non-acceptance and non-pay- ment, besides interest, consist usually of the exchange, re- exchange, commission, and postage, together with the ex- K I . KM !-, N T H O I ' !; \ T 1 1 \ \ < , K . 287 pense? of protest and interest. The exchange is reckoned accord ing to the course at sight, from the place where the protest is made to the place where the bill is to be paid by fie drawer ; and if it be not paid there, the re-exchange is hen reckoned from the same place to that where the bill is paid, and also double commission. The interest commences from the day when the demand was made. After a bill has been protested it is sometimes accepted by a third person, to save the reputation of the drawer, or of an indorscr ; such an acceptance is called an acceptance supra protest. The acceptor then must appear in person, with wit- nesses, before a notary, and declare that he accepts it for the honor of such a person, and subscribe the bill thus Ac- cepted, supra protest, in honor of, &c. The same may happen when the person on whom a bill is drawn, having doubts about the drawer, protests it, but after- wards accepts it for the honor of one of the indorsers ; in this case the protest must be sent to the said indorser without de- lay. The person for whose honor a bill was accepted, must re- imburse the acceptor the amount of the bill, commission, and other charges, even though the acceptance should have taken place without his knowledge. If such a person approves of the acceptance, the bill may be paid without any further pro- test | but if he should return no answer, or express his dis- approbation of the acceptance, the bill must be formally pro- tested for non-payment against him to whom the bill was di- rected ; and, on his persisting to refuse payment, the ac- ceptor may safely pay it for his account, as he can recover the amount. RECOVERING RILLS. The drawer, acceptor, and every indorser of a bill, are equally liable to the payment of it ; and though the holder can have but one satisfaction, yet, until such satisfaction is actually had, he may sue any of them, or all of 1 hem, either I.I.KMKiYTS (>F KXC at the same time or in succession, and obtain judgment against them all till satisfaction be made. Proceedings cannot be staid in any action, but on payment of the debt and of the costs, not only in that action, but in. all the others in which judgment has not been obtained ; and though the principal sum should be paid by one of the parties, still costs may be recovered in the several actions against the others. When acceptance is refused, and the bill is returned by protest, an action may be commenced immediately against the drawer, though the regular time of payment be not arrived. His debt, in such a case, is considered as contracted the mo- ment the bill is drawn : thus ; if before the bill is returned, the drawer should become a bankrupt, the debt was con- tracted before the commission of bankruptcy took place. Nothing will discharge an indorser from his engagement but the absolute payment of the money ; not even a judgment recovered against the drawer, or any previous indorser, or an execution against any of them, unless the money be paid in consequence. The holder of a bill, in order to entitle himself to re- cover against an indorser, needs not show that he has made a previous attempt to recover from the drawer, and this holds good with regard to inland as well as foreign bills. If any bill happens to be lost within the time limited for payment, the drawer is to give another of the same tenor with the first ; the person, however, to whom this new bill is delivered, must give security to indemnify the drawer against all persons whatsoever, in case the lost bill should be found. When a person has indorsed a bill, and it is re-indorsed to him, he cannot maintain an action against the person to whom he indorsed it. He that has accepted and duly paid a bill, without having in his hands any effects of the drawer, may recover in KLKMKNTS OF MX CHANGE. 239 an action tor money paid ami laid out for the use oi tin- drawer. In an action against the acceptor of a bill, it is a general rule that the drawers handwriting is admitted, because the acceptor is always supposed to be acquainted with the hand- writing of the person whose bill he accepts. But if the same bill has been indorsed, the handwriting of the indorser or in- dorsers must be proved ; in case of a blank indorsement, how- ever, the handwriting of the first indorser is sufficient. The same takes place in an action by an indorser- against the drawer. Proof of the signature of a servant is sufficient to bind the master, when it is proved that the servant has authority to draw, accept, or indorse bills in his master's name ; and a subsequent assent is considered as evidence of such authority. A general custom of the servant's signature and the payment of the master is likewise a sufficient proof of the general au- thority ; and this will continue to bind the master until his determination to the contrary can be generally known. PROMISSORY NOTES. Promissory notes are, in general, considered in the same light as inland bills of exchange ; the resemblance between them is greatest when a promissory note is indorsed for such an indorsement is an order to the maker of the note to pay the sum mentioned in it to a third person. Thus the first in- dorser of the note corresponds to the drawer of the bill, and the maker to tbe acceptor ; and in that sense all the laws re- lating to bills of exchange may be applied to promissory notes ; and they have the same allowance of three days grace for payment. When the form of a bill or promissory note is incontesta- bly good, the law is the same for both ; yet a note may be valid in some cases when a billed exchange is not so ; thus a promissory note can be made payable out of a particular fund, then within the power of the drawer ; neither is it ne- 240 ELEMENTS OF EXCHANGE. cessary that the time of payment of a note should be abso- lutely fixed ; thus, notes have been held to be good which were payable at a certain person's death, or after such a ship should be paid off; in short, at the period of an event phy- sically or morally certain ; but should the payment depend on a contingency which may never happen, as if it were payable when such person should marry, the note cannot be accounted good. BONDS. A bond for money is a higher security than a bill of ex- change or a promissory note, as it binds the giver, his heirs, and lands, in the first instance ; whereas bills and notes attach only on personals ; and, in case of death, a bond, as a specialty under seal, is paid before simple contract debts, which bills and notes are considered to be. A bond may be transferred by a deed of assignment, but not by indorsement, and therefore it is not deemed a negotia- ble security, like a bill of exchange or a promissory note. In foreign countries, however, bills of exchange only are bind- ing, as before noticed. BILLS, BONDS, AND NOTES, HOW VOID. It should be observed that the foregoing laws apply only to debts legally contracted. For no bill, note, or bond, made by a bankrupt, or by an insane person, can be valid ; neither by a minor, nor a married woman, except in a few particular cases. Neither is any bill, note, or bond binding when the whole, or any part of the consideration shall be for money, or other valuable thing, won by gaming or betting, or lent knowingly for such purposes ; or for money lent on usury ; that is at more than the legal interest, which is five per cent, per annum. DRAFTS ON BANKERS. Drafts and checks on bankers are generally received by merchants as ready cash ; and if the party receiving them ELEMENTS OF EXCHANGE. 241 should not, within a reasonable time, demand payment, he must bear the loss in case the banker or drawer should fail in the interim : but what shall be deemed a reasonable time has not been precisely fixed, as it must depend on situation ; and, therefore, whenever it becomes a question of law, it is left to the jury, or court, to decide according to the circumstances of the case. The general practice is to present checks for pay- ment on the day they are received or dated, and during the hours of banking business, which are from nine o'clock in the morning to five in the afternoon. If a check on a banker be refused payment, he who gave it is bound to make it good ; and if it be lost, he must also make it good, on receiving a satisfactory security that the lost draft will not appear against him. As a precaution against loss, it is customary to write across a draft, as soon as received, the firm of the house into which it is to be paid ; by which may be understood that it will not be paid to any other house or person without proper inquiry. This practice is also useful in clearing. Clearing is a method adopted by London bankers for ex- changing drafts and bills on each other's houses, as they be- come due, and settling the differences. This important ope- ration is performed daily, at an office called the Clearing House, with great correctness and dispatch, and with such method, that bills and drafts to the amouut of 5,000,000 on an average are canceled at each clearing, with less than one twentieth part of that sum in Bank of England notes. Clearing, though of modern adoption in England, has been long practiced in other countries, particularly in settling bills of exchange, and other documents of credit, at the great fairs on the continent. The invention of this method is ascribed to the Florentines, but the practice has been greatly improved by the London bankers. 242 ELEMENTS OF EXCHANGE. PRINCIPLES OF EXCHANGE. INLAND EXCHANGE. By inland exchange is understood the act of remitting bills to places in the same country ; by which means debts are discharged more conveniently than by cash remittances. Suppose for example, A, of London, is creditor to B, of Edinburgh, 100 ; and 0, of London, debtor to D, of Edin- burgh, 100 ; both these debts may be discharged by means of one bill. Thus, A draws for this sum on B, and sells his bill to C, who remits it to D, and the latter receives the amount when due from B. Here, by a transfer of claims, the London debtor pays the London creditor, and the Edin- burgh debtor the Edinburgh creditor, and no money is sent from one place to the other. The same would take place if D, of Edinburgh, drew on C, of London, and sold his bill to B, of Edinburgh, who should send it to A, of Lon- don ; the effect, in either case, being merelj r a transfer of debtors and creditors.* By the foregoing example, it appears that reciprocal and equal debts, due between two places, may be discharged with- out remitting specie ; and it may be supposed, that such aw operation is of equal convenience to all parties concerned : but when the debts are unequal the advantage must be different, as the obligation of remittance is no longer mutual, because the debtor place must pay its balance either by sending cash ov bills ; and as the latter mode is generally preferred, an in creased demand for bills must be the consequence, which en- hances their price, as it would that of any other article of sale or purchase- This is the plain principle of exchange, and is constantly exemplified in the premium paid for inland bills on London. * In this operation A is the drawer and seller, B the drawee and acceptor, C, the buyer and remitter, and D, the payee, if his name be mentioned in the bill, and he is the holder when he receives the bill from A. When D, or any other holder presents the bill for acceptance or payment, he is called the pre- senter. KLKMF.NT* F l : \ t 11 A NCK. 243 which is the grand emporium of commerce that furnishes most other places in the kingdom with foreign merchandise ; and heing also the seat of government, to which the revenue is transmitted, and the residence of numerous landlords, whose rents must be remitted to them from the country, it has generally a large balance of debt in its favor ; and as this balance is usually paid in bills, a demand for them is created, and therefore a premium is the consequence. The premium on inland bills is mostly commuted for time ; that is, for a certain number of days after date or after sight, which varies according to circumstances. Thus, the general term for bills from Edinburgh on London is forty days' date, which is valued at about per cent., and is called the par date. A similar premium, or date, is allowed for bills on London drawn in all other distant parts of Great Britain ; but bills at sight, on any of those places, may be generally had in London without any premium. Thus, the inland ex- change is constantly in favor of the capital ; and the date term varies according to the greater or less demand for bills. FOREIGN EXCHANGE. The principle of foreign exchange is the same as that of inland, with respect to settling accounts by a transfer of claims, and also by the premium or price of bills being regu- lated by the proportion which exists between the demand and supply : but the manner of paying the premium for fo- reign bills differs, and the operation is more complex, owing to the denominations of money not being the same : for, in this case, the value of bills is estimated by the comparative rate of moneys ; and the date is, besides, taken into conside- ration. In foreign exchange one place always gives another a fixed sum or piece of money for a variable price; the former is called the certain price, and the latter the uncertain price, that is, the sterling for a variable number of francs ; and to Spain the uncertain for the certain, that is. a variable 244 Ef.KMENTS OF F.XCH ANK. number of pence sterling for the dollar of exchange. The uncertain price, as quoted at any time, is called the rate, or course of exchange. When the demand in London for bills on Paris is great, a smaller number of francs is given for the pound sterling ; and the contrary : and when there is a demand for bills on Spain, a greater number of pence sterling must be given for the dollar ; and the contrary. Again, if the course of exchange between London and Paris be twenty-four francs for the pound sterling, and if this number of francs contains the same quantity of pure silver as twenty shillings sterling, then the exchange is considered at par ; but if Paris should give a higher price, the ex- change is said to be against France and in favor of England. This is the general mode of judging whether the exchange is favorable or unfavorable, though it is not always that on which merchants act, or speculate. But before any further explanation is given of the course of exchange, or the causes of its fluctuations, it may be necessary to state more fully what is to be understood by the par of exchange, a subject on which there has been much difference of opinion. PAR OF EXCHANGE. The par of exchange may be considered under two general heads, viz. the intrinsic par and the commercial par, each of which admits of subordinate divisions and distinctions. The intrinsic par is the value of the money of one country compared with that of another, with respect both to weight and fineness. The commercial par is the comparative value of the moneys of different countries, according to the weight, fine- ness, and market prices of the metals. Thus two sums of different countries are intrinsically at par when they contain an equal quantity of the same kind of pure metal ; and two sums of different countries are com- K Mi ME NTS uf K\ rfl A i\ <;];. J 1 .") mercially at par when they can purchase an equal quanti- ty of the same kind of pure metal. This latter equivalence is variously denominated. It has been called by different authors the current, the momentary, the rational, and the eventual par ; and though each of these terms seems to convey a correct idea of its fluctuating and ephemeral nature, yet the word commercial is here adopted as being equally appropriate, and perhaps more generally understood. There are other pars occasionally noticed by merchants, such as the nominal or estimate par, which, though not accurate, is commonly referred to ; the monetary par, in which the current value, fixed by authority, is considered ; the proportional par, which is the equality of two sums of different countries, compared with the rate of exchange of a third place, and which is also called the arbitrated price and the political par. There is, besides, a medium par, sometimes reckoned ; that is, a mean taken between the pars of gold and silver coins. The intrinsic par of exchange is, in effect, the par of coins, or the metallic par ; for though the moneys of exchange are, for the most part, imaginary, their value is ascertained by that of the coins which they represent, or to which they have a known relation, or established proportion. An approximate or average par, may, however, be com- puted from the relative proportions between gold and silver, as taken from the mint regulations of the places in question ; and it may be further observed, that the mint proportions are considered the best constituted when deduced from the market prices of the precious metals, taken from an average of several years. Here the important question comes to be considered, " Whether the par of exchange should be computed from gold or from silver coins ?" Messrs. Locke, Harris, and other authors of the last century, agree, that "the equality of sil- ver expressed by different denominations of coins should con- 'i\('> EL KM EXT* OF EXCHANGE. stitute the par of exchange between any two countries ;" ? but Lord Liverpool, in his " Treatise on the Coins of the Realm" maintains, that the proper measure of value should be of that metal in which the principal payments are made, and therefore, that in some countries the par should be com- puted from gold, and in others from silver, according to the kind of money in which bills of exchange are paid. In England, however, gold has been made the standard of value, by a law of 1816, which enacts that no payment in silver, above two pounds, is a legal tender. A difference of opinion has also existed as to the correct- ness of establishing a par between gold coins and silver coins, as these two metals are liable to continual fluctuation in their relative prices. It is however obvious, that the intrin- sic par of exchange can be determined only between places which pay their bills in the same kind of metal. It should be even remarked, that the value of the same metal differs considerably indifferent countries, which must be always the case between two places, where one possesses mines, and sup- plies the other with materials of coinage, as between Spain and France, or between Portugal find England. The dif- ference in such cases is estimated, in ordinary times, accord- ing to the expenses of transporting the precious metals ; and thus, from the intrinsic par, and the various charges and prices, the commercial equivalence is computed. In determining the intrinsic par of exchange, another question occurs ; namely, whether the computation should be made from mint regulations, or from assays ? The ob- jection to the first is, that all mints do not keep strictly to their own laws ; and to the second, that there can be no as- surance that the coins to be assayed are proper average speci- mens. The latter is, perhaps, the least objectionable, and therefore a calculation from accredited assays is generally preferred. In the present work the computations are made according to both methods. ELEMENTS OF EXCHANGE. 247 COURSE OF EXCHANGE. The course of exchange is the variable price of the money of one country which is given for a fixed sum of the money of another country ; the latter is called the certain^ and the former the uncertain price, as before stated. When London merchants want to draw or remit foreign bills, they meet upon the Royal Exchange, where this kind of business must be transacted. They are distinguished into two classes, called drawers and remitters ; the former are also called sellers of bills, and the latter buyers or takers, and like buyers or sellers of all other articles, their interests are opposite. The market is constantly attended by exchange brokers, who generally bring the parties together, and settle the price of exchange for the day, when they have learned how the market stands with respect to the wants or offers of buyers and sellers. It should be observed, that the prices of bullion and exchange reciprocally determine, or at least influ- ence each other. When the market price of foreign bills is above par, the ex- change is said to be favorable to the place that gives the cer- tain for the uncertain, and the contrary ; thus, if the par be- tween London and Hamburgh be computed at thirty-five shillings Flemish for one pound sterling, and the course of exchange is at thirty-six shillings, the exchange is said to be in favor of London, and against Hamburgh ; and the con- trary of course takes place if the price be under par. It should however be recollected, that when the exchange is favorable to a place, it is only so to the buyers and remit- ters of bills, but it is unfavorable to the drawers and sellers. Thus the interest of the remitter is identified with that of the place where he purchases the bill, and the interest of the drawer with that of the place where his funds are established, and on which he draws. It is natural to inquire why such prices are considered fa- vorable or unfavorable, if the drawers and remitters, whose interests are opposite, are natives of the same country? The 248 ELEMENTS OF EXCHANGE. usual answer is. that when the exchange is against a place, it becomes the interest of remitters to pay their foreign debts in specie or bullion instead of bills ; and the exportation of the precious metals is often considered a national disadvan- tage. The fluctuations of exchange are occasioned by various circumstances, both political and commercial. The princi- pal cause is generally stated to be the balance of trade : that is, the difference between the commercial exports and im- ports of any one country with respect to another. Expe- perience however shows, that the exchange may be unfa- vorable to a country when the balance of trade is greatly in its favor ; for the demand for bills must chiefly depend on the balance of such debts as come into immediate liquidation : that is to say, on the balance of payments. Besides, it does not follow that large exports are always successful, or quick in their returns ; and even should it be the case, the balance of "payments may be still unfavorable from political causes : such as foreign loans, subsidies, expe- ditions, or colonial establishments. Rich countries are often liable to have the exchange turned against them, by the sums which they may have to remit to less opulent states on ac- count of their importations of luxuries. When any alterations take place in the coin or currency of a country, the exchange will of course vary, so as to keep pace or correspond with such alteration. This, however, can- not be considered a change in the price of bills but in the money in which they are bought or sold. In times of peace the course of exchange seldom remains long unfavorable to any country, at least beyond the expenses that might be incurred by the transportation of the precious metals ; for bullion is considered the universal currency of merchants, and exchange gives it circulation, and thus tends to maintain the level of money throughout the commercial world. DESCRIPTION OF BRITISH STOCKS, COLLATED FROM VARIOUS AUTHENTIC SOURCES, AND REDUCED TO THE MONEY OF THE UNITED STATES. DESCRIPTION OF BRITISH STOCKS. NAVY Five per cent. Annuities : produced from about 50 millions of stock, partly formed on navy bills, converted, in 1784, into stock bearing interest at 5 per cent.; whence the name. $222.222,222.22 Four per cent. Consolidated Annuities : produced from about the same quantity of stock as the last, bearing interest at 4 per cent., as the title indicates. These annuities are called consols, or consolidated, from the stock having been formed by the consolidation of several debts of government. Three per cent. Reduced Annuities: produced by about 170 millions of stock, formed from several debts, that origi- nally bore higher rate of interest ; but which, on various conditions, has been reduced to the rate which the name of the stock expresses. $755,555,555.55 Three per cent. Consolidated Annuities : produced by about 400 millions of stock, in part formed by the consolida- tion of several stocks, bearing interest at 3 per cent. N. B. When the word consols is indefinitely used, it is always un- derstood to mean these annuities. $1,777,777,777.77 Three per cent. Imperial Annuities : produced by about 8 millions of stock created by loans to the emperor of Germany, with security for the interest's being paid by the government of this country, when the emperor should fail in his engage- ment. $35,555,555.55 Five per cent. Irish Annuities: produced by about two mil- lions of stock, formed by loans for the use of Ireland before the union. $8,888,888.88 252 DESCRIPTION OF BRITISH STOCKS. Bank Stock is a capital of nearly twelve millions, $59,333,333.33, from which the company of the Bank of England has accom- modated government with various loans, and with wliich they carry on the banking business, purchase bullion, &c. The dividends on bank stock are now ten per cent. ; so that the profits of the company are nearly 1,200,000 per annum. $5,333,333.33 India Stock forms the trading capital of the East India Company. This stock, (six millions,) $40,000,000.00, produces a dividend of 104^ per cent, per annum. $4,200,000.00. South Sea Stock Annuities consist of a capital of nearly twenty millions, $88,888,888.88, or they are produced from it. The greater part of this was lent to government, for which the South Sea Company re- ceive 3 per cent, but from the increase of other profits, the dividends to the proprietors are 3 J per cent. $3,111,111.11 The terminable annuities are : Bank Long Annuities : so called, from the annual pay- ments being, from their origin, made payable at the bank, and from their being granted for a greater length of time than other terminable annuities. These annuities extend to the beginning of the year 1860, and the annual payments are about 1,100,000 pounds. $4,888,888.88 Imperial Short Annuities : formed in the same manner, and upon the same conditions as the Imperial Three per cent. Annuities. They extend to May, 1819, and amount to up- wards of 320,000 per annum. $1,422.222.22 Besides the permanent loans to government, which have created the perpetual and terminable annuities, various sums have been raised from time to time as temporary loans, which are called Exchequer bills, from their being made payable at the treasury of the exchequer. DESCRIPTION OF BRITISH STOCKS. 253 Exchequer bills are issued for different hundreds or thou- sands of pounds, and bear an interest of 2%d. per cent, per diem, from the day of their date, to the time when they are advertised to be paid off. Navy bills are merely bills of exchange, drawn at 90 days' date, and are given by the commissioners of the navy for the amount of supplies for the use of that department ; and the interest upon these, amounts to 3d. per cent, per diem. Omnium is a term denoting the different stocks formed by a loan, while any part of the loan remains unpaid. For ex- ample, suppose 20 millions of money are to be raised, and for every 100 in money, are to be given 100 stock in the 3 per cents., 50 stock in the 4 per cents., and 6s. 3d. per cent, in the long annuities ; then, if any person engages to ad- vance 10,000 in money, upon paying the first installment (for the money is usually advanced at the rate of about 10 per cent, per month, until the whole is paid) he will receive receipts which separately contain an engagement to transfer to the person possessing them, 10,000 stock in the 3 per cents., 5,000 stock in the 4 per cents., and 31 10s. stock in the long annuities, upon the whole of the installments being paid, at or before the appointed time. While these three receipts are sold together, and before the whole of the installments have been paid, they are called Omnium, as they are made up of all, or of several of the stocks. Scrip is a term given to each of the receipts of the omni- um, when they are sold separately ; thus in the foregoing supposition, if the receipt containing the engagement to transfer the 10,000 in the 3 per cents., be sold without the other two receipts, this could be called a sale of scrip. Im- mediately upon the whole of the installments upon any scrips being paid, the transfer of the stock is made to the person who buys it, and here is usually a discount allowed for prompt payment. The prices of the stocks, &c., are exhibited in the lists that are published in this manner. The value of any perpetual annuity, thus : 254 DESCRIPTION OF BRITISH STOCKS. Three per cent. Consols, 63{, 64f , 64, signifies that the value of 100 stock of these annuities, sold on the day this price was given, was 63 2s. Qd. in money at the beginning of the market, that this stock rose to 64 15s., and left off 64 10s. The value of any terminable annuity, thus : Bank Long Annuities, 16| 16 : signifying, that any annual payment of these annuities was worth 16| years' purchase at the beginning, and left off at 16 years' pur- chase at the end of the market. Exchequer bills 2, 4 premium ; or India bonds, 1 or 2 dis- count. This signifies, that every 100 in exchequer bills, bore premium of 2s. at the beginning, and advanced to 4s. in the end of that day ; and that every 100 in India bonds sold at first at Is. premium, and afterwards sold at 2 discount. The value of Omnium is expressed thus : Omnium 3^ premium, 5i discount: and signifies that every 100 of Omnium, brought a premium of 3 10s., or sold at a loss of 5 10s. on the government receipts, for 100, transferred on that day on the stock exchange. 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recall. ^r ** KEC'D LD DEC 9 1353 LD 21A-60m-4,'64 (E4555slO)476B General Library University of California Berkeley YC 23902 W2.H5? THE UNIVERSITY OF CALIFORNIA LIBRARY ' *