GIFT OF 
 MICHAEL REESE 
 
GRIGG & ELLIOT, 
 
 JYo. 9 JVorth Fourth Street, 
 
 HAVE FOR SALE 
 THE FOLLOWING WORKS. 
 
 THE PRINCIPLES OF FREE TRADE, 
 ILLUSTRATED, 
 
 IN A SERIES OF SHORT AND FAMILIAR ESSAYS, 
 
 BY CONDY RAGUET, ESQ. 
 
 This volume, of which the first edition has been exhausted, com- 
 prises 432 pages octavo, of essays, selected from the Banner of the 
 Constitution, which was published during the years 1830, 1831, and 
 1832, and which is now out of print, embracing examinations of all 
 the different positions taken by the advocates of a high tariff, during 
 the contest which was terminated by the compromise act, and which 
 are now likely to be revived in adjusting the tariff for the year 184 2 
 Price, in boards, $1 50. 
 
 THE FINANCIAL REGISTER. 
 
 This work, in two vols. octavo, each of 416 pages of closely 
 printed matter in double columns, was published as a periodical 
 under the editorship of Condy Raguet, Esq. between July 1837 
 and January 1839, and was designed as a documentary history 
 of the commercial crisis of that period. 
 
 The following- notice of its contents appeared in one of the 
 Philadelphia papers in February, 1839. 
 
 History of the late Money Crisis. The Financial Register, issued 
 in numbers during the last eighteen months, is now complete in two 
 octavo volumes, closely printed in double columns, at the price of five 
 dollars. As a complete documentary history of the late money crisis 
 in the United States and England, it is of high value, and as a book 
 of reference embraces a large body of English publications connected 
 with banking and currency which are not easily procurable in this 
 country. A perusal of the contents will show the great and singular 
 value of the work to bankers, statisticians, and inquirers in financial 
 science generally. We therefore give the following particulars, as the 
 best mode of noticing a publication, the diversified worth of which 
 would not readily be imagined without such an index. 
 The celebrated Bullion Report of 1810. 
 
326 
 
 The Trade of Banking in England, embracing the substance of the 
 evidence taken before the Secret Committee of the House of Com- 
 mons in 1832, on the question of renewing the Charter of the Bank 
 of England, digested and discussed under appropriate heads, together 
 with a summary of the Law applicable to the Bank of England, to 
 private banks of issue and joint stock banking companies, by Michael 
 J. Quinn, Esq., of Lincoln's Inn, Barrister at Law. The cost of the 
 London edition of this work if imported, would be five dollars. 
 
 English pamphlets on the late money crisis, by J. Horsley Palmer, 
 Samuel Jones Lloyd, Col. Torrens, Samuel Ricardo, W. Bennison, and 
 David Salomons. 
 
 Numerous statements of the affairs of the Bank of England down 
 to a late period, of private banks and of joint stock banks. 
 
 Statements of the affairs of the three American houses as published 
 at the time of their suspension in England in 1837. 
 
 Annual Report to the stockholders of the Bank of France of Janu- 
 ary, 1837, with a history of the Bank, and the prominent features of 
 its charter. 
 
 Recent Act of the British Parliament modifying the usury laws. 
 
 Mr. Biddle's six Letters to the Hon. John Q. Adarns; also his Let- 
 ters to the*New York Board of Trade, and the New Orleans banks. 
 
 Statements of the affairs of the late Bank of the United States du- 
 ring the twenty years of its existence, and of the Pennsylvania Bank 
 of the United States during the years 1836 and 1837. 
 
 Summary statement from official documents, of the condition of all 
 the Banks in the United States, at various periods from 1811 to 1838. 
 
 Regular monthly statements of the New York Banks during the 
 suspension. 
 
 Partial statements at different periods of some of the banks of all 
 the states. 
 
 The Journal and proceedings of the different Bank Conventions 
 held at New York and Philadelphia in reference to the resumption of 
 specie payments. 
 
 Cotton, numerous tables of exports, for particular periods, consump- 
 tion of, in Great Britain from 1810 to 1837, total annual growth in the 
 United States, from 1824 to 1838. 
 
 The Financial measures of the General Government, commencing 
 with the passage of the law of 23d June, 1837, for the distribution of 
 the surplus revenue the specie circular of llth July of same year 
 the supplemental circular of llth July. The proclamation of the pre- 
 sident convoking congress in extra session his message to the same 
 all the public laws passed at that session for the issue of treasury 
 notes for the postponement of the fourth instalment of the revenue 
 for the postponement of the duty bonds and other purposes the two 
 sub-treasury bills as they passed the senate at the different sessions, 
 and were rejected by the house, with the yeas and nays of each house 
 thereupon; history of this measure when first introduced in congress 
 by General Gordon in 1834. 
 
 The Essays, eighteen in number, which appeared in the National 
 Gazette early in 1837, under the signature of "An Examiner." 
 
 Reports made to the Legislature of Massachusetts on the affairs of 
 
327 
 
 The Lafayette, The Commonwealth, Franklin, Kilby, Roxbury, and 
 Norfolk Banks. 
 
 Notices of numerous legal decisions in various partfr of the United 
 States, to which banks and other corporations were parties, involving- 
 new and most important doctrines. 
 
 Judge King's decision in the case of Kuhn vs. The Bank of the 
 United States. 
 
 Periods at which the banks in different states resumed specie pay- 
 ments. 
 
 Sales of stock weekly, at Philadelphia and New York, from July, 
 1837, to December, 1838. 
 
 Rates of Exchange at New York, foreign and domestic, weekly, 
 during the same period. 
 
 Fluctuations in the New York Stock market monthly during the 
 year 1837, of the principal stocks, foreign and domestic, usually sold 
 there. 
 
 A copy of the New York general banking law, and of the articles 
 of association under It, of the American Exchange Bank, The Me- 
 chanics' Banking Association, and The North American Trust and 
 Banking Company. 
 
 Table of Imports and Exports from 1789 to 1838 inclusive. 
 
 A list of the names of the members of the last congress, and a 
 statement of the periods at which elections are held in all the stater. 
 
 Chancellor Kent's opinion on the law of corporations. 
 
 Notices of many of the loans effected by different states. 
 
 Dr. Robert Hare's pamphlet on the currency. 
 
 Dr. M'Vickar's pamphlet on banking, first published in 1827. 
 
 General Jackson's two Letters to the editor of the Globe of 9th aid 
 23d July, 1837, on the financial policy of the country. 
 
 The Secretary of the Treasury's Reports to congress, at the open- 
 ing of the present and the preceding sessions of congress, with such 
 parts of the president's message as relates to the finances. 
 
 Annual Report of the director of the Mint of 13th January, 1838. 
 
 History of the money crisis of 1818. 
 
 Yeas and nays in the two houses of congress upon the chartering 
 of a National Bank during the extra session. 
 
 Dividends declared by the banks of New York and Philadelphia, at 
 different periods within the last eighteen months, with occasional 
 notices of the money market. 
 
 Quotation of the prices of American Stocks in the London market, 
 and of cotton in the Liverpool market, at many different periods. 
 
 Mr. Wright's Report to the Senate of the United States on the col- 
 lection of the public revenue. 
 
 Mr. Rives' substitute for the Sub-Treasury bill offered at the last 
 session of congress. 
 
 Mr. Wright's Report to the Senate on Mr. Webster's resolution 
 respecting the employment of state banks. 
 
 Copy of the Treasury instructions of 20th September, 1835, to the 
 deposit banks, recommending an extension of discounts on the public 
 money. 
 
 Report of the Bank Commissioners of Mississippi upon the condi- 
 
328 
 
 tion of the Brandon Bank, and an account of various proceedings in 
 that state in reference to the state of the currency. 
 
 Proceedings of the New Orleans-banks at various periods, respect- 
 ing a resumption of specie payments. 
 
 A copy of this work should be in every library and bank for 
 future reference. The number of copies for sale is only 300. 
 The price is $5, half bound. 
 
 QUINN'S TRADE OF BANKING. 
 
 The Trade of Banking in England, embracing the substance of the 
 evidence taken before the secret committee of the house of commons, 
 in 1832, on the question of renewing the charter of the Bank of Eng- 
 land, digested and arranged under appropriate heads. Together with 
 a summary of the law applicable to the Bank of England, to private 
 banks of issue, and joint stock banking companies. To which is 
 added an Appendix. By MICHAEL J. QUINN, Esq., of Lincoln's Inn, 
 Barrister at Law. London, 1833. 
 
 This work, the English edition of which fills a volume of up- 
 wards of 400 pages small octavo, and costs in London fifteen 
 shillings sterling, is republished entire in the second volume of 
 the Financial Register, thus presenting to the American reader 
 at a comparatively small cost, a work of great value, as contain- 
 ing a condensation of what in the minutes of evidence to which 
 it refers, occupies a very large and expensive quarto volume. 
 
 ALSO, 
 
 THE FREE TRADE ADVOCATE, 
 
 AND JOURNAL OF POLITICAL ECONOMY. 
 
 In Two Volumes, Octavo. 
 
 Published as a periodical in 1829, and edited by 
 
 CONDY RAGUET, ESQ. 
 
 ALSO, 
 THE SECOND VOLUME OF THE EXAMINER, 
 
 (THE FIRST BEING OUT OF PRINT:) 
 
 Published as a periodical between August 1834 and August 1835, and 
 Edited by CONDY RAGUET, ESQ. 
 
A TREATISE 
 
 ON 
 
 CURRENCY 
 
 BANKING. 
 
 CONDY RAGUET, LL.D., 
 
 MEMBER OF THE AMERICAN PHILOSOPHICAL SOCIETY; PRESIDENT OF THE CHAMBl 
 
 OF COMMERCE OF PHILADELPHIA; LATE CHARGE D'AFFAIRES OF THE UNITED 
 
 STATES AT THE COURT OF BRAZIL, AND AUTHOR OF "THE PRINCIPLES 
 
 OF FREE TRADE ILLUSTRATED." 
 
 "It is the interest of every country that the standard of its money, once set- 
 tied, should be inviolably and immutably kept to perpetuity. For whenever 
 that is altered, upon whatever pretence soever, the public will lose by it. 
 
 " Men in their bargains contract, not for denominations or sounds, but for the 
 intrinsic value. LOCKE ON MONET. 
 
 Secontr 
 
 PHILADELPHIA: 
 
 GRIGG & ELLIOT, BOOKSELLERS, No. 9 NOilTH FOURTH STREET, 
 
 1840. 
 

 Entered, according to act of congress, in the year 1839, 
 
 BY CONDY RAGUET, 
 
 In the office of the clerk of the District Court of the Eastern District 
 of Pennsylvania. 
 
 T. K. & P. Q. COLLINS, PRINTERS, 
 
 No. 1 Lodge Alley. 
 

 TO 
 
 CLEMENT C. BIDDLE, ESQ. 
 
 AS A MARK OF RESPECT, 
 
 DUE TO AN ENLIGHTENED POLITICAL ECONOMIST, AND 
 AS A TESTIMONIAL OF A FRIENDSHIP, 
 
 COMMENCED IN CHILDHOOD, CONTINUED WITHOUT INTERRUPTION 
 FOR MORE THAN FORTY YEARS, AND STRENGTHENED BY A HAR- 
 MONY OF OPINION ON MOST OF THE POLITICAL SUBJECTS THAT 
 HAVE OF LATE DIVIDED THE PEOPLE OF THE 
 
 UNITED STATES, 
 
 AND ESPECIALLY ON THOSE OF 
 
 CURRENCY AND BANKING, 
 
 THIS WORK IS, WITH SENTIMENTS OF THE 
 MOST AFFECTIONATE REGARD, 
 
 DEDICATED BY 
 
 THE AUTHOR. 
 
TABLE OF CONTENTS. 
 
 BOOK THE FIRST. 
 
 OF THE LAWS WHICH REGULATE A CURRENCY 
 COMPOSED ENTIRELY OF THE PRECIOUS ME- 
 TALS. 
 
 CHAPTER I. Of the intrinsic value of the precious metals, 
 and of their adaptation to the purposes of a circulating 
 medium, ..--.....g 
 
 CHAPTER II. Of the distribution of the precious metals 
 throughout the commercial world, - - - - 5 
 
 CHAPTER III. On the relative value of gold and silver, 8 
 
 CHAPTER IV. On the balance of trade, or the causes which 
 occasion the transmission of the precious metals from one 
 country to another, - - - - - - -12 
 
 CHAPTER V. On the principles of exchange, - - -25 
 
 CHAPTER VI On the steadiness of trade in countries em- 
 ploying a metallic currency* ------ 36 
 
 CHAPTER VII. Of the different kinds of depreciation to 
 which a metallic currency is liable, - - - - 42 
 
 CHAPTER VIII. On the " credit system," or the influence 
 of credit in promoting national wealth, - - - - 48 
 
 CHAPTER IX. On the laws which regulate the hire of 
 capital, and on the impolicy of usury laws, - - 53 
 
 CHAPTER X. Examination of the common opinion re- 
 specting the sinking of capital, 58 
 
Vi TABLE OF CONTENTS, 
 
 BOOK THE SECOND. 
 
 OF THE LAWS WHICH REGULATE A MIXED CUR- 
 RENCY COMPOSED OF THE PRECIOUS METALS, 
 AND OF PAPER CONVERTIBLE INTO COIN ON 
 DEMAND. 
 
 ! CHAPTER I. Of banks of deposite, of banks of discount, 
 
 and of banks of circulation, ------ 67 
 
 CHAPTER II. Of the operation of banks of circulation, - 73 
 CHAPTER III. Of the principles by which the profits of 
 
 banks of circulation are determined, - - - - 80 
 CHAPTER IV. Of the safest and most profitable mode of 
 
 investing the capitals of banks of circulation, - - 84 
 CHAPTER V. Of the legitimate operations of banks of 
 
 circulation, ---------90 
 
 CHAPTER VI. Examination of the common opinion that 
 
 banks create capital, - 94 
 
 CHAPTER Vll.^-On the strict convertibility of bank notes 
 
 and credits, - - ~ ... 100 
 ' CHAPTER VIII. Of the various modes resorted to by some 
 
 banks to augment their dividends, - - . - - 104 
 
 CHAPTER IX. Of the creation of banks without capitals, 
 
 or of fraudulent banks, - - - - - -110 
 
 CHAPTER X. Of the effects of banks dealing in exchange, 114 
 CHAPTER XI. Examination of the common opinion that 
 
 the establishment of banks in the western states upon 
 
 eastern capital, is beneficial to thuse states, - - - 124 
 CHAPTER XII. On the circulation of small bank notes, - 127 
 
TABLE OF CONTENTS. vii 
 
 BOOK THE THIRD. 
 
 OF THE LAWS WHICH REGULATE A CURRENCY 
 COMPOSED ENTIRELY OF INCONVERTIBLE 
 BANK PAPER. 
 
 * CHAPTER I. Of the career usually run by banks of circu- 
 lation previous to a general stoppage of specie payments, 134 
 CHAPTER II. Of the fluctuations in the market price of 
 specie and of bills of exchange under an inconvertible 
 paper currency, - - - - --.- -140 
 
 v CHAPTER III. Of the true character and effects of a gene- 
 ral suspension of payments by the banks, and their obli- 
 gations under it, - - - - - - - 148 
 
 4 CHAPTER IV. Of the criminality of banks in augmenting 
 
 their issues after a suspension of payments, - 154 
 
 CHAPTER V. Of the cost to a community, pecuniary and 
 moral, of banks of circulation, compared with the bene- 
 fits derived from them, - - - - - - -158 
 
 CHAPTER VI. Of the different kinds of depreciation to 
 which an inconvertible paper currency is liable, - - 168 
 
 BOOK THE FOURTH. 
 
 CHAPTER I. Examination of the question, of what does a 
 currency consist 1 173 
 
 CHAPTER II Examination of the question, of what does a 
 currency consist? continued, - - - -177 
 
Viii TABLE OF CONTENTS. 
 
 CHAPTER III. On the importance of having uniform peri- 
 odical statements of the condition of the currency, - 188 
 
 CHAPTER IV. On the impolicy of adhering to our present 
 mint proportions between gold and silver, - - -194 
 
 CHAPTER V. On the superiority of the New York general 
 banking law, over the present banking system, - - 200 
 
 APPENDIX. 
 
 A. On the relative value of gold and silver, - 207 
 
 B. History of the gold coinage of the United States, - 218 
 C. Condensed statement of the condition of all the banks 
 
 in the United States, at different periods, - - 242 
 D The New York general banking law, - - - 243 
 E. Letter from the author to J. W. Cowell, Esq. - - 254 
 F. Table of imports and exports, from 1789 to 1839, - 258 
 G. Essay on unlimited liability, by James Cox, Esq., - 260 
 H. Report to the senate of Pennsylvania on the money 
 
 crisis of 1818, 289 
 
 I; Prices of state stocks in London at two different pe- 
 riods, 306 
 
 J. Extract from the annual report of the comptroller of 
 New York, of January, 1840, upon the general 
 banking law, with abstracts from two recents laws, 308 
 
PREFACE. 
 
 THE suspension of specie payments by all the banks 
 in the United States, south of New England, in the 
 year 1814, and of all, with a very few trifling excep- 
 tions, in the year 1837, has strongly impressed the 
 public mind with the belief that there is something 
 defective in the present banking system of this conn- 
 try; and it is not, perhaps, venturing too much to 
 assert, that there are now elements at work, which 
 will ultimately overthrow the whole fabric, unless 
 those who have the power to remedy the evil, shall 
 introduce the reforms which can alone render a repe- 
 tition of such a calamity impossible. 
 
 It must be evident to every observant mind, that 
 a dislike to hear the truth, when opposed to one's 
 interests or prejudices, is the principal cause of a 
 large portion of the mischievous errors which so 
 generally prevail. Men of education and capacity, 
 who are best qualified to investigate and understand 
 the important principles which belong to the science 
 of public economy, are too apt to view them as of 
 no account, or to despise them when they come in 
 conflict with their purses, or with their political pro- 
 motion; and hence that knowledge, which is the most 
 
X PREFACE. 
 
 entitled to regard, because most intimately connected 
 with the prosperity of a country, is of all others the 
 most neglected. I assert it, and, in so doing, I think 
 I do not overestimate its value, that political economy 
 is the most important of sciences; and if its practical 
 branches were introduced as a study into all our 
 colleges and principal schools, it would do more 
 towards exempting the country from erroneous and 
 destructive legislation, than any other study to which 
 the attention of our youth could be directed. 
 
 Of these practical branches, the science of banking 
 is one, but it is one, to the attainment of a knowledge 
 of which there is no " royal road," any more than 
 there is to any other species of learning. He who 
 wishes to understand it, must study and reflect, and 
 this not with the feelings of a partisan, but in the true 
 spirit of philosophy, unbiassed by self-interest, or by 
 any other consideration than a pure love of the truth. 
 The rapid strides which the banking system has been 
 making of late in France and other countries of 
 Europe, accompanied, as it has been, by indications 
 of unsoundness, in Belgium and elsewhere, gives 
 just ground for apprehension, that the same spirit 
 which has characterised the management of most of 
 our institutions, as well as those of Great Britain, 
 producing alternate expansions and contractions of 
 the currency, to the great injury of the public, will 
 also there extensively prevail. In such event, the 
 check to over-issues in this country and England, 
 which now exists from the reaction of the metallic 
 currencies of continental Europe, would be greatly 
 diminished, and in consequence of it, inflations and 
 
PREFACE. Xi 
 
 convulsions hitherto unknown in the commercial 
 world, because extended over a wider field, would 
 most certainly overtake us all. That the interests of 
 a country aje best to be promoted by a stable cur- 
 rency, precisely as they are by a fixed standard of 
 weights and measures, will hardly be disputed; and 
 if it can be shown, that a defective, or mismanaged 
 banking system, produces exactly the same results 
 upon the pursuits of industry, and the property of 
 individuals, as would the decrees of a despot, who 
 should alter, at his pleasure, without any previous 
 notice, as often as he thought it expedient, the weight 
 of the pound, or the length of the yardstick, it is to 
 be hoped that there is not a patriot in the land, who 
 would hesitate to assist in the entire eradication of 
 such a monstrous evil. That such is the effect of our 
 present system, as it has been of late conducted, must 
 be obvious to all who have closely examined its 
 operations, and hence the necessity, before it is too 
 late, of an application of the appropriate remedy. 
 
 The author of this treatise in offering it to the 
 public, has no private ends to promote. He has been 
 for twenty years a student of the science which he 
 proposes to discuss, and has during that time in some 
 reports to the senate of Pennsylvania, and in many 
 detached publications, presented his views in relation 
 to currency and banking; and if in the present volume 
 there should appear here and there an expression 
 familiar to the reader from former acquaintance, he 
 may be assured that not a phrase has been employed 
 as original, which is not his own property. He 
 knows that in his opinions respecting the influence 
 
Xii PREFACE. 
 
 and operation of banks of circulation, upon the public 
 prosperity, he differs from some of his personal friends, 
 and from many others engaged in the management 
 of such institutions, for whose intelligence and purity 
 of character he entertains the highest respect. But 
 the truths of science cannot be forced to accommodate 
 themselves to man's imperfection or interests. If 
 what he advances be not such truths, they can be 
 easily refuted, and he invites the severest criticism to 
 be applied to his doctrines, in order that their solidity 
 may be tested, and if found to be false or unstable, 
 that their true character may be exposed. If, on the 
 other hand, the principles which, he asserts, be in 
 reality, as he honestly believes them to be, incontro- 
 vertible truths, he will not do any of his readers the 
 injustice of supposing, that they would reject them, 
 because they are not profitable. 
 
 With these preliminary remarks, the author will 
 briefly state, that the plan he has adopted, is one which 
 he thinks the best calculated to simplify the subject 
 to those who have not heretofore made it a study. 
 He has divided the volume into four books. The 
 first treats of the laws which regulate a currency 
 composed entirely of the precious metals; the second, 
 of those which regulate a currency composed of coin 
 and convertible paper united; the third, of those 
 which regulate an inconvertible paper currency; 
 whilst the fourth treats of some miscellaneous matters, 
 which could not have been well comprised under 
 either of the former heads. 
 
 In the language and style of the work, the author 
 has sought rather to render his positions intelligible 
 
PREFACE. x iii 
 
 to practical men, than to appear to be scientific, and 
 hence the reader will find some familiar expressions, 
 which have been purposely adopted, because every 
 body could understand them. 
 
 April 15, 1839. 
 
PREFACE. 
 
 NOTE TO SECOND EDITION. 
 
 THE stoppage of specie payments referred to 
 above, in 1814, commenced in Baltimore about the 
 27th of August, soon after the battle of Bladensburgh 
 and the capture of Washington, which events took 
 place on the 24th of that month, and was followed 
 by Philadelphia on the 30th, and by New York on 
 the 1st of September. A general resumption took 
 place on the 20th of February, 1817. 
 
 The second stoppage commenced at New York on 
 the 10th of May, 1837, and was followed at Phila- 
 delphia on the llth, at Boston and Baltimore on the 
 12th, and in all other places in quick succession. 
 Resumption took place at New York on the 9th of 
 May. In Boston, Philadelphia, and places further, 
 south it was delayed until the 13th of August. 
 
 Since the publication of the first edition of this 
 book, all the banks in the United States, south of 
 New York, which pretended to pay in specie, sus- 
 pended payment again. This event took place first 
 in Philadelphia, on the 9th of October, 1839, and 
 was followed by the rest in rapid succession, leaving 
 only New York and New England in the enjoyment 
 of a convertible currency. This suspension has con- 
 tinued to this time, arid is expected to continue until 
 1841. 
 
 June 1, 1840. 
 
A TREATISE 
 
 ON 
 
 CURRENCY AND BANKING 
 
 BOOK FIRST. 
 
 OF THE LAWS WHICH REGULATE A CURRENCY COM- 
 POSED ENTIRELY OF THE PRECIOUS METALS. 
 
 ADAM SMITH, and other elementary writers on the 
 science of Political Economy, have shown the princi- 
 ples upon which commodities must have been ex- 
 hanged in that rude condition of society which pre- 
 ceded the use of metallic money, and it is not my in- 
 tention to travel over the same ground, and occupy 
 the attention of the reader in recapitulating details 
 with which he is probably already familiar. Nor is 
 it my intention to give a history of the various inven- 
 tions to facilitate barter, which have been adopted at 
 various periods in different countries, such as the use 
 of cattle, cowry shells, tobacco, iron, and some other 
 objects, each of which has been at some period em- 
 ployed to perform the function of what has been ap- 
 propriately denominated " a medial commodity," by 
 which the relative value of other things could be deter- 
 mined. I propose at once to enter upon the subject 
 of currency as we find it at the present day in com- 
 mercial nations, and shall first point out the laws by 
 
A TREATISE ON 
 
 which commerce is carried on in a country where 
 there are no bank notes or paper money of any kind, 
 and where gold and silver alone constitute the cur- 
 rency; and, as it would be carried on in every country, 
 if there did not exist paper money. 
 
 CHAPTER I. 
 
 OF THE INTRINSIC VALUE OF THE PRECIOUS METALS, 
 AND OF THEIR ADAPTATION TO THE PURPOSES OF 
 A CIRCULATING MEDIUM. 
 
 GOLD and silver, it is well known, are produced in 
 various parts of the globe, at the cost of labor and 
 capital, precisely in the same manner that iron, lead, 
 and other metals are produced; and with regard to 
 all the mining countries, they constitute, if not the 
 only, at least the most inviting product of industry to 
 which a portion of the land, labor, and capital, of 
 their inhabitants can be applied. As products, there- 
 fore, of industry, they possess an intrinsic value, like 
 all other commodities, dependent upon the cost of 
 producing them; that is, upon the amount of the rent 
 paid to the owner of the land for the privilege of 
 mining them, the amount paid for the wages of the 
 laborers employed in digging and smelting the ore 
 and in refining the metal, and the amount of the or- 
 dinary profits on capital invested in the enterprise. 
 Were this not the case, it is evident that mines would 
 not be worked, for no proprietor of land or capitalist 
 would embark in an undertaking that would lead to 
 certain loss, the object of mining not being to produce 
 gold and silver, but to produce gold and silver of a 
 value greater than that of the capital expended in its 
 production. This much is premised, in order that the 
 
CURRENCY AND BANKING. 3 
 
 reader may have at the outset a clear view of this 
 fundamental truth in political economy, that gold and 
 silver being products of industry, possess a value as 
 real and substantial as that which belongs to any 
 other commodities; not indeed founded upon the basis 
 of convention, as some people imagine, but upon their 
 well known applicability to various purposes of uti- 
 lity and ornament for which no other materials pos- 
 sess equal qualities, and which renders them on that 
 account universally sought for. They are therefore 
 not mere representatives of wraith as many persons 
 fancy, but real wealth itself to the full extent of their 
 value. 
 
 What proportion of the actual value of gold and 
 silver, as exchangeable for other commodities, is due 
 to their applicability to objects of utility and orna- 
 ment, and what proportion to their fitness for the pur- 
 poses of a circulating medium, now that they are ap- 
 plied to that purpose, it would not be easy to deter- 
 mine; nor is it at all necessary to this investigation that 
 it should be determined. It is sufficient for us to 
 know, that almost every individual who can aiford a 
 silver spoon, or a gold watch, or a plated or gilt orna- 
 ment, will have one; and that if gold and silver were 
 to be wholly disused as money, they would retain a 
 large share of their present value for the purpose of 
 being converted into plate and other objects of manu- 
 facture, and in process of time, would again rise to the 
 cost of their production, which would be an indispen- 
 sable requisite to ensure a future fresh supply. 
 
 It will, perhaps, remain for a future day to develope 
 all the reasons why gold and silver have become so 
 universally adopted by all civilised people as the me- 
 dial commodity, that is, the commodity in exchange 
 for which any other commodity can almost always be 
 readily had. Those with which we are already ac- 
 quainted, are the following: 
 
 1. Their uniformity of value, varying from one 
 year to another, and from one period of years to an- 
 
4 A TREATISE ON 
 
 other, less than jany other known commodities, and 
 therefore well adapted to be the commodities of con- 
 tracts and obligations payable at a future day. 
 
 2. The universality of this uniformity of value, by 
 which they serve not only as standards for comparing 
 prices at different periods of time, but prices in diffe- 
 rent countries at the same time. 
 
 3. Their convenient portability, possessing a great 
 value in a small bulk, and yet a bulk not too small for 
 all practical purposes. 
 
 4. Their divisibility into pieces of any weight, and 
 of the most exact quantities, and their convertibility 
 by fusion back again into larger masses without loss. 
 
 5. Their malleability and toughness, which render 
 them not liable to break. 
 
 6. Their susceptibility of receiving impressions as 
 coins. 
 
 7. Their uniformity of physical quality, pure gold 
 or silver being the same at all times and at all places, 
 and thus unlike most other metals and commodities 
 which have different degrees of excellence. 
 
 8. Their capacity of admixture with alloy which 
 renders them as coins less destructible by wear and 
 tear, and of their being again separated from it with 
 very little loss. 
 
 9. Their durability, not being easily destroyed by 
 fire, and not at all by rust. 
 
 10. Their clear sound when dropped upon a hard 
 substance, by which they can be known from base 
 metals, and be thus distinguished from counterfeits. 
 
 1 1. Their specific gravity, which differs from that 
 of other metals of the same bulk, and thus renders 
 the detection of counterfeits easy by a practised hand. 
 
 The beauty of the metals adds to their value for 
 purposes of utility and ornament, but perhaps not to 
 their value as money; and hence I have not embraced 
 that quality in the foregoing enumeration. 
 
CURRENCY AND BANKING. 
 
 CHAPTER II. 
 
 OF THE DISTRIBUTION OF THB PRECIOUS METALS 
 THROUGHOUT THE COMMERCIAL WORLD. 
 
 ALL the gold and silver annually produced in the 
 four quarters of the globe, and not required for con- 
 sumption in manufactures or for currency in the coun- 
 tries where produced, are in the constant course of dis- 
 tribution throughout the commercial world in ex- 
 change for commodities which are more desirable to 
 the producers than the metals themselves; and when 
 thus distributed, they are liable in common with that 
 portion of the pre-existing mass which retains the 
 form of coin and bullion, to such further changes of 
 place as the wants and circumstances of each particu- 
 lar country may require. In these distributions, each 
 country does not equally participate, but each draws 
 to itself that proportion of the whole quantity which 
 is called for by the extent of its wealth, its population, 
 its commerce, and the state of confidence or credit 
 existing amongst its inhabitants. A rich nation, coste- 
 ris paribus, will require more gold and silver than 
 a poor one a large population more than a small 
 one a nation carrying on much trade more than one 
 \Y,hich carries on little and a nation where confi- 
 dence and credit are circumscribed, more than one in 
 which they are expanded. The first three of these 
 propositions are self-evident. The fourth needs per- 
 haps some illustration, and as I wish to leave nothing 
 in dispute as I go along, I will state more plainly 
 what is meant by it, which is, that in a country where 
 no credits or comparatively few are given on the sale 
 of property or merchandise, and where consequently 
 payments are made entirely or chiefly in coin on the 
 delivery of the articles sold, a larger amount of gold 
 and silver is required, than in another country of equal 
 
6 A TREATISE ON 
 
 wealth, population and trade, in which sales are usu- 
 ally or frequently made on credit. 
 
 What proportion the supply of the precious metals 
 which each country secures to itself as a circulating 
 medium bears to its wealth, its population, its trade, 
 or, to the existing state of confidence or credit, it 
 would not be easy to ascertain: nor is it indeed neces- 
 sary that it should be ascertained, as far as any prac- 
 tical good can result from the knowledge. Those 
 who carry on the operations of trade will take care 
 that a country has neither too much nor too little of 
 them, and it may be assumed as a safe position, that 
 when the precious metals neither flow out from a 
 country in which there are no gold or silver mines, 
 nor flow into it faster than is incident to her additional 
 share of the new annual production of the mines, she 
 has her exact proportion. These proportions, when 
 once attained as nearly as the nature of circumstances 
 will permit, establish what may be called the gene- 
 ral level of currencies, and it is to this level, as to a 
 species of standard, that reference is made, when we 
 say that money like water will find its level. It is 
 true, that owing to the constant production of the 
 mines, which may at times occasion unequal distri- 
 butions, or. distributions other than through the ac- 
 customed channels, as was the case after the revolu- 
 tions in Spanish America took place, which caused to 
 be sent first to the United States or England, the 
 metals which formerly all went to Spain, as well as 
 to a great variety of other circumstances which dis- 
 turb the currency of particular countries, this level 
 may never be a perfect one. It is sufficiently so, how- 
 ever, for all purposes of reasoning upon it, and per- 
 haps as much so as fully warrants the figure by which 
 a fluid-like property is ascribed to the precious metals. 
 The surface of the ocean is never free from undula- 
 tion, and the daily operation of the tides is constantly 
 interfering with its level, as well as with that of rivers. 
 Moral causes, operating like the physical causes which 
 
CURRENCY AND BANKING. 7 
 
 influence the movement of the waters, operate upon 
 gold and silver, in driving them from one place to ano- 
 ther, but it is easily to be seen, that were the extent of 
 wealth, population, commercial transactions, and con- 
 fidence, in all countries to remain the same for a long 
 period together, and were the new productions of the 
 mines to be distributed in due proportions, and the 
 old stock in each country to be diminished by con- 
 sumption in an equal ratio, gold and silver would 
 assume such a uniformity of exchangeable value, as 
 to arrive at a perfect state of quiescence. Indeed, as 
 it is, gold and silver are of all commodities the least 
 likely to be exported from any country, except from 
 those in which they are produced, and where of con- 
 sequence they form a portion of the produce of the 
 land and labor of the people, as iron and lead do in 
 some other countries; or, from those which, in addi- 
 tion to their supply for the purpose of currency, have 
 possessed themselves of an amount specifically in- 
 tended for exportation to countries having products 
 not procurable by any other means than by purchase 
 with gold and silver. * We may therefore conclude, 
 that a level does exist, created as will be seen here- 
 after, by the imports and exports of commodities other 
 than the precious metals themselves, towards which 
 the currencies of all countries have a perpetual ten- 
 dency, and from which, if they do not precisely con- 
 form to it, they do not greatly depart. 
 
 * From the period of the Independence of the United States 
 up to about the year 1823, nearly all their imports from China 
 and India were paid for by an exportation of silver dollars, 
 brought into the country in addition to the supply required for 
 the currency. Since the year mentioned, the chief part of the 
 China and India cargoes, are paid for by credits or bills on 
 London, exports of manufactures, and by coin procured in 
 Europe. 
 

 
 A TREATISE ON 
 
 CHAPTER III. 
 
 ON THE RELATIVE VALUE OF GOLD AND SILVER. 
 
 GOLD and silver, like all other commodities, have 
 each their own peculiar value founded upon the im- 
 mutable law of supply and demand, by which all 
 values are determined. The scarcity of the one com- 
 pared with that of the other, in connection with the 
 difference in their respective costs of production, that 
 is, of the expenses of mining and smelting the ore, and 
 of refining the metal, establish between them a very 
 wide difference as regards their relative value. An 
 ounce of pure gold has always been, and probably 
 always will be, worth more than an ounce of pure 
 silver. But the ratio of this difference, it must be 
 manifest, is not fixed by any law of nature, any more 
 than the ratio between any two other commodities. 
 Nature does not say, that an ounce of gold shall al- 
 ways be worth so many ounces of silver, any more 
 than she says that a pound of copper shall always be 
 worth so many pounds of iron, or a pound of cotton 
 so many pounds of flour, and hence it is clear, that 
 there is no law of nature applicable to gold and silver, 
 which is not equally applicable to all other commodi- 
 ties. 
 
 What nature, however, has left undone, man in his 
 limited wisdom has attempted to accomplish, by the 
 enactment of laws fixing the ratio at which gold and 
 silver shall be exchangeable for each other. These 
 laws, when first enacted, were no doubt founded upon 
 the observation of the fact, that in the general market 
 of the commercial world, these two metals had, for 
 long periods together, preserved something like a fixed 
 proportion, and it was no doubt conceived, that chain- 
 ing them together by statute, would prevent them 
 from ever separating. 
 
CURRENCY AND BANKING. 9 
 
 We learn from Adam Smith,* that prior to the dis- 
 covery of the American mines, which first began to 
 show its effects somewhere about the year 1570, in 
 the diminished value of both the precious metals by 
 the new and annually augmenting supplies which 
 were derived fro.n that fruitful source, the value of 
 pure gold to pure silver was established in the diffe- 
 rent mints of Europe, at proportions varying from 
 one to ten, to one to twelve; that is, one ounce of pure 
 gold, was declared to be the equivalent of ten to twelve 
 ounces of pure silver; and in their respective coinages 
 these proportions were consequently observed. At 
 about the middle of the 17th century, that is, about 
 the year 1650, the ratio between gold and silver came 
 to be regulated in the proportion of one to fourteen, 
 and one tp fifteen ounces of silver, no doubt occasioned 
 by the fact, that although both metals had become 
 more abundant in proportion to the demand, and had 
 both been depreciated below their former value, yet 
 silver had depreciated more than gold, to an extent 
 that had created new proportions in the general mar- 
 ket, which it was the design of the new laws to follow 
 up. 
 
 From the period last mentioned, there does not ap- 
 pear to have been any material change in the relative 
 value of gold and silver in the general market of the 
 trading world prior to the beginning of the present 
 century, when a further depreciation of silver in refe- 
 rence to gold began to show itself, so that by the year 
 1S20, an ounce of gold came to be worth near sixteen 
 ounces of silver, of which the consequence was, that 
 all the gold coins of the United States, where the mint 
 proportion had been fixed at one to fifteen, were ex- 
 ported from the country, to be exchanged for their 
 proper equivalent.! 
 
 * Wealth of Nations, Book I. Chap. xi. 
 
 f In corroboration of this fact, the following statement of the 
 
10 A TREATISE ON 
 
 The author believes that he was one of the first, if 
 not the first, writer in this country who called the at- 
 tention of the public to this new change, and appre- 
 hensive at the time, that the legislative folly of attempt- 
 ing to establish by law what nature herself could not 
 establish, would be repeated by a new enactment, he 
 urged in December, 1821, upon the late Mr. Lowndes, 
 a representative in congress from South Carolina, and 
 chairman of the committee of finance, the expediency 
 of abolishing the coinage of eagles and their fractional 
 parts, and of substituting in their place new pieces, to 
 weigh respectively an ounce, a half ounce, and a quar- 
 ter of an ounce of standard gold, under the full convic- 
 tion that they would soon be introduced into circula- 
 tion at their proper equivalent, without involving us 
 in the absurdity of having two legal tenders.* The 
 arguments presented to Mr. Lowndes in conversation 
 were at his particular request reduced to writing, to- 
 gether wiiii answers to two points raised by him, and 
 were published in the National Gazette of 26th Janu- 
 ary, 1822. A copy of this paper will be found in the 
 Appendix, marked A. 
 
 The death, in the course of the last mentioned year, 
 
 coinage of Gold by the mint of the United States, at, and about 
 the period referred to, is adduced. 
 
 1818, 
 1819, 
 1820, 
 1821, 
 1822, 
 1823, 
 1824, 
 
 $242,940, 
 
 258,615, 
 
 1,319,030, 
 
 189,325, 
 
 88,980, 
 
 72,425, 
 
 93,200. 
 
 This diminution in the coinage of gold after 1820 arose from 
 the circumstance that nobody wished to import gold into the 
 country to have it coined into eagles at ten dollars each, when 
 the gold contained in an eagle was worth more than ten dollars., 
 
 * The ducat of Holland is current all over the continent of 
 Europe at its fair equivalent. Gold in France circulates at the 
 market rate of premium, silver being the ordinary currency. 
 
CURRENCY AND BANKING. 11 
 
 of Mr. Lowndes, who was one of the few individuals 
 in congress who had studied the subject of the coinage, 
 appeared to suspend the ^action of that body in regard 
 to the alteration of the mint regulations, and although 
 several propositions were at different periods subse- 
 quently submitted, yet nothing was done until the 
 28th of June, 1834, when the law usually known as 
 the gold bill was passed. A short history of these 
 propositions was drawn up by the author in the last 
 named year, and as it may be of service to those who 
 have a desire to study the subject, extracts therefrom 
 have been placed in the Appendix marked B. 
 
 In connection with this subject, it may not be amiss 
 to remark, that the proportion of one to fifteen or six- 
 teen in the relative value of gold to silver, does not by 
 any means warrant the inference that there is just fif- 
 teen or sixteen times as much silver as gold in exis- 
 tence. Adam Smith advances conclusive arguments 
 to show that the quantity of silver at the time he wrote 
 was far greater than the proportion which it bore to 
 gold called for, and indeed any one may be convinced 
 of this fact if he will reflect upon the very small value 
 of gold compared with silver, that is consumed in plate 
 and ornaments. The relative value of no two com- 
 modities determines their relative quantities, and it is 
 easy to be perceived, that if a barrel of flour were 
 worth ten dollars, and a box of Spanish segars twenty 
 dollars, it would not necessarily follow that there were 
 in existence only twice as many barrels of flour as 
 there were boxes of segars. 
 
12 A TREATISE ON 
 
 CHAPTER IV. 
 
 OF THE BALANCE OF TRADE, OR OF THE CAUSES WHICH 
 OCCASION THE TRANSMISSION OF THE PRECIOUS 
 METALS FROM ONE COUNTRY TO ANOTHER. 
 
 IN a preceding chapter, it was stated that the pre- 
 cious rnetals are distributed by the operations of com- 
 merce throughout the trading world, in such a way 
 as to establish what is called a general level of cur- 
 rencies. I shall now proceed to show the mode by 
 which this distribution is accomplished, which is ac- 
 cording to the laws of what is termed the balance of 
 trade. 
 
 It must be manifest to every observant mind, that 
 even under the most perfect level which the curren- 
 cies of all commercial nations can attain, that is, under 
 such a state of things as may be imagined where no 
 motive of profit could lead to the importation or ex- 
 portation of the precious metals, except as relates to 
 the annual production of the mines, the prices of other 
 commodities will not be in all countries the same. 
 Were this the case there could be no commerce, for 
 the only object of commerce is to transport commodi- 
 ties from countries where they can be purchased for 
 a comparatively small quantity of gold and silver; that 
 is, at a comparatively low price; to other countries 
 where they can be sold for a greater quantity of gold 
 and silver; that is, at a higher price.* Any one can 
 
 *The reader will be pleased to keep in mind, that price in 
 political economy is the value of a thing expressed in money 
 only, and therefore differs from the term va/ue, which expresses 
 the worth of things as compared with other things than gold and 
 silver. Thus we would say that five dollars is the price of a 
 hat, where money is to he paid for it, but we would say that 
 five pairs of shoes are the value of a hat, if the hat is to be paid 
 for in that many shoes. 
 
CURRENCY AND BANKING. 13 
 
 perceive that iron would not be imported into the 
 United States from England unless it could be sold 
 here at a higher price than it cost at the place of pro- 
 duction, and that cotton would not be exported from the 
 United States to Europe unless it could be sold there 
 at a higher price than it could be purchased for here, 
 f Fhe prices of different articles, it is self-evident, in 
 every country, are regulated by causes peculiar to 
 themselves, such as the soil, climate, wages of labor, 
 degree of skill required, extent of population, capital, 
 and taxation^ and this it is which sets in motion the 
 whole machinery of commerce. Even in the case of 
 barter with savage nations, although gold and silver 
 be absent, yet the trader has reference in his calcula- 
 tions to the metallic standard, in order to enable him 
 to determine how much he can afford to give of what 
 he has to dispose of, in exchange for the commodities 
 which he is to receive in payment. 
 
 The foreign commerce of a nation is usually of two 
 kinds. The first is that wherein the export and im- 
 port trade are carried on by the same individual, in 
 the same vessel, and in the prosecution of the same 
 voyage. Such is the trade of the United States with 
 most parts of the West Indies, South America, Africa, 
 some parts of India, and some other countries. The 
 imports from those regions consist of the articles pur- 
 chased with the proceeds of the outward cargoes, and 
 this trade is strictly an exchange of equal values, and 
 although it may exhibit what is called a balance of 
 trade on one side or the other, yet it calls for no pay- 
 ment. The same is true of the whale and other fish- 
 eries, wherein although the amount imported may far 
 exceed in value the amount exported, yet no balance 
 of trade is left to be paid, the difference being made 
 up by the value of the labor expended by the crew, 
 of the freight earned by the ship, and by the profits of 
 the enterprise. 
 
 The second trade is that wherein the exports and 
 imports are made by different classes of merchants, 
 2 
 
14 A TREATISP; ON 
 
 without any previous consultation or agreement with 
 one another. Such is our trade with Great Britain 
 and most of the other maritime nations of Europe. 
 The exporters of cotton, rice, tobacco, flour, and the 
 other commodities which form the bulk of our exports 
 to Europe, are very rarely the same individuals who 
 import the dry goods, hardware, and the infinite vari- 
 ety of other manufactures and productions which con- 
 stitute the bulk of our imports from Europe. The 
 former ship their cargoes to foreign countries, without 
 any knowledge of the quantity or value of the com- 
 modities which the importing merchants intend to or- 
 der from abroad, and the latter send their orders 
 abroad for goods without any knowledge of the amount 
 for which the exported cargoes will be sold. The 
 former class, that is, the exporters, get paid for their 
 cargoes by drawing bills of exchange upon the pro- 
 ceeds in the hands of their foreign correspondents; 
 and the latter class, or the importers, pay for their 
 goods by purchasing arid remitting these same bills. 
 
 Under a course of operations carried on by so many 
 independent traders, it would indeed be miraculous if 
 the exports and imports should be so exactly equal as 
 to leave no balance one way or the other. In truth, 
 experience shows that the exports will sometimes ex- 
 ceed the imports, and that sometimes the imports will 
 exceed the exports, leaving a balance of trade in the 
 former case in favor of the country, and in the latter 
 case against it. 
 
 Let us now suppose, that in a given country where 
 the currency is at its proper level, where no gold or 
 silver flows out or flows in, and where consequently 
 exchange would be at par, an excess of imports should 
 take place. What would be the first effect? The 
 answer must be, a demand for more bills of exchange 
 than are for sale in the market, the effect of which is a 
 rise in the rate of exchange above par, which obvi- 
 ously holds out an inducement for the exportation of 
 commodities for which a sufficient inducement did not 
 
CURRENCY AND BANKING. 15 
 
 previously exist. A rise in the exchange of one or 
 two per cent, may sometimes determine shipments, 
 which without such rise would not have been thought 
 of; not that so small a profit would of itself induce 
 shipments, but because one or two per cent, added to 
 the profit which might have been made without such 
 addition, would elevate the gain to the height of the 
 average mercantile rate of profit requisite to warrant 
 a shipment. A profit in advance is a powerful stim- 
 ulus to exportation, especially where two thirds or 
 three fourths of the capital employed in the purchase of 
 the exported commodities can be immediately replaced 
 by the sale of a bill of exchange. The additional de- 
 mand, therefore for bills, to assist towards paying the 
 balance is met, we will suppose, at once by additional 
 exports, it sometimes even happening that the remit- 
 ting merchant, to save, as it is called, the premium on 
 bills, becomes himself an exporter. 
 
 Thus far it is manifest that the balance of trade 
 occasions no exportation of the precious metals, and 
 that consequently the general level ef currencies is 
 not disturbed. But it may happen that the increased 
 demand for exportable commodities arising from the 
 augmented premium on exchange, may raise their 
 price to an extent equal to the rise in the price of bills, 
 and thus put an end to their exportation, by taking 
 away the additional profit. A new expedient is then 
 resorted to by capitalists to take advantage of the pre- 
 mium on exchange, which is to obtain a credit abroad 
 upon which they may draw bills, under the calcula- 
 tion that at some future, not very distant period, they 
 will be able to replace the funds at a lower rate of 
 exchange, and thereby realise a profit by the opera- 
 tion. The transmission, too, of public securities, bank, 
 railroad, and canal stocks, and the extension of cre- 
 dits by the consent of the foreign creditors upon allow- 
 ing interest for the extended term, are all well known 
 levers in the mechanism of trade, (to say nothing of 
 bankruptcy), by which the tendency of an unfavora- 
 
16 A TREATISE ON 
 
 ble balance of trade to cause an exportation of the 
 precious metals is frequently neutralised. But it may 
 happen, however, that all these measures combined 
 will not keep down the price of bills of exchange to 
 the rate which will render them more advantageous 
 to remit than gold or silver. That an exportation of 
 the precious rnetals will then commence is quite appa- 
 rent, but compared with the whole balance that may be 
 due, it will be exceedingly trivial, as 1 will proceed 
 to show. 
 
 We will suppose ten millions of dollars to be the 
 circulating medium of the supposed debtor country, 
 and that that is the amount which is requisite to cir- 
 culate her commodities and to maintain her currency 
 at an equivalency with the currencies of other coun- 
 tries. No sooner does this quantity become dimi- 
 nished by the exportation of any part of it, than a 
 scarcity of money begins to be felt. A scarcity of 
 money invariably occasions a fall in the prices of com- 
 modities, as every body knows, and that fall operates 
 ?.s an incentive to exportation, inasmuch as domestic 
 products, which were before too high to export, will 
 now afford a profit. A fall in the price of cotton of 
 one cent a pound has sometimes occasioned the expor- 
 tation of immense quantities in a short period; and it is 
 very clear that there is a price at which almost any 
 article might be exported to advantage, and that a 
 gradual diminution of the currency, if continued long 
 enough, will eventually establish that price. It is idle 
 to say that possibly the debtor country may not have 
 on hand a sufficiency of products to discharge the 
 debt, and that therefore she must be drained of her 
 precious metals to the last dollar. This can never be. 
 If her wealth or her powers of production had not 
 been commensurate to her demand for foreign com- 
 modities, she could not have had sufficient credit to 
 run deeply into debt. At all events, she would have 
 on hand a large portion of the foreign commodities 
 in the purchase of which the debt was incurred, and 
 a scarcity of money might even bring down prices so 
 
CURRENCY AND BANKING. 17 
 
 low as to render the exportation of foreign commodi 
 ties a profitable trade. It might even be an object to 
 send back to the place of production the very commo- 
 dities, the importation of which created the unfavo- 
 rable balance. * It is quite probale that a very small 
 reduction of the amount of coin would produce such 
 a fall in the prices of commodities as would lead to 
 their exportation to an extent adequate to keep down 
 the price of bills so as to prevent any further expor- 
 tation of. the precious metals; but if this should not be 
 the case, and if the scarcity of money should continue 
 to increase, those who had remittances to make would 
 either become bankrupt and make no remittances at 
 all, or become so embarrassed as to default in their 
 punctuality, either of which events would diminish 
 the demand for funds abroad, and stop pro tanto the 
 exportation of gold and silver, t And here it may be 
 remarked by the way, that a real scarcity of money 
 is always accompanied by an artificial scarcity which 
 aggravates the effects of the former. If, for instance, 
 a million of dollars in coin be exported, so as to pro- 
 duce an outcry about scarcity of money, timid people 
 and speculators will withhold another million from 
 circulation; the former because they are afraid to lend 
 it, and the latter because they expect to profit by for- 
 cing down the prices of property and commodities to 
 a still lower point, the effect of which would be to 
 diminish the demand for the exportation of coin by 
 reducing the prices of commodities. 
 
 But independent of the tendency of the causes above 
 
 * British goods have frequently been sent back from the Uni- 
 ted States to England, as affording the best market for them, 
 and it is a very common thing for vessels to bring back from 
 the West Indies part of their outward cargoes, owing to their 
 being worth more at home than they could be sold for abroad. 
 
 fAll the propositions here laid down, have recently been 
 fully established as practical truths in the United States, and 
 especially at New York even to the reshipping of British goods 
 to England. 
 
13 A TREATISE ON 
 
 enumerated, to restrain the exportation of specie, ano- 
 ther operation simultaneously takes place, which adds 
 to their efficiency. This is, the cessation of fresh im- 
 ports, owing to the fall in prices of foreign commodities, 
 occasioned by the existing scarcity of money. This 
 cessation, even though it be but for a short period, 
 affords time for the exportation of the products of the 
 country which had not previously been brought into 
 market; and although the tendency of an unfavora- 
 ble balance of trade is unquestionably to drive the 
 precious metals from a debtor country; yet in point 
 of fact it does not effect it, for the reasons above sta- 
 ted, beyond a very limited extent. But were this, 
 however, not the case, an outward stream would soon 
 be met by an inward one. The low prices of domes- 
 tic products would soon invite the attention of foreign- 
 ers, who, to obtain them, would bring into the coun- 
 try, not foreign commodities, which from their low 
 price could only be sold at a loss, but the precious 
 metals. * Whilst gold and silver would be flowing 
 out of the country in some directions it would be flow- 
 ing into it from others, and sooner or later the equi- 
 
 * During the panic of 1834, when the scarcity of money 
 greatly lowered the prices of commodities, the amount of specie 
 imported into the United States for the purchase of cotton at the 
 low price of the period was very great, as will appear from the 
 following official table. 
 
 Table of Imports and Exports of gold and silver coin and bullion from 
 to 1838, each year ending on '3Qth of September. 
 
 
 IMPORTED. 
 
 EXPORTED. 
 
 
 IMPORTED. 
 
 EXPORTED. 
 
 1821 
 
 $8,064,890 
 
 $10,478,059 
 
 1830 
 
 8,155,964 
 
 2,178,773 
 
 1822 
 
 3,369,846 
 
 10,810,180 
 
 1831 
 
 7,304,945 
 
 9,014,931 
 
 1823 
 
 5,097,896 
 
 6,372,987 
 
 1832 
 
 5,907,504 
 
 5,656,340 
 
 1824 
 
 6,473,095 
 
 7,014,552 
 
 1833 
 
 7,070,368 
 
 2,611,701 
 
 1825 
 
 6,150,766 
 
 8,797,055 
 
 1834 
 
 117,911,632 
 
 2,076,758 
 
 1826 
 
 6,880,966 
 
 4,663,795 
 
 1835 
 
 13,131,117 
 
 6,477,775 
 
 1827 
 
 8,151,130 
 
 8,014,880 
 
 1836 
 
 13,400,881 
 
 4,324,336 
 
 1828 
 
 7,489,741 
 
 8,243,476 
 
 1837 
 
 10,506,.II4 
 
 5,976,249 
 
 1829 
 
 7,403,602 
 
 4,924,020 
 
 1838 
 
 17,747,116 
 
 3,513,565 
 
 t A part of this amount was the result of the passage of the pold 
 bill of 28th of June of this year, and to the same bill is to be ascribed 
 the large importations of 1835 and 1836. 
 
CURRENCY AND BANKING. 19 
 
 llbrium would be restored, and the double current 
 arrested. 
 
 It may here be remarked, that the accounts current 
 between nations in their commercial dealings, that is, 
 between the individual merchants of one country and 
 those of another, which is the only sense in which 
 we speak of commercial transactions between nations, 
 are not periodically settled like the accounts between 
 individuals of the same country, which are generally 
 settled by the actual payment of the balance. Na- 
 tional accounts current are never settled. The balance 
 may be one way to-day and another way to-morrow, 
 and as there is no general pay day, like the first of 
 January, upon which a general balance is struck, 
 facilities are afforded for warding off such a pressure 
 on the bill market as would exist if a periodical 
 punctuality were rigidly enforced. 
 
 Having thus given a detail of the operations which 
 would take place under an unfavorable balance of 
 trade, I will say a few words upon those which would 
 occur under a favorable balance. And in doing this, 
 we will take for illustration the same country that we 
 have just been considering, and will suppose that an 
 excess of exports should take place. Of such a state 
 of things, what would be the first effect? The answer 
 must be, a fall in the price of bills of exchange in the 
 market. More money would have to be drawn for 
 than the amount required to pay for the imports, and 
 the competition of the bill drawers might reduce the 
 rate of exchange down to the point at which it would 
 be more profitable for them to import gold and silver 
 from abroad, than to draw bills. Still the quantity 
 that would be thus imported, would be comparatively 
 limited. The very existence of a foreign balance in 
 favor of the country, would be proof of the ability 
 of the nation to consume an additional amount of 
 foreign commodities, and the gain which could be 
 made by the importing merchants of one or two per 
 cent, on the exchange, by buying bills below par,in 
 
20 A TREATISE ON 
 
 addition to the usual profits, would invite to more ex- 
 tensive importations. Additional importations would 
 in fact take place, and the supply of these new com- 
 modities would be met by a corresponding demand on 
 the part of those whose means of consumption from 
 extraordinary crops or extraordinary profits on their 
 business, had thus become augmented. 
 
 But a fall in the price of bills would have a ten- 
 dency to discourage the exports of domestic products, 
 and this discouragement, in its turn, would have the 
 effect of raising the price of bills by a diminution of 
 the supply in the market, and thereby of removing 
 the motive for the importation of the precious metals. 
 The importation of gold and silver, however, should 
 it commence, would make money plentierthan before, 
 and thus raise the prices of commodities, foreign as 
 well as domestic. This rise in price would encourage 
 the importation of foreign commodities, because they 
 could be sold at an increased profit, whilst it would 
 discourage the exportation of domestic products, by 
 which means a part of the specie previously imported 
 would again be exported, in preference to the domes- 
 tic products, which could only be procurable at an 
 augmented price. It thus appears, that a favorable 
 balance of trade, although it has a tendency to bring 
 the precious metals into a country, yet in point of fact 
 it does not effect it beyond a limited amount, resem- 
 bling in this particular, the former case of an unfavo- 
 rable balance; two streams might be flowing, one into 
 the country and one out of it, and sooner or later the 
 equilibrium would be restored, and the level regained. 
 
 Thus it would be impossible to retain in any coun- 
 try any more than its true share of the aggregate mass 
 of the gold and silver of the trading world, or to ex- 
 clude from it any portion of that share. No human 
 contrivance or legislation could possibly effect either, 
 and hence all the efforts which have been made in all 
 parts of the world to alter what the natural laws of 
 commerce have decreed, by prohibiting the exporta- 
 
CURRENCY AND BANKING, 21 
 
 tion of the precious metals under heavy penalties, or 
 by attempting to encourage their importation by pro- 
 tective or prohibitory duties on merchandise, or, by 
 resorting to any other expedient, have proved utterly 
 futile. Money, as has been said, like water, will find 
 its level, and although the former like the latter, may 
 for a period be forced into unnatural channels, the de- 
 viation cannot long continue. 
 
 And here, I will take occasion to remark, that in 
 forming an estimate of the comparative value of the 
 exports and imports of the United States, the custom 
 house returns, as they appear in their aggregates, are 
 but imperfect guides to determine the balance of 
 trade. The value of the exports given is their value 
 at the time and place of shipment, as furnished by the 
 shippers under oath, in the form of manifests. The 
 value of the imports, is their cost abroad, as ascer- 
 tained by the invoices, also furnished under oath, 
 subject to such revision by the custom house apprai- 
 sers as may, in case of suspected fraud in the valua- 
 tion of goods chargeable with ad valorem duties, be 
 deemed right and just. These foreign invoices em- 
 brace the cost of the articles, and what are called the 
 shipping charges, that is, the charges without the 
 payment of which they could not be put on shipboard, 
 but include no frieght, or insurance; and where they 
 are made out in Brazil, Buenos Ayres or other coun- 
 tries, where a depreciated paper currency exists, due 
 allowance is made for the depreciation. 
 
 Now, as cargoes shipped abroad from the United 
 States, are burthened with the expenses of freight and 
 insurance, their value at foreign ports must generally 
 be augmented by the amount of these expenses and 
 the profits on the voyage, and consequently the nett 
 proceeds of their sales must always furnish a fund 
 adequate to the purchase of foreign commodities to a 
 greater value than their cost at home. On this ac- 
 count it necessarily follows, that where the trade of a 
 country is profitable, its imports will always exceed its 
 exports, and this too, just in the degree that it is profi- 
 
22 A TREATISE ON 
 
 table, and nothing is clearer than that if the voyage 
 out and home does not give a greater amount of im- 
 ports than of exports, the trade would be abandoned. 
 Of this proposition there can be no dispute, and it is 
 quite probable that an export of a hundred millions of 
 dollars would purchase abroad as many commodities 
 as would show an import on the custom house books 
 of a hundred and twenty or more millions of dollars, 
 thus overthrowing the theory of that class of reasoners 
 who maintain that the balance of trade is against a 
 country when it imports more than it exports, and 
 who consequently believe that a nation is growing 
 poor when she is in reality growing rich. 
 
 But to make this matter perfectly plain, I will illus- 
 trate it by a practical case that every body can under- 
 stand. 
 
 A merchant in Philadelphia purchases one thou- 
 sand barrels of flour at eight dollars per barrel, and 
 ships it to the West Indies. The custom house books 
 in this case would show an export of eight thousand 
 dollars. On the arrival of the cargo abroad it sells 
 for twelve dollars per barrel, and after paying freight, 
 duties, commissions, and all other charges, leaves the 
 nett proceeds ten thousand dollars. This sum is 
 invested in coffee, and brought home, where it is 
 entered upon the custom house books as an import of 
 that amount. Here, then, we would have an export 
 of eight thousand dollars arid an import of ten thou- 
 sand dollars, showing a clear gain of two thousand 
 dollars, without leaving any balance due one way or 
 the other. A stronger illustration than this even, is to 
 be found in the operation of our whaling ships. A 
 vessel with a cargo consisting of nothing but provi- 
 sions sufficient to feed a crew for a voyage, and as 
 many staves, hoops, and headings, as will make casks 
 enough to hold a cargo of oil, clears out at New Bed- 
 ford for the South seas. The custom house books 
 show an export of ten thousand dollars, perhaps, and 
 when the ship returns with a cargo of oil, they give 
 us an import of fifty thousand dollars, thus showing 
 
CURRENCY AND BANKING. 23 
 
 what the superficial reasoners above referred to would 
 call a balance of trade against the country of forty 
 thousand dollars, but which is a clear evidence of a 
 gain to the owners and crew, and consequently to the 
 country. 
 
 But even if the custom house books were to fur- 
 nish accurate statements of the nett proceeds of the 
 sales of the cargoes exported, as well as of the foreign 
 cost of the homeward cargoes, they would not be suf- 
 ficient to enable us to form a correct estimate of the 
 real balance of trade. Debits and credits are created 
 in the foreign trade of every country, which never 
 appear on the custom house books. Specie is im- 
 ported and exported by emigrants and passengers in 
 their trunks, or secretly shipped by merchants to avoid 
 penalties or odium, or, exposure of their operations. 
 Goods are smuggled, and others are purchased with 
 funds earned by vessels abroad, engaged in the carry- 
 ing trade, and thereby augment the imports, whilst 
 ships are frequently sold abroad, and thereby aug- 
 ment the exports. Large amounts of property are 
 also exported from some countries for which no pro- 
 ceeds are to return, or at least, to return at an early 
 day, such as happens in the case of foreign subsidies, 
 the maintenance of troops arid navies abroad, the 
 transmission of revenues to non-resident capitalists, 
 and funds for the expenses of travellers in foreign 
 countries. To these may be added losses at sea, or by 
 fires abroad, the bankruptcy of the persons to whom 
 the exported commodities are sold, and investments 
 in foreign loans and joint-stock companies. In most 
 of these cases property of some kind or other is sent 
 abroad which appears on the custom house books 
 amongst the exports; and, although in many of them 
 the actual transmission for these specific objects may 
 be in the form of bills of exchange, yet it is manifest, 
 that these bills could only be drawn upon shipments 
 of property. 
 
 In the foregoing remarks it has been laid down as 
 an axiom, that the price of bills of exchange is deter- 
 
24 A TREATISE ON 
 
 mined by the balance of trade. Strictly speaking, 
 however, this is not always the case, for this balance 
 is liable to be modified by what is called the balance 
 of payments; and in truth this latter principle it is 
 which regulates the daily rate of the exchanges. If 
 all the merchandise exported and imported was to be 
 immediately paid for at the time of its changing 
 hands, the balance of trade and the balance of pay- 
 ments would be identical. But, in the intercourse 
 between nations we know that this is not always the 
 case, and that circumstances occur to prevent the 
 immediate influence of the balance between imports 
 and exports from acting directly upon the exchanges. 
 Amongst these circumstances are the following: 
 
 1. Where the imported articles are bought on a 
 credit, and are to be paid for at a distant time, whilst 
 the exported articles are sold for cash, or vice versa. 
 
 2. Where in the case of both imports and exports 
 the sale is on credit, but the credits are not of the 
 same length. 
 
 3. W T here the articles shipped abroad from one of 
 the countries should not meet with a ready sale, and 
 should be kept on hand for a length of time without 
 being drawn upon, whilst on the other side a prompt 
 sale is made, and bills drawn for the proceeds. 
 
 In either of these cases, the operation of the balance 
 of payments on the exchanges might be such as not 
 only to neutralise for a time the operation of the 
 balance of trade, but to turn the exchanges against 
 the country which had the balance of trade in its 
 favor. A case in point can readily be referred to. 
 
 If an account current were to be made out of the 
 past state of debits and credits between the United 
 States and Great Britain, it would no doubt be found, 
 that from the date of planting the first British colony 
 in this hemisphere, we have owed a balance of trade 
 that has never been discharged, and which at times 
 may have amounted to a hundred millions of dollars 
 or more; and yet, owing to the credit that has been 
 extended to us, by which the pay-day has been de- 
 
CURRENCY AND BANKING. 25 
 
 ferred,the exchange has not always been against us,but 
 has, on the contrary, been so controlled by the balance 
 of payments as frequently to have been in our favor.* 
 
 CHAPTER V. 
 ON THE PRINCIPLES OF EXCHANGE. 
 
 BILLS of exchange are those commercial instru- 
 ments by which a merchant in one country or place 
 directs money which is subject to his control in 
 another country or place to be paid over to a third 
 party. In the commercial transactions of every na- 
 tion, some of the merchants become indebted to other 
 merchants in foreign countries for commodities pur- 
 chased there upon credit, whilst some others have 
 funds in those foreign countries arising from the sale 
 of cargoes disposed of there. If bills of exchange did 
 not exist, the debtor class of these merchants would 
 be obliged to incur the expense and risk of transport- 
 ing coin or bullion to foreign countries in discharge 
 of their debts, and the creditor class would also be 
 obliged to incur the same expense and risk in import- 
 ing coin or bullion in payment of their cargoes sold 
 abroad. By this double transmission, the merchants, 
 and consequently the nations to which they belonged, 
 would be losers to an amount equal to all the ex- 
 penses and risks so incurred, together with interest 
 on their capitals for the time they were out of their 
 reach. Nor could this be avoided unless the im- 
 porters and exporters were always the same identical 
 individuals, in which case the merchandise purchased 
 
 * For a table of Imports and Exports of the United States 
 from 1789 to 1839, see Appendix F. 
 3 
 
26 A TREATISE ON 
 
 abroad would be paid for by the proceeds of the 
 merchandise sold. By the operation, then, of bills 
 of exchange, the necessity of this double transmission 
 is entirely avoided, and the funds abroad, instead of 
 being sent home, are transferred to those who have 
 debts to pay abroad, and who are thus exempted 
 from the expense and risk of sending coin or bullion 
 in payment of their debts. 
 
 But this benefit, in which the whole nation partici- 
 pates, is not limited to the mere application of funds 
 in any given place to the payment of a debt due in 
 that place. It matters not whether the fund and debt 
 both stand on the books of merchants at the same 
 place, or whether the debt be due at Manchester and 
 the fund be at Paris. The magic power of bills of 
 exchange transfers the payer and receiver both to 
 London, the great seat and centre of British and in- 
 deed of European commercial operations. 
 
 But the merchants who make remittances of bills 
 of exchange to foreign countries, to pay for merchan- 
 dise purchased there, do not, it is manifest, procure 
 those bills of exchange for nothing. They must pur- 
 chase them from those who have funds abroad to 
 draw for, and in doing this they will endeavor to 
 procure them at as cheap a rate as they can. It is, 
 on the other hand, the interest of those who have bills 
 for sale, to secure the highest price for them they 
 can, and it is this competition between buyer and 
 seller that determines the ?narket price, which, like 
 the market price of commodities, must always depend 
 upon the proportion which the supply bears to the 
 demand. If bills of exchange are scarce, their price 
 will be high. If they are plenty, their price will be 
 low. There is, however, one peculiarity belonging 
 to a bill of exchange, which is not common to any 
 commodity, and which ought always to be kept in 
 mind in discussing this subject. It is, that if it can- 
 not be sold at a price that will suit its owner, he has 
 it in his power to avoid the necessity of a sale at 
 great loss by importing his funds in coin; and if it 
 
CURRENCY AND BANKING. 27 
 
 cannot be purchased at a price that will suit a pur- 
 chaser, the latter can avoid the necessity of a disad- 
 vantageous purchase by exporting coin in payment 
 of his debt. The existence of this peculiarity places 
 a limit upon the fluctuations in the rate of exchange, 
 which cannot for any long period together fall and 
 remain below par, or rise and remain above par, to a 
 greater extent than to an amount equivalent to the 
 expense of transporting the precious metals from the 
 debtor country to the creditor country. For, if a 
 merchant owes a debt abroad, and cannot procure a 
 bill of exchange at an advance above par equal to the 
 freight, insurance, commission, and brokerage, and 
 to the value which he attaches to that certainty of 
 punctuality in the fulfilment of his engagement 
 abroad, which a set of bills of undoubted credit, 
 sent by two or three different vessels affords, but 
 Avhich a shipment of coin cannot always furnish, how 
 solvent and prompt soever might be the underwriters 
 in settling in case of loss, he will unquestionably 
 transmit coin as being the most economical mode of 
 making a remittance.* And so, on the other hand, 
 the drawer of a bill, if he cannot sell at a price which 
 will yield him as much money as the importation of 
 coin would do, taking into the account, besides the 
 charges of importation, the interest for the time he 
 must wait before his money can arrive, and if money 
 be scarce, the inconvenience or loss he would sustain 
 by the delay, he will undoubtedly order his funds to 
 be shipped to him in coin, as the most advantageous 
 mode of getting them into his possession. 
 
 Of the correctness of these positions there cannot 
 
 * Specie was shipped from New York to England, at a loss, 
 in October, 1839, in preference to bills at par, owing to the ap- 
 prehended difficulty of getting them discounted under the pres- 
 sure of the London money market. Other shipments were 
 made, at the same time, of specie, under the impression that 
 the Bank of England was about to stop cash payments, in which 
 event, the specie would have commanded a premium in London. 
 The cost of freight and insurance on specie from the United 
 States to Europe, may be computed at one per cent. 
 
S3 A TREATISE ON 
 
 be a doubt, and whenever the market price of ex- 
 change differs from these rates, it must have its cause 
 in one of the following circumstances. 
 
 If the exchange be above, it must either be that the 
 merchants who have remittances to make are igno- 
 rant of their business, and therefore pay more for a 
 bill than it is worth, or that small profits are not 
 worth their attention, or that there is a penalty or a 
 degree of odium attached to the exportation of coin 
 which they are not prepared to encounter, or that the 
 punctuality which is expected of them by their cor- 
 respondents abroad is of a character that would not 
 justify the hazard of a miscarriage by a single ship. 
 
 If the exchange be below, it must be because the 
 owner of the funds abroad cannot afford to wait the 
 time requisite for the transmission of the coin, or 
 because in the actual state of the money market, 
 money is worth to him more than the ordinary inter- 
 est, or because there exists a penalty or a degree of 
 odium attached to the exportation of coin in the coun- 
 try from which his fund is to be drawn. 
 
 It must, however, be remarked, that it sometimes 
 happens that bills are sold below the limits here de- 
 signated in the following cases, viz: 
 
 1. Where the commanders of ships of war on for- 
 eign stations have occasion to draw bills upon their 
 government, at ports of limited trade, or at which the 
 course of trade does not call for such bills. I have 
 known a bill on the navy department drawn at a 
 port in South America to be sold at twelve per cent, 
 below the true par. 
 
 2. Where masters of vessels and supercargoes, at 
 such ports, have not merchandise enough to fill up 
 their vessels, and on that account find it for their in- 
 terest to sell bills at a great discount, for the purpose 
 of buying bulky commodities to bring home, and 
 thereby earn a freight more than equivalent to the 
 loss sustained on the bills. 
 
 3. Where masters of vessels enter such ports in dis- 
 
CURRENCY AND BANKING. 29 
 
 tress, and are obliged to draw bills upon their owners 
 for necessary repairs. 
 
 In wealthy countries, however, where bankers are 
 prepared with large capitals devoted to speculations in 
 billsof exchange,great fluctuations from the par are not 
 likely to take place, inasmuch as bills can always be 
 bought from or sold to them, by allowing a small profit 
 beyond the expenses of exporting or importing coin. 
 The trade of a banker in Europe is to study the ex- 
 changes not only between the place at which he resides 
 and all other places, but also between all those places 
 and each other, by which means he is generally en- 
 abled, by a combination of operations, by selling bills 
 on one place and by buying them on another, not 
 only to raise the fund with which he deals, but to 
 realise a profit. Thus, for instance, if he reside at 
 London, and can sell a bill on Hamburgh at half per 
 cent, premium, and buy one on Paris at half per cent, 
 discount, arid with the latter buy one through his 
 correspondent at Paris on Hamburgh at par, he will 
 have realised one per cent, by the transaction, with- 
 out the employment of any capital; the bill remitted 
 from Paris to Hamburgh arriving in time to meet the . 
 bill drawn upon his correspondent at the latter place. 
 
 Having in the foregoing remarks spoken of the par 
 of exchange, it is proper that the meaning of that term 
 should be explained. 
 
 Exchange is an operation, which, strictly speaking, 
 has relation only to the precious metals, and every 
 bill of exchange is in reality a mere order for the de- 
 livery, on a certain day, of a given quantity of gold 
 or silver. Exchange is at par or equality, when a 
 merchant in one country can purchase with an ounce 
 of pure gold, or an ounce of pure silver, a bill at sight 
 upon a foreign country, which will there put him in 
 possession of an ounce of pure gold or an ounce of 
 pure silver, and the coins of full weight of the two 
 countries which are the respective equivalents of an 
 ounce of pure gold or an ounce of pure silver, will 
 
 3* 
 
SO A TREATISE ON 
 
 express that par. This is an axiom in political econo- 
 my, and should never be lost sight of, whatever ap- 
 pearances to the contrary may at times be presented. 
 Exchange is above par when a greater quantity is re- 
 quired for the purchase of a bill that will command an 
 ounce of pure gold or pure silver; and it is below par 
 when a less quantity is required. Now, if all the tra- 
 ding nations of the world were to use only one of 
 those metals as their currency, and if their coins were 
 of the same standard as to purity, and of the full mint 
 weight, the science of exchange would be as simple as 
 the plainest calculations in arithmetic. But this not 
 being the case, each nation having its own standard 
 of fineness, and its own particular coins, some having 
 one metal and some the other, and some both, to con- 
 stitute their currencies; and the coins of some coun- 
 tries being worn by wear and tear more than those 
 of others, without being prohibited from passing by 
 tale, and there being in some countries a seignorage 
 charged on the coins, whilst in others there is none, 
 the subject is involved in an obscurity which very 
 few persons are disposed to take the trouble to pene- 
 trate, and indeed which very few persons have the 
 means of penetrating. This has been particularly the 
 case in reference to the exchange between the United 
 States and England, which, being for many years past, 
 up to the present day, quoted in all the newspapers, 
 prices current, and correspondence, upon false princi- 
 ples, has occasioned a wide-spread error, the origin of 
 which will now be explained. 
 
 By an act of congress, passed on the 31st of July, 
 1789, it was declared, that the British pound sterling 
 (which, although not at that time a coin, was the 
 equivalent of the quantity of gold contained in a 
 guinea, less the one and twentieth part, the guinea 
 being twenty-one shillings) should be taken as of the 
 value of four Spanish silver dollars and fourty-four 
 hundredth parts of a dollar in estimating ad valorem 
 duties upon British merchandise at our custom 
 houses. This estimate was founded upon the cir- 
 
CURRENCY AND BANKING. 31 
 
 cumstance, that at that period, the Spanish dollar, the 
 only coin of that denomination in circulation in the 
 United States, was the well known equivalent in the 
 British market, of four shillings and sixpence sterling, 
 and very nearly such equivalent at the British mint.* 
 
 By another act of congress of 2d April, 1792, esta- 
 blishing the mint, and authorising a coinage for the 
 United States, it was provided, that there should be 
 silver dollars coined, " each to be of the value of a 
 Spanish milled dollar," to contain 17dwt. 8 grains of 
 standard silver; and that the proportion which the gold 
 and silver coins should bear to each other, should be 
 that of 1 to 15, that is, that one ounce of pure gold should 
 be the equivalent of fifteen ounces of pure silver.t 
 
 But there is no natural proportion between gold 
 and silver, as has been observed on a former occasion, 
 any more than there is between lead and iron, and it 
 is therefore very manifest that no law can permanently 
 fix a par of exchange between them. When any 
 change in their relative value takes place in the mar- 
 ket of the trading world, whether it be by an in- 
 
 * The mint price of silver at that period, as well as at the 
 present, was 5s. 2c?. per ounce. The weight of the dollar was 
 17dwt. 8 grains, but somewhat inferior in quality to the British 
 standard, so that if sent to the mint, it would have produced 
 about 4s. 5Jc?. As an exportable foreign coin, it was probably 
 worth in the market an additional ^e?., there being at that time a 
 prohibition against the exportation of British coins. 
 
 f The adoption of this proportion was probably the result of 
 a sort of average, founded upon the comparison of the mint 
 proportions of several different countries. What they were at 
 that precise date, I cannot say, but, by some tables that I have 
 seen, it appears that the mint proportions in 1810, at the places 
 named, were as follows, and probably had been so for a long 
 period. 
 
 Paris, 
 
 Cadiz, 
 
 Lisbon, 
 
 Naples, 
 
 Genoa, 
 
 to 15.65-129. Venice, 
 
 to 16. London, 
 
 to 15.7-10. Bengal, 
 
 to 14.5-10. Madras, 
 
 to 14.53-100. Bombay, 
 
 to 14 88-100. 
 to 15 13-62 
 to 14 861. 
 to 13 872. 
 to 15. 
 to 14 296. 
 
 Leghorn, 1 to 14.53-100. China, 
 
 Amsterdam, no regulation: market rate, about 1 to 14 7-10. 
 
 Hamburgh, no regulation: market rate, about 1 to 14 83-100. 
 
32 A TREATISE ON 
 
 creased or diminished supply, of one or the other 
 metal, or, by an increased or diminished demand for 
 one or the other, the par becomes changed. This 
 event did in reality take place, and in process of time, 
 an ounce of gold, as has been already stated, became 
 gradually worth more than fifteen ounces of silver, 
 and finally reached the proportion of one to sixteen. 
 With this gradual change in the relative value of 
 gold and silver, the silver dollar ceased to be the 
 equivalent of four shillings and sixpence sterling, and 
 consequently the pound sterling became the equiva- 
 lent of more than four dollars and fourty-four hun- 
 dredth parts of a dollar, for the simple reason, that 
 any person who possessed the quantity of gold repre- 
 sented by the pound sterling before the coinage of 
 the sovereign, and now actually contained in that coin, 
 could obtain for it more than four dollars and forty-four 
 hundredth parts of a dollar in silver. But the mercan- 
 tile usage did not conform to this change. The mer- 
 chants adhered to the old par, as if a pound sterling was 
 the equivalent of four dollars and forty-four cents by 
 some unchangeable law of nature, and for many 
 years continued to ascribe the nominal premium on 
 sterling bills of exchange, which was the mere expo- 
 nent of this change in the relative value of gold and 
 silver, to the influence of the balance of trade. The 
 delusion was partly removed by the act of congress 
 of 14th July, 1832, which raised the value of the 
 pound sterling for the calculation of ad valorem 
 duties at the custom house to $4.80, and by two sub- 
 sequent acts, one of 28th June, 1834, by which the 
 British sovereign was made the equivalent in Ameri- 
 can gold coins of $4. S7.075 + , and one of 18th Janu- 
 ary, 1837, by which it was made the equivalent of 
 {54.86. 65+, which is now the true par on London, 
 corresponding within a very small fraction to 9 per 
 cent, premium on the old computed par.* I say 
 
 * The sign + at the end of the figures in this sentence, and 
 wherever it occurs, denotes that there is a fraction still remaining. 
 
CURRENCY AND BANKING. 33 
 
 "partly removed," because, strange as it may appear, 
 there are thousands of persons at this very day, who 
 have no other belief on this subject, than that the 
 nominal premium quoted on exchange, is a real ad- 
 vance which takes so much money out of their 
 pockets. To remove, however, the vestiges of this 
 deep rooted error, the Chamber of Commerce of 
 New York, early in the year 1839, recommended to 
 the merchants of that city, to quote the exchange on 
 England in dollars and cents for the pound sterling, 
 instead of designating the per centage above or 
 below par; a recommendation which was soon after 
 followed up by the Chambers of Commerce of Phila- 
 delphia and other places, and will perhaps in time be 
 generally adopted.* 
 
 * Since the appearance of the first edition of this book, the 
 author has been politely furnished, by Joseph Perry Esq., of 
 the General Post Office at Washington, with a very detailed 
 statement of the value of the sovereign in American currency 
 under the different acts of congress, ascertained by algebraical 
 calculations, from which it appears, that the par of the pound 
 sterling, was 
 
 By the act of 2d April, 1792 $4.5657+ which was 2 T \ per 
 cent above the computed par of $4.4444. 
 
 By the act of 28th June, 1834, commonly called the gold 
 bill $4.87075+ which was 9.591875+ or within a small frac- 
 tion of 9| per cent, above the same computed par, and 
 
 By the act of 18th January, 1837, now in force $4.8665+ 
 which is 9.496+ or very nearly 9^ per cent, above the same 
 computed par. 
 
 The British mint price of standard gold is 3. 17s. 10|c?. per 
 oz. and consequently the weight of the sovereign, the coin of 
 one pound sterling is 123.2744+ grains. The British standard 
 of gold is, 22 carats fine, that is, 11 parts pure metal and 1 part 
 alloy, and consequently the quantity of pure gold contained in 
 a sovereign is 113.001 grains. 
 
 The standard of gold in the United States by the existing 
 act of 18th January, 1837, is 21.60 carats fine, that is 9 parts 
 pure metal and 1 part alloy, and the weight of the eagle, the 
 coin of ten dollars, is 258 grains standard, or 232.2 grains pure 
 gold. 
 
 Now as the sovereign of full weight and standard puri- 
 ty contains precisely as much pure gold as is contained in 
 
34 
 
 A TREATISE ON 
 
 4.866563+ parts of an eagle, it follows that the true par of the 
 pound sterling is $4.866563+ that is $4.86 and a fraction of 
 nearly f of a cent. 
 
 But it appears by the Report of the Director of the Mint of 
 the United States of March 19, 1839, that by the latest assays 
 made by him of the British gold coins, their standard does not 
 exceed 915i thousandths, whereas by the British mint regula- 
 tions, it ought to be 916| thousandths, which is equal to 22 
 carats. Taking this then as the true standard of the sovereign, 
 it contains when of full weight only 112.8577 grains pure gold, 
 and consequently the par of "the pound sterling thus found, is 
 but $4.860366, that is $4.86 and a very small fraction, equal to 
 9.35+ or 9,7^ per cent above the old computed par. 
 
 But this is not all. The act of congress of June 28, 1834, en- 
 titled "An act regulating the value of certain foreign gold coins 
 within the United States," declares that the sovereign when of 
 standard purity, shall be a legal tender, at the rate of 94^ cents 
 per pennyweight. By this act which has never been altered, a 
 sovereign of full weight and of the legal standard is worth in 
 our gold currency the same as by the gold bill of 1834, above 
 referred to, that is $4.87 and a, fraction, thus presenting the 
 anomaly of foreign coins having a higher value attached to 
 them than their intrinsic worth in the coins of the country. 
 
 It so happens, however, that many of the sovereigns that 
 reach this country, have been somewhat worn, and on this ac- 
 count, no doubt, in connection with the deficiency of purity 
 above referred to, they have been received and paid out by the 
 banks at $4.85. 
 
 For the benefit of practical men, the following documents are 
 submitted. 
 
 PRESENT VALUE OF THE POUND STERLING IN DOLLARS AND 
 CENTS AT DIFFERENT RATES OF EXCHANGE ON THE COMPUTED 
 
 PAR OF $4.4444. 
 
 RATE. 
 
 Above 
 par. 
 
 RATE. 
 
 Above 
 par. 
 
 4.5666 
 4.5777 
 4.5888 
 4.6000 
 4.6111 
 4.6222 
 4.6333 
 4.6444 
 4.6555 
 4.6666 
 4.6777 
 
 Par. 
 
 4.4444 
 4.4555 
 4.4666 
 4.4777 
 4.4888 
 4.5000 
 4.5111 
 4.5222 
 4.5333 
 4.5444 
 4.5555 
 
 3 
 
 i 
 
 
 i : : : : : 
 
 J 
 
 a 
 
 
 
 f 
 
 
 
 I 
 
 J. 
 
 
 I 
 
 2 p6r cent. * 
 
 3 
 
 
 
 i :::::: 
 
 
CURRENCY AND BANKING. 
 
 35 
 
 RATE. 
 
 Above 
 par. 
 
 RATE. 
 
 Above 
 par. 
 
 , 
 * 
 
 4 6888 
 
 i 
 
 4 8555 
 
 
 4 7000 
 
 f 
 
 4.8666 
 
 6 per cent . 
 
 4 7111 
 
 
 
 4 8777 
 
 i 
 
 4 7222 
 
 
 4.8888 
 
 A 
 
 4.7333 
 
 
 4.9000 
 
 ? / 
 
 4 7444 
 
 i 
 
 4.9111 
 
 
 4.7555 
 
 3 
 
 4.9222 
 
 i 
 
 4 7666 
 
 
 4.9333 
 
 j- 
 
 A . * . 
 
 4.7777 
 
 
 4.9444 
 
 I :.:..; 
 
 4 7888 
 
 Y 
 
 4.9555 
 
 8 per C6nt 
 
 4 8000 
 
 i ; ! : ; : 
 
 4 9666 
 
 
 4 8111 
 
 ^ 
 
 4.9777 
 
 i 
 
 4.8222 
 
 
 4.9888 
 
 I :::::: 
 
 4 8333 
 
 
 5.0000 
 
 9 per cent 
 
 4.8444 
 
 I 
 
 5.0111 
 
 THE PAR OF EXCHANGE ON FOREIGN COUNTRIES. 
 
 Extract from the Report of the Secretary of the Treasury of 28/A 
 May, 1838, on Exchanges. 
 
 The quotations of exchange on France, are so many franca 
 and centimes, (or hundredth parts of a franc,} payable in France 
 for a dollar paid here. According to the regulations of the French 
 mint, the silver franc should contain 69.453 troy grains of pure 
 silver, equivalent to 18.708-1000 cents in silver currency of 
 the United States, (not quite 18| cents.} The quantity of pure 
 silver in an American dollar, is equal to that in 5 francs 34.534- 
 1000 centimes. But as foreign coins are not a legal tender in 
 France, and as a seignorage of about 1^ per cent is charged 
 on silver coinage at the French mint, American dollars, when 
 sold as bullion in France, are said to bring on an average not 
 more than 5 francs 26.25-1000 centimes. This is, by some 
 writers assumed as the par of exchange on France. Other 
 writers assume 5 francs 34 centimes as about par. 
 
 The quotations of exchange on Holland, are so many cents a 
 guilder; on Hamburgh, so many cents a mark banco; and on 
 Bremen, so many cents a rix dollar. 
 
 The exact value of the guilder of Holland, is 39.97-100 cents 
 of United States silver currency; but 40 cents are usually as- 
 sumed as the par of exchange. 
 
 The mark banco of Hamburg is a money of account, equal to 
 35.144-1000 cents United States currency. 
 
 The rix dollar of Bremen is a money of account, equal to 
 80 cents and a very small fraction United States currency. 
 
30 A TREATISE ON 
 
 FROM TATE'S CAMBIST. 
 
 The par of exchange between London and 
 
 Paris, is 25 francs, 22 centimes per , stg, in gold. 
 
 " is 25 " 57 " " in silver. 
 
 Amsterdam, is 12 guilders, 09 centimes " in gold. 
 
 " is 11 " 97 " " in silver. 
 
 Hamburgh, is 13 m'cs banco, 10 schillings, " 
 
 Bremen is 609i Rix dollars for 100 M stg. in gold. 
 
 CHAPTER VI. 
 
 ON THE STEADINESS OF TRADE IN COUNTRIES 
 EMPLOYING A METALLIC CURRENCY. 
 
 IP the principles laid down in the preceding chap- 
 ters be sound, as it is believed they are, it must 
 necessarily follow that the operations of commerce in 
 countries employing a metallic curency, are as regu- 
 lar and as little liable to fluctuations as the nature of 
 things will admit, and more than this can no where 
 be looked for. That there will be occasional over- 
 trading and over-speculation wherever there is credit, 
 is too self-evident to require proof, and hence no 
 country in which credit exists, can be entirely exempt 
 from individual bankruptcies. Foreign wars, domes- 
 tic disturbances, extensive conflagrations, storms and 
 hurricanes, the failure of crops, the insolvency of 
 foreign debtors, and a variety of other causes, may 
 produce individual or even extensive commercial 
 embarrassment. Too much credit may even lead 
 incautious men into extravagance of expenditure, 
 which may bring on their ruin, but in none of these 
 cases is the currency chargeable with the catastrophe. 
 The mischief, whatever it may be, can only be 
 ascribed to the operations of credit; but as credit, 
 when properly regulated, is far more influential in 
 
CURRENCY AND BANKING. 37 
 
 producing good than evil, as will be shown hereafter, 
 it is not to be annihilated on account of the misfor- 
 tunes or imprudence of a comparatively few indi- 
 viduals. 
 
 Such being the theory of this branch of my subject, 
 I have the satisfaction to state in regard to the prac- 
 tice under it, upon the testimony of a respectable 
 American merchant, who resided and carried on ex- 
 tensive operations for near twenty years at Gibraltar, 
 where there has never been any but a metallic cur- 
 rency, that he never knew during that whole period, 
 such a thing as a general pressure for money. He 
 has known individuals fail from incautious specula- 
 tions, or indiscreet advances, or expensive living; but 
 he never saw a time that money was not readily ob- 
 tainable, at the ordinary rate of interest, by any mer- 
 chant in good credit. He assured me, that no such 
 thing as a general rise or fall in the prices of commo- 
 dities, or property was known there; and that so 
 satisfied were the inhabitants of the advantages they 
 enjoyed from a metallic currency, although attended 
 by the inconvenience of keeping in iron chests, and 
 of counting large sums in Spanish dollars and doub- 
 loons, that several attempts to establish a bank there 
 were put down by almost common consent. 
 
 Upon this same subject, in reference to the city of 
 Havanna, more satisfactory evidence still, because in 
 an official form, and more in detail, can be adduced. 
 N. P. Trist, Esq., consul of the United States at that 
 port, in a letter addressed to the secretary of the 
 treasury under date of 19th October, 1838, and laid 
 before the senate on the 21st of January following, 
 annexed to a report from the committee of finance, 
 communicated many valuable particulars in reference 
 to the practical working of a metallic currency. 
 
 After describing the trade and importance of Cuba, 
 Mr. Trist employs the following language: 
 
 " These are tolerably sure evidences of a state of 
 active industry and prosperous credit. Nor are they 
 4 
 
38 A TREATISE ON 
 
 less steady than active. They exhibit no alterations 
 of feverish excitement and prostration; now rising to 
 the energy of delirium, now sinking to correspondent 
 enervation. The sudden stoppage of the current 
 business in all, or in any one of its branches, is a 
 thing as absolutely unknown in this island as the 
 freezing of one of its rivers; and its inhabitants pos- 
 sess as little knowledge of the one phenomenon as 
 they do of the other. Nay, less: for they not only 
 read and hear of the freezing of our waters, as they 
 do of those monetary prodigies in which the streams 
 of industry and credit become arrested in the same 
 way, and with equal suddenness; but, by means of 
 the ice which our country sends hither, they can 
 form a clear conception of the one wonder, and of all 
 the horrors of navigation among its whirling and 
 crushing masses, while no such means of knowledge 
 can be brought home to their feelings in regard to 
 the other. 
 
 " I am here indulging in no exaggeration. It is 
 the literal truth; and for the proof that it is so, 1 refer 
 to the testimony of the leading merchants of all na- 
 tions established here, which forms a portion of the 
 documents accompanying this letter. It is strictly 
 and literally true, that such a thing as a monetary 
 convulsion is absolutely unknown in any part of this 
 island, which .covers an area of about forty-three 
 thousand square miles; has a line of sea-coast of 
 about sixteen hundred, miles; has nine ports open to 
 foreign commerce, ( one of which is ' a commercial 
 city, second to none in the new world, New York 
 only excepted;' has a population amounting to about 
 one million of souls, whOj in the last year, maintained 
 a foreign exporting and importing business exceeding 
 forty-three millions of dollars, after paying taxes to 
 an amount which, in the year 1827, (vyhen its export- 
 ing and importing business fell something short of 
 thirty-two millions,) exceeded fourteen millions, and 
 the rate of which has not since decreased; and the 
 
CURRENCY AND BANKING. 39 
 
 government of which is an absolute monarchy, main- 
 tained by the bayonet. 
 
 " This is the country the inhabitants of which ac- 
 tually have not the slightest knowledge of what a 
 monetary convulsion means; where a general or an 
 extensive stoppage of its commercial , movement, 
 (using the words in their most comprehensive sense, 
 embracing all branches of business,) not only has 
 never spontaneously occurred, but has never, for one 
 single instant, been experienced at all; where the 
 utmost effect that any foreign disturbing cause, how- 
 ever terrific its ravages at home, has ever been able 
 to produce, has been a momentary pause momen- 
 tary only, and merely prudential in regard to the 
 particular branches of business, or rather the particu- 
 lar individuals, intimately and directly connected with 
 the scene of the earthquake. 
 
 " This, I again repeat, is true to the very letter. 
 The recent convulsion, in which the whole business 
 of our country, from the city of New York to the 
 remotest village in the west, exhibited the spectacle 
 of chaos come again, was literally unfelt here. None 
 but the mercantile class knew that any thing had 
 happened; and of that class, it did not occasion a 
 moment's uneasiness to any, except those whose 
 stability depended upon the punctual fulfilment of 
 engagements by merchants in the United States or in 
 Great Britain. Beyond these, and the few others 
 who may have depended upon credit facilities from 
 them, I do not believe that the business of a single 
 man in the island was so much as sensibly slackened 
 by it for a single day, or that a single individual 
 received or spent one dollar the less, or so much as 
 ever dreamed that any thing was the matter. 
 
 " For evidence upon this point, from persons far 
 more competent to give it than I can be, I again refer 
 to the accompanying documents. They afford proof 
 of the fact. To estimate the force of that fact, it is 
 necessary to take into consideration the extent and 
 
40 A TREATISE ON 
 
 intimacy of the commercial connection between the 
 two countries. Of this a conception may be con- 
 veyed in a few words. Of the two thousand Jive 
 hundred and twenty-four vessels of all nations, 
 Spanish included, which entered the ports of the 
 island from other parts of the world, during the lat 
 year, one thousand three hundred and nineteen 
 were Americans. 
 
 "Here then, are the facts. Here is flourishing 
 industry, flourishing credit; above all, flourishing 
 commerce, if such a thing exists under the sun. 
 These are facts, the reality of which is beyond all 
 question." 
 
 Not wishing, however, to rest his statements upon 
 his own evidence alone, Mr. Trist addressed a circu- 
 lar to a number of foreign merchants of the highest 
 respectability residing in Havanna, in which he pro- 
 pounded to them a number of inquiries, the answers 
 to five of which he above alludes to as the documents 
 accompanying his letter. 
 
 From these answers the following particulars are 
 gathered: 
 
 First. That the imports into the Havanna are 
 mostly on account of the foreign shippers, perhaps a 
 third or a fourth being on home account. 
 
 Second. That these imports are mostly sold on 
 credit, varying from one to ten months, upon pro- 
 missory notes without endorsers, which are paid at 
 maturity with great punctuality. 
 
 Third. That the rate of interest fluctuates accord- 
 ing to the season. 
 
 One of the answers says, 
 
 " The usual rate of interest for good paper is $ per 
 cent, a month, and the extreme points may be placed 
 at | to 1 per cent.; but the latter rate is unusual." 
 
 Another says, 
 
 *' In spring, when the bulk of the crops is shipped, 
 it is sometimes difficult to get money for notes at 1$ 
 per cent.; and in autumn, when shipments are of 
 
CURRENCY AND BANKING 
 
 comparatively small amount, and foreign exchanges 
 high, the rate of discount sometimes falls to \ per 
 cent." 
 
 The third says, 
 
 "The discount varies in ordinary times between 
 and H per cent, per month. For signatures in good 
 repute, the current rate scarcely ever exceeds 1 per 
 cent." 
 
 The fourth says, 
 
 "The discount is 1 per cent, a month, and fre- 
 quently | on first rate paper of merchants or retailers, 
 but very often the notes of planters cannot be cashed 
 at less than 2 per cent, a month." 
 
 The fifth says, 
 
 " The ordinary discount upon good paper is from 
 i to 1 per cent. I have sometimes known the dis- 
 count in our market to be I per cent., and rarely 
 above 1. It may be said that there are every year 
 two rates of discount in our market; the one from 
 January to June, when the rate is from i to 1 per 
 cent, the other from July to December, when it is 
 from f to I." 
 
 Fourth. That at the market rate of discount there 
 is never any difficulty to obtain money. 
 
 Fifth. That bills of exchange can- always be sold 
 at the current rate. 
 
 Sixth. That no such thing as a general scarcity of 
 money is known. 
 
 Seventh. That individuals occasionally fail, but 
 that such a thing as a general discredit may be said 
 not to be known. The only exceptions were in 1836, 
 occasioned by local speculation on sugars, and in 
 1829, when there was an extensive failure of the 
 " retail dealers in dry goods, who had formed them- 
 selves into companies, the individuals of which made, 
 up for each other's deficiencies. In this way they 
 acquired great credit, and were enabled to make pur- 
 chases with long terms of credit, extending from six 
 to twelve months. The less regular trusted to -the 
 
42 A TREATISE ON 
 
 more, insomuch that the latter, after a series of in- 
 creasing abuses, denied their liability for the former, 
 and an almost general suspension of payments took 
 place among them." 
 
 Eighth. That the ordinary derangements of com- 
 merce in foreign countries produce no effect, except 
 upon the parties immediately connected with it, as 
 drawers or endorsers of protested bills. A violent 
 and general commercial crisis, however, such as that 
 which took place in the United States in 1837, exer- 
 cises a temporary influence". That crisis was felt in 
 Cuba, as it was, in fact, almost over the whole com- 
 mercial world, although the answers differ in regard 
 to its intensity, one affirming that it did not " shake 
 credit and confidence to such a degree as to stop the 
 current business in those branches on which it 
 weighed the most directly." 
 
 CHAPTER VII. 
 
 OF THE DIFFERENT KINDS OF DEPRECIATION TO 
 WHICH A METALLIC CURRENCY IS LIABLE. 
 
 IN discussions upon a metallic currency, the term 
 depreciation or diminution of value, is frequently em- 
 ployed, and as it is necessary that the reader should 
 be acquainted with the different kinds of deprecia- 
 tion to which reference may be had, they will be 
 here pointed out. 
 
 The first is that general and gradual diminution in 
 the value of the precious metals, which has resulted, 
 and which may possibly hereafter result, from the 
 discovery of new mines, or from the discovery of 
 economical modes of extracting and refining the ore, 
 by*which the aggregate mass of gold and silver in the 
 
 
 
CURRENCY AND BANKING. 43 
 
 commercial world has been, or may be, augmented 
 faster than the demand. The most remarkable depre- 
 ciation resulting from this cause that has ever taken 
 place, was that which commenced with the discovery 
 of the mines of America about the middle of the 
 sixteenth century, and which has been generally 
 considered to have regularly continued, with some 
 occasional interruptions, down to the present period.* 
 The second species of depreciation is that to which 
 the metallic currency of a country may occasionally 
 be for a short time subject, by an extraordinary im- 
 portation of coin, not in the course of its regular dis- 
 tribution throughout the commercial world, but by 
 some unusual event. A memorable example of this 
 species of depreciation occurred in the United States 
 somewhere about the year 1805, at which time there 
 was war between Great Britain and Spain. The 
 Spanish government, not finding it easy to evade the 
 British cruisers in the Gulf of Mexico, which closely 
 walched the exports of coin from Vera Cruz, made a 
 special contract with the house of Hope & Co. of 
 Amsterdam, of whom it had obtained a loan, by which 
 authority was furnished to that house to receive in 
 Mexico large amounts. In order to procure this coin, 
 bills on Vera Cruz were sold in the United States by 
 Hope & Co. through their agent, David Parrish, 
 upon terms favorable to the purchasers, with the 
 privilege of importing cargoes of merchandise into 
 Mexico, to a class of responsible merchants, who 
 fitted out fast sailing vessels, which could elude the 
 British ships of war, and by means of that arrange- 
 ment, many millions of Spanish dollars found their 
 way into the United States, not called for in the ordi- 
 nary course of trade, and not merely in transitu on 
 its way to Europe, for most of it was here exchanged 
 
 * Those who are desirous of being particularly informed on 
 this subject, are referred to Smith's Wealth of Nations, Book I, 
 chap, xi, Part III, where they will find the matter examined 
 with great care and ability. 
 
44 A TREATISE ON 
 
 for coffee and other merchandise, and thus entering 
 for a time into the circulation of the country, occa- 
 sioned a depreciation of the currency to an extent 
 plainly discernible. 
 
 A third species of depreciation is that which re- 
 sults from the wear and tear of the coins of a coun- 
 try, by which they lose in weight, and consequently 
 in value. In some countries this diminution in the 
 weight of the coins has been permitted to exist to 
 such an extent before a new coinage has been ordered, 
 as materially to affect the rate of exchange, the par 
 of which calls for ounce against ounce, and conse- 
 quently in such cases, the true par has differed from 
 the nominal par, precisely to an extent equal to the 
 depreciation. 
 
 A fourth species of depreciation is that which 
 arises from the frauds of governments, by which their 
 coins, whilst they retain the same denomination, are 
 diminished in weight or in purity, or in both, so as to 
 contain a less quantity of gold or silver in them than 
 before, whilst they are declared to be legal tenders 
 for the discharge of a debt for an equal number of 
 pieces, contracted before the alteration took place. 
 Many discreditable transactions of this species of fraud 
 might be enumerated, amongst which are the follow- 
 ing: 
 
 The successive frauds in France by which the livre 
 or pound of silver has been reduced to the livre or 
 franc, equivalent to less than .one-fifth part of a Spa- 
 nish dollar. 
 
 The successive frauds in England, by which the 
 pound of standard silver, originally coined into twen- 
 ty equal parts, called shillings, has been coined into 
 sixty-six equal parts, also called shillings, of which 
 twenty are made a legal tender for the payment of a 
 debt contracted at a time when twenty shillings con- 
 tained a pound of silver. 
 
 The recent fraud practised in the United States by 
 the act of 2Sth June, 1834, by which the gold coin 
 
CURRENCY AND BANKING. 45 
 
 called the eagle was reduced in weight and deteri- 
 orated in purity. Prior to that year the eagle con- 
 tained 247 grains of pure gold. By that act it was 
 reduced to 232 grains of pure gold. Prior to that act 
 its standard was twenty-two carats, that is, eleven 
 parts of pure metal to one of alloy. By that act its 
 standard was reduced to about 21.58 pure metal to 
 2.42 of alloy, the two operations reducing its value 
 68 cents, that is, from ten dollars to nine dollars 32 
 cents, whilst it was made a legal tender for all debts 
 contracted before the 28th of June, 1834, as well as 
 for those contracted after that date for ten dollars. 
 By the act of 1 8th January, 1 837, this fraud was slightly 
 rectified, by augmenting the weight of pure gold in 
 the eagle to 232J grains, as will be seen in the first 
 note to Chapter 2, Book 4. 
 
 Changes in the intrinsic value of the coins of a 
 country made in the manner here referred to, neces- 
 sarily show themselves in the rate of the foreign 
 exchanges. A palpable example is now before our 
 eyes, in the case of the late alteration of our gold 
 coinage, by which the par of exchange on England, 
 when measured by gold, became altered to the whole 
 extent of the diminished weight of pure metal in the 
 eagle. As for example: prior to the 28th June, 1834, 
 the British sovereign, which is the metallic pound 
 sterling, if coined at our mint, would have produced 
 $4.562 and a fraction in gold currency, and conse- 
 quently the latter would have been the true par of 
 one pound sterling measured by gold. Under the 
 present coinage, the same British sovereign can be 
 converted into $4.86 and a fraction in gold currency, 
 and consequently the latter is now the true par of one 
 pound sterling, as was particularly shown at p. 32. 
 
 A fifth species of depreciation is that which re- 
 sults from the creation of paper money as a substi- 
 tute for gold and silver, which operates upon the 
 value of the total existing mass throughout the com- 
 mercial world, precisely like the discovery of new 
 
46 A TREATISE ON 
 
 mines. It will be shown in the proper place that the 
 introduction of paper money into any country neces- 
 sarily drives out a portion of its metallic money, and 
 thereby augments the quantity previously existing in 
 other countries, the inevitable effect of which is, to 
 depreciate it there below its previous value. 
 
 I am aware that the term fraud as applied to the 
 reduction of the weight of pure gold in the American 
 eagle, is not an acceptable term to many people. 
 It is certainly a harsh expression, and Congress might 
 have avoided the imputation conveyed by it had it 
 enacted that the laws of the 23th of June, 1834, and 
 the 18th of January, 1837, should have had no appli- 
 cation to contracts made anterior to the former date, 
 thus leaving the rights of all creditors unimpaired. It 
 is true that up to this time, creditors have not sus- 
 tained any material injury from the operation of these 
 laws, inasmuch as debtors have generally found it as 
 profitable to pay in silver, which creditors have at all 
 times been obliged to receive, as in gold; but this is 
 an incident which could riot have been positively 
 foreseen, and which may, in fact before long cease to 
 operate, for under the new proportions between gold 
 and silver, the banks find it more advantageous to pay 
 in gold than in silver, the quantity of gold contained 
 in the eagle of the present coinage, being worth in 
 the markets of Europe, less than ten silver dollars. 
 That this is the case, may be inferred from the fact, 
 that where our merchants import specie from Europe, 
 they give a preference to gold, and where they ex- 
 port specie they give a preference to silver, which 
 would not be the case if the legal proportions estab- 
 lished an exact equivalency. 
 
 That this position, may not, however, rest upon 
 mere inference, I will establish it by proof which can- 
 not be disputed. 
 
 The price of Mexican dollars in London within the 
 last two years has fluctuated between 4.9. 9|d,and 4s. 
 per ounce. They were quoted on the 27ih 
 
CURRENCY AND BANKING. 47 
 
 February, 1838, at the former rate, and at the end of 
 December, 1839, at the latter. Since January, 1840, 
 to the date of the last advices, (the 10th of April,) the 
 price has been 4s. lQ%d, and as American dollars are 
 of the same standard as the Mexican, that is, nine 
 parts pure silver to one of alloy, the same value may 
 be attached to them. Now as the weight of the 
 American dollar is 412^ grains, its value in British 
 money is at this period 4s. 2d., and consequently, the 
 value of ten silver dollars is 2 Is. Sd. 
 
 But the quantity of gold contained in (he eagle, if 
 sent to England and coined into British currency 
 would only be worth 2 Is. ld, as may be ascer- 
 tained from the fact that the eagle contains 232} 
 grains of pure gold, and the sovereign, or pound ster- 
 ling, 1 1 3 TT y TT grains. 
 
 For (omitting the fraction,) if 113 grains are equal 
 to 1, 232} grains are equal to 2 Is. \\d. 
 
 This difference of near seven pence sterling, equal 
 to about fourteen cents, upon ten dollars, shows that 
 a gold eagle is now worth one and four tenths of one 
 per cent less than ten silver dollars in England, and 
 if it has not shown itself in the United States, it is 
 simply on account of their legal forced equivalency, 
 by which silver is undervalued as compared with 
 gold, precisely as gold was undervalued as corn- 
 pared with silver, prior to the 28th of June, 1834.* 
 
 * If it be said that American dollars would not be as saleable 
 in England as Mexican dollars, although of equal intrinsic value, 
 on account of the greater notoriety of the former, I would reply, 
 that this may be the case, and on that account I have no objec- 
 tions, if the reader chooses, to reduce the estimate of the under- 
 valuation of silver, one quarter or one half per cent, which has 
 been the premium in New York upon Mexican dollars, when 
 paid for in American silver or gold, from January, until May of 
 the present year, remarking at the same time, that during the 
 same period, the weekly quotations of " The Philadelphia Price 
 Current" of Mexican dollars, and American' half dollars in Phila- 
 delphia depreciated paper currency, have been uniformly the 
 same. 
 
48 A TREATISE ON ^ 
 
 It matters not that at this day the difference is of a 
 comparatively trifling amount. If it be but the tenth 
 part of one per cent, the charge is established. But 
 how do we know that in the course of time the pro- 
 portions between gold and silver may not fall back 
 to one to fifteen as they stood forty years ago, in 
 which case not a debt would be discharged in sil- 
 ver, and consequently, creditors on all contracts, such 
 as bonds, ground-rent deeds, annuities, state, city, and 
 county loans as well as the loans of rail road, canal, 
 and other corporations, contracted before the 28th of 
 June, 1834, would be defrauded by law of six per 
 cent of the amount of their debts? This is a grave 
 question, and one in relation to which more will be 
 said in the chapter " On the impolicy of adhering to 
 our present mint proportions between gold and silver/' 
 in Book the Fourth.* 
 
 CHAPTER VIII. 
 
 ON THE " CREDIT SYSTEM," OR THE INFLUENCE OF 
 CREDIT IN PROMOTING NATIONAL WEALTH. 
 
 MUCH has been said in the United States of late 
 years in reference to the important agency of what is 
 called the "credit system," in promoting national 
 wealth, but few persons comparatively have ex- 
 amined the subject with sufficient minuteness to 
 enable them to form a clear conception of its mode 
 of operation. As the subject is one, however, which 
 deserves to be thoroughly understood, I will endea- 
 vor to present it to the reader in such a way as can- 
 not fail, I trust, to be intelligible. 
 
 * See also Appendix A a'jd B. 
 
CURRENCY AND BANKING. 49 
 
 The term credit is applied to that confidence 
 reposed by one individual in another, which induces 
 the former to permit the latter to have a portion of 
 his capital, to he used as he may think proper, with- 
 out the immediate transfer of an equivalent, but upon 
 his stipulating to pay such equivalent at a future 
 period, together with a compensation for the use of 
 the capital during the time it is not under the control 
 of its owner. Where the credit is given on a delivery 
 of capital in the form of money, it is called a loan, 
 and the charge which is made for the use of it is 
 called interest. Where the credit is given on a de- 
 livery of capital in the form of other commodities or 
 property than money, it is called a sale, and the 
 charge which is made for the use of it is called profit. 
 In both cases the credited party is placed in posses- 
 sion of something possessing intrinsic value, upon 
 which industry can be employed, or by which it can 
 be sustained; for even in the case where the capital 
 consists of money, it must be exchanged for mer- 
 chandise, raw materials, utensils, food, or clothing, 
 before it can be productively employed by the bor- 
 rower. 
 
 In countries where confidence between individuals 
 does not extensively prevail, the credit system is but 
 partially known. Happily for our country, this con- 
 fidence has always existed amongst us, and for ages, 
 amongst those from whom we are descended, and it 
 is known to all who are acquainted with the history 
 of the American colonies, that a system of credit was 
 commenced by the mother country with the landing 
 of the first pilgrim on our shores, and has never 
 ceased to be continued to the present day. The 
 United States owe a vast share of their prosperity to 
 the credit system, and so manifest has this become to 
 every well informed mind, that there are few persons 
 with notions so antiquated as not to confess, that 
 credit, when regulated by the rules of prudence, and 
 5 
 
50 A TREATISE ON 
 
 not abused, is one of the most powerful stimulants to 
 the production of national wealth. 
 
 The first subject for inquiry now is, how does 
 credit operate in the production of national wealth? 
 As this can best be shown by a practical illustration 
 familiar to most people, I will explain it somewhat in 
 detail. 
 
 We all know that a very large proportion of the 
 settlers of our western country reach their tracts of 
 land with no property in the world except an axe, a 
 spade, a hoe, a gun, a cow, a few household utensils, 
 and a change or two of clothing. They have paid a 
 hundred dollars cash for eighty acres of land, the 
 government price for some years past, or they may 
 have bought it on a credit from private individuals, 
 at a higher price; but the land is generally covered 
 with timber, and is of no use in its present condition, 
 for purposes of tillage. In this destitute condition, 
 they find it absolutely impossible to commence the 
 clearing of their lands, unless somebody will trust 
 them with the articles of which they stand in need, 
 until they produce a crop of some kind or other. 
 They go to a neighboring merchant and satisfy him 
 that they are industrious, economical and honest, and 
 that if he will let them have on credit some of his 
 capital, in the form of sugar, tea, coffee, flour, corn, 
 potatoes, seed, salt provisions, winter clothing, and 
 such other things as are absolutely indispensable for 
 their subsistence, and for protecting themselves against 
 the weather, they will pay him as soon as the land 
 produces. The merchant, who has located himself 
 in this spot for the very purpose of supplying the 
 wants of the settlers, consents to the request, and 
 agrees to give to his new neighbors, credit for fifty or 
 a hundred dollars worth of things. With this bor- 
 rowed capital each settler begins his labors, and when 
 the crops are hai vested, the merchant is paid in grain 
 and other productions, and the settler finds himself, 
 by the aid of this credit, in possession of a surplus, 
 
CURRENCY AND BANKING. 51 
 
 sufficient in part to support his family for another 
 year, which he could not possibly have possessed, 
 had the merchant refused to give him credit. 
 
 Here we see at once the agency of credit in creating 
 a new capital. The settler without the credit, would 
 have perished, or have dragged out a wretched life, 
 whilst the merchant might have had a dead stock 
 lying unemployed, producing nothing for its owner, 
 or for any body else. 
 
 What has been here described in reference to the 
 poorest class of settlers, is equally true of those who 
 emigrate to the western country with a moderate 
 share of wealth. There is scarcely an individual 
 amongst them, who for the purpose of extending the 
 culture of his land, or adding to his improvements, 
 does not, at some period of the year, purchase goods 
 or implements on credit of the neighboring mer- 
 chants, in anticipation of his next crop, thereby ac- 
 quiring the means of augmenting the products of his 
 farm, and consequently of creating a capital which 
 could not have existed but for the credit he obtained. 
 Most especially is this true, in regard to a large pro- 
 portion of the planters of the cotton growing states. 
 These planters, it is well known, are in the practice 
 of obtaining large supplies of clothing and subsistence 
 for their slaves, and of every article for their own con- 
 sumption, upon credit from the neighboring mer- 
 chants, in anticipation of the next year's crop; and it 
 is hence manifest, that the wealth of those states is 
 eminently promoted by the operation of credit. 
 
 And now, whilst I am on this subject, it may not 
 be amiss to trace to their source the further operations 
 of credit, by which the country merchants have been 
 enabled to aid the settlers and planters in augmenting 
 the national wealth. Few or none of these traders, 
 have a capital of their own adequate to carry on 
 business to the extent they do. They are themselves 
 obliged to obtain most of their supplies upon credit 
 from the wholesale merchants of the large interior 
 
52 A TREATISE ON 
 
 towns and the Atlantic cities, whilst these in turn 
 avail themselves more or less of credit with the Eu- 
 ropean manufacturers. This, it is true, is not the 
 case at the present day, as much as it formerly was, 
 owing to the gradual accumulation of domestic capi- 
 tal; but, nevertheless, it not unfrequently happens 
 that a settler in the remotest region of Missouri 
 ploughs his land and produces his crop by means of 
 credit obtained, it may be, through three or four suc- 
 cessive links, from a manufacturer of hardware in 
 Birmingham, or of one of dry goods in Manchester. 
 And yet, with such facts before our eyes, there are 
 still to be found amongst us, a few remains of that 
 weak-minded prejudice against foreign capital, which 
 was at no very distant day so universal, that it was 
 deemed by many of the states unwise to borrow 
 foreign capital at five per cent., that could be pro- 
 ductively employed at a profit of ten per cent., upon 
 the ground that it would drain the country of specie 
 equal to the interest. Happily, however, new views 
 have broken in upon the minds of most of our legis- 
 lators, and although there are still laws prohibiting 
 the free introduction of foreign capital into some of 
 our local investments, yet foreign loans upon the se- 
 curity of public stocks and of those of improvement 
 companies, and banks have of late been carried to 
 quite a sufficient extent.* 
 
 It is not, however, to those engaged in agriculture 
 alone, that credit is beneficial. The merchant fre- 
 quently undertakes a voyage with a cargo purchased 
 on credit, which, when successful, adds to the national 
 wealth. The manufacturer, too, who has physical 
 power applicable to the production of commodities, 
 but no raw materials to work upon, finds himself, by 
 
 * It is computed that at this period (1840) upwards of a hun- 
 dred millions of dollars of European capital, chiefly British, are 
 invested in such securities. Many persons estimate the amount 
 at near two hundred millions, but that is probably an over esti- 
 mate. 
 
CURRENCY AND BANKING. 53 
 
 the aid of credit, enabled to procure the raw materials 
 of other people, to which he adds a value by the 
 application of his labor, and consequently also aug- 
 ments the national wealth. The same remark may 
 apply to mechanics and even to day laborers, and 
 there is hardly in the community an individual en- 
 gaged in any species of business who has not at some 
 period found himself beriefitted by the exercise of 
 credit. 
 
 With such advantages resulting from the use of 
 credit, so palpable and so well known to every body, 
 it is not extraordinary that the "credit system" should 
 be so much extolled. It is indeed a great moral 
 power, without the employment of which our country 
 could never in so short a period of time have attained 
 to its present advanced state of wealth and prosperity. 
 Whilst seeing and acknowledging, however, this im- 
 portant truth, we must not lose sight of another truth 
 equally important, which is, that nothing but capital, 
 that is, something which possesses an intrinsic value, 
 can possibly be the means of enabling the person 
 who obtains it on credit to produce a new commodity 
 or a new value, and we must be particularly careful 
 to remember that the credit system thus extolled, is 
 not the banking system, as some would endeavor to 
 inculcate in their speeches and writings. 
 
 CHAPTER IX. 
 
 ON THE LAWS WHICH REGULATE THE HIRE OF CAPL 
 TAL, AND ON THE IMPOLICY OF USURY LAWS. 
 
 WHEN a person has more capital than he wants to 
 employ in his own particular business, he very natu- 
 rally prefers to let other people have the use of it, to 
 
54 A TREATISE ON 
 
 permitting it to lie idle and unproductive, and for this 
 use he will charge such sum per annum as the com- 
 petition of the market will enable him to obtain. If 
 his capital consist of lands or houses, the compensa- 
 tion which he derives from its use is called rent. If 
 it consists of ships, it is called freight. If it consists 
 of horses and carriages, it is called hire. If it consists 
 of railroads, bridges, or canals, it is called toll. If it 
 consists of commodities, it is called profit; and if it 
 consists of money, it is called interest. In all these 
 cases except the two last, the specific things loaned 
 or hired are returned to their proprietors. In the 
 case of commodities, a sum of money equal in value 
 to the commodities purchased, with the seller's profit 
 added, is the uniform mode of replacing this species 
 of hired capital. In the case of money, another sum, 
 though not consisting of the identical pieces of coin, 
 equal in value to the amount of the sum loaned, with 
 the interest, is the uniform mode of replacing this 
 species of hired capital. 
 
 In all countries where the competition of the mar- 
 ket is permitted to operate without legislative restric- 
 tions, it is evident that the charge for the use of 
 capital in any of its forms can never be permanently 
 or materially higher or lower than that medium which 
 presents the common ground upon which it is the in- 
 terest of the capitalist and the person with whom he 
 deals, to meet. If lands, houses, horses, wagons, 
 railroads, bridges, and canals, be abundant in pro- 
 portion to the demand, the charge for the use of them 
 will be proportionally low. If they be scarce, it will 
 be proportionally high. The same is true of com- 
 modities, under which head is included merchandise 
 and produce of every description, and which, with 
 the metallic money, constitute what is called the cir- 
 culating capital of a country, without which neither 
 lands, houses, ships, horses, wagons, railroads, bridges 
 nor canals, would be of any immediate value. 
 
 Now although metallic money constitutes one of 
 
CURRENCY AND BANKING. 5 
 
 the forms in which capital is hired by persons who 
 wish to employ capital in any industrious pursuit, 
 yet, as observed in the last chapter, it is never the 
 identical thing that is wanted, except indeed by gold 
 and silver ware manufacturers for the purpose of 
 melting. Money is merely hired as the instrument 
 by which raw materials, agricultural produce, or 
 merchandise, are more conveniently to be obtained 
 by the borrower, or by those in his employ to whom 
 he has paid it away as wages; and it must therefore 
 be very evident, that as a component part of the total 
 mass of the circulating capital, it is governed by the 
 same laws as those by which the rest of this mass is 
 governed. In other words, the rate of interest in a 
 country is determined by the aggregate quantity of 
 circulating capital, metallic money itself included. If 
 that be abundant, interest will be low, as in England 
 and Holland; and if that be scarce interest will be 
 high, as in all the new states of our Union. 
 
 The unfortunate existence, however, in many coun- 
 tries, and amongst them our own, of laws restricting 
 the charge which the owner of capital in the form 
 of money shall derive from its hire, disturbs in some 
 degree the natural operation of things, and prevents 
 that uniform relation which profit and interest would 
 otherwise invariably bear to each other. By impos- 
 ing a penalty upon loans at a higher rate of interest 
 than six per cent, per annum, for example, the most 
 usual rate established by our state laws, capital is 
 either driven out to more favored quarters, or pre- 
 vented from flowing in, in either of which events the 
 mass of the circulating capital is diminished, and con- 
 sequently the hire for its .use augmented. In addition 
 to this, too, a burdensome tax is imposed upon the 
 industry of the country, by compelling those who 
 have not the best security to offer, which embraces a 
 large portion of the industrious classes, to resort to 
 lenders, who in addition to the fair value of the mo- 
 ney, and a reasonable allowance for the risk of loan- 
 
56 A TREATISE ON 
 
 ing on personal security, which would be the uniform 
 market price in the absence of usury laws, must be 
 paid for the odium and risk they incur by violating 
 the laws of the land. There is no sound reason why 
 the charge for the use of money should be fixed by 
 law, that would not equally apply to fixing by law 
 the rent of lands and houses, or the freight of ships, 
 the hire of horses and carriages, or the profit on mer- 
 chandise sold. The lending of money for a year is 
 nothing but selling capital upon a credit for a year, 
 and so convinced of the absurdity of discriminating 
 between a sale of money, and a sale of goods is a 
 large proportion of the capitalists of every country, 
 that evasions of the usury laws are every where prac- 
 tised by expedients which it is not easy to prevent. 
 Some of these expedients will be treated of in a fu- 
 ture part of this work, but a very common one is that 
 practised almost daily on the stock exchanges of New 
 York and Philadelphia, whereby under a. fictitious 
 purchase of stock for cash, and a fictitious sale on cre- 
 dit of the same ideal stock, through the agency of a 
 broker, money is loaned at a rate as far above the 
 legal rate as covers the risk of trusting to personal 
 security, as well as the charge for the odium and 
 hazard incurred by an illegal transaction.* 
 
 These remarks on the value of money, as a com- 
 ponent part of the circulating capital of a country, it 
 will be observed, have reference to that general and 
 
 * This operation is thus performed: A borrower is willing to 
 give 12 per cent, per annum for the use of money, and he agrees 
 to give $112 at twelve months' credit for a stock worth in the 
 market only $100, and stipulates with the broker, that contem- 
 poraneously with the purchase he is to sell the stock at $100 
 cash. The broker finds a lender who has money but no stock, 
 but who is willing to give $100 cash for stock, if he can con- 
 temporaneously sell it at $112 for an approved note at twelve 
 months credit. The broker manages the negotiation, and thus 
 two persons are made to buy and sell what has no real exist- 
 ence. Such transactions, however, are clearly illegal, but cases 
 rarely occur in which an appeal is made to the law. 
 
CURRENCY AND BANKING. 57 
 
 enduring state of things, which covers a period of 
 years. Thus, I would say, that capital is more 
 plenty in the United States in the year 1840 than it 
 was in the year 1798. In the latter year the Federal 
 government could not borrow money at less 'than 
 eight per cent. It could now borrow at five per 
 cent., and has even, at one period since the year 1815, 
 borrowed at four and a half per cent. Most of the 
 Atlantic states, and some of the western states, have 
 of late years borrowed money at five per cent., and it 
 may be remarked, that although the market price of 
 public stocks may be temporarily affected by va- 
 rious causes, yet no permanent influence can be ex- 
 erted upon them, unless a diminution of the aggre- 
 gate mass of the circulating capital of the country, 
 that is, of the national wealth, should take place.* 
 The fluctuations in the money market of merchants 
 and stock-jobbers, and even at times in the market of 
 mortgages, by which sometimes a high rate of inte- 
 rest is paid for capital, are generally of a temporary 
 nature, and to be accounted for upon the principle 
 that wherever there is credit, and especially if there 
 be banks, there will at times be over-trading and 
 over-speculation. The rate of interest upon capital 
 must in the long run be governed by the rate of 
 profit to be made by its employment; whilst for 
 short periods, it will depend upon the ratio of the 
 supply to the demand, and upon the security offered 
 in the money market. 
 
 * Since the first edition of this work was published, a great 
 depression has taken place in the English and American mar- 
 kets in the price of state stocks, putting an end for the present 
 to the possibility of obtaining loans at five per cent. 
 
58 A TREATISE ON 
 
 CHAPTER X. 
 
 EXAMINATION OF THE COMMON OPINION RESPECTING 
 THE SINKING OF CAPITAL. 
 
 THERE is a subject intimately connected with that 
 of money, which deserves a passing notice in a work 
 of this kind. I allude to the common notion, that a 
 community sustains no injury from the construction 
 of public works or improvements that turn out un- 
 productive, inasmuch as they afford employment to 
 many people without occasioning any loss oif capital, 
 the money not being sunk, but merely having 
 changed hands. To this error, which is more widely 
 spread than many people imagine, may be ascribed 
 the loss of tens of millions of dollars of property 
 in the United States, and if not eradicated, it will 
 lead to the loss of tens of millions more. Immense 
 expenditures are annually made by the federal gov- 
 ernment, by all the state governments, by counties, 
 townships, cities, towns, boroughs, and villages, by 
 private corporations of every description, and by in- 
 stitutions established for every imaginable purpose, 
 literary, charitable, and religious, which would never 
 be made if this matter were perfectly understood; and 
 as it is one that can be made plain by a very simple 
 illustration, I will present such a one to the reader. 
 
 In a former chapter it was shown that metallic 
 money was never employed as capital for the carry- 
 ing on of any branch of industry, except that of the 
 manufacture of gold and silver ware, but was the 
 mere instrument by which capital, consisting of other 
 commodities, could be conveniently transferred from 
 hand to hand. The function, therefore, which money 
 performs in the business operations of the commu- 
 nity, may be compared to the function performed by 
 carts, wagons, ships and railroad-cars, in transporting 
 
CURRENCY AND BANKING. 5 
 
 from one possessor to another the commodities which 
 he needs to carry on his business. Now every body 
 can perceive, that in performing the business of 
 transporting commodities, the vehicles here men- 
 tioned are not destroyed or sunk until they are worn 
 out, so neither is the money which performs the func- 
 tion of conveying the commodities from the posses- 
 sion of one person to that of another, destroyed or 
 sunk. It is, therefore, clear, that although the com- 
 mon mode of expressing a loss by an abortive under- 
 taking is that " money has been sunk," yet it is easy 
 to be seen, that no money can ever have been sunk, 
 but that the sinking has been of something else than 
 money. What that something else has been will now 
 appear. 
 
 In Pennsylvania, as well as in other states, there 
 have been at times extraordinary excitements in re- 
 ference to internal improvements. Turnpike roads, 
 bridges, canals, and railroads, have each in their turn 
 commanded popular favor, and have been exten- 
 sively constructed, without a due examination of 
 their cost and of their probable results. The conse- 
 quence has been, that some of these enterprises have 
 proved wholly abortive, and have been abandoned 
 without being completed, or, if completed, have been 
 useless as a source of income, and have consequently 
 occasioned to their proprietors a loss equal to the 
 whole expenditure. Now in all such cases, what 
 has been the capital that has been sunk? I answer, 
 the raw materials of which the works were con- 
 structed, such as stone, lime, wood, timber and iron, 
 the food and drink, clothing and fuel of the laborers 
 employed upon the same, (for the procuring of which 
 the money paid to them as wages only served as the 
 instrument,) the vehicles, implements, and tools worn 
 out or deteriorated by the work, and the food con- 
 sumed by the horses and cattle employed. All these 
 articles, being forms of accumulated capital, possess- 
 ing a value equivalent to the sum in money paid for 
 
60 A TREATISE ON 
 
 them, constitute the capital sunk, and they are said 
 to have been sunk, because after they have been used 
 or consumed, there is nothing of value to be shown 
 in their place. The process which has in reality 
 taken place has been the mere transmutation of stone 
 and lime, wood and iron, from a form in which they 
 possessed a value into one in which they possess no 
 value, and the conversion of a large quantity of bread 
 and meat, whiskey and rum, butter and milk, sugar 
 and coffee, coats and jackets, coal and wood, hay and 
 oats, into roads and canals, without the possibility of 
 a reconversion to those original elements. 
 
 But it may be said, that even admitting all this to 
 be true, still a vast number of people will have been 
 employed. Granted; but employed in producing 
 nothing of value, so that their industry has been of 
 no more benefit to the community than if it had been 
 employed in turning grindstones where there was 
 nothing to grind, or in digging ditches merely to fill 
 them up again. It would hardly be argued that had 
 it not been for this employment, these people would 
 have remained idle. This would have been impos- 
 sible. The identical capital consumed in the abortive 
 enterprise would have been seeking for laborers in 
 some other pursuit, and these laborers would have 
 met it on the way, or have taken the place of those 
 who did. These remarks, it will be observed, have 
 reference to cases where the whole enterprise has 
 failed, such as happened many years ago, with a total 
 sinking of large capitals, in the construction of the 
 Philadelphia and Susquehanna, and the Chesapeake 
 and Delaware canals. They are, however, equally 
 applicable to partial failures of enterprises as far as 
 they go, and the only true test of the result of an 
 improvement, is to be found in its nett income. If 
 that be greater than the amount that could have been 
 derived from the employment of the same capital in 
 some productive branch of agriculture, commerce, or 
 manufactures, the investment will have been a profit- 
 
CURRENCY AND BANKING. 61 
 
 able one. If it be merely of an equal amount, it will 
 have been an indifferent investment, and if it be of 
 less amount, it will have been a positive loss to the 
 community as well as to the proprietors. The truth 
 of this proposition can easily be seen by any one who 
 will apply it to the case of a single farm. If a farmer, 
 who has a thousand dollars which he can lend at six 
 per cent., or cause to produce him six per cent., by 
 grazing cattle or tilling more ground, should lay it 
 out in making a new road to facilitate his intercourse 
 with the market, by which he should only save twen- 
 ty dollars a year in the reduced transportation of his 
 produce, it is clear that he would not be as well off 
 by forty dollars a year, as if he had continued to use 
 the old road, and employed his capital in one of the 
 other modes. An entire state is but a large farm, 
 and what is true of one is true of the other. 
 
 But there is an argument which may here be urged 
 with some apparent force, and it is one that is en- 
 titled to consideration. It is that in estimating the 
 value of a road or canal, the whole benefit to the 
 community resulting from it is not to be measured by 
 the mere income which the owners or stockholders 
 derive from it. A part of the benefit is shared by the 
 public, that is, by the producers and consumers of the 
 commodities which pass over the road or canal, and 
 by the persons who travel over it. It may, therefore, 
 very well happen, say the objectors, that whilst the 
 stockholders of the road get only three per cent, divi- 
 dends on their stock, the advantages which the com- 
 munity gain may be equal to three, five, or seven per 
 cent. more. Let us analyse this argument, which 
 appears to possess so much plausibility, and see to 
 what it will lead us. 
 
 The interest of money or capital is that sum which 
 is paid to the owner of money or capital for its use, 
 and is, as we have shown in another place, that rate 
 which is established by the competition of the market. 
 When persons borrow capital for employment in any 
 6 
 
62 A TREATISE ON 
 
 productive branch of industry, whether connected 
 with agriculture, commerce, or manufactures, it is 
 always with the expectation that they can make out 
 of it a sum beyond that which they pay for its use, 
 and the average rate of interest may be considered 
 to be the rate which all judicious applications of capi- 
 tal ought to produce. In the Atlantic states of the 
 Union, where capital is more abundant than in the 
 western states, the annual net profits of capital, after 
 defraying all the expenses of wages, rent, superin- 
 tendence and other charges incident to the enterprise, 
 may be estimated at about six per cent.,* and six per 
 cent, may therefore be considered, in the region of 
 country mentioned, as the profit which ought to be 
 produced from capital, and consequently in those 
 cases, where a road or canal does not produce a benefit 
 to the stockholders, equal to six per cent, upon the 
 outlay, there will have been a sinking of capital equal 
 to the principal sum that ought to have yielded the 
 deficiency; and for this reason, that six per cent, would 
 have been the profit derived from the employment of 
 the capital in other pursuits. 
 
 The next question then which presents itself is 
 this. Can it be, that the public shall derive a benefit 
 of three, five or seven per cent, per annum from the 
 construction of a road or canal, whilst the proprie- 
 tors of the improvement derive only a profit of three 
 per cent? 
 
 It is a possible case, that a charter of incorporation 
 may have fixed the rates of toll on a road or canal so 
 low, without any power on the part of the company 
 to raise them, as that the income arising therefrom 
 shall not be more than equivalent to three per cent, 
 upon the expenditure. In such an instance, it might 
 happen that the public should enjoy an advantage 
 
 * The laws of New York establish the rate of interest at 
 seven per cent. In all the other Atlantic states it is fixed at six 
 per cent. 
 
CURRENCY AND BANKING. 63 
 
 equal to what has been named and even more. But, 
 I apprehend, that no such cases exist in the United 
 States; and I think I am warranted in saying, that no 
 company has ever accepted of a charter which does 
 not allow a chance for a revenue exceeding six per 
 cent., besides reserving a sum adequate to keep the 
 works in repair and pay all other expenses. When, 
 therefore, the income of a road or canal falls short of 
 an average of six per cent., it must be, and can only 
 be, in consequence of its not being used to a sufficient 
 extent, that is, in consequence of a sufficient portion of 
 the public's not finding it to be for its interest to pay 
 the toll, rather than to transport their commodities or 
 their persons on some other route. The only con- 
 ceivable mode of ascertaining the utility to the public 
 of an improvement, is by the amount they are willing 
 to pay for its use; and if this amount be equivalent 
 to not more than three per cent, of the capital ex- 
 pended, it may be considered as an indisputable 
 point, that the present toss to the community by the 
 investment is equal to at least one half of the capital. 
 Whether this shall have resulted from a bad location 
 of the improvement, from the limited quantity and 
 number of commodities and passengers that are trans- 
 ported over it, from an excess in the cost of the work 
 over the estimates, from extraordinary damage or ob- 
 struction from freshets or droughts, or other causes, 
 or from the road or canal being superseded or in- 
 terfered with by a rival improvement, it matters not. 
 The effect is precisely the same in either case. The 
 stockholders, and consequently the community, have 
 not only failed to reap the usual profit on a portion of 
 their capital, but have seen it transmuted into a form 
 wherein it can never again be rendered capable of 
 producing that profit. 
 
 But it may be said that roads and canals increase the 
 value of the lands through and near which they pass. 
 This may be sometimes true, but it must not be for- 
 gotten that they also diminish the value of other lands 
 
64 A TREATISE ON 
 
 through which they do not pass, by drawing off a 
 part of their population, and of the travelling which 
 used to frequent old routes.* But after all, there is 
 no real value conferred upon the country at large by 
 a road or canai in an economical point of view, but 
 what is to be measured by the actual reduction in the 
 expense of transporting its produce to market and 
 obtaining its distant supplies, and in the facilities 
 afforded to the conveyance of passengers. Where the 
 aggregate of these benefits is to the parties concerned 
 of such value as to induce them to pay to the capi- 
 talists who have constructed the improvement for 
 them, the same interest for the use of their capital, 
 that they could have obtained by its employment in 
 other pursuits, then, and then only, has the expendi- 
 ture been beneficial to the country. It is no doubt 
 true, that turnpike roads or' rail roads are very con- 
 venient and advantageous to those who reside on 
 their rout; 1 , and that they may all be willing at times 
 to pay for the privilege of passing over them. But 
 even the value of this convenience and advantage has 
 its limits. The turnpike road from Philadelphia to 
 Frankford, a distance of six miles, is extremely con- 
 venient in the winter season to all those who reside 
 
 * The following article is taken from a late English news- 
 paper as being quite in point. 
 
 Effects of Railroads upon Tavern Property. Previously to the 
 opening of the Great Western and the Southampton railroads 
 there were eighty-two long stages passed through the town of 
 Egham daily, nearly all of which changed horses at the se- 
 veral inns in the town. Now, the eighty-two are reduced to 
 four. Some of the inns have been closed, and several others 
 are about to be shut up. The following is a proof of the great 
 reduction which has taken place in the value of tavern and pub- 
 lic house property: Three years ago the Catherine Wheel Inn 
 Egham, which makes up thirty beds, and to which are attached 
 an acre and a half of garden ground, a bowling green, large 
 barns, sheds, coach house, and stabling for upwards of thirty 
 horses, let for 250/. a year. It then carried on a profitable trade, 
 and the proprietor realised a handsome living. The same pro- 
 perty was let, a few days since, at 50/. a year. 
 
CURRENCY AND BANKING. 6 
 
 on its border and in its vicinity; yet as they prefer 
 other roads in summer, and are not willing to pay 
 for its use in winter an aggregate sum equal to the 
 interest on the capital expended in its construction, it 
 is manifest that the existence of the road is not con- 
 sidered to be worth to them that amount. Who could 
 doubt that the investment of a thousand dollars in an 
 omnibus to run from the Delaware to Schuylkill 
 would be a loss to the community as well as to the 
 owner, if the public for whose benefit it was esta- 
 blished, would prefer to walk rather than to pay for 
 its use more than thirty dollars a year over and above 
 the expenses and repairs? I say " loss to the com- 
 munity," because, had it not been for this misappli- 
 cation of capital, sixty dollars might have been ob- 
 tained for it on loan by the proprietor, and conse- 
 quently the aggregate wealth of the community would 
 have been augmented to the additional extent of 
 thirty dollars. 
 
 There is still, however, another popular error very 
 prevalent on this subject, which ought not to be 
 passed over without notice. It is, that although 
 roads and canals may not produce to their proprietors 
 at the very moment of their completion, an income 
 equal to the ordinary interest on capital, yet that they 
 will do it at some future period, say, three, five, or 
 ten years hence. If a farmer were to expend a hun- 
 dred dollars to-day in the purchase of a wagon, which 
 he did not expect to use for three, five, or ten years, 
 he would be a very bad calculator, if he did not know 
 that the interest on a hundred dollars or the profit he 
 could have made on that sum for that number of 
 years, would add to its cost an amount precisely 
 equal to that interest or profit, and that the whole of 
 this amount would be an uncornpensated loss to him, 
 besides what he might lose by the deterioration of the 
 wagon. The same is true of all other investments 
 made in anticipation of future periods. One million 
 of dollars expended on a road, that should not be 
 
 6* 
 
66 A TREATISE ON 
 
 wanted for eleven or twelve years, would cost two 
 millions of dollars at ihe expiration of that term, 
 because money at compound interest of six per cent. 
 per annum, doubles in about eleven years and eight 
 months, and that sum would have been the amount 
 in the hands of the capitalists had they employed it 
 in any branch of productive industry.* If repairs 
 should also be required, the amount would make a 
 further addition to the cost of the road, unless they 
 were met by the receipt of a corresponding amount 
 of tolls; and hence it is evident, that those who leave 
 out of view in their estimates of the judiciousness of 
 investments, the accumulating power of capital at 
 compound interest, are very unsafe counsellors. It is 
 true, that nobody would be so unwise as purposely 
 to construct a road or canal, a long time before it was 
 wanted at all, and hence so strong a case as the one 
 above supposed, has probably never occurred. Still, 
 the principle here laid down is true as regards every 
 investment made in advance, to the extent of that 
 portion of the capital that does not yield the ordinary 
 income. A regular interest account current would 
 show the true amount of the cost of the improvement, 
 and if reference were had to this test of productive- 
 ness more frequently than it is, it would be found that 
 many investments which have been usually consi- 
 dered productive, have been upon the whole losing 
 transactions. 
 
 * The present value of a million of dollars payable eleven 
 years and eight months hence, is five hundred thousand dollars, 
 which of course would be the present loss, or sinking of capital 
 in the case supposed. If ten percent, were taken as the annual 
 profit that could have been made on the employment of the 
 capital, (a profit which capital will earn in some parts of the 
 Western country,) the result would of course be much more 
 unfavorable to the community. 
 
CURRENCY AND BANKING. 67 
 
 BOOK THE SECOND. 
 
 OF THE LAWS WHICH REGULATE A MIXED CURRENCY 
 COMPOSED OF THE PRECIOUS METALS, AND OF PA. 
 PER CONVERTIBLE INTO COIN ON DEMAND. 
 
 IN the former part of this work I pointed out the 
 principles by which a currency composed entirely of 
 the precious metals is regulated. I come now to 
 speak of the laws which regulate a currency com- 
 posed of coin and convertible paper, and here I wish 
 it to be distinctly understood, that by convertible 
 paper, I mean notes issued by banks, payable to 
 bearer in coin on demand. Paper money issued by 
 governments, like the paper of the North American 
 colonies before the revolution, or like the continental 
 money of a subsequent period, or like the assignats of 
 France, or the actual paper money of some of the 
 nations of Europe, riot being payable in coin by the 
 issuers at the pleasure of the holder, belongs to an- 
 other category, and is governed by laws peculiar to 
 itself. 
 
 CHAPTER I v 
 
 OF BANKS OF DEPOSITS, OF BANKS OF DISCOUNT AND 
 OF BANKS OF CIRCULATION. 
 
 OF banks there are three distinct kinds, wholly 
 different from each other, in their constitution, their 
 uses, their operations, and their influence upon the 
 
68 A TRE ATISE ON 
 
 public prosperity, viz. banks of deposit e, banks of dis- 
 count, and banks of circulation, or, as some express 
 it, banks of issue, of each of which I will speak in 
 its turn. 
 
 t# bank of deposite is an institution established 
 solely for the safe keeping of the coin and bullion of 
 individuals, which would otherwise have to be kept 
 in iron chests or less secure receptacles, and for 
 facilitating mercantile payments by the transfer upon 
 its books by checks or drafts of the various amounts 
 standing to the credit of the depositors, thus saving 
 the labor of repeated countings, and the expense of 
 repeated transportations of the precious metals from 
 house to house, accompanied at the same time by a 
 diminished risk from fire or pillage, and a diminished 
 wear and tear of the coins by friction. Such a bank, 
 it is manifest, is more appropriate for a community 
 using a currency of coin alone, than for one employ- 
 ing a mixed currency; and accordingly, we find such 
 a bank as having formerly existed at Amsterdam? and 
 at the present day at Hamburgh, in which latter city, 
 a deposite of standard silver of the weight of a marc, 
 entitles the depositor to the credit of an amount 
 denominated a marc banco, which is the unit of the 
 currency of Hamburgh, in which all bills of exchange 
 and mercantile debts are payable, and which the 
 party who holds the credit may draw out at his 
 pleasure in marcs weight, or transfer to others. As 
 regards the operations of this particular species of 
 banks, the reader will perceive that they add nothing 
 to the existing amount of the currency, and that they 
 take nothing from it. The credits on their books re- 
 present certain quantities of bullion ascertained by 
 weight, placed there for safe keeping, without any 
 authority on the part of the administrators of the bank 
 to lend it, or to apply it to any purpose whatever, 
 until called for by its owners, or transferred by them 
 to other persons; and hence it is clear, that such 
 
CURRENCY AND BANKING. 69 
 
 banks exercise no influence whatever over the cur- 
 rency, by contracting or expanding its amount. 
 
 A bank of discount is an institution possessing a 
 capital in money, which the proprietors, for there are 
 usually several, associated in part for the sake of 
 maintaining a survivorship, lend to merchants and 
 others by discounting acceptances and promissory 
 notes, originating in the sale of merchandise and 
 other property, having short periods to run. It also 
 receives on deposite, either by allowing interest or 
 not, as the agreement may be, the money of other 
 people, repayable at fixed periods or on demand, 
 which it also lends with its own capital in discount- 
 ing commercial securities. Of this description of 
 banks, are all the establishments in London, (except 
 the Bank of England,) and many of those of the prin- 
 cipal cities on the continent of Europe known as 
 private bankers. Several bankers of the same de- 
 scription, but better known as extensive brokers, have 
 also at different periods in New York and Philadel- 
 phia, carried on the business of lending their own 
 capitals and the capitals of others deposited with 
 them, and it is probable that in every commercial 
 community there are establishments of the kind upon 
 a larger or a smaller scale. As such banks do no- 
 thing more than lend the money which actually 
 exists in the community, it is evident, that they, like 
 banks of deposite, exert no influence whatever over 
 the currency, in expanding or contracting its amount, 
 and that consequently they produce no effects differ- 
 ent from those which would result if the same money 
 had been loaned out by its individual proprietors, 
 through the agency of brokers. 
 
 Some persons indeed suppose that where the money 
 of depositors is repayable on demand, an expansion 
 of the currency takes place to the whole extent of 
 such deposited sums, in case they have been loaned 
 to others, inasmuch as the depositor as well as the 
 person to whom his money has been loaned, has each 
 
70 A TREATISE ON 
 
 the power to make purchases in the market for the 
 same amount, the right possessed by the former to 
 draw money out of the bank, giving him the same 
 command of funds as the actual possession of money 
 by the latter confers upon him. But this is an error, 
 for, if the depositor's money has been loaned out, it 
 can in no possible way be paid back to him, but by 
 the bank's requiring the borrower or some other of 
 its debtors to refund an equal amount, by which pro- 
 cess the aggregate mass of the currency is preserved 
 the same as before. Banks well administered, do 
 not, however, place themselves in the condition of 
 being obliged in order to meet the sudden demands 
 of depositors, to call unexpectedly on their debtors. 
 They keep on hand an amount of money unem- 
 ployed, sufficient to meet any probable calls that may 
 be made upon them, before the bills receivable held by 
 them fall due. and like the mill pond which is supplied 
 with water from the stream above, just as fast as it is 
 discharged through the mill race below, they preserve 
 a uniform level in the currency. Nor is the matter 
 at all changed by the fact that bank credits or depo- 
 sites are transferable by means of checks, from the 
 account of one person to that of another, for it is 
 clear, that if by such transfers, one person becomes 
 possessed of the command of funds, another parts 
 with it to the same amount, and consequently, there 
 is but one power of purchase in the market at any 
 one time, with the same money. 
 
 Jl bank of circulation is an institution established 
 solely for the purpose of lending credit, which is per- 
 formed by exchanging its promissory notes payable 
 to bearer on demand in coin, or giving transferable 
 credits on its books, also payable on demand in coin, 
 for the promissory notes of individuals, payable at a 
 future fixed day, the latter paying a per centage per 
 annum equal to the interest on a loan of capital, for 
 the advantages they consider themselves as enjoying 
 by dealing in the market with the credit of the bank 
 
CURRENCY AND BANKING. 71 
 
 instead of their own. The operations of such a bank, 
 it will be perceived, are different from those of the two 
 preceding ones, inasmuch as the currency by the in- 
 troduction into it of paper money and paper credits, 
 createable at will, in addition to the coin which be- 
 fore constituted the entire currency of the country, 
 admits of expansion and contraction, and conse- 
 sequently of fluctuations such as are unknown under 
 a metallic currency. 
 
 In the nine hundred banks and branches which 
 now exist in the United States,* all the operations 
 of these three distinct institutions are combined; and it 
 is owing to this combination, by which dissimilar 
 things are confusedly mixed together, that the public 
 mind has been led into so much error upon the sub- 
 ject of banking. An analytical examination can alone 
 enable any one to understand the true merits of this 
 important subject. 
 
 From the foregoing definitions it will be seen that 
 banks of deposit and banks of discount are of positive 
 advantage to every country in which they are estab- 
 blished. The former protects the gold and silver of 
 the community from the danger of robbery and fire, 
 as well as from loss by abrasion, as has already been 
 remarked, and at the same time greatly facilitates 
 the operations of commerce by the convenience of 
 payments in checks instead of payments in coin. 
 The latter keeps the money of the community in con- 
 stant employment by lending it to one borrower, as 
 fast as it is paid back by another. But it will be 
 readily seen, that such institutions do not hold out 
 sufficient temptations for their frequent establishment, 
 as corporations. To maintain a bank of deposits, a 
 fund must be provided by government or individuals 
 to defray its expenses, inasmuch as no number of 
 
 * According to the report of the secretary of the treasury of 
 April, 1840, the number was 901, with a paid up capital of 
 near $360,000,000. See Appendix C. 
 
72 A TREATISE ON 
 
 persons would assume the responsibility of taking 
 care of other people's money, and of keeping their 
 cash accounts, without compensation, and in regard 
 to a bank of discount, it would scarcely be worth 
 while for a company to become incorporated or to 
 pay the rent of a banking house, and the salaries of a 
 number of officers, to do that which the individuals 
 could do themselves or by the employment of brokers 
 at a much less expense, or, indeed, at no expense at 
 all, as the brokerage is usually paid by the borrowers, 
 unless a comparatively large amount of deposites 
 could be relied on, at a low interest or at no interest 
 at all. Banks of circulation have, therefore, been 
 resorted to, as presenting the only certain, or appa- 
 rently certain, prospects of emolument; and as the 
 credit requisite to give confidence to the paper could 
 not be established without having for its basis a capi- 
 tal, more or less extensive, they have in every case 
 been consolidated with a bank of discount. To secure 
 the popular favor too, as well as to derive a profit 
 from the lending of the money of others, they have 
 also taken upon themselves, without charge to the 
 public, that part of the duties of banks of deposite 
 which relates to the keeping of cash accounts with 
 individuals, and transfers of credits on their books, 
 but not that part which guarantees the safe keeping 
 of the coin and bullion of depositors, except in the 
 few cases where an agreement for special deposites 
 is made. 
 
 But banks of circulation are themselves, when 
 properly conducted, and when their operations are 
 confined to the legitimate objects of banking, and 
 when their liability to comply with their contracts is 
 strictly enforced by the public, capable of conferring 
 benefits upon a country. By the creation of paper 
 money they enable the merchants to export a part of 
 the metallic money which was previously required 
 to circulate its commodities, and thereby convert it 
 into active capital, yielding an annual income equal 
 
CURRENCY AND BANKING. 73 
 
 to the average profits of trade. The mode in which 
 this is effected, I will endeavor to illustrate in detail 
 in the succeeding chapter. 
 
 CHAPTER II. 
 
 OF THE OPERATIONS OF BANKS OF CIRCULATION. 
 
 IN a former part of this treatise* it was shown, 
 that under a metallic currency, it is not possible to 
 retain in any country, for any length of time toge- 
 ther, a larger amount of coin than that which is requi- 
 site to place its currency upon a level with the cur- 
 rencies of other countries; and it was also shown, 
 that if by any extraordinary cause a greater amount 
 should at any time be brought into any country, it 
 would continue but for a short time, and would gra- 
 dually disappear by exportation, in the manner there 
 described, until the equilibrium should be restored. 
 
 What is true of a metallic currency, is equally true 
 of a mixed currency, consisting of coin and paper 
 exchangeable for coin on demand. The aggregate 
 amount of the two component parts cannot exceed 
 for any great length of time, the amount of coin which 
 would circulate if there was no paper, as I shall now 
 proceed to show.t 
 
 Let us suppose that, in a particular country, enjoy- 
 
 * Book I. Chap. 4. 
 
 f This expression must be qualified thus. Every emission 
 of a paper currency in any country drives out a portion of its 
 coin, and augments the total amount of the currency of the 
 world, in the same manner that an additional quantity of gold 
 and silver from the mines would do it; and hence an emission 
 of paper money any where must augment the currency every 
 where, after time has been afforded for the distribution. 
 7 
 
74 A TREATISE ON 
 
 ing a metallic currency, the quantity of coin requisite 
 to circulate its products and commodities, and to 
 maintain its currency upon a level with the currencies 
 of other countries, is ten millions of dollars, and 
 that the balance of trade and payments is such at 
 the time of our supposition, that the exchange is at 
 par. A bank of deposit, discount and circulation is 
 established upon the corporate or joint-stock principle, 
 with a capital of one million of dollars in coin, which 
 amount is of course to be taken from the ten millions 
 in circulation. We will suppose this capital* all to be 
 paid in before the bank commences its operations. 
 The effect of this would be a temporary pressure for 
 money, by withdrawing one million of dollars from 
 circulation. This pressure, however, would be gra- 
 dually relieved, as the bank commenced discounting, 
 and would wholly disappear after it had loaned out 
 a million of dollars.* Now it is manifest, that up to 
 the period at which the loans of the bank do not ex- 
 ceed one million of dollars, its operations have been 
 simply those of a bank of discount, for it has only 
 loaned the amount of its capital, that is, of money 
 previously existing. It may indeed, have issued 
 notes, or given credits on its books for loans made, 
 instead of paying out the identical gold and silver 
 received from the stockholders; or, it may have given 
 notes, or credits, on a deposit of coin for the conveni- 
 ence of the public; but such notes and credits in such 
 cases would be mere certificates that corresponding 
 amounts of gold and silver were lying in the vaults 
 of the bank, belonging to the owners of such notes or 
 credits, held subject to their order, precisely as in the 
 case of special deposites. It might even happen, that 
 millions of dollars in the form of notes and credits 
 
 * I am aware that the usual practice of banks is to call in 
 their capitals by instalments, and to lend out those instalments 
 as fast as received, which is undoubtedly the best mode, if the 
 loans were not so apt to be made to needy or speculating stock- 
 holders, to enable them to pay up the subsequent instalments. 
 
CURRENCY AND BANKING. 75 
 
 might be issued by the bank in exchange for specie, 
 without thus far exercising one single prerogative of 
 a bank of circulation, or influencing in the slightest 
 degree the state of the currency, any more than the 
 Bank of Hamburgh, already described, influences the 
 currency of that city. 
 
 From this view of the subject, how clear is to be 
 seen that what the bank has thus far performed, is 
 nothing more than what the individuals who own the 
 capital of the bank, could themselves have performed 
 more cheaply, quite as securely, and perhaps more 
 advantageously to the public, seeing that loans to 
 unskilful and imprudent borrowers, of which indi- 
 viduals are not so apt to be guilty as corporations, 
 lead to a diminution of the wealth of a country, 
 whether it result from injudicious voyages, or from 
 any species of enterprise which converts productive 
 capital into properly which is not equally productive, 
 or, from improvident sales of merchandise to persons 
 not entitled to credit. Incorporated or joint stock 
 banks, it is thought, owing to their directors not hav- 
 ing a deep personal interest at stake, and owing to 
 their liability to be influenced as a board, by consider- 
 ations which do not operate upon individuals, and 
 especially owing to the absolute impossibility of their 
 devoting any large share of their time to the investi- 
 gation of the characters of all applicants for loans, 
 cannot, in the nature of things, exercise the same dis- 
 crimination in the choice of its borrowers, as indivi- 
 dual capitalists do.* 
 
 The circulating principle is now put into opera- 
 
 * If it be objected to this proposition, that the losses of the 
 banks in the United States are comparatively few, I would 
 reply, that this result is to be ascribed to the absence of a gene- 
 ral bankrupt law, which would prevent those partial assign- 
 ments for the benefit of endorsers at bank, by which banks 
 become preferred creditors in most cases of insolvency, and 
 thereby get a larger share of the assets of their debtors, than 
 other creditors. 
 
76 A TREATISE ON 
 
 tion by our supposed bank, by lending its credit in 
 addition to its capital. In other words, without 
 having any more money to lend, it undertakes to 
 discount notes at short periods, by giving to the 
 borrowers not coin, or notes or credits absolutely 
 representing coin in its vaults, as in the case of its 
 original loans, but notes or credits promising to pay 
 gold or silver on demand, founded upon a presump- 
 tion that no such demand will be made, until the 
 notes, in the discount of which they were issued, or 
 some of the other notes discounted by the bank, will 
 be paid, and thus bring into its coffers an equal 
 amount of specie. In other words, the bank lends its 
 credit, and as this credit is just as valuable to any of 
 the parties who are indebted to the bank for the first 
 million, or for any subsequent sum loaned, as gold or 
 silver, any of them will be willing to receive it in 
 payment of debts or for merchandise sold, as readily 
 as coin, and the notoriety of this fact, added to the 
 right of conversion on demand, gives the notes and 
 transferable credits of the bank a circulation with the 
 public equivalent to coin. Every emission, however, 
 of these bank notes and credits is an augmentation 
 of the currency, and depreciates it below the general 
 level.* Let us, for the sake of argument, suppose 
 the amount of this augmentation to be extended in a 
 given time to one million of dollars, that being the 
 sum requisite, we will further suppose, to occasion 
 the degree of depreciation that must exist before it is 
 profitable to export coin. The amount of the cur- 
 rency will then be eleven millions of dollars, that is 
 
 * The depreciation of a currenny when it takes place must 
 necessarily show itself in reference to every species of property 
 and commodity, although it takes longer to reach some things 
 than others, so as to occasion a change in their price. A depre- 
 ciation of the currency, in reference to particular things only, 
 cannot be supposed, any more than a rise of the tides in refe- 
 rence to some particular objects on the margin of a river, and 
 not to all others. 
 
CURRENCY AND BANKING. 77 
 
 to say, ten millions of coin, and one million of paper. 
 The effect of this would inevitably he what is called 
 a plenty of money. The prices of all commodities 
 would rise, because there would be eleven purchasers 
 in the market, where before there were but ten, or, 
 what amounts to the same thing, because the former 
 purchasers would possess one tenth more means to 
 purchase with, than they possessed before. This rise 
 of prices, operating upon foreign as well as domestic 
 commodities, would lead to the importation of addi- 
 tional quantities of foreign merchandise. But no cor 
 responding export of domestic products would take 
 place, on account of their artificially high price, upon 
 which bills could be drawn to pay for the foreign 
 imports; and the consequence would be, that money 
 would be sent abroad in their stead, as presenting the 
 most profitable species of export. But of the money 
 in circulation, it is evident that nobody would think 
 of exporting the paper, which would have no value 
 abroad, and consequently, all the exports that would 
 take place, would be of coin. 
 
 The effect just described would as certainly take 
 place as that water would find its level, and would 
 continue until the export of coin was equal to the 
 amount of the paper issued, that is, to one million of 
 dollars, when the level would be again restored, 
 owing to the fact of the aggregate of the coin and 
 paper united being only ten millions of dollars, that is, 
 nine millions of coin and one million of paper.* Fur- 
 ther emissions of bank notes or credits might then 
 take place with precisely the same results, and pro- 
 vided that the extent to which the issues are carried 
 is not so great as to drive out of the country too great 
 a portion of the metallic currency, by which the 
 convertibility of the paper into coin in case of a sud- 
 
 * Strictly speaking, the export would not be quite equal to the 
 amount of the paper issued, for the reason assigned in the second 
 note to this chapter, page 73. 
 
78 A TREATISE ON 
 
 den panic occasioned by foreign war or domestic 
 disturbance, or by fear of insolvency, might be en- 
 dangered, the operations of the bank are decidedly 
 beneficial to the country. It has disengaged from 
 a comparatively unproductive employment, a capital 
 capable of producing an annual profit to the nation 
 equal to the average profits of capital, or, in other 
 words, has substituted an expensive instrument of 
 commerce by one costing less. And yet, by this 
 operation, no permanent depreciation of the currency 
 takes place, because the total quantity of coin and 
 paper united is only equal to the quantity of coin that 
 would have circulated had there been no bank. 
 
 From these positions two conclusions are self- 
 evident: first, that banks of circulation are only 
 beneficial to a country when they occasion the 
 exportation of coin; and secondly, that paper is only 
 beneficial when its quantity does not exceed the 
 quantity of coin which has been removed from the 
 currency by exportation. The actual extent to 
 which this substitution siay take place with safety 
 to a banking system is a matter which cannot be 
 determined by any fixed proportions. Some persons 
 fancy that the extent to which a bank may loan 
 without danger of reaction depends entirely upon the 
 extent of its capital, and reason thus: if a bank with 
 one million of dollars capital can with safety loan a 
 million and a half, which is fifty per cent, increase, 
 one with a capital of ten millions of dollars can loan 
 to the extent of fifteen millions. Others imagine that 
 the power of expansion in a bank always bears a 
 fixed proportion to the average amount of its depo- 
 sites and circulation; whilst others again entertain 
 the idea that it depends upon the amount of coin it 
 has in its vaults, and that if this be large, the amount 
 of its issues may be proportionally large. All these 
 hypotheses, however, are fallacious. The real truth 
 is, as has been shown, that the channels of circula- 
 tion will only hold, without depreciation, a certain 
 
CURRENCY AND BANKING. 70 
 
 quantity of paper in addition to the quantity of coin 
 that must needs exist as the basis of the mixed cur- 
 rency, and this is equally the case whether the paper 
 be issued by one bank or by one thousand. All 
 attempts to increase that quantity permanently be- 
 yond the quantity requisite to preserve an equiva- 
 lency with the general level, must, in the nature of 
 things, be futile. If the channels are made to over- 
 flow, depreciation of the whole mass (for where con- 
 vertibility exists the coin is involved in the depre- 
 ciation in common with the paper) will necessarily 
 take place, followed by an exportation of coin as a 
 necessary effect from a cause, and all redundant issues 
 of notes will return upon the issuers for payment, 
 with the same unerring certainty as the fabled stone 
 of Sysiphus rolled back upon the wretched struggler. 
 It may, however, be here remarked, that the possible 
 case might occur of a favorable balance of trade 
 existing at the same time that an expansion of the 
 currency has taken place, the consequence of which 
 would be, that the former, by occasioning a low rate 
 of exchange, would arrest the tendency of the depre- 
 ciated currency to relieve itself by exportation. But 
 such a state of things could not long continue, and it 
 is merely referred to as presenting one of the phe- 
 nomena which we occasionally witness, and which 
 sometimes puzzle the heads of superficial reasoners 
 so much that they deny the existence of all fixed 
 principles in political economy. 
 
 There is, however, one circumstance connected 
 with the corrective power of exportation, which is of 
 vast importance, and which renders the paper cur- 
 rency of the United States more liable to excessive 
 depreciation than that of any European country. I 
 allude to the effect produced by a war with any pow- 
 erful maritime nation, which by augmenting the rates 
 of freight and insurance on specie, prevents the ap- 
 plication of the remedy against over issues by the 
 banks, at as early a stage of depreciation as would 
 
SO A TREATISE ON 
 
 take place in time of peace. Thus in a time of peace, 
 one per cent, would cover those charges between 
 North America and Europe, whereas in a time of 
 war, five or ten per cent, might be required, the in- 
 evitable result of which would be, that the paper cur- 
 rency, although convertible on demand into coin, 
 might be depreciated to the extent of five or ten per 
 cent, below the general level, and foreign bills of ex- 
 change might rise to that extent above the real par, 
 before the merchants, having remittances to make, 
 would find it advantageous to ship specie, and con- 
 sequently before any reaction would be felt by the 
 banks. This fact ought to have weight with our 
 public men, as being one of the most fatal of the 
 elements which make up the aggregate of national 
 suffering, arising from a state of war, as may be well 
 remembered by those who witnessed the suspension 
 of specie payments in 1814 during our war with 
 England, and its disastrous consequences. 
 
 CHAPTER III. 
 
 OF THE PRINCIPLES BY WHICH THE PROFITS OF 
 BANKS OF CIRCULATION ARE DETERMINED. 
 
 FROM what has been said in the preceding chapter, 
 how clearly is it to be perceived, that the profit to be 
 derived from supplying the paper currency of a coun- 
 try, is a limited amount, and that if it be divided 
 amongst a great nu:nber of banks, and distributed 
 over the surfaces of many large capitals, its propor- 
 tionate rate must be very small. To make this mat- 
 ter, however, more plain, for I consider a correct view 
 of this branch of the subject as all-important in over- 
 throwing the present errors of our banking system 
 
CURRENCY AND BANKING. 81 
 
 I will illustrate it by reference to the case of the same 
 country, which was above supposed to require a cir- 
 culating medium often millions of dollars. 
 
 Without pretending to determine the precise ex- 
 tent to which its coin might be safely substituted by 
 paper, I will suppose, for the sake of argument, that 
 one half of the former shall be exported, and that 
 consequently the currency consists of five millions of 
 coin and five millions of paper. Under this state of 
 things, the bank would be drawing interest on a sum 
 five times as large as its capital, even allowing that 
 it retained a sum equal to its whole capital of a mil- 
 lion in its vaults in coin, to meet occasional demands. 
 The profits of its business would therefore be very 
 great on account of the small capital of which it was 
 the income, and the consequence would no doubt be, 
 as soon as the secret should become known to others, 
 that a second bank would be established. 
 
 Few of the projectors, however, of this new bank 
 would probably believe that the great profits made 
 by the original bank were the result of a monopoly, 
 and that they would not have been any greater in 
 absolute amount, if its capital had been five millions 
 instead of one; but under delusive notions that the 
 same per centage of profit, or something near it, 
 would attach to a large capital as to a small one, 
 they would probably establish their new bank with 
 a capital, let it be supposed, of two millions of dol- 
 lars. Now to make a proportionate profit equal to 
 that enjoyed by the original bank, paper must be 
 issued to the amount of ten millions, and the bank 
 accordingly commences its operations by a profusion 
 of loans. But the channels of circulation are already 
 full of the paper of the old bank, and there is no room 
 for any more. Issues, however, go on until money 
 becomes plenty, and the currency becomes depre- 
 ciated below the general level, as in the case of the 
 original bank. Prices of all commodities rise; foreign 
 merchandise, by its high price, holds out inducements 
 
82 A TREATISE ON 
 
 for importation; domestic products become too dear 
 for exportation; bills of exchange rise, because the 
 demand for them to pay for foreign commodities in- 
 creases faster than the supply; and as soon as their 
 price in the market exceeds the amount of the ex- 
 pense of transmitting gold and silver abroad, a portion 
 of the remaining five millions of coin will be exported. 
 Then is the new bank first reminded of its mistaken 
 views. . Its notes return upon it for payment in coin, 
 to be sent out of the country, and its neighbor, too, 
 the old bank, which has five millions of paper in cir- 
 culation, feels the effects of this reaction, and both are 
 obliged to call in a part of their loans, in order to 
 avoid a worse state of things. The consequences 
 would be, a general scarcity of money, and a tempo- 
 rary commercial embarrassment. The result, how- 
 ever, would be found to be, that as five millions of 
 dollars was the total amount of paper that could be 
 kept in circulation without depreciation, the profits 
 of furnishing this amount are now to be divided be- 
 tween two banks instead of being monopolised by 
 one, and in such proportions as the particular influ- 
 ence or management of each may be able to establish. 
 A similar effect precisely would follow the creation 
 of every additional bank; and should the number 
 increase to five or ten, the aggregate profit would 
 still be the same; for although the paper currency of 
 five millions would be occasionally augmented in 
 quantity as each bank commenced its operations, as 
 has been shown, yet in the long run it would settle 
 down at the old amount. But, notwithstanding the 
 certainty of this fact, there would still be a perpetual 
 endeavor on the part of some of these banks to get 
 the largest share of the profits of this supply of the 
 paper currency by extraordinary issues. This, how- 
 ever, it could not accomplish, if the public would 
 always insist upon strict convertibility, and if other 
 banks were true to their interests by making a daily 
 demand upon each other for the payment of balances 
 
CURRENCY AND BANKING. 83 
 
 occurring in their mutual transactions, not in paper, 
 but in coin. 
 
 And here I will remark, that precisely as each 
 bank of a city thus checks the issues of its neigh- 
 bors, the united banks of a city check the issues of 
 other neighboring cities. If the currency of a par- 
 ticular city, Philadelphia, for example, were to be- 
 come depreciated below that of New York, the effect 
 would immediately be shown by a rise in the former 
 city in the prices of stocks, bills of exchange, and 
 other securities of easy transmission, of which the 
 consequence would be, that amounts of these would 
 be sent to Philadelphia for sale, and by that means 
 the banks of that city would be brought into debt to 
 the banks of New York, which would call for pay- 
 merit of the balance in coin, and that would lead to 
 a contraction of the currency, until the equilibrium 
 would be again restored. It is precisely upon the 
 same principle that the general currency of the 
 country is corrected by the influence of those of 
 foreign countries, and therefore, if any obstruction to 
 the free exportation of coin should at any time exist, 
 either by the timidity of the holders of bank notes to 
 demand their rights, or by the laws of a country, or 
 by the exciting of public odium against the exporters, 
 either by banks, politicians, or otherwise, so as to 
 deter them from exporting when it is profitable for 
 them to export, the currency must inevitably sustain 
 depreciation, and mischief must be tbe result. 
 
 In connection with this subject, it may here be also 
 remarked, that should the time ever arrive, when all 
 the principal commercial countries of the world should 
 adopt the circulating banking system, the whole of 
 the benefits resulting from the substitution of paper 
 money for coin will vanish. The only reason why 
 this substitution is now productive of profit to any 
 country where banks of circulation exist, is, that 
 there are other countries in which there is no paper 
 money, and which are willing to give other commo- 
 
S4 A TREATISE ON 
 
 dities for gold and silver. But only let them all 
 adopt the policy of issuing bank notes in an equal 
 proportion, so as to preserve their respective cur- 
 rencies upon the same level, and it will at once be 
 seen that the precious metals will not flow out from 
 either, and that the inevitable consequence will be, 
 that the prices of commodities and property will be 
 increased all over the world, whilst not a dollar will 
 be added to their value. Every movement made in 
 Europe towards the establishment of banks of circu- 
 lation, is a step towards that terrible consummation, 
 when no domestic or foreign checks will longer exist 
 to prevent those unlimited expansions, which cannot 
 possibly exist without alternate contractions, subver- 
 sive of the industry and prosperity of the whole 
 civilised world. 
 
 CHAPTER IV. 
 
 OF THE SAFEST AND MOST PROFITABLE MODE OF 
 INVESTING THE CAPITALS OF BANKS OF CIRCULA- 
 TION. 
 
 IT has been shown that banks of discount upon the 
 corporate or joint-stock principle could not generally 
 be conducted to a profit, seeing that the income they 
 derive from the loan of capital would not be as great 
 as the income which the individual proprietors could 
 have derived from lending their money without the 
 agency of salaried officers and the rent and other ex- 
 penses of a banking house. It has also been shown, 
 that for the same reason, banks which perform the 
 double function of banks of discount and banks of 
 circulation, can make no banking profit by the mere 
 lending of their capitals. All their profits are derived 
 
CURRENCY AND BANKIN( 
 
 from lending their credit; for, although wh< 
 of interest is six per cent, per annum, the pracl 
 taking the interest beforehand, and charging sixty- 
 four days discount for the use of the money for sixty- 
 three days, as in Philadelphia and other places, the 
 actual rate received is 6 T 4 ^- per cent, yet the additional 
 four-tenths of one per cent, do not pay the proportion 
 of the whole expenses of the bank, which the amount 
 of its capital bears to the whole amount of its loans. 
 Indeed, a little reflection will enable any one to per- 
 ceive, that not only do all the profits beyond legal 
 interest of a bank of discount and circulation, where 
 it is successful, arise from the loan of its credit, but 
 those profits must besides furnish a fund for making 
 up the loss incident to the lending of its capital. 
 Thus, if we suppose a bank of discount and circula- 
 tion with a capital of one million of dollars, having 
 loans out to the amount of one million and a half, 
 and the whole annual expenses of the bank to be 
 fifteen thousand dollars, or one per cent, upon the 
 amount of the loans, it will be seen that two thirds 
 of this expense attaches to the lending of the capital, 
 and only one third to the lending of the credit of the 
 bank, so that if separate accounts were kept of the 
 expenses of each department of the institution, they 
 would show a gain upon the lending of credit and a 
 loss upon the lending of capital. If, therefore, the 
 whole operation be profitable, the profit must arise 
 from the lending of credit, and must consist of what 
 remains after defraying the loss incident to the lend- 
 ing of the capital, which is precisely equal to the 
 excess of the expenses of bank agency in loans over 
 those of private agency, deducting the four-tenths 
 of one per cent, which a bank charges, more than 
 individuals would have a right to charge by law on 
 loans/ At all events, no one will pretend that banks 
 
 * The banks of Pennsylvania, and perhaps most other states, 
 are authorised to charge one per cent, interest for sixty days, 
 8 
 
86 A TREATISE ON 
 
 make more by the loan of their capitals than indi- 
 viduals could make, and even on this admission it is 
 apparent that all the peculiar profits of what is 
 usually called banking arise from the loan of credit.* 
 Now, if these positions be true, it follows as a 
 necessary consequence, that the true policy of banks 
 of discount and circulation is, to adopt the most 
 economical and safe mode of lending their capitals, 
 so as to lose as little as possible by the operation. 
 Long loans, it is manifest, are attended with less 
 expense than short ones, and the security of real 
 estate or public funds is safer than the promissory 
 notes of individuals. One officer can superintend 
 loans on mortgage or investment in public secu- 
 rities, collect the interest, and keep all the accounts, 
 as easily as four could attend to the discounting of an 
 equal amount of notes at ninety days; and as to the 
 difference between the security of mortgages and pub- 
 lic stocks, and private paper, no one can fail to see 
 the superiority of the former. 
 
 From these views, it is evident that banks of circu- 
 lation derive no benefit whatever, but rather injury, 
 from having capitals to lend. Why then, it may be 
 asked, should they be connected with banks of dis- 
 count? For no other reaso.i than to give credit to 
 their notes, which would not be allowed to get into 
 circulation as money unless the public was assured 
 of a responsible endorser. The bank of discount thus 
 becomes the guarantee of the bank of circulation, and 
 as the solidity of the guarantee is what the public 
 most look after, how plain is it to be seen that a capi- 
 tal loaned upon real estate or state stocks would he 
 a better security against insolvency than any promis- 
 sory notes or bills of exchange could possibly be. In 
 
 and to receive it in advance. Individuals can only charge six 
 per cent, per annum, without the right to receive it before hand, 
 but the law in this case is seldom observed. 
 
 * Except in those cases where deposites constitute a large 
 portion of the amount loaned by the bank. 
 
CURRENCY AND BANKING. 87 
 
 other words, a bank with a capital of one million 
 of dollars loaned upon well secured mortgages and 
 state stocks of undoubted solidity would offer a better 
 security for the payment of its notes, than one with an 
 equal capital loaned upon discounted notes and bills. 
 
 And not only is this true; not only would the credit 
 of its notes be more perfectly secured as far as the 
 public is concerned, but the interests of the stock- 
 holders themselves would be very greatly promoted 
 by such a mode of lending the capital, first by a 
 diminution in the expenses of manngement, and 
 secondly by a diminution of the risk of lending. 
 
 But this is not all. The individual borrowers 
 themselves, of the capitals of banks, would be greatly 
 beneritted by such a system. They would obtain 
 money at six per cent, per annum, instead of six per 
 cent, and four-tenths; they would be able to borrow 
 for such long periods at once, by giving the requisite 
 security, as would give time for the winding up of 
 the voyage or operation for the conducting of which 
 the loan was required, instead of asking for renewals 
 every sixty or ninety days, always accompanied with 
 a degree of uncertainty, and generally attended with 
 the additional tax of a loss of interest upon a balance 
 in bank, tacitly, if not expressly required as the price 
 of a continued accommodation; amounting, probably, 
 to as much as with the four-tenths of one per cent, 
 above referred to, may be equal to one per cent. 
 
 To this it may, perhaps, be objected, that all bor- 
 rowers have not real estate or state stocks to pledge 
 for loans of money. Farmers and manufacturers may 
 have lands, houses, and factories, but merchants may 
 not; and, at all events, it would deprive of the power 
 of borrowing capital of banks all those persons who 
 have no real estate or state stocks to offer as security. 
 This is perfectly true, and it is precisely what ought 
 to be, for banks are bound to obtain as good security 
 on the loan of their capitals as their individual pro- 
 prietors would demand; and we all know that indi- 
 
83 A TREATISE ON 
 
 viduals rarely lend their capitals for long periods at 
 simple interest, as permanent investments, upon the 
 mere personal security of persons engaged in trade, 
 or hazardous enterprises. If they do occasionally 
 depart from this rule, it is because they have such a 
 knowledge of the affairs of the borrower as to render 
 his personal promise equivalent, in their estimation, 
 to a mortgage; and at all events they have a right to 
 risk their own property if they choose, but as banks 
 of discount stand towards the public in the position of 
 guarantees to the banks of circulation, with which 
 they are united, they act unwisely if they accept of 
 any but the most perfect security, such as that af- 
 forded by mortgage on real estate, or by an invest- 
 ment in undoubted public securities. 
 
 What has been said, let it be remembered, relates 
 only to the loans of its capital by a bank, and I trust 
 that the reader will not fail to perceive the justice of 
 the remarks. He will at least perceive, that as far as 
 the lending of the capital o{ a bank goes, whether the 
 loans be made for sixty days or twelve months, whe- 
 ther they be made on mortgage or to the government, 
 or upon promissory notes and bills of exchange, the 
 effect upon the currency is precisely the same. Nei- 
 ther mode makes money more or less abundant than 
 the other; inasmuch as that which has been loaned 
 is precisely the amount which previously existed in 
 the community, and is, indeed, the precise amount 
 which the individual stockholders of the bank would 
 have had to loan, had they not associated together as 
 a bank. The question, then, is a simple question as 
 to the borrowers, and whilst those who could not 
 give landed security for loans might think themselves 
 deprived of a right to which they are entitled; yet it 
 is evident, that the holders of bank notes and bank 
 credits, and the owners of the capital, and all the rest 
 of the community, who are. to a man interested in 
 the safe employment of the capital which belongs 
 to the whole society, are manifestly benefitted. In 
 
CURRENCY AND BANKING. 89 
 
 truth, however, borrowers have no rights as regards 
 the capital of a bank which they do not possess as 
 regards the capital of an individual; and any one 
 would see how preposterous it would be for a bor- 
 rower of money to insist with an individual upon his 
 right to borrow his capital upon a promissory note, 
 when the individual should refuse to lend in any 
 other way than upon mortgage. 
 
 I am aware that a plausible objection to this rea- 
 soning might be raised with reference to the banking 
 system as carried on in the United States, by assert- 
 ing the fact, that were it not for the demand of bor- 
 rowers who have no real estate to offer as security, 
 there would probably not be .employment for one 
 half the banking capital now existing in the United 
 States. This, however, proves nothing more than 
 that there is in existence double the amount of bank- 
 ing capital required to sustain the credit of the paper 
 currency, which I have shown to be the only advan- 
 tage derived from bank capitals, seeing that as far as 
 the capitals go, nobody gains by their amount being 
 loaned through corporate agencies, rather than by 
 their individual proprietors. If the fact be that nearly 
 all the capitals of all our banks are loaned out upon 
 personal security in the discounting of promissory 
 notes and bills of exchange, it is quite clear that the 
 stockholders are not as secure from loss, and that 
 their profits are not as great, as they would be if one 
 half their capitals were returned to them, and loaned 
 out by themselves individually upon landed security. 
 There 'can be no doubt that in the United States 
 great mischief results from so large a portion of the 
 debts of the community being in the form of promis- 
 sory notes discounted by the banks, instead of perma- 
 nent loans, owing to the temptation of banks to ex- 
 pand, arising from the broad field upon which they 
 suppose they can contract in case of need, which is 
 much larger than it would be if all their capitals were 
 loaned out upon permanent securities. I say, " sup- 
 
 8* 
 
90 A TREATISE ON 
 
 pose they can contract," because the fact of their being 
 able to contract at all times, may be considered as 
 fully disproved by the stoppages of payment in 1837 
 by all the banks, and in 1839 by all the banks to the 
 south of New York. 
 
 CHAPTER V. 
 
 OF THE LEGITIMATE OPERATIONS OF BANKS OF 
 CIRCULATION. 
 
 HAVING disposed of the question of the safest mode 
 of employing the capitals of banks, 1 now come to 
 the question, what is the legitimate function of a 
 bank of circulation, considered in its distinctive char- 
 acter as a bank without any capiial to lend? 
 
 The manifest answer to this question is, to lend its 
 credit in such a way as to produce the greatest pos- 
 sible benefit to itself without injuring the public. 
 
 The mode in which a bank lends its credit is to 
 exchange its own promissory notes payable on de- 
 mand, for the promissory notes or acceptances of 
 individuals payable at a future period, deducting the 
 interest for the time which the latter have to run 
 before they become due, and allowing no interest on 
 its own notes for the time that may elapse before 
 their payment is demanded. In making this ex- 
 change, the profits of the bank depend entirely upon 
 the length of time that its notes remain abroad, and 
 its ability to meet them depends of course upon the 
 length of time which the notes have to run in ex- 
 change for which they were issued. If bank notes 
 be issued only upon the principles laid down in a 
 former chapter as mere substitutes for coin exported, 
 and without augmenting in any degree the amount 
 
CURRENCY AND BANKING. 91 
 
 of the currency, they will remain in permanent cir- 
 culation, unless in case of a panic, or discredit, which 
 occasions a run upon the bank, and will constitute a 
 source of permanent profit; for although some of 
 them may be constantly returning in payment of 
 debts, yet they are sent out again as fast as they come 
 in, in the discount of other bills or acceptances. As 
 to the length of time which the discounted paper 
 should have to run, experience must decide, the bank 
 having regard to the possibility of a panic, as well as 
 to the action of other neighboring banks, seeing that 
 an over-issue by anyone of them, by depreciating the 
 currency, may occasion a temporary reaction upon 
 other hanks as well as itself, and disturb even those 
 that are the most prudently conducted. The prac- 
 tice of the banks in the United States prior to the war 
 of 1812, was generally to limit their loans to paper 
 not having more than sixty-three days to run. Since 
 that time, loans have been made at longer periods, 
 extending sometimes even to four and six months, 
 and to this circumstance is no doubt to be ascribed, 
 in a great degree, the frequent revulsions that have 
 since taken place in our currency, and especially that 
 which eventuated in a general stoppage of specie 
 payments in May, 1837.* It must be manifest, that 
 the power of a bank to meet any extraordinary emer- 
 gency must depend upon the command it has over 
 its loans, and if the experience of other countries can 
 be considered as any guide, that of England and 
 France may both be referred to, where discounts of 
 paper having more than sixty or a hundred days to 
 run, are wholly discountenanced. A similar practice 
 
 * To this circumstance may also be mainly ascribed the prac- 
 tice which of late years has generally prevailed of loner credits 
 on merchandise sold. Eight months are now given, where for- 
 merly only four were required, the effect of which is to double 
 the stocks of dealers who buy on credit, and to double the 
 amount of outstanding debts. When long notes are discounted 
 by banks, long credits will be given by the merchants. 
 
92 A TREATISE ON 
 
 in the United States could not fail to be productive 
 of much benefit to the community, as a means of cor- 
 recting with promptness any accidental expansion of 
 the currency. 
 
 But in order to render legitimate the operations of 
 a bank of circulation, its loans should not only be for 
 short periods, but should be confined solely to the dis- 
 counting of what is called business paper, that is, pro- 
 missory notes and acceptances received by the holders 
 for merchandise and property sold. If none others 
 were discounted, the expansion of the paper system 
 would only be in proportion to the expansion of busi- 
 ness. When this was extended, so as to call for more 
 currency, as at particular seasons of the year, more 
 currency would be created; and when business was 
 diminished, as at other seasons, so as to require less 
 currency, the excess would be absorbed by the pay- 
 ments made back to the banks. In these operations, 
 the level of the currency would not be disturbed, so 
 as to produce a depreciation; for although there 
 would at times be a greater quantity of bank notes in 
 existence than at other times, yet this quantity would 
 be in exact proportion to the increased demand, 
 arising from an increase of transactions. Thus would 
 the elasticity of the banking principle accommodate 
 itself to the state of commercial wants. Money would 
 always be procurable, when it was really wanted, 
 and it would never be so plenty as to depreciate the 
 currency. The holders of real paper could always 
 get it discounted, and even those, whose sales of mer- 
 chandise to the country should not put them in pos- 
 session of notes or acceptances payable by resident 
 debtors, could also, without any violation of the legi- 
 timate principles of banking, get discounts for short 
 periods on the hypothecation of such foreign paper. 
 
 But it is absolutely necessary upon sound banking 
 principles, that no paper except that received for 
 property sold should be discounted. Fictitious or 
 accommodation notes are not as safe investments for 
 
CURRENCY AND BANKING. 93 
 
 a bank as real notes. A real note given by A to B., 
 for five thousand dollars, for a hundred hogsheads of 
 sugar sold and delivered, endorsed by the latter, and 
 discounted by a bank, is guaranteed by B., who has 
 five thousand dollars in cash, the proceeds of the note, 
 less the discount, and by A. who has five thousand 
 dollars worth of sugar. Of this there is no doubt. An 
 accommodation note drawn by C. to D. may have upon 
 it two names apparently as solvent, but there is no 
 certainty that the two together possess any thing 
 more than the sum loaned by the bank. And this is 
 not all. The discounting of a real note is merely 
 anticipating a capital previously existing, whereas 
 the discounting of an accommodation note is lending 
 capital to one who did not possess it before. The 
 borrower of rnonoy on an accommodation note must 
 require it to pay an old debt, in which case his con- 
 trol over it is parted with, or, for some new operation, 
 agricultural, commercial, manufacturing, or specula- 
 tive, which in the nature of things may not be termi- 
 nated in a short time, and in neither case is he the 
 sort of borrower that a bank can rely upon to enable 
 it to meet, under all circumstances, its notes payable 
 on demand. Nor is this yet all. The discounting of 
 notes given for property sold, does not encourage 
 over-trading, like the discounting of accommodation 
 notes. The latter, if the proceeds be not applied to 
 pay old debts, places at the disposal of borrowers the 
 means of speculating which they did not before 
 possess. Speculation raises prices, and stimulates 
 speculative sales and transfers, by which the regular 
 business of the community is disturbed, only to be 
 followed by a reaction. 
 
 From this view of the subject it may easily be seen, 
 how absolutely essential it is for the interest of the 
 public, that banks of circulation should retain unim- 
 paired their control over their loans. So soon, there- 
 fore, as they exchange their promissory notes payable 
 on demand in gold and silver, not for the promissory 
 
94 A TREATISE ON 
 
 notes of individuals given for property sold, and pay- 
 able at short periods, but for notes payable at distant 
 periods, or for notes understood expressly or implied- 
 ly, to be renewable in whcle or in part, they annihi- 
 late their power, and place themselves at the mercy 
 of the public. They are liable to be called upon for 
 the payment of their notes faster than their debtors 
 are bound or are able to pay them; and instead of 
 fulfilling their engagements promptly and in good 
 faith, they are obliged to resort to discreditable ex- 
 pedients, to deter the holders of their notes from de- 
 manding payment. 
 
 A In the preceding remarks, I have only spoken of 
 bank notes as being the form in which banks of cir- 
 culation lend their credit, but this was done to sim- 
 plify the subject. All that has been said in relation 
 to bank notes, applies equally to that other species of 
 obligation which is expressed by the term bank credit 
 or deposit when it arises from the discounting of a 
 note, for it must be manifest that the same profit re- 
 sults to a bank, where such a credit or deposit remains 
 undrawn for, as where an equal amount remains in 
 circulation in the form of bank notes, and that the 
 ability to pay such a liability depends, as in the case 
 of notes, upon the length of time for which discounts 
 are made. 
 
 CHAPTER VI. 
 
 EXAMINATION OF THE COMMON OPINION THAT 
 BANKS CREATE CAPITAL. 
 
 A VERY general error prevails with the public, 
 arising from a want of analytical examination of the 
 subject, which is, that banks have the power to create 
 
CURRENCY AND BANKING. 95 
 
 capital. As this error lies at the bottom of the whole 
 system of false reasoning with which the speeches in 
 legislative bodies, and the columns of newspapers are 
 filled, and as its eradication is of vital importance to 
 the country, arid must precede any real reform in the 
 banking system, I shall enter in detail into its inves- 
 tigation, and solicit the reader's particular attention. 
 
 What is capital? The capital of a community is 
 that aggregate mass of things possessing exchange- 
 able value, which are destined to supply the neces- 
 saries, the comforts, and the luxuries of life, or, which 
 are intended to be employed in the production of 
 other things with such ultimate view. Hence lands, 
 houses, workshops, factories, rail-roads, canals, pro- 
 visions, clothing, fuel, merchandise, raw materials of 
 every kind, ships, utensils, machinery, and other such 
 articles, including gold and silver, are capital. If the 
 farmer wishes to cultivate more fields, or to cultivate 
 his present fields more highly, or to make improve- 
 ments on his farm, or extend his operations in any 
 way, the capital he stands in need of, is land, cattle, 
 horses, sheep, implements, seed, food and clothing. 
 If 'a manufacturer desires to enlarge his operations, 
 he requires buildings, machinery, raw materials, and 
 subsistence for his workmen. If a merchant pro- 
 poses to extend his commerce, he wants ships, car- 
 goes of agricultural produce, or merchandise, and 
 provisions for his crew. The money which is wanted 
 by each of these operators to deal with, as well as to 
 pay the wages of those whom he employs, is only the 
 instrument by which he and his laborers are enabled 
 to procure some of the articles above enumerated, so 
 that it is manifest that the power of any given popu- 
 lation to set additional industry in motion, is limited 
 by the amount of its capital as above described. Now 
 it is very evident, that the mere emission of bank 
 notes adds nothing to the mass of capital previously 
 existing. It creates neither lands, houses, machinery, 
 ships, raw materials, provisions, raiment, gold, silver, 
 
96 A TREATISE ON 
 
 or any other conceivable thing that comes under the 
 denomination of capital. In fact, a bank note is 
 nothing bnt a promise to deliver on demand a cerlain 
 quantity of gold or silver which is capital, and it is 
 easily to be seen, that a promise to deliver capital is 
 not capital itself, and that no conceivable number of 
 such promises can ever constitute one atom of the 
 thing promised. As well might it be asserted to a 
 hungry man, that a baker's promise to deliver a loaf 
 of bread, was bread itself, or to a shivering man on a 
 cold day, that a tailor's promise to deliver a suit of 
 clothes would protect him from the weather as well 
 as the suit itself. The matter is so plain, that no one 
 can fail to perceive the truth of these positions. 
 
 How then, it may be asked, do the issues of paper 
 credits by banks of circulation operate upon the com- 
 munity, and produce that appearance of increasing 
 wealth in places where they have been established? 
 This is an important question, and if closely examined, 
 will be found to lead to an answer, calculated to dis- 
 pel much of the delusion under which the public 
 labors, as to a supposed magic power of production 
 conferred upon a number of individuals by an act of 
 incorporation. It is this. These issues facilitate the 
 transfer of the existing capital, that is, of things pos- 
 sessing exchangeable value, by creating an additional 
 set of dealers with bank notes in their hands, and 
 who are thereby enabled to purchase with the credit 
 of the bank, what they could not purchase so conve- 
 niently with their own credit. A bank note indeed 
 may be considered as a draft in favor of the borrower, 
 given by a bank upon the public at large, to deliver 
 him a certain amount of capital of any description he 
 may want; the bank promising any one who may 
 honor its draft, to pay on demand an equal value in 
 gold and silver. Or, the bank may be imagined as 
 borrowing upon its promissory note, a certain amount 
 of capital from A, and handing it over to B, taking 
 in payment the promissory note of the latter, and 
 
CURRENCY AND BANKING. 97 
 
 charging a commission for its agency. That this 
 is the case, will be made plain from the following 
 statement. 
 
 Let us suppose a bank with a capital of one million 
 of dollars. After this is all loaned out, it is very 
 evident that the bank has no more capital to lend. A 
 offers a note for discount, having sixty days to run, 
 for one thousand dollars, and the bank discounts it, 
 by giving one thousand dollars of its own notes pay- 
 able on demand.* These notes, as I have shown, are 
 not capital, but a promise to deliver capital, and it is 
 only because the bank supposes that no demand will 
 be made upon it before the expiration of sixty days, 
 when A's note will become due, that it considers 
 itself safe in exchanging notes with A for that length 
 of time. If the notes come back for payment before 
 A's note is paid, it is evident that the bank cannot 
 fulfil its promises to deliver capital, without borrow- 
 ing from some one else, or without compelling some 
 of its other debtors to pay, and what is true of A's 
 note is true of all the other notes which the bank may 
 discount in exchange for its own notes. 
 
 A then, it is clear, has not borrowed capital of the 
 bank, as all the other borrowers did who preceded 
 him. He lias merely borrowed the credit of the bank. 
 And the question may now be very naturally asked, 
 why should he be willing to borrow the credit of the 
 bank at the rate of six per cent, per annum, when he 
 has found his own credit so good that the bank would 
 take it, as is proved by their trusting him for sixty 
 days with one thousand dollars of their notes? The 
 answer to this question is, that the credit of the bank 
 is of greater notoriety than the credit of A. Every 
 body will trust the bank because its capital is known, 
 or assumed to exist, and because every body has heard 
 of the bank, and has not heard of A, and consequently 
 there are persons who will trust the bank* who would 
 
 * The discount will of course be deducted. 
 
98 A TREATISE ON 
 
 not trust A; or, because a confidence exists, that a 
 bank note will, for an indefinite period, continue to 
 pass from hand to hand, as equivalent to the metal, 
 which, upon its face, it promises to pay on demand. 
 This universal confidence in the credit of the bank it 
 is, in connection with the known fact, that these notes 
 will pay the debts due to the bank for the million of 
 dollars first loaned as readily as gold and silver, which 
 renders them universally receivable; and as every 
 body who holds them knows that he can at any time 
 procure whatever he wishes to buy with them, no 
 one is in a hurry to send them in for payment, and 
 on that account they remain oat in circulation for a 
 long or short time, by which the bank gains interest, 
 whilst the holders of its notes lose no more than they 
 would lose upon an equal balance kept on hand in 
 gold or silver. But there is another reason why the 
 credit of the bank is worth at least a part of the price 
 which A pays for it. It is susceptible like coins, of 
 divisions and sub-divisions into very small fractions, 
 whilst security is afforded for punctual payment by 
 the perpetual succession incident to a charter, or by 
 the survivorship of one or more of several copartners, 
 and facilities are granted by having certain hours on 
 each day at which payment may be demanded, so 
 that no time is lost in making a second or third call, 
 which would be very apt to happen with the notes of 
 individuals not acting as bankers. Perhaps the cer- 
 tain knowledge of the fact that banks during certain 
 hours are to be found open and ready to meet demands 
 without a moment's delay, does as much to keep their 
 notes out in circulation as any thing else; for any one 
 can see, if there were no banking hours, and if a call 
 might have to be repeated, people at a distance would 
 receive notes with reluctance, and would send them 
 in for payment before they actually needed the 
 money, for fear of disappointment on the day it was 
 wanted. 
 
 But it may be said that A, when he got his note 
 
CURRENCY AND BANKING. 99 
 
 discounted, did not want to purchase goods by retail, 
 but by wholesale, and that therefore, he gained no- 
 thing by the privilege he possessed of taking small 
 bank notes. Why did he not then purchase the goods 
 he wanted of the holder directly by using his own 
 credit and giving his own note, instead of giving the 
 bank one per cent., the discount of his note for sixty 
 days, for the use of their notes? I answer for the 
 very simple reason, that he found that he could pur- 
 chase goods with the credit of the bank upon better 
 terms than he could upon his own credit. Upon no 
 other principle would he have gone to the bank for a 
 discount; for surely no man would give one per cent, 
 to a bank for swapping notes for one thousand dollars 
 if the bank's notes would not buy more than his own 
 individual note at sixty days for a thousand dollars 
 would buy. If it should be said that the object of A 
 in getting the discount was to pay an old debt, the 
 case would not be altered. The credit of the bank is 
 worth to him in this case as much as in the former, 
 the creditor being willing to receive it as money, for 
 the same reason that the sellers of goods above re- 
 ferred to were willing to receive it, because its noto- 
 riety rendered it universally receivable by others. 
 
 In no case then can the issues of a bank of circula- 
 tion constitute capital; and we think the reader will 
 now be ready to acknowledge, that all that a bank of 
 circulation does effect, is the mere lending of its 
 credit to individuals, to enable them to procure upon 
 better terms, and in a more expeditious and conveni- 
 ent mode, the capital of others, than they could with 
 their own credit Whether this facility be beneficial 
 or otherwise will appear hereafter. 
 
100 A TREATISE ON 
 
 CHAPTER VII. 
 
 ON THE STRICT CONVERTIBILITY OF BANK NOTES 
 AND CREDITS. 
 
 BUT it may be asked, how are banks to ascertain 
 the precise limits beyond which they cannot extend 
 their issues without endangering their solvency and 
 depreciating the currency, and of course injuring the 
 public? And what guarantee has the public, who, 
 from the nature of things, can know nothing of the 
 state of their issues at all times, that their confidence 
 will riot be misplaced? 
 
 The answer to this question is not easily to be 
 arriVed at. In the various investigations before the 
 British House of Commons in reference to the Bank 
 of England, rules for prudent issues have been laid 
 down by different directors, with a variety which 
 showed that all did not possess a scientific acquaint- 
 ance with the principles of banking. In the manage- 
 ment of the numerous banks of the United States, an 
 inexcusable ignorance of first principles has been 
 repeatedly manifested, and hence, we have seen 
 repeated expansions and contractions of a highly pre- 
 judicial nature. These expansions and contractions, 
 however, with the fluctuations in prices necessarily 
 accompanying them, would exist only to a limited 
 extent, if there were a real boua fide convertibility; 
 and I wish it to be distinctly understood that all my 
 remarks favoring banks of circulation, are founded 
 upon the supposition of such convertibility. 
 
 How then is absolute convertibility to be attained? 
 I answer, by the joint co-operation of the banks, of 
 the public, and of the legislatures. 
 
 The duties which the banks have to perform are, 
 first, to deal honestly with their creditors, by keeping 
 the-mselves in a condition at all times to meet their 
 
CURRENCY AND BANKING, 10 
 
 liabilities, and by promptly paying on demand, in 
 acceptable coin, their notes or deposites for any 
 amount that may be called for, without the slightest 
 intimation by the looks, words, or deeds of their 
 officers, that they would rather not pay, arid conse- 
 quently, by despising those miserable and discredit- 
 able expedients so frequently resorted to by banks on 
 the eve of insolvency, of gaining time by a useless 
 delay in counting out small coins, or in weighing 
 gold pieces; secondly, by scrupulously avoiding to 
 throw obstructions in the way of a free exportation of 
 coin, either by refusing facilities for the packing up 
 at the bank of sums however large, or by disqualify- 
 ing the exporters from their equal rights with others 
 when applying for discounts; thirdly, by calling upon 
 each other for the payment of daily balances in coin, 
 in order that each bank may be restricted within its 
 proper sphere; and, fourthly, by confining them- 
 selves to the legitimate pursuits of banking, and by 
 carefully watching the political horizon, to see that 
 no event like war, civil commotion, or governmental 
 interference with the currency, is likely to find them 
 unprepared. 
 
 An honest observance of these rules would of itself 
 establish true convertibility, but unfortunately expe- 
 rience has given too much reason to fear, that the 
 moral sense of corporations cannot be relied upon for 
 the protection of the public. The ignorance of some, 
 the speculative avarice of others, the favoritism inci- 
 dent to most, and the desire common to a-11, to amass 
 large profits, are constantly operating to effect an ex- 
 pansion of the currency to the utmost limits of tension; 
 and however prudently and wisely conducted may 
 be many of these institutions, their influence and ex- 
 ample are lost upon the rest, and when a calamity 
 befalls the country by a general stoppage of payments, 
 they are made to share in the common catastrophe. 
 
 The duties which the public have to perform, as a 
 check upon this perpetual tendency to over-issue, are 
 
 9* 
 
102 A TREATISE ON 
 
 incumbent on every citizen; and he who withholds 
 his co-operation, when he has a motive to act, be- 
 comes a participator in the wrong. They are, simply, 
 for every man who wishes to convert bank notes or 
 deposites into coin, either for the purpose of conve- 
 nience or exportation, and whether the amount be 
 large or small, to make his demand without being 
 influenced by fear, favor, or affection, or through 
 any false or mistaken delicacy towards the directors 
 of banks, or their debtors who might in consequence 
 thereof be called upon for an earlier reimburse. nent. 
 Here, again, unfortunately, experience demonstrates, 
 that the independence and moral firmness of most 
 merchants is not proof against the influences which 
 may be brought to bear against them. On the one 
 hand, they find their discounts interfered with, and 
 their commercial operations crippled; whilst on the 
 other, they discover that a clamor is raised against 
 them by those debtors to the banks who purchase 
 commodities from them, as soon as they feel the pres- 
 sure occasioned by a diminution of discounts, conse- 
 quent upon a heavy demand for specie.* 
 
 The only true resort, therefore, that can be appealed 
 to for absolute convertibility is legislation. But how 
 is this legislation to be expressed? By forfeiting the 
 charters of banks that do not pay their notes. The 
 legislature of New York in May, 1837, absolved its 
 banks from this penalty for one year. By imposing 
 a penalty of twelve or twenty-four per cent, per an- 
 num, upon notes and deposites not paid in coin. 
 Such provisions were wholly inoperative in those 
 states where they prevailed, during the late general 
 suspension, by the evasion of the banks, and by po- 
 pular clamor raised against individuals who de- 
 manded their rights, and cannot be relied upon, either 
 to prevent a general stoppage, or to enforce a resump- 
 
 * Whenever gold and silver legal tenders are both saleable 
 at a premium, it is proof of the absence of true convertibility. 
 
CURRENCY AND BANKING. 1Q3 
 
 tion with promptness. The true and only answer is, 
 by establishing individual liability, such as that 
 which exists with all the joint-stock banks of England, 
 and all the private banks of that country as well as 
 of Europe.* 
 
 With such a convertibility as this would accom- 
 plish, we should run comparatively very little risk of 
 expansions and their consequent contractions, or of an 
 alternate plenty and scarcity of money. Tne over- 
 trading of each particular bank would be checked 
 by the prudent regard to self-interest which would 
 operate upon its managers; and if recklessness should 
 characterise the conduct of one, or a dozen, or a 
 hundred banks, it or they would simply fail, like 
 individual traders, and make an assignment of their 
 property, without producing the catastrophe of a 
 general suspension of specie payments. To prevent 
 the failure of banks altogether is impossible. The 
 most that can be done, is to prevent a general 
 stoppage. 
 
 But in laying down this proposition, lam far from 
 imagining the present possibility of its adoption in the 
 United States. The principle of limited liability by 
 acts of incorporation, and by laws authorising limited 
 partnerships, is too deeply rooted in our system to be 
 
 * Mr. McCulloch in his Commercial Dictionary, edition of 
 1834, pages 109 and 110, has the following remarks. "Bad 
 as oar system of country banking undoubtedly is, we should 
 be exceedingly sorry to see any attempt made to improve it, by 
 the adoption of even the best parts of the American system!" 
 ****** u r ['h a t, p ar t o f t ne American system which limits 
 the responsibility of the partners in a bank to the amount of their 
 shares^ seems to us to be in the last degree objectionable. It 
 affords a strong temptation to the commission of fraud, and we 
 have yet to learn, that it possesses a single countervailing ad- 
 vantage. We have been assured by those well acquainted with 
 the facts, that it has been productive of the most mischievous 
 consequences.'' 
 
 For an able exposition of the principles of individual liability , 
 see the article G, in the Appendix, by James Cox Esq., of Phi- 
 ladelphia, now first published. 
 
104 A TREATISE ON 
 
 now eradicated ; and as I believe the most practicable 
 scheme of reform to which legislation can be applied 
 at this day, is to be found in the policy of the New 
 York general banking law, I will in a future chapter 
 give my reasons for believing that plan to be better 
 calculated, if made general throughout the Union, to 
 give stability to the currency, than any other that 
 would be likely to meet a general acceptance. 
 
 CHAPTER VIII. 
 
 OF THE VARIOUS MODES RESORTED TO BY SOME 
 BANKS TO AUGMENT THEIR DIVIDENDS. 
 
 EVERT sound thinker who has taken notice of the 
 high rates of dividends that were declared by many 
 of the banks throughout the United States, during 
 the years 1836, 1837, and 1838, whilst their number 
 was increasing, and when, upon every known prin- 
 ciple, their dividends ought to have decreased, must 
 be satisfied in his own mind, that these extraordi- 
 nary dividends did not result from the legitimate ope- 
 rations of banking, that is, from the lending of money 
 or credit at the rate of interest authorised by law. 
 The charters of most of our banks restrict their 
 operation to the lending of money and to trading and 
 dealing in bills of exchange, gold and silver bullion, 
 and certain specified public securities; and hence, all 
 other transactions are in violation of the laws. I have 
 stated in a former chapter, that the charge of one half 
 per cent, interest taken beforehand, in connection 
 with the practice of charging interest for sixty-four 
 days upon a note payable in sixty days with three 
 days grace, is equal to 6 T 4 ff per cent, per annum, and 
 this it is evident is all that a bank has a right to claim 
 
CURRENCY AND BANKING. 1Q5 
 
 for the use of its money or credit. Modern competi- 
 tion, however, has operated upon some, and led them 
 to adopt numerous modes of getting more than this 
 rate. Amongst these are the following: 
 
 1. The practice of giving a preference in their dis- 
 counts to those customers, who by agreement, express , 
 or implied, stipulate to leave in the bank, -never to be 
 drawn for, a certain proportion of the amount bor- 
 rowed; by which virtually the bank receives interest 
 for money or credit which it does not lend. Exam- 
 ples have been known -wherein a sum equal to twen- 
 ty, thirty, or forty per cent, has been expected to 
 remain as a permanent undrawn balance, thus adding 
 to the profits of the bank, by a sheer evasion of the 
 laws against usury. Borrowers upon such terms are 
 seldom to be found amongst the most responsible 
 traders, but can always be had in abundance amongst 
 that class of needy men, who, without such a facility, 
 would be obliged to borrow in the open market at a 
 higher rate of interest. If this principle had been 
 extended to the loans of all the banks of the United 
 States, amounting in 1838 to upwards of $500,000,000 
 as far as five per cent, upon an average, the banks 
 would have derived from it a profit equal to the inte- 
 rest on twenty-five millions of dollars, that is, up- 
 wards of a million and a half of dollars. 
 
 2. The practice of discounting notes, and instead 
 of giving cash for the net proceeds, giving post notes 
 payable at thirty or sixty days date, by which means 
 the bank gains a profit equal to the interest for the 
 time the note has to run. In other words, if a bank 
 discounts a note having ninety days to run, and gives 
 in exchange for it a post note payable in thirty days, 
 it receives interest for ninety days for the loan of 
 money for sixty days, inasmuch as tho post note is 
 not money until it becomes due, as will hereafter be 
 shown. The extent to which this practice has been 
 carried throughout the United States is very great, 
 and it is defended upon the ground that the emission 
 
106 A TREATISE ON 
 
 of post notes enables merchants who have remittances 
 to make to distant points, to effect that ohject more 
 securely and conveniently than by the transmission of 
 bank notes payable to bearer, on account of the 
 security afforded by the former's being only transferable 
 by endorsement. This is true, bnt it is manifest that 
 this end would be as completely attained by a post 
 note payable in three days after date, as by one pay- 
 able in sixty days. But this is not all. Post notes 
 at long dates, not only enable banks to profit by 
 evading the laws against usury, but they enable 
 banks to raise money for their own use when they 
 are embarrassed, without appearing to borrow, a 
 facility which renders them less careful of expansions 
 of the currency than they otherwise would be.* 
 
 3. The. practice of lending the notes of a bank 
 with an express understanding that the borrower is 
 riot to put them into circulation within a certain dis- 
 tance of the place where the bank is located, or 
 within a certain time from their coming into his pos- 
 session, by which means the bank would receive 
 interest for the time that would thus intervene, with- 
 out having made any loan. An example of this 
 species of contract was exposed in the examination of 
 the affairs of the Chelsea bank near Boston, in 1837, 
 two of the directors of which borrowed the notes of 
 the bank which they were not to put in circulation, 
 but which they were to pledge for money borrowed, 
 elsewhere, and it was probably with the view of pre- 
 venting a resort to such expedients, that the legis- 
 lature of Massachusetts in that year prohibited banks 
 from issuing notes that are not to go into immediate 
 circulation. 
 
 4. The practice of discounting notes, and instead 
 of paying the net proceeds in money, stipulating 
 
 * The banks of New York are prohibited from issuing post 
 notes. Some of those of Philadelphia entered very deeply into 
 this branch of business in the years 1838 and 1839, abroad as 
 well as at home, and became greatly embarrassed by it. 
 
CURRENCY AND BANKING. 107 
 
 with the borrower that he is to take the notes of dis- 
 tant banks, known to be in th market at a discount. 
 This expedient has been extensively resorted to all 
 over the United States, and in some cases in such 
 flagrant violation of the laws aginst nsnry, as to be 
 accompanied by a regular bargain to purchase back 
 by the bank, at the market rate of discount, the very 
 paper jnst handed to the borrower. Nay, transac- 
 tions have been even conducted in so barefaced a 
 manner, that discounts have been made payable in 
 distant paper which the bank did not possess, and 
 which she purchased back at a discount, thus sub- 
 stituting a constructive sale and purchase of what 
 possessed no existence, for the sake of avoiding a 
 direct usurious transaction. Many flagrant examples 
 of the expedients here described, extending to nearly 
 all the banks of Providence, were exposed by a com- 
 mittee of the legislature of Khode Island in June, 
 1S:*6, in a report, a copy of which accompanied the 
 secretary of the treasury's report on the condition of 
 certain banks, of January 4, 1837. 
 
 5. The practice of discounting domestic or inland 
 bills of exchange, by which advantage has been 
 taken under the color of exchange, to charge, besides 
 the legal interest, and a fair charge for collecting, the 
 most extortionate rates of profit, having no real rela- 
 tion to the actual expense of collecting, but only to 
 the necessities of borrowers.* In the examination, 
 
 * The following article which appeared in a newspaper in 
 December, 1839, is important as regards this practice. 
 
 Important Legal Decision. The Cincinnati Gazette contains 
 a notice of the decision of a case at Columbus, Ohio, which 
 attracted much attention on account of the principles involved. 
 The facts were briefly these: 
 
 Paddleford wrote to the cashier of the bank, inquiring if they 
 would discount a note with his and other names mentioned, pay- 
 able east 6 or 8 months. The cashier replied, that the bank was 
 not discounting, but his bill with the names mentioned for 5000, 
 at 6 months payable in New York, Philadelphia, or Baltimore, 
 would be purchased at their usual rates, and the procceeds paid 
 
103 A TREATISE ON 
 
 by a committee of the legislature of New York, in 
 1838, of the affairs of one of the city banks, some 
 gross malpractices of that institution were developed. 
 It was proved to have charged from five to ten per 
 cent, exchange on the collection of drafts, when the 
 market rate of exchange on similar drafts was not 
 more than from three to six; had discounted paper 
 with the express understanding that the party accom- 
 
 in their own bills, if intended for circulation or in a check east 
 at the usual premium: and he endorsed a printed blank form of 
 a bill. Paddleford and the other person signed the blank paper 
 filled up only with the sum, and he sent it to the cashier in a 
 letter requesting him to remit the proceeds to him in an eastern 
 check, less the premium. The paper was received at the bank, 
 and filled up with the name of their own correspondent in New 
 York, the cashier of a bank as a drawee, in their own favor. 
 The drawer never had funds in his hands. Deducting the in- 
 terest for six months and four days, and one per cent, they re- 
 mitted him the net proceeds in a check on New York less l 
 per cent, premium, and ordered a notice to be furnished to him 
 of the name of the drawee, and of the time and place of payment, 
 which notice was duly received. 
 
 The charter of the bank prohibits them from taking more than 
 at the rate of 6 per cent, per annum on their loans or discounts. 
 The defendants, the securities, (Paddleford not having been 
 served with process) set up as a defence, that this bill was dis- 
 counted at a higher rate than 6 per cent, per annum, and there- 
 fore was against the charter, unlawful and void. The bank 
 claimed that the bill was fairly purchased in the market, and 
 that one per cent, was retained as exchange. The court in- 
 structed the jury that the bank could buy and sell exchange at 
 any fair rate agreed upon, without violating its charter; and if 
 the transaction before them was a real purchase of a bill at 1 
 per cent, exchange and interest off, the bank could recover, but 
 if the intention was to get a greater compensation for the use of 
 the money than at the rate of 6 per cent, per annum, and the 
 form of the bill was resorted to, to cover up that design, then the 
 contract was unlawful, and the defendants must have a verdict; 
 that the jury should be governed by the real transaction, no 
 matter what form it assumed. 
 
 This decision seems to cut up by the roots, the business of 
 discounting fictitious bills of exchange by banks similarly re- 
 stricted, merely for the purpose of exacting high interest under 
 the name of exchange. 
 
CURRENCY AND BANKING. 1Q9 
 
 modated was not to receive cash for the net proceeds, 
 but a draft at par upon some distant place, worth in 
 the market one to three per cent, less than the rate at 
 which it was taken; and had even purchased back 
 their own drafts at such a rate of discount. What 
 this bank did, has been done, more or less, by a large 
 portion of the banks in the United States, arid the 
 evil has become so extensive that funds which should 
 be devoted to the discounting of real paper payable 
 on the spot, have been diverted to the purchase of 
 fictitious bills, created for the very purpose of raising 
 money, and not in the ordinary course of trade. 
 
 6. The practice resorted to by some banks, of dis- 
 counting notes in the market, through the instrumen- 
 tality of brokers, at usurious interest, instead of dis- 
 counting them at lawful interest, in the regular way. 
 The New York bank above referred to, was proved 
 to have discounted at usurious interest out of doors, 
 the very notes that had been offered to the bank and 
 been rejected by the board of directors. 
 
 7. The practice of speculating in stocks, and, in 
 the case of some of the Mississippi banks and others, 
 transacting the business of cotton factors, and cotton 
 exporters. 
 
 S. The practice of buying up the depreciated pa- 
 per of other banks, under a suspension of specie pay- 
 ments, and holding it until redeemed in coin. Large 
 sums were invested, in 1838, by some of the Phila- 
 delphia and New York banks, in purchases of the 
 notes of the Mississippi banks from ten to twenty-five 
 per cent, discount, and loaned to the latter at par for 
 their bonds payable at a subsequent period. 
 
 f). The practice adopted by many of the banks of 
 New England, and perhaps of other places, of lend- 
 ing to brokers on interest, repayable on demand, a 
 large proportion of the amount which banks in other 
 places consider themselves bound to keep on hand, in 
 coin, to meet possible demands. 
 
 10. If to these items be added the amount of profit 
 10 
 
HO A TREATISE ON 
 
 made by the banks during the late suspension, by 
 drawing interest on money that belonged to their 
 creditors arid not to themselves, we shall have the 
 true sources from which the large dividends were 
 derived. What proportion of the whole interest 
 received is to be ascribed to this source, is not pre- 
 cisely ascertainable; but this much may be known 
 with certainty, that it was equal to the income arising 
 from that proportion of the aggregate mass of loans 
 made by all the banks, that exceeded the amount 
 that could have been sustained under a convertible 
 currency. 
 
 CHAPTER IX. 
 
 OF THE CREATION OF BANKS WITHOUT CAPITALS, 
 OR OF FRAUDULENT BANKS. 
 
 THE term fraudulent bank is intended to be applied 
 to a bank commenced without capital, or what is the 
 same thing, a bank, the stock of which is held by 
 persons who have not the means of paying for it, and 
 who have consequently been obliged to hypothecate 
 it to the bank as collateral security for stock notes 
 discounted to meet the instalments as severally called 
 for. The mode by which such a bank may be esta- 
 blished without capital is this: 
 
 Books are opened to receive subscriptions to the 
 capital stock, each share of which is to be $100, of 
 which $5 per share is to be paid at the time of sub- 
 scribing. The capital is to consist of 1000 shares, 
 equal to $100,000. The stock is taken, not by capi- 
 talists, as a mode of investment, but by persons who 
 subscribe as a matter of speculation, with the view of 
 selling out at a profit. The first instalment, amounting 
 
CURRENCY AND BANKING. m 
 
 to $5000 being paid in, the directors are chosen from 
 amongst these very speculators, who are expected to 
 make the payment of the ensuing instalments come 
 easy to themselves and their constituents. A second 
 instalment of $10 is called for, but as the holders of 
 the stock have no more money to pay in, they offer 
 notes for discount, and pledge their stock to the bank 
 as collateral security. The third, fourth, fifth, and all 
 subsequent instalments are paid in a similar manner 
 by stock notes; and, finally, the stock-holders obtain 
 an additional discount for the original $5 per share 
 paid in, which may have been originally borrowed, 
 and thus we have a bank with a nominal capital of 
 $100,000, but possessing not one dollar of real capital. 
 Such a bank, however, in its operations thus far, 
 must be a losing concern. The expense* of manage- 
 ment would compel the stockholders S pay in dis- 
 counts more than they would receive in dividends, 
 and the next step of the directors would of course be, 
 to issue bank notes in exchange for the promissory 
 notes of individuals. In the first instance they would 
 probably discount their own notes or the notes of other 
 stockholders, in which case, if the notes of the bank 
 could be got into circulation, which experience shows 
 they could be, if the directors were adroit and active, 
 the borrowers of them would be enabled to command 
 the capital of other people, to carry on business with. 
 It is, perhaps, not probable that many of the banks of 
 the United States have been entirely established upon 
 this principle, but no small number of them have been 
 partially so, and it must be evident that so far as any 
 part of the capital of a bank has been loaned to a 
 stockholder upon the hypothecation of his stock, he 
 not being entitled to credit upon his mere personal 
 security, so far the capital of the bank is diminished, 
 and so far the public are deprived of the security 
 which the nominal amount of the capital promises to 
 afford. 
 
 The same deficiency of security might exist in 
 
112 A TREATISE ON 
 
 case there were two banks established upon similar 
 principles, and the stock of each was pledged with 
 the other by two speculating sets of holders who 
 changed position. 
 
 The following account of banks established in part 
 upon this fraudulent principle is extracted from a 
 report made to the legislature of North Carolina, 
 during the session of 1S2S-29: 
 
 "The" legislature having laid down, in the charters 
 of the several banks, certain fundamental articles for 
 the government thereof, the committee assumed these 
 articles as the basis of their investigations, and pro- 
 ceeded accordingly to inquire, in the first place, whe- 
 ther the stock of the several banks had been raised in 
 the manner required by their charters. The evidence 
 received hy the committee on this point, shows that 
 the charters of the banks were disregarded and vio- 
 lated in the very creation of their capital. 
 
 " The charter of the Bank of Cape Fear, enacted 
 in 1804, authorised that corporation to raise a capital 
 stock of $250.000; and the charter of the Newbern 
 Bank, enacted in the same year, authorised that bank 
 to raise a capital stock of $200,000; both charters 
 directing the capital to be paid by the stockholders 
 in gold or silver. The undersigned have received 
 no evidence as to the mode in which these banks got 
 into operation. It would seem, however, that they 
 contemplated, at the outset, an evasion of the provi- 
 sions of their charters. It is in evidence to the un- 
 dersigned, that soon after they went into operation, 
 they contrived to get possession of nearly all the 
 paper money which had been issued on the faith of 
 the state, which being at the time a legal tender, 
 enabled them to evade demands for specie, which 
 they did, by thrusting this ragged paper at those who 
 presented their notes for specie. In 1S07, $25.000 
 was added to the capital stock of each of these banks; 
 in 1814, their charters were extended, and they were 
 authorised to increase their respective capitals to 
 
CURRENCY AND BANKING. 1 1 3 
 
 $800,000 each, viz., the Newbern Bank was author- 
 ised to raise an addition to its stock of $575,000, and 
 the Bank of Cape Fear, an addition of $525,000. It 
 is in evidence to the undersigned, that the whole of 
 this additional stock was manufactured by the banks 
 themselves, and that, in many instances, favored 
 individuals were permitted to acquire stock by sub- 
 scribing their names, and putting their notes into 
 bank, without advancing a single dollar of actual 
 capital. It follows, that the whole amount of the 
 interest drawn from the people, on the loans made on 
 this fictitious capital, was a foul and illegal extortion. 
 The effect of the transaction was the same as if the 
 pretended stockholders had individually executed 
 their notes of hand, without interest, to the amount 
 of the notes which they issued from the bank, and 
 exchanged them with the people for their notes, 
 bearing interest and renewable every ninety days. 
 Taking the issues made on this fabricated capital to 
 be in proportion with those made on the former capi- 
 tal, they must have put into circulation, on the faith 
 of the assumed stock, between three and four millions 
 of notes; and thus, a parcel of individuals, under the 
 name of stockholders, but who, in fact, held no stock, 
 contrived to exchange their notes, without interest, 
 to the amount of three or four millions, for the notes 
 of the people, bearing an interest of more than six 
 per cent.; and while the property of the people was 
 pledged for the payment of the notes they had given 
 to the stockholders, there was not a dollar or an atom 
 of property pledged to them for the payment of the 
 notes they had received from the stockholders; so that 
 for the use of their notes, which, intrinsically, were 
 of no value at all, the stockholders of these two banks 
 have drawn from the people, by way of interest, 
 something like $200,000 annually." 
 10* 
 
114 A TREATISE ON 
 
 CHAPTER X. 
 ON THE EFFECTS OF BANKS DEALING IN EXCHANGE. 
 
 THE proper business of a bank of discount is to 
 lend money. That of a bank of circulation is to lend 
 credit, and the technical idea of banking excludes all 
 transactions other than that of lending. This was 
 formerly so well understood in the United States, 
 that the discounting of notes or acceptances payable 
 on the spot was the sole mode in which the capital 
 and credit of the banks were employed; and if, by 
 \vay of accommodating their customers they occa- 
 sionally discounted a note or acceptance payable at a 
 distant place, it was always done upon the same 
 terms as if it were payable on the spot, the banks not 
 calculating upon any profit in the way of exchange, 
 but relying upon getting their money hack again by 
 supplying another customer with a check or draft at 
 par. The ordinary exchange transactions between 
 different cities and states were left to individual com- 
 petition which established the market rate, as it does 
 in all other countries of the world, and as it must 
 invariably do wherever it is not interfered with by 
 artificial causes. 
 
 Such was the state of things that existed prior to 
 the establishment of the late bank of the United 
 States. That institution, at some period subsequent 
 to the commencement of its operations in February, 
 1817, entered upon the business of a dealer in inland 
 bills of exchange by buying and selling bills upon all 
 points where its branches were located, upon terms 
 that gave it a profit on the transaction. This prac- 
 tice probably gave rise to the general custom now 
 prevailing amongst banks of buying and selling bills 
 of exchange; and as the custom appears to be one 
 which facilitates the operations of trade, the public 
 
CURRENCY AND BANKING. 115 
 
 has overlooked the mischief which results from its 
 exercise. It is of this mischief I now propose to 
 speak, and I beg the reader's attention to the remarks 
 I am about to offer. 
 
 It has been shown, in the chapter on exchange, 
 that the competition of the market will always settle 
 the rate of premium or discount on bills, according as 
 the proportion may vary between the supply and the 
 demand. Nobody need ever be apprehensive that 
 the rate can ever be forced unreasonably high by the 
 combination of sellers, or forced unreasonably low 
 by the combination of buyers. Each party has his 
 remedy, as we have shown, against undue exactions, 
 by the right that can never be taken from him, of 
 transmitting coin instead of a bill. Under this free 
 competition of the market, it must be manifest that 
 the profit on bills, where there is one, goes into the 
 pockets of the right people, that is, of those who are 
 fairly entitled to it; and that the loss on bills, where 
 there is one, also falls upon the right people, that is, 
 upon those who ought to bear it; and in this manner 
 equal justice is done to every individual, and the com- 
 mercial wealth is consequently distributed through 
 the natural and legitimate channels. If, at one sea- 
 son of the year, for instance, bills at Natchez on New 
 York sell for two per cent, premium, this advantage 
 fairly belongs to the -seller. If at another season 
 they sell at two per cent, discount, this loss goes into 
 the pocket of the buyer of the bill as a profit, and 
 fairly belongs to him. Any one, however, can per- 
 ceive that this question of profit and loss on exchange 
 is a private affair between one set of dealers and 
 another, and as far as the public is concerned, it is a 
 matter in which, as a body, they have no interest. 
 It is of no sort of consequence to the community at 
 large, whether the rate of exchange on inland bills is 
 at the maximum or minimum price, or whether A 
 or B puts a profit into his pocket, but it is of great 
 consequence to the community that the profit should 
 
116 A TREATISE ON 
 
 go into the right pockets, and that the inland ex- 
 changes should be carried on at the least possible 
 expense to the country. 
 
 Let us now see how far the interference of banks 
 in the operations of exchange disturbs the natural 
 course of things. 
 
 And here I will remark, in the first place, that the 
 competition of banks operates upon the bill market 
 in a manner wholly different from that of individuals, 
 owing to the power they possess of contracting the 
 currency when they want to buy, and of expanding 
 it when they want to sell. By the exercise of this 
 power they can accomplish what individuals cannot 
 accomplish, for these latter, having but a given 
 amount of money to purchase with, cannot augment 
 its quantity at pleasure, and their influence in the 
 general competition, therefore, can only be propor- 
 tioned to their actual cash. Can any one doubt the 
 operation of this principle who has noticed the effect 
 upon the price of cotton, universally admitted to have 
 existed throughout the cotton growing states, during 
 the years 1837 and 1838, by the dealings of banks in 
 the purchase of cotton? Does not every body know 
 that the price of cotton was kept a cent or more per 
 pound, by the issues of banks, higher than individual 
 competition could have kept it? Arid if so great a 
 rise as ten or fifteen per cent, could be created in cot- 
 ton, is it not easy to be seen how readily a rise in the 
 rate of inland bills of exchange, of a quarter or half 
 per cent., could be effected? 
 
 The mischievous tendency, however, of banks deal- 
 ing in exchange, is greatly augmented where banks 
 have branches, or enter into extensive combinations 
 for a united system of action. Let us, for instance, 
 suppose a large bank in a northern citiy with branches, 
 or agencies at the principal southern ports, of suf- 
 ficient extent of capital to operate upon the value of 
 the currency at those ports. Let us suppose, the 
 mother bank, at the seasons for shipments of cotton 
 
CURRENCY AND BANKING. 117 
 
 to the north, to give orders to its branches to buy the 
 bills drawn upon those shipments at the cheapest 
 rates that they can he obtained at. Any one can 
 perceive at a glance, that the withholding of discounts 
 for a few days, will make money scarce, and thereby 
 depress the price of bills below the previous rate. At 
 this new price the branches may buy, and transmit 
 these bills to the mother bank, which in a short time 
 after is drawn upon by the branches at a higher rate 
 of exchange, which they were enabled to obtain by 
 making money plenty, whilst in the case of the pur- 
 chase of foreign bills drawn upon shipments of cotton 
 to Europe, the mother bank by adopting the same 
 expedient, or, what amounts to the same thing, by 
 selling those bills on a credit at a higher price than 
 the current cash rate with interest added, makes an 
 additional profit. That such expedients as are here 
 brought into view, may be, if they have not already 
 been, practised by some of our banks can hardly be 
 questioned, and the mischief thence resulting, far 
 more than counterbalances all the benefit to indivi- 
 duals which an equalising of the exchanges can pos- 
 sibly accomplish. 
 
 But it may be said, that, without the agency of 
 banks, there would not be the same facility in nego- 
 tiating bills. This objection is not borne out by the 
 experience of Europe, where bills of exchange can 
 at all times and at all places be negotiated upon the 
 most favorable terms, through individual capitalists, 
 who have no control over the currency in augmenting 
 or diminishing its quantity; and there is not the 
 slightest reason for supposing that equal facilities 
 would not exist in this country through private com- 
 petition, if the ground were not already occupied by 
 banks possessing by their very power of expansion 
 and contraction, the ability to annihilate all private 
 competition. It may also, perhaps, be said, that the 
 agency of banks between buyers and sellers is af- 
 forded at a cheaper rate than that of individual capi- 
 
118 A TREATISE ON 
 
 talists would be. This assertion may very well be 
 doubted, when we reflect upon the monopoly the 
 banks at present enjoy, and the facility that exists for 
 their combining to fix prices; and even if it were 
 true, the small advantage gained by this circumstance 
 would be greatly overbalanced by the mischievous 
 power to which 1 have alluded, of depressing or rais- 
 ing the market price of bills, by contractions and ex- 
 pansions of the currency. 
 
 It is, however, in the interference with the foreign 
 exchanges of a country that the power of banks is 
 most to be deprecated. Upon this subject, the author 
 advanced some views in an essay published by him 
 in the year 1828, which so entirely correspond with 
 those which he at present entertains, that he has con- 
 cluded to transcribe them, rather than to adopt any 
 new phraseology. The essay was in answer to one 
 written a short time before, by a friend of the Bank 
 of the United States, with the design, amongst other 
 things, of showing the importance to the country of 
 the power exercised by the bank of dealing in ex- 
 change.* The following are extracts: 
 
 " This is the course that matters take under a cur- 
 rency composed entirely of coin, or a sound mixed 
 currency composed of coin and paper exchangeable 
 for coin, but it must be kept in mind, that under such 
 a currency, actual shipments of specie from one 
 country to another, do not take place to any very 
 great extent. A very slight comparative diminution 
 of the quantity of coin circulating in a country, 
 creates a scarcity of money, and this operates very 
 soon upon the prices of all commodities, by reducing 
 them in the market." 
 
 "This partial export, however, and tendency of 
 
 * The essay last mentioned, appeared in the National Ga- 
 zette, of 10th April, 1828, under the title of "The Currency." 
 The reply was published in the Philadelphia Gazette, of 17th 
 April, 1828, under the title of " On Exchange." Both essays 
 were republished in the Free Trade Advocate in 1829, 
 
CURRENCY AND BANKING. 119 
 
 the coin to go abroad, is the only check upon over- 
 trading. It indicates that more commodities have 
 been imported than exported, and warns the importer 
 of an approaching fall in the prices of the articles in 
 which he deals, which induces him to countermand 
 or diminish his orders, and in the next year to import 
 less; and this operation brings back the small quan- 
 tity of coin, which, by its removal, had diminished the 
 currency below the quantity which was requisite to 
 maintain it upon a level with the currencies of other 
 countries. From this view of the subject, it is appa- 
 rent, that exchange may be looked upon as the beam 
 of a pair of scales, very nicely balanced, and em- 
 ployed in ascertaining the value from day to day of 
 the imports and exports of a country. The slightest 
 departure from the equilibrium shows itself in the 
 fall and rise in the price of bills, and the assayer of 
 the mint does not keep his eyes more steadily fixed 
 upon the balances in which he weighs his gold, than 
 should the merchants keep theirs fixed upon the rate 
 of exchange." 
 
 " If these things be true, it would seem to follow, 
 that the most free and unrestricted competition possi- 
 ble in the bill market, would be the best calculated to 
 prevent over-trading in the banks as well as indi- 
 viduals, for from such free competition the earliest 
 indications of an excess of imports, or of a depreci- 
 ating currency, would show themselves. That the 
 operation of the Bank of the United States is to inter- 
 fere with, and to a certain extent to destroy this com- 
 petition, and consequently the check which ought to 
 be suffered to operate monthly, weekly, and even 
 daily with its warning voice, is admitted in the fol- 
 lowing sentence. ' Its principal advantage, and that 
 which makes the bank pursue it, is, that this stock of 
 exchange operates like a lever to keep the exchange 
 market easy, to prevent the excessive price of bills, 
 and to enable the merchants to calculate with reason- 
 able probability the habitual cost of their remittances.' 
 
120 A TREATISE ON 
 
 By this language, we understand, not only that the 
 bank is desirous of effecting something like a steady 
 price in exchange throughout the year, but that it 
 does actually possess the power so to do. That this 
 power is not, however, always exercised in such a 
 way, as to prevent < the excessive price of bills/ is 
 evident from the admitted fact, that bills on London 
 have been so high, that a merchant could afford to 
 ship dollars at a less expense than the premium on 
 bills, and indeed so much less, that it was an object of 
 speculation to ship coin for the sole purpose of draw- 
 ing bills upon it. 
 
 "We cannot therefore but conclude, that the dealing 
 in bills of exchange by the bank, upon the principles 
 professed, removes the great check upon over-trading 
 and over-issues of paper, created by the free competi- 
 tion of the exchange market. To this it may be 
 replied, how can a dealer who only purchases five 
 millions of dollars value of bills in a year, disturb the 
 competition, when the probable amount negotiated 
 maybe six or eight times that amount? We answer, 
 by that power of purchasing, possessed, but not of 
 necessity fully exercised by the bank, which is known 
 to every drawer of a bill, and also by that moral 
 influence, which silently operates, and compels the 
 drawers of bills to keep up the price very near that 
 fixed by the bank, through fear that mercantile dis- 
 credit would accompany any offer to draw at a price 
 much below it. The fact, however, of a control over 
 the rate of exchange is admitted in the above quota- 
 tion, and therefore needs no further evidence of its 
 existence. 
 
 " But let us examine and see whether the benefits 
 flowing from this dealing in exchange by the bank, 
 be in reality such, as they are described to be, by the 
 essay in question. l Jn the south it furnishes capital 
 for facilitating trade. 7 Does this mean, that because 
 the bank is a buyer of bills in that quarter of the 
 Union, it therefore issues more bank notes than are 
 
CURRENCY AND BANKING. 121 
 
 called for in the ordinary course of discounts? If so, 
 the tendency of such over issues is to depreciate the 
 currency, and whatever may be the favor done 
 thereby to the southern planters, factors or mer- 
 chants, there is certainly a positive injury inflicted 
 upon all the rest of the community. If, 'however, the 
 tendency be not to enlarge the issues of bank notes, 
 how is any capital afforded to facilitate trade, in 
 addition to that which would be procurable by the 
 same planters, factors or merchants, by offering for 
 discount the promissory notes or acceptances of in- 
 dividuals, to whom their bills would have been sold, 
 if the bank were not a dealer in exchange? 'To the 
 north it supplies a safe and undoubted remittance.' 
 This is unquestionably true, inasmuch as it affords to 
 all those who are willing to pay for increased security, 
 an opportunity of fulfilling their engagements in 
 Europe, without danger of defalcation. This benefit, 
 which by the way, we humbly conceive to be the 
 only real one of a general nature, which results from 
 the power of the bank to deal in exchange, could, 
 however, be conferred by the bank in a way far less 
 injurious to the public, than the one now pursued, 
 and that would be, by the simple operation of 
 guaranteeing bills for a stipulated commission. 
 
 "To the southern merchants it affords another 
 buyer of bills, to the northern another seller, widen- 
 ing in both cases the field of competition" This 
 to be sure appears plausible, but we apprehend will 
 not stand the test of analysis. The bank it would 
 seem goes into the market at Richmond, Charleston, 
 Savannah, and New Orleans, to purchase the bills 
 upon Europe, drawn upon the shipments of produce 
 made from those ports. The immediate buyers of 
 those bills, if the bank was not a dealer in exchange, 
 would be, either the importing merchants on the spot, 
 or the importing merchants in the northern cities. 
 The bank, we will allow, by its competition, raises 
 the price of bills above what it would otherwise be, 
 11 
 
122 A TREATISE ON 
 
 because it is a speculator with a large capital, which 
 buys, not because it stands in need of "bills, but because 
 it is sure it can make money by the purchase., owing 
 to its power of controlling the market price. This, 
 too, we will admit, benefits the drawer of the bill,and 
 perhaps in a very trifling degree the planter, who 
 gets a better price for his crops on account of the in- 
 creased premium on bills. But is not the importing 
 merchant of the south, as well as the importing mer- 
 chant of the north, injured by this operation precisely 
 in the degree that the others are benefitted? Are they 
 not compelled to give more for their bills, than they 
 would otherwise have given? And why should then 
 an institution, general in ?'/.? nature, take merit to 
 itself, for taxing one portion of the community for the 
 benefit of another? And how is the bank a 'new 
 seller to the north?' Does she offer any more bills in 
 the northern cities, than would be offered there for 
 sale, without her intervention? We apprehend not 
 to the value of a dollar. She occupies the mere place, 
 which, without her, would be occupied by a number 
 of individuals; and it is self-evident that her agency 
 in the matter, so far from widening the field of com- 
 petition, actually restricts it, and raises the price of 
 exchange as much above what it would be, if .she 
 were not a dealer in bills, as the profit she obtains by 
 her operations. 
 
 " But after all, why should the bank undertake to 
 be the arbiter of exchange? Why should she be par- 
 ticularly careful that exchange should not be too high, 
 rather than that it should not be too low? As far as 
 some of our own citizens are the drawers, and others 
 the purchasers of bills, it is of no sort of consequence to 
 the public, what is their precise rate. To the parties 
 themselves it is indeed of moment, inasmuch as what 
 comes out of the pocket of one goes into that of the 
 other; but the country is neither richer nor poorer for 
 the operation, and the parties themselves are quite as 
 able to adjust the rate as the bank. As far, however, 
 
CURRENCY AND BANKING. 123 
 
 as bills are wanted for the account of foreigners, for 
 goods sold in the country, it is of advantage to^the 
 country, that exchange should be high, inasmuch as 
 thereby the balances due them would be paid by a 
 less amount of bills. But, notwithstanding this, the 
 bank should not attempt to interfere with the natural 
 course of exchange, any more than a government 
 should interfere with the natural course of trade. 
 
 " Upon every view of the subject which we have 
 been able to take, we consider all profits made by the 
 bank upon its foreign exchange transactions, beyond 
 the amount of a fair charge for guarantee, and bro- 
 kerage for bringing buyers and sellers together, as a 
 tax upon the consumption of the country, for which 
 no equivalent service is rendered. We also consider 
 that its dealing in exchange, and accumulating large 
 stocks in Europe, which can only be done, we ap- 
 prehend, by extra issues of 'paper, prejudicial to the 
 currency, and consequently to the 'nation, is destruc- 
 tive of the only imaginable check upon over-trading 
 and over-banking, inasmuch as it conceals for long 
 periods together, the real state of the competition of 
 the market, the only guide by which merchants and 
 banks can regulate their transactions, with advantage 
 to the country. If it should be asked, whether there 
 is any difference in the effect produced by the opera- 
 tions of the bank, from that which would be produced 
 by the operations of private speculators, we would 
 reply, that there is a most essential one. Indpenderit 
 of the powerful force of a huge capital, which gives 
 a weight in the market, that no moderate number of 
 our citizens could bring to bear, the bank after it 
 buys bills, has power to make an addition to the 
 currency, the immediate effect of which is to raise 
 the price of those bills, and thus afford a profit by 
 their sale. Individual speculators, on the contrary, 
 add nothing to the mass of the currency, and their 
 operations must, in the nature of things, have but a 
 very slight effect upon the market price of exchange." 
 
124 A TREATISE ON 
 
 CHAPTER XI. 
 
 EXAMINATION OF THE COMMON OPINION THAT THE 
 ESTABLISHMENT OF BANKS IN THE WESTERN 
 STATES, UPON EASTERN CAPITAL, IS BENEFICIAL 
 TO THOSE STATES. 
 
 IT is an opinion very frequently expressed, that the 
 establishment of banks in the western and south- 
 western country, has been a great source of pros- 
 perity to the cities and towns where they have 
 been located as evinced by the improvements to 
 which they have given rise, and by the com- 
 mercial and manufacturing activity that has been, 
 displayed. Cincinnati, Louisville, Nashville, Nat- 
 chez, Vicksburg, and numerous other places, it is 
 said, owe a large share of their prosperity to the 
 establishment of banks; and as these have all been 
 banks of circulation, it is concluded that therefore 
 banks of circulation must have powers to create na- 
 tional wealth, which I have denied to them. Let us 
 examine this doctrine. 
 
 It has been shown in a former chapter, that no- 
 thing but capital, that is, something possessing an 
 intrinsic value, can possibly be the means of setting 
 industry in motion, and that banks have not the power 
 of creating such capital by a mere issue of promis- 
 sory notes. It may, then, fairly be concluded, that as 
 far as any real prosperity has been ascribed to the 
 circulating principle of the banks established in the 
 places that have been mentioned, the position is falla- 
 cious, and without a shadow of foundation. But, at 
 the same time, I am prepared to admit, that as far as 
 the capitals of the banks referred to have been sub- 
 scribed by capitalists residing in the Atlantic cities, 
 those cities and towns have reaped all the benefits 
 resulting from the borrowing of a foreign capital, 
 
CURRENCY AND BANKING. 135 
 
 whatever they may be. The simple fact of that capi- 
 tal's being nominally what is called "a money capi- 
 tal/' is of no sort of consequence in the estimate of 
 the benefits; for, in truth, although subscribed in 
 money, it was never in the form of coin in the actual 
 possession of the western banks, but a fund in the 
 Atlantic cities, drawn upon and sold to the western 
 merchants as a remittance to pay up their existing 
 debts, or to purchase new supplies of goods. It was 
 thus a capital subscribed, nominally in money, but 
 really paid up in dry-goods, hardware, and groceries; 
 and the effect, therefore, upon the prosperity of the 
 western towns, was precisely the same as that of ob- 
 taining from individual merchants, or in any other 
 way upon credit, an equal amount of merchandise, 
 with this difference, that the credit might not cost as 
 much through the process of a bank, as if obtained 
 through a purchase of goods in the ordinary way. 
 
 This difference in the cost of the credit, however, 
 is all the benefit that the western cities and towns can 
 have reaped from bojrowing foreign capital through 
 bank charters, rather than through the ordinary chan- 
 nels of purchasing goods on credit. What it may 
 have amounted to, it is not easy to ascertain; but as a 
 set off to it, it may very fairly be assumed, that in the 
 scramble for discounts made on the first opening of 
 the banks, the loans of capital and credit were not as 
 judiciously made for the general interests of the 
 country, as sales of merchandise would have been 
 by the eastern merchants, as is shown by the fact 
 that immense sums were loaned to planters who 
 embarked in speculations in lands and slaves, and to 
 merchants who embarked in shipments of cotton, and 
 who ultimately became embarrassed or ruined by 
 these operations. Every one remembers that the 
 southwestern banks were the last to resume specie 
 payments after the late suspension; and it is well 
 known to many, that they were only enabled to do it 
 when they did, by borrowing large sums from the 
 
126 
 
 A TREATISE ON 
 
 eastern cities, or by the emission of post notes payable 
 at distant periods with which they absorbed a part of 
 their immediate liabilities. If any stronger proof 
 were wanted of injudicious and improvident loans on 
 the part of many of those banks, it may perhaps be 
 found in the second failure that has taken place with 
 all of them since their resumption in January, 1839, 
 and in the expression of public opinion manifested on 
 the stock exchanges of New York and Philadelphia 
 at a recent period, which places the stocks of all of 
 them below par, and of some of them very con- 
 siderably below it.* If these facts be conclusive as 
 
 * The following western and southwestern bank stocks were 
 sold at New York and Philadelphia, where a large amount of 
 them are owned, between the 1st of September, 1839, and the 
 1st of January, 1840, as low as the prices specified in the first 
 column. The sales at Philadelphia were made prior to the sus- 
 pension of specie payments on the 9th of October, so that in 
 both cases the specie price is given. 
 
 The second column gives the lowest and highest prices be- 
 tween the 1st of January and the 1st of May, 1840. 
 
 Lafayette B'k, Cincinnati, 
 Franklin Bank, " 
 
 Commercial Bank, " 
 Ohio Life & Tmst Co. " 
 Bank of Kentucky, 
 Northern B'k of Kentucky, 
 Louisville Bank, 
 Illinois State Bank, 
 Union Bank of Tennessee, 
 Planter's Bank of Tenn. 
 Planter's Bank of Missis- 
 sippi, Natchez, 
 Commercial Bank of Natchez, 
 Grand Gulf Bank of Miss. 
 Vicksburgh Bank, Miss. 
 Memphis Bank, Tennessee 
 N. O. Canal & B'king Co. 
 
 " " Commercial Bank, 
 
 " " Gas Bank, 
 
 * These sales were made at Philadelphia, in paper currency, depreciated 
 from 8 to 5 per cent., the range between January and May. 
 
 
 
 
 Per cent. 
 
 Per cent. 
 
 Capitals pnid. 
 
 
 60 
 
 no sales. 
 
 $1,000,000. 
 
 
 65 
 
 75 to 
 
 80 
 
 1,000,000. 
 
 no 
 
 sales. 
 
 85 " 
 
 95* 
 
 1,000,000. 
 
 
 65 
 
 72 " 
 
 80 
 
 628,594. 
 
 
 54 
 
 49 " 
 
 59 
 
 4,679,404. 
 
 
 80 
 
 81 " 
 
 85* 
 
 2,895,685. 
 
 
 80 
 
 75 
 
 80* 
 
 1,150,000. 
 
 
 54 
 
 55 
 
 64 
 
 
 
 70 
 
 64 " 
 
 73* 
 
 2,554,939. 
 
 
 74 
 
 72 
 
 75* 
 
 2,247,985. 
 
 
 50 
 
 20 " 
 
 33* 
 
 4,200,140. 
 
 Zi 
 
 
 50 
 
 
 1,507,750. 
 
 
 40 
 
 36 " 
 
 37 
 
 1,467,750. 
 
 
 22 
 
 7 " 
 
 17 
 
 4,000,000. 
 
 no 
 
 sales. 
 
 65* 
 
 
 535,333. 
 
 
 u 
 
 60 " 
 
 70 
 
 4,000,000. 
 
 
 t 
 
 70 
 
 
 3,000,000. 
 
 
 it 
 
 34* 
 
 
 1,854,455. 
 
CURRENCY AND BANKING. 127 
 
 to indiscreet and improvident loans, all the mischief 
 which I have in other parts of this work traced to the 
 same cause in other places, must be equally predi- 
 cated of the western and southwestern banks; arid it 
 will not perhaps be difficult for the reader to admit, 
 that all the benefit which the western and south- 
 western states have derived from the establishment 
 amongst them of banks constructed upon foreign 
 capital over and above the benefits which those states 
 would have derived from their merchants buying and 
 selling an equal amount of foreign goods on credit, 
 has been more than counterbalanced by the evils 
 resulting from incautious loans of capital and credit. 
 
 CHAPTER XII. 
 
 ON THE CIRCULATION OF SMALL BANK NOTES. 
 
 IT must be manifest to all who will reflect upon the 
 subject, that the currency of the United States is 
 exposed to dangers from over-expansions to which 
 that of Great Britain is not in the same degree liable. 
 The distance from the American to the European 
 continent is so great, that even after the general 
 establishment of steam packets, a month would be 
 requisite for obtaining a supply of the precious metals 
 under a panic, which could be obtained in England 
 from the adjacent parts of the continent in four or 
 five days, and it would therefore seem to be sound 
 policy for the state legislatures of our Union to autho- 
 
 It is supposed that at least fifteen millions of dollars of Phila- 
 delphia and New York capital have been invested in the stocks 
 of the western and south-western banks and internal improve 
 ment companies, but chiefly in banks, which accounts in some 
 degree for the present embarrassment of those two cities. 
 
12S A TREATISE ON 
 
 rise no measures to be pursued by our banks which 
 can have a tendency to diminish the metallic basis of 
 our paper currency so greatly, as to endanger its con- 
 vertibility. It is self-evident, that just in proportion 
 to the diminutive size of bank notes authorised in a 
 country, will be the supply and consequent circula- 
 tion of gold arid silver. In France, where no bank 
 note is allowed to be issued of a less denomination 
 than five hundred francs, (equal to about ninety-four 
 dollars of our money,) the whole of the retail transac- 
 tions of a community of thirty millions of people, 
 nearly double our population, are carried on by the 
 precious metals.* In England, no note of a less 
 denomination than five pounds sterling (equal to 
 twenty-four dollars and upwards,) can be issued by 
 the Hank of England, or by any joint-stock or private 
 bank; so that in that country too, the minor channels 
 of circulation are kept well filled with gold, so that 
 on any emergency, a large fund can be made avail- 
 able to meet any reaction of the banking system, 
 before the necessity occurs of ordering bullion from 
 abroad. 
 
 In the United States, unfortunately, the blindness 
 of the legislatures and the public, and the avarice of 
 the bankers, has at all times, since the existence of 
 banks, led to the emission of notes of a much less 
 denomination. With the exception of the Bank of 
 the United States, incorporated by congress in 1816, 
 and the Pennsylvania Hank of the United States, 
 chartered in 1836, which were not allowed to issue 
 notes of a less denomination than ten dollars, and of 
 the new bank of Missouri, which can issue none of a 
 less denomination than twenty dollars, there has pro- 
 bably been no bank chartered by any of the states 
 which has- not been authorised to issue five dollar 
 
 * Silver is ^virtually the currency of France. Gold being 
 undervalued at the mint in relation to silver, commands a small 
 premium in the market, when wanted for travellers or exporta- 
 tion. 
 
CURRENCY AND BANKING. 139 
 
 notes. The consequence of this policy has been, 
 that the stock of the precious metals in the country 
 has at all times been much less than it would have 
 been, had the policy intended by congress in 1816 
 been preserved by the state. I say " intended" be- 
 cause the prohibition was evaded by the issue by the 
 bank, of checks for five dollars drawn by the branches 
 upon each other, which answered all the purposes of 
 five dollar notes. 
 
 But although, by the exclusion of all notes of a less 
 denomination than ten dollars, the security of our 
 paper currency would be greatly strengthened in case 
 of an unexpected panic, yet the design of this chapter 
 is more particularly to inveigh against the growing 
 propensities in some of our legislative bodies to author- 
 ise the emission c-f notes of a denomination less even 
 than five dollars, a policy which, if adopted by all the 
 states, will fill not only all the arteries of circulation, 
 but even the very smallest veins, with paper, and 
 drive from the country the few coins which the five 
 dollar notes have spared. 
 
 A short sketch of the history of small bank notes 
 may not be without interest. 
 
 Prior to the suspension of specie payments in 
 August, 1814, I am not aware that any notes of a 
 less denomination than five dollars were any where 
 issued, although there may have been in a few of the 
 states. By that event, specie disappeared wholly 
 from circulation in all the states except those of New 
 England, where the banks, coerced by efficient laws 
 and public opinion combined, continued to fulfil their 
 engagements, and its place was supplied by emissions 
 of notes by banks from three dollars down to twenty- 
 five cents, some with the sanction of law, granted for 
 the especial occasion, and some without it; and by 
 other emissions from all sorts of corporations, public 
 officers, private institutions, and even by individuals, 
 who generously accommodated the public with their 
 credit for sums' as small as five cents, in the hope that 
 
130 A TREATISE ON 
 
 the notes would be worn out or lost, and that they 
 should never be troubled with a demand for their 
 payment. This wretched state of things continued 
 for some time after the restoration of specie payments 
 in February, 1817. An incubus appeared -to be fast- 
 ened upon the community, which no combination of 
 individuals could shake off, and which continued for a 
 longer or shorter time, according as legislative inter- 
 ference was delayed. In Pennsylvania, where, from 
 the multiplicity of banks, this evil was of great mag- 
 nitude, an act was passed on -the 22d of March, 1817, 
 prohibiting, under a penalty, the emission or circula- 
 tion of any notes or tickets in the nature of bank 
 notes, of a less denomination than five dollars, ex- 
 cepting by banks duly authorised; and also prohibit- 
 ing, after the first day of October following, any bank 
 from issuing such notes: a privilege which had been 
 granted by act of 28th December, 1814. This law, 
 being partially carried into effect, expelled from circu- 
 lation the principal part of the miserable trash against 
 which it was directed, and the silver fractions of a 
 dollar began to make their appearance from the pock- 
 ets and strong boxes of the public, where they had 
 been concealed for near three years. Still the cure 
 was not complete, owing to evasions of the law, 
 and to the introduction of small notes and tickets of 
 neighboring states. The banks of Pennsylvania, 
 having ceased after the first of October to issue notes 
 of a less denomination than five dollars, the neighbor- 
 ing states of Delaware, New Jersey, and New York, 
 sent us an abundant supply and the chief effect of the 
 law appeared to be, not to give us a circulation of 
 specie in the place of small notes, but to fasten upon 
 us a set of notes not known to the public* for another 
 set that was known. And yet, with this fact staring 
 them in the face, the Senate of Pennsylvania rejected, 
 by a vote of 16 to 15, on the 9th of March, 1820, a 
 bill introduced into that body by the author, who was 
 then a member, prohibiting the circulation of all notes 
 
I 
 
 CURRENCY AND BANKING. 131 
 
 of a less denomination than five dollars, wheresoever 
 or by whomsoever issued. 
 
 After the defeat of this measure, which was op- 
 posed most strenuously on the ground that if the small 
 notes were expelled, the people in the interior where 
 they chiefly circulated, would be wholly destitute of 
 change; and advocated on the ground, that so far from 
 this being the effect, the immediate and necessary 
 consequence would be, that every man who had in 
 his pocket a dollar in paper would find it instantly 
 converted into a dollar in silver, the subject was per- 
 mitted to sleep for a number of years; and it was not 
 until the 12th of April, 1S2S, that Pennsylvania was 
 convinced of the impolicy of a measure which pre- 
 vented specie from flowing in upon her citizens. The 
 act of that date fixed upon the 1st of January, 1829, 
 as the period for enforcing the prohibition, and it was 
 not without great apprehensions of a repeal before 
 the appointed day, that the friends of a wholesome 
 currency saw numerous petitions with that object pre- 
 sented to the legislature in the preceding month of 
 December. Happily, however, these evidences of 
 ignorance and folly were disregarded by the legisla- 
 ture. The law went into operation, the flood of fo- 
 reign paper was forced back upon its issuers, and, as 
 if by magic, silver was immediately seen to circulate 
 in abundance in those counties where before there 
 was nothing but paper. 
 
 The successful issue of this experiment in Pennsyl- 
 vania was followed in subsequent years by a number 
 of other states, which in turn proscribed notes under 
 five dollars; and their total expulsion from all the states 
 of the Union might reasonably have been expected 
 in the course of a few years, had it not been for the 
 unfortunate suspension of specie payments in May, 
 1S37, which again deluged the country from one end 
 to the other with a flood of small notes and tickets, 
 from three dollars down to five cents, and extinguished 
 in some of our legislatures the lights of science which 
 
132 A TREATISE ON 
 
 so much pains had been for so many years taken, 
 by the intelligent few, to kindle into a flame. New 
 York has backslided by authorising, by a recent act, 
 the emission by her own banks of notes of a less de- 
 nomination than five dollars, and as far as she is con- 
 cerned, has proclaimed her unwillingness to assist in 
 retaining in the country a proper specie basis for the 
 huge mass of paper money which her banks fabricate. 
 The state of Maine, too, has fallen off by a similar re- 
 creant step, arid indications have also elsewhere ap- 
 peared of a similar delinquency. Still it is to be hoped 
 that this retrograde movement will be of limited 
 extent, and that the example of those states which 
 entertain so under .views of a currency will ultimately 
 operate upon the rest, and convince them that the 
 profit of private corporations should never be made to 
 outweigh the substantial interests of the community, 
 by placing the stability of the currency in a constant 
 state of jeopardy.* 
 
 * During the suspension of specie payments which commenced 
 on 9ih October, 1839, and which still continues in all the States 
 south and west of New York, small notes as low as $1, issued 
 by the banks of Delaware and New Jersey, have been current 
 in Pennsylvania. No notes under five dollars having been 
 issued by bank corporations or individuals in Pennsylvania. 
 
CURRENCY AND BANKING. 133 
 
 BOOK THE THIRD. 
 
 OF THE LAWS WHICH REGULATE A CURRENCY COM- 
 POSED ENTIRELY OF INCONVERTIBLE BANK PAPER. 
 
 IN the first book I described the operation of a cur- 
 rency purely metallic, and in the second that of a 
 mixed currency of coin and bank notes strictly con- 
 vertible on demand into coin. I corne now to describe 
 the operation of a currency consisting wholly of incon- 
 vertible bank paper. 
 
 It has been shown that under a currency purely 
 metallic, the fluctuations which can take place in its 
 quantity and value are circumscribed within narrow 
 limits, and that consequently the greatest possible 
 stability which the nature of things will admit, exists 
 in the operations of commerce. It has also been shown, 
 that under banks of circulation conducted upon the 
 principle of strict convertibility, although there is an 
 occasional liability to temporary fluctuations, yet that 
 these are not perhaps so great as altogether to neu- 
 tralise the benefits which the community derives from 
 their operations. It is only when banks, by their in- 
 ordinate expansions, destroy convertibility and endan- 
 ger their solvency, or what is worse, bring on a gene- 
 ral stoppage of specie payments, that they are guilty 
 of high offences against the community, and are justly 
 obnoxious to the charge of inflicting misery on the 
 country. Previous, however, to examining the ope- 
 rations of a currency after a suspension by the banks, 
 I will call the attention of the reader to that state of 
 delusion and apparent prosperity which invariably 
 precedes it, and which, with sagacious minds, is easily 
 distinguished from a state of real prosperity. 
 12 
 
134 A TREATISE ON 
 
 CHAPTER I. 
 
 OF THE CAREER USUALLY RUN BY BANKS OF CIRCULA- 
 TION PREVIOUS TO A GENERAL STOPPAGE OF PAY- 
 MENT. 
 
 HAVING shown that banks of circulation, as such, 
 neither create nor lend capital, and that what they do 
 lend is their credit, by means of which the capital of 
 individuals is circulated with more facility and less 
 security than it would be without their instrumentality, 
 I come now to examine this question, upon which 
 most of the popular delusion hangs: Does not the 
 increased activity given to business, occasioned by 
 banks lending their credit very freely, tend to the pro- 
 motion of public prosperity, and to the production of 
 wealth, faster than would otherwise take place? The 
 answer will appear in the sequel, and will not be 
 found in accordance with the cherished opinions of the 
 day. 
 
 By the operation of such bank issues the credit of 
 the banks is placed at the disposal equally of all who 
 borrow from them. Consequently, the inexperienced, 
 the unskilful, the incautious, and the speculative, are 
 placed upon a level, in their purchases, with (he ex- 
 perienced, the skilful, and the prudent. The result of 
 this equality is, that some men are able to buy who 
 before were not able owing to a deficiency of credit.* 
 More competitors are brought into the market, and 
 prices rise from the spirit of speculation, which never 
 fails to be engendered by the facility of procuring the 
 means to speculate with. In addition to this local rise 
 
 * This is especially the case where banks of circulation are 
 established with little or no capital, or where the directors lend 
 the credit of the hank to themselves, of which such numerous 
 examples have been lately furnished, in Massachusetts, Missis- 
 sippi, Louisiana, and other states. 
 
CURRENCY AND BANKING. 133 
 
 which takes place from the competition of new deal- 
 ers in the immediate neighborhood of the banks, a 
 general rise takes place from the expansion of the 
 currency, owing to the abundance of the paper which 
 has been thrown amongst the community by the ori- 
 ginal borrowers from the banks. This rise goes on 
 with every new emission of paper, and appearing to 
 the public, which is not acquainted with the internal 
 operations of banks, like an increase in value, the 
 spirit of speculation is excited amongst all classes of 
 the community, and purchases are made for no other 
 reason than that the buyers suppose they can sell the 
 next day at a profit. Industrious persons abandon 
 productive employments to pursue speculation, which, 
 however profitable it may be to the successful opera- 
 tor, does not at all add to the wealth of the community, 
 seeing that what is gained by one man is lost by 
 another. Extravagance and luxury are increased in 
 proportion to the increasing abundance of paper credits, 
 because, as prices rise, all who have property or com- 
 modities on hand think they are getting richer every 
 day. Merchants embark in more extensive enterpri- 
 ses; manufacturers extend their establishments; farm- 
 ers build houses that are not wanted, and ornament 
 their farms; railroads, canals, and every other species 
 of internal improvement, are prematurely projected. 
 All these operations give employment to the laboring 
 classes, and for a time exhibit the semblance of accu- 
 mulating wealth. Every new sale of property or 
 commodities on credit creates new promissory notes 
 or obligations, and these create a new demand for 
 more discounts, whilst more currency is required to 
 circulate the same commodities at their augmented 
 price.* 
 
 * Abundant evidence of the truth of this proposition is fur- 
 nished by the treasury documents in reference to the augmenta- 
 tion of the currency which took place during the two years which 
 preceded the general stoppage in May, 1837, as will-appear from 
 the following statement, giving the amount of the circulation 
 
136 A TREATISE ON 
 
 But there is a final limit to this delusion. The de- 
 preciation of the currency has become so great, from 
 these extraordinary issues, that timid people become 
 alarmed, and make a run upon the banks, whilst coin 
 is also demanded for exportation. The banks are 
 called upon to pay their notes, and they in turn call 
 upon their debtors, who are by this means first 
 awakened from their dreams. Money becomes scarce, 
 and prices of property and commodities fall. The 
 operation which the banks require is merely that those 
 with whom they exchanged notes upon such unequal 
 terms, shall exchange back again. But with this de- 
 mand the merchant cannot comply, because he has 
 long since parted with his bank notes, arid has in. 
 their place a store full of goods, which he has been 
 induced to import or purchase, on account of the high 
 prices created by the issues of the banks, but which 
 he cannot now sell without a loss that will render 
 him insolvent. Or he has parted with his bank notes 
 in exchange for goods which he has sold to country 
 merchants, who cannot pay him owing to the fact that 
 the planters or farmers whom they trusted have over- 
 planted or over-farmed, or over-speculated in lands, 
 or over-expended. The manufacturer pleads the 
 same inability, because the same high prices and ap- 
 pearance of universal prosperity induced him to erect 
 buildings and machinery, not required under a dimi- 
 nished demand for goods, which he cannot now dis- 
 pose of at any price; whilst the farmer or planter 
 confesses, that the temporary rise in the prices of land 
 agricultural produce, and slaves, which he thought 
 was a permanent rise in value, had induced him to 
 
 and deposites of all the banks in the United States, according to 
 returns nearest to the periods mentioned. 
 
 Circulation. Deposites. Totals. 
 
 Jan. 1, 1835, $103,692,495 $583,081,365 $186,773,860 
 Jan. 1, 1836, 140,301,038 115,104,440 255,405,478 
 Jan. 1, 1837, 149,186,690 127,397,185 276,584,075 
 
CURRENCY AND BANKING. 137 
 
 invest in unproductive improvements on his estate, 
 and in the purchase of slaves and new lands, the 
 notes which he had received from the banks; or, that 
 his belief in his apparently growing wealth had led 
 him into extravagance and luxurious expenditures. 
 
 The speculators in railroads and canals, who sub- 
 scribed to those improvements, not because they had 
 capital to invest, but because they fancied that the 
 delusion under which they labored was a reality, and 
 that consequently they would be able to sell their 
 stock at an advanced price, cannot pay their notes, 
 because they can find no purchasers with actual capi- 
 tal who are willing to take their bad bargains off 
 their hands. At this winding up of the catastrophe, 
 it is discovered that during the whole of this operation, 
 consumption had been increasing faster than produc- 
 tion that the community is poorer in the end than 
 when it began that instead of food and clothing it 
 has railroads and canals adequate for the transporta- 
 tion of double the quantity of produce and merchan- 
 dise that there is to be transported and that "the 
 whole of the appearance of prosperity which was 
 exhibited while the currency was gradually increas- 
 ing in quantity, was like that appearance of wealth 
 and affluence which the spendthrift exhibits whilst 
 running through his estate, and like it, destined to be 
 followed by a period of distress and inactivity.* 
 
 * In confirmation of these vie\vs, as well as of others ex- 
 pressed in this work, the following remarks of the Bishop of 
 Llandaff (Copleston), are presented. They are contained in a 
 note to a volume published in London, in February, 1840, page 
 322, entitled " Letters of the Earl of Dudley, to the Bishop of 
 Llandaff." 
 
 "This letter (dated 17th June, 1822) relates to a paper in 
 the Quarterly Review on the Currency Question, which was 
 reprinted as a pamphlet in 1830. That paper was written by 
 me after long study of the subject, and nearly twenty years of 
 experience since it was written have confirmed me in the opi- 
 nions there maintained, and have, I think, proved the correct- 
 ness of its reasoning: but mankind are unwilling to believe that 
 12* 
 
138 fA TREATISE ON 
 
 But even admitting all this to be true, it may be 
 argued, that at any rate banks of circulation, by libe- 
 ral issues of their notes, make what is called money 
 plenty. That they make it plenty with those who 
 first get their paper is undoubtedly true, as is evinced 
 by the speculative operations which have been above 
 described; but as soon as time has been afforded for 
 that general rise in the prices of property and com- 
 modities which is inseparable from increased issues 
 of paper after it has become diffused throughout the 
 circulation, the plenty disappears. It requires, at the 
 
 what skilful practical men find difficult and perplexing, can be 
 resolved into a few simple principles, the forgetfulness of which 
 had caused all the difficulty. The temporary prosperity also 
 which springs from an extensive paper currency not only blinds 
 the eyes of the public at large, but raises up numerous interests 
 among individuals whose profits depend upon a continuance of 
 the delusion. The patient is accordingly flattered by nostrums 
 which give immediate ease, but really increase the malady; 
 until at length a crisis comes, which demands a desperate re- 
 medy. The alternative is, either a debasement of the coinage 
 (which is national bankruptcy, i. e. paying so much in the 
 pound and this has been the usual remedy for insolvency with 
 all the governments of Europe,) or a severe reaction on the 
 victims of the delusion, which causes embarrassment and stag- 
 nation in trade, and ruin to thousands who lived and flourished 
 upon the ideal property. A dreadful dilemma! America is now 
 suffering under it, and is probably doomed to undergo greater 
 convulsions before the cure can be effected, boundless as her 
 physical resources are. 
 
 " Unfortunately too, in such a state of things, a large party are 
 ever prone to run into the opposite extreme. Struck with dis- 
 may at the fatal consequences of excess, they preach up, not 
 temperance, but total abstinence. They are for no paper money. 
 Thus it ever is Bum vitant stulti vitia, in contraria currunt. 
 They are disposed to any thing except moderation. The plain 
 truth is, that convertibility at the will of the holder is the one 
 sufficient security against depreciation: and if ever this con- 
 vertibility is restrained, either by the law (as it was in England 
 for more than 20 years) or by public opinion equivalent to law 
 (as it has been for many years in America,) the system becomes 
 bloated and plethoric, although exhibiting many of the outward 
 appearances of health; and a course of depletion must be sub- 
 mitted to, with all its mortifications, in order to save life." 
 
CURRENCY AND BANKING. 139 
 
 new prices, the whole existing quantity of currency 
 to circulate the commodities which at. .the old prices 
 were circulated by the original quantity, and a scarcity 
 of money is just as likely to be felt under a depreci- 
 ated currency as under a sound one, as soon as the 
 expansion has ceased by the banks refusing to extend 
 their discounts any further, and more especially when 
 they begin to contract their loans.* The case is pre- 
 cisely the same as would exist if all the specie in the 
 world were suddenly doubled, the effect of which 
 would be that it would require two ounces of gold or 
 silver to purchase as much of all other commodities 
 as could previously have been purchased with one. 
 Money would be no more plenty than before. Gold 
 and silver would be more plenty, but money would 
 not be, for the simple reason, that the prices of pro- 
 perty and commodities would be expressed by double 
 the number of coins; and any one can perceive that 
 the disappearance of any portion of the augmented 
 quantity of specie would occasion a scarcity of money, 
 even though it were true that the quantity still left in 
 circulation should be fifty per cent, more than the 
 quantity which existed beifore the doubling took 
 place.t This would continue until the excess should 
 be carried off by manufacturers or exportation, when 
 prices would fall to their old rates. 
 
 In reference to a general suspension of specie 
 payments, a very singular phenomenon sometimes 
 
 * The truth of this proposition was most remarkably illus- 
 trated in this country for six months prior to the stoppage of 
 specie payments in May, 1837. Although the amount of the cur- 
 rency was greater than it had ever been before in the United 
 States, yet the scarcity of money was so great, than in all the 
 commercial cities of the north it would readily command from 
 one to three per cent, a month. 
 
 | In stating the effect of a doubling of the currency, I do not 
 intend positively to declare that the prices of property and com- 
 modities would be precisely doubled. The proportion might 
 be different, but the one I have assumed is the plainest for illus- 
 tration. 
 
140 A TREATISE ON 
 
 presents itself, which is worth being noticed in 
 this place. It will appear to the reader at first sight 
 as quite incredible, and yet it is demonstrably true. 
 It is, that a mixed currency, whilst the paper portion 
 of it is nominally, and to a certain extent really con- 
 vertible, may be immediately before a general stop- 
 page of specie payments absolutely more depreciated 
 than it is immediately after the stoppage, when the 
 paper is not convertible at all. The reason is this 
 before the stoppage the currency is composed of two 
 elements, coin and paper; after the stoppage, it is 
 composed of nothing but paper, and consequently the 
 aggregate mass of the whole is diminished to the whole 
 extent of the specie thus withdrawn from circulation; 
 and as depreciation in such case is the result of quan- 
 tity, its degree must diminish with every reduc- 
 tion of the mass whether the reduction be of the me- 
 tallic or the paper portion. This is the reason why 
 after a stoppage of specie payments, prices do not 
 always rise and sometimes even fall, which gives co- 
 lor to the idea entertained by many, that the differ- 
 ence between specie and paper is occasioned by an 
 enhancement in the value of the former, and not by 
 the depreciation of the latter, and hence we see under 
 an inconvertible paper currency, specie quoted at a 
 premium. 
 
 CHAPTER II. 
 
 OF FLUCTUATIONS IN THE MARKET PRICE OF SPECIE 
 AND OF BILLS OF EXCHANGE UNDER AN INCON- 
 VERTIBLE PAPER CURRENCY. 
 
 As soon as a general stoppage of specie payments 
 by the banks has taken place, it is evident that the 
 
CURRENCY AND BANKING. 141 
 
 only conceivable check to over-issues has ceased to 
 exist, and that the public has no means whatever of 
 protecting itself against a still greater depreciation of 
 the currency. The issues of each bank not being re- 
 gulated as before by a common standard, and having 
 in fact no standard of any kind to be referred to, the 
 inevitable consequence is, that their quantity and va- 
 lue fluctuate according to the urgent wants of bor- 
 rowers, or to the ignorance or knavery of the issuers. 
 Were it not for the system adopted in the large com- 
 mercial towns and cities, of the banks agreeing 
 amongst themselves to pay interest on balances, there 
 would be in large cities as many currencies as banks, 
 and of as many different degrees of depreciation: but 
 the practice above alluded to, establishes a uniform 
 currency at each place, without, however, having 
 any positive reference to the currency of any other 
 place.* 
 
 This diversity of value in the currencies of different 
 places, soon shows itself in the market prices of com- 
 modities. At that point where the currency is most 
 in excess, the prices of 'every species of property, 
 such as gold and silver, merchandise, stocks, foreign 
 and domestic bills of exchange, produce, and real 
 property, will be highest; and at that point where 
 the currency has been least in excess the prices of 
 those things will be lowest. At all important points 
 the sale of excess will be quickly shown by the 
 market price of specie, and the rate of exchange on 
 foreign countries, and as a general rule, this may be 
 considered to be conclusive as to the degree of depre- 
 ciation. 
 
 Of this general principle, however, there are modi- 
 fications. In the chapter on Exchange, in Book 
 
 * During the suspension of 1837, the banks of Philadelphia 
 paid interest to each other at the rate of 4 per cent. Soon after 
 the suspension of October 1839, they fixed the rate at 5 per 
 cent. The true policy in both cases would have been to have 
 adopted 6 per cent, the rate they charge other borrowers. 
 
142 A TREATISE ON 
 
 First, it was shown that the rate of exchange between 
 two countries or places may vary according as the 
 balance of trade may be one way or the other, to an 
 extent equal to the expenses of transmitting the pre- 
 cious metals from one country or place to the other. 
 The influence which belongs to the balance* of trade, 
 is not destroyed by a suspension of specie payments: 
 and, consequently, its operation may sometimes be 
 displayed in such a way as to augment or to diminish 
 the apparent difference in the degree of depreciation 
 between two places. Thus, suppose under a suspen- 
 sion of specie payments, the currency of Philadelpnia 
 to be depreciated five per cent., and that of New Or- 
 leans seven per cent , at a period when there was no 
 balance of trade due one way or the other, the differ- 
 ence of depreciation would be of course two percent., 
 and nominal exchange at Philadelphia on New Or- 
 leans would be at two per cent, discount. It is well 
 known, that at the season of the year when the cotton 
 crop comes into the New Orleans market, say from 
 October to May, there is a demand in the northern 
 cities for bills on New Orleans to remit for the pur- 
 chase of cotton. If we suppose this demand to affect 
 the market price of bills to 1he extent of two per 
 cent., the consequence would be, that bills at Phi- 
 ladelphia on New Orleans would rise at that season 
 to nominal par, and there would consequently be pre- 
 sented the appearance of an equality in the currency; 
 whereas, in point of fact, there would be still existing 
 the original difference in the degree of depreciation. 
 So, on the other hand, were the course of trade at the 
 opposite season of the year to augment the supply of 
 bills on New Orleans in the Philadelphia market, so 
 as to occasion a fall of two per cent, below the rate 
 existing before the late supposed rise, the exchange 
 would be nominally four per cent, below par, and 
 yet the real difference in depreciation would be as 
 before, but two per cent. What is here said of the 
 trade between Philadelphia and New Orleans, is 
 
CURRENCY AND BANKING. 143 
 
 equally applicable to that between any other two 
 places; and whatever may be the influence of the ba- 
 lance of trade upon the rate of exchange, that amount 
 should be added to, or subtracted from, the market 
 rate of exchange, as the case may be, in order to arrive 
 at the difference in depreciation. 
 
 It is proper, however, here to remark, that under 
 an inconvertible paper currency, the rise and fall of 
 exchange are not limited, as under a metallic or mixed 
 currency, by the expenses of transporting coin, and they 
 may consequently exceed it, as I shall proceed to show. 
 
 Under an inconvertible paper currency, although 
 its depreciation for a long period together is best to 
 be measured by what is called the premium on specie 
 yet it is clear that if at any particular place an extra- 
 ordinary demand for specie were suddenly to arise, 
 for domestic or foreign purposes, the paper currency; 
 and the specie in the market remaining the same in 
 quantity, specie would rise as compared with paper, 
 and thus the currency would appear to be depreciated 
 more than it was at the period before the rise. And 
 so on the other hand, if a large importation of specie 
 were suddenly to take place, the paper currency and 
 the demand for specie remaining the same, a fall would 
 take place in specie, and thus the currency would ap- 
 pear to be less depreciated than before the fall. A 
 knowledge of these facts, and the uncertainty of any 
 long continued fixed relation between specie and pa- 
 per at any particular place, occasions merchants some- 
 times to sell bills at a lower rate, and at othor times to 
 buy them at a higher rate, than they would under 
 a metallic or mixed currency. As regards New York 
 and Philadelphia, between which two cities advices 
 of the state of the markets may be transmitted in six 
 hours, the difference would hardly be perceptible; bnt 
 between New York and Mobile, or New Orleans, it 
 might be double or treble under an inconvertible cur- 
 rency, to what it would be under a metallic or mixed 
 currency, and this may account in part lor the remark- 
 
144 A TREATISE ON 
 
 able and sudden fluctuations which took place at New- 
 York, in the exchanges on those cities, during the sus- 
 pension in the years 1837 and 1S3S.* 
 
 In reference to this subject of a high exchange under 
 an inconvertible paper currency, a very general error 
 prevails of ascribing the whole of it to the balance of 
 trade. From the 1st of July, 1837, to the 14th of 
 April, 1838, exchange at New York on Philadelphia 
 at sight gradually fell from % to 1, to 4| to 5 per cent, 
 discount. Prior to the suspension of specie payments 
 in May 1837, it was never more than a quarter per 
 cent, above or below par, for the simple reason, that 
 specie could be sent from one city to the other, at an 
 expense less than a quarter per cent, and it was there- 
 fore very evident that no balance of trade could occa- 
 sion so great an exchange as 4| to 5 per cent. But 
 notwithstanding this self-evident truth, the great body 
 of superficial reasoners ascribed it to that cause, and 
 they were led so to do, from being acquainted with 
 the fact, that the banks of Philadelphia were largely 
 
 * Rates of exchange at New York on New Orleans and Mo- 
 bile, payable in New York currency, as also the rate of premium 
 on hall dollars, at the dates respectively mentioned. 
 
 1837. 
 
 July 1, 
 Aug. 1, 
 Sept. 2, 
 Oct. 7, 
 Nov. 4, 
 Dec. 2, 
 1838. 
 Jan. 6, 
 Feb. 3, 
 
 New Orleans. Mobile. Prem. on Half 
 Dollars. 
 7 to 10 per ct. disc't. Not quoted in the 10-J to 1 li 
 10 " New York Price 8" " 8 
 10 " Current until 1838. 9 9 
 5 " 6 " 5 " 5| 
 3" 4 " 6 " 6| 
 3 " 3J " 4 " 5 
 
 2 " 3 " 5$ to 6 per ct. disc't. 2J " 3 
 3i" 4 " 7^ * S\ " 4 " 44- 
 
 M'ch 
 
 .3, 
 
 4' 
 
 " 
 
 5 " 
 
 12 
 
 " 13 
 
 " 
 
 2i 
 
 " 
 
 3 
 
 April 
 
 7, 
 
 6 
 
 tt 
 
 7 
 
 17 
 
 "20 
 
 tt 
 
 1 
 
 tt 
 
 14 
 
 n 
 
 21, 
 
 10 
 
 tt 
 
 12 " 
 
 25 
 
 " 30 
 
 tt 
 
 4 
 
 tt 
 
 1 
 
 M 
 
 28, 
 
 8 
 
 tt 
 
 10 " 
 
 20 
 
 "22 
 
 tt 
 
 
 
 " 
 
 
 
 May, 
 
 5, 
 
 8 
 
 tt 
 
 10 " 
 
 20 
 
 " 22 
 
 " 
 
 f 
 
 t 
 
 
 
 it 
 
 12, 
 
 8 
 
 K 
 
 10 " 
 
 20 
 
 "22 
 
 ** 
 
 i 
 c 
 
 tt 
 
 5 
 
 it 
 
 19, 
 
 8 
 
 tt 
 
 10 " 
 
 12 
 
 "15 
 
 <t 
 
 par. 
 
CURRENCY AND BANKING. 145 
 
 indebted to the banks of New York, sometimes even 
 to the extent of a million and a half of dollars. Their 
 error consisted in mistaking the effect for the cause. 
 The rate of exchange which represented the greater 
 depreciation of the currency of Philadelphia over that 
 of New York, was the cause of the balance and not 
 the balance the cause of the rate of exchange. The 
 superiority of the currency of New York, being nearer 
 in value to specie than that of Philadelphia, was the 
 result of a gradual diminution of its quantity, which 
 was commenced in August, 1837. This diminution 
 by making money more scarce and consequently more 
 valuable in New York than in Philadelphia, occa- 
 sioned a fall in the former city in the prices of every 
 species of merchandise and stocks and bills of ex- 
 change to such an extent as to make it an object for 
 Philadelphia merchants and speculators to go to New 
 York to purchase, and at the same time occasioned 
 the transmission to Philadelphia of a large quantity of 
 merchandise to be sold at auction. These operations 
 created a debt in favor of New York against Philadel- 
 phia; the evidences of which came into possession of 
 the New York banks by the discount or collection 
 of Philadelphia paper; and as the New York banks 
 which resumed payment on the 23d of April, knew 
 that on the resumption of specie payments in Phila- 
 delphia, which they expected soon to follow, the 
 amount would be payable in specie; they permitted 
 it to lie undrawn for, although not bearing interest, 
 rather than to incur a loss by the purchase of specie 
 at Philadelphia equal to the extent of the deprecia- 
 tion of the currency of that city, considering it, in fact, 
 as nearly equivalent to coin in their own vaults, and 
 as a part of the funds upon which they relied to 
 enable themselves to resume or to sustain specie pay- 
 ments. No such effect could have been produced by 
 any balance existing against Philadelphia, had her 
 currency been as near the standard as that of New 
 York, for as an equal value would have existed in 
 13 
 
146 A TREATISE ON 
 
 the money of both places, and consequently an equal 
 scale of prices, there could have been no motive for 
 the transmission of merchandise, stocks, or bills of 
 exchange, from one place to the other for sale, except 
 that which ordinarily exists, and which at all times, 
 under a sound currency, leads to a mutual and equi- 
 valent interchange of commodities and property. * 
 
 The remarks which have here been made in refer- 
 ence to the domestic exchanges will apply with equal 
 force to the foreign exchanges of the country. Foreign 
 bills will show in their market price the relative degrees 
 of the depreciation of the currency of the places at 
 which they are sold. If there be a favorable or un- 
 favorable balance of trade, capable, under a sound 
 mixed or metallic currency, of depressing or raising 
 the price of bills one or two per cent, below or above 
 par, that amount will subtract from, or add to the 
 rate of depreciation, and consequently make it appear 
 less or greater than the true rate. In like manner, also 
 may the market rate of exchange fluctuate to a great- 
 er extent than under a mixed or metallic currency, ow- 
 ing to the uncertain continuance of the same degree of 
 depreciation at the place where bills are drawn. Thus 
 if the currency of New York under a suspension for 
 example, were five per cent, deprcciated'below the gold 
 standard of London, whilst the course of trade was such 
 that, under a convertible currency, the exchange 
 would be at par, the paper money rate of exchange 
 on London would be five per cent premium. Now, 
 if there were all at once to arise a strong probability 
 that within a short period the banks of New York 
 would resume specie payments, it might be more ad- 
 vantageous for the holder of a bill on London to sell 
 even as low as the paper money par, which would be 
 
 * Upon the resumption of payments by the Philadelphia banks, 
 on 13th August, 1838, the exchange at New York on Philadel- 
 phia fell to { to |, and from that period up to the suspension 
 of October, 1839, it was at no time below J and was frequently 
 at par. 
 
CURRENCY AND BANKING. 147 
 
 in fact, five per cent, below the true par, than to import 
 gold for the amount of his bill; for the simple reason, 
 that by the time his gold could get there, the banks 
 might have resumed payment, in which event he could 
 obtain no premium for it, and would consequently be 
 the loser of all the expenses of importation. It was 
 the gradual diminution of the currency of New York, 
 attended by a great pressure, which by degrees re- 
 duced the premium on specie, and gave assurance of 
 an early resumption of specie payments, which in the 
 month of February, 1838, reduced the exchange on 
 England five or six per.cent below the- true par, which 
 could not have happened in ordinary times, under a 
 metallic or mixed currency.* 
 
 So also on the other hand, if the currency of New 
 York were five per cent, depreciated below the gold 
 standard of London, and the paper money rate of ex- 
 change, as in the former case, were at five per cent, 
 premium, that is, at the true par, it might, if the cur- 
 rency were expanding, be more advantageous for the 
 holder of a bill on London if he had debts to pay, 
 which could be discharged with paper money, to im- 
 port gold than to sell his bill at five per cent, above 
 that true par, for the simple reason that the price of 
 specie might rise to such a premium as to afford him 
 an additional profit over and above the expenses of 
 importation, which could not have happened under a 
 mixed or metallic currency. 
 
 * On the 10th of February, 1838, nominal exchange on Lon- 
 don at New York was quoted at 7 to 8 per cent, premium, being 
 an average of 7|. The true par as has been shown is near 9^ 
 percent, advance on the old computed par. The price of specie 
 on the same day, payable in New York currency, was 3^ per 
 cent, premium, and consequently exchange on London, if paid 
 for in coin, was 4 per cent, nominal premium, which was in re- 
 ality 5^ per cent, below the true par. 
 
148 A TREATISE ON 
 
 CHAPTER III. 
 
 OF THE TRUE CHARACTER AND EFFECTS OF A GENE- 
 RAL SUSPENSION OF PAYMENTS BY THE BANKS, 
 AND THEIR OBLIGATIONS UNDER IT. 
 
 WHEN an individual bank fails by mismanagement 
 or over-trading, so that it cannot pay its notes or 
 deposites, we say that the bank has broke; but when 
 eight hundred or a thousand banks do the same thing, 
 we call it suspending specie payments, as if there 
 were any thing but specie of which a stoppage of 
 payment by a bank or any individual could be predi- 
 cated. For all the banks, therefore, of a country, to 
 stop together, call it what we may, it is nothing more 
 nor less than a general bankruptcy, under which the 
 banks find themselves in the precise condition of 
 individual traders, who, when they meet with tempo- 
 rary embarrasments, are obliged to call upon their 
 creditors for an extension of lime. Between the 
 mode, however, in which the two parties make the 
 appeal to their creditors for this extension, there is a 
 very wide difference. The individual trader solicits 
 it as a favor which his creditor may grant or with- 
 hold at his pleasure; and if, in his opinion, his estate 
 is ample for the ultimate payment of the whole of his 
 debts, he stipulates to pay interest for the time he is 
 to be indulged, and during which his creditor is to 
 be kept out of his property. 
 
 On the other hand, banks, when they default in 
 their payments, not only never ask the indulgence of 
 their creditors for any specified extension of time, but 
 they do not even think themselves under obligations 
 to pay interest to their creditors for the funds they 
 forcibly detain from them;* nay, they very frequently, 
 
 * Since the first edition of this work was printed, one excep- 
 
CURRENCY AND BANKING. 149 
 
 in the midst of their insolvency, declare dividends of 
 the very profits which actually belong to their credi- 
 tors, who, and not the stockholders, are entitled to 
 interest for their withholden funds. Excepting 
 where legislative enactments have forbidden divi- 
 dends under a suspension of payments, instances are 
 extremely rare wherein a sense of justice on the part 
 of the directors of banks has led them to refrain from 
 such manifest injustice, and the consequence has 
 been, that a direct inducement is thereby created 
 for taking no steps towards a resumption of payment, 
 for fear of diminishing the profits of lending other 
 people's money, whilst refusing to allow interest for 
 its use.* 
 
 From these remarks, it may be inferred, that I con- 
 sider a resumption of payment by solvent banks, after 
 they have stopped, as not of so difficult accomplish- 
 ment as many persons imagine. The fact is even so, 
 and the chief delay that takes place with most of 
 them is the simple result of a calculation of profit and 
 loss. It is not profitable to resume expeditiously. 
 This is with such banks the whole pith of the ques- 
 tion, and that I may not be considered as asserting 
 a proposition unsusceptible of proof, I will establish 
 it thus: 
 
 tion to the generality of this remark has been presented in the 
 case of the Branch Bank of Darien in Georgia, located at Mil- 
 ledgeville, which stopped payment a second time on the 27th of 
 March, 1839. The directors, in announcing the fact to the pub- 
 lic, gave notice, that the bank would pay an interest of seven 
 per cent, upon all sums of one hundred dollars and over, de- 
 posited in the bills of said bank during the suspension. 
 
 * During the suspension of 1837 and 1838, all the banks 
 of Pennsylvania made dividends, although it was prohibited in 
 the charters of most of them. After the suspension, which 
 took place in Philadelphia, in October, 1839, most of the banks 
 of that city resolved not to declare dividends, until the pleasure 
 of the Legislature could be known. By an act authorising the 
 continuance of the suspension until the 15th of January ,1841, 
 permission was granted to make dividends, contrary to every 
 principle of justice and equity. 
 
 13* 
 
150 A TREATISE ON 
 
 A bank with a capital of ten millions of dollars, has 
 loans out at the time of the suspension to the amount, 
 we will suppose, of fifteen millions. Of this fifteen 
 millions, we will suppose three to constitute that ex- 
 cess, which, in conjunction with the excesses issued by 
 the other banks, has caused the depreciation of the 
 currency, terminating in the stoppage, and conse- 
 quently, that that is the amount of immediate liabili- 
 ties, which, if they were put out of the way, would 
 restore the bank to a sound condition, seeing that 
 under the securest conduct, it can always maintain 
 without danger of reaction, loans amounting to twelve 
 millions. 
 
 The first and most natural mode that presents itself 
 to accomplish this end is to call upon the debtors of 
 the bank for the payment of three millions of dollars. 
 One could hardly suppose, that any bank having 
 loans out to the amount of fifteen millions, could not 
 within a reasonably short period collect twenty per 
 cent, of the amount, seeing the fact to be, that paper 
 money must needs be plenty, as is proved from the 
 very necessity of diminishing its amount in conse- 
 quence of its being in excess; and more especially 
 would this be true, if any large part of the loans made 
 by the bank was upon a pledge of stocks of any kind; 
 for it must be manifest that all such stocks are saleable 
 for cash at the market price; and if a loss should occur 
 upon a forced or unexpected sale, the owner would 
 have no right to complain, because such was the con- 
 tingency under which he pledged them. 
 
 But let us suppose, what is most commonly urged 
 upon such occasions, that the debtors of the bank can 
 not pay at all without a long indulgence as to time, 
 and that if their stocks are sold at forced prices, the 
 bank will lose a large part of the security she holds 
 for the debt. I can see no objection to a creditor, if 
 he finds it consistent with his interest, accommoda- 
 ting his debtor by a postponement of his demands. 
 It is done every day, and is just as legitimate when 
 
CURRENCY AND BANKING. 151 
 
 performed by a corporation, as when performed by 
 an individual. But in either case, the party who 
 grants the accommodation, must take care that in 
 effecting it, he adheres to the rules of honesty. The 
 means by which he effects his purpose, must be his 
 own, which he has authority to dispose of. No cre- 
 ditor would have a right to indulge a debtor, by with- 
 holding money from a third party without his con- 
 sent, and without paying him interest for the use of it, 
 and especially if he was himself deriving an interest 
 from the indulged creditor. 
 
 And now I would ask, if this be true in reference 
 to individuals, upon what principle has a corporation 
 a right, to accommodate its own debtors, for the pur- 
 pose of securing its debts, at the expense of its credi- 
 tors, the public? If, indeed, in the indulgence shown 
 by banks to their debtors, there was a waiving of the 
 interest, the public might have some corresponding 
 return for their own loss, inasmuch as some bank cre- 
 ditors might also be bank debtors. But we never hear 
 of any such generosity. Every dollar is demanded 
 for every day's indulgence, where the parties are sol- 
 vent; and when those who feel themselves aggrieved 
 complain, that by the depreciation of the currency 
 they have to pay an increased price for all they pur- 
 chase, they are considered as quite unreasonable for 
 not being willing to submit to some sacrifice for the 
 public good, which means in this case the good of the 
 stockholders of the banks. 
 
 Now cannot any one perceive, that, if the bank in 
 question had acted with a strict regard to justice when 
 it resolved to accommodate its debtors, it would at 
 once have borrowed three millions of dollars, or such 
 part of that sum as it could not have collected from 
 its debtors, for such length of time as would have en- 
 abled it to afford the requisite relief? Cannot any 
 one perceive, that such a course would have restored 
 the currency, without depriving any one of his just 
 rights? The matter is too plain to admit of dispute. 
 
152 A TREATISE ON 
 
 Why then is it not resorted to in such emergencies? 
 Because, as I have said, it is not profitable. 
 
 But it may be said, that some banks could riot bor- 
 row. This is highly probable. But it is hardly pos- 
 sible that any bank should be in such bad credit that 
 it could not borrow its own notes or the claims of its 
 depositors, upon some terms satisfactory to the hold- 
 ers, which is all that it wants to absorb the excess of 
 its issues. If there should be any such banks, the 
 sooner they are found out the better, and the sooner 
 their notes are rejected from the circulation, the sooner 
 would the currency be restored. 
 
 But this is not all. An inconvertible currency trans- 
 fers from the pockets of creditors to those of their 
 debtors without an equivalent, a sum equal to the 
 extent of the depreciation. Thus in New York and 
 Philadelphia, all notes for merchandise given before 
 the stoppage of the banks in May 1837, and which 
 fell due before the resumption, were paid in paper 
 from ten to one per cent, depreciated according to the 
 date, and in those cases where the receivers of this 
 paper were indebted to foreign merchants, to whom 
 they were obliged to make remittances, this loss was 
 wholly uncompensated.* It was, in fact, an abstrac- 
 tion of this amount from their pockets, precisely of 
 the same nature as would have resulted from the de- 
 basement of the coin to the same extent by the go- 
 vernment. The same remark may with the same 
 truth be made in reference to the payment of all other 
 debts, the creditor being deprived of a certain portion 
 of the gold or silver, or its equivalent, which by his 
 contract he was entitled to receive. And how stands 
 the case with reference to that large portion of the 
 community who live upon fixed incomes, such as the 
 interest upon mortgages, state loans, ground rents, 
 
 * One merchant informed me, that he had lost upon his re- 
 mittances during the suspension of 1837, $20,000, in the ex- 
 change. Others lost much more. 
 
CURRENCY AND BANKING. 153 
 
 salaries, and wages, which they have not the power 
 to increase so as to meet the increased prices of food, 
 clothing, fuel, &c.? They are all losers precisely in the 
 same way and to the same extent as the creditors 
 that have been referred to, to the whole extent of their 
 receipts. 
 
 In refutation of these positions, it is all idle to say, 
 that the expenses of living are not augmented by a 
 depreciated currency. It is not possible that it can be 
 otherwise, and although in small transactions the fact 
 may not be very observable, yet no sound thinker 
 will maintain that a ten dollar bank note worth in the 
 market nine silver dollars, will buy as much of any 
 thing as ten silver dollars, which can be converted 
 when the owner pleases into eleven dollars of bank 
 notes. 
 
 In like manner, it would be equally idle to say, 
 that the great mass of persons gain as much as they 
 lose by the depreciation of the currency. This is 
 only true of those who owe just as much as they are 
 indebted to others at the time of the stoppage of the 
 banks, and of those whose business is of such a 
 nature, as enables them to charge for what they have 
 to sell, an additional price equal to the depreciation. 
 All others who cannot do this, are obliged to pay 
 more for all the articles required for their subsistence, 
 without any corresponding return, and have there- 
 fore just ground for complaining of a system which 
 operates so greatly to their prejudice. 
 
 But there is one class of persons upon whom the 
 depreciation of a currency falls, who have a para- 
 mount right to complain. I mean foreigners to whom 
 debts are due by individuals, and who cannot, by any 
 means, direct or indirect, remunerate themselves for 
 the loss. Every one such whose debts are remitted 
 in bills of exchange purchased with the depreciated 
 currency, loses precisely the amount of the deprecia- 
 tion. And what shall be said of that large class of 
 creditors, who constitute the foreign holders of the 
 
154 A TREATISE ON 
 
 public debt of one of our states, and who were com- 
 pelled to receive, during the late suspension, the 
 amount of their interest, not in coin or its equivalent, 
 for the payment of which the faith of the state was 
 pledged, but in depreciated paper? I blush for the 
 credit of my native state, Pennsylvania, when I recol- 
 lect that the governments of New York, Ohio, In- 
 diana, and probably some other states, considered 
 themselves bound in honor to pay the foreign inte- 
 rest on their debts in the equivalent of specie, whilst 
 she, for a less sum than a hundred thousand dollars, 
 was willing to be stigmatised all over Europe, as 
 guilty of a breach of public faith, the notoriety of 
 which cannot fail to influence the future value of her 
 stock abroad, unless she makes the reparation so mani- 
 festly and so justly due.* 
 
 CHAPTER IV. 
 
 OF THE CRIMINALITY OF BANKS IN AUGMENTING 
 THEIR ISSUES AFTER A SUSPENSION OF PAYMENTS. 
 
 BUT however culpable banks render themselves by 
 not, immediately, after a general suspension, adopting 
 measures for a resumption, accompanied by the pay- 
 ment of interest to all who are forcibly withheld from 
 the possession of their property, yet they are far less 
 culpable than those, which, after the removal of all 
 checks upon issues, take advantage of the ignorance 
 
 * On the 10th of June, 1839, after the publication of the first 
 edition of this work, the Legislature of Pennsylvania made pro- 
 vision for paying to the holders of her loans, the loss incurred 
 by them on the depreciated paper given in payment of the inte- 
 rest falling due during the suspension of 1837, but the amount 
 has not yet been paid. See Appendix, I. 
 
 
CURRENCY AND BANKIN< 
 
 sfc5 
 
 ^ ^ 
 or forbearance of the public, and expand their circular-" 
 
 tion, so as greatly to depreciate the currency below 
 the rate at which the suspension found it. The effect 
 of such a course is to re-produce, but with far more 
 generality, the scene described in the first chapter of 
 this book, under the head of the career usually run by 
 banks before a suspension. Speculation, over trading, 
 and extravagance, are all multiplied, as every new ad- 
 dition of the currency appears to augment what peo- 
 ple suppose to be the mass of wealth. More especially 
 is such a state of the currency apt to inflict misery 
 and ruin upon the landholders throughout the coun- 
 try, who, by a rise in the paper money price of land, 
 which they fancy to be a real rise in value, are in- 
 duced to make purchases, upon credit, by giving 
 mortgages payable at a future day in coin, for an 
 amount perhaps double the metallic value of the pro- 
 perty. 
 
 The only examples of the state of things here de- 
 scribed, that need be referred to, are the following: 
 
 1. The suspension of cash payments by the Bank 
 of England and all the county banks, which took 
 place in 1797, and continued until 1821, in the course 
 of which time the depreciation at one period was as 
 great as twenty-five per cent. 
 
 During the gradual process of this depreciation, the 
 prices of commodities gradually rose, by which means 
 the actual incomes of persons living upon the funds 
 or annuities, was proportionately decreased, whilst 
 lands and rents also rose, so that long leases were 
 renewed at higher rates than before. The revulsion 
 resulting from this state of things, was disastrous in 
 the extreme. The gradual contraction of the cur- 
 rency produced a fall of prices, a prostration of trade, 
 and a general distress throughout the manufacturing 
 districts. The new rents contracted for in a currency 
 worth fifteen shillings in the pound, could not be paid 
 in coin, after the resumption; and thus the agricul- 
 tural interest was embarrassed, whilst the augmen- 
 
156 A TREATISE ON 
 
 tation of the national debt raised by subscription in 
 depreciated paper, and of the national expenses oc- 
 casioned by the increased prices of naval and military 
 supplies immensely added to the burthens of the 
 people. 
 
 2. The second example referred to, is the supension 
 of payments by all the banks of the United States, 
 south of New England, in August, 1814, and which 
 continued until February, 1817. Those who can 
 remember the events of that period will not have 
 forgotten the abuse of the public forbearance exhi- 
 bited by them upon that occasion. The sanction of 
 the community was extended to them during the con- 
 tinuance of the war then existing with Great Britain, 
 on account of the belief that their condition was forced 
 upon them by the peculiar circumstances of the coun- 
 try; but no sooner had peace returned in the early 
 part of 1815, than all their pledges were violated, and 
 instead of manifesting by their actions a desire to 
 contract their loans so as to place themselves in a 
 situation for complying with their obligations, they 
 actually expanded the currency by extraordinary is- 
 sues, whilst there was no existing check upon them, 
 until its depreciation became so great that speculation 
 and overtrading in all their disastrous forms, involved 
 the country in a scene of wretchedness, from which 
 it did not recover in ten years.* 
 
 3. The third example referred to is that which took 
 place in some parts of the United States after the 
 general suspension of payments in May, 1837. In 
 the state of Mississippi was this criminal conduct dis- 
 played to the greatest extent. Not only were new 
 banks established, but those which previously existed 
 were guilty of the most unjustifiable issues of paper, 
 
 * For a particular history of the money crisis of this period, see 
 a report made to the Senate of Pennsylvania on the 29th of 
 January, 1820, by the author of this treatise, Appendix, H. 
 See also Gouge on Banking. 
 
CURRENCY AND BANKING. 157 
 
 upon the plea, that by making advances to the plan- 
 ters upon their crop of cotton, they would be enabled 
 to hold it for a higher price, and not be forced to sub- 
 mit, as always before, to the fair and natural cornpe- 
 tion of the market. Under the delusive expectation 
 that such engagements might be advantageous to 
 them, a large number of planters were most shame- 
 lessly plundered. Every emission of notes made by 
 these accommodating banks depreciated the currency 
 more and more, so that the planter who was to re- 
 ceive $60 in paper per bale advance, found when it 
 came into his possession that his $60 in paper would 
 not buy more provisions and clothing for his slaves, 
 and other supplies for his plantation and family, than 
 $40 good money would have bought. In the mean 
 time the banks shipped the cotton, converted it into 
 available funds at New Orleans, Philadelphia, or New 
 York, and with these very funds, perhaps, bought up, 
 at a great depreciation in the market, the very notes 
 with which they accommodated the planter, who, on 
 the restoration of specie payments in Mississippi, is 
 expected to pay up the balance of his account in hard 
 money or its equivalent.* 
 
 * How far he will be able to comply with his engagements 
 may be inferred from the following paragraphs from newspa- 
 pers. 
 
 Prom the National Intelligencer of 4th April, 1839. "The 
 Vicksburg Whig of the 13th ult. gives quite a gloomy picture 
 of the monetary affairs of Mississippi. . It represents the darkest 
 days of 1837, as presenting but a faint picture of what is now 
 exhibiting in every town and country of the state. Goods have 
 been sold at less than half the original cost, and lands and ne- 
 groes have gone off under the sheriff's hammer for one fifth of 
 their value." 
 
 From the New Orleans True American of about 18th Jlpril, 
 1839. "The state of affairs in Mississippi is anything but 
 flattering. The greatest distress seems to prevail. The news- 
 papers teem to overflowing with legal advertisements. We 
 hear daily of the sacrifice of property, and credit, is a thing 
 which is sometimes talked of but hardly expected, much less 
 known. 
 14 
 
158 A TREATISE ON 
 
 CHAPTER V. 
 
 OF THE COST TO A COMMUNITY, PECUNIARY AND 
 MORAL, OF BANKS OF CIRCULATION, COMPARED 
 WITH THE BENEFITS DERIVED FROM THEM. 
 
 HAVING shown in former chapters that banks of 
 circulation neither create capital nor make money per- 
 manently plenty, nor promote national wealth by the 
 facilities they afford to the circulation of the existing 
 capital, which are the three particulars upon which 
 their importance to a country is generally considered 
 no rest, and that in reality, their only power to do 
 good is limited to the simple operation of substituting 
 their paper for a portion of the coin which would be 
 required for the currency if there were no banks, by 
 which a country gains a sum equal to the profit earned 
 upon the amount so substituted employed in com- 
 merce, and the advantage arising from the employ- 
 ment of a medium, for large payments and for inland 
 
 Some estimate may be placed on the situation of things in 
 Mississippi from the fact that on a single offering day, upwards 
 of 5000 notes were tendered the Union Bank for discount, 
 amounting in the aggregate to about $15,000,000! Great dis- 
 tress must prevail, and the worst may not yet have come. It is 
 a bitter thing to wake up from the dream of exhaustless wealth 
 to the reality of embarrassment and a future poverty and labor. 
 Such we fear has been the fate of many, and we trust that their 
 backs may be strengthened to the burthen." 
 
 From the Raymond (Miss,) Times of Sept. 1839." Good 
 plantations with every improvement and convenience, such as 
 houses, gins, and negro cabins have been often sold at from $2 
 to $5 per acre." 
 
 From the Nashville Whig of April, 1840." We were inform- 
 ed last evening, by a gentleman just from Vicksburgh, who had 
 been over a considerable portion of the country in the vicinity 
 of that city, that five out of every six of the cotton farms were 
 now vacated and lying a barren waste farms, too, which but a 
 year or two ago, were worth from $10,000 to $50,000. 
 
CURRENCY AND BANKING. 159 
 
 transmission more convenient than coin, I come now 
 to inquire what is the probable amount of this gain in 
 the United States, and whether the expenses incurred 
 in the support of, and the evils constantly liable to re- 
 sult from, the abuse of the circulating banking system, 
 do or do not counterbalance this gain. In the result 
 of this inquiry, every individual in the community is 
 interested; and as I have no motive in this investiga- 
 tion but the establishment of truth, I beg the reader to 
 watch my arguments and positions closely, in order 
 that he may detect any untenable or erroneous posi- 
 tions, should such be advanced. 
 
 It is perhaps no easy matter to ascertain with any 
 reasonable certainty the amount of currency required 
 for the use of the population of the United States, 
 now supposed to amount to about sixteen millions of 
 souls. The only estimates hitherto made,. have been 
 founded upon rather a sort of conjecture than upon 
 any accurate knowledge respecting the fact. As re- 
 gards the specie portion of it, there is no existing docu- 
 ment that can throw any light upon its amount. The 
 known fact that much is imported, which does not ap- 
 pear on the custom house books, and that most of the 
 plate manufactured in the country is made from melted 
 coins, added to the probability that more is at this time 
 hoarded by timid people than in ordinary times, arising 
 from the late suspension of specie payments by the 
 banks, precludes the possibility of any exact estimate 
 and whether the true amount be fifty millions of dol- 
 lars or a hundred millions of dollars, or some interme- 
 diate or even greater sum, it is not possible precisely 
 to determine. The common impression appears to be, 
 and it may possibly be as near the truth as any other 
 sum that could be designated, that it is at this time 
 about eighty millions of dollars.* 
 
 * This amount was assumed by Mr. Webster in a speech early 
 in 1838. The secretary of the treasury, in his report on the fi- 
 nances of 3d December, 1838, assumes it to be from eighty-five 
 to ninety millions of dollars. 
 
160 A TREATISE ON 
 
 In regard to the extent of the paper portion of the 
 currency, the statistical documents which have appear- 
 ed at times from the treasury department, have been 
 imperfect, from the want of uniformity in the dates at 
 which the different bank statements have been made 
 out, as well as uniformity in the mode of the banks 
 stating their accounts, the absence of which renders 
 them not easily understood. From the different esti- 
 mates that have appeared, it may, perhaps, be assum- 
 ing a fair amount, to take the actual paper currency 
 at one hundred millions of dollars; and we shall ac- 
 cordingly reason upon the presumption that banks, by 
 the substitution of their paper in the place of coin, en- 
 able the country to employ that sum as commercial cap- 
 ital, and of course to add to the wealth of the country 
 the annual profit resulting therefrom.* 
 
 The next point to be considered is, how much is 
 the probable annual gain made upon this sum from its 
 employment as commercial capital, instead of its being 
 employed in the comparatively unprofitable service of 
 a circulating medium. 
 
 We find that upon the security of state and other 
 stocks of indubitable credit, we have borrowed capital 
 in Europe at five per. cent per annum. But capital 
 would not be sought for at that rate of interest, unless 
 a profit could be made beyond five per cent, by its 
 employment in some productive branch of industry 
 connected with agriculture, commerce, or manufac- 
 tures; for without such productive employment, there 
 could be no accumulation of national wealth, and, con- 
 sequently, no means of paying the interest. It would 
 perhaps, bea fair supposition to assume in the United 
 State ten per cent, per annum as the average return 
 upon the employment of capital including the com- 
 pensation for the* services of the undertaker of an en- 
 terprise; and the profit, therefore, that the country 
 
 * Mr. Webster assumed this as the amount in the speech re- 
 ferred to in the foregoing note. See also Appendix. (0) 
 
 n\ 
 
CURRENCY AND BANKING. 161 
 
 would derive from converting one hundred millions 
 of dollars of capital unproductively employed, into 
 capital producing ten per cent., would be ten mUlions 
 of dollars. In addition to this, the country would save 
 an amount equal to the annual wear and tear of a 
 hundred millions of dollars in coin, the amount of 
 which, however, is too small to be noticed in a calcu- 
 lation of this kind.* 
 
 Here, then, we have ten millions of dollars per an- 
 num as the whole amount standing to the credit of 
 the circulating banking system, which is equal to 
 sixty two and a half cents per head of the population, 
 estimating it at sixteen millions of souls. And now, 
 let us look at the debit side of the account, in order to 
 ascertain the cost at which this great paper system is 
 maintained, in order that, by striking the balance, we 
 may be enabled to determine, with a clear and unpre- 
 judiced view of the subject, whether the country is or 
 is not, upon the whole, a gainer by the system. 
 
 The cost of the circulating banking system may be 
 considered under two heads pecuniary and moral. 
 
 Under the pecuniary head, the first thing that 
 strikes us, is the expense of maintaining nine hundred 
 banks and branches, comprising the salaries of the 
 presidents, cashiers, tellers, clerks, book keepers, por- 
 ters, watchmen, and runners, the rent of the banking 
 
 * The director of the mint, in a report made to the President 
 of the United States, in 1826, computes the loss from abrasion 
 of gofd coins at two per cent, in fifty years, and silver coins at 
 only one per cent.; from which it would appear that silver is 
 the most economical currency of the two. 
 
 In a report made to the Senate of the United States in 1830 
 by a committee of which Mr. Sandford was chairman, it is as- 
 serted that half dollars and half eagles willcirculate for one hun- 
 dred years, and dollars and eagles for two hundred years, with- 
 out being so much worn or defaced, as not to serve the purposes 
 of a currency. 
 
 Mr. Gallatin, in his pamphlet on the currency, estimates the 
 loss at seventy thousand dollars per annum, at the very utmost, 
 in a coinage of forty millions. 
 
 14* 
 
162 A TREATISE ON 
 
 houses or the interest of the capital invested in them, 
 the cost of copper plates, note paper, account books, 
 blank checks, stationery, fuel, postages, and the nu- 
 merous elements which constitute the annual outlays 
 of a bank of circulation. If the expenses of each bank 
 were to be estimated at $2500 per annum, (a large 
 proportion of the country banks being small ones,) oil 
 an average, we should have $2,250,000. as the cost of 
 their support. 
 
 This however is but a small portion of the cost of 
 banks of circulation. The principal item consists in 
 the pecuniary loss sustained by the public in the sus- 
 pension of industry occasioned by the derangement of 
 business consequent upon expansions and contractions 
 of the currency, which never fail to unsettle the ordi- 
 nary transactions of commerce; by the waste of capi- 
 tal arising from its faulty distribution in times of 
 speculative excitement, by which immense sums are 
 expended on railroads and canals, and other improve- 
 ments which have been improvidently projected, and 
 have never been completed, or have not been worth 
 after they were finished as much as they cost; and 
 by the unproductive consumption from extravagance 
 in living, that never fails to be engendered by an ex- 
 pansion of the currency and its attendant facility of 
 borrowing, which gives the appearance of augmenting 
 wealth, to persons who are really going behind hand. 
 Every one acquainted with the simplest principles of 
 political economy, knows, that every day's labor that 
 is lost, is a loss to the community equivalent to* the 
 value of a day's labor, for the plain reason that a 
 value fails to be produced which would have been 
 produced, and that this loss occurs, whether the labor 
 be lost in agriculture, commerce, or manufactures. In 
 a former chapter it has been shown, that a million of 
 dollars expended on a rail-road or canal left uncom- 
 pleted, is as much a loss to the community, as if the 
 food, clothing, utensils, and materials consumed by 
 the laborers whilst engaged on the work, were con- 
 
CURRENCY AND BANKING. 
 
 163 
 
 snmed by fire or any other process; and that an im- 
 provement which costs two millions of dollars, and is 
 only worth one million after it is completed, that is, 
 will only yield an income equal to one half the income 
 which could have been derived from the capital em- 
 ployed in other pursuits, is as much a loss of capital 
 as if one million of silver dollars had been thrown into 
 the sea. And every one knows that the man who ex- 
 pends in living three thousand dollars a year, who can 
 really afford to spend but two, is an unproductive con- 
 sumer of the public wealth to the extent of this ex- 
 cess. What all these items would amount to, it is 
 not possible to ascertain, but it is hardly likely that 
 any body who has watched the wasteful and lavish 
 expenditure of capital in the United States, upon turn- 
 pike roads, canals, and railroads, known to have their 
 origin in bank facilities and bank expansions, that 
 have turned out worthless or partially so,* who has 
 
 * As a specimen of unproductive expenditures on Railroads 
 and Canals, as far as the same can be ascertained from the mar- 
 ket prices of stocks, the following table of actual sales as report- 
 ed by the Board of Brokers, of New York, is given. 
 
 Sales at New York, of Stocks, in the months of November 1839, and 
 Jlpr'il 1840. 
 
 Nov. 1839. April 1840. Capitals. 
 
 Delaware & Hudson Canal, 49 to 66 
 
 74 to 
 
 $1,500,000 
 
 Mohawk & Hudson Railr 
 
 d, 43 
 
 53 
 
 66 
 
 ' 69 
 
 1,100,000 
 
 Patterson 
 
 42 
 
 48 
 
 41 
 
 ' 42 
 
 500,000 
 
 Boston & Providence 
 
 92 
 
 97 
 
 90 
 
 ' 96 
 
 1,780,000 
 
 New Jersey 
 
 73 
 
 85 
 
 80 
 
 ' 82 
 
 1,500,000 
 
 Pr'dence & Stonington 
 
 12 
 
 17 
 
 13 
 
 ' 19 
 
 1,300,000 
 
 Boston & Worcester 
 
 99 
 
 100 
 
 107 
 
 i 
 
 1,750,000 
 
 Harlem 
 
 32 
 
 42 
 
 45 
 
 ' 47 
 
 1,100,000 
 
 Utica & Schenectady 
 
 105 
 
 115 
 
 121 
 
 ' 125 
 
 2,000,000 
 
 Long Island 
 
 52 
 
 
 51 
 
 * 53 
 
 1,500,000 
 
 Utica & Syracuse 
 
 98 
 
 100 
 
 110 
 
 ' 114 
 
 800,000 
 
 Auburn and Syracuse " 50 ' 
 
 47 * 
 
 400,000 
 
 Only three out of 12 have commanded par. 
 
 A recent report made to the Legislature of New York, gives 
 the following as the net profit in 1839, of some of the foregoing 
 roads, viz: 
 
164 A TREATISE ON 
 
 seen the prostration of business, which resulted from 
 the suspensions of 1514, 1S37 and 1839, and from the 
 numerous expansions and contractions which have 
 taken place with less disastrous results at various other 
 periods, and who has noticed the growth of luxury 
 and extravagance created by the facility of borrowing 
 paper money of banks; it is hardly likely, I say, that 
 any body who has been an observer of all these ef- 
 fects, would doubt that they were quite equal upon 
 an average of years to the remaining seven and a half 
 millions of dollars which stand at the credit of the cir- 
 culating banking system. He certainly would not 
 doubt this, if he were told, what is the fact, that if 
 only one-tenth part of the population should have in- 
 creased their expenses five dollars each per annum, in 
 consequence of the cause we have alluded to, this 
 amount would be exceeded. To these items of pecu- 
 niary cost, may be added the loss to the community 
 by bank failures and by forgeries,* and the expenses 
 incident to the prosecution of the offenders, by the loss 
 of bank notes burnt or otherwise destroyed, by the 
 support of brokers who deal in uncurrent bank notes, 
 by the sacrifices made by the ignorant in the sale of 
 such notes,and the various frauds practised upon them. 
 So much for the pecuniary cost of the circulating 
 banking system. Let us now examine into its moral 
 cost. 
 
 Mohawk & Hudson, $ 58,279 equal to about 5.3 per ct. on cap. 
 Harlem, - - 12,816 
 Utica & Schenectady, 223,720 
 Long Island, - 5,755 
 
 Utica & Syracuse, 90,856 
 
 1.2 
 11.2 
 
 3.8 
 11.3 
 
 6.5 
 
 Auburn & Syracuse, 25,900 
 
 * Bicknell's Counterfeit Detector and Bank Note List, of 1st 
 Jan. 1839, contains the names of 54 banks that had failed at dif- 
 ferent times; of 20 fictitious banks, the pretended notes of which 
 are in circulation; of 43 banks besides, for the notes of which 
 there is no sale; of 254 banks, the notes of which have been 
 counterfeited or altered; and 1395 descriptions of counterfeited 
 and altered notes then supposed to be in circulation, from one 
 dollar to five hundred. 
 
CURRENCY AND BANKING. 165 
 
 And here we are first met, by the distress of mind 
 and suffering experienced in times of contraction, by 
 the tens of thousands of persons who have accommo- 
 dation loans from banks, every time a note comes 
 round, arising from the uncertainty of its renewal, 
 and the apprehended necessity of being obliged to 
 raise funds elsewhere, without having satisfactory 
 security to offer. To this must be added, all the men- 
 tal suffering of those who have become embarrassed 
 by over-trading and over-speculation, into which they 
 were seduced by the facility of bank loans and the 
 expansion of the currency, or who, although prudent in 
 themselves, have been embarrassed by the overtra- 
 ding of others. The misery originating in these cau- 
 ses, which was experienced in the United States 
 during the years 1837, 1838, and 1839, was of incal- 
 culable amount, as may readily be inferred from the 
 fact, that in the city of New York alone, nearly one 
 thousand failures took place between January and 
 July of the year first above named, which could not 
 have happened had there been no banks of circula- 
 tion. * 
 
 The second item in the moral cost of banks of cir- 
 culation is the temptation to forgery, by which so 
 many ingenious mechanics, calculated by their skill 
 and dexterity to be valuable citizens, have ruined 
 themselves, arid augmented the number of the con- 
 victs in our prisons. 
 
 A third is, the temptation they hold out to artful 
 and designing men to create banks with fictitious 
 capitals, by which the intelligent and cautious, as well 
 as the ignorant and unwary, are deceived, and in- 
 duced to give currency to notes which represent no 
 capital whatever. The extent to which this practice 
 has been carried is probably much greater than is com- 
 
 * In the month of October, 1839, the rate of interest on the 
 best commercial paper in the New York market, was at times 
 from 3 to 5 per cent, a month, evincing a distress greater than 
 was ever before known in that city. 
 
166 A TREATISE ON 
 
 monly supposed, and had it not been for the investi- 
 gations made by officers or committees of the legisla- 
 tures of several of the States in the year 1S38, into 
 the transactions of some of their banks, the public 
 might long have remained in ignorance of it. * 
 
 A fourth is, the temptation to a violation of truth 
 by discolored statements of the condition of the banks 
 made periodically to the legislatures, especially as to 
 the amount of specie in the vaults, the same sum 
 being frequently reported by different banks on the 
 same day as composing part of the assets of each, by 
 which the moral sense becomes blunted, and some- 
 times even prepared for perjury. 
 
 A fifth is, the temptation constantly existing to aug- 
 ment the profits of banks, by resorting to evasions 
 if not positive breaches of the laws against usury, and 
 by various extortions and impositions. Specimens of 
 this description of offence were exposed in abundance 
 in the chapter on the expedients resorted to by some 
 banks to augment their dividends. 
 
 A sixth is, the spirit of speculation and gambling 
 in stocks, engendered by the facility of borrowing the 
 credit of banks through the means of post notes or 
 otherwise, by which imprudent and sanguine men, 
 not only abandon industrious pursuits, and lose all 
 their property and that of other people besides, but 
 are frequently driven by desperation to frauds, and 
 even forgeries. 
 
 A seventh is, the temptation held out to directors 
 and officers of banks to become dealers in stocks, the 
 market price of which they have it in their power in 
 a great measure to control by their action on the cur- 
 
 *See the Financial Register, fottthe Reports made to the Le- 
 gislature of Massachusetts, upon the affairs of the Common- 
 wealth, Lafayette, Hancock, Fulton, Kilby, Norfolk, Commer- 
 cial and Roxbury Banks, for the most astounding disclosures. 
 See also the same work for a statement of the affairs of the 
 Lumberman's Bank of Pennsylvania, and the Brandon Bank of 
 Mississippi. 
 
 
CURRENCY AND BANKING. 167 
 
 rency, or, by their speculations in it from the facilities 
 afforded to themselves, a consequence of which some- 
 times is, that false entries are made in the books of 
 the banks, concealments practised, accounts over- 
 drawn, money abstracted, and even false certificates 
 of stock issued, as they have been by the officers of 
 other corporations. Numerous notices in papers of 
 absconding presidents, cashiers and tellers of banks, 
 have appeared in the papers in 1838, 1839 and 1840, 
 the frauds practised by some of whom have reached 
 the amount of half a million, and in one case, of up- 
 wards of a whole million of dollars. 
 
 And an eighth item is, the tendency to destroy all 
 moral sense of justice and rectitude by absolving each 
 individual from personal liability, for the acts of the 
 corporation, by which means, caution in the choice 
 of borrowers, prudence in the amount of loans, a re- 
 gard to the interests of the public in the distribution 
 of the favors of the bank, are lost sight of, in conse- 
 quence of which banks are frequently turned into 
 mere loan offices for the accommodation of the offi- 
 cers and directors and their immediate, friends, or 
 lend their capitals to a few, to the exclusion of the 
 many; and when, by their expansions, they cause an 
 explosion, in the currency, a callousness is displayed 
 as to the obligation of paying honest debts, as if a 
 legislative act of incorporation could absolve men 
 from the discharge of their moral duties, of which the 
 payment of debts, where there is ability, is one. 
 
 And after all let us ask, for what purpose is this 
 pecuniary and moral sacrifice made? It has been 
 shown that banks of circulation cannot create capi- 
 tal, or make money permanently plenty, and so far, 
 therefore, as the employment of the industry of the 
 country, or the commerce of trade are concerned, no 
 advantage whatever is gained by their establishment. 
 The answer is, it is made in order that the stock- 
 holders of banks may have a chance of deriving two 
 or three per cent, interest for their capitals beyond 
 
168 A TREATISE ON 
 
 legal interest, or, that speculators who generally ori- 
 ginate banks, may make their fortunes, by selling, at 
 a profit to others the stock for which they subscribed, 
 but perhaps never paid. If we assume $350,000,000 
 in round numbers as the actual amount of the capi- 
 tals, real and nominal of all the banks in the United 
 States, it will result that to the mere hope of gaining 
 seven to ten millions of dollars per annum, are to be 
 ascribed all the disasters which have resulted to the 
 country from an inflated system of paper money. I 
 say " to the hope of gaining," because the hope in 
 numerous cases has not been realized, if the general 
 depreciation in the market prices of bank stocks, is 
 an indication of the general belief of the public, that a 
 large portion of their capitals has been lost by mis- 
 management, by frauds and by the insolvency of 
 borrowers. 
 
 CHAPTER VI. 
 
 OF THE DIFFERENT KINDS OF DEPRECIATION TO 
 WHICH AN INCONVERTIBLE PAPER CURRENCY IS 
 LIABLE. 
 
 So long as bank notes are convertible into coin on 
 demand, they are liable to depreciation, or a fall iu 
 value, in common with the gold and silver for which 
 they are interchangeable, from all the causes which 
 we have shown capable of producing that effect upon 
 a currency purely metallic. But in addition to this, 
 they are susceptible themselves of depreciation from 
 excessive issues, and in such event involve the metal- 
 lic portion of the currency in the same depreciation. 
 This sort of depreciation arising from excessive is- 
 sues, produces the same effect upon a mixed currency, 
 
CURRENCY AND BANKING. 169 
 
 as the excessive importation of bullion would upon a 
 metallic currency. There is, however, this difference 
 between them. The one can always be removed 
 sooner or later by the exportation of the superabund- 
 ant metal, whilst the other cannot always be removed 
 by a contraction of bank loans, as the several exam- 
 ples of a general suspension of specie payments in 
 the United States have sufficiently established. 
 
 When bank notes cease to be convertible into coin, 
 by a general suspension of specie payments, the cur- 
 rency may, for a long period together, remain without 
 any depreciation, except that which is the result of 
 the excessive issues which occasioned the suspension. 
 During the long suspension of payment by the Bank 
 of England from 1797 to 1821, no part of the depre- 
 ciation appears to have resulted from any want of 
 confidence in the ultimate ability of the bank to pay 
 its notes, for had such want of confidence been dis- 
 played, it would probably have shown itself immedi- 
 ately after the stoppage. Such, however, was not 
 the fact. The bank, by restricting its issues, for some 
 time after that event, to an amount very little ex- 
 ceeding their accustomed extent, kept up the value of 
 its paper, so nearly to par, that the market price of 
 gold for two years after the suspension, payable in 
 bank notes, did not exceed the mint price, which 
 could not have happened, if any discredit had accom- 
 panied the depreciation.* 
 
 The same may be said of the two general suspen- 
 sions of specie payment which took place in the Uni- 
 ted States in 1814 and 1837. With the exception of 
 a comparatively few banks, the unsoundness, or im- 
 
 * For authority on this subject, see the Bullion Report of 
 1810, sect. 1, which will be found in the Financial Register. 
 For a part of this time, bank notes were even at a small pre- 
 mium. See M'Culloch's Commercial Dictionary, article Bank 
 of England, now in the course of publication in Philadelphia, 
 under the editorial supervision of Professor Vethake, author of 
 a treatise on the Principles of Political Economy. 
 1 5 
 
170 A TREATISE ON 
 
 prudent conduct of which was too apparent to be con- 
 cealed, no want of confidence as to ultimate solvency 
 appears to have entered into the estimate of the de- 
 preciation. The amount of excessive issues in each 
 place, appears to have determined the depreciation of 
 the currency of that place, and we have seen that just 
 in proportion to the absorption of the excess, the de- 
 preciation disappeared. 
 
 There is, however, a reason why bank notes are 
 not necessarily involved under a general suspension 
 of specie payments, in a depreciation arising from dis- 
 credit. The public is always indebted to the banks to an 
 amount far greater than the banks are indebted to the 
 public, and as a bank note will be received by the bank 
 that issues it in discharge of a debt, there always ex- 
 ists, except in a case of an extensive bankruptcy among 
 the borrowers, a demand for notes greater than the 
 supply. Herein consists the difference between paper 
 money issued by banks, and paper money issued by 
 governments. The former is accompanied by a legal 
 obligation on the part of a responsible borrower, to 
 return it, or an equal sum of coin to the bank at a 
 specified time with interest, whilst the latter is uncon- 
 nected with any such stipulation, and in most cases 
 forms a much larger supply than is wanted for pay- 
 ments of debts and taxes to the government. 
 
 A second cause of depreciation to which bank notes 
 are liable, is a want of confidence in their ultimate re- 
 demption, .or in their redemption at any fixed or defi- 
 nite period. The effect of this depreciation, where the 
 want of confidence referred to is very considerable, 
 is to hrow the notes entirely out of circulation, except 
 perhaps in the immediate vicinity of the bank. In this 
 event they are bought up by capitalists to hold until the 
 bankcancollectitsdebts, upon the very fair presumption 
 that the whole of the capital of the stockholders must be 
 sunk before any loss can attach to the creditors of 
 the bank, it must have been a miserably managed insti- 
 tution, that cannot sooner or latter contrive to pay its 
 
CURRENCY AND BANKING. 
 
 171 
 
 notes, even though the stockholders should sink their 
 whole capital. In estimating the extent of this de- 
 preciation, the purchasers of such bank notes would 
 probably expect a full remuneration for the risk they 
 would run of not being paid at all, and ample interest 
 for the longest period of time that they might possibly 
 have to wait, before that fact could be ascertained; and 
 it is more than probable, that amongst these purcha- 
 sers would be found many solvent debtors of the bank 
 who would postpone the payment of their debts, and 
 plead inability in order to profit by the lowest stage 
 of the depreciation.* 
 
 * As a specimen of the extent to which Bank notes may be 
 depreciated by the mismanagement of Banks, the following quo- 
 tations are given. 
 
 From the New Orleans Price Current and Commercial Intelli- 
 gencer of the 25th April 1840. 
 
 Rates of Specie, Bank Notes, < 
 Specie, 5 to 
 
 Alabama State Bank and Branches, 3| " 
 
 Tennessee Banks, 4 " 
 
 Arkansas Banks, 30 
 
 Pensacola, Florida, 20 
 
 Life & Trust, Florida, 20 
 Planters, Agricultural & Commercial 
 
 of Natchez, on demand, (fives) 5 
 
 Do. do. branches, on demand, 10 
 
 Natchez Railroad, " 75 
 
 West Feliciana, at Woodville " 16 
 
 Bank of Port Gibson, (fives) 10 
 
 Commercial Bank Manchester, 10 
 
 Do. Rodney, 35 
 
 Union Bank of Mississippi, 55 
 
 Commercial Bank of Columbus 4 30 
 
 Grand Gulf Railroad Co. 50 
 
 Lake Wash'gton& Deer Creek, 55 
 Commercial & Railroad Bank 
 
 Vicksburgh, " 55 60 
 
 Post Notes. 
 
 Commercial, Agricultural, & Planters 
 Banks, Natchez, 12 months, spring 
 of 1839, bearing interest, 30 "40 
 
 6 per ct. premium. 
 44 4^ discount. 
 " 6 u 
 44 35 44 
 44 25 44 
 44 25 4k 
 
 44 10 
 44 20 
 44 80 
 44 20 
 44 15 
 44 15 
 44 45 
 44 60 
 44 40 
 44 55 
 44 60 
 
172 A TREATISE ON 
 
 Union Bank of Mississippi, 
 
 bearing- interest, ** 55 " 60 discount, 
 
 Woodville, Manchester & Port 
 
 Gibson, " 30 " 40 
 
 Rodney, do 35 " 45 " 
 
 Natchez Rail Road, do 75 "- 80 " 
 Commercial & Railroad Bank 
 
 Vicksburgh, 55 " 60 " 
 
 Bank of Vicksburgh, 60 " 70 " 
 
 Waterworks Bank of do. 60 to 70 " 
 
 Citizens' Bank of Madison County 80 85 " 
 
 Tombigbee Rail Road Co. 75 " 85 " 
 
 Brandon Bank, 93 " 95 " 
 
 All these banks are in the state of Mississippi, except the five 
 first named. 
 
CURRENCY AND BANKING. 173 
 
 BOOK FOURTH. 
 
 HAVING, in the foregoing three books, laid before 
 the reader the laws which regulate a metallic, a mixed, 
 and an inconvertible paper currency, respectively, 
 together with such collateral subjects as appeared to 
 me to be necessary to a full understanding of the whole 
 question, I shall, in the present book, invite his atten- 
 tion to a few matters of a miscellaneous character, 
 which do not exclusively belong to either of the fore- 
 going classifications, and the substance of which will 
 be found in the heading of the several chapters. 
 
 CHAPTER I. 
 
 EXAMINATION OF THE QUESTION, OF WHAT DOES A 
 CURRENCY CONSISTS 
 
 THERE is, perhaps, no subject upon which more va- 
 rious and more erroneous opinions prevail, than that 
 which we now propose to examine. The expansion 
 of the currency, the contraction of the currency, the 
 depreciation of the currency, are every day expres- 
 sions, and yet very few persons can precisely point out 
 the real elements of which the currency is composed. 
 In many public documents, of late years, in which 
 reference is made to the currency, one would be led 
 to infer, that the coin in possession of the public, and 
 the bank notes in circulation, constituted the whole of 
 the currency; and that, consequently, the currency 
 was depreciated or improved according as these two 
 elements were augmented or diminished. Newspa- 
 15* 
 
174 A TREATISE ON 
 
 per writers and editors, too, generally take this ground, 
 and it is really amusing to see the frequent attempts 
 that are made by them, to illuminate the public mind 
 as to the condition of certain banks, by a mere state- 
 ment of their notes in circulation, without discrimina- 
 ting between post notes and notes payable on demand, 
 and leaving out of view entirely, the amount of depo- 
 sites and other immediate liabilities of the banks. 
 
 The most palpable error, however, that prevails in 
 relation to this subject, is the notion entertained by 
 many, that bonds, bills of exchange, and promissory 
 notes, constitute a part of the currency. If this be 
 true, currency, or, what is the same thing, money, 
 would become plenty in proportion to the multiplica- 
 tion of these evidences of debt; whereas, every man 
 of observation knows, that just in proportion as they 
 are multiplied, currency or money becomes scarce, 
 owing to the demand that arises for the means of pay- 
 ing them when they have reached maturity, or are 
 becoming due. Indeed, so far are these securities 
 from constituting any part of the currency, that they 
 even require a portion of that which is currency 
 always to be kept on hand by the persons who are 
 bound for their payment, in order to meet them at the 
 appointed time. The most that can be said of this 
 class of obligations is, that they aro contracts for the 
 payment of currency or money, at a future day, and 
 as far as they are negotiated or assigned by endorse- 
 ment, in the course of business, they constitute a por- 
 tion of those various substitutes for currency, by which 
 the country in which they are used is saved from the 
 expense of maintaining a larger metallic or paper ma- 
 chinery for carrying on its trade. Their operation, 
 in fact, may be compared to that of the clearing house 
 of London, whereat, by the daily meeting of the clerks 
 of all the bankers, to make a mutual exchange of the 
 acceptances of the principals of each, instead of a pay- 
 ment in money, which would be necessary if each 
 acceptance were paid at each banker's counter, a very 
 
CURRENCY AND BANKING. 175 
 
 large amount of currency is economised, to the great 
 benefit of all the parties. 
 
 Nor is the opinion less erroneous of those who sup- 
 pose that public securities and the certificates of bank, 
 canal, and railroad stocks, and such evidences of pro- 
 perty, are currency. These are in truth nothing but 
 titles for property of a particular sort, and no more 
 constitute a part of the currency than the deeds for 
 lands and houses which the owners of that species of 
 property possess. 
 
 With these preliminary remarks, I will now state 
 in the first place, that the currency of a country in 
 which there is no paper money, consists, and consists 
 only, of gold and silver, and any other commodity 
 which constitutes a legal tender, and which every 
 creditor is obliged by law to accept in discharge of a 
 debt. Thus, in Virginia, in the year 1618, tobacco 
 was made a legal tender at three shillings per pound; 
 and in Massachusetts in 1641, corn was made a legal 
 tender at a fixed price; and in 1643, Wampompeag 
 (an article of traffic with the Indians) was invested 
 with the same power in payment of debts to the 
 amount of forty shillings, the white at eight a penny, 
 the black at four a penny, except for county rates. 
 Thus, also, in Maryland, so late as 1732, an act was 
 passed making tobacco a legal tender at one penny a 
 pound, and Indian corn at twenty pence a bushel. In 
 all these cases, the articles thus made a legal tender, 
 constituted a part of the currency as much as gold 
 and silver; but as such absurd regulations could not 
 but have led to the immediate production of extra- 
 ordinary quantities of the articles named, it is presu- 
 mable that they are to be regarded as the mere follies 
 of a moment.* 
 
 * For a highly interesting and instructive history of the me- 
 dium of trade, before the introduction of paper money into the 
 American Colonies, and of the paper money issued by the va- 
 rious colonies, see " History of Paper Money and Banking," by 
 William M. Gouge. 
 
176 A TREATISE ON 
 
 In countries at the present day, which carry on their 
 affairs without paper money, gold and silver are the 
 only currency. In some, one metal alone is used, and 
 in others, both metals at certain fixed proportions. In 
 some countries too, the legal coins alone of the nation 
 are current, whilst in others foreign coins circulate 
 upon the same footing as the coins of the country. 
 Copper, too, is the currency of some countries, for 
 even large amounts; but this metal constitutes so 
 small a portion of the currency of most countries, that 
 it is lost sight of, in discussions of this sort, precisely 
 as it is lost sight of, when employed in the alloy of 
 silver coins. 
 
 In countries where government paper money exists, 
 but where banks have not been introduced, the ele- 
 ments which compose the currency are necessarily 
 increased in number. They consist of not only gold 
 and silver, but of the promises of the government to 
 deliver at a future fixed, or at an indefinite period, 
 certain quantities of those metals, accompanied by 
 threats of punishment against all who should refuse 
 to accept of the same in payment of debts. Such was 
 the character of the paper money issued by the colo- 
 nial governments of Pennsylvania and other states, 
 prior to the American revolution, and such was that 
 of the three hundred and sixty millions of dollars of 
 continental money, issued by the American congress 
 in seven years, commenciug with 1775 and ending 
 with 1781.* Such also was the character of the assig- 
 nats of revolutionary France, and such is that, proba- 
 bly, of the actual paper money of some nations of 
 continental Europe. Large issues, however, soon de- 
 preciate the currency, drive out of circulation the me- 
 tallic portion of it, and leave nothing but promises be- 
 hind, which are rarely redeemed. 
 
 It may here not be out of place to remark, that the 
 
 * See Gouge on Banking for a particular history of the con- 
 tinental paper money. 
 
CURRENCY AND BANKING. 177 
 
 British exchequer bills, and the treasury notes of the 
 United States, both of which are payable with inter- 
 est, have not the character of paper money. They 
 are merely evidences of a temporary debt of the go- 
 vernments which issue them, are sold in market like 
 public stocks, and have no more influence in aug- 
 menting the mass of the currency, than the bonds, 
 acceptances, or promissory notes of individuals. 
 
 CHAPTER II. 
 
 EXAMINATION OF THE Q.UESTION, OF WHAT DOES A 
 CURRENCY CONSIST? CONTINUED. 
 
 IN countries where there is no government paper 
 money existing, as is the present case in Great Britain, 
 France, and the United States, the currency consists 
 of those gold and silver coins which people are obliged 
 to accept by law in discharge of debts, and of such 
 promises of banks or bankers to deliver certain quan- 
 tities of those coins on demand whenever called upon, 
 as the public or the great body of creditors are willing 
 to accept in lieu of the coins themselves.* 
 
 * The notes of the Bank of England are made by law a legal 
 tender, except in the payment of its own debts, but no such 
 measures can be practised in the United States, where by the 
 Federal Constitution, it is declared, that no state " shall coin 
 money, emit bills of credit, make any thing but gold and silver 
 coin a tender in payment of debts," &c. The authority of Con- 
 gress over the currency, is limited by the same instrument to 
 the simple power, " to coin money, to regulate the value there- 
 of, and of foreign coins." In the exercise of this power, it 
 authorised by act of 2d April, 1792, the coining of silver dollars 
 to contain 371| grains of pure, or 416 grains of standard silver, 
 (the standard being 892.4 thousandths) half dollars, quarter 
 dollars, dimes, and half dimes, containing respectively, one half, 
 one fourth, one tenth, and one twentieth part of the silver con- 
 
17S A TREATISE ON 
 
 As to the first element here laid down, there can 
 be no dispute, inasmuch as every body must admit 
 that the gold and silver coins recognised by law, con- 
 stitute a part of the currency. Still it may be proper 
 
 tained in the dollar; and by act of January 18, 1837, the com- 
 ing of silver dollars, each to contain 371^ grains of pure, or 
 412^ grains of standard silver, (the standard being raised by 
 this act to 900 thousandths, that is, to nine parts pure to one of 
 alloy) with the fractions of a dollar above enumerated, contain- 
 ing the same proportions. 
 
 It also authorised by act of 2d of April, 1792, the coining of 
 gold eagles to contain each 247^ grains of pure, or 270 grains 
 of standard gold (the standard being 22 carats, that is eleven 
 parts pure metal to one of alloy, corresponding to 916f thou- 
 sandths) half eagles, and quarter eagles, containing respectively, 
 one half, and one fourth of the gold contained in the eagle; and 
 by act of 28th June, 1834, the coining of gold eagles to contain 
 each 232 grains of pure gold, or 258 grains of standard gold 
 (the standard having by this act been lowered to 21.58 carats 
 and a small fraction, corresponding to 899.225 thousandths) 
 with the parts of an eagle above enumerated, containing the 
 same proportions; and by act of January 18, 1837, the coining 
 of gold eagles to contain each 232} grains of pure, or 258 grains 
 of standard gold (the standard having by this act been raised to 
 21.60 carats, corresponding to 900 thousandths) with the parts 
 of an eagle above enumerated containing the same proportions. 
 When not of full weight, these gold coins are a legal tender at 
 proportionate rates. 
 
 In reference to foreign coins, the laws have been frequently 
 altered, there having been periods at which none but the Span- 
 ish dollar was a legal tender. That coin is still a legal tender, 
 but, as it is worth in the market live per cent, more than the 
 American dollar for exportation to China and some other coun- 
 tries, where it passes for more than its intrinsic worth, owing 
 to its being there universally known, it is never now seen in 
 circulation. Other foreign coins, however, are now legal ten- 
 ders, as will appear from the following extracts from the laws: 
 
 By act of 25th June, 1834, it is enacted " That from and after 
 the passage of this act, the following silver coins shall be of 
 the legal value, and shall pass current as money within the 
 United States by tale, for the payment of all debts and demands 
 at the rate of one hundred cents the dollar, that is to say, the 
 dollars of Mexico, Peru, Chili, and Central America, if not less 
 weight than 415 grains each, and those re-stamped in Brazil, of 
 the like weight, of not less fineness than 10 ounces 15 Jwts. of 
 
CURRENCY AND BANKING. 179 
 
 to remark, that that portion of the coin which is at 
 any time not in the actual possession of individuals, 
 but lying in the vaults of the banks, and for the pay- 
 ment of which on demand the public is in possession 
 
 pure silver in the troy pound of 12 ounces of standard silver; 
 and the five franc pieces of France, when of not less pureness 
 than 10 ounces and 16 dwts. in 12 ounces troy weight of stand- 
 ard silver, and weighing not less than 384 grains each, at the 
 rate of 93 cents each." 
 
 And by act of 28th June, 1834, it is enacted, "That from and 
 after the 31st of July next, the following gold coins shall pass 
 current as money within the United States, and be receivable 
 in all payments by weight, for the payment of all debts and 
 demands, at the rates following, that is to say, the gold coins 
 of Great Britain, Portugal, and Brazil, of not less than 22 carats 
 fine, at the rate of 94 cents and T 8 F of a cent per pennyweight; 
 the gold coins of France, nine-tenths fine, at the rate of 93 
 cents and ~ of a cent per pennyweight; and the gold coins 
 of Spain, Mexico, and Columbia, of 'the fineness of 20 carats 3 
 grains and ^ of a grain at the rate of 89 cents and f e of a cent 
 per pennyweight." 
 
 There are no legal tenders now existing by law, but those 
 enumerated. 
 
 In England, silver is not a legal tender for any sum exceed- 
 ing forty shillings. 
 
 The following statement, by the Director of the U. S. Mint, 
 showing the fineness and value of certain gold and silver coins, 
 was communicated to Congress on the 7th April, 1840, by the 
 Secretary of the Treasury. 
 
 GOLD COINS. 
 
 Fineness in Value pr. dwt. 
 thousandths 
 
 Great Britain, sovereign, 915 5 cts. 94 62 
 
 France, pieces of 40 and 20 francs, 899 92 92 
 
 Spain, doubloon and parts, 866 89 51 
 
 Mexico, do. 866 89 51 
 
 Peru, do. 868 89 71 
 
 Chili, do. 868 89 71 
 
 Columbia, doubloons of Bogota 870 8992 
 
 " do. ofPopoyan 858 88 68 
 
 New Grenada, doubloons, 1837, '38, 871 90 02 
 
 Bolivia, do. 870 89 92 
 
 Central America, do. 830 85 79 
 
 La Plata, do. 815 84 24 
 
 Portugal, Johannes and half 914 9446 
 
180 A TREATISE ON 
 
 of the promises of the banks, is not to be considered 
 as a part of the currency, if the promises which 
 represent it are estimated as a part. Thus, if a bank 
 has $500,000 in specie in her vaults, and has pro- 
 mises out payable on demand for $1,000,000, in esti- 
 mating the currency as far as this bank is concerned, 
 the specie would not be added to the amount of the 
 promises, and thus make an aggregate of $1,500,000, 
 currency. In making up an aggregate statement of 
 the two elements of the currency, it is not material 
 whether the specie in the banks be counted, if at the 
 same time the amount of the promises which repre- 
 sent it be reduced in the estimate to an equal extent, 
 or, whether that specie be not counted, and the amount 
 of the promises remains without reduction. The 
 aggregate result is the same, but I nevertheless give 
 a preference, for the sake of simplicity, to the latter 
 mode of stating the case, and would therefore say, 
 that the metallic portion of the currency, we are exa- 
 mining, consists alone of the coins in the hands and 
 pockets of the public. 
 
 Fineness in Value pr, dwt. 
 thousandths 
 Portugal crown (of 5000 reis) and 
 
 half since 1838, 914 cts. 94 46 
 
 Brazil, piece of 6400 reis, of 1838, 914 94 46 
 
 SILVER COINS. 
 
 Fineness in Value pr. oz. 
 thousandths 
 
 Spain, dollar of the peninsula, 900 cts. 116 36 
 
 pillar dollar of Spanish America, 898 11610 
 France, crown, (ceased to be 
 
 coined in 1793), 909 117 53 
 
 " five frank piece, 900 11636 
 Mexico, dollar, average of various 
 mints, and in the proportion 
 
 usually presented here, 897 115 97 
 
 Peru and North and South Peru dollar, 901 116 49 
 
 Chili, dollar, 906 117 13 
 
 Central America, dollar, 896 11584 
 
 Brazil, restamped dollar of 960 reis, 898 11610 
 
CURRENCY AND BANKING. 181 
 
 In treating of the second element of our currency, 
 the first thing to be established is, that the promise of 
 the bank or banker, which passes current for money, 
 must be a promise payable on demand, and not at 
 any future period. Every body knows the meaning 
 of the term ready money or cash to be, something 
 that is available for the payment of a debt at the very 
 instant it is received. A merchant who has a note to 
 pay for a thousand dollars, on the first day of July, 
 knows that he can not pay it on the day it is due, ex- 
 cept with coin, or the promise of a bank or banker 
 to pay coin of which payment may be demanded on 
 that same day. If he is even in possession of a 
 post note of a bank or of a treasury note due on any 
 subsequent day, he can not avail himself of it as cash, 
 any more than he can avail himself of the promis- 
 sory note of an individual, but must convert it into 
 cash or currency, by getting it discounted. It is quite 
 easy to conceive of a great pressure existing in the 
 money market of a commercial city, whilst the par- 
 ties pressed for money, are in possession of an abun- 
 dance of such treasury notes, or of post notes, of the 
 best banks.* 
 
 But in order that bank notes shall constitute a part 
 of the currency, they must riot only be payable on de- 
 mand, but they must be universally current at the place 
 where they are offered in payment of debts. Thus, 
 the notes of banks not located in Philadelphia are not, 
 generally speaking, currency in Philadelphia. It hap- 
 pens indeed very often, that some of the banks in all 
 parts of the country, find their account in accommo- 
 dating their customers by receiving from them as cash 
 the notes of distant banks; and it may even happen, 
 
 * In May, 1837, just before the stoppage of specie payments, 
 post notes of the Bank of the United States sold in Philadelphia, 
 at a discount of I to 1| per cent, a month. 
 
 In the early part of October, 1839, before the second stoppage 
 of specie payments in Philadelphia, they sold there at If to 2 per 
 cent, a month, 
 16 
 
182 A TREATISE ON 
 
 that individuals may frequently find it their interest to 
 receive distant bank notes in exchange for goods, or 
 in payment of debts. But in the great mass of cases, 
 the notes of distant banks are sold in the market for 
 currency just like bills of exchange, thus proving, that 
 not only do they not constitute any portion of the cur- 
 rency, but that they even require a large amount of 
 what is currency, to be held by brokers, for the pur- 
 pose of buying them, and thus rendering them availa- 
 ble to their owners. 
 
 Having thus, as I conceive, settled two important 
 points in reference to the promises of banks which 
 constitute a portion of the currency. I come now to 
 examine those promises themselves, and to see wherein 
 they consist. 
 
 The promises of banks for the payment of coin on 
 demand, consist of, 
 
 First: Bank notes promising to pay to the bearer on 
 demand, a certain sum of money,and which a re always 
 negotiable by mere delivery, therein differing from the 
 ordinary promissory notes of individuals, which are 
 drawn to order, and are negotiable by endorsement. 
 
 Secondly: Bank credits, or what are more commonly 
 called deposites, being those amounts which stand to 
 the credit of parties on the books of banks, and which 
 are at all times payable on demand in coin, the same 
 as bank notes, or which may, if the parties prefer it, be 
 at any time converted into bank notes. 
 
 It is essential, however, as in the case of bank notes 
 in order that these credits shall constitute a part of the 
 currency, that they be payable on demand, for the 
 very plain reason, that a deposite payable at a future 
 day stands upon the same footing precisely, as a post 
 note of a bank payable at a future day, and cannot be 
 available as money before it is due, any more than 
 any other debt. Hence the deposits of our savings 
 banks which are only payable at future periods, after 
 due notice given, constitute no part of the currency. 
 The same is true of those deposites which have been 
 
CURRENCY AND BANKING. 183 
 
 for some years habitually received by some of the 
 New England banks, for fixed periods at a stipulated 
 interest,* and those which some of the banks in other 
 states, and especially in the southwestern, have found 
 it for their interest since the late money crisis, to accept 
 for definite periods from holders of their notes, who 
 were willing to give time for their claims upon the 
 payment of interest, or from others who were willing 
 to assist them by loans of money. And it may also be 
 remarked, that as far as any portion of the deposits 
 stands to the credit of parties, such as trustees, execu- 
 tors and administrators of estates, guardians of minor 
 children, officers of courts, and others, who have de- 
 posited a fund to meet future demands, but without 
 any immediate intention or authority to use it, so far 
 they are to be viewed in the same light as deposits 
 payable at a future day, and not as currency. Thus, 
 if ten thousand dollars be deposited in a bank by the 
 assignee of an estate, to remain until a dividend is de- 
 clared amongst creditors sixty days hence, the bank 
 could lend that money for sixty days without aug- 
 menting the currency, and for this simple reason, that 
 the depositor, had, upon the hypothesis assumed, part- 
 ed with his right to the same fund for sixty days; and 
 therefore stood upon the same footing as other depos- 
 itors whose claims *were payable, not on demand, but 
 at a future fixed day. 
 
 And here I will beg the reader to mark well the 
 distinction between a deposit in a bank of discount, 
 and a deposit in a bank of circulation. The former 
 constitutes no part of the currency, as I have asserted 
 in the first chapter of the second book, for the simple 
 reason that, although the depositor may have the right 
 to draw out his coin on demand, yet this right is in- 
 
 * By a statement made of the condition of the banks of Mas- 
 sachusetts, in October, 1837, it appeared that the cash deposited 
 bearing interest was $5,318,484, whilst that not bearing interest 
 was but $8,231, 58). 
 
1S4 A TREATISE ON 
 
 separably connected with the obligation on the part 
 of somebody else, to pay into the hands of the banker 
 simultaneously an equal amount, in order that the 
 banker's stock of cash in hand to meet daily or unex- 
 pected calls may remain unditninished. In the case 
 of a bank of circulation the matter is widely different. 
 The depositor may be paid the amount of his depos- 
 ite in bank notes, without its being essential to such 
 payments that any debtor of the bank should be ob- 
 liged simultaneously to discharge his debt, the opera- 
 tion being merely the substitution of one form of bank 
 credit for another, and it is therefore in reference to 
 such a bank that these remarks are made. 
 
 I am aware that in estimating bank deposites as a 
 part of the currency, I am advancing a doctrine upon 
 which a difference of opinion exists amongst intelli- 
 gent men, and for the full establishment of which 
 some elucidations may be necessary. I first asserted 
 this opinion, in the year 1S21, in a report on the re- 
 newal of bank charters, made to the senate of Penn- 
 sylvania, and I have never seen any reason since to 
 believe that it was erroneous. 
 
 Bank deposites, as they are called, originate in the 
 following four ways: 
 
 First. Where a party deposites gpecie in a bank. 
 
 Secondly. \Vhere he deposites bank notes. 
 
 Thirdly. Where he deposites a note for collection, 
 and the amount, after it is collected, is placed to his 
 credit. 
 
 Fourthly. Where he gets a note discounted, and 
 the net proceeds are passed to his credit. 
 
 In either of these cases, the depositor has a right to 
 draw out from the bank either in coin or bank notes, 
 without giving a moment's notice, the whole amount 
 standing to his credit.* He stands, therefore, upon 
 
 * If there be any private stipulation with a depositor whose 
 deposites arise from his having been accommodated with dis- 
 counts, that he is to leave a certain amount undrawn for, that 
 amount is to be considered as a deferred debt of the bank, and 
 not as currency. 
 
CURRENCY AND BANKING. 185 
 
 precisely the same footing, as regards his power of 
 operating in the money market, or in the purchase of 
 merchandise, as any other person who possesses bank 
 notes, seeing, that if those with whom he deals should 
 prefer bank notes, he can just as readily pay them in 
 that way, by sending to the bank, as by giving them 
 a check. So true is it, that deposites constitute cur- 
 rency as much as bank notes, that in all our commer- 
 cial cities, no other currency is used in all extensive 
 transactions. In all the cities of the United States, 
 nearly all payments of money, except in very small 
 sums in retail transactions, are made in checks on 
 banks, and it is very clear that if deposites were not 
 as much currency in the money market as bank notes, 
 all dealers and traders would be furnished with the 
 latter, instead of the former. In truth deposites are 
 nothing but specie or bank notes, left in the keeping 
 of the banks for the convenience of the owner. 
 
 But again. Let us test the soundness of this view, 
 by a few hypothetical cases. Suppose the banks in 
 New York should all at once unite in augmenting 
 their discounts to the amount of five millions of dol- 
 lars, by which process their immediate liabilities 
 would be in a moment augmented to that extent in 
 the form of deposites. Would the currency of New 
 York be expanded? Would money be more plenty 
 than before? Would competitors in the market with 
 ready cash in hand be multiplied? If the answer to 
 these questions be in the affirmative, and it is difficult 
 to see how they could be otherwise, would the expan- 
 sion of the currency amount to five millions of dollars, 
 or only to the sum which should be equal to the 
 amount of the bank notes that might be drawn out 
 by the holders of these deposites, which would in all 
 probability be but a small portion of the whole five 
 millions? No one will, I think, contend that the ex- 
 pansion was not equal to the whole five millions, and 
 it would consequently follow, that to restore the cur- 
 rency to its former position, a contraction of five mil- 
 
 16* 
 
186 A TREATISE ON 
 
 lions would be necessary, and not merely the absorp- 
 tion of the notes, which might have been in the mean 
 time added to the mass in circulation. 
 
 Again, suppose at a period when the currency was 
 in a sound condition, money being neither too abun- 
 dant nor too scarce, the banks of New York should, 
 from some unfounded apprehensions, all at once re- 
 duce their loans to the extent of two millions of dol- 
 lars, by which means their debtors should be obliged 
 to raise funds in the market from that class of persons 
 who had deposites in the banks, and who would of 
 course draw checks upon them, and thus extinguish 
 the liabilities of the banks existing in the form of de- 
 posites, to the extent of two millions. Would the 
 currency of New York be contracted? Would money 
 be scarcer than before? Would competitors in the 
 market with ready cash in hand be diminished? A 
 negative answer could hardly be given to either of 
 these questions, and hence the conclusion would seem 
 to be self-evident, that deposites form a part of the 
 currency. 
 
 Indeed, it is through the deposites of banks that the 
 most powerful action is exercised upon the currency, 
 where contractions are resorted to. Debtors who are 
 called upon to pay up large sums, would find it very 
 difficult to procure them, if they were obliged to hunt 
 up bank notes, scattered all over the country; and if 
 a city bank were fearful of being hard pressed, she 
 would have very little concern about her notes, if she 
 could only get clear of the demands of her depositors. 
 Deposites, in fact, in large commercial cities, consti- 
 tute the largest portion of the currency. In the city 
 of New York, on the 1st of June, 1837, shortly after 
 the stoppage of specie payments, the amount of notes 
 in circulation outstanding for all the city banks, was 
 $5,283,950, whilst the amount of deposites, public and 
 private, was $15,843,171. 
 
 By the contraction which subsequently took place, 
 the notes in circulation were reduced, by the 1st of 
 
CURRENCY AND BANKING. 187 
 
 April, 1838, to $2,322,186, and the deposites to 
 $11,492,486. 
 
 I apprehend that no merchant in New York, who 
 felt the pressure of that process, considered that a re- 
 duction of the deposites to the extent of four and a 
 quarter millions of dollars, was no diminution of the 
 currency; and if we take into consideration the large 
 amount of these notes, which must, at all times, be 
 circulating at a distance from the city of New York, 
 we shall also be satisfied, that deposites not only form 
 a part of the currency of that city, but a very large 
 part of it. 
 
 An examination of the condition of the banks of 
 Philadelphia, would also show an excess of deposites 
 over circulation. By a statement of the condition of 
 the fifteen banks of the city and liberties, on the 3d of 
 November, 1838, (exclusive of the Bank of the Uni- 
 ted States), made to the legislature, it appears that the 
 amount of their notes in circulation was $4,522,883, 
 whilst the amount of their deposites was $6,813,503. 
 On the 1st of November, of the same year, the circu- 
 lation of the Bank of the United States (exclusive 
 of post notes), was $8,499,378, and the deposites 
 $8,591,235, but of these notes, by far the largest pro- 
 portion were circulating at a distance from Philadel- 
 phia, and, consequently, formed no part of the cur- 
 rency of that city. 
 
 Having thus, as I conceive, established the propo- 
 sitions laid down in the early part of this chapter, I 
 will, in the next, endeavor to elucidate a matter of 
 very great practical importance, to which the atten- 
 tion of congress and the state legislatures has never 
 yet been particularly directed, relating to the aggre- 
 gate amount of the currency at any particular period. 
 
188 A TREATISE ON 
 
 CHAPTER III. 
 
 ON THE IMPORTANCE OF HAVING UNIFORM PERIODI- 
 CAL STATEMENTS OF THE CONDITION OF THE 
 CURRENCY. 
 
 WHEN we consider the importance which the pre- 
 sent banking system of the United States is capable 
 of exerting over the property and industry, and con- 
 sequently the prosperity of the country, it would 
 seem to be but reasonable that the public, who must 
 always be the victims of a vicious course of policy, 
 should at least be furnished with some means of ac- 
 quiring a knowledge of their position, in order that 
 they might be prepared to escape from a threatened 
 catastrophe, or at least to mitigate its force. Such, 
 however, is not the fortunate condikon of the people 
 of this country, arid they seem to be destined to be 
 for ever deprived of all opportunity of becoming ac- 
 quainted with those premonitory indications, which 
 usually precede a convulsion in the money concerns 
 of a nation. The truth of this remark will occur to 
 most people, who recollect the fact, that the suspen- 
 sion of specie payments in May, 1837, came upon 
 the country, like a sudden clap of thunder on a clear 
 day, and overwhelmed every body with surprise. I 
 say, every body, for the exceptions were extremely 
 rare, of those who, a month before it occurred, had 
 the slightest apprehension of such an event. 
 
 This want of knowledge arises,, from the circum- 
 stance, that the nine hundred banks and branches now 
 operating in the United States, are the offspring of 
 six and twenty states, three territorial, and one gene- 
 ral government, between which there has never 
 been any system of uniform action in relation to the 
 terms of charters of banks, or in reference to uniform 
 periodical returns of their condition as to liabilities 
 
CURRENCY AND BANKING. 1S9 
 
 and resources. The consequence of this has been, 
 that the returns of the condition of the banks, in no 
 two states perhaps, correspond as to dates, or to par- 
 ticulars, nor do even the different banks of the same 
 state always correspond in the latter. In some there 
 is a studied mystification in the mode of stating the 
 account, designed to render it unintelligible, and 
 which nobody but the president or cashier of the 
 bank could explain; whilst in others there is a total 
 disregard of particularisation, by placing under the 
 general heads of " miscellaneous," " other liabilities," 
 " other investments," " specie funds," and other such 
 terms, many important elements of a statement, with- 
 out which the whole document is deprived of its 
 utility. If fair play with the public and honest deal- 
 ing were the objects of these banks, there would be 
 no need for such subterfuges and concealments. 
 Their accounts would be stated with fairness, and 
 every facility would be afforded to the public to un- 
 derstand the true condition of the currency. 
 
 It is from such imperfect, heterogeneous and fraud- 
 ulent statements as those we have described that the 
 secretary of the treasury is annually called upon in 
 January to furnish to congress a voluminous docu- 
 ment, containing abstracts or copies of the same, with 
 such condensed tables, as the arts of finance and divi- 
 nation combined will enable him to make out. The 
 consequence has been, that all those tables have been 
 deficient in the important element of uniformity of 
 dates, without which statistical exactness is impossible 
 
 Thus, for instance, in his Report " on the condition 
 of certain banks, &c," of 8th January, 1838, the state- 
 ments of. some banks are only made up to the month 
 of May, 1837, which could throw very little light up- 
 on the condition of the currency in the month of No- 
 vember of the same year, to which period the returns 
 of some other banks extend. 
 
 But this want of uniformity of dates is not the only 
 point in which the secretary's reports are necessarily 
 
190 A TREATISE ON 
 
 deficient. There is a want of that specification of 
 debts and resources, which no exertion of the secretary 
 can remedy, by which the immediate liabilities of the 
 banks can be distinguished from their deferred liabili- 
 ties and their immediate resources from their deferred 
 resources, without a knowledge of which, as we have 
 shown in the preceding chapter, it is not possible to 
 arrive at a true knowledge of the condition of the cur- 
 rency. It is to be hoped that this matter will attract 
 the attention of congress and the state legislatures, and 
 that they may be induced to unite in some common 
 system of action, by which all the banks of the country 
 shall be required to make quarterly statements of their 
 affairs at the same specified dates, and upon a plan 
 uniform and simple, that.no one who is acquainted with 
 a common account current can fail to understand 
 them. 
 
 But, even if such statements as are here recommend- 
 .ed, were to be periodically furnished, it would require 
 some skill in accounts to present their aggregates in 
 such a form, as would show the true extent of the cur- 
 rency. Those who have examined the treasury tables 
 and statements must have perceived that the mere ad- 
 ding together of the deposites and circulation of all 
 the banks would not give the true amount of the pa- 
 per portion of the currency. A large amount of the 
 bank notes returned by the different banks as in circu- 
 lation, have been deposited, by those into whose hands 
 they passed, in other banks than those by which they 
 were issued, and consequently, so long as they remain 
 there, they appear on the statements of those banks 
 as deposites. Thus, if a person draw out from the 
 Bank of North America notes of that bank for $1000, 
 the proceeds of a discounted note, the accounts of 
 that bank would show an increase of its notes in 
 circulation to the extent of $1000. If the same notes 
 were then immediately deposited in the Bank of Penn- 
 sylvania, they would be reported by that bank as an 
 increase of its deposites to the amount of $1000. In 
 
CURRENCY AND BANKING. 191 
 
 such event, it is evident that the same $1000 would 
 appear twice as swelling the currency to that amount 
 once in the form of notes in circulation, and once in 
 the form of deposites, whereas it is equally evident 
 that the currency could only have been augment- 
 ed one single $1000. It follows, from this view of 
 the subject, that in making out an aggregate statement 
 of the circulation, there must be deducted from the 
 aggregate amount of the notes in circulation, the total 
 amount of notes reported in the different bank state- 
 ments as a notes of other banks on hand." 
 
 It may, however, be said, that these banks did not 
 come into possession of these notes by means of de- 
 posites as above assumed, but that they were ex- 
 changed for notes of their own. Granted, but this 
 makes no difference in the result. The banks which 
 received them, would report an increase of their own 
 circulation to the extent of $1000, and if " the notes 
 of other banks on hand" were not deducted, there 
 would appear, as in the first case, a double augmen- 
 tation of the currency to the extent of $1000. 
 
 But it may be further said, that these banks did not 
 obtain possession of these notes in either of the two 
 modes specified, but that they were paid to them in 
 discharge of debts. Is the nature of the case changed 
 by this fact? Not at all. An issue of bank notes to 
 the amount of $1000, can not possibly augment the 
 currency to the amount of $2000, and if we regard the 
 banking system as one whole, just as if it consisted 
 of a principal bank and branches, we can easily see, 
 that if any of its members were in possession of any 
 notes issued by any other of its members, they would 
 be in possession of itself. It would have been absurd 
 to call the notes of the late Bank of the United States 
 in possession of the New York branch, notes in circu- 
 lation, and to have included them in the amount of 
 the currency. 
 
 So also, in estimating the aggregate amount of the 
 currency, must the amount of specie in possession of 
 
192 A TREATISE ON 
 
 all the banks be omitted in the account, seeing that 
 that specie having been derived from deposites, or in 
 exchange for notes, already appears on the return of 
 the banks in one of those two forms. 
 
 That the truth of these positions may be made 
 manifest, I will make a practical application of them 
 to a table found in- the report of the secretary of the 
 treasury of 4th January, 1837, on the condition of 
 the banks. We are there told, in document A. A., 
 that as near to the month of December, 1836, as could 
 be ascertained, the condition of all the banks in the 
 United States was as follows: 
 
 RESOURCES. 
 
 [ Loans and discounts, - ... $457,506,080 
 Stocks, - - - -. - '- 11,709,319 
 
 Real estate, 
 
 Other investments, - 
 
 Due by other banks, 
 
 Specie funds, 
 Specie, 
 
 14,194,375 
 
 9,975,226 
 
 51,876,955 
 
 Notes of other banks on hand, - - 32,115,138 
 
 4,800,076 
 40,019,594 
 
 $622,196,763 
 
 LIABILITIES. 
 
 Capital, $324,240,292 
 
 Circulation, 140,301,038 
 
 Deposites, 115,104,440 
 
 Due to other banks, - - - - 50,402,369 
 
 Other liabilities, - 25,999,234 
 
 $656,047,373 
 
 As the account does not balance, it is probable 
 that some of the resources of the banks have been 
 omitted. 
 
 Now from this statement it is proposed to ascer- 
 tain what was the extent of the currency of the United 
 States at the period mentioned, in addition to the 
 amount of the coin in the pockets and strong boxes 
 of the public, which there appears to be no correct 
 
CURRENCY AND BANKING. 193 
 
 means of ascertaining, and for this purpose, I would 
 state the account as follows. 
 
 Circulation, $140,301,038 
 
 Deposites, 115,104,440 
 
 255,405,478 
 Deducting notes of other banks on hand, 32,115,138 
 
 Leaves, $223,290,340 
 
 Such would appear to be the actual amount of the 
 currency as furnished by the above table. But inas- 
 much as no distinction is made, between notes or 
 deposites payable on demand, and post notes, or 
 deposites payable at a future period; the account is 
 deficient in a very important element of exactness. 
 For it can be seen, that if the deferred liabilities 
 should have amounted to thirty or forty millions of 
 dollars, the true amount of the currency would have 
 been diminished precisely to that extent. 
 
 In regard to the two amounts expressed, by the 
 terms " due by other banks," and " due to other 
 banks," standing on opposite sides of the account, it 
 must be obvious, that they are quantities neutralising 
 each other, for the amount due by all the banks to 
 each other, must be precisely equal to the amount 
 due to all the banks by each other. The difference 
 between these two amounts in the table before us, 
 arises no doubt from the fact, that owing to the 
 distance of the banks from one another, there must 
 always be on the route between them, funds in tran- 
 situ, which although charged by the remitting bank 
 to the account of the one to which they were remitted, 
 cannot have yet appeared on the books of the other 
 as a credit. 
 
 17 
 
194 A TREATISE ON 
 
 CHAPTER IV. 
 
 ON THE IMPOLICY OF ADHERING TO OUR PRESENT 
 MINT PROPORTIONS BETWEEN GOLD AND SILVER. 
 
 IT may be assumed as a principle that will hardly 
 be disputed, that the soundness of a mixed currency 
 of coin and paper such as we are likely ever to have 
 in the United States, does not depend upon the fact 
 whether gold or silver be the basis. A currency may 
 be quite as sound where silver is the only or chief 
 metal that circulates, as where gold is the only or 
 chief metal. This is evident from the well known 
 fact, that the currency of France which is of silver, is 
 not more liable to fluctuate than that of Great Britain 
 which is of gold. I might even argue that it was in 
 point of fact less fluctuating, but as all I wish to 
 establish is equality, it is not necessary that I should 
 take that ground. 
 
 It would seem that the great object of our act of 
 June, 1834, was to establish a gold currency, under 
 the belief that the tendency of gold to drive paper out 
 of circulation would be stronger than that of silver; 
 and on that account the mint proportions were 
 changed with the professed object of drawing gold 
 into the country in preference to silver, when the 
 course of trade should lead to the importation of the 
 precious metals. There can be no doubt, that had 
 congress possessed the right of prohibiting the circu- 
 lation throughout the United States of bank notes of 
 a less denomination than ten dollars, a gold currency 
 could have been introduced in the place of five dollar 
 notes; but as it possessed no such power, and as 
 there was not the slightest probability that all the 
 state legislatures would have co-operated in bringing 
 about such a result, the measure was, to say the least 
 of it premature. 
 
 But even admitting that all notes of a less denomi- 
 
CURRENCY AND BANKING. 195 
 
 nation than ten or even twenty dollars could have 
 been proscribed, I would ask, whether such a measure 
 would have exempted the currency from all liability 
 to fluctuations? This question can perhaps best be 
 answered by referring to the experience of Great Bri- 
 tain. In that country, no note is issued by the Bank 
 of England, or by any joint-stock or private bank, of 
 a less denomination than five pounds sterling, equal 
 to upwards of twenty-four dollars, and yet England 
 has been subject to many great fluctuations in her cur- 
 rency, one of which, that of 1797, brought all her 
 banks to a stoppage of specie payments; and another 
 of which in 1S25, was very near bringing about the 
 same result. It is not then the fact, of a mixed cur- 
 rency having gold or silver for its basis, which deter- 
 mines its stability. Our own experience of forty-five 
 years out of fifty-one since the establishment of the go- 
 vernment, during the whole of which time silver was 
 almost the exclusive metal that circulated, is sufficient 
 to settle that question, and no one, it is presumed, will 
 maintain the proposition, that the interests of the great 
 mass of the people are not as well promoted by the 
 right of demanding silver for a bank note, as of de- 
 manding gold. Indeed, if we take into consideration 
 the universal knowledge which prevails as to silver 
 coins, the familiarity of every body with dollars arid 
 half dollars, the vast number of persons who seldom 
 have five dollars in money on hand at a time, the less 
 liability of being cheated with silver than with gold, 
 and the additional fact that many existing ground 
 rent deeds, bonds, and mortgages, expressly call for 
 payment in silver dollars, it would not be hazarding 
 too much to say, that silver is a more convenient coin 
 for the people of the United States than gold. If then 
 it can be shown, that the possession of a gold currency 
 in preference to a silver one, would be not only pro- 
 ductive of no positive benefit to the community, but 
 would be attended with positive mischief to the great 
 interests of the country, all parties ought to unite in 
 abandoning the project. 
 
196 A TREATISE ON 
 
 And this brings me to the point, to which the pre- 
 ceding remarks were designed to be introductory. 
 
 Prior to the passage of the gold bill above referred 
 to, the metallic currency of the United States had been 
 virtually, as above stated, a currency of silver since 
 the establishment of the government, gold very rarely 
 appearing, whilst that of Great Britain was of gold. 
 The consequence was, that the currency of each was 
 independent of the other, and the contraction or ex- 
 pansion of each did not necessarily act upon the 
 other. The contraction in England, which preceded 
 the resumption of specie payments, in 1821, after a 
 long suspension of twenty-four years, produced no con- 
 vulsion on this side of the Atlantic; nor did our con- 
 traction, distressing and durable as it was, after the 
 removal of the public deposites from the Bank of the 
 United States, on the 1st of October, 1833, which 
 brought down the prices of stocks from 20 to 50 per 
 cent., and led to the importation of 3,793, 293 dollars 
 in silver from England alone, during the year end- 
 ing on 30th September, 1S34, produce any convul- 
 sion whatever in that country.* Such would have 
 
 * During the contraction last referred to, which occasioned a 
 panic that continued from October, 1833, to July, 1834, ex- 
 change upon London, at New York, the market of which regu- 
 lates the rate for all the other cities, fell greatly below the or- 
 dinary limits. In February, 1834, the pressure for money was 
 so great, that bills were sold, for a short period, as low as one to 
 two per cent, below the nominal par of that period, which was, 
 in reality, nine to ten per cent, below the true par. A great fall, 
 also, took place in every species of stocks, property and mer- 
 chandise, whilst the discount on good commercial paper rose to 
 two or three per cent, a month. 
 
 Notwithstanding this great pressure, however, it was not felt 
 at all in England, except, perhaps, in the diminished remittan- 
 ces of merchants, so that her currency remained not only with- 
 out the slightest contraction, but actually experienced an aug- 
 mentation,! t tnc g reat advantage of our shippers, whose cotton 
 
 t Aggregate amount of notes circulated in England and Wales, by 
 the Bank of England, by private banks, and by joint stock banks and 
 their branches, at the following dates, as published in a table appen- 
 
CURRENCY AND BANKING. 197 
 
 continued to be the case, had the mint regulations 
 remained without alteration; but no sooner was 
 gold, by a change in its relative value to silver, ren- 
 dered the most profitable of the two metals to import, 
 than we found the currency of England disturbed to a 
 degree that rendered necessary an immediate reduc- 
 tion of her paper issues, although the amount of gold 
 drawn from her between the passage of the law in 
 June, 1834, and the 30th of September, of the same 
 year, was but 1,922,960 dollars. To the importations 
 of gold in the years 1835 and 1836, instead of silver, 
 may be ascribed that further contraction of the British 
 currency, which led to the crisis of the latter year, 
 that was so fatal to American credits and American 
 cotton, by which millions of dollars were lost to the 
 country. 
 
 Now as like causes will produce like effects, it be- 
 hoves us to examine well into this matter, and if we 
 find that we have committed an error, it is our duty 
 to retrace our steps. Thus far very little progress has 
 .been made towards introducing gold into actual circu- 
 lation, notwithstanding that a large amount has been 
 
 was sold without any reduction in price, as will be evident from 
 the following quotations for uplands of the best quality, contained 
 in letters from Liverpool houses of the greatest respectability. 
 
 1833. 
 
 October 30, - . 9d March 22, 9d 
 
 November 23, - - 8 April 23, 9d 
 
 December 7, - - 8 May 16, 
 
 December 31, - 9i June 7, 
 
 1834. July 8, 
 
 January 4, 9^ August 23, 
 
 February 24, 9^ September 30, 
 
 ded to the report of the Secretary of the Treasury of 3d January, 
 1837, on the condition of the state banks. 
 
 1833, December 28, 27,621,104 
 
 1834, March 29, 28,735,827 
 June 28, 29,207,682 
 
 " September 27, 28,591,112 
 
 December 28, 27,729,828 
 
 17* 
 
198 
 
 A TREATISE ON 
 
 imported,* still a long perseverance in the law will 
 give us a gold currency, but it will be most dearly 
 purchased. It will so closely ally our fortunes with 
 those of Great Brittian, that no convulsion can take 
 
 * Tables of the imports and exports of gold and silver coin and 
 bullion, for the last five years. 
 
 1834, 
 1835, 
 1836, 
 1837, 
 
 1838, 
 
 I. GOLD BULLION. 
 
 Imports. 
 
 $141,181 
 665,457 
 
 1,913,137 
 536,549 
 230,392 
 
 $3,486,716 
 
 Total imports of gold bullion, 
 Do. exports do. 
 
 Exports. 
 
 none. 
 
 none. 
 $25,777 
 101,563 
 
 none. 
 
 $127,340 
 
 - $3,486,716 
 127,340 
 
 Excess of imports, 
 
 II. 
 
 1834, 
 1835, 
 1836, 
 
 1837, 
 1838, 
 
 COLD COIN. 
 
 Imports. 
 
 - $2,786,006 
 
 1,669,730 
 5,318,725 
 1,895,265 
 
 - 11,431,840 
 
 $23,101,566 
 
 Total imports of gold coin, 
 Do. exports do. 
 
 Excess of imports, 
 
 1834, 
 1835, 
 1836, 
 1837, 
 
 1838, 
 
 III. SILVER BULLION. 
 
 Imports. 
 $168,330 
 765,283 
 318,350 
 594,291 
 392,843 
 
 $2,239,097 
 
 - $3,359,376 
 
 Exports. 
 $64,349 
 625,679 
 275,940 
 1,828,653 
 736,264 
 
 $3,530,885 
 
 $23,101,566 
 3,530,885 
 
 $19,570,681 
 
 Exports. 
 
 none. 
 
 none. 
 $52,695 
 
 5,600 
 
 2,500 
 
 $60,795 
 
CURRENCY AND BANKING. 
 
 199 
 
 place in the currency of that country, that will not act 
 directly and powerfully upon ours; whilst on the other 
 hand, none can take place on our side, that will not 
 act directly upon hers, and in so doing, break down 
 the prices of cotton and tobacco, and other American 
 products in the markets of Europe to the great injury 
 of our planting interest. 
 
 But this is not all. The tendency of the present 
 regulation is to drive silver out of the country, and 
 not gold, in all cases where coin is exported, the result 
 of which will be, if long enough persevered in, to 
 deprive us almost altogether of a silver currency, and 
 in that event, a universal resort will be had in all the 
 states to bank notes of the smallest denominations in 
 preference to gold coins of similar denominations, as 
 a remedy for the evil, a remedy, which, it is hoped, no 
 friend of a sound currency desires to see adopted. 
 
 Total imports of silver bullion, 
 Do. exports do. 
 
 Excess of imports, * *" 
 
 $2,239,097 
 60,795 
 
 $2,178,302 
 
 1834, 
 
 1835, 
 1836, 
 
 1837, 
 1838, 
 
 IV. SILVEfc COIN. 
 
 Imports. 
 
 - $3,246,000 
 
 - 10,040,000 
 
 5,850,669 
 4,490,309 
 5,630,138 
 
 Total imports of silver coin, 
 Do. exports of do. 
 
 Excess of imports, 
 
 RECAPITULATION. 
 
 Gain on gold bullion, 
 Do. do. coin, - 
 Do. silver bullion,- 
 Do. do. coin, 
 
 Exports. 
 $413,681 
 5,122,495 
 3,624,186 
 2,756,914 
 2,292,342 
 
 $29,257,116 $14,209,618 
 
 $29,257,116 
 14,209,618 
 
 15,047,498 
 
 $3,359,376 
 
 19,570,681 
 
 2,178,302 
 
 15,047,498 
 
200 A TREATISE ON 
 
 If there be any fallacy in this reasoning, it is not 
 intentionally advanced. The subject is a grave and 
 important one, and merits the attention of all who are 
 desirous to keep our country free from foreign alli- 
 ances, whether they be pecuniary or political; and 
 should congress be convinced that a false step has been 
 made, let that step be retraced. Let the standard of 
 the gold coin be restored to its former high grade, cor- 
 responding with those of Great Britain, Portugal and 
 Brazil, that is, eleven parts of pure gold to one part 
 of alloy, and let there be no coins struck at the mint 
 but ounces, half ounces, and quarter ounces, without 
 any fixed legal proportions to silver, but left to find their 
 way into circulation at their fair market equivalency, as 
 gold coins do in France and other countries of Europe. 
 By having coins of familiar and well known weights 
 the people would form right conceptions of the true 
 nature of money; and as the bullion dealers and bro- 
 kers in all the cities would quote the price of ounces 
 of gold as they do of sovereigns, they would be at all 
 times current at their market value, and could never 
 be driven from the country by our own legislation, 
 or that of other states. 
 
 CHAPTER V. 
 
 ON THE SUPERIORITY OF THE NEW YORK GENERAL 
 BANKING LAW OVER THE PRESENT BANKING 
 SYSTEM. 
 
 HAVING, in a former chapter, promised to give my 
 reasons for believing the principles of the New York 
 banking law to be better calculated, if made general 
 throughout the Union, to give stability to the currency 
 than any other that would be likely to meet a general 
 
CURRENCY AND BANKING. 201 
 
 acceptance, I now proceed to fulfil that promise, and 
 shall first give the reader a synopsis of its principal 
 stipulations. 
 
 This law provides that the comptroller of the state 
 shall cause to be printed from uniform plates, to be 
 engraved according to his direction, bank notes of the 
 various denominations authorised by law, which notes 
 are to be countersigned, numbered, and registered in 
 his office, in books provided for the purpose. These 
 notes are to be delivered to every banking association 
 organised under the provisions of this act, which shall 
 transfer to the comptroller any of the public debt of 
 the United States, or of any state, that shall be appro- 
 ved by the comptroller, not less in amount than $100, 
 000 and made equivalent in value to a New York 
 State five per cent, debt in sums precisely equal to the 
 amount transferred, hereby establishing the important 
 and valuable principle of free trade in banking; and 
 when signed and executed by the respective associa- 
 tions, they become, to all intents and purposes, bank 
 notes, arid as such may be loaned and circulated as 
 money. 
 
 In cases, however, where the association requiring 
 the notes prefers to give mortgages, bearing six per 
 cent, interest, upon " improved, productive, unincum- 
 bered lands within the state of New York, worth, in- 
 dependent of any buildings thereon, at least double 
 the amount for which they shall be so mortgaged," 
 for one half of the amount of the notes, the comptroller 
 is authorised to accept the same in lieu of stocks, and 
 in both cases the depositing party is to be authorised 
 to receive the accruing interest. 
 
 The notes thus created upon an actual deposite of 
 property of equal amount, are to be payable on de- 
 mand in the lawful money of the United States, and 
 in case of default of such payment, except for legal 
 cause, for the space of ten days after the comptroller 
 shall have demanded payment in consequence of 
 having been apprised of the fact, by the protest of a 
 
202 A TREATISE ON 
 
 notary, he shall proceed to sell, at public auction, the 
 stocks and mortgagee pledged in his hands, and with 
 the proceeds pay the notes of the defaulting bank. 
 Protested notes are to entitle the holder to damages 
 at the rate of fourteen per cent, per annum until paid. 
 The associations authorised by this act, are empow- 
 dered " to carry on the business of banking by dis- 
 counting bills, notes, and other evidences of debt, by 
 receiving deposites, by buying and selling gold and 
 silver bullion, foreign coins and bills of exchange in 
 the manner specified in their articles of association, 
 for the purpose authorised by this act; by loaning 
 money on real and personal security; and by exerci- 
 sing such incidental powers as shall be necessary to 
 carry on such business." The shares of the stock 
 are to be deemed personal property, and are to be 
 transferable, like shares in other banks, carrying with 
 them all the rights and liabilities of prior shareholders, 
 and any association may provide in their articles for 
 an increase of their capital, from time to time, as they 
 may think proper. * No shareholder is liable in his 
 individual capacity for any contract, debt or engage- 
 
 * This power to increase the capital of a bank to any amount 
 that may be agreed upon in the articles of association, is, I con- 
 ceive, a defect in the law. We see every year banks applying 
 to the legislatures to authorise an increase of their capitals, not 
 because they can profitably employ more capital, but as a mere 
 expedient to relieve themselves from embarrassments, by per- 
 mitting their creditors, that is, the holders of their notes and de- 
 posites, to come into the concern as co-partners. It appears to 
 me that just in the degree that there exists a standing law to 
 authorise such a mode of relief, will there be a tendency to the 
 expansion of the currency, and a facility afforded for bolstering 
 up, too long, insolvent borrowers, the effect of which is to pre- 
 vent matters from settling down upon the solid foundation which 
 the interests of the community demand, precisely as there would 
 be, if the law authorised the issue of post notes, which very 
 properly it does not. This view of the subject is earnestly 
 recommended to the consideration of the legislatures of the diffe- 
 rent states, which may, as that of Georgia has already done, 
 adopt the New York system. 
 
CURRENCY AND BANKING. 203 
 
 ment of the association, unless the articles of associa- 
 tion shall have declared that the shareholder shall be 
 liable. 
 
 From this abstract of the law, it will appear, that 
 the security of noteholders is alone provided for, and 
 that no provision is made for the protection of the 
 depositors, who are left as in other banks, in case of a 
 failure, on the footing of common creditors. This 
 distinction is founded upon the soundest principles of 
 policy. Bank notes invested with the character of 
 money, from the very nature of the use they are de- 
 signed to perform, must necessarily pass from hand 
 to hand in the transactions of business, with a rapi- 
 dity and universality, which preclude the possibility 
 of a close inquiry into the responsibility of the draw- 
 ers; and there is therefore as good a reason why the 
 public should be protected against loss from the circu- 
 lation of paper money, as why they should be pro- 
 tected against loss from the circulation of metallic 
 money, which is the design of establishing and main- 
 taining a mint at the public expense. * The case how- 
 ever is widely different with depositors. The indi- 
 
 * In this position the author is sustained by the opinion of 
 Mr. McCulloch, whose celebrity as a political Economist, is 
 well known throughout the United States, as employed in the 
 following passages. 
 
 " It is quite illusory to expect to make any real improvement 
 upon the system of country banking in England, by the mere 
 introduction of a plan for allowing banking establishments with 
 large capitals to be set on foot. There have always been, and 
 are at this moment, a great number of such establishments in 
 England. What is really wanted, is the adoption of a system, 
 that will exclude the possibility of notes being discredited, by pre- 
 venting all individuals or associations from issuing such as have 
 not been guaranteed. * * * * " The truth is, as already stated, 
 that it is not possible to guard against, loss and fraud, from the 
 proceedings of the country bankers, otherwise, than by compel- 
 ling them to give security for their issues." * * * The truth 
 can not be too often repeated, that it is quite impossible ever to 
 organise secure banks of issue and it is with such only that 
 the legislature has any right to interfere, except by obliging them 
 to give security for their notes. Every other scheme, how care- 
 
204 A TREATISE ON 
 
 viduals who make deposites in a bank, are at all times 
 in a situation to judge of the responsibility of the par- 
 ties to whose custody they commit their funds, and 
 there is no more reason why a special law should be 
 enacted to protect them against loss, than that one 
 should be enacted to protect any other class of per- 
 
 fully soever it may be devised, is sure in the end to prove nuga- 
 tory and to be defeated." McCulloch's Commercial Dictionary 
 edition of 1834, pp. 76, 77, 110. 
 
 " There is, in fact, but one measure that can give the public 
 that guarantee to which they are entitled in dealing with coun- 
 try banks, and that is to compel them to give security for their 
 issues. Nothing short of this will do. Women, minors, and in- 
 dividuals of all descriptions, who from their situation in life are 
 no wise qualified to judge of the stability of different banking 
 companies, are dealers in money; and, in point of fact, it is 
 found, that the notes of the most worthless banks always, 
 obtain some circulation, and generally, indeed, find their way 
 into the pockets of those who are least able to bear the loss 
 when the fraud is discovered. Government is bound to interfere 
 to protect its subjects from such losses, and to make sure that all 
 notes intended to serve as money, be they issued by one indi- 
 vidual or by many, shall be paid when presented." McCullocJi's 
 Statistical account of the British Empire, vol. II. p. 169, writ- 
 ten in 1837. 
 
 The late Isaac Bronson, Esq. of New York, whose skill as a 
 banker was exceeded by that of no financier in this country, en- 
 tertained the same opinion, as appears from an article written by 
 him in the year 1829, and published in the Free Trade Advo- 
 cate of July llth of that year, in which he employed the fol- 
 lowing language. 
 
 " It will be seen from the foregoing premises, that the propo- 
 sition which the banker makes, or, is supposed to make, to the 
 public {on issuing his bank notes') when stripped of its mystery, 
 is simply this: ' I will exchange my credit for your capital, but 
 you must allow me the use of your capital without interest, and 
 yet pay me interest for the use of my credit. My credit will be 
 of the same use to you as your money, and much more conve- 
 nient; and your money, while in my hands I can make produc- 
 tive, which would produce nothing if it remained in yours: 
 whenever you prefer your money to my credit, you shall have it. 
 
 ** To this proposition the public replies; ' You shall have the 
 use of my money on the terms you propose; but in a bargain so 
 advantageous to yourself, it will be expected, as you have my 
 money without interest, that you will give security to return it 
 without loss. 1 " 
 
CURRENCY AND BANKING. 205 
 
 sons who find their account in trusting others with 
 their property. 
 
 But, although this be true as regards depositors, 
 they have this advantage over the depositors under 
 the old system, that the bank must either pay them 
 in coin or in notes which represent actual capital and 
 not credit; and it is this feature in the system which 
 gives it its chief superiority over the other. 
 
 In a former part of this work, I drew a distinction 
 between the influence which deposites exercise over 
 the currency when made in a bank of discount, and 
 when made in a bank of circulation. * I stated, that 
 in the case of a bank of discount, where the money 
 was loaned to other people, and where the depositor 
 also reserved his right of demanding payment at his 
 pleasure, the currency could not be augmented, owing 
 to the fact, that the banker, in order to pay the depo- 
 site, would necessarily be obliged to make some of his 
 debtors simultaneously pay up an equal sum, that 
 he might keep his usual stock of money on hand; so 
 that as fast as he enlarged the circulation by pay- 
 ments from his counter, he contracted it by drawing 
 in an equal amount from other quarters, thus leaving 
 the money out of doors precisely the same in amount 
 as before. I stated, on the other hand, that the ope- 
 ration with a bank of circulation was different, owing 
 to the fact, that such a bank, on being called upon by 
 a depositor whose money had been loaned out, was 
 not necessarily obliged v to call in a corresponding 
 amount from a debtor, but might be able to satisfy 
 the depositor with its own notes, by which means the 
 money out of doors would be temporarily increased to 
 the extent of these notes, and thus create a corre- 
 sponding excess. 
 
 Now, as the New York law absolutely prohibits 
 the issue of any other notes than those which repre- 
 sent capital, and as these can not be multiplied ad in- 
 
 *Book II, Chap. 1. 
 18 
 
206 A TREATISE ON, &e- 
 
 jfinitum, as notes can be comparatively under the old 
 system, it is manifest that the banks organised under 
 it, have not the power to augment the currency to the 
 extent that the others have, inasmuch as, like banks 
 of discount, they can only meet the claims of depo- 
 sitors by compelling some of their debtors to pay up 
 a corresponding amount, it being understood, as in 
 the case of those banks, that the Usual stock of money 
 is always to be kept on hand to meet occasional or un- 
 expected demands. * 
 
 In reference to the other provisions of the law, they 
 must speak for themselves.! If the numerous banks 
 that have been organised under it, and which are 
 daily increasing in number, act wisely, they will 
 invest nearly the whole of their capitals in fixed 
 securities^: and will be careful not to force into 
 circulation a larger amount of their notes than the 
 currency can readily bear without reaction. They 
 will also take especial care, that in lending the money 
 of depositors, they will discount nothing but business 
 paper, having a short time to run, or they may, if 
 overtaken by a panic, find themselves in the hands of 
 the comptroller before they are aware of it. 
 
 * A clear illustration of the difference here adverted to, is con- 
 tained in an unpublished pamphlet on the reform of the cur- 
 rency of England, which the author has read, in the following 
 paragraph: 
 
 " The business of banking is one thing: that of issuing a 
 paper money is another thing. There is no necessary connec- 
 tion between the two. The bankers in London and Paris are 
 bankers strictly so called. They are lenders of their own and 
 of other people's money. They must obtain it by industry or 
 loan before they can lend it. They do not make it. The busi- 
 ness of making and then issuing a paper money on loan, is very 
 different from that of obtaining a paper money on loan, and then 
 re-lending it." 
 
 f A copy will be found in the Appendix, marked D. 
 
 The whole of the capital of the Bank of England is invested 
 in a loan to the government, and no part of it ever appears in 
 the monthly statements of the assets and liabilities of the bank. 
 
 For an account of the practical working of this system, see 
 Appendix J. 
 
APPENDIX. 
 
 A. 
 
 ON THE RELATIVE VALUE OP GOLD AND SJLVEK, 
 From t?ie National Gazette, of January 26*7i, 1822. 
 
 Messrs. Editors: In the autumn of the year 1820, 
 an article written by me was published in your Ga- 
 zette, explaining the cause of the disappearance of 
 gold from the United Stales. It was there shown 
 that, in spite of all the attempts made by the laws of 
 various nations, to establish fixed proportions be- 
 tween gold and silver, those two metals had con- 
 firmed their right to be governed by the same laws 
 of supply and demand, which regulate the relative 
 value of all other commodities, and had actually in 
 the market of the trading world assumed proportions 
 different from those which had for many previous 
 years been maintained. It was also shown, that one 
 ounce of gold was at that time worth in Europe near 
 sixteen ounces of silver, and that so long as the laws 
 of the United States decreed that the proportions 
 should be as one to fifteen, gold would not circulate, 
 but would be exported from the country, in payment 
 of debts, or in exchange for silver. The truth of that 
 assertion has been verified; for although 'during the 
 
208 APPENDIX. 
 
 year 1S20, gold was coined at our mint to the value 
 of $1,319,030, and during the year 1821, to the 
 amount of $185,325, yet not a gold coin is any where 
 to be seen in circulation. 
 
 During the last session of congress, this subject of 
 the disappearance of gold was considered by a com- 
 mittee, who made a report, recommending an alter- 
 ation of the legal proportions, so as to make them 
 correspond with the proportions which were at that 
 time, supposed to exist in Europe. At the present 
 session, the same matter will probably come before 
 the committee, to whom the subject of the coinage has 
 been referred; and as it is an important one, a few 
 observations in relation to it may not at this time be 
 inappropriate. 
 
 Any -attempt to fix by law, what cannot be fixed 
 by nature, carries on its face an air of absurdity. 
 Without animadverting upon the policy which led 
 our predecessors to follow the footsteps of many of 
 the European nations, and which may perhaps be 
 justified by the then existing state of the country, it 
 is certainly not the part of wisdom to pursue a course, 
 which the lights of science and experience so clearly 
 prove to be unsound. The very fact that gold and 
 silver have departed from the proportions established 
 by our laws, is ample proof that no such laws should 
 ever have been enacted; and the certainty of a future 
 change, is equally conclusive against any further 
 legislation on the subject. Even since the date of the 
 report of the committee above referred to. a more wide 
 separation between the two metals has taken place; 
 and had a law been enacted a year ago, agreeably to 
 their suggestion, it might possibly have required an 
 additional one in the present year to give it effect. 
 The truth is, that until the physical and moral causes, 
 which operate upon a currency, shall combine to 
 establish an immutable relation between gold and 
 silver, laws to determine their relative value can be 
 nothing more than temporary expedients, at war with 
 
APPENDIX. 200 
 
 the true interests of the country, and the genuine 
 principles of political economy. No nation ought to 
 attempt to create two legal tenders; and as we have 
 virtually, at least for a time, got rid of one of them, 
 we ought not to be hasty in restoring it. 
 
 In a discussion upon this subject, it is not essential 
 to consider the question, whether a gold or silver 
 coinage is to be preferred. Many weighty arguments 
 might be advanced in favor of each, but as the Ame- 
 rican people are best acquainted with silver, and as 
 most ancient contracts stipulate for the payment of 
 silver coins, there would seem to be a propriety in 
 adhering to that metal; especially, too, as the uni- 
 versal establishment of banks of deposite, obviate 
 almost entirely the expense and inconvenience of 
 transporting and counting large sums. I take it for 
 granted, that if one metal was alone declared to be a 
 legal tender, that metal would be silver; and under 
 that impression, I submit my remarks. 
 
 The first objection against an alteration of the rela- 
 tive legal value of gold and silver, is that there would 
 be no certainty of the new proportions being main- 
 tained for any length of time in the general market. 
 Gold might rise still higher, and in that event the law 
 would be of no avail. Or gold, might fall, and in that 
 case, the silver would all be exported from the coun- 
 try, upon the principle that gold now is, as being the 
 dearest of two commodities, which are declared by 
 law to be equally legal tenders in discharge of the 
 same debt. In case of such an event as the exporta- 
 tion of all our silver, it is easy to foresee what evil 
 consequences would result. Gold would become the 
 only circulating medium, and as it is impossible that 
 the ordinary transactions of life could be carried on 
 with such small pieces of gold as would correspond 
 with our small silver coins, congress would be com- 
 pelled to pass another law to bring silver back, and 
 there would be no end to our legislation on the sub- 
 ject. If silver should be legislated out of the country, 
 
210 APPENDIX. 
 
 and afterwards be legislated back again, the nation 
 would lose the whole value of the expense and risk 
 of a double transportation, without an equivalent in 
 return. 
 
 The second objection against this measure is, that 
 it would be an improper interference with the rights 
 of all creditors, public as well as private, in relation to 
 contracts, existing at the time of the change. By the 
 present laws, an individual or the nation has its op- 
 tion, in discharge of a debt, to pay one ounce of gold 
 or fifteen ounces of silver; but if the proportions 
 were altered as proposed, creditors could be compelled 
 to receive in satisfaction of their claims, a less quan- 
 tity of gold than they stipulated for. It. is true, that 
 no absolute injury would be sustained by creditors, so 
 long as the new proportions should be maintained in 
 the market, because with the new quantity of gold 
 they could purchase as much silver, as the debtor 
 had contracted at his option to pay. But the case 
 would be widely different in the event of a falling 
 back in the market to the present proportions. All 
 debts would then be paid in gold, and creditors would 
 be compelled to take in discharge of their contracts, 
 a less quantity of gold than they had bargained for. 
 
 Whether or not congress possesses the power of 
 enacting laws which shall thus impair the obligation 
 of contracts, it is not necessary here to inquire. Be 
 that as it may; it is a matter of deep concern, to the 
 people of this republic, that their representatives 
 should cautiously shun every measure, which has a 
 tendency to countenance those frauds upon creditors 
 which some European nations have practised, by de- 
 basing their coins, or by diminishing their weight 
 without altering the denomination. The pound ster- 
 ling was originally a pound of standard silver, 
 which was coined into twenty equal pieces called 
 shillings. The same quantity of silver is now coined 
 into sixty-six shillings, twenty of which are a pound 
 sterling. The livre of France, now worth less than 
 
APPENDIX. 211 
 
 nineteen cents, originally was a pound of silver of the 
 French standard, which is nine-tenths pure metal and 
 one-tenth alloy. Let it never be said, that the Ame- 
 rican eagle contained at one period of time two 
 hundred and seventy grains of gold, eleven parts fine, 
 and one of alloy, and at another, a different weight or 
 a different degree of purity. Although an alteration 
 of our mint proportions, may not be as flagrant a vio- 
 lation of the public faith, as those above referred to, 
 yet we have seen that creditors, by its operation, may 
 be deprived of their just rights, in case of a restoration 
 of the present legal proportions, of one to fifteen, when 
 perhaps, as a remedy for that evil, the next step might 
 be to reduce the quantity or to alter the purity of the 
 silver contained in the dollar, and thereby authorise a 
 second fraud more odious than the first. Tampering 
 with the metallic currency of the nation is a dange- 
 rous employment, and if it be commenced, there is no 
 foreseeing where it may stop. 
 
 But it may be asked, is it not necessary that some- 
 thing should be done in relation to our coinage? In 
 answer to this question I would reply, that if it is at 
 all desirable that gold coins should be struck at our 
 mint, it should be upon a different principle from that 
 which prevails. The whole present expense of our 
 gold coinage, is an absolute loss to the nation. 
 Nearly all the pieces which are coined are exported 
 to Europe, where they are exchanged for their pro- 
 per equivalents, and melted, and thus our mint is oc- 
 cupied at no trifling cost, in assaying and stamping, 
 free of charge to the, owners, the bullion which our 
 merchants are daily shipping abroad. I would sug- 
 gest that the further coinage of eagles and their frac- 
 tional parts be abolished, and that authority be given 
 for the coinage of new pieces to be called by neio 
 names, to contain respectively an ounce, a half an 
 ounce, and a quarter of an ounce of standard gold. 
 
 Between these pieces and silver no proportionate 
 value should be attempted to be established, but they 
 
212 APPENDIX. 
 
 should be left to find their value in market like all 
 other commodities. The advantage of such coins 
 over the eagles would be, that as every body would 
 soon become acquainted with their weight, without 
 being obliged to resort to books in order to ascertain 
 the precise number of pennyweights and grains con- 
 tained in them, the mode of estimating their value in 
 silver would soon become familiar, and those who 
 possessed them would have less difficulty in exchang- 
 ing them for their proper equivalents, than they 
 would have with any coin, of which the weight could 
 not be universally and readily recollected. The cir- 
 cumstance of the British and American standards 
 being the same, would render this course the more 
 advisable. The quotations of the price of gold and 
 silver, which are brought by every ship, would keep 
 us as regularly advised of the value of an ounce of 
 gold, as of a barrel of flour; and there is every reason 
 to believe, that as the fluctuations in the relative 
 value of the two metals are not diurnal or monthly, 
 nor even always annual, the proposed coins would 
 find their way very readily into circulation. 
 
 It is a fact, familiar to all who are acquainted with 
 the affairs of the western country, that depreciated 
 bank notes pass amongst the merchants there, with 
 perfect facility for what they are worth; and to such 
 a system has this practice been reduced, that the 
 newspapers regularly publish the prices current of 
 bank notes at the principal money markets to be re- 
 ferred to as the scale of value. So would it be with 
 gold coins of a well known weight and standard, 
 which might even maintain for a long period together 
 something like a settled proportion to silver. An ad- 
 ditional reason why eagles cannot readily pass by 
 weight, is that the idea of their being by law the 
 equivalent of ten silver dollars, is so deeply rooted in 
 the minds of the community, that it would be next to 
 impossible to eradicate it. Those only who under- 
 stand the subject, or whose trade renders them con- 
 
APPENDIX. 213 
 
 versant with it, are acquainted with the true value 
 of an eagle, and they are thereby enabled to take 
 advantage of those who are less enlightened than 
 themselves. But, let a new coin make its appearance 
 of a familiar and well known weight, untrammeled 
 by legal proportions, new views would present them- 
 selves to the public, and even common minds would 
 be able to comprehend, what now appears to them 
 to be enveloped in mystery. Suppose further, that 
 this new coin, instead of containing an ounce, should 
 contain the precise quantity of gold contained in the 
 sovereign, or true pound sterling, lately emitted from 
 the British mint, what incalculable benefits would 
 not result? The important question of our exchange 
 with England, would be exhibited in its true light, 
 and the whole clamor about the balance of trade, 
 an excess of imports over exports, and the necessity 
 of laws to restrict the former, would cease, and leave 
 our law makers at liberty to study the true interests 
 of the country. It would then be seen, that the high 
 nominal exchange on England is not the result of a 
 balance of trade against us, but chiefly the effect of a 
 change in the relative value of gold and silver, and 
 that the gold pound sterling is the equivalent of 484 
 cents, and not 444 cents in silver.* 
 
 It has been inquired by some, in case such a coin 
 as the one first suggested were authorised, whether it 
 would not be advisable, in order to give it a currency 
 by tale, to declare by law that it should be receivable 
 in all dues to the government, as the equivalent of a 
 fixed quantity of silver? I reply, that such a course 
 would be liable in a great degree to the objections 
 urged against the principle of establishing legal propor- 
 tions; and I do not conceive that it would be attended 
 with any advantage sufficient to counterbalance the 
 risk of being obliged to take the gold, if at any time it 
 
 * When this was written, the exchange upon London in the 
 United States, was at twelve and a half per cent advance. 
 
214 APPENDIX. 
 
 should so fall in relation to silver, as to make it the 
 interest of the public debtor to discharge his obligati ons 
 in the former rather than in the latter metal, in which 
 case the government would be a loser of part of its 
 revenue, and, in addition to that, be obliged to become 
 bullion dealers for the purpose of selling the coin paid 
 into the public treasury. It would also be giving a 
 forced currency to a coin, which, if it cannot find its 
 wayintocirculation by the operation of natural means, 
 had better not circulate at all, and would be laying 
 the foundation fora course of legislation, which might 
 ultimately be productive of mischief. If no such law 
 should be enacted, the price of an ounce of gold would 
 regularly conform to the variations of the market, 
 which, being in their nature slight and gradual, could 
 produce a serious loss to nobody. Whereas a law to 
 establish a fixed value in payments to the government 
 might be repealed at a moment unexpected by those 
 who had received the coins at such valuation, by 
 which a considerable loss might fall upon many, who 
 were not conversant with the principles which deter- 
 mined the proportions. 
 
 It has also been asked, upon the supposition of the 
 establishment of new mint proportions conforming to 
 the actual relative value in the markets in Europe of 
 gold and silver, what would be the effect of a seigno- 
 rage on coins, that is, a charge for coinage at the mint, 
 in restraining their exportation? To this question I 
 would reply. 
 
 1. That if the seignorage were of an equal per cent- 
 age upon both metals, it would leave the matter where 
 it stood, inasmuch as their relative value would remain 
 the same, as if no seignorage was exacted; and that 
 as regards the question of exportation, the seignorage 
 would be a nullity. The causes which operate upon 
 the precious metals, in driving them from one country 
 to another, have reference only to the intrinsic worth 
 of coins, and not to their denominations. The quan- 
 tity of silver contained in a Spanish dollar, would be 
 
APPENDIX. 215 
 
 just as much subject to the laws of exportation, as it 
 would be, if it was denominated a French crown, and 
 declared by our laws to be the equivalent of 1 10 cents; 
 and so would an eagle be just as liable to exportation, 
 if it was called by any other name, and declared by 
 law to be the equivalent of eleven dollars. 
 
 2. That if the seignorage was charged upon one of 
 them only, it would be difficult to foresee upon which 
 of- them it ought to be charged; for in the course of the 
 ensuing five years, it is quite as possible that silver 
 will rise in relation to gold, as that gold will rise in 
 relation to silver. 
 
 3. That if it be placed upon gold only, under the 
 impression that goldmight rise still further, it ought 
 to be ascertained, in order to render it effective, how 
 far gold will rise, which is impossible; for unless the 
 seignorage be equal to the extent of the departure of 
 gold from the proportions existing at the time of fixing 
 the seignorage, it would be of no avail. A seignorage 
 of six per cent, on the present eagles, had it been 
 originally imposed, would not have prevented their 
 exportation; for at $10 60-100 a-piece, they would 
 constitute a more profitable remittance to Great 
 Britain, than bills purchased at the present rate of ex- 
 change. 
 
 A very small seignorage on gold, therefore, might 
 answer no purpose, as a measure restrictive of expor- 
 tation; for if it were limited to one or two per cent, a 
 change in the relative value of gold and silver abroad 
 to that extent, would neutralise it, if gold should be- 
 come more valuable, whilst a high seignorage would 
 unquestionably be productive of injurious consequen- 
 ces. This will be shown from the following illustra- 
 tions, founded upon the assumption of one to sixteen 
 as the new mint proportions, deducting five per cent 
 for the seignorage, the market proportions being also 
 one to sixteen. 
 
 First. So long as the market and mint proportions 
 of the two metals remain exactly the same, gold may 
 
216 APPENDIX. 
 
 be coined as fast as it is brought into the country; for 
 if the holder of one hundred ounces can get it promptly 
 coined at the mint into ninety-five ounces of pieces, 
 which are declared by law to be a legal tender of the 
 equivalent of sixteen hundred ounces of silver, it will 
 be the same thing to him, whether he does so, or sells 
 it in the market for sixteen hundred ounces of silver. 
 
 Secondly. In case gold and silver should vary in the 
 market, and assume a greater difference than the new 
 mint proportions of one to sixteen, the event attempt- 
 ed to be guarded against, then no more gold would 
 be sent to the mint; for the possessor of one hundred 
 ounces of that metal, who could exchange it in the 
 market for even a small fraction more than sixteen 
 hundred ounces of silver, would not be willing to have 
 it coined into ninety-five ounces, which he could by 
 law only pass for 1 600 ounces of silver. As regards 
 the coins which had been previously emitted, they 
 would continue to circulate, until ninety-five ounces 
 of them would sell as bullion for more than 1600 
 ounces of silver, and they would then be exported, 
 because the possessor of them would in that case be 
 able to sell them in the market for more than their legal 
 value. This event, if the coins were new, would hap- 
 pen when the new market proportions should be about 
 one to seventeen; but if they were old, clipped, or 
 worn, it would not happen until afterwards. 
 
 Thirdly. A high seignorage on gold would operate 
 as a bounty on counterfeiting, and might even be 
 sufficient to induce ingenious rogues to manufacture 
 gold coins of full weight and of the true standard. 
 This might be done to advantage in those countries 
 from which we should derive our gold when restored 
 to circulation, and we might perhaps import eagles 
 of foreign manufacture of lawful weight and purity, at 
 a cheaper rate than that at which they could be pro- 
 cured at our mint, in the same manner as, it is sup- 
 posed, many a cask of copper cents has been imported. 
 
 Fourthly. If, however, on the other hand, gold, in- 
 
APPENDIX. 217 
 
 stead of rising, as is supposed under the second head, 
 should fall in the market in relation to silver, and 
 bear the proportion of one to fifteen, in that case, 
 great quantities of gold would be sent to the mint to 
 be coined, for the simple reason, that the possessor of 
 one hundred ounces could, by that means, procure 
 ninety-five ounces of coin, equivalent in the payment 
 of debts to sixteen hundred ounces of silver, whereas, 
 by selling his hundred ounces of gold in the market, 
 he could procure but 1500 ounces of silver. In such 
 an event, the silver would leave the country to be ex- 
 changed for gold in order to be coined, and in a few 
 months silver coins would be as scarce as gold ones 
 are now, excepting indeed the small ones, which are 
 so diminished in weight by friction, as already to have 
 lost, a considerable part of their intrinsic worth. 
 
 In addition to the above observations, it must be 
 kept in mind, that all the objections urged against a 
 variation of the mint proportions, as regards the obli- 
 gation of contracts, apply with equal force against the 
 adoption of a seignorage, inasmuch as creditors would 
 be compelled, in discharge of debts, to accept a less 
 quantity of gold, than they originally stipulated for. 
 
 It may perhaps be useful to some readers to know 
 what are the existing proportions in the relative value 
 of gold and silver in the European market. Of this 
 matter we know nothing more at this moment, than 
 what is furnished by the London quotations, which 
 owing to the facility of intercourse, and the cheapness 
 of transportation of the precious metals between that 
 city and the principal continental cities, may be con- 
 sidered as furnishing materials for an estimate, not far 
 from the truth. By dates of November 2, we learn 
 that dollars were 4s. 9%d. per ounce. The mint price 
 of gold, which is also the present market price, is 3/. 
 17*. lQ%d. per ounce. These two prices stand in the 
 proportions of 1 to 16i and a small fraction, but as 
 the purity of each metal is not precisely the same, a 
 19 
 
218 APPENDIX. 
 
 nice calculation would vary a trifle from these pro- 
 portions. 
 
 HUSKISSON. 
 
 B. 
 
 HISTORY OF THE GOLD COINAGE OF THE UNITED 
 STATES. 
 
 From the Philadelphia Examiner, Vol. 2, of October 15, 1834. 
 
 THE GOLD COINAGE. The party aspect which has 
 been attempted to be given to the bill passed by 
 Congress in the month of June last, altering the rela- 
 tive value of gold and silver, has rendered the present 
 moment rather unpropitious for an investigation into 
 its real merits. Like the American system, it is looked 
 upon as a measure by which one's devotion to a par- 
 ticular man is to be tested; and the same repug- 
 nancy to listen to arguments against the tariff, which, 
 a few years ago, was exhibited by the friends of 
 Mr. Clay, is now displayed as regards listening to 
 arguments against the gold bill, by the friends of 
 General Jackson. It is true, that all who approved 
 the gold bill were not friends of General Jackson, and 
 that all who opposed it were not his foes, but as the 
 vote in congress was made, in a great degree, a party 
 vote, the party which so turned it to account are 
 using every effort to reap the fruits of their policy. 
 Truth, however, has a power which no party man- 
 agement can permanently counteract, and the time 
 will come when those who now think that an act of 
 congress has showered gold upon the country, will 
 
APPENDIX. 219 
 
 lament the blindness which prevented them from fore- 
 seeing its baneful effects. 
 
 Our present design is to make a few remarks on 
 the subject of the coinage, and as we have no party 
 ends to answer, nor no private interest to consult, we 
 shall examine the subject purely as a question of 
 science, with the design of giving to those who desire 
 thoroughly to understand the true state of the case, 
 the elements of an investigation. 
 
 Gold and silver, like all other commodities, have 
 an exchangeable value. This exchangeable value, 
 too, like that of all other commodities, is regulated by 
 the cost of production, and by the proportion which 
 the supply bears to the demand, and hence these 
 metals differ in nothing from other commodities in 
 this particular. 
 
 If gold and silver could be dug out of the mines, 
 be separated from the ore, be smelted and refined at 
 one half the actual cost, or, if they were as abundant 
 as iron and lead, it is manifest that their exchange- 
 able value would be greatly diminished; that is, they 
 would exchange for a much less quantity of other 
 commodities, than they can now be exchanged for. 
 Each one of these metals, however, is subject to its 
 own particular laws, and each one stands in relation 
 to all other commodities, in regard to exchangeable 
 value, precisely as any other commodity stands in 
 reference to all the rest. 
 
 Between gold and silver, therefore, there is not any 
 fixed proportion as to value, established by nature, 
 any more than there is a fixed proportion established 
 by nature, between lead and iron, or between wheat 
 and tobacco. Nature does not say, that one ounce of 
 gold shall always be worth so many ounces of silver, 
 any more than she says, that a certain number of 
 pounds of iron shall always be worth so many pounds 
 of lead, or, that a bushel of wheat shall always be 
 worth a fixed quantity of tobacco. The truth of this 
 
220 APPENDIX. 
 
 proposition must be self-evident to every intelligent 
 mind, and we shall not, therefore, enlarge upon it. 
 
 Taking it, therefore, for granted, that the reader 
 admits these premises, the next position to be laid 
 down is, that it is not in the power of human legisla- 
 tion to establish any fixed, unalterable proportions 
 between the value of any two commodities in exist- 
 ence. It is not in the power of human laws to estab- 
 lish that one ounce of gold shall permanently be worth 
 a certain number of ounces of silver, any more than 
 they can fix the proportions at which iron and lead, 
 or wheat and tobacco, shall be permanently exchang- 
 able for one another. Laws may indeed undertake to 
 prescribe what they shall be, but such laws are 
 founded in absurdity, and had their origin in days of 
 ignorance, when the lights of political science had 
 scarcely begun to shine. 
 
 It is true, however, that the relative value of gold 
 and silver in the market of the trading world, is not 
 so liable to fluctuation within short periods, as that 
 of most, or all other commodities. It sometimes re- 
 mains for years without alteration, but this is no 
 evidence that there are not alterations, and the mere 
 fact of a change within the last twenty years of six 
 per cent., affords an unanswerable argument against 
 the expediency of legal adjustment. For how do we 
 know that in the next twenty years the proportions 
 may not fall back to the old ratio, or advance six per 
 cent, still further? It is also true, that the regulations 
 of governments have an influence upon the relative 
 market value of the two metals. They may drive 
 either metal out of circulation, by rating it too low in 
 reference to the mint price of the other, and thus di- 
 minish the demand for it in their respective countries, 
 which effect cannot take place without disturbing the 
 market proportions in all other countries. But this 
 is rather a reason why governments should not inter- 
 fere, than that they should interfere, inasmuch as 
 
APPENDIX. 221 
 
 greater fluctuations might take place, than would take 
 place from the operation of natural causes alone. 
 Thus, suppose that all the governments of Europe 
 should be seized with the silver mania, as ours has 
 been with the gold mania, and establish their mint 
 proportions at such a ratio as would drive gold out 
 of circulation, and substitute silver in its place, is it 
 not evident that such a measure would enhance the 
 value of silver in Europe as exchangeable for gold, 
 and thus materially influence their relative value? 
 The precise effect of the various mint regulations of 
 the different countries in the world, upon the relative 
 value of gold and silver in the general market, could 
 not be easily ascertained, nor is it essential to our in- 
 quiry that it should be. 
 
 In the year 1792, when the mint of the United 
 States was about being established, and when bank 
 notes were little known, and intercourse between 
 distant points of the country not easily carried on, it 
 was natural that the people, who before the revolu- 
 tion, had been acquainted with guineas, and had still 
 strongly impressed on their memories the fatal influ- 
 ence of the continental paper money, should desire 
 again to see gold coins in circulation, if for no other 
 purpose than the convenience of transmission. The 
 expediency of adopting one only of the precious me- 
 tals as the standard of the money of the country, leav- 
 ing the other to mid its relative value by the laws of 
 competition, was riot at that time decided, nor, indeed, 
 is it probable that the importance and sound policy 
 of adopting such a measure, was at that day apparent 
 to many. It was accordingly resolved, that gold as 
 well as silver coins should be struck at the mint; and 
 in fixing the relative value of the two metals, one to 
 fifteen was considered to be the ratio which would 
 establish an equivalent currency, and it was accord- 
 ingly provided, in the act of 2d of April, of that year, 
 that in the coins of the United States, one ounce of 
 
222 APPENDIX. 
 
 pure or fine gold, should be the equivalent of fifteen 
 ounces of pure or fine silver.* 
 
 It so happened, that for some years after the pas- 
 sage of this law, the market proportions abroad, as 
 well as at home, continued to correspond with the 
 mint proportions, so that the two metals were both 
 retained in circulation at the legal ratio. Neither 
 one was worth for exportation more than the other, 
 and hence an eagle and ten dollars were convertible 
 terms, and at the banks either could be obtained in 
 exchange for notes, at the option of the holder. 
 
 It was in the early part of the year 1818, when the 
 subject of the resumption of cash payments by the 
 IJank of England (which had been suspended since 
 1797) occupied the attention of the British public, and 
 prepared the way for the act of Parliament to that ef- 
 fect, which was adopted in 1819, that a change in the 
 relative value of gold and silver in the market of the 
 trading world, first became generally apparent in the 
 United States. One ounce of gold, from the operation 
 of that or other causes which disturbed the then exist- 
 ing proportions between supply arid demand, became 
 worth more than fifteen ounces of silver. In cases, 
 therefore, where remittances of coin were made from 
 the United States to England, gold was preferred'to sil- 
 ver, for the simple reason that a gold eagle, which could 
 be obtained here for ten silver dollars, could, in Lon- 
 don be converted into more pounds, shillings and 
 pence, than ten silver dollars. 
 
 This fact of the exportation of the gold coins did 
 not pass unobserved, however, by those who had 
 made the subject of coinage arid currency a study. 
 The matter was introduced to the notice of congress 
 
 * The weight of the eagle was fixed at 247 50-100 grs. fine, 
 and 270 grains standard gold. The weight of the dollar at 371 
 25-100 grains fine, and 416 standard silver. The standard of 
 gold was fixed at 22 carats, that is, 11 parts fine, to 1 part alloy. 
 That of silver at 1485 parts fine, to 179 parts alloy. 
 

 APPENDIX. 223 
 
 by Mr. Lowndes, at so early a period as the 27th of 
 November, 1818, when a resolution submitted by him 
 was adopted by the house of representatives, in the 
 following words: 
 
 " Resolved, That a committee be appointed to in- 
 quire whether it be expedient to make any amend- 
 ments in the laws which regulate the coins of the Uni- 
 ted States and foreign coins." 
 
 On the 26th of January, 1819, Mr. Lowndes, as 
 chairman of the committee appointed under this reso- 
 lution, made a detailed report, favorable to a change 
 in the mint proportion. This report was accompanied 
 by a bill, providing as follows. 
 
 1. That there should be retained by the mint as 
 seignorage, from every 371 grains and 25-100 of a grain 
 of fine silver, (the weight of the dollar established by 
 the act of 2d April, 1792,) the quantity of 14 grains 
 and 85-100 of a grain, so as to reduce the weight of 
 the dollar to 356 grains 40-100 of a grain of fine sil- 
 ver, and to 399 36-100 grains standard silver. Small 
 coins to be in the same proportion. 
 
 2. That the Eagle should be reduced from 247^ 
 grains of fine gold, or 270 grains standard gold (the 
 weight established by the act of 2d April, 1792), to 
 237 98-100 grains fine, and 259 61-100 grains stand- 
 ard gold, and small coins in proportion. No deduc- 
 tion to be made of the quantity delivered at the mint 
 for seignorage as in the case of silver, but the expense 
 of refining all gold and silver below the mint standard 
 to be paid by the owner. 
 
 Prior to this report, a communication was made, 
 on the 6th of January, in pursuance of a call from the 
 senate, by Mr. Crawford, secretary of the treasury, 
 accompanied by a letter from Robert Patterson, Esq., 
 director of the' mint, dated 2Sth December 1818, in 
 which that gentleman, adverting to the exportation of 
 the gold coins, recommended a change in the relative 
 value of ten per cent, which, had it been adopted, 
 
224 APPENDIX. 
 
 would have expelled every silver dollar and half dol- 
 lar from the country, in the course of a single year. 
 
 Neither of these suggestions was acted upon, nor 
 was the subject resumed at the next session of congress. 
 On the 2d of February, 1821, however, a second re- 
 port was presented to the house of representatives, by 
 Mr. Whitman, on the part of a committee to which 
 had been referred. a resolution directing an inquiry. 
 This report was also accompanied by a bill, simply 
 providing for the reduction of the eagle and its frac- 
 tions to the weight prescribed by the bill of Mr. 
 Low rules, leaving the silver coins untouched. This 
 reduction was equal to an increase in the value of 
 gold of 4 per cent, which was at that time considered 
 to be equal to the change in the relative value be- 
 tween that metal arid silver, which had occasioned 
 the exportation of the eagles. This is proved by the 
 report, which advances as an argument in favor of 
 the change, that three half eagles, worth in the United 
 States, $15. were worth in Spain or Portugal, $16, in 
 France, $15i, and in England $15 1-5. This bill 
 like its predecessor, remained without being acted on, 
 and the exportation of gold coins continued until early 
 in the year 1822, when not one was to be seen in cir- 
 culation, although six millions of dollars had been 
 coined at the mint, of which $1,319,030 were struck 
 in 1820, and $185,325 in 1821. Plad the measure 
 then recommended been adopted, the bill would have 
 proved inoperative, for at a subsequent period, a great- 
 er change than four per cent, in the relative value of 
 gold and silver took place, which has ever since con- 
 tinued to exist, and which would have carried off the_ 
 new coins. 
 
 The death, in the year 1822, of Mr. Lowndes, who 
 was one of the few individuals in congress who had 
 turned his attention to the subject of the coinage, and 
 the reluctance of that body to intermeddle with a 
 subject of so delicate a nature, jointly combined to 
 
APPENDIX. 225 
 
 postpone for a time all legislative action on the sub- 
 ject. The facilities of remittance afforded by bank 
 notes and bills of exchange, and by improvements 
 in rail-roads and steamboats, obviated entirely the ne- 
 cessity of a gold currency; and as the natural course 
 of things, without any breach of public faith or viola- 
 tion of private contracts, had placed the country in the 
 desirable situation of having but one legal tender, we 
 should possibly have for many years remained in that 
 situation, had it not been for a fresh occurrence, by 
 which fancied private interest was brought to bear 
 upon congress. That occurrence was the discovery 
 of gold in North Carolina, and other southern states, 
 respecting which, the following short notice, derived 
 from the annual report of the director of the mint, of 
 January 1, 1831, may be interesting. 
 
 " In the last annual report, the progressive develop- 
 ment of the gold region of the United States was 
 illustrated by referring to the increase of the annual 
 receipts from North Carolina, which previous to 1824 
 had been inconsiderable, but from that year to 1829, 
 inclusive, had advanced from $5000 to $128,000: and 
 also to the then novel occurrence of gold having been 
 received at the mint from Virginia and South Caro- 
 lina, about $2500 having been received from the 
 former, and $3500 from the latter. The past year 
 exhibits in relation to all those states, a conspicuous 
 increase in the production of gold, and presents, also, 
 the remarkable fact of $212,000 in gold received from 
 Georgia, from which state no specimen thereof had 
 been presented at the mint in any previous year." 
 
 In the report of January, 1834, the director gives 
 the following statement of the amount of gold received 
 at the mint from the southern states, in the years 
 mentioned, stating at the same time, that he has rea- 
 son to believe that in the two last years not more than 
 half the gold produced in the country had been re- 
 ceived at the mint, the residue having been consumed 
 in manufactures, or exported in bullion. 
 
226 APPENDIX. 
 
 1824, .... 5,000 
 
 1825, 17,000 
 
 1826, 20,000 
 
 1827, 21,000 
 
 1828, - 46,000 
 
 1829, - 140,000 
 
 1830, - - 466,000 
 
 1831, - 520,000 
 
 1832, - - 678,000 
 1833, 868,000 
 
 $8,781,000 
 
 This gradually increasing production of gold at the 
 south, engendered precisely the same spirit as the in- 
 creased production of iron had done at the north. 
 The owners of the gold mines cried out for legisla- 
 tive protection, as the owners of the iron mines had 
 previously done, and laws were solicited to enable the 
 former to get more for their gold, or rather for the 
 rent of their land, than they could otherwise have ob- 
 tained, just as laws were solicited to enable the latter 
 to get more for their iron, or for the rent of their land, 
 than they could otherwise have obtained. This influ- 
 ence annually increasing in strength, constituted a 
 powerful element towards a revival of the scheme of 
 changing the relative value of gold and silver, the 
 history of which is as follows: 
 
 On the 29th of December, 1828, Mr. Sanford of 
 New York introduced in the senate of the United 
 States, a resolution which was adopted in the follow- 
 ing words, viz: 
 
 " Resolved, That the secretary of the treasury as- 
 certain, with as much accuracy as possible, the pro- 
 portional value of gold and silver in relation to each 
 other; that he state such alterations in the gold coins 
 of the United States as may be necessary to conform 
 those coins to the silver coins in true legitimate value, 
 and that he report at their next session. " 
 
 On the 9th of December, 1829, the same gentleman 
 
APPENDIX. 227 
 
 offered another resolution, which was agreed to, in the 
 following words: 
 
 " Resolved, That a select committee be appointed 
 to consider the state of the current coins, and to report 
 such amendments of the existing laws concerning 
 coins as may be deemed expedient." 
 
 In compliance with this resolution, Mr. Sanford, on 
 the llth of January, 1830, made an able report, con- 
 taining a fund of interesting and useful scientific mat- 
 ter in reference to gold, silver, and copper coins, leav- 
 ing the question of a change in the relative value of 
 gold and silver, unnoticed, with the view, no doubt, 
 of waiting for the communication of the secretary of 
 the treasury, called for on that subject. 
 
 That communication was made by Mr. Ingham on 
 the 4th of May, 1830, under the title of a " report 
 from the secretary of the treasury, respecting the rela- 
 tive value of gold and silver, &c." It was drawn up 
 with great ability, and was the result of much scienti- 
 fic and historical research, eventuating in a conviction 
 on the mind of the secretary, that it was not clearly 
 advisable to act on the subject, but recommending, for 
 reasons given at length, that if congress should other- 
 wise decide, the ratio of 1 to 15.625 would be as near 
 as could be ascertained, the proportions between the 
 two metals which would make them circulate inter- 
 changeably. 
 
 On the 9th of December, 1830, Mr. Sanford renewed 
 his resolution of the preceding session, which was 
 adopted as follows: 
 
 " Resolved, That a select committee be appointed 
 to consider the state of the current coins, and to report 
 such amendments to the existing laws concerning 
 coins, as maybe deemed expedient." 
 
 In conformity with this resolution, Mr. Sanford, as 
 chairman, of the committee, reported, on the 15th of 
 the same month, a bill entitled " An act concerning 
 the gold coins of the United States." This bill re- 
 duced the weight of the eagle (and of halves and 
 
228 APPENDIX. 
 
 quarters proportionally) from 270 grains standard 
 gold, to 254 grains and 38-53 parts of a grain, being 
 an augmentation of the value of gold, as compared 
 with silver, of near 6 per cent. This bill passed the 
 senate on the 14th of January, 1S31, but was not 
 acted upon by the house of representatives. We are 
 not aware that any change was made in its provi- 
 sions, or that any opposition was made to its passage, 
 in the senate. 
 
 During the same session of congress, viz: on the 
 23d of December, 1S30, Mr, Campbell White, of New 
 York, introduced into the house of representatives, a 
 resolution which was adopted as follows: 
 
 " Resolved, That a select committee be appointed 
 to inquire into the expediency of providing by law, 
 that dollars, of the new American Governments, and 
 five franc pieces, shall be a legal tender in the pay- 
 ment of all debts and demands; and also, whether any 
 additional regulations are necessary, relative to the 
 re-coinage of foreign silver coin at the mint; and that 
 said committee have leave to report by bill or other- 
 wise." 
 
 In March, 1831, Mr. White made a report in pur- 
 suance of the foregoing resolution, in which the expe- 
 diency of having only one standard, and that silver, 
 was urged, and the proportion of 1 to 15.625 between 
 gold and and silver recommended, in case congress 
 should resolve upon a change in the relative value. 
 
 On the 15th of December, 1832, Mr. White renew- 
 ed his motion for the appointment of a committee on 
 coins, which was adopted. 
 
 On the 7th of May, 1832, Mr. Wilde, of Georgia, of- 
 fered a resolution instructing the committee on coins 
 to make some further inquiries; which was adopted, 
 with the following amendment, proposed by Mr. Ver- 
 planck; 
 
 " And also to inquire into the expediency of mak- 
 ing silver the only legal tender, and of coining and is- 
 suing gold coins, of a fixed weight and fineness, which 
 
APPENDIX. 229 
 
 shall be received in payment of all debts to the United 
 States, at such rates as may be fixed from time to time, 
 but shall not be otherwise a legal tender." 
 
 The session, however, having terminated without 
 any act on the subject, Mr. Root, of New York, sub- 
 mitted some resolutions on the 14th December, 1832, 
 which were adopted, calling upon the director of the 
 mint for information concerning the relative value of 
 gold and silver, which was furnished in a report from 
 that officer on the 14th of January following. Nothing 
 however, was done, until the 28th of June, 1834, when 
 the bill in question became a law. 
 
 It thus appears that the matter had been kept in the 
 view of congress for fifteen years, without eventuating 
 in any legislation, and the question naturally presents 
 itself, what could have been the reason why a matter 
 now considered to be so important to the country, 
 should have been so long neglected? To this question, 
 we can give a ready reply. The matter had not been 
 made a party question, and being regarded as one of 
 those measures which involved the good faith of the 
 government, and the stability of property, all par- 
 ties were disposed to approach it with great caution, 
 as it behooved them to do. 
 
 The arguments employed before the passage of the 
 bill against interfering with the subject, may be simply 
 summed up as follows: 
 
 1. That it is a dangerous policy for governments to 
 tamper with their coinage, as is proved from the fact 
 that the British pound sterling, which will now pur- 
 chase only about four ounces of silver, was originally 
 a pound of standard silver, and that the French livre, 
 which is now worth only 19 cents, was, as its name 
 imports, originally a pound of silver; and that it was 
 to be feared, that, if congress did to day diminish the 
 weight of the gold eagle, it might to-morrow diminish 
 the weight of the silver dollar, and thus cheat all pub- 
 lic and private creditors out of a part of their property. 
 
 2. That no law could prevent the fluctuations in re- 
 20 
 
230 APPENDIX. 
 
 lative value to which gold and silver are liable, in 
 common with all other commodities, and that a law 
 made to-day might prove inoperative to-morrow, or 
 what would be worse, might require to be changed so 
 frequently, as to leave the coinage of the country in a 
 disturbed or unsettled state, highly prejudicial to that 
 confidence between man and man, which ought to 
 exist in reference to contracts for future payments. 
 
 3. That it is an absurdity to have more legal ten- 
 ders than one, from the impossibility of establishing an 
 immutable equivalency between two; and that as 
 silver was better known to our citizens than gold, es- 
 pecially to the great body of the laboring people, 
 was more convenient for small payments, was less 
 liable to be counterfeited, and was the money in which 
 most contracts for future distant payments were stipu- 
 lated to be made, it would be unwise to enact a law 
 the effect of which might be to expel all the silver from 
 the country. 
 
 4. That if a new proportion corresponding to the 
 present market proportion, were to be adopted, and it 
 should so happen that the market proportion should 
 hereafter fall back towards the rate of 1 to 15, the in- 
 evitable effect would be to drive the silver out of the 
 country whenever the course of trade should warrant 
 exports of coin, and for the identical reason that gold 
 had been before driven out. 
 
 5. That a law declaring that an existing debt for 
 $10, which, at the time of the contract, meant ten sil- 
 ver dollars, or a gold coin weighing 247 grains of fine 
 gold, shall now be discharged with a gold coin retain- 
 ing the same name, but weighing only 232 grains of 
 fine gold, is a law impairing the obligation of contracts 
 and is a breach of the public faith as relates to all pub- 
 lic creditors and salary officers. 
 
 6. That should the event take place of silver being 
 driven out of the country, its absence would be most 
 sensibly felt in all the small money transaciions of the 
 community, owing to the inconvenience, even if they 
 
APPENDIX. 231 
 
 could be had in sufficient abundance, of a gold coin 
 of so low a denomination as one dollar. 
 
 7, That this inconvenience would press so heavily 
 upon the public, that they would call out for a change 
 in the laws, or what is quite probable, that they would 
 fly to one. dollar bank notes, as a remedy for the evil, 
 and thus render the currency as bad as it was in 1816, 
 in those states where the banks did not pay their notes 
 in coin. 
 
 8. That if congress should, in order to prevent this 
 calamity, alter the law, it would not be by increasing 
 the weight of the eagle, but by diminishing the weight 
 of the dollar, and thus, we should lay the foundation 
 for a gradual depreciation of the currency, which at 
 some future day might be employed to the perpetra- 
 tion of the same species of frauds upon public and 
 private creditors, as have marked the course of all 
 governments that have tampered with their coinage. 
 
 We are aware that in making these remarks we are 
 treading upon the toes of many of the readers of this 
 Journal in Georgia and North Carolina, and other 
 states where gold is produced, who will not relish a 
 doctrine that seems to be at war with their pecuniary 
 interests. We can not, however, permit our reverence 
 for what we conceive to be the truth, to be smothered 
 by any private considerations. We would have pre- 
 vented the passage of the gold bill, had we been able, 
 believing it to be pregnant with great future evils to 
 the country, and unattended with one single benefit 
 to compensate for the mischief it is likely to produce. 
 We think we can demonstrate, that as a means of 
 breaking up the paper system, it is utterly futile, and 
 that as a means, of putting money into the pockets of 
 the owners of gold mines, beyond that inappreciable 
 sum resulting from the increased value given to the 
 whole supply of gold in the commercial world by the 
 new demand for the American circulation, it will be 
 found wholly delusive. We have, however, said 
 enough for one occasion, and shall resume the sub- 
 
232 APPENDIX. 
 
 ject hereafter, simply remarking, that by the bill, re- 
 cently passed, a change has been made not only in the 
 weight of the eagle, but in the standard also; the 
 eagle now containing 232 grains pure, and 258 grains 
 of the new standard, which is 2 1.58 and a small frac- 
 tion carats fine, instead of 22, which is a debasement 
 of one and three quarters per cent. 
 
 THE GOLD COINAGE AGAIN. 
 
 From the same, of October 29, 1834. 
 
 IN a former article on this subject, we stated that 
 the discovery of gold in our southern states, and the 
 gradually increasing production of that metal since 
 the year 1824, had occasioned an influence to be ex- 
 ercised upon congress, to which might be ascribed, in 
 a great degree, the passage of the recent law, changing 
 the relative value of gold and silver, from 1 to 15 to 
 I to 16 arid a fraction. In that article we also stated, 
 that by this change the owners of the gold mines 
 would derive no benefit beyond that resulting from the 
 trifling increase in the value of gold which would be 
 experienced throughout the commercial world, owing 
 to the increased demand for the currency of the Uni- 
 ted States. We proceed now to prove that position, 
 believing that as much error is prevalent on that sub- 
 ject at the south, as there exists at the north in refe- 
 rence to the benefits resulting from legislative interfe- 
 rence with the domestic production of iron. 
 
 The common notion prevailing, and that which has 
 been most extensively urged by those who have made 
 the gold coinage a party question, is, that the pro- 
 
APPENDIX. 233 
 
 ducers of gold are now enabled to get 6 2-3 per cent. * 
 more for their gold than they used to get under the 
 old law, seeing that 232 grains of pure gold are now 
 declared to be the equivalent of ten dollars, whereas, 
 under the old law, 247i grains were the equivalent of 
 that sum. This assertion would have been true, had the 
 old law prohibited the producers of gold from receiv- 
 ing for their gold more than ten dollars for every 247 
 grains; but this was not the case. From the very 
 first moment that gold made its appearance in North 
 Carolina, up to the present time, it has commanded a 
 price in the market above the mint price; that is, one 
 ounce of gold has exchanged for more than fifteen 
 ounces of silver, or, what is the same thing, 2474 
 grains of pure gold have been exchanged for more 
 than ten dollars. We have no official data to refer to, 
 by which we can ascertain precisely the price at 
 which gold has been sold at different periods at the 
 different mines, but it is fair to presume, that it was 
 as near to the Philadelphia market price as it is now, 
 and as it will hereafter be. If, then, we can ascertain 
 what has been the Philadelphia market price since the 
 year 1824, we shall be able to throw some light on 
 this subject, for let it be remembered, that whatever 
 that price has been, it has gone into the pockets of the 
 producers of gold, deducting the expense of transpor- 
 tation to Philadelphia, where the mint is located an 
 expense which must be borne by them hereafter, as 
 heretofore. Fortunately upon this point we have evi- 
 dence that no one will dispute, for, as it comes from a 
 strong advocate of the gold bill, it can not be sus- 
 pected of unfairness. 
 
 From the Washington Globe. 
 
 "The following statement of actual sales, made by 
 the United States Bank, will show how she has sold 
 foreign gold: 
 
 * The precise per centage is 6.681, which is a fraction more 
 than 6|. 
 
 20* 
 
234 APPENDIX. 
 
 Guineas. Sovereigns. Portugues Gold, 
 per cent. per cent. per cent. . 
 
 Jan. 5, 1828, 9 10 6 
 
 Jan. 3, 1829, 8* S% 5i 
 
 Jan. 2, 1830, 7| 8$ 4- 
 
 Jan. 4, 1831, 5* 6* 3 
 
 Jan. 4, 1832, 81 8| 5 
 
 Jan. 3, 1833, 77 3* 
 
 " These are a few only out of thousands of sales 
 made by the Bank of the United States. They go as 
 high as ten per cent." 
 
 Here, then, we see it shown that foreign gold has 
 been sold by the Bank of the United States, at the 
 periods mentioned, at a premium varying from 3 to 10 
 per cent. The reason why British gold sold higher 
 than Portuguese gold, which is of the same standard, 
 (22 carats fine, that is, 1 1 parts pure metal to one part 
 alloy), is, that guineas and sovereigns are cash imme- 
 diately on their arrival in England, even though, 
 somewhat lighter than full weight, whereas, Portu- 
 guese gold would be available only as bullion. Now, 
 as American gold coins at the periods referred to were 
 of the same standard as the Portuguese, and, like 
 them, only available in foreign countries as bullion, it 
 is fair to presume that the price of American gold 
 was, in the Philadelphia market, the same as that of 
 the Portuguese. 
 
 It would, then, appear, that American gold was 
 worth, in Philadelphia, from 1828 to 1833, a premium 
 varying from 3 to 6$ per cent, or upon an average, a 
 fraction above 4 per cent. In other words, we see 
 that one ounce of gold has uniformly been sold for 
 more than fifteen ounces of silver, and in one case 
 for very near sixteen ounces. Now it must be appa- 
 rent, that unless the producer of gold gets for his com- 
 modity at the mint 6 2-3 and a fraction per cent, more 
 than he used to get in the market, he is not a gainer 
 by the change to the extent asserted. But the new 
 mint price is only 6.681 per cent, more than the old 
 
\JI' LIA'i 
 
 APPENDIX - 
 
 mint price, while the price in the market, upon the ave- 
 rage of years quoted, was 41 per cent, more, and, of 
 consequence, the real advantage to the producer of 
 gold can not possibly have been more than 2.181 per 
 cent., that being the difference between the two rates 
 of premium. 
 
 It is not an answer to these positions to say, that 
 the price of gold in the market since October 1833, in 
 consequence of the derangement of commerce and 
 the currency, has been as low, at times, as four, three, 
 two or one per cent., and even less, and thus the bene- 
 fit to the producer of gold is consequently equal to the 
 difference between those rates and 6.6S1 per cent. 
 A temporary and unnatural state of things, is not a 
 basis for sound conclusions, and can not, therefore, be 
 admitted into a discussion of general principles. 
 
 It would appear, however, that although the gain 
 to the producers of gold by the new law was not as 
 much as has been alleged, yet that upon our own ad- 
 mission, it was equal to 2.181 per cent. In other 
 words, it would appear, as if the mint afforded a con- 
 stant market at a steady price, 2 per cent, and a frac- 
 tion higher than used to be obtained in the market 
 under the old law. Let us examine minutely into 
 this, and see how the fact is. 
 
 The old mint price of pure gold was $19,39,4-10 
 cents per ounce of 480 grains, as may be ascertained 
 from the fact that 247| grains, [the weight of pure 
 gold in an eagle of the old coinage] was the equiva- 
 lent by law of ten dollars.* The market price, there- 
 fore, of pure gold between the years 1828 and 1833 
 at 45 per cent, premium, was $20,26 6-10 cents per 
 ounce, which was, consequently, the price that the 
 producer of gold used to get for his commodity in the 
 Philadelphia market. 
 
 The new mint price of pure gold is $20,69 cents per 
 
 * If 247^ grains are equal to $10, 480 grains are equal to 
 $19,39,4. 
 
236 APPENDI. 
 
 ounce of 480 grains as may be ascertained from the 
 fact that 232 grains (the weight of pure gold in an 
 eagle of the new coinage) is the equivalent by law of 
 10 dollars.* 
 
 The difference between these two prices is 42 cents 
 and 4-10ths of a cent per ounce, which is equal to 2 
 per cent, and a fraction, and it thus still appears that 
 the present mint price is that much higher than the 
 old market price, and consequently that the producer 
 of gold -gains 2 dollars and a fraction on every 100 
 dollars by the new proportion. 
 
 We say it appears so, and for the simple reason 
 that the fact in reality is not so. To prove this, we 
 must ascertain whether the 20 dollars 69 cents spoken 
 of as the present price of an ounce of pure gold, are 
 the same kind of dollars as those spoken of, where 
 $20,26 6-10 are stated to have been the price of pure 
 gold under the old law. For it must be very evident 
 that the term dollar is in itself no sign of fixed quan- 
 tity or value, and that as quantities and values are the 
 things regarded in all sales and purchases, and not 
 mere denominations, it is absolutely necessary that 
 this point should be determined before any correct 
 opinion can be formed. 
 
 Under the old law, a dollar was represented by a 
 silver coin containing 416 grains of standard silver, 
 or, by 24 grains and 75-100 of a grain of pure gold, 
 that being the tenth part of the quantity of pure gold 
 contained in an eagle of the old coinage. 
 
 A dollar under the new law is represented also by 
 416 grains of standard silver, or, by 23 grains and 20- 
 100 of a grain of pure gold, that being the tenth part 
 of the quantity of pure gold contained in an eagle of 
 the new coinage. 
 
 It thus appears that the dollar spoken of at the two 
 different periods, contains the same quantity of silver, 
 but a different quantity of gold, and it is therefore evi- 
 
 * If 232 grains are equal to $10, 480 grains are equal to $20,69. 
 
APPENDIX. 237 
 
 dent that the producer of gold, when he sells one 
 ounce of that metal for silver coins, gets 2 per cent, 
 and a fraction more than he used to get, but when he 
 sells it for gold coins he gets only the same quantity of 
 gold that he used to get. For, in the first case, he 
 gets for his ounce 20 dollars 69-100 of a dollar, each 
 weighing 416 grains standard silver, that is 8607 
 grains, instead of 20 dollars and 26-100 of a dollar 
 and a fraction, that is 8430 grains standard silver, the 
 price he used to get; and in the second case he gets 
 for his ounce a number of gold coins of a particular 
 weight, and standard, which contain 480 grains of 
 pure gold (that being what the mint is obliged to give 
 for an ounce of pure gold) instead of a number of gold 
 coins of a different weight and standard, but contain- 
 ing precisely the same number, that is, 480 grains of 
 pure gold, which he could have received at the mint, 
 had he taken it there, in preference to selling his gold 
 in the market. 
 
 But it may be said, that although this be true, that 
 is, although it be true that the producer of gold can 
 get no more pure gold in coin for an ounce of pure 
 gold in bullion, under the newjaw, than he used to 
 get under the old law, yet that with his 480 grains of 
 pure gold in coin, received at the mint for one ounce 
 of pure gold, he can procure from the banks or from 
 individuals, 8607 grains of standard silver, so that it 
 amounts to the same thing whether he sells his ounce 
 of metal for gold or silver. This would be true un- 
 questionably, if the fact were as supposed that 8607 
 grains of standard silver could be permanently pur- 
 chased for 480 grains of pure gold. That it can be 
 thus purchased, at this time, will not be denied, but 
 that it can permanently remain procurable at that 
 rate, is not admitted. It is not possible for two metals, 
 long to circulate interchangeably at a legal equiva- 
 lency, if there be not at the same time, a market 
 equivalency. The dearer one will inevitably be ex- 
 ported whenever the course of trade leads to the ex- 
 
.238 APPENDIX. 
 
 portation of coin, leaving the cheaper one to supply 
 the channels of circulation. Thus in the case before 
 us, whenever exchange shall rise so high as to render 
 it more profitable for an importing merchant to ex- 
 port bullion than to buy a bill, he will export silver, 
 as being more valuable abroad, in consequence of its 
 being undervalued at home, and on the other hand, 
 whenever the course of trade invites the importation 
 of bullion, gold will be imported, because it is over- 
 valued by our laws. Nothing indeed can prevent in 
 process of time the almost complete draining of the 
 country of all its large silver coins of full weight under 
 the present law, if the relative value of gold and sil- 
 ver in the market of the trading world, should con- 
 tinue the same as it now is, or fall back towards the 
 old proportion of 1 to 15. 
 
 A gold standard then instead of a silver one, may 
 be fairly considered as the one which must ultimately 
 prevail in the United States, and consequently the 
 gold dollar of 23 2-10 grains of fine gold, and not the 
 silver dollar of 416 grains standard silver will be the 
 money of account, and coin in which bank notes will 
 be payable. When this state of things then arrives, 
 what will the producer of gold in the southern states 
 have gained by the change in the relative value of 
 gold and silver? Positively nothing. He will not 
 be enabled to exchange an ounce of gold for any 
 more commodities than he used to do before the alter- 
 ation of the coinage. When people sell goods for 
 gold, they sell them for specific quantities of gold, 
 and not for the jingle it will make, or, for any title it 
 may bear. If a law were to declare that a dollar, 
 instead of containing 416 grains of standard silver, 
 should contain but half the quantity, that is, 208 
 grains, and should be a legal tender at that weight, 
 the consequence would be, that every man who had 
 an article for sale worth one dollar before the enact- 
 ment of the law, would refuse to sell it for less than 
 two dollars. The same would be the case, whatever 
 
APPENDIX. 239 
 
 the diminution of weight might be. If 5 per cent, 
 were deducted from the weight of coins, all commo- 
 dities would rise in price 5 per cent. Nobody would 
 gain by the change, except the class of debtors owing 
 money at the time, and nobody would lose, but the 
 class of creditors, the former by being enabled to dis- 
 charge a debt with less metal than they had con- 
 tracted to pay, and the latter by being compelled to 
 accept it. But all new contracts and engagements 
 would have reference to the new coins, which would 
 possess a value precisely in proportion to the quantity 
 of pure rnetal contained in them. 
 
 It may, however, be thought that during the time 
 which must elapse before the standard is changed 
 from silver to gold, by the expulsion of the silver, the 
 producer of gold would be benefitted to the extent of 
 two per cent, and a fraction, by his ability to obtain 
 8607 grains of standard silver for an ounce of pure 
 gold. But this is not so, for the effect of the law is to 
 depreciate the value of the silver down to the level 
 of the gold, for, let it be remembered, that to increase 
 the price of gold, which was the design of the gold 
 bill, is to decrease the price of silver. The law which 
 says, that a number of gold coins which contain one 
 ounce of pure gold, shall pass for no more than 
 the number of silver coins that contain 8607 grains 
 of standard silver, at the same time declares, that the 
 number of silver coins which contain 8607 grains of 
 standard silver shall pass for no more than the num- 
 ber of gold coins that contain one ounce of pure gold. 
 So long, therefore, as the two metals circulate inter- 
 changeably, the one possesses no more value in ex- 
 change, than the other, and consequently, a number 
 of coins containing 8607 grains of standard silver, 
 will purchase no more than a number of coins con- 
 taining one ounce of pure gold. It is only for ex- 
 portation, or consumption in manufactures, that the 
 silver would possess the superior value referred to, 
 and this superior value would benefit only the ex- 
 
240 APPENDIX. 
 
 porting merchant, and not the producer of gold. It 
 is true, however, that after silver should have become 
 scarce, it would command a premium in the market, 
 as gold used to do, in which case 8607 grains of 
 standard would no longer be procurable for one ounce 
 of pure gold, and consequently the producer of gold 
 would not have even the shadow of a benefit from 
 the change. 
 
 Is there then no advantage to result to the southern 
 producers of gold, from the operations of the measures 
 of the great alchymists who have brought back the 
 golden age? We reply, none whatever, except that tri- 
 fling and almost inappreciable one to which we ad vert- 
 ed at the commencement of this article,arising from the 
 fact, that a new demand for gold has been created by 
 its adoption as the American standard. What this 
 will amount to must be conjectural, but we should 
 suppose, when we advert to the actual stock of gold 
 coin and bullion now in existence in Europe, Asia, 
 Africa, North and South America, the accumulation 
 of centuries, that the demand for the American mar- 
 ket can have no perceptible influence in raising the 
 value of the whole mass. Whatever that rise may 
 be, however, it will go to the benefit of the domestic 
 producer of gold, but that is all he will derive from a 
 measure fraught with infinite mischief to the country, 
 and accompanied by a breach of the public faith. 
 
 NOTE. 
 
 After writing the foregoing article, we were fur- 
 nished by a respectable broker of this city, with a 
 statement of the price of American gold, during the 
 years for which we have above given the prices of 
 foreign gold, which is as follows: 
 
 Buying price. Selling 1 price, 
 
 per cent. prem. per cent. prem. 
 
 1828, Jan. 19, 5 to 5$ 7 
 
 1829, 1, 5 to 6 6h 
 
 1830, " 1, 3* to 4* 5 
 
APPENDIX. 241 
 
 1831, " 1, 2k to 3 4 to 5 
 
 1832, " 13, 2h 3 
 
 An average of these rates is 3| for the buying 
 price, and 5 per cent, for the selling price, giving a 
 
 medium of 4g per cent, which is sufficiently near to 
 4 per cent, for our purpose. 
 
 21 
 
242 
 
 APPENDIX. 
 
 
 
 2 w 
 
 Q HI 
 g 
 O 
 
 o 
 
 a 
 
 H 
 
 fe 
 O 
 
 Til 
 
 Number of 
 banks the af 
 fairs of whic 
 are estimated 
 
 Number of 
 banks from 
 which returns 
 are received. 
 
 1 
 
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 w ^ - . , ^ ^ *, ' 2 
 
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 k"eo" 
 
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 OO 
 
APPENDIX. 243 
 
 D. 
 
 THE NEW YORK GENERAL BANKING LAW. 
 
 AN ACT TO AUTHORISE THE BUSINESS OF BANKING PASS- 
 ED APRIL 18, 1838. 
 
 The, people of the State of New York, represented in 
 senate and assembly y do enact as follows : 
 
 1. The comptroller is-*hereby authorised and re- 
 quired to cause to be engraved and printed in the best 
 manner, to guard against counterfeiting, such quantity 
 of circulating notes, in the similitude of bank notes in 
 blank, of the different denominations authorised to be 
 issued by the incorporated banks of this state, as he 
 may from time to time deem necessary to carry into 
 effect the provisions of this act, and of such form as he 
 may prescribe. Such blank circulating notes shall be 
 countersigned, numbered, and registered, in proper 
 books to be provided and kept for that purpose in the 
 office of said comptroller, under his direction, by such 
 person or persons as the said comptroller shall appoint 
 for that purpose; so that each denomination of such 
 notes circulating shall all be of the same similitude and 
 bear the uniform signature of such register; or one 
 of such registers. 
 
 2. Whenever any person or association of persons, 
 formed for the purpose of banking under the provis- 
 ions of this act, shall legally transfer to the comptroller 
 any portion of the public debt now created or hereafter 
 to be created by the United States or by this state, or 
 such other states of the United States as shall be ap- 
 proved by the comptroller, such person or associa- 
 tion of persons shall be entitled to receive from the 
 comptroller an equal amount of such circulating notes 
 
244 APPENDIX. 
 
 of different denominations, registered and countersign- 
 ed as aforesaid; but such public debt shall in all cases 
 be, or be made to be, equal to a stock of this state, 
 producing five per cent, per annum, and it shall not 
 be lawful for the comptroller to take any stock at a 
 rate above its par value. 
 
 3. Such person or association of persons are here- 
 by authorised, after having executed and signed such 
 circulating notes in the manner required by law, to 
 make them obligatory promissory notes payable on 
 demand, at the place of business within this state, of 
 such person or association, to loan and circulate the 
 same as money according to the ordinary course of 
 banking business as regulated by the laws and usages 
 of this state. 
 
 4. In case the maker or makers of any such circu- 
 lating notes countersigned and registered as aforesaid, 
 shall at any time, hereafter, on lawful demand during 
 the usual hours of business, between the hours of ten 
 and three o'clock, at the place where such note is pay- 
 able, fail or refuse to redeem such note in the lawful 
 money of the United States, the holder of such note 
 making such demand may cause the same to be pro- 
 tested for non-payment by a notary public, under his 
 seal of office in the usual manner; and the comptroller 
 on receiving and filing in his office such protest, shall 
 forthwith give notice in writing to the maker or makers 
 of such note to pay the same: and if he or they shall 
 omit to do so for ten days after such notice, the comp- 
 troller shall immediately thereupon, (unless he shall 
 be satisfied that there is a good and legal defence 
 against the payment of such note or notes,) give no- 
 tice in the state paper that all the circulating notes is- 
 sued by such person or association will be redeemed 
 out of the trust funds in his hands for that purpose; 
 and it shall be lawful for the comptroller to apply the 
 said trust funds belonging to the maker or makers of 
 such protested notes to the payment and redemption 
 of such notes, with costs of protest, and to adopt such 
 
APPENDIX. 245 
 
 measures for the payment of all such circulating notes 
 put in circulation by the maker or makers of such pro- 
 tested notes, pursuant to the provisions of this act as 
 will in his opinion most effectually prevent loss to the 
 holders thereof. 
 
 5. The comptroller may give to any person or as- 
 sociation of persons, so transferring stock in pursuance 
 of the provisions of this act, powers of attorney to re- 
 ceive interest or dividends thereon, which such person 
 or association may receive and apply to their own 
 use; but such powers may be revoked upon such per- 
 son or association failing to redeem the circulating 
 notes so issued, or whenever, in the opinion of the 
 comptroller, the principal of such stock shall become 
 an insufficient security; and the said comptroller, upon 
 the application of the owner or owners of such trans- 
 ferred stock in trust, may, in his discretion, change or 
 transfer the same for other stocks of the kind before 
 specified in this act, or may retransfer the said stocks 
 or any part thereof, or the mortgages, or any of them 
 hereinafter mentioned and provided for, upon receiving 
 and cancelling an equal amount of such circulating 
 notes delivered by him to such person or association, 
 in such manner that the circulating notes shall always 
 be secured in full either by stocks or by stocks and 
 mortgages, as in this act provided. 
 
 6. The bills or notes so to be countersigned, and 
 the payment of which shall be so secured by the trans- 
 fer of public stocks, shall be stamped on their face, 
 " Secured by the pledge of public stocks." 
 
 7. Instead of transferring public stocks as aforesaid 
 to secure the whole amount of such bills or notes, it 
 shall be lawful for such person or association of per- 
 sons, in case they shall so elect before receiving any 
 of the said bills or notes, to secure the payment 
 of one half of the whole amount so to be issued, by 
 transferring to the comptroller bonds and mortgages 
 upon real estate, bearing at least six per cent, interest 
 of this state, payable annually or semi-annually; in 
 21* 
 
246 APPENDIX. 
 
 which case all snch bills or notes issued by the said 
 person or association of persons, shall be stamped on 
 their face, " Secured by pledge of public stocks and 
 real estate." 
 
 8. Such mortgages shall be only upon improved, 
 productive, unincurnbered lands within this state, 
 worth, independently of any buildings thereon, at 
 least double the amount for which they shall be so 
 mortgaged; and the comptroller shall prescribe snch 
 regulations for ascertaining the title and the value 
 of such lands as he may deem necessary; and such 
 mortgages shall be payable within such time as the 
 comptroller may direct. 
 
 9. The comptroller may, in his discretion, reas- 
 sign the said bonds and mortgages, or any of them, to 
 the person or association who transferred the same, 
 on receiving other approved bonds and mortgages of 
 equal amount; and when any sum of the principal of 
 the bonds and mortgages transferred to the comptroller 
 shall be paid to him, he shall notify the person or as- 
 sociation that transferred the bonds and mortgages of 
 such payment, and may pay the same to such person 
 or association on receiving other approved bonds and 
 mortgages of equal amount. 
 
 10. The person or association of persons assigning 
 such bonds and mortgages to the comptroller, may 
 receive the annual interest to accrue thereon, unless 
 default shall be made in paying the bills or notes to 
 be countersigned as aforesaid, or unless in the opinion 
 of the comptroller the bonds and mortgages or stocks 
 so pledged shall become an insufficient security for the 
 payment of such bills or notes. 
 
 11. In case such person or association of persons, 
 shall fail or refuse to pay such bills or notes on de- 
 mand in the manner specified in the 4th section of 
 this act, the comptroller, after the ten days' notice 
 therein mentioned, may proceed to sell at public auc- 
 tion, the public stocks so pledged or the bonds and 
 mortgages so assigned, or any or either of them, and 
 
APPENDIX. 247 
 
 out of the proceeds of such sale shall pay and cancel 
 the said bills or notes, default in paying which shall 
 have heen made as aforesaid; but nothing in this act 
 contained shall be considered as implying any pledge 
 on the part of the state for the payment of said bills or 
 notes, beyond the proper application of the securities 
 pledged to the comptroller for their redemption. 
 
 12. The public debt, and bonds, and mortgages, 
 to be deposited with the comptroller by any such per- 
 son or association, shall be held by him exclusively 
 for the redemption of the bills or notes of such person 
 or association put in circulation as money, until the 
 same are paid. 
 
 13. The plates, dies, and materials to be procured 
 by the comptroller for the printing and making of the 
 circulating notes provided for hereby, shall remain in 
 his custody and under his direction; and the expenses 
 necessarily incurred in executing the provisionsof this 
 act, shall be audited and settled by the comptroller, 
 and paid out of any moneys in the treasury not other- 
 wise appropriated; and for the purpose of reimbur- 
 sing the same, the said comptroller is hereby autho- 
 rised and required to charge against and receive from 
 such person or association applying for such circula- 
 ting notes, such rate per cent, thereon as may be suf- 
 ficient for that purpose, and as may be just and rea- 
 sonable. 
 
 11. It shaU not be lawful for the comptroller, or 
 other officer, to countersign bills or notes for any per- 
 son or association of persons, to an amount in the ag- 
 gregate exceeding the public debt, or public debt and 
 bonds and mortgages at their value, as provided in the 
 2d section of this act, deposited with the comptroller 
 by such person or association; and any comptroller 
 or other officer who shall violate the provisions of 
 this section, shall, upon conviction, be adjudged guilty 
 of a misdemeanor, and shall be punished by a fine 
 not less than five thousand dollars, or be imprisoned 
 not less than five years, or by both such fine and im- 
 prisonment. 
 
248 APPENDIX. 
 
 15. Any number of persons may associate to es- 
 tablish offices of discount, deposite, and circulation, 
 upon the terms and conditions, and subject to the lia- 
 bilities prescribed in this act; but the aggregate 
 amount of the capital stock of any such association 
 shall not be less than one hundred thousand dollars. 
 
 16. Such persons, under their hands and seals, 
 shall make a certificate which shall specify: 
 
 1. The name assumed to distinguish such associa- 
 tion, and to be used in its dealings. 
 
 2. The place where the operations of discount and 
 deposite of such association are to be carried on, de- 
 signating the particular city, town, or village. 
 
 3. The amount of the capital stock of such associ- 
 ation, and the number of shares into which the same 
 shall be divided. 
 
 4. The names and places of residence of the share- 
 holders, and the number of shares held by each of 
 them respectively. 
 
 5. The period at which such association shall com- 
 mence and terminate; which certificate shall be proved 
 or acknowledged and recorded in the office of the clerk 
 of the county where any office of such association 
 shall be established, and a copy thereof filed in the 
 office of the secretary of state. 
 
 17. The certificate required by the last preced- 
 ing section to be recorded and filed in the office of the 
 clerk of the county and secretary of state as afore- 
 said, or copies thereof, duly certified by either of those 
 officers, may be used as evidence in all courts and 
 places for and against any such association. 
 
 18. Such association shall have power to carry on 
 the business of banking, by discounting bills, notes, 
 and other evidences of debt; by receiving deposites; 
 by buying and selling gold and silver bullion, foreign 
 coins and bills of exchange in the manner specified in 
 their articles of association for the purpose authorised 
 by this act; by loaning money on real and personal 
 security; and by exercising such incidental powers as 
 
APPENDIX. 249 
 
 shall be necessary to carry on such business; to choose 
 one of their number as president of such association, 
 and to appoint a cashier, and such other officers and 
 agents as their business may require, and to remove 
 such president, cashier, officers and agents at pleasure, 
 and appoint others in their place. 
 
 19. The shares of said association shall be deemed 
 personal property, and shall be transferable on the 
 books of the association in such manner as may be 
 agreed on in the articles of association, and every 
 person becoming a shareholder by such transfer, shall, 
 in proportion to his shares, succeed to all the rights and 
 liabilities of prior shareholders; and no change shall be 
 made in the articles of association, by which the rights, 
 remedies, or security of its existing creditors shall be 
 weakened or impaired. Such association shall not be 
 dissolved by the death or insanity of any of the 
 shareholders therein. 
 
 20. It shall be lawful for any association of per- 
 sons organised under this act by their articles of asso- 
 ciation, to provide for an increase of their capital and 
 of the number of the associates, from time to time, as 
 they may think proper. 
 
 21. Contracts made by any such association, and 
 all notes and bills by them issued and put in circula- 
 tion as money, shall be signed by the president or 
 vice president and cashier thereof; and all suits, actions, 
 and proceedings brought or prosecuted by or on be- 
 half of such association, may be brought or prosecu- 
 ted in the name of the president thereof; and no such 
 suit, action, or proceeding, shall abate by reason of 
 the death, resignation, or removal from office of such 
 president, but may be continued and prosecuted ac- 
 cording to such rule as the courts of law or equity 
 may direct, in the name of his successor in office, 
 who shall exercise the powers, enjoy the rights, and 
 discharge the duties of his predecessor. 
 
 22. All persons having demands against any such 
 association, may maintain actions against the presi- 
 
50 APPENDIX. 
 
 dent thereof; which suits or actions shall not abate by 
 reason of the death, resignation, or removal from 
 office of such president, but may be continued and 
 prosecuted to judgment against his successor; and all 
 judgments and decrees obtained or rendered against 
 such president for any debt or liability of such asso- 
 ciation, shall be enforced only against the joint pro- 
 perty of the association, and which property shall be 
 liable to be taken and sold by execution under any 
 such judgment or decree. 
 
 23. No shareholder of any such association shall 
 be liable in his individual capacity for any contract, 
 debt, or engagement of such association, unless the 
 articles of association by him signed shall have de- 
 clared that the shareholder shall be so liable. 
 
 24. It shall be lawful for such association to pur- 
 chase, hold, arid convey real estate for the following 
 purposes: 
 
 1. Such as shall be necessary for its immediate ac- 
 commodation in the convenient transaction of its busi- 
 ness; or 
 
 2. Such as shall be mortgaged to it in good faith, 
 by way of security for loans made by, or moneys due 
 to such association; or 
 
 3. Such as shall be conveyed to it in satisfaction 
 of debts previously contracted in the course of its 
 dealings; or 
 
 4. Such as it shall purchase at sales under judg- 
 ments, decrees, or mortgages held by such association. 
 
 5. The said association shall not purchase, hold, or 
 convey real estate in any other case or for any other 
 purpose; and all conveyances of such real estate shall be 
 made to the president, or such other officer as shall be 
 indicated for that purpose in the articles of association; 
 and which president or officer, and his successors, 
 from time to time, may sell, assign, and convey the 
 same, free from any claim thereon, against any of the 
 shareholders, or any person claiming under them. 
 
 25. Upon the application of creditors or share- 
 
APPENDIX. , 251 
 
 holders of any such association, whose debts or shares 
 shall amount to one thousand dollars, and stating 
 facts, verified by affidavit, the chancellor may, in his 
 discretion, order a strict examination to be made by 
 one of the masters of his court of all the affairs of 
 such association, for the purpose of ascertaining the 
 safety of its investments, and the prudence of its ma- 
 nagement; and the result of every such examination, 
 together with the opinion of the master and of the 
 chancellor thereon, shall be published in such manner 
 as the chancellor shall direct, who shall make such 
 order in respect to the expenses of such examination 
 and publication as he may deem proper. 
 
 26. Such association shall on the first Mondays 
 of January and July in every year after having com- 
 menced the business of banking as prescribed by this 
 act, make out and transmit to the comptroller, in the 
 form to be provided by him, a full statement of the 
 affairs of the association, verified by the oath of the 
 president or cashier, which statement shall contain 
 
 1. The amount of the capital stock paid in accord- 
 ing to the provisions of this act, or secured to be paid. 
 
 2. The value of the real estate of the association, 
 specifying what portion is occupied by the associa- 
 tion as necessary to the transaction of its business. 
 
 3. The shares of stock held by such association; 
 whether absolutely or as collateral security; specify- 
 ing each kind and description of stock, and the num- 
 ber and value of the shares of each. 
 
 4. The amount of debts due to the association, 
 specifying such as are due from monied or other cor- 
 porations or associations; and also specifying the 
 amount secured by bond and mortgage or judgment; 
 and the amount which ought to be included in the 
 computation of losses. 
 
 5. The amount of debts due by such association; 
 specifying such as are payable on demand, and such 
 as are due to monied or other corporations or asso- 
 ciations. 
 
252 APPENDIX. 
 
 6. The amount of claims against the association 
 not acknowledged by its debts. 
 
 7. The amount of notes, bills, or other evidences 
 of debt, issued by such association. 
 
 8. The amount of the losses of the association; 
 specifying whether charged on its capital or profits, 
 since its last preceding statements, and of its dividends 
 declared and made during the same period. 
 
 9. The average amount in each month during the 
 preceding six months of the debts due to and from 
 the association; the average amount of specie posses- 
 sed by the same during each month, and the amount 
 of bills and notes issued by such association and put 
 in circulation as money, and outstanding against the 
 association, on the first day of each of the preceding 
 six months. 
 
 10. The average amount in each month during 
 the preceding six months due to the association, from 
 all the shareholders in the association; also the great- 
 est amount due the association in each of the said 
 preceding six months, from all the shareholders in 
 such association. 
 
 11. The amount which the capital of the said as- 
 sociation has been increased during the preceding six 
 months, if there shall have been any increase of the 
 said capital; and the names of any persons who may 
 become parties to the said articles of association, or 
 may have withdrawn therefrom since their last re- 
 port. 
 
 It shall be the duty of the comptroller to cause the 
 statement required to be made by this section, to be 
 published in a newspaper printed in the county 
 where the place of business of such association is 
 situate, and in the state paper; the expense of which 
 shall be paid by such association. 
 
 27. If such association shall neglect to make out 
 and transmit the statement required in the last pre- 
 ceding section, for one month beyond the period when 
 the same is required to be made, or shall violate any 
 
APPENDIX. 253 
 
 of the provisions of this act, such association may be 
 proceeded against and dissolved by the court of chan- 
 cery, in the same manner as any moneyed corporation 
 may be proceeded against and dissolved. 
 
 28. If any portion of the original capital of any 
 such association shall be withdrawn for any purpose 
 whatever whilst any debts of the association remain 
 unsatisfied, no dividends or profits on the shares of the 
 capital stock of the association shall thereafter be 
 made until the deficit of capital shall have been made 
 good, either by subscription of the shareholders, or 
 out of the subsequently accruing profits of the asso- 
 ciation; and if it shall appear that any such dividends 
 have been made, it shall be the duty of the chancel- 
 lor to make the necessary orders and decrees for 
 closing the affairs of the association, and distributing 
 its property and effects among its creditors and share- 
 holders. 
 
 29. Such- association shall be liable to pay the 
 holder of every bill or note put in circulation as mo- 
 ney, the payment of which shall have been demanded 
 and refused, damages for non-payment thereof, in 
 lieu of interest, at and after the rate of fourteen per 
 cent, per annum, from the time of such refusal until 
 the payment of such evidence of debt, and the dama- 
 ges thereon. 
 
 30. The president and cashier of every association 
 formed pursuant to the provisions of this act, shall at 
 all times keep a true and correct list of the names of 
 the shareholders of such association, and shall file a 
 copy of such list in the office of the clerk of the county 
 where any office of such association may be located, 
 and also in the office of the comptroller, en the first 
 Mondays of January and July in every year. 
 
 31. It shall not be lawful for any association 
 formed under the provisions of this act, to make any 
 of its bills or notes of a denomination less than one 
 thousand dollars, to be put in circulation as money, 
 payable at any other place than at the office where 
 22 
 
254 APPENDIX. 
 
 the business of the association is carried on and con- 
 ducted. 
 
 32. The legislature may at any time alter or re- 
 peal this act. 
 
 33. No association of persons authorised to carry 
 on the business of banking under this act, shall at any 
 time, for the space of twenty days, have on hand at 
 their place of business, less 'than twelve and a half 
 per cent, in specie on the amount of the bills or notes 
 in circulation as money. 
 
 Stale of New York, Secretary's Office. 
 
 This bill having been approved and signed by the go- 
 vernorof this state,on the 18th of April, 1838,1 do here- 
 by certify that the same became a law on that day. 
 JOHN A. Dix, Secretary of State. 
 
 ISee Appendix J.J 
 
 E. 
 
 LETTER FROM THE AUTHOR TO JOHN W. COWELL, ESQ., 
 AGENT OF THE BANK OF ENGLAND IN THE UNITED 
 STATES. 
 
 Philadelphia, tfpril 15, 1839. 
 MY DEAR SIR: 
 
 As you are upon the eve of departure for England, 
 after, as I understand, a highly successful issue to 
 your financial mission to this country, I take occasion 
 to hand you a copy of the "Treatise on Currency 
 and Banking," of which you have seen a few of the 
 early chapters, in the hopes that you will find them, 
 in the main, in accordance with your own views of 
 those important subjects. I am the more inclined to 
 this expectation, from recollecting the tenor of the 
 
APPENDIX. 255 
 
 frequent conversations I have had with you, from 
 which I need hardly say, I derived much valuable, 
 instructive, and practical information, as well as from 
 a perusal of the unpublished pamphlet, with a copy 
 of which you favored me, setting forth your indivi- 
 dual opinions upon the best system of reform for the 
 paper currency of England. 
 
 In regard to the latter subject, I am free to confess, 
 that the United States have a deep interest in its dis- 
 cussion, and they will owe much to the political econo- 
 mist or statesman, who shall be so fortunate, as suc- 
 cessfully to advocate a reform that shall prevent fluc- 
 tuations in the currency of Great Britain. It was 
 some years since remarked in our congress, by a mem- 
 ber, that the barometer of the money market of the 
 United States was hanging up in the stock exchange 
 of London. Since the conflagration of that building, 
 I would say that the barometer has been hanging up 
 in the " parlour'' of the bank of England; and in 
 truth, so closely allied are our two currencies by the 
 ill-advised change in our fold coinage, which took 
 place in the year 1834, that it is impossible that any 
 expansion or contraction of the currency can take 
 place in England, that will not be felt here; in the one 
 case, inviting our banks to extend their discounts, and 
 thereby excite overtrading and speculation, and in the 
 other case, compelling them to contract their loans, 
 and thereby produce a general commercial embarrass- 
 ment. 
 
 The plan you have suggested, and to which I have 
 above referred, appears to me to be eminently adapted 
 to accomplish the end proposed ; and if the paper cur- 
 rency of this country were under the control of a 
 single legislative body, as it is in England, instead of 
 thirty bodies, as it is, I would recommend it as the 
 best plan I have yet met with, for enabling the pub- 
 lic to enjoy all the benefits of a paper circulation, 
 without any of its evils. 
 
 According to that plan, as I understand it, the mint 
 
256 APPENDIX. 
 
 is to issue certificates for sums of one pound, five 
 pounds, and any greater denomination, upon a depo- 
 site of gold of equal amount; and such fixed propor- 
 tion of the gold so deposited, as may be ascertained, 
 from experience, to be the amount that may, with 
 the most perfect safety, be withdrawn by exportation 
 from the metallic portion of the currency, is to be im- 
 mediately invested in the public funds, by commis- 
 sioners appointed for that purpose. By this process, 
 the following results will be effected: 
 
 First. The mixed currency, after the exportation 
 of the gold above referred to, will be precisely equal 
 to the quantity of coin that would have existed in the 
 country, had there been no mint certificates. 
 
 Secondly. The country would derive the profits 
 resulting from the employment of a certain amount of 
 capital in commercial pursuits^ which would other- 
 wise have been unprofitably employed as currency. 
 
 Thirdly. The public, and not private corporations, 
 or individuals, would enjoy a profit resulting from the 
 circulation of the paper m^iey, precisely equal to the 
 accruing interest on the public debt held by the com- 
 missioners; and, 
 
 Fourthly. The country would be entirely exempted 
 from any fluctuation in the currency, other than that 
 to which a metallic currency is liable; it being neces- 
 sarily incident to the plan, that whenever mint cer- 
 tificates should be returned for payment in gold, the 
 commissioners should obtain in the market, by a sale 
 of public securities, an amount of coin precisely equal 
 to that which was invested, on the issue of the notes 
 so returned. 
 
 Against the soundness of this plan, I am not able to 
 see any objections. How far a general panic, arising 
 from war, or domestic disturbance, might render it 
 difficult to sell public securities in a time of emergency, 
 you are better able to judge than I am. Certain is it, 
 however, that no depression of the stock market could 
 result from a reaction of an expanded state of the 
 
APPENDIX. 257 
 
 currency, the most frequent cause of depressions at 
 the present day, for, as there would be no expansion, 
 there could be no reaction. 
 
 Before parting, I can not omit the occasion to say to 
 you, that, although the political horizon is, at this 
 moment, somewhat over cast, I can not persuade 
 myself that two countries like Great Britain and the 
 United States, so peculiarly adapted to supply each 
 other's wants, and whose mutual interest it so mani- 
 festly is to maintain an eternal friendship, can, at this 
 enlightened day, be guilty of the folly of going to war. 
 And now, wishing you a safe and expeditious voyage, 
 
 I subscribe myself, very truly and respectfully, 
 Your friend and servant, 
 
 CONDY RAGUET. 
 
 22' 
 

 258 
 
 APPENDIX. 
 
 F. 
 
 Imports and Exports of the United States, from the 1st of October, 
 1789, to the 30th of September, 1838, taken from documents 
 accompanying the Secretary of the Treasury's annual Report to 
 Congress, of the 3d of December, 1839. 
 
 
 
 Total value 
 of Imports. 
 
 Total value ^ 
 of Exports. Domestic. 
 
 Foreign. 
 
 1790 
 
 $23,000,000 
 
 $20,205,156 $19,666,000 
 
 $539,156 
 
 1791 
 
 29,200,000 
 
 19,012,041 
 
 18,500,000 
 
 512,041 
 
 1792 
 
 31,500,000 
 
 20,753,098 
 
 19,000,000 
 
 1,753,098 
 
 1793 
 
 31,100,000 
 
 26,109,572 
 
 24,000,000 
 
 2,109,572 
 
 1794 
 
 34,600,000 
 
 33,026,233 
 
 26,500,000 
 
 6,526,233 
 
 1795 
 
 69,756,268 
 
 47,989,472 
 
 39,500,000 
 
 8,489,472 
 
 1796 
 
 81,436,164 
 
 67,064,097 
 
 40,764,097 
 
 26,300,000 
 
 1797 
 
 75,379,406 
 
 56,850,006 
 
 29,850,026 
 
 27,000,000 
 
 1798 
 
 68,551,700 
 
 61,527,097 I 28,527,097 
 
 33,000,000 
 
 1799 
 
 79,069,148 
 
 78,665,522 33,142,522 
 
 45,523,000 
 
 1800 
 
 91,252,768 
 
 70,971,780 31,840,903 
 
 39,130,877 
 
 1801 
 
 111,363,511 
 
 94,115,925! 47,473,204 
 
 46,642,721 
 
 1802 
 
 76,333,333 
 
 72,483,160 36,708,189 
 
 35,774,971 
 
 1803 
 
 64,666,666 
 
 55,800,033 
 
 42,205,961 
 
 13,594,072 
 
 1804 
 
 85,000,000 
 
 77,699,074 
 
 41,467,477 
 
 36,231,597 
 
 1805 
 
 120,600,000 
 
 95,566,021 j 42,387,002 
 
 53,179,019 
 
 1806 
 
 129,410,000 
 
 101,536,963 
 
 41,253,727 
 
 60,283,236 
 
 1807 
 
 138,500,000 
 
 108,343,150 
 
 48,699,592 
 
 59,643,558 
 
 1808 
 
 56,990,000 
 
 22,430,960 
 
 9,433,546 
 
 12,997,414 
 
 1809 
 
 59,400,000 
 
 52,203,231 
 
 31,405,700 
 
 20,797,531 
 
 1810 
 
 85,400,000 
 
 66,757,974 
 
 42,366,679 
 
 24,391,295 
 
 1811 
 
 53,400,000 
 
 61,316,831 
 
 45.294,041 
 
 16,022,790 
 
 1812 
 
 77,030,000 
 
 38,527,236 
 
 30,032,109 
 
 8,495,127 
 
 1813 
 
 22,005,000 27,855,997 
 
 25,008,152 
 
 2,847,845 
 
 1814 
 
 12,965,000 
 
 6,927,441 
 
 6,782,272 
 
 145,169 
 
 1815 
 
 113,041,274 
 
 52,557,753 
 
 45,974,403 
 
 6,583,350 
 
 1816 
 
 147,103,000 81,920,452 
 
 64,781,896 
 
 17,138,556 
 
 1817 
 
 99,250,000 87,671,569 
 
 68,313,500 
 
 19,358,069 
 
 1818 
 
 121,750,000 93,281,133 
 
 73,854,437 
 
 19,426,696 
 
 1819 87,125,000 
 
 70,142,521 
 
 50,976,838 
 
 19,165,683 
 
 1890 74,450,000 
 
 69,691,669 
 
 51,683,640 
 
 18,008,029 
 
 1821) 62,585,724 
 
 64,974,382 
 
 43,671,894 
 
 21,302,488 
 
APPENDIX. 
 
 259 
 
 1 
 
 <o 
 
 >H 
 
 Total value 
 of Imports. 
 
 Total value 
 of Exports. 
 
 Domestic. 
 
 Foreign. 
 
 1822 
 
 $83,241,511 
 
 $72,160,387 
 
 $49,874,185 
 
 $22,286,202 
 
 1823 
 
 77,579,267 
 
 74,699,030 
 
 47,155,408 
 
 27,543,622 
 
 1824 
 
 80,549,007 
 
 75,986,657 
 
 50,649,500 
 
 25,337,157 
 
 1825 
 
 96,340,075 
 
 99,535,388 
 
 66,944,745 
 
 32,590,643 
 
 1826 
 
 84,974,477 
 
 77,595,322 
 
 53,055,710 
 
 24,539,612 
 
 1827 
 
 79,484,068 
 
 82,324,827 
 
 58,921,691 
 
 23,403,136 
 
 1828 
 
 88,509,824 
 
 72,264,686 
 
 50,669,669 
 
 21,595,017 
 
 1829 
 
 74,492,527 
 
 72,358,671 
 
 55,700,193 
 
 16,658,478 
 
 1830 
 
 70,876,920 
 
 73,849,508 
 
 59,462,029 
 
 14,387,479 
 
 1831 
 
 103,191,124 
 
 81,310,583 
 
 61,277,057 
 
 20,033,526 
 
 1832 
 
 101,029,266 
 
 87,176,943 
 
 63,137,470 
 
 24,039,473 
 
 1833 
 
 108,118,311 
 
 90,140,433 
 
 70,317,698 
 
 19,822,735 
 
 1834 
 
 126,521,332 
 
 104,336,973 
 
 81,034,162 
 
 23,312,811 
 
 1835 
 
 149,895,742 
 
 121,693,577 
 
 101,189,082 
 
 20,504,495 
 
 1836 
 
 189,980,035 
 
 128,663,040 
 
 106,916,680 
 
 21,746,360 
 
 1837 
 
 140,989,217 
 
 117,419,376 
 
 95,564,414 
 
 21,854,962 
 
 1838 
 
 113,717,404 
 
 108,486,616 
 
 96,033,821 
 
 12,452,795 
 
 1839*157,609,5601 118,359,004 | 100,951,004 | 17,408,000 
 
 NOTE. 
 
 For the early years the aggregate of the value of imports does 
 not appear on the official statement, and has been estimated at 
 different amounts by different persons, and thus that column will 
 not always correspond with former reports. But the difference 
 will not be found so great as to affect materially any general 
 result. [In former reports it is stated, that prior to the 1st of 
 October 1820, the official returns do not show the value of im- 
 ports. Previous to 1796, the returns of exports did not dis- 
 criminate between domestic and foreign productions. Author.'} 
 
 * The imports and exports, for 1839, are estimated thus by the 
 secretary, the exact returns not having been received by him. Author. 
 
260 APPENDIX. 
 
 G. 
 
 ON UNLIMITED LIABILITY. 
 By James Cox Esq. of Philadelphia. 
 
 THE question of the extent of the liability of indi- 
 viduals, and of their natural right to limit that liability, 
 is one which, in its moral as well as in its economical 
 aspects and relations, is of the highest interest and im- 
 portance, and the satisfactory solution of which is in- 
 timately connected with the investigation of those 
 general and fundamental principles of justice and of 
 expediency, which should form the basis of all posi- 
 tive enactments. 
 
 Prominent among the many plausible yet shallow 
 fallacies which have, with a zeal and a perseverance 
 worthy of a better cause, been urged in favor of the 
 device of a limitation of individual liability of a re- 
 striction upon personal responsibility is the vain and 
 contradictory assumption that the adoption and exten- 
 sion of this system of restraints is required by an en- 
 lightened adherence to the doctrines of the free trade 
 theory a theory in the general truth of the conclu- 
 sions of which there is, as we think, no sufficient rea- 
 son to doubt. 
 
 What would be the condition of individuals living 
 in a state of the largest liberty consistent with the 
 protection of each in the enjoyment of his natural 
 rights, and under the control of no laws except such 
 as might be necessary to enforce that performance of 
 engagements which is required by a regard to the 
 paramount obligations of morality, and to the demands 
 of justice? A. B. and C. would, as it is perfectly 
 manifest, trade with each other upon the condition of 
 the natural and unlimited liability of each. And 
 
APPENDIX. 261 
 
 should A. B. and C. associate together in order to trade 
 with D. E. and F., it would still, in strict conformity 
 with the moral law, be upon the basis of the natural 
 and unrestrained responsibility of each, not merely 
 for the consequences of his own individual actions, 
 but for those of the association of which he was a 
 member. And from this condition of natural and in- 
 herent obligation, from this state of subjection to the 
 moral law, neither A. B. nor C. could, by his own un- 
 aided act or by his individual effort, liberate himself. 
 To effect this, the efficacy of positive enactments 
 must be called to his assistance. Recourse must be 
 had to far fetched and fanciful analogies, to subtile re- 
 finements and to legal figments. Privilege usurps the 
 place of right. Rights cease to be enjoyed upon the 
 only proper condition of the full performance of du- 
 ties. Perfect freedom is no longer demanded upon 
 the sole ground of perfect responsibility. Liberty and 
 liability are rent asunder; an appeal must be made to 
 the legislative power to put a limitation upon that 
 which was before unlimited to restrict that which, 
 in a state of freedom, was unrestrained. The very 
 expression of " limited liability" betrays the weak- 
 ness of the argument; whilst it suggests, and of neces- 
 sity implies, from the force of the terms, the idea, not 
 of freedom, but of restraint and of restriction. 
 
 We are thus irresistibly led to the conclusion that 
 the fancied advocacy of the right freely to trade in 
 commodities, resolves itself into an argument for the 
 limitation of that which, but for the intervention of 
 the law, and the interference of the law-makers, 
 would be unlimited for the restriction of that which, 
 in the absence of positive and special enactments, 
 would be unrestricted. The argument for restraints 
 is not the less remarkable as occasionally proceeding 
 from those who thrust themselves forward as the se- 
 lect and chosen champions of the beneficent doctrines 
 of commercial freedom; and who complacently as- 
 
262 APPENDIX. 
 
 sume to themselves the character of the freest of the 
 free. 
 
 "There seems to prevail," says Mr. Tooke, " among 
 those who incline to the introduction of the comman- 
 dites" (or limited liability) " system, a vague notice 
 that something like a right exists, onjhe part of indi- 
 viduals, to circumscribe their liability" * * " and that 
 it is only by the special interference of the law of part- 
 nership that they are prevented from exercising that 
 right, that the law is an interference with what would 
 otherwise be the free, and probably, therefore, the best 
 direction of capital in trade." * * * " On the slightest 
 reflection, however, it must be obvious that the com- 
 mandite is a privilege, and has not the shadow of 
 foundation as a natural right. The general, if not 
 universal, rule of commercial transactions is, that the 
 individual is liable to the full extent of his means, for 
 the engagements entered into by himself, or on his 
 behalf, or jointly with others, and it is only by the in- 
 tervention of a special law that he can be shielded 
 from the more general one." And whilst this interpo- 
 sition must be considered as granting " a privilege, it 
 operates as a distinct inducement a premium to 
 individuals to employ the inferior, instead of the better 
 instrument for carrying on the trade of the country." 
 
 But, possibly, it may be objected that individuals 
 are at liberty, by mutual agreement, to limit their re- 
 sponsibility. This, however, in the sense intended, is 
 a mere groundless assertion, without force or founda- 
 tion. For, although it should be admitted that an in- 
 dividual may, in the performance of a specific con- 
 tract, limit his liability to the extent of the pledged 
 security, it would by no means necessarily follow that 
 he can thus restrict and restrain his general liability. 
 This liability, as we have seen, is the result of natural 
 obligation. It arises from the operation of the moral 
 law. It is binding upon the one party, from the 
 mere force of moral considerations; and it is entirely 
 
APPENDIX. 263 
 
 independent of the claim of the other party. It results 
 from the very nature of man as a moral agent. To 
 be relieved from its practical operation, recourse 
 must be had to artificial distinctions, and to legal fic- 
 tions. The proposition attempted to be sustained is 
 neither more nor less than that men are born under a 
 liability even less than that of corporations. For the 
 latter being, by a legal refinement, considered as arti- 
 ficial persons, are responsible to the whole extent of 
 their corporate property. It is true that the most 
 ready resources of these artificial persons are frequently 
 found to consist in an available fund of public credu- 
 lity. 
 
 " If it should be urged that when a person intrusts 
 property to another, he knowingly undertakes the risk 
 of that other's insolvency, and that if the contingent 
 loss happens, he has no claims to justice on the other, 
 the answer is this: that whatever may be thought of 
 these claims, they are not the grounds upon which the 
 debtor is obliged to pay. The debtor always engages 
 to pay, and the engagement is enforced by morality: the 
 engagement, therefore, is binding, whatever risk ano- 
 ther man may incur by relying upon it. The causes 
 which have occasioned a person's insolvency, although 
 they greatly affect his character, do not affect his ob- 
 ligations; the duty to repay when he has the power 
 is the same; whether the insolvency was occasioned 
 by his fault or his misfortune." Being then able to 
 pay, " does the legal discharge exempt him from the 
 obligation to pay? No: and for this reason, that the 
 legal discharge is not a moral discharge: that as the 
 duty to pay at all was not founded primarily on the 
 law," the law cannot cancel the obligation. 
 
 If then individuals can, under no circumstances, 
 except those of a distinct and special contract, be justi- 
 fied in limiting their responsibility to each other, much 
 less can they limit it in reference to third parties, and 
 least of all, can the banker and the bank debtor have, 
 as has been most absurdly assumed, a natural and 
 
864 APPENDIX. 
 
 indefeasible right to impose, for the promotion of their 
 own interested arid sordid purposes, upon whole 
 classes upon the mass of the community the ab- 
 solute necessity of receiving, in payment of their dues, 
 the promissory notes of associations made up of irre- 
 sponsible persons. And vain and frivolous is the 
 assertion that, as bank notes are not a legal tender, 
 their circulation is the consequence of their voluntary 
 reception. For, whatever bank notes may be by 
 law, it cannot be denied that they are virtually, prac- 
 tically, and in fact, a legal tender. In cases innumer- 
 able there is no option, and their circulation is thus 
 made compulsory. As is notorious, the great mass 
 of the people are, at all times, totally without power 
 to refuse them. Paper forms almost the whole of 
 the circulating medium, arid the only real alternative 
 offered to a large proportion of the laboring and 
 mechanical classes is to accept of bank notes, or to 
 cease from their occupations. Thus there is resting 
 upon the supreme authority the same obligation to 
 prevent the circulation of worthless paper, as there is 
 to preserve the purity of the coin. Arid the duty is 
 the more binding, inasmuch as the country has sus- 
 tained far more injury from the issue of fraudulent 
 promises, than from the circulation of base coin. The 
 great "commodity of contract" should not be left to 
 fluctuate in value at the caprice, or to gratify the cu- 
 pidity of irresponsible or unprincipled parties. 
 
 Obligation is involved in the very nature of that 
 which is morally good. " Obligation to action and 
 rectitude of action are obviously coincident and iden- 
 tical." If men are morally responsible for the con- 
 sequences of their own actions, and for those of their 
 agents, (a proposition which will hardly be contested,) 
 then should the legal liability be commensurate with 
 the moral obligation. 
 
 But it has been said: " Grant to your neighbor the 
 same secure exercise of the rights of person and of 
 property that you desire for yourself." And again: 
 
APPENDIX. 265 
 
 " if the abolition of restrictions will tend to enable 
 men more rapidly to improve their condition, there 
 can be no moral objection to the passage of a law 
 granting to all men permission to trade with each 
 other upon such terms as they may agree upon among 
 themselves." That is to say: secure to others, by 
 means of positive enactments directly at variance with 
 all sound and settled principles of moral and inherent 
 accountability, the same legal exemption from the 
 performance of duty the same licence to disregard 
 the requirements of moral rectitude which you de- 
 sire for yourself, and the climax of perfect freedom 
 will then be attained. A will be at liberty to defraud 
 B, because B will be free to cheat C, who, in his turn, 
 may, with impunity, defraud A. The reciprocation 
 of dishonesty is thus made perfect the circle of deceit 
 is complete. Than which, we are told, "nothing 
 would tend more to promote the cause of morality!" 
 
 It is not at all surprising that such a chain of argu- 
 ment should assume, as its first link, the truth of the 
 proposition that "the abolition of restrictions," by 
 which is intended the granting of exemptions, " will 
 tend to enable men more rapidly to improve their 
 condition;" thus proving the point at issue, by simply 
 taking it for granted; and instead of reasoning directly 
 for the expediency of a measure from its justice, 
 adopting the inverted process the retrograde and 
 crab-like procedure of inferring its justice from its 
 assumed expediency. Neither, under the circum- 
 stances, need it be an occasion of wonder, that whilst 
 men are discoursing upon the truth and beneficent 
 tendency of the doctrines of free trade, and expatiating 
 upon the advantages to ensue to society from " the 
 abolition of restrictions," they should also be found 
 pleading for " the passage of a law granting to all 
 men" exemptions, to which, in the absence of all in- 
 terference, on the part of the law-makers, with the 
 natural state of perfect freedom upon the natural con- 
 23 
 
266 APPENDIX. 
 
 dition of perfect responsibility, they could make no 
 valid claim whatever. 
 
 The doctrine of a limitation of liability thus strikes, 
 as it is perfectly plain, at the very foundations of 
 moral rectitude. It assumes the right of individuals 
 to release themselves, and the possibility of their 
 being released by others, from the bond of moral ob- 
 ligation; of being relieved from all other than a very 
 limited measure of responsibility for the consequences 
 of their own acts, or of those of their authorised and 
 accredited agents. An assumption, as we have just 
 seen, as little in accordance with sound principles of 
 integrity, as it is irreconcilable with an unreserved 
 obedience to positive precepts of the highest possi- 
 ble authority. The dogma has as slender a basis in 
 natural equity, as it derives little support from en- 
 lightened views of expediency. Hence the entire 
 correctness of the remark of a practical banker, of 
 excellent understanding and of great experience, that 
 " the commandite principle seems to involve some- 
 thing very nearly approaching to injustice, inasmuch 
 as in the case of the insolvency of a concern, it tends 
 to remove a portion of the loss, which must be borne 
 by some party, from those who have voluntarily en- 
 gaged in the concern, who have had the means of 
 watching and controlling its progress, and who would 
 have been the sole participators in the benefits of its 
 success, for the purpose of throwing it upon those 
 who had no means of insight into the state of the con- 
 cern, no power over the management of it, and no 
 share in its advantage. The partners may be but 
 slightly injured, whilst the creditors are ruined. The 
 difficulties too of guarding against fraud and intricate 
 legislation are very great." And where these diffi- 
 culties have been in any considerable degree sur- 
 mounted, it has usually been only by subjecting the 
 privilege to such qualifications, and by imposing upon 
 the exemption itself such restraints as have rendered 
 it almost nugatory and altogether unacceptable to the 
 
APPENDIX. 267 
 
 parties desiring to profit by the limitation of their 
 natural liability. 
 
 If such, then, is the true character of all devices 
 intended to limit the liability of individuals, to put 
 restraints upon the responsibility of moral agents, and 
 to grant legal exemptions from the weight of natural 
 obligations, how happens it that " the nicest con- 
 science is not offended by holding stock in incorpo- 
 rated institutions?" The answer, in its application to 
 incorporations for trading and banking purposes, the 
 only description of associations contemplated, is obvi- 
 ous. Even of conscientious persons, some have never 
 had the subject practically brought home to them 
 have never had their attention aroused and stimulated 
 to a serious investigation of the merits of the ques- 
 tion. Some are unconsciously biassed arid swayed by- 
 interested motives; or they are influenced by plausi- 
 ble fallacies and by specious sophistries. Many are 
 content to take things as they find them, without being 
 at the pains to inquire into the truth of what they 
 may persuade themselves are merely theoretical re- 
 finements and metaphysical abstractions. And of all 
 it may be affirmed, such is the wide spread sway of 
 vicious legislation, and especially in relation to the 
 right to issue currency, that a strict adherence to un- 
 doubted principles a rigid observance of maxims 
 which, in a different and a better state of society, 
 would bind the conscience becomes, in a great de- 
 gree, impracticable and superorogatory. 
 
 Whilst the objection noticed, furnishes not even a 
 palliation, much less a justification of a system equally 
 at variance with the dictates of justice, with the 
 promptings of expediency, and with that natural 
 order of things to advocate and to sustain which is 
 the aim and the object of the political philosopher, it 
 affords one of the strongest arguments against the pro- 
 longed existence of a policy fraught with evils of such 
 magnitude, and obnoxious to objections so serious. 
 
 The efficient principle of liability thus brought into 
 
268 APPENDIX. 
 
 view is one highly conservative, and from the free 
 and unrestrained operation of which individuals, nei- 
 ther singly nor in their associate capacity, should ever 
 be permitted to feel themselves emancipated. Upon 
 its uncontrolled influence, in conjunction with that of 
 its antagonist principle the love of gain depend 
 the strength and conclusiveness of the arguments in 
 support of the beneficent doctrines of commercial free- 
 dom. 
 
 Free trade may be defined to be that system, under 
 which every one is left in the enjoyment of his natu- 
 ral liberty of making such a disposition of his pro- 
 perty, and of giving such a direction to his industry, 
 as may to himself appear most conducive to his inte- 
 rests. It is that state of the law in which men, sub- 
 ject merely to the requirements of truth and of jus- 
 tice, are allowed to trade together as they like, it being 
 reasonably presumed that, in the vast majority of 
 cases, individual sagacity, sharpened by competition 
 and by individual interest, will secure to the commu- 
 nity the ultimate attainment of results more positively 
 and diffusively beneficial, than can possibly flow from 
 the interference of the (so called) collective wisdom 
 of legislators. Upon the " tentative" efforts of inte- 
 rested parties reliance may securely be reposed for a 
 satisfactory adjustment of conflicting claims, and for 
 the establishment and continuance of that natural 
 order of things which alone can be permanently and 
 generally advantageous. This freedom, however, de- 
 generates into a wild and unrestrained licence; indi- 
 vidual sagacity ceases to be a solid and secure ground 
 of confidence, when any one of the leading and influ- 
 ential principles, by which moral and responsible 
 agents are governed, is impaired or weakened in its 
 natural and healthy action when men cease to be, 
 under all contingencies, answerable for their doings 
 when the love of gain is inordinately stimulated by 
 the hope of high profits; whilst the fear of loss is 
 banished by the facility with which much of that loss 
 
APPENDIX. 269 
 
 may be thrown upon others upon those who, under 
 no circumstances, would have participated in the 
 gains. The natural equilibrium of wisely balanced 
 motives is disturbed. The just equipoise of conflict- 
 ing influences is destroyed. The spirit of enterprise 
 is unduly excited, and the public is thus deprived of 
 the stability and security resulting from the salutary 
 operation of a natural principle the fear of loss 
 implanted in our natures for wise purposes; and which, 
 in all cases of individual risk, undertaken and prose- 
 cuted under a sense of unlimited individual liability, 
 constitutes a most wholesome restraint upon every 
 scheme of doubtful utility upon every project of 
 questionable legality. 
 
 Thus it is that a writer, displaying a perfect famili- 
 arity with all the practical details of the subject, as 
 well as a full comprehension of the great moral and 
 economical principles involved in its discussion, ad- 
 verting to the admitted truth that the spirit of specu- 
 lation is already " too strong," expresses his convic- 
 tions in the following unreserved language: "Great 
 danger is to be apprehended from any step that would 
 tend to give unnatural inducement to persons not 
 bred to, and not acquainted with mercantile pursuits, 
 to embark their property in such concerns. Without 
 the least hesitation, I pronounce it to be a scheme full 
 of danger to the interests of the commerce and manu- 
 factures of this country," (England) "placing them 
 in a position of extreme hazard and likely to produce 
 the most extensive mischief, if adopted." And again: 
 " Any thing that would attract capital in an unnatural 
 way to speculative objects, I consider to be very dis- 
 advantageous." And he concludes his summary of ob- 
 jections against the scheme with the observation that: 
 " In my opinion there is no sound or safe system that 
 can admit of limited liability." 
 
 So also a practical and most judicious writer of 
 ample experience, and enjoying every opportunity of 
 the most extended observation: " In proportion as the 
 23* 
 
2 70 APPENDIX. 
 
 consequences of failure are rendered less serious, must 
 we not expect that concerns will be undertaken with 
 a more speculative feeling, and be conducted with less 
 vigilance and sobriety? We should consider well the 
 tendency which the sense of limited responsibility 
 has to elicit the spirit of gambling" 
 
 As the principle of the limitation of the liability of 
 individuals is thus obnoxious to the heaviest objec- 
 tions on the score of its evident and injurious tendency 
 to promote an artificial distribution of the national 
 capital, and thus to diminish its productiveness and to 
 prevent its rapid accumulation, thereby retarding the 
 natural progress of society, so its influence is no less 
 sinister upon the moral and intellectual character of 
 individuals. " Removing the risk of general liability 
 would, in the existing state of society, have a ten- 
 dency to separate still more than they are now, the 
 partner bringing capital from the partner bringing 
 labor. The idleness of the capitalist is now checked 
 by the risk in which it involves the monied partners. 
 The natural laziness of mankind would induce capi- 
 talists to unite in large partnerships for the most ordi- 
 nary business matters, doing little or nothing them- 
 selves, and leaving the management to subalterns. 
 The check upon this is the unlimited liability under 
 the existing law, and the result of thus superseding 
 industry in the principal, would be to deteriorate the 
 talents and characters of the mercantile and manufac- 
 turing classes." The question, too, it may be added 
 in the words of an eminent moralist, " is not whether 
 some men," in view of the risks to be incurred, 
 " would not prefer indolence to the calls of justice," 
 now so commonly disregarded, "but whether the 
 public should judge accurately respecting what those 
 calls are." 
 
 If then the principles of free trade, which are but 
 the principles of justice, of equality and of common 
 sense, do not admit of unnecessary restraints upon 
 the liberty of human action, much less, when properly 
 
APPENDIX. 271 
 
 understood, can they sanction or tolerate a limitation 
 of individual liability. 
 
 The nature of the arguments frequently employed 
 by the champions of the doctrine of a limitation of 
 liability, especially in its application to associations 
 of individuals for the manufacture and the issue of a 
 paper currency, furnishes abundant evidence of the 
 prevailing confusion of ideas in the discussion of eco- 
 nomical questions; of the inability to discriminate 
 between things possessing some few points of resem- 
 blance, yet in their real nature perfectly distinct; and of 
 the toocommon deficiency of analytical sagacity, in con- 
 sidering as identical, propositions essentially different. 
 Assuming, since it cannot beprovedjthat the opinion is 
 correct that partnerships for commercial and manu- 
 facturing purposes for dealing in commodities pos- 
 sessed of intrinsic value for trading in corn, cotton 
 or coin, may be safely and beneficially formed upon 
 the principle of a limitation of liability; does it, there- 
 fore, follow that the same principle is equally appli- 
 cable to associations for the manufacture and the issue of 
 paper promises of promises intended as a substitute 
 for coin of promises which, in the actual condition of 
 affairs, no man can conveniently refuse, and which no 
 man can, with entire safety, take? Is the grant of a bank 
 credit, or the issue of a species of currency which, whilst 
 it requires little expenditure of labor or of capital for its 
 production, by the facility with which it is exchanged 
 for articles possessed of intrinsic value, is in the high- 
 est degree profitable to the issuer, arid thus holds out 
 the strongest inducements to over-production, an over- 
 production, the constant tendency to which is feebly, 
 if at all, restrained by the apprehension of the remote 
 contingency of possible and ultimate loss is this pro- 
 cess to be compared with the production of commo- 
 dities? Or is the trade in promises to be put upon 
 the same footing with the exchange of material pro- 
 ducts with the trade in real, not representative 
 
272 APPENDIX. 
 
 values? Is that which may be true of the substance, 
 necessarily true of the shadow also? 
 
 The fallacy of the argument usually employed in 
 the defence of a most pernicious and demoralizing 
 doctrine, in its application to the question of the right 
 to issue currency, consists in the dexterous employ- 
 ment of the term money in its double sense of coin, 
 and of promises to pay coin. And, because it may 
 possibly be admitted that the trade in coin, as in corn 
 or in cotton, may properly be conducted upon certain 
 principles, it is cunningly or ignorantly inferred that 
 the same conclusion is applicable to the trade in pro- 
 mises. The truth of the proposition A is conceded, 
 and the artifice or the blunder consists in taking for 
 granted that the proposition B is identical with A, 
 and that it is, therefore, equally true. This is one 
 among the many instances of attempts, made by in- 
 terested parties, or by deluded partisans, to mystify 
 clearly ascertained principles, and to pervert estab- 
 lished doctrines. If the major proposition is true, the 
 minor is so also. If the trade in capital if the bor- 
 rowing and lending of coin, of metallic money pos- 
 sessed of intrinsic and indestructible value cannot 
 safely be allowed with a limitation of the liability 
 of the dealers, much less can the trade in mere pro- 
 mises. 
 
 To the plan of subjecting associations for banking 
 purposes to the regulation and restraint resulting 
 from the natural and quiet operation of the equitable 
 and salutary principle of the unlimited liability of 
 individuals, it has been objected that the multiplication 
 of banks being thereby effectually stayed, a wholesome 
 competition is prevented. 
 
 The answer to this objection is as easy as it is con- 
 clusive. We assert, as that which cannot be disproved, 
 that the multiplication of banks has no where been 
 in this way improperly or unduly checked. On the 
 contrary, under the application of the principle assailed 
 
APPENDIX. 273 
 
 and notwithstanding its assumed incompatibility with 
 the freedom of the banking business, these establish- 
 ments have not only increased in number, but their 
 increase has been rapid, excessive and hurtful. 
 
 Thus, in Scotland, where joint stock banking com- 
 panies are organised and administered upon the sound 
 and salutary principle of the liability of each partner 
 " to the whole extent of his fortune for the whole debts 
 of the company," and where this liability of individuals 
 furnishes to note-holders and depositors the firmest 
 ground of confidence and of security, there are no 
 fewer than 26 banks, with 314 branches. Eight of 
 the former and 113 of the latter have been established 
 since 1824; and such is their general diffusion over 
 the country, that " there is scarcely a town, or even a 
 village, into which branches of the Scotch banks, 
 equivalent to so many separate and distinct banks have 
 not penetrated." 
 
 The consequence of this condition of the banking 
 business is, that the dividends upon bank stock the 
 profits of the shareholders are reduced to the lowest 
 point consistent with the continued investment of cap- 
 ital in this department of commercial industry and en- 
 terprise. So little foundation is there for the positive 
 assertions which have been so recklessly ventured as 
 to the assumed necessity of holding out the expecta- 
 tion of exorbitant profits, as an inducement to capital- 
 ists to incur the risks of individual liability. It may, 
 in truth, be questioned whether these risks have been 
 practically at all increased; and whether the unre- 
 strained responsibility of the parties has not been more 
 than compensated by a commensurate increase of 
 circumspection, of prudence, and of good management 
 and by a consequent and coresponding enlargement 
 of credit. Individual sagacity, in this as in all other 
 analogous cases, has been sharpened, and individual 
 caution has been stimulated by the absence of all posi- 
 tive and artificial restraints upon individual liability. 
 Hence these banks are administered with a view to 
 
274 APPENDIX. 
 
 the promotion of the interests, not of the borrowers, as 
 is too often the case in this country, but of the owners of 
 bank capital. And there is no reason to believe that 
 stockholders have in Scotland suffered as much as the 
 same class of capitalists have endured in this country; 
 whilst the losses of the public have been in a greatly 
 diminished ratio. 
 
 Thus, also, in England where previous to 1826 com- 
 panies for banking purposes were not allowed to con- 
 sist of more than six partners, and where, as in Scot- 
 land, the unlimited liability of the associated individuals 
 lies at the foundation of the system, such, since the re- 
 peal of the restriction upon the number of partners, has 
 been the rapidity with which these associations have 
 increased, that there were in 1836, in addition to se- 
 veral hundred private banks, 101 joint stock companies 
 with very numerous branches. Of these 45 were re- 
 gistered in one year alone, and counting their branches 
 "which are often removed from the parent establish- 
 ment, and conduct all sorts of banking business, it may 
 safely be affirmed that considerably more than 200 
 banking establishments were set on foot in England 
 and Wales in 1836." Hence, whilst, by the most 
 enlightened and strenuous advocates of the joint stock 
 banking system, it has been freely and unreservedly 
 admitted that "too many banks" have been established, 
 by others, this increase has been represented as "alarm- 
 ing," and the speculative spirit which thus developed 
 itself, has been correctly characterised as a " mania," to 
 the prevalence of which there proved to be no serious 
 obstacle, either in the unrestrained responsibility of the 
 shareholder, or in the existence of a powerful national 
 bank, possessed of monopoly privileges, and sustained 
 by the whole force of government patronage and of 
 government influence. 
 
 Are there not then, it may confidently be asked, 
 ample and satisfactory reasons for admitting the entire 
 propriety of the conclusion drawn by Mr. Quin, who, 
 at the close of his most elaborate abstract and review 
 
APPENDIX. 275 
 
 of the evidence taken before the Parliamentary com- 
 mittee of 1832, remarks: " If men with sufficient cap- 
 itals are already found in abundance disposed to em- 
 bark in the banking trade at the risk of their own for- 
 tunes, there is no reason why speculators should be 
 allowed to establish banks of issue upon a less respon- 
 sible system." 
 
 But again, we affirm, without the fear of refutation, 
 that the beneficial tendency of competition to prevent 
 excessive production, in its application to associations, 
 not for the manufacture of articles requiring for their 
 creation the expenditure of capital and the application 
 of industry, but for the making and the issuing of cur- 
 rency-of promises to pay of paper costing compara- 
 tively nothing, has never yet been demonstrated. It 
 has merely been taken for granted. In the case of 
 commodities possessing not a representative, but an 
 intrinsic value, the public are in general, secure from an 
 over-production from the simple consideration that no 
 man will knowingly continue to produce and to bring to 
 market an article which does not realize to the pro- 
 ducer the cost of production, together with at least the 
 ordinary return upon the investment of capital, and 
 the ordinary reward for the application of labor. And 
 should an individual, from inexperience, from igno- 
 rance, or from any other cause, fall into the error of in- 
 creasing the supply beyond the effective demand be- 
 yond the demand of those able and willing to purchase, 
 he would soon become satisfied of his mistake ;and 
 would be obliged, at his own expense, to correct the er- 
 ror. Now what is true of one individual is true of 
 many. What is true of many, is true of the mass. Thus 
 we may safely trust to "the spontaneous operation of 
 private interests," for the proper apportionment of the 
 supply to the demand; and all interference of the gov- 
 ernors with the governed must prove to be not mere- 
 ly ill advised and uncalled for, but ultimately and ab- 
 solutely pernicious. 
 
 Widely different, however, is the case, when we 
 proceed to an investigation of the causes which ope- 
 
276 APPENDIX. 
 
 rate upon the manufacture of bank promises; to ex- 
 amine into the motives which influence in the issue of 
 a currency possessed of little or no intrinsic value. 
 Here the gain to the issuer is immediate, is considera- 
 ble, is certain; whilst the cost of production is rela- 
 tively insignificant, and the loss of profit consequent 
 upon are-action, is future, distant, contingent and un- 
 certain. It may be avoided. It may be thrown, as 
 it usually is, upon the shoulders of the public and in 
 few instances is the return of paper upon the issuer 
 attended with a positive loss. Its effect is simply a 
 diminution of anticipated profits. The actual loss is 
 incurred by those bank debtors who may be compelled 
 to make heavy sacrifices in order to sustain their credit 
 and to honor their engagements; or by those bank credi- 
 tors, who are in possession of obligations which are 
 disregarded of promises which are not performed. 
 Thus there exists every inducement to banks to lend 
 their credit, and to increase the supply of their paper; 
 that is to say, there is every stimulus to an expansion; 
 whilst, on the other hand, inasmuch as bank credit in 
 the form of bank notes, so long at least as the ultimate 
 solvency of a bank is thought not to be impaired, is 
 to the borrower just as available as capital, the de- 
 mand is limited only by the extent of the opportunities, 
 or of the supposed opportunities, for profitably employ- 
 ing capital; that is to say, it is practically unlimited. 
 " The constant tendency, therefore, of banks is to lend 
 too much, and to put too many notes in circulation." 
 Fancifully and absurdly to compare banks of issue 
 paper mints to " shoe shops," as has been done by 
 some, and to assume that the one are subject to the 
 same influences, and are governed by the same gen- 
 eral laws as the other, may, to the unreflecting and to 
 the superficial, present an appearance of plausibility 
 and of acuteness; but to the mind of the philosophical 
 inquirer, who perceives the entire absence of any 
 analogy upon which to rest a parallelism of argument, 
 such far-fetched comparisons can bring no conviction. 
 
APPENDIX. 277 
 
 It is not merely a demonstrable truth, but a truth 
 that has again and again been demonstrated, that banks 
 issuing paper really and thoroughly convertible can 
 neither expand nor contract the general mass of the 
 currency to an amount permanently greater, or per- 
 manently less, than it would be with a medium ex- 
 clusively metallic; and that, therefore, the average 
 quantity of the currency, and consequently the average 
 money values, or prices of real estate and of commo- 
 dities generally, will in any given country be the same 
 or nearly the same, whether the currency consists ex- 
 clusively of convertible paper, or of coin; or whether 
 it is compounded in any conceivable proportions of 
 both. But it is equally true, in fact, it cannot be de- 
 nied, that in this country the convertibility of paper is 
 at all times exceedingly imperfect; and that there is 
 constant danger of this imperfect convertibility ceasing 
 altogether. 
 
 Neither, after the experience of all countries em- 
 ploying a paper medium, can there " any doubt be 
 entertained that an excess of paper money, even 
 when freely convertible into specie, may exist for some 
 time unredressed; and although the check of converti- 
 bility must ultimately prevail, very considerable effects 
 on prices may be produced in the interval." And as 
 this redundancy, however hurtful it may be, is surely 
 and inevitably followed by a deficiency still more 
 pernicious, "it is of great consequence that a paper 
 currency should not only be subject to repression from 
 without, but be placed under such a system of manage- 
 ment as will prevent any excess in quantity from be- 
 ing issued." But the only " system" which can pos- 
 sibly accomplish this most desirable object the only 
 policy at all entitled to be termed preventive will be 
 found to consist in an entire separation of the incompat- 
 ible functions of banks of issue and of banks of discount. 
 A paper currency, if such a currency is thought to 
 be indispensable or desirable, should be furnished by 
 banks purely of issue, automatically expanding and 
 24 
 
278 APPENDIX. 
 
 contracting the circulation simply in reference to the 
 demand for paper in exchange for the precious metals 
 and the demand for the metals in exchange for paper. 
 On the other hand, commercial securities should be 
 discounted, as is the practice in London, by banks not 
 of issue, but of discount and deposite by banks not 
 " trenching on the perogatives of sovereignty by coin- 
 ing money" but by banks which are properly mere 
 borrowers and lenders of capital, and dealers in coin. 
 
 The functions of banks of discount are in their na- 
 ture purely commercial, and the only supervision either 
 necessary or justifiable on the part" of government, is 
 that the parties to contracts should be held strictly re- 
 sponsible for their performance. Banks of issue, on 
 the contrary, cannot be kept too distinct in their ope- 
 rations not merely from all mercantile dealings, but 
 they should be removed from all sympathy with money 
 lenders and money borrowers. 
 
 The inevitable consequence of combining the issue 
 of paper money with the proper and the appropriate 
 business of banks of discount, is to aggravate commer- 
 cial embarrassments, and to give redoubled intensity 
 to commercial revulsions. 
 
 The system of paper money banking as it exists in 
 this country, and the prominent feature of which is 
 the confiding to associations of irresponsible traders 
 and speculators the discharge of one of the most im- 
 portant and vital functions of sovereignty, and thus 
 giving to interested parties the control over the great 
 " commodity of contract," is a system evil in its es- 
 sence, vicious in its very constitution, and irremedia- 
 bly and irresistibly pernicious in its influences, ten- 
 dencies and consequences. 
 
 In the fabrication and the issue of. promises to pay 
 there will be, as has been already shown, a constant 
 tendency to excess, because the manufacture costs 
 comparatively little or nothing; because the issue is 
 highly lucrative; and because the performance of the 
 promise can be evaded, and, as is perfectly notorious, 
 
APPENDIX. 279 
 
 constantly is evaded, whenever it becomes burden- 
 some; or the burden will, at all events, be shifted to 
 the shoulders of others. " Convertibility at the will 
 of the holders, and a sense of this power in them, on 
 the part of the issuer is not, as experience has proved 
 and is proving, any restraint in the way of over-issue, 
 It is not a preventive, but a painful method of cure. 
 And it appears to exercise no more influence on the 
 mind of the issuer than the fear of future punishment 
 is found to exercise on the majority of those who are 
 in full possession of health and vigor." On the con- 
 trary, the production and the supply of material com- 
 modities, possessed of intrinsic value, will not ordina- 
 rily be in excess; because the creation of such pro- 
 ducts involves an expenditure of capital, and the em- 
 ployment of industry; and because an excess in the 
 supply/by causing a fall in price, whilst it benefits the 
 consumer, entails a certain loss upon the producer. 
 
 But it is said that, under a system of free compe- 
 tition, banks of issue will effectually check each other, 
 and thus prevent all undue expansions in the volume 
 of the currency, and all injurious fluctuations in the 
 value of its denominations. 
 
 Now, admitting, (the admission being in direct con- 
 tradiction to all observation and to all experience,) 
 that the banks of a community ordinarily act, not in 
 combination and in concert, but in competition and in 
 conflict with each other; still, as the object common 
 to all banks, conducted with a reference to the promo- 
 tion of the interests of the share holders, is, as far as 
 possible, to extend their circulation and to lend their 
 credit, and thus to swell their profits, this competition 
 can manifestly have ultimately no other effect than to 
 secure to each bank its just proportional share of the 
 general circulating mass, and, also, its proportional 
 share of any increase in that circulation of any ad- 
 dition to the general mass; and the only consequence 
 of an individual bank magnanimously declining to 
 
280 APPENDIX. 
 
 take its portion of growing profits, would be " that the 
 rejected business would go to some other bank." 
 
 Thus it is that, as with an expanding currency, 
 banks emulously blow up the inflation, so, when 
 the subsequent and surely consequent reaction has 
 commenced, and when, from the external pressure of 
 a demand for coin to be exported, constituting the 
 only really operative check upon excessive issues, 
 they are compelled to contract, they vie with each 
 other in the haste with which they curtail. The com- 
 petition, so far as it has an existence, consists at one 
 time in a struggle to push out, and at another time in 
 a convulsive effort to draw in as many notes as possi- 
 ble. This very elasticity of the circulation this pow- 
 er of suddenly expanding and contracting its volume, 
 which has so often been represented as forming one 
 of its highest recommendations, thus rendering it emi- 
 nently dangerous and explosive, and conferring upon 
 it unequalled powers of mischief. This is the consti- 
 tutional disease, the incurable taint inherent in the 
 system, and against the destructive consequences of 
 which no effective preventive has hitherto been, or is 
 likely hereafter to be discovered, short of such a radi- 
 cal change as shall abolish the exercise of the abstract 
 right to issue, and thus suppress all paper money; or 
 as shall bring about an entire and complete separation 
 between the conflicting, the incompatible and the irre- 
 concilable functions of banks of issue and of banks of 
 discount of issuers of currency and of mere dealers 
 in capital. Hence the entire correctness of the obser- 
 vation of one of the most able of our own writers, 
 and one, too, of the most discriminating and logical 
 ofreasoners: "That the general tendency to an ex- 
 pansion of the currency, to be succeeded of course by 
 a contraction of it, is much more considerable where 
 many than where a few banks are competing with, 
 each other to obtain as large a portion of the circula- 
 tion as they respectively can." Hence, also, the just- 
 ness of the conclusion of a foreign authority: u That 
 
APPENDIX. 281 
 
 the more banks are multiplied, the greater is the 
 chance of fluctuations in their issues, and consequently 
 in prices, credit and so forth." It is not, on that ac- 
 count, the less true that so long as the system is al- 
 lowed to exist, in the language of the same distin- 
 guished economist, " If the names of the partners in 
 deposite banks, or in banks issuing notes on security, 
 be given; and if these partners be bound jointly and 
 severally to the whole extent of their fortunes for 
 their engagements, nothing more can be done by law 
 for the protection of the public interests. Every thing 
 else should be left to individual sagacity and pru- 
 dence." 
 
 Thus the guarantee against abuses, as it is perfectly 
 evident, is found not in the competition, but in the 
 thorough responsibility of the parties for whose bene- 
 fit the issues are made, and who derive the whole of 
 the profit accruing from the gainful process of convert- 
 ing paper into money of exchanging promises for 
 commodities^ 
 
 In this unrestrained responsibility, and not, as is 
 frequently and absurdly taken for granted, in any 
 amount of competition real or imaginary, lies much 
 of the secret of the comparative stability, solidity and 
 security of the Scotch banking associations. To insist, 
 however, upon the interference of the Legislature to 
 regulate the number of banks, as it would be justly 
 liable to other objections, so it would be to advocate 
 the odious scheme of granting monopolies and exclu- 
 sive privileges; and to all the evils inherent in our 
 present vicious banking system, to add the abuses of 
 special and of partial legislation. " The proper objects 
 of government," as stated by a writer of the most 
 penetrating sagacity, and one of the most powerful 
 and conclusive reasoners in favor of the free trade 
 theory, "are to provide that paper money be perfectly 
 secure, and at all times convertible into the coin which 
 it represents; and that the danger of over issues 
 should be met by adequate preventive, or remedial 
 24* 
 
2S2 APPENDIX. 
 
 checks." And as remarked by another economist, as 
 the result of the most matured experience and of the 
 closest observation: " The knowledge of who the 
 partners are in a bank, and their unlimited responsi- 
 bility, are the only securities that, speaking generally, 
 are worth a pinch of snutf. If these cannot protect 
 the public from fraud or loss, nothing else will; and 
 the question will corne to be, not whether the system 
 should be reformed, but whether it should be abated 
 as an incurable nuisance." In the language of Mr. 
 Ricardo: "Is it not inconsistent that government 
 should use its power to protect the community from 
 the loss of one shilling in a guinea, but does not inter- 
 fere to protect them from the loss of the whole twenty 
 shillings in a one pound note." 
 
 To exonerate individual partners from the payment 
 of partnership debts, is to encourage both rashness 
 and fraud. " Under any circumstances," in the words 
 of an able writer and experienced banker, " it seems 
 inexpedient, as regards the public, and unjust as re- 
 gards private bankers, to favor especially joint stock 
 banks, by making a particular law in their behalf." 
 And the practical operation of a legislative act grant- 
 ing to associated parties the privileges and the immu- 
 nities conferred by their being invested with the cor- 
 porate character is, that " they may contract debts to 
 any amount, while they are bound to pay only to a 
 specific amount; their charters thus vitiating the fun- 
 damental principle of all business, and the essence of 
 all confidence, viz: the integrity of contracts. This 
 surely maybe termed a premium upon great villany." 
 In favor of individuals and of associations of indi- 
 viduals, the claim has been advanced that they have 
 the right to issue their paper promises intended as a 
 substitute, and in fact, forming a substitute for the 
 coin of the country for the currency of the constitu- 
 tion. 
 
 As a mere theoretical question a metaphysical 
 abstraction, it may, perhaps, be admitted that such a 
 
APPENDIX. 283 
 
 right may be classed among those which have been 
 termed natural. A similar concession might be made 
 as to the right to coin metallic money. It is not, how- 
 ever, the less true that both the justice and the expe- 
 diency of the unrestrained and unconditional exercise 
 of the right has been assumed, rather than attempted 
 to be proved. In former and in barbarous ages, pow- 
 erful individuals have been allowed to coin money; 
 but at more civilized periods, and among enlightened 
 nations, the right to coin has always and everywhere 
 been assumed and exercised by the supreme autho- 
 rity, to the entire exclusion of all participation of indi- 
 viduals in the discharge of a function properly described 
 as sovereign. Hence, although it may be pushing the 
 argument too far to assert that there are " no grounds 
 for any claim of natural right in any individual to 
 furnish, by his own "notes, the whole or any part of 
 the currency of the country," it is undoubtedly true 
 that the argument in favor of the policy of govern- 
 ment assuming to itself the exclusive control over the 
 metallic money of the country, is, at least, equally 
 conclusive against allowing individuals to manufac- 
 ture and to issue that which forms, and which is in- 
 tended to form, the almost universal substitute for 
 that money. 
 
 Thus the right to issue the substitutes for metallic 
 money, intended to circulate in the place, and as the 
 representatives of the precious metals, can be derived 
 only from the right to coin that metallic money. 
 " The exclusive power of regulating the metallic cur- 
 rency of the country would seem necessarily to imply, 
 or more properly to include, as part of itself, a power 
 to decide how far that currency should be exclusive 
 how far any substitute should interfere with it, and 
 what that substitute should be." If this were not 
 true, it must necessarily follow that the prerogative 
 of coining money, which has every where been exer- 
 cised by the sovereignty, might be restrained, impeded, 
 counteracted and defeated by the action of individu- 
 
284 APPENDIX. 
 
 als or of associations. In the words of Mr. Tooke, a 
 practical and scientific writer of the highest reputation: 
 "Hitherto the legislature has restricted individuals 
 under the severest penalties, from establishing private 
 mints, and uttering metallic money of intrinsic and 
 indestructible value; yet, with a degree of inconsistency 
 which strikes us as most extraordinary the more at- 
 tentively we consider it, our law-makers have per- 
 mitted individuals to establish private banks of cir- 
 culation and to utter paper money which a breath 
 of panic may at any time, destroy. On the same 
 principle that the government protects the public 
 against the probable insecurity which might arise 
 from individuals being permitted to utter metallic cur- 
 rency, it should guard against the more probable, nay 
 certain insecurity which is created when individuals 
 utter a paper currency. In every civilized country, 
 supplying and regulating the circulating medium is a 
 function of the sovereign prerogative." And the au- 
 thor of the admirable " Essay on Value/' who is 
 among the most able and zealous of the advocates of 
 the doctrines of free trade in their widest application, 
 states it as an obvious and incontestable truth, that 
 government having undertaken the supply of the cur- 
 rency, " in order to facilitate or insure the accom- 
 plishment of its purposes, private persons may be 
 very properly restrained from any proceedings which 
 would tend to defeat them." * * * * "If then go- 
 vernment has determined, for any reason, to have a 
 metallic currency, consisting of certain coins, here 
 would be a plain ground for restricting the dealer in 
 money from such issues of paper as \vould defeat the 
 design." 
 
 " The business of banking," observes an acute rea- 
 soner and a practical banker, " is one thing; that of 
 issuing a paper money is another thing. There is no 
 necessary connection between the two. The bankers 
 in London and Paris are bankers strictly so called. 
 They are lenders of their own and other people's 
 
APPENDIX. 285 
 
 money. They must obtain it by industry or by loan, 
 before they can lend it. They do not make it. The 
 business of making arid then issuing a paper money 
 on loan is very different from that of obtaining a paper 
 money on loan, and then re-lending it." The two 
 operations, although thus clearly distinct and widely 
 different, are, by those who find their account in the 
 present vicious system, sedulously sought to be con- 
 founded. To banks of issue is confided the creation 
 of the circulating medium. The office of banks of 
 discount is to assist in the distribution of that me- 
 dium. The duty of the former is to issue the circula- 
 tion upon such principles as shall cause its amount, 
 and the value of its denominations to vary, as they 
 would, were the currency metallic. The only object 
 of the latter is so to use their available funds, as to 
 secure upon their employment the highest rate of 
 profit. 
 
 Thus it is that in all civilized countries the issue of 
 notes for circulation is always with the consent, ex- 
 press or implied, of the supreme authority, which, at 
 its discretion, regulates and restrains this issue. Hence 
 in all cases in which the discharge of this important 
 function has been committed to individuals, or to asso- 
 ciations, there arise the questions What are the con- 
 ditions upon which the trust shall be delegated? 
 What are the regulations and restraints proper to be 
 imposed for the protection of the public? Evidently 
 such, and such only, as, while they interfere in the 
 smallest possible degree with the free application of 
 capital, and the natural direction of industry shall 
 have for their object to assimilate, in all desirable 
 properties, these issues to a currency composed of the 
 precious metals, and as far as practicable to confer 
 upon the former the steadiness and the stability in 
 value which, being inherent in the latter, have made 
 them the universally received medium of exchange, 
 and the "commodity of contract" preferred to all 
 others. Prominent and most efficacious among these 
 
286 APPENDIX. 
 
 conditions is the unlimited individual liability of the 
 issuing parties. 
 
 Let it be observed, however, that whilst the unlimi- 
 ted responsibility of individuals is, with entire pro- 
 priety, represented as furnishing to the public a very 
 strong guarantee against fraud; and as holding out to 
 noteholders and to depositors increased protection 
 against all danger of ultimate loss; the principle affords 
 little or no security against those alternate expansions 
 and contractions in the volume of the currency, and 
 those fluctuations in the value or purchasing power of 
 its denominations, which tend to give to all commer- 
 cial undertakings a gambling character; but which are 
 inseparable from the issue, by trading associations, of 
 paper substitutes for metallic money; and which ne- 
 cessarily flow from a system of banking and of cur- 
 rency essentially vicious in its constitution, and defec- 
 tive in the very elements of its organisation. We 
 admit the correctness of the assertion of Sir H. Par- 
 nell: " That all the public has lost by bank failures in 
 Scotland, since banks were first established, amounts 
 to 36,444, and that no such thing ever occurs in 
 Scotland as a panic." We are satisfied of the truth 
 of the facts stated by Mr. M'Culloch, that "In 1793 
 and in 1825, when so many of the English country 
 banks were swept off, there was not a single establish- 
 ment in Scotland that gave way." And we may very 
 satisfactorily account for much of this superior sta- 
 bility, by the then greater freedom in Scotland of the 
 banking business: this freedom being enjoyed upon 
 the only proper condition of the thorough responsi- 
 bility of the associated parties. We are convinced of 
 the accuracy of the statement made by the first Lord 
 of the Treasury and by the Chancellor of the Eng- 
 lish Exchequer: " That the Scotch banks have stood 
 firm amidst all the convulsions in the money market 
 in England." It is, no doubt, true, as affirmed by Mr. 
 Gilbart, a bank manager of great experience and a 
 practical writer of established reputation, that " The 
 
APPENDIX. 287 
 
 enactment which renders the whole property of every 
 shareholder answerable for the debts of the bank is 
 very just and satisfactory. It is satisfactory to the 
 public and satisfactory to the shareholder." It can 
 not be denied that whilst in 1837 arid 1838, bank cre- 
 ditors were every where in this country defrauded by 
 the depreciation of bank paper, and by the non per- 
 formance of bank promises; and whilst the same thing 
 has again partially occurred in 1839; in Great Britain 
 " neither depositors nor noteholders have lost a shil- 
 ling." Mr. Bailey, a writer of the very highest cha- 
 racter for power of logical discrimination, and for pene- 
 trating sagacity and analytical skill, is clearly in the 
 right when he asserts that the legislature "acted 
 wisely in not interfering to lessen," by the grant of 
 exceptions, " the liability of individuals." Mr. Nor- 
 man, a prominent director of the Bank of England 
 and a writer of signal ability, was, no doubt, cor- 
 rectly informed, when he admitted the "general soli- 
 dity of the Scotch banks," when he stated, that " insol- 
 vency was almost unknown among them;" and when 
 he referred to their well established reputation as " se- 
 cure places of deposite." 
 
 All these authorities (and their number might easily 
 be extended) are direct in the testimony which they 
 bear to the justice and the expediency of the princi- 
 ple of the unrestrained liability of individuals; and 
 their evidence is conclusive as to the beneficial nature 
 of the results springing from its practical application. 
 It is, however, not on that account the less true that 
 the only infallible test of the soundness of any scheme 
 of paper issues, is to be found in the identity of the 
 phenomena with those which would take place with 
 a currency purely and exclusively metallic, and " it is 
 as issuers of paper money that the Scotch banks 
 are chiefly open to criticism. In times of prosperity 
 they push out their notes and credits to an undue ex- 
 tent, and are consequently compelled to diminish 
 them as violently when circumstances alter thus in- 
 
288 APPENDIX. 
 
 flicting on the public oscillations in the currency much 
 more violent than could occur with a metallic circu- 
 lation, or with paper regulated on sound principles." 
 
 Of the Scotch banks, as of all others assuming the 
 discharge of incompatible functions, and organised 
 upon the unsound and pernicious system of making 
 their credit issues in competition, and in the discount 
 of commercial securities bearing interest, it may with 
 truth be affirmed that " in periods of excitement and 
 rising prices, they stimulate speculation unduly, and 
 afford a spectacle of specious and factitious prosperity; 
 while, when the recoil takes place, they sweep the 
 solvent and comparatively prudent trader into the 
 same net with the rash adventurer, and lead to awful 
 and wide-spread ruin." Hence it is that in periods 
 of commercial difficulty, " no country is said to suffer 
 from insolvency more severely than Scotland, whilst 
 of Manchester, " where banks of issue have never 
 existed until recently, and then to a small extent," it 
 is remarked that " it furnishes an interesting and in- 
 structive contrast." 
 
 It is also notorious and not denied that in Scotland 
 the use of gold is almost unknown, and that under 
 the appearance of a nominal competition, a real com- 
 bination exists against demands for specie and for the 
 maintenance of an exclusive paper currency. 
 
 " There is no principle in the law better settled than 
 that whatever has an obvious tendency to encourage 
 guilty negligence, fraud or crime, is contrary to public 
 policy." And such, in the very nature of things, is 
 the tendency of allowing the trader, and especially 
 the banker, to limit, to throw off, or in any way to 
 restrict his natural responsibility or his legal liability. 
 From this liability there should be no escape, "not 
 even by express promise or special acceptance any 
 more than by notice." 
 
APPENDIX. 2S9 
 
 H. 
 
 HISTORY OF THE MONEY CRISIS OF 1S18. 
 
 Extracts from the report of the Committee of the Senate of Pennsyl- 
 vania^ appointed to inquire into the extent and causes of the present 
 general distress. 
 
 IN the Senate of Pennsylvania, December 8, 1819. 
 A motion was made by Mr. Raguet and Mr. Grosh 1 
 and read as follows, to wit: 
 
 Whereas it appears that a scene of distress and 
 pecuniary embarrassment unexampled informer years, 
 has been of late exhibited throughout this common- 
 wealth. And whereas, at a period of general cala- 
 mity, it is natural for the people to expect from the 
 legislature such an investigation into the causes which 
 have produced the evils under which they labor, as 
 may be likely to mitigate their sufferings, or at least 
 to prevent their recurrence. And whereas, a proper 
 regard for the interests of posterity, as well as of our 
 constituents requires, that an exposition of the actual 
 condition of our suffering fellow citizens, as well as 
 of the causes which have been instrumental in pro- 
 ducing their distress, should be recorded in durable 
 characters on the journals of this house. Therefore, 
 
 Be if resolved, That a committee be appointed to 
 inquire into the extent and causes of the present gene- 
 ral distress, and to recommend to the consideration of 
 the legislature, such measures as in their opinion may 
 be calculated to alleviate the public suffering, and to 
 prevent the recurrence of a similar state of things. 
 
 On motion, made on the 10th of December, said 
 resolution was again read, considered and adopted, 
 and 
 
 Ordered, That Messrs. Raguet, Hurst, Eichelber- 
 25 
 
290 APPENDIX. 
 
 ger, Markley, M'Meens, Rogers and Breck, be a 
 committee for the purpose therein expressed. 
 
 January 29, 1820. Mr. Raguet from the foregoing 
 committee, made report, which was read as follows, 
 to wit. 
 
 In the performance of a duty of such high import- 
 ance as that which has been entrusted to your com- 
 mittee, they have felt it incumbent on them'to enter at 
 large into the investigation of the subject contem- 
 plated by their appointment, in order that the people 
 of the present day may be correctly informed as to 
 the extent and causes of the evils by which they are 
 oppressed, and that the records of the house may be 
 furnished with a document, which may afford evi- 
 dence at a future day of the miseries which it is pos- 
 sible to inflict upon a people by errors in legislation 
 and by the bad administration of incorporated insti- 
 tutions. 
 
 In ascertaining the extent of the public distress, 
 your committee has had no difficulties to encounter. 
 Members of the legislature from various quarters of 
 the state have been consulted in relation to this sub- 
 ject, and their written testimony in answer to inter- 
 rogatories addressed to them by the committee, has 
 agreed with scarcely an exception, upon all material 
 points. With such a respectable weight of evidence 
 added to that which has been derived from the pro- 
 thonotaries, recorders and sheriffs of the different 
 counties, from an intercourse with numerous pri- 
 vate citizens residing in different parts of the state, as 
 well as from the various petitions presented to the 
 legislature, your committee can safely assert, that a 
 distress unexampled in our country since the period 
 of its independence, prevails throughout the common- 
 wealth. This distress exhibits itself under the varied 
 forms of 
 
 1. Ruinous sacrifices of landed property at sheriff's 
 sales, whereby in many cases lands and houses have 
 been sold at less than a half, a third, or a fourth of 
 
APPENDIX. 291 
 
 their former value, thereby depriving of their homes 
 and of the fruits of laborious years, a vast number of 
 our industrious farmers, some of whom have been 
 driven to seek in the uncultivated forests of the west, 
 that shelter of which they have been deprived in their 
 native state. 
 
 2. Forced sales of merchandise, household goods, 
 farming stock and utensils, at prices far below the 
 cost of production, by which numerous families have 
 been deprived of the common necessaries of life, and 
 of the implements of their trade. 
 
 3. Numerous bankruptcies and pecuniary embar- 
 rassments of every description, as well among the 
 agricultural and manufacturing, as the mercantile 
 classes. 
 
 5. A general scarcity of money throughout the 
 country, which renders it almost impossible for the 
 husbandman or other owner of real estate to borrow 
 even at a usurious interest, and where landed security 
 of the most indubitable character is offered as a pledge. 
 A similar difficulty of procuring on loan had existed 
 in the metropolis previous to October last, but has 
 since then been partially removed. 
 
 5. A general suspension of labor, the only legiti- 
 mate source of wealth, in our cities and towns, by 
 which thousands of our most useful citizens are ren- 
 dered destitute of the means of support, and are re- 
 duced to the extremity of poverty and despair. 
 
 6. An almost entire cessation of the usual circula- 
 tion of commodities, and a consequent stagnation of 
 business, which is limited to the mere purchase and 
 sale of the necessaries of life, and of such articles 
 of consumption as are absolutely required by the 
 season. 
 
 7. An universal suspension of all large manufac- 
 turing operations, by which in addition to the dis- 
 missal of the numerous productive laborers heretofore 
 engaged therein, who could find no other employ 
 
292 APPENDIX. 
 
 ment, the public loses the revenue of the capital 
 invested in machinery and buildings. 
 
 8. Usurious extortions, whereby corporations insti- 
 tuted for banking, insurance and other purposes, in 
 violation of law, possess themselves of the products 
 of industry without granting an equivalent. 
 
 9. The overflowing of our prisons with insolvent 
 debtors, most of whom are confined for trifling sums, 
 whereby the community loses a portion of its effect- 
 ive labor, and is compelled to support families by 
 charity, who have thus been deprived of their pro- 
 tectors. 
 
 10. Numerous law suits upon the dockets of our 
 courts and of our justices of the peace, which lead to 
 extravagant costs and the loss of a great portion of 
 valuable time. 
 
 11. Vexations losses arising from the depreciation 
 and fluctuation in the value of bank notes, the impo- 
 sitions of brokers and the frauds of counterfeiters. 
 
 12. A general inability in the community to meet 
 with punctuality, the payment of their debts even 
 for family expenses, which is experienced as well by 
 those who are wealthy in property, as by those who 
 have hitherto relied upon their current receipts to 
 discharge their current engagements. 
 
 With such a mass of evils to oppress them, it can- 
 not be wondered at that the people should be dispi- 
 rited, and that they should look to their representa- 
 tives for relief. Their patient endurance of sufferings, 
 which can only be imagined by those who have 
 habitually intermingled with them at their homes 
 and by their fire sides, merits the commendation of 
 the legislature, and prefers a powerful claim to their 
 interference. 
 
 Having thus enumerated the most prominent fea- 
 tures of the general distress, your committee will 
 proceed to point out the cause which in their opinion 
 has occasioned it. That cause is to be found chiefly 
 
APPENDIX. 293 
 
 in the abuses of the banking system, which abuses 
 consist, first, in the excessive number of banks, and 
 secondly, in their universal bad administration. For 
 the first of these abuses the people have to reproach 
 themselves, for having urged the legislature to depart 
 from that truly republican doctrine, which influenced 
 the deliberations of our early assemblies, and which 
 taught that the incorporation of the monied interest 
 already sufficiently powerful of itself, was but the 
 creation of odious aristocracies, hostile to the spirit 
 of free government, and subversive of the rights 
 and liberties of the people. The second abuse, the 
 mismanagement of banks, is to be ascribed to a gene- 
 ral ignorance of the true theory of currency and 
 banking, and to the avarice of speculators, desirous 
 of acquiring the property of others, by an artificial 
 rise in the nominal value of stock, and by the sharing 
 of usurious dividends. 
 
 In order that this subject may be clearly understood, 
 your committee have thought that the following con- 
 cise history of banking in Pennsylvania, would be 
 acceptable. 
 
 The first bank which was established in the state, 
 and indeed in the United States, was the Bank of 
 North America, which was chartered by congress on 
 the 31st day of December, 1781, with a capital not 
 to exceed ten millions of dollars, and without any 
 limits being assigned as to its duration. This charter 
 was confirmed by the state of Pennsylvania, on the 
 1st day of April, 1782. This bank commenced and 
 continued its operations upon a capital paid in of 
 $400,000, and as its credit stood high, and the Union 
 was deficient in a circulating medium, it was enabled 
 to extend its issues vastly beyond the amount of its 
 capital. The extent of its loans may be inferred 
 from the rate of its dividends, which were as high as 
 12 and even 16 per cent, per annum. The exten- 
 sive and distant circulation of the notes of this bank 
 occasioned by the disbursements of the general govern- 
 
 25* 
 
294 APPENDIX. 
 
 ment which was a heavy borrower, emboldened its 
 directors, and led them to overstep the bounds of dis- 
 cretion. The channels of circulation becoming over- 
 charged with paper, and the public beginning to doubt 
 the ability of the bank to redeem its notes on demand, 
 naturally led to the consequences, which, with the 
 unerring certainty of fate, will sooner or later result 
 from an evtravagant emission of paper. The notes 
 returned for payment, and with the diminution of its 
 specie means, the bank to sustain its credit, was com- 
 pelled to resort to the measure of calling upon its 
 debtors for payment. This reduction of bank loans 
 operated in its day, in precisely the same manner that 
 we have seen it in ours. A general pressure for mo- 
 ney, bankruptcies, usurious extortions, the disappear- 
 ance of specie, and an impossibility of procuring loans 
 at legal interest, were among the evils attendant upon 
 it. For the truth of this assertion, your committee 
 beg leave to refer to the journals of the House of Re- 
 presentatives of the 21st and 23d days^of March, 1785, 
 by which it will appear, that so great were the evils 
 which resulted from the operations of this bank, that 
 a petition from a number of inhabitants of Philadel- 
 phia and of the counties of Chester and Bucks were 
 presented to the legislature, praying for a repeal of 
 its charter. These petitions were referred to a com- 
 mittee, who on the 25th of the same month reported* 
 that a bill should be brought in to repeal the charter, 
 which was accordingly done at the ensuing session, 
 on the 13th day of September, 1785. The bank 
 however claiming the right of prosecuting its business 
 under the charter which it held from congress, con- 
 tinued its operations, and the legislature at a subse- 
 quent date, viz. on the 17th day of March, 1787, 
 revived its charter, limiting its capital to 2,000,000 of 
 dollars, (of which about 830,000 only were raised,) 
 and its duration to fourteen years. This charter has 
 
 * See the report at full length in Journal of 28th March, 1785. 
 
APPENDIX. 295 
 
 been since extended for two successive periods of 
 fourteen and ten years, on the 29th of March, 1799, 
 and the 28th of March, 1814, and will expire on the 
 17th day of March, 1825. 
 
 On the 25th day of February, 1791, the first bank 
 of the United States was chartered by congress with 
 a capital of ten millions of dollars, and located at 
 Philadelphia. Its charter expired without renewal 
 on the 4th day of March, 1811. 
 
 On the 30th day of March, 1793, the Bank of 
 Pennsylvania was incorporated for twenty years. 
 The charter was renewed on the 14th of February, 
 1810, for twenty years longer, with an increase of 
 capital which is now $2,500,000, and will expire the 
 4th of March, 1833. This bank was authorised to 
 have branches, of which it established four, viz. at 
 Lancaster, Reading, Easton and Pittsburgh, the last 
 of which has been discontinued. 
 
 On the 5th of March, 1804, the Philadelphia Bank 
 was chartered, after having been some time in opera- 
 tion without a charter, to continue until 1st of May, 
 1814, with a capital not to exceed two millions of 
 dollars; of which 1,800,000 were raised. On the 
 1st day of March, 1806, it was renewed for 10 years, 
 and will expire on the 1st day of May, 1824. It was 
 authorised by an act of 3d March, 1809, to institute 
 branches, of which it established four, viz. at Wilkes- 
 barre, Washington, Columbia and Harrisburg, the 
 last two of which have been withdrawn. 
 
 On the 16th of March, 1809, the Farmers and Me- 
 chanics' bank was incorporated, with a capital of 
 1,250,000 dollars, to continue until the 1st of May, 
 1824. 
 
 Some two or three years prior to the expiration of 
 the charter of the Bank of the United States, applica- 
 tion was made to congress for its renewal; which 
 having failed, overtures were made to the legislature 
 of Pennsylvania, but without success. The anxiety 
 displayed by the stockholders of this bank to continue 
 
296 APPENDIX. 
 
 their business, and the successful appearance of their 
 dividends added to the location of branches by the 
 Pennsylvania Bank in the country, very naturally 
 excited the attention of the public, and particularly 
 of the inhabitant of some of the interior counties of 
 the state, who fancied that much of the prosperity of 
 cities was to be traced to the establishment of banks, 
 and that if that were the case, there was no reason 
 why the country should not participate in their ad- 
 vantages. Such considerations as these, urged on by 
 the desire of accumulating wealth without the dull 
 exercise of labor, engendered a spirit of speculation. 
 It was supposed that the mere establishment of banks 
 would of itself create capital, that a bare promise to 
 pay money, was money itself, and that a nominal 
 rise in the prices of land and commodities, ever at- 
 tendant upon a plenty of money, was a real increase 
 of substantial wealth. The theory was plausible, 
 and too well succeeded. The Farmers' Bank, with 
 a capital of $300,000 dollars, was established in the 
 county of Lancaster, in the beginning of the year 
 1810, and was accompanied by several others in the 
 city, as well as in other parts of the state. 
 
 These early symptoms of a mania for banking in- 
 duced the legislature, on the 19th of March, 1810, to 
 enact a law prohibiting unincorporated associations 
 from issuing notes, or pursuing any of the operations 
 of banks, but in defiance of its provisions, the system 
 was persevered in, and even companies incorporated 
 for the purpose of constructing bridges, departed from 
 the spirit of their charters, converted themselves into 
 banks, and emitted notes for circulation. 
 
 The evils, however, which would have flowed from 
 this banking spirit, would soon have been checked, 
 by the usual corrective, viz. the return of the notes 
 for payment, had not the war which was declared 
 in June, 1812, interposed. Prior to that period, the 
 emissions of our banks were regulated with a con- 
 stant regard to their liability to be called upon for the 
 
APPENDIX. 297 
 
 payment of their notes in coin. The periodical de- 
 mand for dollars for the China and India trade, which 
 regularly occurred every spring, was a check upon 
 the overtrading spirit, which has always characterised 
 corporations exempt from individual responsibility. 
 The merchants at that day, were not afraid to demand 
 their rights, and those who held claims upon the 
 banks in the nature of notes or deposites, would make 
 a demand for an hundred thousand dollars, with less 
 hesitation than they now display in asking for a single 
 thousand. Banks were then, what they should al- 
 ways be, the servants of the public, and until they 
 are again reduced to the relation in which they ought 
 to stand to the community, their operations must ever 
 continue to be injurious. Without liability to 
 prompt payment, uninfluenced by any considera- 
 tions of fear, forbearance, or delicacy, on the part 
 of the public, the community has no guarantee 
 against a depreciated and fluctuating currency. 
 
 The war, as might naturally be expected, put a 
 temporary stop to the exportation of specie, and there- 
 by removed the only sure check against inordinate 
 issues of paper, which can possibly exist. This ces- 
 sation of the returning of notes for payment, had the 
 effect of inviting the banks to enlarge their issues. 
 Loans were made to government to an immense 
 amount, and to individuals vastly beyond what the 
 absence of foreign commerce justified, and a gradual 
 depreciation of the currency was the result. The 
 increase of dividends and the facility with which 
 they appeared to be made, extended throughout the 
 whole commonwealth the spirit of speculation, already 
 introduced into some counties. The apparent suc- 
 cess of the Farmers' Bank of Lancaster, which from 
 the enormous extent of its issues, was enabled to 
 divide upwards of twelve per cent, per annum; and 
 to accommodate its stockholders with loans to dou- 
 ble the amount of their stock, had a powerful influ- 
 ence upon the public mind. A bank by many was 
 
298 APPENDIX. 
 
 no longer regarded as an instrument by which the 
 surplus wealth of capitalists could be conveniently 
 loaned to their industrious fellow citizens, but as a 
 mint in which money could be coined at pleasure, for 
 those who did not possess it before. Under these 
 delusive impressions,associations of individuals sprang 
 up in every quarter, holding out inducements to the 
 farmer, the merchant, the manufacturer and mecha- 
 nic, to abandon the dull pursuits of a laborious life, 
 for the golden dreams of an artificial fortune. 
 
 The liability however to individual ruin, attendant 
 upon unchartered copartnerships, restrained in a de- 
 gree, the banking mania, and impelled the projectors 
 to apply for a legislative sanction. During the session 
 of 1812-13, a bill to incorporate twenty-five institu- 
 tions, the capitals of which amounted to 9,525,000 
 dollars, was passed by both houses of the Legislature 
 by a bare majority of one vote in each. The bill was 
 returned by the governor with his objections, which 
 were sensible and cogent, and on a reconsideration 
 the votes were 38 to 40. At the following session the 
 subject was renewed with increased ardor, and a bill 
 authorising the incorporation of forty-one banking in- 
 stitutions with capitals amounting to upwards of 17, 
 000,000 of dollars, was passed by a large majority. 
 This bill was also returned by the governor with ad- 
 ditional objections, but two thirds of both houses 
 (many members of which were pledged to their con- 
 stitutents to that effect) agreeing on its passage, it be- 
 came a law on the 21st of March 1814, and thus was 
 inflicted upon the commonwealth an evil of a more 
 disastrous nature than has ever been experienced by 
 its citizens. Under this law thirty-seven banks, four 
 of which were established in Philadelphia, actually 
 went into operation, the charters of which will ex- 
 pire on the 1st of April, 1825. 
 
 The immediate commencement of a number of these 
 banks, with scarcely a bona fide capital equal to the 
 first instalment, for the convenient mode of discount- 
 
APPENDIX. 299 
 
 ing stock notes to meet the subsequent payments 
 was soon discovered, increased the mass of paper 
 credits already too redundant, and depreciated the 
 whole circulating medium so far below a specie value, 
 as to excite a want of confidence in its convertibility. 
 In the absence of a foreign demand for specie a do- 
 mestic one arose. The laws of the New England 
 states had been so rigorous upon the subject of banks 
 which were liable to a penalty of 12 per cent, per an- 
 num for the non-payment of their notes, that no de- 
 preciation of their currency took place. The conse- 
 quence thereof was, that the difference between the 
 New England prices of commodities, stocks and foreign 
 bills of exchange, and those of Pennsylvania was 
 equal to the extent of the depreciation of the currency 
 of the latter, and as our bank notes were at that time 
 redeemable on demand, the most profitable remittance 
 which could be made to New England in exchange 
 for her commodities was specie, and this demand crea- 
 ted a run upon the banks, which they were not able 
 to withstand. The situation of the southern and of 
 the western banks was precisely similar to that of our 
 own. All had over issued, and a general depreciation 
 had ensued. The same causes produced the same 
 effects, and a general stoppage of payment of all the 
 banks in the United States, except those of New Eng- 
 land, took place in August and September, 1814. 
 The New England demand, it is true, was increased 
 by two causes, viz: first, by facilities in foreign trade 
 through neutral vessels, which were afforded them by 
 an exemption from the blockade of the enemy, and 
 secondly, by a well grounded apprehension, that the 
 southern banks from their extensive emissions would 
 necessarily become embarrassed. Certain it is, how- 
 ever, that all these causes combined, could not have 
 produced a general suspension of payment, had our 
 banks observed the same caution in their issues us 
 that which characterised the banks of the Eastern 
 states. 
 
300 APPENDIX. 
 
 At the time of the suspension of our city banks a 
 public meeting of merchants and others was held, 
 who publicly sanctioned the measure, under a pledge 
 given by the banks, that as soon as the war was ter- 
 minated, specie payments would be resumed. That 
 this measure was intended, is evident from the cur- 
 tailment of loans immediately consequent upon the 
 suspension. 
 
 But unhappily the redemption of the pledge was 
 not demanded by the public at the stipulated time, 
 and the banks urged on by cupidity, and losing sight 
 of moral obligation in their lust for profit, launched 
 out into an extent of issues, unexampled in the annals 
 of folly. The fulfilling of a promise to pay money, 
 by tendering another promise equally false ^ sanctioned 
 by the public acquiescence, led to the organization of 
 additional banks, under the act of March 1814, which 
 had not until then been attempted to be formed, and a 
 scene of indiscretion in the loaning of bank credits 
 was every where exhibited, which realised the anti- 
 cipations of those who had foretold the ruinous effects 
 of the paper system. Money lost its value. The notes 
 of the city banks became depreciated 20 percent, and 
 those of the country banks from 25 to 50, and specie 
 so entirely disappeared from circulation, that even the 
 fractional parts of a dollar were substituted by small 
 notes and tickets, issued by banks, corporations and 
 individuals. The depreciation of money enhancing 
 the prices of every species of property and commodity, 
 appeared like a real rise in value, and led to all the 
 consequences which are ever attendant upon a grad- 
 ual advance.of prices. The false delusions of artifi- 
 cial wealth increased the demand of the farmer for 
 foreign productions, and led him to consume in anti- 
 cipation of his crops. The country trader seduced by 
 a demand for more than his ordinary supply of mer- 
 chandise, was tempted to the extension of his credit, 
 and filled his store at the most extravagant prices with 
 goods vastly beyond what the actual resources of his 
 
APPENDIX. 301 
 
 customers could pay for, whilst the importing mer- 
 chant having no guide to ascertain the real wants of 
 the community but the eagerness of retailers to pur- 
 chase his commodities, sent orders abroad for a supply 
 of manufactures wholly disproportioned to the effective 
 demand of the country. Individuals of every profes- 
 sion were tempted to embark in speculation, and the 
 whole community was literally plunged into debt. 
 The plenty of money , as it was called, was so pro- 
 fuse, that the managers of the banks were fearful they 
 could not find a demand for all they could fabricate, 
 and it was no unfrequent occurrence to hear solicita- 
 tions used to individuals to become borrowers, under 
 promises as to indulgence, the most tempting. 
 
 Such continued to be the state of things until to- 
 wards the close of the year 1815. At that time the 
 doctrine so generally taught and so generally received 
 by the great mass of the community, that the paper 
 currency was not depreciated but that specie had risen 
 in value, began to be abandoned. The intelligent part 
 of the people became convinced, that although the 
 nominal prices of property and commodities had been 
 advanced, the substantial wealth of society had abso- 
 lutely diminished, and the evils attendant upon a de- 
 preciated and 'a perpetually fluctuating currency were 
 universally acknowledged. Each city, town and coun- 
 ty, had its own local currency, bearing no equivalen- 
 cy with, or a fixed proportion to any other; the conse- 
 quence of which was, that a new and extensive class 
 of brokers sprang into existence, who have ever since 
 been supported at the expense of those who have been 
 defrauded by the banks of their just and indisputable 
 rights. Counterfeiters also added to the mass of paper 
 in circulation, and the difficulty of detection where so 
 many signatures were current, invited to an increase 
 of their numbers. 
 
 The plan about this time projected of establishing 
 a national bank with a commanding capital, held forth 
 an expectation, that the desired restoration of the cur- 
 26 
 
302 APPENDIX. 
 
 rency was about to be effected. Petitions in favor of 
 the measure were presented to congress, and the gen- 
 eral government weary of the embarrassments to 
 which its fiscal concerns had been subjected, from a 
 currency varying not only in every state -but in almost 
 every village, (for the banking system had by this 
 time extended itself through the middle, southern and 
 western states) chartered the present Bank of the 
 United States with a capital of thirty five millions of 
 dollars on the 10th day of April, 1816, with corporate 
 powers which will expire on the 3d of March, 1836. 
 
 No sooner was this measure adopted, than the nu- 
 merous city banks, alarmed for their safety, resolved 
 upon a retrograde movement, and with the reduction 
 of their loans, commenced a reaction, which was ac- 
 companied by great mercantile distress. The result 
 of this procedure, however, was a gradual melioration 
 of the currency, insomuch that by the month of July 
 of that year the depreciation of the notes of the banks 
 in Philadelphia was brought to 7 or 8 per cent, and by 
 the month of December to considerably less. 
 
 The Bank of the United States, the subscriptions to 
 which were opened on the 1st Monday of July, 1816, 
 commenced its operations about the 1st of January, 
 1817, and had it been conducted wHhthe discretion 
 and wisdom which were essential to so powerful a 
 machine, its influence might have been productive of 
 the most happy results. The public was aware that 
 the currency of the state banks was still depreciated 
 from excess, and that nothing but a further reduction 
 of their issues, could remove its unsoundness; and yet 
 with this fact, evident to the most limited capacity, the 
 directors of the new bank fancied, that if they could only 
 persuade the city banks to call that a sound currency 
 which was in reality an unsound one, the evil of de- 
 preciation would be cured, and they accordingly pro- 
 posed to them to enter into an agreement to resume 
 specie payments on the 21st of February following. 
 The city banks, sensible that their power over the 
 
APPENDIX. 303 
 
 
 
 community was so great, that few individuals would 
 have the boldness to make large demands upon them 
 for coin, and relying upon that forbearance which had 
 hitherto been extended to them by an injured public, 
 who had been for two years and a half paying them 
 6 per cent, per annum for the use of their dishonored 
 bills, consented to the arrangement, and specie pay- 
 ments were accordingly nominally resumed on the 
 appointed day. We say nominally ', because in point 
 of fact, a bona fide, resumption did not take place as 
 is evident from the well known circumstance, that for 
 a long time after that period, American as well as 
 foreign coins would command on the spot a price in 
 city bank notes above their nominal value. Deprecia- 
 tion can as well result from the forbearance of the pub- 
 lic to demand their rights, as from the refusal of the 
 banks to pay their engagements; and the arrangement 
 alluded to, was riot any real resumption of cash pay- 
 ments, but a mere change of one species of inconver- 
 tibility for another. No sooner, however, had the di- 
 rectors of the national bank succeeded in the desirable 
 object of rendering depreciated paper an equivalent 
 for their own convertible notes, than, instead of re- 
 flecting from an acquaintance with general principles, 
 and from the experience of the past, that the channels 
 of circulation could contain without depreciation, but 
 a limited amount of paper credits, and that that amount 
 was already in those channels, they began to add to 
 the mass/already redundant, by emissions of their own 
 notes; and in the course of a few months added to the 
 mass of bank loans an amount greatly beyond the re- 
 ductions which had been made. By this means the 
 currency, although nominally convertible, was depre- 
 ciated below its former low state, and was thrown 
 back, instead of being advanced on the road of resto- 
 ration ; and thus was rendered nugatory all the pain 
 and embarrassment which the public had suffered from 
 the former curtailments of the state banks. 
 
 This unwise procedure of replunging the people in- 
 
304 APPENDIX. 
 
 to the debts from which they had been partially ex- 
 tricated, and of involving others who had hitherto es- 
 caped, was continued for a time: but the dreadful day 
 of retribution at length arrived. The bank discovered 
 almost too late, that its issues had been extended be- 
 yond the limits of safety, arid that it was completely 
 in the power of its creditors. It also foresaw that the 
 payment of that portion of the Louisiana debt, re- 
 deemable on the 21st of October 1S18, which was held 
 by foreigners, might occasion a demand for a consid- 
 erable amount of coin, that the enhanced prices of 
 China, India and other goods occasioned by the de- 
 preciation of the currency from the over issues of 
 itself and the state banks, would lead to a demand 
 for specie, and that as it was professedly a specie bank, 
 liable, under a penalty of 12 per cent, per annum to 
 pay its notes on demand, the same delicacy and for- 
 bearance would not be extended towards it as to the 
 state banks. These considerations impelled it to seek 
 its own safety, and from that moment a system of re- 
 duction commenced. This reduction operating upon 
 the state banks, which had not profited by the oppor- 
 tunity afforded them of contracting their loans whilst 
 the other was extending, obliged them also to diminish 
 their transactions, and a general curtailment ensued, 
 which has not yet had its consummation. The se- 
 verity of the second pressure commenced in the city 
 in October IS 18, and was continued without intermis- 
 sion for a year; at the expiration of which time it is 
 said that the reductions made there by the national 
 bank alone have exceeded seven millions of dollars, and 
 those by the other banks probably two or four more. 
 The reductions of the country banks during the three 
 last years may be inferred from the following statement 
 which exhibits the amount of their notes in circulation 
 at four different periods. 
 
 November 1, 1S16, $4,756,460 
 
 Do. 1S17, 3,782,760 
 
 Do. 1818, 3,011,153 
 
 Do. 1819, 1,318,976 
 
APPENDIX. 305 
 
 From the foregoing history it will be seen, what in- 
 fluence has been produced upon the affairs of the 
 community by the operations of the banking system. 
 Real property has been raised in nominal value, and 
 thousands of individuals have been led into specula- 
 tions, who without the facility of bank loans would 
 never have been thus seduced. The gradual nominal 
 rise in the price of land, has produced an artificial ap- 
 pearance of increasing wealth which has led to the 
 indulging of extravagance and luxury, and to the neg- 
 lect of productive industry. Foreign importation and 
 domestic consumption have thus been carried to an 
 extent, far beyond what the actual resources of the 
 country and people would justify, and in pursuing a 
 shadow the community has lost sight of the sub- 
 stance. ******* 
 
 Your committee is sensibly impressed with the dan- 
 gers which may hereafter arise from the renewal and 
 creation of bank charters, and as they have deemed 
 it to be within the limits embraced by the resolution 
 under which they act, they take the liberty of giving 
 to the Senate their ideas of the provisions which should 
 be incorporated in every charter of a bank hereafter 
 sanctioned by the legislature. They are as follows: 
 
 First. A penalty of twelve per cent, per annum 
 in addition to a forfeiture of the charter, should be im- 
 posed upon the amount of all notes and deposits not 
 redeemed in specie on demand. 
 
 Secondly. No bank should be allowed at any time 
 to loan more than fifty per cent, beyond the amount of 
 its capital. 
 
 Thirdly. All profits above six per cent, should 
 be equally divided between the stockholders and the 
 state, the amount accruing to the latter to be specifi- 
 cally appropriated to internal improvements. The 
 justice of this provision is founded upon the consider- 
 ation, that although high dividends have been made, 
 yet none but the original subscriber gets the benefit 
 of them, for all subsequent purchasers are compelled to 
 26* 
 
306 APPENDIX. 
 
 pay for the stock a speculative advance upon its par 
 value, at least equivalent to the extraordinary interest. 
 
 Fourthly. No director except the president should 
 be re-eligible for more than three years, in any period 
 of six, and none should be entitled to loans beyond a 
 limited amount. 
 
 Fifthly. The affairs of the bank and the private 
 accounts of the directors should at all times be open 
 to the inspection of the legislature. 
 
 Sixthly. No note for less than five dollars should 
 be issued, inasmuch as no solid system of paper credits 
 can any where exist, unless the minor channels of cir- 
 culation are exclusively supplied with coin. 
 
 Without such provisions as these, the propriety of 
 which has been established by the dear bought expe- 
 rience of the past, your committee conceive, that it will 
 be impossible to guard the public in future, against 
 the evils of excessive issues, which, whenever they 
 are made, must sooner or later re-act upon the commu- 
 nity, with effects in a greater or less degree, similar to 
 those which our fellow citizens now so unhappily ex- 
 perience. 
 
 I. 
 
 PRICES AT LONDON OP AMERICAN SECURITIES, AT THE 
 DIFFERENT DATES MENTIONED. 
 
 October 23d, 1838. 
 
 New York Fives 91 to 95 
 
 Pennsylvania " 92 " 96 
 
 Louisiana " - 95 96* 
 
 Alabama " - 83 " 84 
 
 Indiana " ... 83* 
 
APPENDIX. 
 
 307 
 
 Ohio (1856) Sixes - - - 100$ 
 
 " 101$ 
 
 Mississippi " 
 
 93 
 
 " 94 
 
 Virginia " - 
 
 95 
 
 96 
 
 Illinois " - 
 
 83$ 
 
 " 84$ 
 
 S. Carolina, Sterling Fives 
 
 95 
 
 u 
 
 Alabama " " 
 
 93 
 
 " 94 
 
 April 30th, 1840. 
 
 
 
 N. York Fives, 1845 to 1860, 86 to 87 
 
 
 
 Penn'a " 1854 " 1865, 74 " 76 
 
 
 
 Louisiana " 1844 " 1852, 90 " 
 
 St'g 
 
 bonds. 
 
 Alabama " 1863 " 1868, 68 " 
 
 
 
 Do. " 1859 80 " 
 
 St'g 
 
 bonds. 
 
 Indiana " 1864 65 " 
 
 
 
 80 " 
 
 St'g 
 
 bonds. 
 
 Ohio Sixes, 1850 to 1860, 90$ to 91$ 
 
 
 
 Illinois 1870 " 75 
 
 
 
 Mas's Fives, 1868 " 101 
 
 
 
 Maryland " ' 80 " 
 
 
 
 Mississippi stocks, no quotation. 
 
 
 
 From the New York American. Extract from a letter dated London, 
 April 30th, 1840. 
 
 " We are in some respects mending in the Ameri- 
 can Stock Market. United States Bank shares are 
 done at 15/. 15*. to day, and there are two or three 
 buyers at 15/. 105. Pennsylvania stock is very heavy, 
 and holders are loud in their expressions of dissatis- 
 faction at the legislature for not passing the bill for 
 taxes. Several parties have sold in alarm and there 
 is now some in the market of 1856, at 75. This is a 
 bad state of things, when we have four millions of 
 dollars pledged here for the United States Bank, and 
 $400,000 for the Girard, and new loans making. If 
 there had been any care evinced by that state for 
 maintaining its credit, no doubt we should have had 
 a considerable and rational improvement. The state 
 of money, arid the opening of the continental market 
 for the stock, would have enabled the French bank- 
 ers to add Pennsylvania to their administration of 
 
308 APPENDIX. 
 
 American stocks, and it would have given satisfaction 
 to all. 
 
 J. 
 
 NEW YORK GENERAL BANKING LAW. 
 
 Extract from the annual Report of the Comptroller made to the Legis* 
 lature of New York in January, 1840. 
 
 OPERATIONS UNDER THE ACT TO AUTHORISE THE 
 BUSINESS OP BANKING. 
 
 THE press of business under this act existing at the 
 time the present comptroller came into office and which 
 continued to increase until very recently, rendered it 
 indispensably necessary to employ additional aid. 
 There are now engaged five registers and a book- 
 keeper, and yet it has been necessary to pay a large 
 amount to clerks for services out of office hours, and 
 to other individuals for numbering circulating notes. 
 At times, with all the force which could with propriety 
 be put in requisition, the demand for notes could not 
 be supplied promptly. That demand has now abated 
 and it is supposed that hereafter a less number of re- 
 gisters may be able to answer all calls for bills within 
 a reasonable time. 
 
 With a view to arrive at some degree of certainty 
 in regard to the title and value of the real estate mort- 
 gaged, and to the accuracy of the conveyances, all the 
 bonds and mortgages, with the deductions of title and 
 appraisals of the land, which had been received in 
 security or deposite, previous to the psriod when the 
 present comptroller took charge of the office, were 
 
APPENDIX. 309 
 
 submitted to a professional gentleman of high standing 
 for a thorough and critical examination, to the end 
 that all defects or omissions might be supplied. The 
 result of that examination showed its necessity and 
 the propriety of a similar course thereafter, and there- 
 fore all papers relating to the pledge of real estate have 
 been strictly examined and approved, before any cir- 
 culating notes were delivered upon such securities. 
 All the defects that were discovered have been sup- 
 plied, and there is every reason for believing that the 
 titles to property mortgaged are valid, the appraisals 
 generally fair and reasonable, and that the papers are 
 in due form. 
 
 Some months since, one of the associations which 
 had elected to deposite state stocks and securities on 
 real estate under the seventh section of the act, and 
 had received bills stamped on their face "secured 
 by pledge of public stocks and real estate," applied 
 for a further amount of bills to be stamped " secured 
 by the pledge of public stocks," tendering at the time 
 of demand other stocks as a security on which the 
 bills stamped as last mentioned were to be issued. The 
 claim being contrary to the decision of the late comp- 
 troller, and in which the present comptroller acqui- 
 esced, the receipt of the stocks and the delivery of the 
 bills was declined. Whereupon an application was 
 made by the association to the Supreme Court for pro- 
 cess to compel a compliance with such demand, which 
 after argument of counsel on both sides, resulted in 
 the award of an alternative mandamus. The comp- 
 troller, under these circumstances, came to the conclu- 
 sion to yield to the alternative of issuing bills on stocks 
 only to the association applying a new account 
 was opened with the same institution with a view to 
 keep the two discriptions of bills separate, as well as 
 the securities on which they were issued. Several 
 other associations have been furnished circulating notes 
 in like manner since that period. 
 
 In regard to receiving the stocks of other states, there 
 
310 APPENDIX. 
 
 has been a wide difference of opinion between persons 
 engaged in banking and the comptroller, as to the 
 amount at which those stocks should be received in 
 pledge. The act having vested a discretion in the 
 comptroller, in the receiving, and also in respect to the 
 amount at which they might be received, constituted 
 that officer the guardian of the interest of the bill holder; 
 and in maintaining and protecting that interest, it is not 
 surprising that there should have arisen a collision of 
 opinion on the question of value. It was, among other 
 things, alleged " that the late comptroller had decided 
 to admit or receive the six per cent stocks of other states 
 at par, or as equal to the five per cents of this state, and 
 that purchases had been made with reference to that 
 decision. As the prices of stocks had materially declin- 
 ed in market, and could not with propriety be received 
 at that rate, to remove all ground of complaints arising 
 from misapprehensions, the comptroller on the 9th 
 March last, gave public notice as follows: "Notice to 
 persons forming associations under the general bank- 
 ing law 
 
 " To meet the inquiries that are constantly made re- 
 specting the principles which govern the comptroller 
 in receiving stocks as collateral security for circulating 
 notes, he thinks proper to state that the stocks of this 
 state, and those of the United States, at or about five 
 percent, will be received at par value, and notes will 
 be delivered to an equal amount on such stock being 
 deposited; and that stocks of other States of the United 
 States, will be received or not according to circum- 
 stances existing at the time they shall be offered, and 
 when received will be estimated at a rate not exceed- 
 ing the market value, and notes will be delivered 
 accordingly." Since which six percent, stocks of other 
 states have been received from time to time, at 95, 90, 
 85, 80, and 70 per cent, and five per cent stocks at 
 nearly corresponding rates. The entire amount re- 
 ceived is $4,984, 700 38-100, of which $478,200 38-100 
 are of this state $1,099,000 of Arkansas, $872,000 of 
 
APPENDIX. 311 
 
 Michigan, $1,045,000 of Illinois, $1,043,000 of Indi- 
 ana, $10,000 of Ohio, $69.000 of Missouri, $207,000 
 of Alabama, $110,000 of Maine, $50,000 of Kentucky, 
 and $1500 of United States. 
 
 Fully to carry into effect the manifest intention of 
 the Legislature, by providing an ample security for 
 all circulating bills delivered to the associations, it be- 
 came a duty to fix a price at all times approxima- 
 ting to the actual market value of the different stocks 
 offered and to do this, and at the same time to give 
 general satisfaction to depositors, imposed a duty of 
 extreme delicacy and much perplexity. There seemed 
 to be no means within reach, by which the actual 
 value of stocks could be ascertained with any tolerable 
 degree of certainty. Stocks were evidently continu- 
 ally on the decline, and the comptroller felt it to be his 
 duty to keep at or below the supposed value in mar- 
 ket, for the reason that the disposal of the stocks 
 pledged will most probably be called for at a time of 
 the greatest pecuniary difficulty, and the sale must 
 be promptly made at whatever sacrifice, to meet im- 
 mediate demands that admit of no delay. In rating 
 the value of stocks, this consideration has been steadi- 
 ly kept in view, to the end that, under the most ad- 
 verse circumstances, there should be an adequate re- 
 demption fund; a matter of vital importance to the 
 stability of the system, as well as to retain the confi- 
 dence of the community, which has been so strongly 
 manifested in favor of the circulation of these banks. 
 
 To some of the associations a larger amount of cir- 
 culating notes has been delivered than the present 
 estimated value of the stocks pledged will warrant, 
 arid in such cases the dividends on the stock will be 
 retained to increase the security, agreeably to the fifth 
 section of the act. The stocks received have been made 
 payable to the comptroller in trust for the institution 
 depositing, or have been assigned in writing, or an 
 endorsement made upon each bond, specifying that the 
 same has been deposited in pledge for circulating notes 
 by the association making the deposite; this was done 
 
312 APPENDIX. 
 
 to prevent any unauthorised transfer of the securities. 
 Although this is not in accordance with the custom 
 among dealers in such securities, which authorises 
 transfers by delivery, yet it has been deemed prudent 
 to adopt every practicable measure tending to the 
 safety of the deposite. As transferred or endorsed, 
 these securities cannot become again negotiable with- 
 out the signature and seal of the comptroller. 
 
 Beside this guard, and a safe place of deposite, 
 the farther precaution has been taken to provide a 
 suitable book, in which a general description of each 
 certificate of state stock or bond is entered, in order 
 that if any of the securities should be missing, a de- 
 scription and notice could be given to the proper officer 
 of the state which issued the paper, and thereby pre- 
 vent its payment to the holder. These measures are 
 supposed to be all that are necessary for the safe 
 keeping of the securities deposited. Less precaution 
 seemed required in relation to the bonds and mort- 
 gages, as that class of securities is assigned to the 
 comptroller, and the mortgages and assignments there- 
 of have been duly recorded in the counties where the 
 lands conveyed by them are situated, and notice of 
 the assignment given to the obligors, and an acknow- 
 ledgment of the amount due thereon taken of the 
 mortgagors, where the mortgages were of long stand- 
 ing. 
 
 The joint committee appointed to examine the 
 Treasurer's accounts and the accounts in the Canal 
 Room, has been invited to extend its examination to 
 the Bank Department. The invitation was accepted, 
 and a general examination has been had in relation to 
 the situation of the securities, the manner of keeping 
 the books and the general condition of that depart- 
 ment. 
 
 The past year has not furnished a fair criterion by 
 which to judge of the operation of the system. About 
 half of the new banks have been in business but a few 
 months, embracing a period of unusual derangement 
 of the currency. As part of them, at least, were formed 
 
APPENDIX. 313 
 
 and put in operation without due preparation, and 
 have been managed by officers of limited experience, 
 it could scarcely prove otherwise than that difficulty 
 and embarrassment should attend their operation. It 
 is an experiment; and a much longer period of time 
 will be required than has yet been given fully to test 
 the practical effects of the system. A restriction which 
 had existed for many years was suddenly removed ; 
 the right of banking by complying with certain condi- 
 tions was opened to all; the occasion has been seized 
 with avidity; 134 certificates of the formation of asso- 
 ciations have been filed, seventy of which have com- 
 menced business, and also three private individual 
 banks, making seventy-three new banks. 
 
 Such securities as are mentioned in the act have 
 been sought, obtained and deposited to the amount 
 of $7,168,507, and upon which over $6,000,000 in 
 circulating notes have been issued from the office 
 within the last fifteen months. A sort of banking 
 mania seemed to prevail which alarmed the commu- 
 nity at its extent and possible results. The comp- 
 troller felt that nothing short of the most rigid per- 
 formance of the duty assigned to him in relation to 
 the securities pledged, would sustain that confidence 
 upon which the whole circulation of the free banks 
 depends. One bank has been wound up without loss 
 to the holders of its bills; two others are now coming 
 to that point, and it is confidently believed that the 
 result will be the same. If in times like these the re- 
 demption fund proves adequate to its object, addition- 
 al confidence will be accorded to this class of circula- 
 tion. During the influx of this new medium in the 
 absence of organization and concert among the new 
 banks, it is not surprising that the emission should be- 
 come somewhat depreciated, more especially when it 
 is considered how extremely difficult it has been to 
 preserve the safety fund circulation of the country banks 
 from a like depreciation, notwithstanding an organi- 
 zation of years standing, and the great experience of 
 27 
 
314 APPENDIX. 
 
 the officers of these institutions, and the privilege of 
 availing themselves to some extent of the aid of the 
 State by receiving its deposites. 
 
 The heavy expenses incident to the organization 
 of so large a number of institutions, have with few 
 exceptions, been paid on the draft of the comptroller, 
 at sight. Such part of their circulation as has been 
 returned for redemption has been promptly met, ex- 
 cept by those associations in New York now closing. 
 
 The amount of circulation of the safety fund banks, 
 as appears by the report of the bank commissioners, 
 Jan. 1st, 1839, was - $19,373,14900 
 
 The amount of circulating notes of free 
 
 banks, Jan. 1st, 1839, was - 396,300 00 
 
 Making the whole circulation of the 
 
 state, on the 1st of Jan. 1839 - $19,769,449 00 
 The total amount of circulating notes 
 
 issued up to the 1st Dec. 1839. 
 
 $6,012,019 00 
 Estimated amount of 
 
 safety fund notes in 
 
 circulation on 1st Dec. 
 
 1839 - 12,000,000 00 
 
 Making the entire circulation on 1st of 
 
 Dec. 1839, - 18,012,019 00 
 By this it is shown that the circulation 
 
 has diminished $1,757,440 00 
 
 And it is apparent that as that of the free banks 
 expanded, that of the safety fund institutions con- 
 tracted in about the same proportion. The aggre- 
 gate of circulation of the state, (allowing all the notes 
 delivered to the new banks to be out,) does not equal 
 the aggregate of 1st January, 1839, by the sum above 
 stated, 
 
 This does not include the amount of post notes 
 issued by a very limited number of the free banks. 
 The comptroller has not deemed that a legitimate is- 
 
APPENDIX. 315 
 
 sue, and has therefore dircouraged the practice, and 
 it is believed that it has not obtained to any consider- 
 able extent. 
 
 Such issues if allowed by law, will operate inju- 
 riously upon the credit of the new system. No pledge 
 is made for the redemption of that species of paper a 
 fact unknown to many, arid therefore its circulation 
 is deceptive. 
 
 Arrangements were made in the month of Sep- 
 tember last with the deposite bank in this city, to 
 receive the bills of the associations from the treasurer 
 in deposite at par, which enabled him to receive those 
 bills for all sums due to the state. This arrangement 
 put the bills of this description on an equal footing 
 with the safety fund bills, so far as regarded the 
 moneys receivable for the general and other funds of 
 the state, (except the canal fund,) and large sums 
 have been received by the treasurer in that kind of 
 paper. As to receiving the bills of the free banks for 
 tolls on the canal, the commissioners of the canal 
 fund found that by the existing law, they were only 
 authorised to deposite the moneys belonging to that 
 fund with "safe incorporated moneyed institutions 
 of this state;" consequently the canal board are com- 
 pelled to select incorporated banks to receive tolls 
 during the season of navigation. Having no right 
 to direct what description of money or paper the 
 selected banks should receive for tolls, the comptrol- 
 ler, in his communication, requested them to receive 
 all kinds of bills provided they could do so without 
 loss; and directions were given to the collectors to 
 receive all kinds of bills which the deposite bank 
 would receive of them. 
 
 Many of these banks have received of the collec- 
 tors the bills of the associations in their vicinity, and 
 some of those that were more remote. New -banks 
 were springing into existence as if by magic, and a 
 part making no provision for the redemption of their 
 bills in New York or Albany, the deposite banks felt 
 
316 APPENDIX. 
 
 unwilling to receive notes about which they could 
 know little or nothing. Had the commissioners of 
 the canal fund been able to give time to convert the 
 new currency, an arrangement might have been made 
 to receive them. But the constant heavy drafts of 
 the canal commissioners in favor of the contractors, 
 during a period of unprecedented pecuniary distress, 
 placed it beyond their power to extend the time re- 
 quisite to make such conversion. While no direc- 
 tions, therefore, could be given to receive the notes 
 of the free banks for tolls, for the reasons mentioned, 
 many of the deposite banks have taken freely of such 
 as have taken the precaution to make arrangements 
 to redeem their bills at New Yorkoj: Albany, at simi- 
 lar rates as the safety fund banks. Had all adopted 
 this course, there would have been little if any diffi- 
 culty in the reception of the bills of all, in ordinary 
 times. It is confidently hoped that hereafter, when 
 the associations shall have had time to perfect a sys- 
 tem of redemption and give a fair standing to their 
 several institutions, no such difficulty will then be 
 experienced. 
 
 It is one of the first and most sacred obligations of 
 these associations and all other institutions enjoying 
 the privilege of supplying a currency for the country, 
 to render that currency equal to gold and silver at its 
 place of payment. As a debtor cannot well be re- 
 quired to pay at two or more places, because that 
 would require a double provision for his debts; and 
 as the place of payment may be, and often is, distant 
 from the point to which the currency is carried by 
 the course of trade, there will naturally and necessa- 
 rily be a depreciation in such currency equal to the 
 expense of transporting gold and silver to such point. 
 This is reasonable, but any farther depreciation is 
 unjust to the community which has to sustain it. 
 The great question then arises how is this to be pre- 
 vented in regard to the circulating notes issued by 
 the banking associations under the general law. 
 
APPENDIX. 317 
 
 A recent arrangement into which the safety fund 
 banks, and many of the associations have entered, 
 has proved in practice so successful in its operation, 
 that nothing more seems required than to give it the 
 sanction of law, and thereby compel its universal 
 adoption by all the associations, to render their notes 
 a sound and safe currency, equal to gold and silver 
 in every part of the state, abating the slight deduction 
 justified by the distances of the respective associations 
 from the place where their notes maybe concentrated. 
 The following might be substantially the provisions 
 of such law. The banking associations should each 
 be required to appoint a delegate to meet at some 
 central point in the state to represent them, and the 
 majority of such delegates to select some bank or 
 banking association in the city of Albany as an ex- 
 change agent, and agree with it upon .the terms on 
 which it would perform the duties of the agency. 
 Should the associations neglect to make such selec- 
 tion and agreement, some state officer or officers 
 should be authorised to do it for them. 
 
 The agency being established, every association 
 should be at liberty to send to it the notes of all the 
 others for exchange and redemption. On a given 
 day in each week the exchange agent should assort, 
 count and arrange in separate packages all the notes 
 received at the agency, adjust the balances between 
 the different associations, seal each package, and give 
 notices by mail to the respective associations, of the 
 amount due from each, which notices should require 
 the balances to be paid at the agency, at times to be 
 adapted to the distance of the debtor association 
 from it. The associations at and east of Utica might 
 be required to pay in ten days after mailing the no- 
 tice; those at and east of Rochester in fifteen days; 
 those at and east of Buffalo in eighteen days; those 
 at and south of Whitehall fifteen days; those at New 
 York eight days; those at Ponghkeepsie and north 
 of it five days. Their times of payment would of 
 27* 
 
318 APPENDIX. 
 
 course be regulated according to distances and facility 
 of intercourse, and the same principle may be applied 
 to all the counties in the state. 
 
 In case of a default to pay a balance at the ap- 
 pointed time, the exchange agent shall furnish proof of 
 the fact to the comptroller, who should be authorised 
 immediately to dispose of so much of the securities 
 deposited with him, by such defaulting association, 
 as shall be necessary to pay such balances, and there- 
 upon redeem its notes sealed up, take them into his 
 possession, and cancel the same. But if the comp- 
 troller should be of opinion that at the time, and un- 
 der the circumstances, when such balances accrued, 
 the securities deposited with him might not be imme- 
 diately available to redeem the whole circulation of 
 any defaulting association, he might be authorised to 
 pay a just proportion on the amount of notes so sealed 
 up, and in that case the notes sealed up should be 
 delivered to him for the purpose of making such pro- 
 portionate payment to owners of them. The comp- 
 troller may be authorised when no doubt is enter- 
 tained of the sufficiency of such securities, to advance 
 from the treasury the sum necessary to discharge 
 such balances, to be refunded, with seven per cent, 
 interest, with all costs and charges, out of the sale of 
 the securities of the delinquent association. Upon 
 the occurrence of such default, if the balance be not 
 paid within ten days, with the interest, costs and 
 charges the attorney-general should be required to 
 apply to the chancellor, or a vice chancellor, for an 
 order, which such officer should be authorised to 
 grant, to restrain the officers and agents of such asso- 
 ciation from transacting any business, except the pay- 
 ment of its notes then in circulation, and to receive 
 payment of debts due to it. 
 
 Upon granting such order, the officer to direct 
 some master in chancery or some other proper per- 
 son, to be designated, at the expense of the associa- 
 tion, to examine into and report forthwith the condi- 
 
APPENDIX. 319 
 
 tion of the same; and on such report coming in, the 
 court to be authorised to dissolve the association and 
 appoint a receiver to take charge of the effects and 
 pay the debts. This plan will abundantly secure the 
 holders, of the circulating notes, and enable them at 
 all times promptly to convert them into cash at a dis- 
 count equal to the time allowed for payment of ba- 
 lances, which may be from % of one percent, to 1 per 
 cent, and will not probably exceed the latter amount. 
 It at the same time affords a reasonable time to the 
 associations to meet their balances, and save them 
 the necessity of providing funds in the principal cities- 
 to meet, any larger amount. The clause requiring 
 them to keep 12^ per cent, of the amount of their cir- 
 culation in specie at the place of their business, may- 
 be so modified as to allow of a deposite to their credit 
 at the agency for redeeming their notes, as an equi- 
 valent. 
 
 The rates at which compensation may be made to 
 the exchange agency, in case no agreement be made 
 by the associations, should be limited by the act. 
 
 It is believed that such a plan would render the 
 circulation of these associations all that their most 
 ardent friends have anticipated; no good reason can 
 be perceived why the proposed system of redemption 
 might not be applied also to the safety fund banks, 
 thereby at once placing the whole circulation of the 
 state on the same footing. 
 
 The following is also submitted as necessary amend- 
 ments to the act authorizing the business of banking, 
 viz: 
 
 1. No circulating notes to be delivered to any as- 
 sociation or individual, until satisfactory proof shall 
 be produced to the comptroller, showing that the ca- 
 pital paid in or secured to be paid in, amounts to 
 $100,000. 
 
 2. No stocks, other than such as have been, or 
 shall be issued by the authority of, and for the re- 
 demption of which the faith of the United States or 
 
320 APPENDIX. 
 
 of this state is or shall be pledged, shall be received 
 in security for circulating notes, except where satis- 
 factory evidence shall be adduced that such stocks 
 cannot be procured without the payment of an exor- 
 bitant price. 
 
 3. Individual bankers, who shall commence busi- 
 ness after 1st January, 1840, shall comply with the 
 same regulations which are applicable to associations. 
 Such bankers who had commenced business before 
 that day shall hereafter make semi-annual reports in 
 like manner as associations, and comply with all re- 
 gulations prescribed by law for associations. 
 
 4. Bonds and mortgages made direct to the comp- 
 troller by the president or other officers of the asso- 
 ciations, or individual bankers, shall be valid, and 
 such bonds and mortgages in such cases may hereaf- 
 ter be received in like manner as if transferred ac^ 
 cording to the 7th section of the act aforesaid. 
 
 5. No association or individual banker shall make, 
 issue, or put in circulation as money, any notes, bills 
 or other evidences of debt, except such as shall be 
 obtained from the comptroller according to law. 
 
 6. Mutilated circulating notes may be returned 
 and others issued in lieu of them, if the securities shall 
 be sufficient to warrant it. 
 
 7. All protest fees shall be paid by the person pro- 
 curing the services to be performed, and for which 
 fees the association or individual banker shall be 
 liable. No part of the pledged fund shall be applied 
 in payment of such fees. There shall be but a single 
 fee for protest allowed on all bills held by the same 
 person, or persons, jointly interested at the time of 
 protest. 
 
 8. When the dividend on stocks, or interest on 
 mortgages shall be retained by the comptroller, he 
 shall receive the same and deposite it in some safe 
 bank or association in trust for the institution or 
 banker to whom it belongs, at the highest rate of in- 
 terest which can be obtained, to remain in deposite 
 till the securities will authorise it to be paid over. 
 
APPENDIX. 321 
 
 9. The committee annually appointed to examine 
 the treasurer's accounts, shall also examine all the 
 securities, account books and other papers which may- 
 be necessary, in their opinion; to enable them to re- 
 port the true state and condition of that department 
 to the legislature. 
 
 NOTE BY THE AUTHOR. 
 
 During the late session of the New York Legisla- 
 ture, two laws were passed relating to the Free 
 Banks, copies of which could not be procured in time, 
 but, the principal features of which are as follows: 
 
 From the New York Journal of Commerce of 25th April. 
 
 Redemption of Country Bank Notes. Th'e bill 
 passed by the assembly on Tuesday in relation to 
 this subject, provides that every bank, banking asso- 
 ciation and individual banker, except those in the 
 cities of New York, Albany and Brooklyn, shall ap- 
 point an agent in the city of New York for the re- 
 demption of their notes, at a rate of discount not 
 exceeding one half of one per cent.; that the bank, 
 banking association or individual banker, whose 
 agent, shall neglect or refuse to redeem such notes on 
 demand shall pay interest on the same at the rate of 
 20 per cent, per annum; and if such redemption and 
 payment of interest is not made within 20 days after 
 demand, such bank, banking association or individual 
 banker, shall be liable to be proceeded against by the 
 bank commissioners; that every association and indi- 
 vidual banker who shall hereafter commence busi- 
 ness, shall appoint an agent before receiving any 
 circulating notes from the comptroller. That any 
 number of banks, banking associations and private 
 bankers, may, by agreement associate to raise a joint 
 fund to be placed in the hands of the common agent 
 for the redemption of their notes in the city of New 
 York; and also the circulating notes of other banks, 
 
322 APPENDIX. 
 
 banking associations and individual bankers; and 
 that no bank, banking association or individual 
 banker, shall purchase, buy in or take up, their cir- 
 culating notes at an amount less than what purports 
 to be due thereon, at any other place or in any other 
 manner than is directed by the present bill. 
 
 From the New York Commercial advertiser of May 20iA. 
 
 Act to amend the. act authorising the business of 
 banking. The second section of the act is amended 
 so as to authorise the issue of notes by the comptroller 
 to an amount equal to that of stocks of this state de- 
 posited with him by any person or association such 
 stocks to be equal to a five per cent stock of this state, 
 and rrot to be taken at a rate above their par value, 
 or above their current market value. 
 
 Stocks now held by the comptroller may hereafter 
 be transferred to and received by him at their market 
 value. 
 
 No association shall commence business until stocks 
 to the amount of $100,000 have been deposited. 
 
 No person or association shall put in circulation 
 any note not payable on demand. Violation of this 
 provision punishable with fine and imprisonment, as 
 a misdemeanor. 
 
 Comptroller shall receive mutilated notes, and issue 
 others in place of them. 
 
 Thirty-third section of the act repealed. 
 
 When the securities deposited with the comptroller 
 are in his judgment insufficient, he may receive the 
 dividends on stocks and interest on bonds and mort- 
 gages, and deposite the same in some bank of Albany 
 in trust, at such rate of interest as he may deem most 
 advantageous; to be withdrawn and paid over when 
 the sufficiency of the security shall render it proper. 
 
 The joint committee appointed to examine accounts 
 of the treasurer shall also examine securities deposited 
 with the comptroller, and books and papers. 
 
APPENDIX. 323 
 
 President of any banking association may execute 
 bonds and mortgages to the comptroller, as security for 
 circulating bills. 
 
 Fees for protest of circulating notes to be paid by 
 the person at whose instance the protest is made as- 
 sociation to be liable therefor but not the securities 
 deposited. 
 
 Bankers and associations made liable to inspection 
 and supervision of the bank commissioners. 
 
 Refusal to submit books and papers for examination 
 or to be examined under oath, or any violation of law, 
 subjects parties to the same proceedings as in the case 
 of incorporated banks. 
 
 An additional bank commissioner appointed, to be 
 paid out of interest of securities deposited. 
 
 Bodies corporate may receive arid hold transferable 
 shares in stocks of banking associations, the same as 
 in other stocks. 
 
 UNIVERSITY 
 
 THE END. 
 
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 Renewed books are subject to .mmed.ate recall. 
 
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 General Library . 
 University of California 
 Berkeley 
 
UNIVERSITY OF CALIFORNIA LIBRARY