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ness; the result of business transactions payable on a day named, which the parties are able to pay, and will pay at any sacrifice in order to escape mercantile dishonour. Such a bank has its funds, therefore, constantly repaid into it, and is able to say whether it will or will not lend them out again. A bank so managed, if it finds too much demand for its coin to go abroad, begins by not lending more than it receives every day, and then goes farther, by not lending as much as its income, declining to renew the notes of its debtors, and obliging them to pay a part or the whole; making it a rule to keep its discounts within its income. The operation proceeds thus: by issuing no new notes, but requiring something from your debtors, you oblige them to return to you the bank notes you lent them, or their equivalents. This makes the bank notes more scarcer this makes them more valuablethe debtor in his anxiety to get your notes, being willing to sell his goods at a sacrifice-this brings down the prices of goods, and makes every thing cheaper. Then the remedy begins. The foreigner finding that his goods must be sold so low, sends no more. The American importer, finding that he cannot make money by importing them, imports no more. The remainder of the coin, of course, is not sent out after new importations, but stays at home where it finds better employment in purchasing these cheap articles; and when the foreigner hears of this state of things he sends back the coin he took away. He took away merely because your own domestic productions were so high that he could not make any profit in his country by taking them. But when the news reaches him that his productions are very cheap in our country, he will also learn that our productions are cheap too, and he sends back the coin to buy these cheap productions of ours. therefore get back our coin by diminishing our paper, and it will stay until drawn away by another superabundance of paper. Such is the circle which a mixed currency is always describing. Like the power of steam, it is eminently useful in prudent hands, but of tremendous hazard when not controlled; and the practical wisdom in managing it lies in siezing the proper moment to expand and contract it, taking care, in working with such explosive materials, whenever there is doubt, to incline to the side of safety.
"These simple elements explain the present situation of the country. Its disorder is over-trading brought on by over-banking. The remedy is, to bank less and to trade less.
During the last year, money was very abundant, that is, the demand for coin being small in proportion, the banks distributed freely their discounts and notes. This plenty concurred with other causes, especially the expectation of a new tariff, to induce an increased importation of foreign goods, and at the same time furnish great facility for procuring them on credit. For instance, in the difficulty of procuring profitable investments, there were found capitalists who exported the coin of the country, and sold their bills for it on credit; thus obtaining a small profit on the shipment, and a greater on the discount of the notes taken for their bills.
"This fraction of a per centage on the shipment of coin, seems to be a trifling gain for the great inconvenience to which it often subjects the community; but the profit though small, is lawful, and no odium should
be attached to the agents, for the operation is often a wholesome corrective of excessive issues of paper. The effect was, that by the month of February, the exportations of specie to France and England had become unusually large, amounting probably, in the preceding twelve months, to between four and five million dollars; and great importations were constantly arriving, and which when sold would require remittances to Europe. Hitherto at this season, the demand for exchange had been supplied by the bills drawn on the produce of the South, when shipped to Europe; but this year the crop, and with it the bills produced by it, has come tardily into the market, so that the demands of exchange for the proceeds of the arriving shipments were directed immediately to the exhausted vaults of the bank. Such an effect was to be averted without loss of time. The directors of the Bank of the United States, as was their natural duty, were the first to perceive the danger, and the bank was immediately placed in a situation of great strength and repose. The State Banks followed its example. They began by restraining their loans within their i come,. and gradually and quietly decreasing the amount of them, and more especially directing their retrenchments on those whose operations were particularly connected with the exportations they desired to prevent. The course of business has been this: a merchant borrows from the banks and sends abroad £100,000 in coin, or he buys bills from one who has shipped the coin. With these he imports a cargo of goods, obtaining a long credit for the duties, sends them to auction, where they are sold, and the auctioneer's notes given for them. These notes are discounted by the bank, and the merchant is then put in possession of another £100,000, which he again ships, and thus he proceeds in an endless circle, as long as the banks, by discounting his notes, enable him to send the coin, and tempt him so to do, by keeping up prices here by their excessive issues. The banks, therefore, begin by diminishing or withdrawing these artificial facilities, leaving the persons directly concerned in this trade to act as they please with their own funds, but not with the funds of the banks. The immediate consequence is, that the auctioneers can no longer advance the money for entire cargoes, that they no longer sell for credit but for cash, that the price of goods fall, that instead of being sold in large masses they are sold slowly and in small parcels, so that the importer is not able to remit the proceeds in large amounts. This diminishes the demand for the bills and for specio to send abroad. In the meantime, the importer finding the prices of his goods fall, imports no more, and the shipper of coin finding less demand for exchange, and that he can make more of his money by using it at home than by exporting it, abstains from sending it abroad. Time is thus gained till the arrival of the Southern exchange, which will supply the demand without the aid of coin, and then every thing resumes its accustomed course.
"This is the point to which the present measures of the banks are tending. The purpose must be accomplished, in a longer or shorter time, with a greater or less degree of pressure, but the effect must or will be produced."
While however the admitted principles of the cur
rency are the same, there is a considerable difference in the mode of its administration. In America there is no national bank: even the late Bank of the United States had no monopoly; its only privileges consisted in being the banker of the government, and in being able to establish branches in the respectives states, without being subject to local taxation. All the banks issue notes, even for so low an amount as five dollars, and in many of the States for even one dollar. If there is an evil in unlimited competition in the issue of notes, that evil must be experienced in America. It is therefore worthy of inquiry, whether derangements have occurred in the American currency more frequently than in this country; and if so, whether they have arisen from a spirit of competition between the issuing banks, or from the circumstance of their issuing very small notes?
With regard to England, the case is this :-In London, and for ten miles round, we have exclusively the circulation of Bank of England notes. From ten to sixty-five miles round London, we have exclusively the notes of private bankers. Beyond sixty-five miles from London, we have the notes of private bankers, the notes of joint stock banks, and the notes of branches of the Bank of England.
First, we shall consider the circulation of London. The bank charter committee of 1832 proposed to themselves the following inquiries:
1. "Whether the paper circulation of the metropolis should be confined as at present to the issue of one bank, and that a commercial company; or whether a competition of different banks of issue, each consisting of an unlimited number of partners, should be permitted?
2. "If it should be deemed expedient that the paper circulation of the metropolis should be confined as at present to the issues of one bank, how far the whole of the exclusive privileges possessed by the Bank of England are necessary to effect this object?"
Upon these points, the committee declared they
could not give a decided opinion. Lord Althorp thus referred to them in the speech I have already quoted.
A GOVERNMENT BANK.
"The advantages of having the bank altogether in the hands of Government, instead of a private company, would be greater responsibibility, and in that respect greater security to the public, and the whole of the profit; but these were more than counterbalanced by the political evils to which it would give rise. Government would have a constant temptation to abuse this additional power: besides, in times of distress, Government could not give the accustomed accommodation which would be desirable from a baking company. But supposing they could give this assistance, the power which they would acquire, might be destructive to the constitution of the country. Now, if the bank were tied down by fixed rules, to prevent their making advances, he thought that from one evil, they would fly to another, and it would be impossible to provide for all the cases, in which the aid of a bank to the public might be required."
A SINGLE BANK.
"The first question then was whether it would be more desirable that the circulating medium should be conducted by a single body, as bankers of issue, or by a competition of different banks or bankers? There were advantages in both systems. It must be to the interest of banks competing with each other, to issue each as much paper circulation as they could. They would be a check upon each other. It was therefore clear that no one of these banks could issue more than its due proportion of the circulation wanted. Suppose there should be a great demand for accommodation, though it might be in the power of each to increase the amount of the circulation, it would not be in the power of any of them, to have more than his due proportion of the amount of that increase; and when again, in consequence of a depreciation of the currency, a failure of credit takes place, in consequence of the turn of the exchange against us, each bank must contract its issues, and thus produce a sudden contraction to the currency of the country. Hence you would from such a competition cause greater fluctuation than from a single bank. There was another point on which a single bank having the control of a larger part of the circulation of the country might be of advantage; and that was, the assurance that in times of distress it could assist the commerce of the country. In times of panic the exchanges turn in favour of this country: there was no objection to the banks increasing its accommodation; but if there should be many banks, no one would dare to come forward, from fear of the competition of its rivals."
The great objection to freedom of banking in London, arises from the apprehension, that if there were
numerous banks of issue, the rivalry between them would put into circulation an excessive amount of notes; the prices of commodities would thus be advanced, speculation would be encouraged, the foreign exchanges would become unfavourable; and there would be a consequent demand upon the banks for gold to be exported, and this demand the banks might be unprepared to supply. To this it has been replied-granting all these effects would result from numerous banks of issue, should we be worse off than at present? Are not all these evils experienced when we have only one bank of issue?
But it may be contended, that rival banks of issue tend to diminish these evils. If the Bank of England put into circulation an excessive amount of notes, these notes are not returned for payment until the foreign exchanges become unfavourable; but were there numerous banks of issue, the notes issued by one bank would soon find their way into the others, and be returned for payment in the daily exchanges. All the witnesses from Scotland, who were examined before the parliamentary committees in 1826, concurred in saying, that the exchanges between the banks was an effectual check to an excessive issue of notes. Why should not a check, which is found so effectual in Scotland, be equally effectual in London?
But even admitting that one bank of issue were preferable to an unlimited number,, another subject of inquiry would present itself, that is, whether four or five chartered banks, each having a large capital, and founded on principles of unquestionable stability, would not be preferable to one bank. Here the checks, arising from frequent exchange of notes, would exist without the evils arising from unlimited competition; and as neither one of these banks could calculate upon being able by its individual exertion to turn the foreign exchanges, they would be careful to be always in a position to meet their engage