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 Remarks on currency and banking. 
 
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REMARKS 
 
 CURRENCY AND BANKING; 
 
 HAVING REFERENCE TO THE PRESENT DERANGEMENT 
 ^ OF THE CIRCULATING MEDIUM IN THE 
 UNITED STATES. 
 
 BY NATHAN APPLETON 
 
 THIRD EDITION. 
 
 WITH AN APPENDIX. 
 
 BOSTON: 
 1857. 
 
 J. H. EASTBUEN'S PRESS. 
 
Cornell University 
 Library 
 
 The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924014541605 
 
EEM AEKS 
 
 CrEHENCY AND BAJSTKING: 
 
 HAVING REFERENCE TO THE PRESENT DERANGEMENT 
 
 OF THE CIRCULATING MEDIUM IN THE 
 
 UNITED STATES. 
 
 BY NATHAN APPLETON. 
 
 THIRD KDITION. 
 
 WITH AN APPENDIX. 
 
 BOSTON: 
 1857. 
 
 J. H. EASTBURN'S PKES3. 
 
PREFACE. 
 
 No apology would seem to be necessary for pubHshing an 
 essay on Currency and Banking. The derangement of our cur- 
 rency has brought the subject home to every man's business and 
 bosom -with an intensity which has made it the engrossing topic 
 of the country. It is however a subject of great difficulty ; as 
 a science it is abstruse and recondite. In practical apphcation, 
 we find every possible variety of opinion ; the great obstacle to 
 the restoration of a sound currency is believed to be an errone- 
 ous public opinion. — In the hopes of doing something in re- 
 forming erroneous views the present slight and hasty sketch is 
 offered. The object is to present those principles which have 
 the sanction of the best writers on the subject and which all 
 experience is believed to confirm, in a form to be applied to the 
 present condition of the country. 
 
 Unfortunately the subject has been connected with the party 
 poUtics of the day. Nothing can be more \mfavorable to the 
 development of truth, on questions in political economy, than 
 such a connection. A good deal which is false, with some ad- 
 mixture of truth, has been put forward by political partisans on 
 either side. As it is the wish of the writer that the subject 
 should be discussed on its own merits and firee from such con- 
 taminating connection, he has avoided as much as possible all 
 reference to the political parties of the day. 
 Boston, Mat, 1841. 
 
This pamphlet was published in 1841, in two editions, which were 
 soon exhausted. It has been many years out of print, and frequently called 
 for; the present state of the currency seems to render its republication ap- 
 propriate to the tunes. 
 
 C^ 
 
 (d 
 
BANKS AND BANKING. 
 
 CIRCULATING MEDIUM. 
 
 The general consent of mankind has established gold 
 and silver as the common measure of the value of all 
 other commodities, and has given them, in the state of 
 coin, the name of money. Some nations making use 
 of one of these metals, some of the other, and some of 
 both. 
 
 Coinage may be considered as merely the affixing 
 a certificate of the government to the quantity of pure 
 silver or gold contained in each coin respectively, on 
 which alone its value depends. The fitness of gold 
 and silver for the medium of exchanging all other com- 
 modities, arises from their containing much value in 
 small bulk, from the difficulty of their quantity being 
 materially increased, from their easy divisibility and 
 their indestructibility. 
 
 It is usual to consider these precious metals as the 
 common measure of other property ; but they have 
 another quality essential to their performance of the 
 function of money. Their intrinsic value makes them 
 also the common equivalent. They not only measure 
 the value of other commodities, they replace it ; this is 
 an important distmction. 
 
The laws of the United States establish the coinage 
 and currency of both metals. By the law of 1792, gold 
 was estimated to be worth fifteen times its weight in 
 silver, which was, at that time perhaps, an accurate 
 estimate of tljie actual relative yaliue of the two metals. 
 Since that period a decided and permanent change has 
 taken place in that respect in favor of gold ; and by 
 the law passed in 1834, our gold coinage and several 
 foreign coins are made current in the proportion of six- 
 teen times their weight of sUver. 
 
 The effect of this law is, to make an important change 
 in our metallic currency. Previous to its passage, our 
 whole currency consisted of silver ; gold was merely 
 merchandise, worth about five or six per cent, above its 
 legal valuation. Since 1834, gold has been constantly 
 displacing silver, and is becoming the basis of our bank 
 circulation. 
 
 Banks are establishments for the purpose of carrying 
 on a trade or traffic in money, or in contracts or obli- 
 gations for the payment of money. 
 
 Bank notes are promises to pay on demand a given 
 quantity of coin ; they are promises to pay money, but 
 they are not money in themselves. This is an import- 
 ant distinction, and the not making it is the source of 
 most of the popular errors on the subject of currency. 
 
 Bank notes, payable in coin on demand, in the com- 
 mon transactions between man and man, are generally 
 preferred to the coin which they represent. They thus 
 perform all the functions of money, and in common 
 parlance are called money. But there is an important 
 distinction, and in strictness bank notes can with no 
 propriety be called money. A bank note gives a power 
 to command the coin, the money which it promises, at 
 the pleasure of the holder. This power is more con- 
 venient, therefore more valuable to the possessor, than 
 
the thing, the coin itself. This preference is the true 
 basis of bank circulation. It is founded in the nature 
 of things. It is essential, however, that this power 
 should be real ; that it should exist in fact ; that the 
 coin can be had on asking for. It is not, perhaps, sur- 
 prising, that superficial observers, seeing the facility 
 with which bank notes perform aU the functions of 
 money, without this power to command coin being put 
 to the test, should become insensible to its existence, 
 or disbelievers in its necessity. They see a. faith in this 
 power supersede the use of the power, and sanguine 
 and visionary spirits are led to believe that the same 
 faith may be built on some other basis, on something 
 else less expensive than gold and silver. This is doubt- 
 less the origin of the various projects for furnishing a 
 currency of paper not convertible into coin, to which 
 every age gives rise, and which always find favor with 
 the debtor class of mankind, but which are sure to end 
 in chagrin and disappointment. 
 
 Bank credits, commonly called deposits, are of pre- 
 cisely the same general character as bank notes ; they 
 arise from the deposit of coin or bank notes, from the 
 collection of individual notes, or bills of exchange, or 
 from discounts made by the bank for the parties to 
 whose credit they are placed. However originating, 
 the bank admits them to be a debt payable in gold and 
 silver on demand. 
 
 They remain to the credit of the party owning them, 
 because a bank credit, like a bank note possessing the 
 power of commanding the coin at any moment, is 
 preferable to the possession of it in specie. Bank 
 notes and bank credits are convertible into each other 
 at the pleasure of the possessor. They are essentially 
 the same. It has been sometimes made a question 
 whether bank credits can properly be termed currency. 
 
8 
 
 It is a question about words, and of little importance, 
 according to the sense in whicli tlie term currency is 
 used. Bank credits consist chiefly of the money kept 
 on hand by merchants and others for their daily use. 
 Were there no banks, it would be kept at home in 
 iron chests ; and if so kept, whether in coin or bank 
 notes, the question might be equally raised, whether 
 these deposits in large masses should be said to be in 
 circulation. 
 
 There is but one basis for a sound paper currency, 
 the actual power to command the coin. It is true, no 
 paper can circulate without confidence, but it is all 
 important that this confidence should rest on a solid 
 foundation. It is best it should be frequently put to 
 the test. With us, it is not the want of confidence 
 which has caused the derangement of our currency, 
 but, on the contrary, the prolific cause has been, the 
 giving confidence where it was not warranted, where it 
 was not due. 
 
 Preference is then the only basis of a sound paper 
 circulation, and it is not difiicult to perceive the 
 grounds on which this preference rests ; facility of 
 counting, facility of transportation or transmission, and 
 security against loss or robbery. To these general 
 advantages must be added a full assurance that the 
 money will be paid when wanted and where wanted. 
 
 The place where a bank note is payable is of the 
 utmost importance in order to secure its general circu- 
 lation at par with specie. That place must be the com- 
 mercial centre of the district through which it is to 
 circulate. 
 
 The constant demand for remittances to this central 
 point, will give to bank notes payable there, a constant 
 equality with or preference over specie, through all the 
 region drawing their supplies from that centre. Thus, 
 
9 
 
 a bank note payable in Boston, will have a natural cir- 
 culation through all that part of New England drawing 
 their supplies from thence ; but the moment the line is 
 passed into the district drawing their supplies from 
 New York, bank notes payable in that city, can alone 
 supply a pure circulation, and so of the other great 
 cities. Large towns or cities in the interior have a cer- 
 tain limited circle of their own, but for general circula- 
 tion, bank notes must be payable in the great commer- 
 cial cities. 
 
 The currency of depreciated paper, issued by banks 
 paying specie, is owing to a departure from correct 
 principles in this particular. The bank note is not 
 payable at the place where the money is wanted. Pre- 
 vious to 1824, the currency of Boston and New 
 England consisted mostly of country bank notes, sub- 
 ject to a discount varying at different times, but gen- 
 erally about one per cent. In 1824, what is called the 
 Suffolk bank system, was adopted, by which the bills 
 of all New England banks are virtually redeemable in 
 Boston at par. The system is this: Certain banks in 
 Boston have contributed a sum agreed on, to a common 
 fund, and in consideration of the use of that fund, one 
 of them, the Suffolk, undertakes to receive all bills of 
 New England banks as cash, and collect them firom the 
 country banks. The mode of doing it is as follows : 
 The country banks are invited to keep a fund in deposit 
 at the Suffolk bank for the redemption of their bills. 
 If they decline, the bills are sent home for payment, in 
 which case nothing but a legal payment in coin wiU be 
 received. The trouble attending this mode of payment 
 soon induces the bank to yield to its true interest and 
 keep up the deposit, since it can by doing so, keep a 
 larger amount of bills in circulation than it would 
 otherwise be safe to attempt. Under this system the 
 
10 
 
 whole currency, centering at Boston, is convertible at 
 pleasure into legal coin without any loss whatever — 
 a state of things which does not probably exist in any 
 other considerable city. 
 
 The State of New York is now suffering under a 
 currency of country bank notes, depreciated in a small 
 degree from being payable at places where the money is 
 not generally wanted. It is impossible that bank notes 
 payable at Buffalo can be preferred to specie in the city 
 of New York ; but it will be perceived at once that 
 bank notes payable in the city of New York wUl be 
 preferred to specie, not only in that city, but in Buffalo 
 also, and throughout the whole immense region of 
 which New York is the commercial centre. The legis- 
 lature of New York has attempted a partial remedy to 
 this evil, by compelling the country banks to take up 
 their notes either in Albany, or the city of New York, 
 at a discount of one half of one per cent. To be a com- 
 plete remedy the notes must be made payable ia the 
 city of New York at par. Nothing else wiU make the 
 currency of that State what it ought to be. [The State 
 of New York has also adopted a system of requiring a 
 deposit of stocks with a State officer as a security for 
 the paj-ment of bank notes. The great objection to 
 this system is that it requires a double capital, one to 
 purchase the stocks and another to redeem the circula- 
 tion of the bank.] 
 
 This circulation of bank notes payable at incon- 
 venient places is common to most of the commercial 
 cities in a greatier or less degree. All experience shows, 
 in the earlier periods of banking, a tendency to a false 
 public opinion in this particuJLar, in every community. 
 The note of a bank considered safe, situated in the 
 country, is thought to be equally entitled to circulation 
 with that of the city bank. This opinion is generally 
 
11 
 
 sustained by a powerful country interest in favor of 
 country banks. The true ground of bank circulation, 
 preference over specie, is not understood. Shopkeepers 
 and small dealers think it better to raise the price of 
 their goods rather than turn away a customer who 
 offers them any bank note. The class of money 
 brokers becomes necessary in this state of things, and 
 is supported out of this false state of the currency. The 
 most perfect remedy is in the correction of public 
 opinion, which would taduce every individual to refuse 
 to receive as money, any bank note not exchangeable 
 for gold or silver without loss. It is in the power of 
 the banks, however, of every commercial city, to regu- 
 late its currency. By receiving the notes of country 
 banks on better terms than brokers can afford to do, 
 and enforcing payment rigorously, they can make it for 
 the interest of all sound banks to make an arrangement 
 something like the Suffolk system. 
 
 Banks are highly useful institutions, properly man- 
 aged and properly understood; but like other good 
 things, they are liable to abuse. Many abuses are 
 sustained by erroneous opiaions on the subject. 
 
 To be useful, a bank must be founded on solid cap- 
 ital. The object must be the useful employment of 
 capital. There is no other sufficient ground of assu- 
 rance that the money will be paid ichen wanted. Banks 
 are dealers in money. They should pay their notes 
 whenever the convenience of the holder leads him 
 to demand payment, with the utmost readiness. 
 They should leave their circulation to depend on 
 its true basis, a preference, and treat a preference 
 for specie with the same courtesy as one for notes. 
 It is true that a bank derives a profit from its circula- 
 tion; but the bank becomes an abuse whenever it 
 opposes any obstacle to the ready conversion of its 
 
12 
 
 notes or credits into coin. That obstacle may consist 
 in viewing the party making the demand in an un- 
 friendly light. It is not uncommon to make a dis- 
 tinction in regard to brokers. It is sometimes attempt- 
 ed to cast an odium upon them as the cause of the 
 inconvenient demands made upon needy banks. All 
 this is false. There is little employment for money 
 brokers where banking is in a sound state. Bad bank- 
 ing and depreciated currencies bring brokers into ex- 
 istence. They are not cause, but effect. Their voca- 
 tion is wholesome. They are the mere agents of the 
 public. They alleviate evils instead of creating them. 
 
 SUSPENSION OF PAYMENT. 
 
 All the evils of bank currency, however, are slight, 
 being small in amount, local in their character, or 
 temporary in their operation, compared to a suspension 
 of specie payments. 
 
 This is the evil under which the United States are 
 now suffering, and which is tolerated by public opinion 
 to an extent which is truly alarming, as regards the 
 future character of our currency. 
 
 Suspension of specie payments, is the gentle name 
 applied to the failure or refusal to perform the promise 
 contained on the face of the bank note ; generally ac- 
 companied with a declaration of the perfect ability to 
 pay, and the intention to do so at some future time. 
 Properly viewed, this refusal deprives the bank note 
 of the only quality which gave it circulation, the power 
 to command the metallic money which it purports to 
 represent. It becomes simply a broken promise, and, 
 like other broken promises, of no other value than the 
 chance that legal coercion may compel eventual per- 
 
13 
 
 formance ; or that the refusal may relax into a willing- 
 ness to pay at some future time. It will be seen that 
 its character has become totally changed ; that instead 
 of possessing the original principle which gave it cur- 
 rency, it becomes in the hand of each possessor subject 
 to all the fluctuations which belong to doubtful and 
 uncertain contingencies. It is true, that a single bank 
 taking this ground will not be sustained — it is a fail- 
 ure — the bank cannot choose but break. But let a 
 part of the banks of one of our commercial cities pro- 
 claim this intention, all the others follow, and the pub- 
 lic submit, not only without a murmur, but give it their 
 commendation. The State Legislatures give it their 
 sanction, almost as a matter of course. The example is 
 considered so good, that it is followed by acclamation, 
 and sustained by the general voice. Like everything 
 else in this free country, it is public opinion which 
 establishes and continues this state of things, first 
 without or agaiust law — afterward the law is made to 
 bend to this opinion. It is true, all affect to consider 
 a condition of broken promises, and a depreciated cur- 
 rency, as an evU, but it is acquiesced in at once, as a 
 sort of dispensation of Providence. The real evil is in 
 a depraved public opinion, which tolerates this state of 
 things at all. The remedy is simple — but perhaps not 
 very easy — the correction of this public opinion. 
 
 It would not perhaps be difficult to show that a sus- 
 pension of payment by the banks ought never to be 
 tolerated at all ; or in other words, bank notes should 
 cease to perform the functions of currency after they 
 have lost all their proper attributes ; that the evU of a 
 depreciated paper currency is a greater evU than any 
 other which would be the result of maintaining a sound 
 currency under any circumstances. Even the suspen- 
 sion of 1837, which is generally considered to have 
 
14 
 
 been inevitable, and which was the result of a state of 
 things, which, reasoning a priori, no man would have 
 supposed it possible could exist, and which, it is to be 
 hoped, never will exist again — that suspension has 
 probably produced greater evils upon the community, 
 considered in all its bearings, than could possibly have 
 resulted, had the New York banks determined to con- 
 tinue to pay specie at all hazards. 
 
 Without however going into the consideration of 
 this question, there can be no hesitation in maintaining 
 the proposition, that under no circumstances should a 
 suspension be tolerated but for an exceedingly short 
 period — a few months perhaps, never so long as a year. 
 
 Money or currency is an instrument of the first 
 necessity to a nation. No trade or commerce can be 
 carried on without it. A nation using a currency 
 wholly metallic may feel a scarcity of money, but cannot 
 be drained of it, any more than a mechanic can be 
 made to part with the tools necessary to carry on his 
 daily business. Overtrade may take place in such a 
 community. An excessive importation of foreign com- 
 modities may cause an exportation of the precious 
 metals, to a degree of inconvenience. The scarcity of 
 money resulting from such exportation reduces prices, 
 the efiect of which is to check importation, and pro- 
 mote the exportation of all commodities, and thus the 
 evil soon cures itself, by the return of the coin neces- 
 sary to its trade. No other considerable importation 
 will take place until it has in this way recovered what 
 is of all things most important to it, its tools of trade. 
 
 Precisely the same thing takes place under a well- 
 regulated bank currency. It seems to be the opinion 
 of the best writers on the subject, that the most per- 
 fect bank circulation would be one which should be 
 precisely equal in amount to what the circulation of 
 
15 
 
 the same country would be in the precious metals, were 
 no other circulation permitted. 
 
 The great evil of the modern system of banking is 
 the great fluctuation which it is liable to produce in the 
 quantity of the circulatirig medium. This is easily 
 understood. Bank notes being, as akeady shown, 
 preferable for common uses to coin, and costing nothing 
 to make; the process of increasing the circulating 
 medium is very easy, and is certain to go on until it 
 meets the necessary check in a demand for payment. 
 This check the individual bank wUl receive in its ex- 
 changes with other banks. However individuals may 
 in their transactions consider a bank note as money, 
 the banks themselves take a difierent view of the mat- 
 ter. A bank balance can only be paid in coin. Here 
 is a check upon an individual bank ; but suppose all 
 the banks expand simultaneously, or nearly so, to which 
 there is a natural tendency, this check ceases to 
 operate. 
 
 In the same way an expansion in one of the cities 
 may be checked in consequence of balances being cre- 
 ated against it, and being demanded in specie. But 
 suppose the cities all expand at the same time, and 
 there is a powerful sympathy between them, the check 
 is only to be found in the rise of the foreign exchanges 
 to a point which induces the exportation of specie. 
 This foreign export of specie is in fact the only check 
 to redundancy, to excess, in bank circulation. 
 
 An expansion of the currency tends to an advance of 
 prices — excites commercial enterprize, and finally spec- 
 ulation and overtrade. High prices encourage impor- 
 tation and discourage exportation, a rise in the foreign 
 exchanges follows, which causes an export of specie, 
 which acts as a proper corrective by compelling the 
 banks to call in a portion of their issues. This is done 
 
16 
 
 I 
 
 by lessening or suspending their usual discounts. Here 
 is action and reaction, very beautiful, and all very 
 agreeable to the public, except the last part of the pro- 
 cess. A contraction of the currency causes a pressure 
 on the money market — reduces prices — paralyzes trade 
 — ^brings out failures. This is aU very disagreeable. 
 It makes what is called hard times. But in fact it is 
 always the return from a false position to a true one. 
 It is never necessary to diminish a currency which has 
 not been redundant. The violence of the pressure is 
 in proportion to the extent of the overtrade ; and gen- 
 erally the more violent the pressure the shorter the 
 period. 
 
 A suspension of payment by the banks, is the alter- 
 native presented in order to avoid the pressure attend- 
 ing the contraction of the currency, to the degree neces- 
 sary to stop the efflux of coin. But this pressure is 
 working the cure of the body politic laboring under 
 disease — the disease is an excess of bank circulation, 
 producing overtrade, inflated and unnatural prices. 
 The cure is contraction, producing a distress for money, 
 a reduction of prices, perhaps failures. Suspension is 
 no cure ; it is merely postponement. It may be con- 
 sidered an opiate, which if justifiable at aU, can only 
 be justifiable where the paroxysms are so violent as to 
 endanger life. There can be no wholesome action, 
 until the purity of the circulation is restored. There 
 is no escape from this necessity. It is after all a ques- 
 tion of time. Is it better to be a long time ill with a 
 lingering disease, or to submit to a painful remedy for 
 immediate relief? Here lies the essential error in the 
 case — the idea that suspension may be considered a 
 remedy, a real relief — whereas it is almost sure to com- 
 plicate the mischief. A continued suspension is sure 
 to end in a violent convulsion. 
 
17 
 
 Buf perhaps the worst part of suspension is its moral 
 effect on the community. Banks are established as 
 models of punctuality and honorable dealing ; their 
 notes have obtained circulation on the ground that the 
 promise to furnish the coin on demand was of the most 
 sacred character. They have become the depositories 
 of the money of the community, under the most solemn 
 pledge that it should be forthcoming on demand. The 
 directors of banks are selected from those of the high- 
 est standing in the mercantile community — their ob- 
 ligation to carry out the provisions of the charter, 
 and to fulfil the contracts made under it, would seem 
 to be of the highest and most binding character. They 
 are in fact the trustees of the stockholders and deposi- 
 tors, selected for this very purpose. It is difficult to 
 perceive how honorable men, holding the office of bank 
 directors, can reconcile a continued suspension to a 
 proper sense of moral obligation. 
 
 The effect of a suspension of the banks is immedi- 
 ately apparent in its effect upon the moral sense of the 
 community, as regards the obligation of contracts. The 
 breach of contract by the banks is alleged as a sufficient 
 apology for the breach of contract by individuals, and 
 is generally received as a sufficient justification. The 
 broken promise of a bank is offered and received as the 
 only alternative on all contracts faUing due. The 
 grossest injustice is thus inflicted, which has no pallia- 
 tion but its universality. A. submits to receive a de- 
 preciated currency, because he can practise the same 
 injustice upon B. The rights of creditors are sacrificed 
 to the convenience of debtors. 
 
 A continued suspension commits a double injustice. 
 The true value of a non-convertible paper currency, is 
 accurately measured by its specie value in the market. 
 Prices soon conform themselves to this unerring stand- 
 
18 
 
 ard. A contract, therefore, founded upon a scale of 
 prices under a depreciated currency, and executed in a 
 purer currency, operates with equal injustice upon the 
 debtor. It is probably for this reason, that a currency 
 greatly depreciated is rarely restored, but generally 
 goes on from bad to worse. 
 
 An admirable illustration of this is afforded in the 
 currency of Buenos Ayres, where a bank was establish- 
 ed, issuing notes as the representatives of Spanish dol- 
 lars. About the year 1820, this currency depreciated 
 very rapidly, and settled down at about 14 cents the 
 dollar. At the last dates, the exchange on London 
 was at 2^d sterling, equal to 4>^ cents to the dollar. It 
 was considerably lower during the blockade. Can any 
 one suppose that such a currency will ever be restored 1 
 Even this, however, has been outdone by some of the 
 banks of Mississippi, where what was considered good 
 currency one day, has, like Jonah's gourd, withered 
 entirely in the course of a night. 
 
 There is no greater error than the supposition that a 
 depreciated currency will, in time, cure itself. A re- 
 dundant currency first shows itself in the rates of ex- 
 change with other places. These rise so high as to 
 make coin the cheapest and most desirable remittance. 
 The banks are called on to furnish this coin. It is 
 then common to attribute the difficulty to an unfavora- 
 ble balance of trade. Suspension ensues. The rate of 
 exchange with places possessing a specie currency is a 
 certain indication of the rate of depreciation. But 
 there are those who will attribute all to an unfavorable 
 balance of trade. 
 
 This is the state of public opinion in Philadelphia at 
 the present time. They find the balance of trade con- 
 tinue unaccountably against them with New York and 
 Boston, and consider it impossible for the banks to re- 
 
19 
 
 sume until a change takes place in their trade. The 
 real difficulty lies in the excess of their currency. A 
 contraction of their currency is the only remedy ; let 
 them reduce their currency to the specie standard, they 
 will find the exchange with New York come to par at 
 once. It may, in fact, be necessary for them to reduce 
 it so far as to turn the exchange in their favor, so as to 
 bring specie from New York. This is their only alter- 
 native, in case the quantity in the city is inadequate to 
 sustain resumption. There can be no doubt that Phi- 
 ladelphia is mistaking her true interest by postponing 
 this process. There can be no wholesome sound trade 
 under a depreciated currency. The restoration can as 
 easily be made in two months as two years. Contrac- 
 tion must be made and the sooner the better. 
 
 It is not to be disguised that Philadelphia has been 
 under the influence of false opinions on the subject of 
 currency, since the suspension of 1837. These may 
 probably be attributed to the influence acquired by Mr. 
 Biddle on this subject. His elaborate letter to John 
 Quincy Adams of April 5, 1838, placed the matter of 
 suspension on a new ground, and one wholly imjustifi- 
 able. Instead of being put on the ground of inevitable 
 and temporary necessity, it was defended as a measure 
 of expediency, and to be continued indefinitely, until 
 the happening of contingencies over which the banks 
 had no control. It announced distinctly that the banks 
 should not resume untU a change took place in the ad- 
 ministration of the general government. It also an- 
 nounced, in language not to be misunderstood, that no 
 resumption should take place until the United States 
 Bank was restored as the fiscal agent of the govern- 
 ment. 
 
 It announced principles as false in political economy 
 as its whole character was objectionable on the score of 
 
20 
 
 mercantile morality. Such was the influence which 
 Mr. Biddle had unfortunately acquired in Philadelphia, 
 that his views, so speciously put forth, were adopted in 
 that city without hesitation, and have continued to 
 control their operations to the present time. 
 
 Fortunately, Mr. Biddle was unsuccessful in the 
 principal object of his letter, that of preventing the 
 New York banks from resuming. A small but deter- 
 mined party in New York, with Mr. Gallatin at their 
 head, viewed the suspension in its true light — a state 
 of disgrace and reproach, in which there could be no 
 wholesome revival of trade, and not to be tolerated be- 
 yond the year granted by the legislature. New York 
 resumed triumphantly in May, 1838. Boston foUewed 
 her example. Mr. Biddle was driven by the force of 
 public opinion from the ground he had taken. With 
 a very bad grace he changed his position in July, and 
 the Philadelphia banks resumed their proper functions. 
 The banks of the South and West, with few exceptions, 
 resumed their payments soon after, and the trade of the 
 country revived to an extent and degree which left 
 nothing to regret, but an apprehension that we were 
 going too fast. This was too true. The efforts of the 
 United States Bank, to bolster up an artificial credit, in 
 order to cover its own weakness, produced an expansion 
 of the currency, which, in its reaction, caused a con- 
 siderable pressure on the money market. This soon 
 showed the weakness of that institution, Avhich again 
 suspended in October, 1839. The other banks of 
 Philadelphia follow without hesitation. Baltimore and 
 the West, as a matter of course. New York and Boston 
 stand firm, and thus preserve a sound currency to one 
 half the Union, whilst the other half is given up to 
 shin-plasters and depreciation. 
 
 At length the United States Bank changes its ground. 
 
21 
 
 Mr. Biddle's prophecy that a continued suspension 
 would not injure the credit of the coimtry abroad, is 
 not realized ; Mr. Jaudon, the London agent, finds that 
 the bank cannot sell its American stocks, or borrow 
 money upon them much longer, without a restoration 
 of the currency. He makes a voyage to America for 
 the purpose of bringing about a resumption. After 
 effecting a new loan of five millions of dollars on this 
 side the water, and of four millions in Europe, the 
 bank attempts to pay its debts on the 15th January 
 last. But such had been the inconceivable mismanage- 
 ment of that institution, that after twenty days' trial it 
 broke down in inevitable and hopeless bankruptcy. 
 Again the Philadelphia banks follow suit, without 
 giving the attempt to stand alone a fair trial. Balti- 
 more had become so imbued with the Philadelphia 
 doctrine of the advantages of non-payment, that for a 
 few days after the resumption in January she hesitated 
 about fulfilling her pledge of resuming with Phila- 
 delphia. She of course went back into a state of 
 suspension with perfect delight. She likes Mr. Biddle's 
 " repose." 
 
 The question now arises, what is to be done I How 
 is the cui-rency to be restored \ The answer is simple 
 and easy. Abandon yoiu- false theories. Philadelphia 
 and New York have stood in opposition, as the repre- 
 sentatives of antagonist opinions. New York and the 
 North have gone for immediate resumption, with a 
 present sacrifice, and a bank currency convertible into 
 coin on demand. This portion of the country finds no 
 difficulty in its present position. It enjoys a sound 
 currency, and no scarcity of it. There is no want of 
 confidence where it ought to exist. Its internal trade 
 is in a healthy and natural state. All is well. 
 
 On the other hand, with Philadelphia, the South and 
 
22 
 
 "West have gone for indefinite suspension ; they hare 
 preferred present ease with an inconvertible paper cur- 
 rency. The inevitable results of a depreciated currency 
 have followed. The destruction of all general credit — 
 the disgrace of broken faith — universal distrust. The 
 remedy lies in retracing their steps. Let the solvent 
 banks of Philadelphia decide at once to receive nothing 
 which is not equivalent to gold and silver; to have 
 nothing to do with certificates of deposit or any other 
 moonshine ; to reduce their liabilities steadily and man- 
 fully, until they become as scarce and as valuable as 
 coin. Under this course resumption wUl come of itself 
 within sixty days. We have a right to expect this 
 course from the banks of Philadelphia. They have 
 been the victims of Mr. Biddle's false theories long 
 enough. The late astounding disclosures connected 
 with the United States Bank, have sufficiently accounted 
 for the opinions put forth by him, evidently to cover 
 the weakness of the bank. They are now free from the 
 incubus of that institution. Instead of appeals to the 
 Legislature for relief laws, let them put forth their own 
 energies, and the rich city of Philadelphia may soon 
 resume her former standing and character. It is in 
 fact believed, that a decided change in public opinion 
 has taken place in Philadelphia within the last few 
 months, and that a speedy resumption may be calcu- 
 lated on. Let her banks beware how they involve 
 themselves in the embarrassments of the State of Penn- 
 sylvania; this partnership in insolvency wiU prove of * 
 all things most ruinous to the credit of both. 
 
 The Baltimore banks appear generally to be in a 
 condition to resume with little contraction ; but the 
 city of Baltimore wUl suffer severely in the withdrawal 
 of the small notes of the railroad company, convertible 
 only into a stock depreciated some 15 or 20 per cent. 
 
23 
 
 below specie. The issuing such a currency in so large 
 quantity was a great mistake, as it will throw a heavy 
 loss on people little able to bear it, but very able to 
 clamor, as they will have just cause to do. The banks 
 of Pennsylvania will make the same mistake, should 
 they adopt the late law authorizing them to issue three 
 millions in small notes, convertible into 5 per cent. 
 State stock. It wUl be another downward plunge into 
 the gulf where they have already found — how easy the 
 descent, how difficult the return. No necromancy can 
 make eighty cents pass for a dollar very long. It is 
 a concealed forced loan on the banks for the whole 
 amount. As the South and West have gone with 
 Philadelphia in suspension they wUl probably not be 
 long in following her example in resumption. 
 
 One of the fallacies put forth has been that no 
 resumption ought to be attempted iu the Atlantic cities, 
 until a simultaneous resumption could be made through- 
 out the whole country. This is a very convenient doc- 
 trine in favor of delay, but wholly unsound in fact. 
 Every centre of trade can establish and maintain a 
 sound currency for itself, if it choose to do so. The 
 effect, instead of taking specie from it, is to bring specie 
 into it from the suspended districts where it is not in 
 use. This was fully proved in Boston, and the circle 
 of circulation controlled by it, during the suspension of 
 1814, 15, and 16. 
 
 We must not expect to see a sound currency estab- 
 lished at once, in all parts of the United States, under 
 any circumstances. It is only by degrees that a depre- 
 ciated currency will work its own cure, by the bank- 
 ruptcy of one bad concern after another. There are no 
 doubt many banks which never can resume, but which 
 will for some time struggle on to maintain a currency, 
 and finally sink into bankruptcy. 
 
24 
 
 New Orleans has no apology for non-resumption, but 
 that her banks think it more convenient and profitable 
 than a sounder currency, and the public choose to 
 submit to it. It is absurd to suppose that a city in 
 which the article of cotton alone is annually sold to the 
 value of thirty millions of dollars, for cash on delivery, 
 or short bills on New York and London cannot main- 
 tain a sound currency. The difficulty lies rather in 
 finding any apology for continued suspension. 
 
 To the example and infiuence of this great emporium 
 of commerce may be attributed the continued suspen- 
 sion of the whole West. Here too we trace the fatal 
 influence of Mr. Biddle, through the purchased agency 
 of the Merchants Bank, which has been the constant 
 advocate of non-resumption. Philadelphia in the East, 
 and New Orleans in the West, should be held responsi- 
 ble for the longer continuance of this demoralizing 
 system throughout the whole United States. 
 
 A NATIONAL BANK. 
 
 The existence or non-existence of a national bank, 
 has been so mingled with the contests of the political 
 parties into which the country has been divided, that the 
 attempt to discuss it on its own merits, without refer- 
 ence to its political bearing, may be considered rash if 
 not visionary. Yet it involves questions of political 
 economy of the most difficult and abstruse nature, 
 which can be little and imperfectly understood by the 
 masses of the community. General Jackson made this 
 question the symbol of party. The consequence has 
 been, that for nearly ten years the mercantile business 
 of the country has been agitated, and sometimes para- 
 lyzed, by the connection of banking operations with the 
 struggles of party. It is to be hoped that this unholy 
 
25 
 
 union will cease, and that tlie question of establishing 
 a national bank, and the character of it, will be discus- 
 sed on its own merits as a nice and difficult question, 
 which it certainly is. At any rate it is in this view of 
 it that it will be here presented. 
 
 That a national bank is so convenient as to be all 
 but essential to the collection, safe keeping, and dis- 
 bursement of the revenue, the writer can have no 
 doubt. On this point theory and experience coincide. 
 There can be no doubt that a bank, as fiscal agent of 
 the treasury, can receive and distribute the moneys of 
 the government, with more safety and ease than any 
 other instrument or agency that can be devised. This 
 is also undoubtedly its strongest constitutional basis. 
 To afford proper security the bank must possess a cer- 
 tain amount of capital. For this purpose perhaps the 
 least sum which it would be prudent to fix on, is ten 
 millions of dollars. To such a bank, there would seem 
 to be no reasonable objection. 
 
 Another ground put forward in favor of a national 
 bank, embraced by a large portion of the community, 
 is its necessity as a regulator of the currency. For this 
 purpose a large, a magnificent bank is wanted, a bank 
 with a capital of fifty or one hundred millions of dol- 
 lars. To such a bank there are decided objections. As 
 a regulator of the currency it is of doubtful utility. 
 Banks issuing paper currency are established by the 
 authority of the different States. They furnish a cur- 
 rency having no legal character, but having a conven- 
 tional circulation arising from its convenience. These 
 banks are good or bad institutions, according to their 
 management. A bank which fulfils its promises by 
 paying its notes on demand, readily and cheerfully, and 
 furnishing capital to those who need it, is a good ; but 
 a bank which asks for credit, whilst it belies its own 
 
26 
 
 promises, sets an example injurious to all sound morals, 
 and is a great evil. But the fault lies in the commu- 
 nity which, tolerates such an abuse. Public opinion 
 should prescribe the remedy. It is a melancholy fact 
 that there is little security for the good conduct of 
 banks, but in the power of coercion by law. It was 
 legal coercion which brought the country banks of 
 New England to a sense of their duty in 1808, when 
 they had introduced a system of evasion or delay of 
 payment of their notes. It is the penalty of two per 
 cent, a month, enacted in 1810, which has iusured their 
 punctuality since that time. It is not too much to say 
 that it was the legal penalty of forfeiture of charter, 
 and the belief that the law could not be changed, 
 which secured the resumption in New York, in 1838. 
 It is owing to the unreasonable relaxation of the laws 
 in Pennsylvania that Philadelphia is still suffering 
 under a depreciated currency. When public opinion 
 relaxes this power of coercion, under the influence of 
 the debtor portion of the community, giving the banks 
 a sort of immunity, it is certainly a bad state of things. 
 This is our present state. But the evil will work its 
 own cure. A national bank has no direct power of 
 coercion. It can only act by moral force — the force of 
 a good example — upon public opinion. With a correct 
 pubHc opinion, it is wholly unnecessary. 
 
 The chief argument in favor of the necessity of a 
 national bank, as a regulator of the currency, is drawn 
 from the facts that the suspension of specie payments 
 in 1814, took place after the expiration of the charter 
 of the first bank, and that a specie currency was not 
 restored until the establishment of a new bank, which 
 went iato operation in 1817. The power of the bank 
 in this restoration is much overrated. The suspension 
 of the banks in September, 1814, was in consequence 
 
27. 
 
 of the advances made to govemment on loans and 
 treasury notes, by the banks of the cities south of New 
 England. These securities suffered a great depreciar 
 tion, in consequence of no provision beiag made for a 
 revenue to pay the interest, and to meet the great ex- 
 penditures caused by the war. Boston and New Eng- 
 land took no part ia this suspension, having taken but 
 sparingly of the govemment loans, partly, originally, 
 on account of not approving the war, but chiefly as a 
 matter of calculation, because there was no adequate 
 provision for the payment of the interest. It is a gra- 
 tuitous assumption, that there would have been no 
 suspension had a national bank been in existence at 
 that time. On the contrary, it is but fair to presume 
 that such an institution, acting in sympathy with the 
 necessities of the government, would have been the 
 fii'st to propose it. The govemment made no objection 
 to the suspension of 1814; on the contrary, it received 
 everywhere the depreciated currency of the local banks, 
 and gave credit and support to the system. 
 ' Fortunately, peace came in February, 1815. With 
 the peace, the credit of the govemment revived at 
 once. The immediate restoration of the currency was 
 universally expected. New York currency rose to 
 within two per cent, of specie. It was the fault of Mr. 
 Dallas, then Secretary of the Treasury, that resumption 
 did not then take place. He refused to execute the 
 laws passed by Congress for that express pujpose. 
 The immediate obstacle to the restoration of the cur- 
 rency ia New York, Philadelphia and Baltimore, was 
 the large amount of treasiuy notes held by the banks 
 of those cities, many of them past due. The session of 
 Congress expired on the ith of March ; but, in the 
 short interval after the knowledge of the peace, a law 
 was passed, authorizing a loan to the amount of twelve 
 
28 
 
 millions of dollars, with a view to restore tlie credit of 
 the government, and the character of the currency. 
 The law was sufficient, but its execution was intrusted 
 to Mr. Dallas, and, instead of executing it in its proper 
 spirit, by negotiating the loan in the legal currency, he 
 gave a new impetus to the issues of inconvertible paper, 
 by receiving them ia payment of stock, and passing 
 them off as the only payment which would be made to 
 the public creditors. 
 
 The fact is, Mr. Dallas was at that time a paper 
 money man. An immense importation took place 
 immediately after the peace. A great expansion of the 
 banks in the South and West followed. The enormous 
 amount of thirty-six millions of dollars was paid into 
 the treasury in the year 1816, arising from duties alone. 
 The golden opportunity for resumption had been allow- 
 ed to pass by. The paper of Philadelphia fell to 
 twenty per cent, discount. The government and the 
 banks were involved as partners in all the enjoyments 
 of a paper currency greatly depreciated. 
 
 At length the system would work no longer. In 
 this dilemma, the late Bank of the United States was 
 chartered, with a large capital, made up chiefly of gov- 
 ernment stocks. There is no doubt that the establish- 
 ment of this bank had some effect in the restoration of 
 the currency ; but those who have a distinct recollec- 
 tion, or will study into the monied operations of that 
 period, will make large deductions from the popular 
 impression, that the establishment of that bank was an 
 immediate and universal panacea. The truth is, the 
 bank went into operation on false principles. It under- 
 took to bolster up the fictitious paper money prices of 
 1816. It imported specie at a great loss,* which could 
 
 * Specie imported by the bank, July, 1817, to December, 1818, $7,311,000; 
 loss, $523,297, or 7 1-2 per cent. 
 
29 
 
 not be made to stay in the bank or the country in com- 
 pany with a currency so inflated. The whole system 
 broke down in 1819, when Mr. Cheves was called to 
 the administration of the bank, by whose energy it 
 was barely saved from stopping payment. The restora- 
 tion of the currency then took place ; but not without 
 producing a degree of pecuniary distress which has had 
 no parallel since. 
 
 Another argument much dwelt on in favor of a large 
 national bank, is its necessity to equalize the exchanges. 
 There is not much in this. There is no difficulty with 
 the exchanges where the banks pay specie. There lies 
 the whole difficulty. Let that be reformed, and there 
 will be no complaint on that score. The exchanges 
 soon regulate themselves where the currency is imiform, 
 as is the legal currency of the United States. A large 
 bank with many branches, can manage the exchanges 
 with more profit to itself, perhaps, than the local banks 
 can do. The late United States Bank took care to 
 charge the highest rates for exchange which the alter- 
 native of transporting specie would admit. For several 
 years the exchange at New Orleans on northern bills 
 was kept so high, that considerable shipments of specie 
 were made from Boston and New York for the pur- 
 chase of cotton. The change in our laws, which has 
 made gold the basis of our currency, will have a most 
 salutary effect in lessening the rates of exchange, when- 
 ever the banks resume their proper functions. The 
 effect is already quite apparent on the exchanges be- 
 tween Boston and New York. Gold is constantly 
 transported from one city to the other before the ex- 
 change can rise to a quarter of one per cent., which is 
 consequently the maximum rate. When the banks 
 paid out silver, transportation would hardly be attempt- 
 ed with an exchange below one per cent. 
 
30 
 
 Another argument in favor of a great bank is, that 
 it may furnish, a paper medium which mil circulate 
 throughout the whole United States. Its importance, 
 in this respect, is greatly overrated. A credit in New 
 York, the central city, or a bank note payable in New 
 York, will be more valuable than specie throughout 
 the whole interior. Such notes, of known credit, wUl 
 make their appearance whenever the people choose to 
 pay for them. It is a curious fact, that the general 
 currency of the United States Bank notes, in conse- 
 quence of their being receivable everywhere in pay- 
 ments to the government, was considered a great evil 
 both by the bank and the community. For six years 
 the bank was petitioning Congress for an alteration of 
 their charter, so that the notes of the bank should only 
 be received for payments to the government at the offices 
 where the notes were payable ; and in February, 1823,' 
 a committee of the house of representatives reported in 
 favor of bringing in such a bill. It is true that such 
 an application was the result of false views of banking, 
 but is a proof of the uncertainty of public opinion as to 
 the true remedy of a disordered currency. During aU. 
 this period, the country was working itself free from 
 the disorders arising out of the suspension of 1814, 15, 
 and 16, and it may be questioned whether the period 
 of correction was hastened by the operations of the 
 United States Bank. 
 
 It is not to be concealed that there are serious objec- 
 tions to the establishment of a bank of the magnitude 
 and power necessary to the regulation of the currency. 
 In the first place, such a power is wholly contrary to 
 the spirit of our institutions, which are founded upon 
 the principle of free competition ; of action and reaction 
 amongst equals, A great central power, independent 
 of the general or state governments, is an anomaly in 
 
31 
 
 our system. Such a power over the currency is the 
 most tremendous which can be established. Without 
 the assurance that it will be managed by men, free from 
 the common imperfections of human nature, we are 
 safer without it. Under a system of free competition, 
 if one bank or one city go wrong, the evil is soon recti- 
 fied. The laws of trade, left to themselves, are sure, 
 and will soon cure the evils of individual misconduct 
 or speculation. But if the regulator itself goes wrong, 
 there is no remedy, or none without a convulsion. 
 
 In fact, the great and decided objection to a bank of 
 great power, to act as general regulator of the currency, 
 is the apprehension that it may itself stispend specie pay- 
 ments, under the sanction of the general government, 
 and thus fix upon the country an inconvertible paper 
 currency. This danger is much greater with a great 
 national bank than without it. In case of a war, or 
 any great financial embarrassment, such an institution, 
 acting in sympathy with the predominant party in the 
 general government, will be the first to propose this ex- 
 pedient, by which its cfrculation and profits wiU be 
 greatly enhanced. In such a period, a few interested 
 and influential individuals, under the talisman of party 
 discipline, may easily carry such a measure ; whilst in- 
 stitutions deriving thek existence from the States, are 
 protected by the constitution fr-om any such legal as- 
 sumption.* 
 
 There is, in the nature of things, greater danger of 
 mismanagement in such an institution, where the inter- 
 est of the managei"S is comparatively small, than in in- 
 
 *In 1819, a resolution passed the Hoiise of Representatives, directing the Sec- 
 retary of the Treasury to report such measures as, in his opinion, may be expe- 
 dient, amongst other things, "to supply a circulating medium in place of specie, 
 adapted to the exigency of the country, and within the power of the govern- 
 ment." Mr. Crawford made an able report against the substitution, in Feb- 
 ruary, 1820. 
 
32 J 
 
 stitutions of less capital immediately imder the direction 
 of parties more deeply interested. 
 
 Our experience under the last bank of the United 
 States is not such as to give' us any great warrant for 
 the future. On going into operation, it fell into the 
 hands of speculators, and in less than two years, lost 
 more than ten per cent, of its capital, so that it made no 
 dividends during the succeeding two years. As a regu- 
 lator of the currency, its success was not remarkable. 
 
 It was obliged to hire the banks of New York, 
 Philadelphia and Baltimore, to resume, by agreeing to 
 make large discounts in those cities.* It thus kept up 
 the inflation of the currency, which was the evil of the 
 time, and by doing so saddled itself with immense losses. 
 Under the energetic administration of Mr. Cheves, the 
 currency was indeed restored to its true character, by a 
 rigid system of contraction, but accompanied with in- 
 tense public suffering, which was indeed unavoidable, 
 but made the bank and Mr. Cheves exceedingly unpop- 
 ular, in extensive portions of the country. It was 
 during this period that many of the States attempted to 
 expel the bank from operating within them, by taxing 
 the branches, and other modes of coercion. 
 
 Mr. Biddle came into the administration of the Bank 
 in 1823, under the most favorable auspices, after the 
 difficulties of the currency were, in a great measure, 
 surmounted ; and it cannot be denied that his manage- 
 ment was for many years eminently successful, so far 
 as the interests of the bank were concerned. It may 
 however be doubted, whether the country is under any 
 great obligation to him as the regulator of the currency, 
 so far as relates to fluctuations in the money market. 
 Severe revulsions took place in 1826, 1829, and 1832, 
 
 * In New York and Philadelphia, two millions each, in Baltimore a million 
 and a half. 
 
33 
 
 and the Bank of the United States took its full share 
 in the expansions which preceded them. It was the 
 general impression of those who watched Mr. Biddle's 
 course, that he was a bold navigator ; that he kept his 
 ship under a press of saU, relying upon his skUl in 
 taking in canvas in case of a squall ; of which he has 
 occasionally given us evidence himself Now a regu- 
 lator should go for security rather than profit — with 
 much ballast, carrying light sail. No one can doubt 
 that his contractions in 1834, so distressing to the 
 community, were pushed beyond reasonable measure, 
 for the purpose, by that means, of effecting the renewal 
 of the charter, under the pretence of the necessity of 
 preparing for winding up its concerns, whilst his sub- 
 sequent expansion had a full share in producing the 
 mad and wild speculations of 1835 and 6.* 
 
 The subsequent developments of his opinions in 
 reference to a continued and permanent state of sus- 
 pension of specie payments, make it but too probable 
 that a suitable opportunity alone was wanting, for him 
 to have brought his ship into that harbor of " repose." 
 He appears to dwell, with apparent satisfaction on the 
 twenty-five years which were allowed the Bank of 
 England, after the suspension of 1797. That suspen- 
 sion seems to have been with him a favorite topic. 
 But he seems not to be aware of the moral distinction 
 between that suspension and our own. The Bank of 
 England suspended hy act of Parliament, our banks 
 suspend without law and against law, at the pleasure 
 of the debtor party. The continued suspension of the 
 Bank of England was a measure of State policy ; cer- 
 tainly without the slightest necessity — and very bad 
 policy no doubt, but very convenient, in order to con- 
 
 * Amount of TJ. S. Bank Loans, 1st Sept. 1834, 47,059,498. 
 •' <• " " " 1st June, 183o, fi3,649,64fi. 
 
34 
 
 ceal the real terms of the immense loans made during 
 the war, and very agreeable to the bank directors, as 
 enhancing their profits.* 
 
 A bank then, of ten, or at the utmost, fifteen millions 
 of dollars capital, of which one-third might belong to 
 the government, appears to be amply sufficient for per- 
 forming the fiscal operations of the government. It 
 should be restricted within that sum. The circulation 
 should not exceed ten millions of dollars. 
 
 It should be a bank of safety rather than profit. It 
 is not desirable that its dividends should exceed six, or 
 at the utmost seven per cent. A reasonable assurance 
 of that rate would be sufficient to induce capitalists to 
 take up the stock. There are objections to limiting 
 the dividends by law, as it might induce extravagance 
 in salaries, or carelessness in the management. Possi- 
 bly, however, it would not be objectionable, that the 
 surplus should be allowed to accumulate for a period of 
 years, then to be equally divided between the govern- 
 ment and the stockholders. 
 
 It is believed, however, that the establishment of 
 even such a bank had better be postponed until the 
 CTU-rency shall be restored in the Atlantic cities. The 
 resumption of specie payments in Philadelphia and 
 Baltimore, can hardly be delayed much longer, now 
 
 * Bank op England. 
 Bullion, 31 Aug., 1796, 2,122,950— circulation and deposits, 15,090,110 
 1798, 6,646,100— " « 20,481,330 
 
 " " 1799, 7,000,780— " '< 21,031,730 
 
 There can be no question of the perfect ability of the bank to resume at 
 either of the two latter periods. 
 
 The loans during the war, were negotiated on the average, at about 60 for 
 3 per cents; that is, the government received £60, and issued stock for £100, 
 bearing 3 per cent, interest per annum. In 1810, the currency was depreciated 
 25 per cent., so that the £60 was only worth £45. In 1825, the currency had 
 been restored, and 3 per cents were worth £95 in gold ; so that the lender of 
 £45 received in 15 years, £45 interest, and £95 principal at the end of that 
 period. Equal to an annual interest of about 10 per cent. 
 
0-) 
 
 that the great advocate of non-resumption is out of the 
 way. The attempt to establish a national bank wiU be 
 a decided obstacle in the way of such resumption. It 
 can only be established by the accumulation of a specie 
 capital. The want of sufficient specie in the vaults of 
 their banks is the only plausible ground for continued 
 suspension in Philadelphia and Baltimore. An addi- 
 tional demand for the coin which they want, can only 
 add to the difficulty of then- obtaining it. At the same 
 time, it will be much easier to put a national bank in 
 operation after the currency shall be re-established than 
 before. The details of such a bank will require time 
 to mature. Its establishment is the last thing to be 
 done in haste — or as a mere party measure. 
 
 In the meantime, a repeal or modification of the sub- 
 treasury system would be desii-able. The sub-treasiuy 
 system is founded on mistaken views of the currency — 
 it seems to suppose that coiu is better than the notes of 
 specie-paying banks, whereas in truth the notes are 
 preferable to coin, so long as they contaru the power to 
 command it. There can be no doubt that banks, 
 selected for their solidity, are safer depositories of the 
 public money than any individuals whatever. The idea 
 of keeping it pUed up in a separate mass, in this bank- 
 ing country, is absurd and puerile. The sub-treasury 
 law gives a sort of legal character to bank notes which 
 is highly objectionable. By law all payments are only 
 dischargeable in the legal coin, whether to the govern- 
 ment or individuals. The banks, acting as the common 
 agents of the community, employ the labor-saving ma- 
 chinery which their establishment has brought to so 
 great perfection in bringing about these payments. At 
 the same time it is no improper figure of speech to say 
 that every payment made in well regulated specie- 
 paying banks, like those doiag business in New York 
 
36 
 
 or Boston, is actually made in specie. No bank re- 
 ceives anything which is not equivalent to coin — which 
 will not command coin, and for which it is not willing 
 to pay in coin. The sub-treasury law, therefore, by 
 compelling the sub-treasurers to receive certain bank 
 notes, imposes a risk of loss by bank failures, which 
 does not exist under the employment of strong banks. 
 So far as it requires both debtors and creditors of the 
 government to count their payments and receipts in 
 actual coin, it is a retrograde movement in civilization. 
 It is a refusal to adopt the improvements of the age. 
 The great objection to the pet-bank system, as it was 
 called, was the employment of banks not for their 
 safety, but for their politics — the distributing the pub- 
 lic money for the purposes of party. 
 
 [The establishment of the sub-treasury system was a 
 hazardous experiment. But for the famine in Europe 
 in 1847, which brought over twenty millions in gold 
 into the country, it would have caused a tremendous 
 pecuniary crisis. Being now established, no one would 
 wish to disturb it.] 
 
 IMPROVEMENTS IN THE BANKING SYSTEM. 
 
 Our banking system is the subject of undeserved 
 abuse. The system is better than the practice under 
 it. The toleration of abuses under the system is the 
 great evil. Still there are faults in it which might be 
 remedied. One evil is the multiplicity of banks au- 
 thorized to issue notes for circulation. All experience 
 shows the necessity of legislative restraint upon the 
 issue of notes for the purpose of circulation. The pub- 
 lic security requires it. But under the present system, 
 that security is wholly inadequate in most of the States 
 
37 
 
 where banks with very small capitals, and those fre- 
 quently nominal, are permitted to issue notes. 
 
 No bank should be permitted to issue notes without 
 a solid, paid up capital, greatly exceeding its issues. A 
 capital of half a million of dollars is the very least to 
 yphich this privilege should be granted. New York 
 has adopted a system of requiring a deposit of stocks 
 as security for the payment of bank notes — but the law 
 is deficient in making no certain capital necessary to 
 carrying on. the business of banking, and the public 
 have suffered losses by the failure of the free banks, as 
 they are called, from the circumstance of the deprecia- 
 tion or inadequacy of the stocks deposited. But the 
 New York system has one advantage — its evils cure 
 themselves. The idea that banking can be carried on 
 without capital has been pretty fairly exploded under 
 the experiment. [The great objection to the New- York 
 system is that it requires a double capital, one for the 
 purchase of stocks, another for the redemption of their 
 bills, increasing the pressure upon them under a revul- 
 sion.] 
 
 The great and ditficult problem in a currency of bank 
 paper, is the prevention of those fluctuations, to which 
 experience shows such a currency is liable, in a far 
 greater degree than a currency composed wholly of the 
 precious metals. This problem has not been solved. 
 The attention of the British Parliament has been for 
 some time drawn to it. A committee have published a 
 voluminous report of evidence taken at the last session, 
 which certainly does not shed much light upon the 
 matter. Their inquiries are still going on. The writer 
 has thought a good deal on the subject, and is of opin- 
 ion that no better remedy can be devised against a 
 redundant or excessive circulation, than the levying a 
 tax, by the State, on the privilege or right of circula- 
 
38 
 
 tion, to very near the amount of benefit or profit 
 derivable from it. Nearly all the States require some- 
 thing in the nature of a bonus or tax for the privilege 
 of a bank charter, but on priuciples wholly capricious 
 or unsettled; whilst in others, the granting them is 
 made a matter of favoritism, under the odious charac- 
 ter of monopoly. Many advantages would arise from 
 establishing the principle that every bank chartered 
 with the right of circulation should pay a fixed tax on 
 the amount permitted. The right to regulate the cur- 
 rency of bank notes seems properly to belong to the 
 State, and to be a legitimate source of revenue. 
 
 The State of Massachusetts levies a fixed tax of one 
 per cent, per annum upon bank capital. This tax is 
 excessive in amount — is levied upon a false principle, 
 and produces some evils. A tax of three per cent, per 
 annum on circulation, would produce nearly the same 
 amount of revenue, and be wholly unobjectionable in 
 principle. The advantage of a tax upon circulation 
 would be, that it would take away the inducement of 
 profit, which every bank now has, to increase its circu- 
 lation to the utmost — until the expansion of the cur- 
 rency shows itself in the export of coin — which can 
 only be checked by a suspension of discounts, and a 
 pressure on the money market. The bank, to be sure, 
 has no difficulty itself in this case, if well managed. 
 The whole pressure is thrown on the mercantile com- 
 munity. 
 
 But these alternations of bank expansion and nomi- 
 nal prosperity, followed by bank contractions, disap- 
 pointment, and perhaps failures,, are very much to be 
 deprecated. A tax upon circulation might do much in 
 checking undue expansion. A fixed minimum capital, 
 and a fixed rate of tax upon circulation, would take 
 away the character of monopoly from bank legislation 
 
39 
 
 — as charters might then be granted to all who would 
 take them, sufficient care being had to see the capital 
 actually paid in. 
 
 Some of the States have gone into the business of 
 banking on their own account. It requires no great 
 spirit of prophecy to foresee that their banks will be 
 badly managed, and the States become losers by the 
 business. Banks, to be useful, must be founded on 
 real capital, and, to be well managed, must be under 
 the eye of the owners of the capital. 
 
 The law of 1834, by which such a valuation was put 
 upon gold as makes it the essential basis of our circu- 
 lation, is calculated to have a highly favorable effect in 
 giving steadiness to the currency by enlarging that 
 basis ; it being necessary for the banks to maintain on 
 hand a greater quantity of coin, on account of the fa^ 
 cility of transfer attaching to that metal as compared 
 to silver. This effect will be increased, should an 
 error, apparently inadvertent, in that bill be corrected, 
 by which too high a valuation is put upon foreign gold, 
 compared to our own coin.* The consequence of this 
 error is that there is a positive loss of about one-fifth of 
 one per cent, in sending foreign gold to the mint, 
 whereas the law should have been so framed as to 
 make it for the interest of the holders of such coin to 
 do it. The reduction of the valuation of sovereigns 
 and napoleons, about one-half of one per cent., would 
 remedy the evil, and give us an actual currency of 
 eagles and half eagles as the payment which banks 
 would find it for their interest to make for demands on 
 them. The effect cannot be doubted — it would add 
 materially to the specie in the country, and thus reduce 
 the disproportion which paper bears to coin,- which is 
 the great vice in our system. 
 
 * Since corrected. 
 
40 
 
 Another mode of giving additional security to the 
 currency, would be the establishment of a system of 
 more frequent and rigid settlement of balances between 
 the banks themselves. The safe and prudent banks 
 should use the power which they possess, to keep in 
 check the bolder and weaker banks, by calling for their 
 balances weekly, if not daily, in actual coin. The sys- 
 tem which has grown up of letting bank balances lie 
 until a foreign demand for coin appears, should be 
 abandoned. It is liable to abuse, and it is the duty of 
 the strong banks to put an end to it. 
 
 A timid apprehension of weakness on the part of 
 certain banks in Boston, with a cautious endeavor to 
 avoid losses in case of explosion, led to much of the 
 expansion in 1836. A diflerent policy might have 
 prevented the panic and suspension of 1837. 
 
 No expectation of forbearance or indulgence should 
 be encouraged. Favor and benevolence are not the 
 attributes of good banking. Strict justice and the 
 rigid performance of contracts are its proper founda- 
 tion. 
 
 A repeal of the usury laws, so far as relates to notes 
 of hand and bills of exchange, similar to that which 
 took place in England in 1832, would undoubtedly 
 have a highly beneficial effect in lessening the violence 
 of a monied pressure, as there is abundant evidence it 
 has done in that country. The pertinacity with which 
 all the States cling to the usury laws, the remnant of 
 the old feudal opinion that the people cannot be trusted 
 to take care of their own interests, is remarkable — 
 especially after the example has been set by England. 
 In the late report made to Parliament on banks of 
 issue, we find the testimony of Messrs. Norman, Tooke, 
 and Lloyd, uniform in favor of the effect of the modi- 
 
41 
 
 fication made in the law, in relieving tlie violence of a 
 revulsion in the money market. 
 
 A bankrupt law applicable to banks would undoubt- 
 edly be the most efficient of measures for preventing 
 suspensions of specie payments, and keeping banks 
 vdthiii reasonable limits. Such a law, to go into effect 
 in twelve months, would be the most effectual of 
 measures for restoring and regulatiug the currency — to 
 apply to a continued suspension of payment for thirty 
 days. Constitutional objections have been suggested, 
 but without much apparent force. Apparently nothing 
 in the power of Congress would be so decidedly effec- 
 tual as the establishment of such a law. 
 
APPENDIX. 
 
 EXTRACTS EROM A PAMPHLET PUBLISHED IN 1831, (BY THE SAME AUTHOR) 
 ENTITLED AN EXAMINATION OF THE BANKDTG SYSTEM OF MASSACHUSETTS IN 
 REFERENCE TO THE RENEWAL OF THE BANK CHARTERS. 
 
 The issuing bank notes for circulation is incidental to the business 
 of banking, but does not make a necessary part of it. The famous 
 Bank of Amsterdam never issued notes. The Bank of England does 
 so to a great extent. The bankers of London, however, never issue 
 notes. In France, with numerous rich bankers, there is no paper 
 circulation except by the Bank of France. 
 
 In the United States there has never, probably, been a bank 
 established which has not issued notes for circulation. In fact, the 
 issuing such notes is most frequently the leading object and motive. 
 It may well be questioned, however, whether it would not be an 
 improvement in our system to separate in many cases the right of 
 issuing notes for circulation from the other branches of banking. 
 
 The public have a deep interest in the solidity and good manage- 
 ment of a bank of circulation, whilst they have comparatively none 
 in the management of a bank employing their own funds in making 
 discounts only, or in buying or selling bills of exchange. It would 
 seem, therefore, that the banks of the first class should be established 
 on a principle of safety which might be dispensed with in respect to 
 those of the second class. 
 
 It has not been uncommon for banks to have been gotten up, with 
 a view to furnish funds for private speculation, or the private use of 
 the principal stockholders ; or the same object has been sometimes 
 accomplished by buying up a majority of the stock, so as to control 
 the choice of directors. It is obvious, that banks so situated, furnish 
 a very unsafe circulating medium, since the solvency of the bank de- 
 pends on the success and solvency of the principal stockholders, who, 
 in such cases, are usually the directors. It is believed, that in all 
 
44 
 
 cases of bank failures in Massachusetts, the failure of the principal 
 stockholders and directors has accompanied, or preceded, the failure 
 of the bank. The great point, therefore, to be guarded against, is, 
 the liability of banks to fall into few hands, to be used for their pri- 
 vate speculations. 
 
 This cannot be prevented by legislative provisions, under the 
 present system. The only proper security is a large real capital. 
 The return of the amount loaned on the stock of a bank as collat- 
 eral, furnishes no criterion of the amount of actual capital ; accom- 
 modation notes are as easily discounted as notes secured by stock. 
 The whole security lies in a large capital and a small circu- 
 lation. A bank with large capital can hardly be controlled by any 
 set of speculators, certainly not by those possessing little or no prop- 
 erty. 
 
 The change proposed in our system is, that no bank should be 
 allowed to issue notes for circulation, having less than a given amount 
 of capital — say a million of dollars, or at the very lowest, certainly 
 half a million. The right to issue notes should be restricted to one- 
 third the amount of capital. 
 
 The effect of this change would be, that no banks of circulation 
 would be established, except in the large commercial towns, in Mas- 
 sachusetts, perhaps only in Boston. This would insure them to be 
 founded on real capital, the most important consideration. Large 
 institutions of this sort, in the midst of an active mercantile commu- 
 nity, are under a surveillance, which is the best possible guarantee to 
 the public for the correctness of their management. There can be 
 no better security for a circulation of paper, than institutions of this 
 description would offer. They would also afford the best possible 
 security against a currency depreciated on account of its being paya- 
 ble at improper places ; as it would be obviously for the interest of 
 such institutions, if not situated in Boston, to make their bills redeem- 
 able there. 
 
 An important advantage in favor of this system, would be, the 
 lessening the number of the different descriptions of bank notes in 
 circulation, which would very much lessen the difficulty of detecting 
 counterfeits, and the trouble and labor attending the business of cir- 
 culation as now carried on. 
 
 There can be no doubt that the plan proposed would furnish a 
 safer, and more perfect circulation, than exists under our present 
 system ; but it is not to be disguised that there are serious difficul- 
 ties in the way of introducing the change. One is, its interference 
 with existing institutions, which look for the renewal of their char- 
 
45 
 
 ters, and with the individual interests connected with them. Another, 
 and the most formidable, its bearing upon the revenue of the State, 
 derived from the bank tax, under the present system. 
 
 So far as regards existing institutions, in very many cases, the 
 change would not be to their disadvantage ; many banks would gladly 
 give up the privilege of issuing bank notes, could they, by so doing, 
 be relieved from the bank tax. In fact, this change would be rather 
 advantageous than otherwise, to all banks operating upon real capital, 
 and situated in places requiring bank operations. Those, whose chief 
 or only business is the supplying a speculative circulation, would be 
 deprived of that business, and a few might give up their charters 
 altogether ; but the profits derived from any description of banks are 
 now so small, that the private interests, affected by a change, would 
 not probably present a very serious obstacle, provided the change 
 shall appear decidedly for the public good. 
 
 The subject of the tax requires a more serious consideration. 
 
 The State of Massachusetts levies, upon all the banks in the State, 
 a tax of one per cent, per annum upon the amount of capital paid in. 
 Under any point of view, the tax must be considered excessive. The 
 bank charters imposing it were accepted in 1812, a time of great 
 political excitement, which involved other considerations than mere 
 pecuniary interest. Its expediency, in the full extent of it, has often 
 been called in question, its constitutionality sometimes. As a mere 
 tax upon property, it cannot be reconciled with the provisions of the 
 constitution ; since the proprietors of bank stock are liable to be taxed 
 for its value in common with other property, in every general assess- 
 ment of taxes. It can only be justified, as the grant of a privilege 
 under a right, especially belonging to the State, in its sovereign ca- 
 pacity, that of regulating the currency. It is true, that the right of 
 coining money, and of regulating the value of our own, and foreign 
 coins, has been transferred to the General Government by the con- 
 stitution of the United States. But the right of prohibiting and reg- 
 ulating the issue of notes, or obligations, intended to pass as a cur- 
 rency, must be considered as retained by the individual States. 
 
 There is no conflict of rights in this construction ; the term cur- 
 rency, as used in common parlance, has two characters altogether 
 distinct and different. The legal currency consists only of the coins 
 made current by law, and is entirely under the control of the United 
 States. Bank notes may be considered a conventional currency; 
 they have no legal character as such, but depend for circulation, 
 wholly on the choice or pleasure of the receiver.- 
 
 The use of this right of regulating the currency of bank notes. 
 
46 
 
 would seem to be a proper source, from ■which to raise a public rev- 
 enue to any practicable extent. The benefit of bank circulation 
 seems properly and peculiarly to belong to the public, and to be a 
 legitimate source of public revenue ; as the prohibition of issuing 
 such notes, by individuals or associations, without authority, is a 
 matter of public interest, and a proper protection agaiilst the losses, 
 to which the community would otherwise be subject. 
 
 The business of banking (separate from the issue of bank notes) is 
 a necessary branch of mercantile operations, resulting from a proper 
 division of labor. A bank is employed, by the merchants and 
 traders, to collect and keep safe their moneys, and to make their pay- 
 ments ; for which purpose it becomes necessary to build secure 
 vaults, and to employ a number of clerks and faithful officers. It is 
 true, that when a bank keeps the cash of a great number of persons, 
 the payments which are made by one, go frequently to the credit of 
 another, so that the amount held in deposit is not subject to very 
 material variation, nor liable to be called for at once. It is, therefore, 
 agreed between the parties, that the bank is at liberty to loan such 
 portion of their deposits as they think proper, only taking care to be 
 able to furnish to each individual depositor his entire deposit on de- 
 mand. In this way the bank is enabled to collect, keep, and pay 
 away the money of the merchant without making any charge for the 
 trouble of doing so ; in fact, it is frequently the source of very consid- 
 erable profit. 
 
 It may at first sight be thought that this source of profit, the 
 receiving money in deposit, afibrds a proper subject of taxation ; but 
 a slight examination will show, that this ground is not tenable. As 
 an original proposition, nothing would appear more absurd. If banks 
 derive a profit which they are not entitled to, from holding in deposit 
 the property of other persons, it is those other persons, whose money 
 is lying unproductive, who are entitled to the profit, not the State at 
 large. It is an affair between the parties, with which the public have 
 nothing to do. If my banker do not transact my business on as good 
 terms as he can afford to do, it does not give the legislature a right to 
 step in, and claim those extra profits, which in fairness belong to me ; 
 much less should the legislature come between us, and claim a 
 douceur for allowing us to transact our business together, thus putting 
 it out of the power of the bank to do my business on as good terms 
 as it would otherwise be glad to do. In some parts of England, it is 
 the custom for bankers to allow full interest on balances in their 
 hands, and charge a commission for transacting the business. The 
 
47 
 
 Scotch banks allow interest on all deposits, but at a rate one per 
 cent, below that which thoy charge to their borrowers. 
 
 The prohibition of individuals or associations from loaning money 
 or making discounts without paying a tax for the privilege of doing 
 so, IS even more objectionable, it being a direct interference with 
 private right, %nd opposed to every sound juinciple of political econ- 
 omy, inasmuch as the obvious tendency of such a measure is to drive 
 capital out of the State. 
 
 The principle of our government, and of all free governments, is, 
 that all property should contribute equally to the support of the gov- 
 ernment which affords it protection. The power of taxation, given 
 to the General Court by the Constitution of Ma.-sachusetts, is limited 
 by this rule as strictly as language can do it. It may not be possible, 
 in ail cases, practically to apply the principle with perfect equality ; 
 but it is highly important that the principle itself should never be 
 lost sight of. Every attempt to levy a tax on any class or profession, 
 as such, or on any one description of property, should be resisted as 
 a violation of the free and equal principles of our government. 
 Should any such tax have been adopted, it ought to be abandoned 
 the moment its true character is discovered. 
 
 The idea has sometimes been advanced, that a tax might be levied 
 for the privilege of an act of incorporation. This is a dangerous 
 doctrine, and ought to be put down as equally opposed to the spirit 
 of our institutions. Government is established and supported for the 
 common benefit of all. The good of all is made up of the good of 
 each and every one ; if the facility arising from an act of incor- 
 poration will promote the good of the parties asking for it, who 
 are the only proper judges, and if no improper injury to others is 
 to be apprehended from it, the legislature is bound to grant it ; and 
 if granted at all, it should be granted without tax. A contrary prac- 
 tice would lead to the worst evil of the worst governments, a price 
 upon legislation ; a price would be paid for monopolies, and monopo- 
 lies would be granted for a price. 
 
 If this reasoning is correct, the only ground on which the bank 
 tax can be justified, is, that it is a tax upon bank circulation. Such 
 a tax is justifiable and proper ; it is a tax upon the gain, derived from 
 the substitution of bank notes for specie, as a circulating medium, 
 and which seems, of right, to belong to the body politic, rather than 
 to any number of individuals. It is a tax of perfect equality. The 
 office of the circulating medium is to facilitate the exchange of com- 
 modities ; all property exchanged under the process of circulation, 
 contributes equally to the tax imposed upon it. 
 
48 
 
 It is entirely otherwise with a tax upon bank^eposits, or bank 
 discounts ; a tax upon bank deposits is a tax upon the small number 
 of individuals, owning the money deposited. But for this tax, the 
 banks would allow to their depositors, as interest, all which they can 
 afford to pay the State, as a tax. Such would be the necessary effect 
 of a free competition. • 
 
 Bank capital consists of money, which the proprietors do not 
 choose to employ themselves, but have established as a fund, to be 
 employed by the active and enterprising classes of society. It is 
 thus placed where those classes can command it, at their pleasure, 
 either in the way of loan, or by discounting their business paper. 
 Abundance of such capital is, in the highest degree, favorable to 
 public prosperity, by exciting industry and extending trade. A tax 
 upon bank capital, as such, is a tax upon the fund destined to pay the 
 wages of labor, and to keep in motion the wheels of commerce ; it 
 thus operates unfavorably upon all industry, and upon all trade ; in 
 other words, upon all the interests of the Commonwealth.* Abundance 
 and cheapness of capital, and high wages of labor, act favorably and 
 reciprocally upon each other, and, when united, are evidence of the 
 happiest condition of political society. High wages stimulate indus- 
 try, and thus add to the accumulation of comforts and capital ; a tax 
 upon bank capital, therefore, is an indirect tax upon the working 
 classes of society. Any mode of raising revenue is preferable to one 
 which touches the vital springs of industry .f 
 
 Circulation, therefore, being the only proper ground of bank taxa- 
 tion, it becomes a matter of interest to ascertain how far the present 
 tax, under the present system, can be applied to the circulation, and 
 what would be the effect upon the revenue of a change which should 
 place the tax directly upon its proper object. 
 
 A fair estimate of the annual revenue, which might be derived 
 from bank circulation, may be considered three per cent, on its 
 amount. The average amount of specie, which it is necessary for a 
 bank to keep on hand, in order to support a safe circulation, may be 
 taken at twenty per cent., or one-fifth of the amount of bills in circu- 
 lation. At the present rate of the interest of money, this would 
 leave the bank two per cent., to cover the expense of preparing bills, 
 
 » " It is the circulating capital (money) whicli furnishes the materials and 
 wages of labor, and puts industry into motion."— SmiiA's Wealth of Nations. 
 
 t " The experience of all ages and nations proves, that high wages are at 
 once the keenest spur, the most powerful stimulus to unremitting and assidu- 
 ous exertions, and the best means of attaching the people to the institutions 
 under which they live." — McCulloch'a Political Economy. 
 
49 
 
 and as a profit. This may be thought rather inadequate, but may be 
 considered a fair estimate of the tax which might be levied for the 
 privilege of circulation, and which the banks would cheerfully pay. 
 
 The last return of the banks of Massachusetts, October, 1856, pre- 
 sents the following results, fractions omitted : — 
 
 Amount'of capital in Boston, - - $31,960,000 
 Out of Boston, 26,638,000 
 
 58,598,000 
 
 Circulation in Boston, . . . - $ 8,259,915 
 out of Boston, - - - 18,284,400 
 
 26,544,315 
 Deduct bUls of other banks on hand, - 5,248,379 
 
 Net circulation, - - - $21,295,936 
 
 A tax of one per cent, on capital, - $585,980 
 
 A tax of three per cent, on circulation, 638,870 
 
 It must be considered a very sober and safe ground, to assume, 
 that a tax of three per cent, upon circulation, will be more produc- 
 tive, during a period of ten or twenty years, than a tax of one per 
 cent, upon capital, according to the present system. 
 
 The adoption of the principle of levying the bank tax upon circu- 
 lation, may be made very simple and easy in its details. It may, or 
 may not be combined with "the principle of confining the right of 
 issuing notes to banks of large capital. There can be no doubt, the 
 doing so would establish the most perfect system ; in which case, 
 suppose 600,000 dollars fixed as the minimum capital for a bank of 
 circulation, and 200,000 dollars fixed as the minimum amount for 
 which the privilege of circulation should be granted ; the tax will be 
 6,000 dollars per annum. The situation of a bank, now existing, 
 with this amount of capital, would not be changed at all. Additional 
 capital should be allowed, to any extent, without tax ; and an addi- 
 tional right of circulation, with a proportionate increase of tax and 
 capital. 
 
 Should, however, this change, in respect to the right of issuing 
 bank notes for circulation, be thought too great an innovation on the 
 present system of banking, whUe the principle of raising a revenue 
 upon the right of circulation, to the full extent of its value, is admit- 
 ted as the proper ground of taxation upon banks, a very simple opera- 
 
50 
 
 tion will accomplish the object, in a manner wholly unexceptionable 
 in principle, — equal in its application to all parties, and which will 
 not, probably, affect the revenue at all. Let the present banks be 
 re-chartered, with their present capitals, but reduce the amount of 
 bills, which they shall be permitted to issue, to one-third the amount 
 of capital, instead of the present limitation ; making th%tax, in effect, 
 three per cent, upon the circulation permitted. This will very much 
 increase the security of the public ; as it will not only reduce the 
 amount of circulation, compared to capital, to a safe standard, but will 
 take away all inducement to establish a bank for the sake of the. cir- 
 culation ; at the same time it will afford no bank any just cause of 
 complaint, as it will put all on a ground of perfect equality. No one 
 can doubt that the bills, issued by banks, having large real capitals, 
 to three times the amount of their issues, are safer than those of 
 small banks, issuing bills to the full amount of their capitals, many of 
 which may be nearly or quite nominal, and are liable to be devoted 
 to private speculation. 
 
 The whole question, therefore, resolves itself into the inquiry, 
 whether the small banks have any proper or reasonable ground of 
 complaint, at the proposed change. An answer in the negative, seems 
 equally plain and inevitable. The privilege of issuing notes for 
 circulation, is worth three per cent, on the amount allowed to be 
 issued; the large banks, situated in the natural centre of circulation, 
 are willing to pay that price for it ; shall the small banks have this 
 privilege, at a less rate, than the large banks are willing to pay ? 
 That is the simple question. 
 
 The only argument, on the other Side, seems to be ; the small 
 banks have paid but two per cent, for the privilege, although it is 
 worth three, — the large banks have paid 6^ per cent, for the same 
 privilege ; one party has become used to a loss, the other to a profit. 
 But is this a good argument for persevering in a system of so much 
 inequality ? 
 
 One other argument may be used in favor of banks situated in 
 distant country villages ; it may be said, that they cannot afford to 
 issue bills on the same terms as the Boston banks ; their circulation 
 being forced and unnatural, requires extra trouble and expense, — 
 and the keeping a fund of money in Boston, whither the bills are 
 constantly tending in the course of trade ; while the bills of the Bos- 
 ton banks circulate freely, and require no nursing. The public will 
 judge, whether it is worth while to give up a system of safety, sim- 
 plicity, and equality, in order to preserve an unnatural circulation, to 
 a few such institutions. Wherever there is real capital, and a field 
 
51 
 
 for monied operations, there should be no objection to the change 
 proposed ; since, after making the tax depend on the privilege of 
 circulation, corporations should be freely created, with the privilege 
 of discounting notes, and receiving deposits without being subject to 
 taxation. They might be made subject to many of the restrictions 
 and regulaticftis, now imposed upon banks, for the security of depos- 
 itors, on the same principle that they are imposed upon insurance 
 and manufacturing companies. Existing banks should also be allow- 
 ed to increase their capital to any extent, without tax, unless for an 
 extension of the privilege of circulation. 
 
 The business of banking should be open to as free a competition 
 as any other branch of commercial business ; there should be nothing 
 like monopoly, or exclusiveness about it ; there should be no restriction 
 upon any amount of capital going into it — the more the better for the 
 public — the better for all trade and for all industry. Banks act 
 merely as convenient brokers between the owners of the capital, and 
 the persons employing it ; the cheaper the rate at which they are 
 enabled to transact the business, the better for both parties, and for 
 every body. 
 
 It has been sometimes suggested, that large chartered companies, 
 possess a dangerous aristocratic influence; that they are machines 
 liable to be controlled by the rich for their own purposes, and dan- 
 gerous to our republican institutions. This opinion can only arise 
 from a superficial view of the subject. No more ingenious mode 
 could possibly be invented, to paralyze the power of individual 
 wealth, than the creation of monied corporations, where the property 
 of the retired capitalist is placed at the disposal of the active men of 
 business ; for such, from the nature of the case, must compose the 
 directors of these companies. What power does the original owner 
 of the capital possess over it, after he has converted it into bank 
 stock ? None, whatever, except as a director ; and a board of direc- 
 tors, consisting of mere capitalists, would be wholly unable to manage 
 a bank, in competition with the young and active members of the 
 trading community. A reference to the list of bank directors in 
 Boston, will prove the correctness of this view. There are amongst 
 them, some few men of experience and capital, who have retired from 
 business, but the chief management and direction is always in the 
 hands of those deeply engaged in the bustle of business. All the 
 sympathies of these institutions are with the industrious classes. 
 There is, therefore, no danger in permitting any amount of capital to 
 flow into this channel, under our system of free competition. 
 
 A monopoly of banking is the most dangerous of monopolies. 
 
52 
 
 Every project, therefore, for placing the banking business exclusively 
 in the hands of great national or state institutions, is bad. The power 
 of compressing or expanding the circulating medium, is too tremen- 
 dous, and that of dispensing bank favors, too dangerous, to be intrust- 
 ed to any one body of men. 
 
 It is important, that the institutions which supply 'this medium 
 should be placed beyond the influence or control of the government. 
 In times of difiiculty, government is the first to wish for the facility of 
 an inconvertible paper medium of circulation. The suspension of 
 specie payments in 1814, was owing in a considerable degree, no 
 doubt, to a mistaken public opinion, in the cities of New York and 
 Philadelphia, on the subject of currency ; but probably quite as 
 much, or more, to sympathy with the wants and necessities , of the 
 general government, in the then disastrous state of the finances. 
 The best security against a suspension of specie payments, undoubt- 
 edly is an enlightened public opinion, acting through and upon nu- 
 merous rival banking institutions. It was public opinion which sup- 
 ported the Boston banks in adhering to a so\ind currency in 1814. 
 The bank failures of 1809 had taught a salutkry lesson. The public 
 had become familiar with the phrase, suspension of specie payments ; 
 and had ascertained that it meant, inability to pay. It is to be 
 hoped that the lamentable consequences of the suspension of 1814, 
 fully developed in the revulsion of 1819, will at least have the effect 
 to preserve the whole country from the recurrence of a similar 
 calamity. 
 
 Massachusetts has been the first of the States to establish nume- 
 rous banks with small capitals. The example has been followed by 
 other States, and with like consequences of depreciated currencies 
 and bank failures. It would well become Massachusetts to be the 
 first to adopt a system which shall prove more safe and creditable to 
 herself, and serve as a better model to others. It has been the ob- 
 ject of the preceding pages to suggest the elements of such a system ; 
 which may be summed up as embodied in the following principles. 
 
 1 St. The only proper basis of bank circulation is a large monied 
 capital, exclusively appropriated to the business of banking. 
 
 2d. Public security requires, that the issues of a bank should bear 
 a small proportion to its capital. 
 
 3d. Bank notes, to constitute a sound medium of general circula- 
 tion, must be payable in the central points of trade, the large com- 
 mercial cities. 
 
 4th. The profits derivable from the circulation of bank notes, are 
 a legitimate source of revenue to the State ; but, 
 
53 
 
 5th. A State tax upon capital employed in the ordinary business 
 of banking, is both unjust and impolitic, good policy requiring that 
 capital should be allowed to flow into that channel with perfect 
 freedom. 
 
 The practical application of these principles may vary in different 
 circumstances. Taking into consideration the existing banking 
 institutions of this Commonwealth, the simplest and most practicable 
 mode of applying them would seem to be that which has been sug- 
 gested ; the renewal of the charters of all existing banks, with their 
 present capitals, limiting the right of circulation to one-third the 
 amount of capital, leaving them subject to the same tax as at pres- 
 ent, being equivalent to three per cent, on the amount to which their 
 circula4;ion is limited. The tax in all cases to be relinquished, with the 
 relinquishment of tlie rights of circulation, and no tax to be imposed 
 on additional capital, where no extension of the right of circulation 
 accompanies it. 
 
 How far these views shall be put in practice, it is for others to de- 
 cide. At all events it is exceedingly important that the legislature 
 should preserve an entire control over the bank currency, by reserv- 
 ing the right to regulate, by any general law, the amount of bank 
 issues in proportion to capital, and the description of bills which may 
 be put in circulation. There can be no objection on the part of ex- 
 isting banks to this reservation, so long as they are left at liberty to 
 surrender their charters, and close their business, whenever they are 
 dissatisfied with the terms imposed on them. It is unquestionably 
 very desirable, that the proportion of paper in common circulation 
 should be diminished, and that of specie increased. There is no 
 doubt that the revulsions in the money market are more sudden and 
 more severe, in consequence of so lai-ge a proportion of the specie in the 
 country being collected in the vaults of the banks in the commercial 
 cities, instead of being diffused through the community. A turn in the 
 exchanges, which causes a rapid exportation of specie, compels the 
 banks, as their stock of coin becomes reduced to the lowest admissible 
 point, to check their discounts so suddenly, and so violently, as to 
 produce great embarrassment and distress in the trading community; 
 this would not be necessary in an equal degree, could their stock of 
 specie be replenished, in some measure at least, out of the ordinary 
 circulation. The limiting the circulation of bank notes to those of a 
 denomination of five dollars and upwards, would bring a great 
 amount of silver into circulation. It has been adopted in some of 
 the States, with great public satisfaction. The objection to it in Mas- 
 sachusetts will be, that by reducing the amount of bank circulation, 
 
54 
 
 it will reduce the profits of banking, and, of course, the revenue de- 
 rived from banking. This objection will apply with quite as much 
 force under the present system, as under the one proposed, since the 
 inducements to a reduction of bank capital, under the present tax, 
 will be increased, as the profits of bank circulation are diminished. 
 This consideration may probably prevent the immediate adoption of 
 a measure, the advantages of which are indirect and intangible, and 
 which will require the sacrifice of a benefit which is direct and palpa- 
 ble. It would, however, be very unwise to put it out of the power 
 of a future legislature to adopt the measure, should the experience of 
 other States, and a further examination of the subject make it desir- 
 able. 
 
55 
 
 LETTERS ON THE MONET CEISIS OF 1857. 
 
 Boston, Octobek 1, 1857. 
 
 My Dear Sir : — It is many years since I had a correspondence 
 with you on the subject of the financial state of the country, but it 
 appears to me that the time has arrived which demands deep consid- 
 eration and wise action. 
 
 New York is the head-quarters, and has a great responsibility in 
 this matter so intimately connected with the prosperity of the whole 
 country. Her banks are now evidently in a state of great strength, 
 whilst the commercial community are severely pressed and brimful of 
 fear. In this state of things, it appears to me that the duty and 
 interest of the New York banks require at once a liberal increase of 
 their discounts. 
 
 There can be no risk in it. No specie can be carried out of the 
 city, because there is no place where it is more valuable. Boston can 
 and will follow the suit of New York, and things might, in these two 
 cities, soon resume their usual and natural course, and put an end to 
 the cry of the merchants for suspension. 
 
 I should hope it might do more, and bring Philadelphia to her 
 senses, and lead her to retrace her steps before it is too late. 
 
 A very short time will increase our specie from California and 
 probably from Europe. I see nothing to prevent the country from 
 assuming a state of the highest prosperity in its regular trade, if the 
 present panic can be allayed. 
 
 Yours, very truly, 
 
 NATHAN APPLETON. 
 John A. Stevens, Esq., 
 
 President Bank of Commerce, N. Y. 
 
56 
 
 MR. STEVENS'S EEPLY. 
 
 Bank or Commerce, in New York, 
 October 2, 1857. 
 
 } 
 
 My Dear Sir : — I fully concur in your views. It is true that New 
 York has a great responsibility ; the magnitude is oppressive, has 
 been deeply felt and carefully weighed /or a long time. 
 
 Our banks are prepared and now ready, and will soon be much 
 stronger for the wise action of liberal aid to the community. More 
 coin flows into the city from all quarters — from Philadelphia, from 
 the West, and is already on its way from Europe. 
 
 A California steamer is due, with about half as much more as there 
 is in all Massachusetts. Some of our banks have scarcely diminished 
 their loans for two months, notwithstanding their aid to neighboring 
 cities. The large banks have expanded, and will continue to expand. 
 On the system of discounting, mainly only short paper, they always 
 have money to loan. 
 
 When will yours confine themselves to short dates, and cease to 
 encourage the pernicious system of long credits — credits ramified to 
 the last degree, from which spring most of your difficulties ? Our 
 corresponding banks in Boston are advised that we wiH not press 
 them for their balances. 
 
 Very faithfully yours, 
 
 JOHN A. STEVENS, President. 
 
 Nathan Appleton, Esq., Boston. 
 
 MK. APPLETON TO MR. STEVENS. 
 
 Boston, October 5, 1857. 
 
 My Dear Sir : — I have yours of the 2d, and am glad to find that 
 you agree with me, and that your bank is expanding its discounts. I 
 regret, however, that this course has not been adopted by the other 
 banks, as the last official return (that of 26th ult.) shows an aggregate 
 reduction instead of expansion in their loans. And the last reports 
 do not show any alleviation in the stringency of the money market. 
 
57 
 
 I beg you will use your influence for an immediate and very consid- 
 erable expansion, so important as I consider it for the interests of 
 New York and the whole country. I notice your remarks on our 
 banks discounting long paper as encouraging the pernicious system of 
 long credits. I have always been opposed to the system of long 
 credits, but I recollect very well, as I was then in active business, 
 that it was in consequence of 8 months being the established credit 
 given by the New York importers, that we were obliged to submit to 
 the same on our manufactures. I am not aware that the credits now 
 given in New York, are shorter than those given in Boston. A good 
 deal of improvement has been going on here within the last few years 
 by offering large discounts for short time. I do not agree with you 
 that the banks should confine their discounts to short paper, which, if 
 good for the banks, is bad for the community. I have been for up- 
 wards of 40 years a director of the Boston Bank, during the greater 
 part of which time they have confined their discounts to real business 
 paper, which should be paid at maturity, and have not refused it 
 even when having 6 months to run. This system has worked well, 
 and always gives the bank enough coming in to meet any emergency. 
 I hardly recollect a discount day, when the bank has not been able to 
 discount some new paper. What I call a really pernicious system is 
 that of making loans on call, which seems to prevail extensively in 
 New York. This system, especially pernicious to borrowers, I hope 
 is not adopted by your bank. I should think a bank with your large 
 capital would find it difficult in ordinary times, to find business paper 
 enough at short dates to meet their wants, and might frequently find 
 it necessary to take accommodation paper with long paper perhaps as 
 collateral. On referring to the published tables, I see that the banks 
 of New York have lessened their liabilities from 101 millions, Aug. 
 15, to 81 millions, Sept. 24, certainly a most violent proceeding. 
 The Boston banks reduced their liabilities from 23 millions, Aug. 17, 
 to 19 millions, Sept. 28, something less in proportion. Our banks are 
 obliged to follow the course of New York, but are in a perfectly easy 
 position. It is their customers, the merchants, who feel the pressure. 
 
 Very truly, your obedient servant, 
 
 NATHAN APPLETON. 
 
 J. A. Stevens, Esq. 
 
58 
 
 [For the Boston Daily Advertiser.] 
 THE MONEY CRISIS AND THE NEW YORK BANKS. 
 
 Messrs. Editors : — I have for many years been withdrawn from 
 active business. I have been merely a looker-on, but not unobserv- 
 ant of the course of trade, and especially of our banking operations. 
 
 Our system of currency is a delicate one. It is founded on bank 
 credits, resting on a very moderate basis of coin. When perfectly 
 balanced, it works very well, but a slight derangement may produce 
 a great deal of mischief. The great disturbing cause is a demand for 
 specie for export, which can only be checked by a contraction of the 
 bank credits. During the present year, we have been going on very 
 smoothly, under full sail, when, about the middle of August, a sudden 
 squall strikes us, which continues to increase to a terrific hurricane, 
 threatening even to swamp the ship itself. The question arises, — 
 how comes all this about ? — what is the cause ? 
 
 New York is the great central banking power. She sets the key- 
 note to the whole country. If she expand, the whole country 
 expands. If she contracts, it is felt to the remotest extremities. It 
 is a tremendous power — that of increasing or diminishing the circu- 
 lating medium of the whole country. It is a deep responsibility, and 
 demands sound discretion and much wisdom in its regulation. Un- 
 fortunately, there appears to be no unity of action, no controlling 
 principle, in the management of this power. It is divided between 
 fifty-five banks, each acting its own separate part, under the influence 
 of different opinions and different interests. There is apparently no 
 individual of sufficient influence to bring this heterogeneous mass to 
 unity of action in a crisis like the present, as was Albert Gallatin, 
 whilst he lived. Banks are public institutions ; they are founded for 
 the public good ; and the duty of consulting the good of the community 
 in the use of their great power is as sacred as that of providing for 
 their own safety. 
 
 The circulating medium of the city of New York consists in the 
 liabilities of her banks in the form of deposits and circulation. Their 
 daily loans and discounts increase or diminish these liabilities. As 
 these liabilities are greater or less, is money plenty or scarce. They 
 constitute the fund out of which all operations must be performed. 
 
 Hunt's Merchants' Magazine contains tables of the weekly returns 
 of the banks of the city of New York for the years 1856 and 1857, 
 which furnish a complete view of their operations. They throw a 
 flood of light on the present state of things. The return for Jan. 3, 
 
59 
 
 1857, shows 104 millions of liabilities, with 11,172,000 doUars in 
 specie. 
 
 This varied very little from the returns of the preceding six 
 months, and this state of things continued with little change, but with 
 a slight tendency to increased expansion up to the 15th August. 
 The greatest expansion was on the 2d of May, when the liabifities 
 were 108 millions with 12 millions of specie. The return of 15th 
 August shows 101 millions of liabilities and 11,360,000 of specie. 
 From this a rapid contraction commenced, the liabilities being re- 
 duced on 5th September to 88 millions with 10,227,000 of specie. 
 Here the contraction ought to have ceased. The object was to stop 
 the export of specie. That had been done. Exchange on London 
 had fallen below the point at which specie could be shipped without 
 loss. Can any mortal man give a reason or an apology why con- 
 traction should continue a day after this point had been reached ? 
 The banks were then stronger than they had been for two years. 
 But contraction did continue until, on the 3d October, the liabilities 
 had been reduced to 76 millions — thus reducing the circulatino- 
 medium of New York city, from July, 32 millions or 'upwards of 
 thirty per cent. Tremendous ! AVas the like ever known in the 
 history of banking ? I have no hesitation in saying, it is this con- 
 tinued contraction of the New York banks since the 5th of Septem- 
 ber, without the slightest necessity, which has brought about the 
 present disastrous crisis. 
 
 There was no decided general overtrade. There was no specula- 
 tion, except by a few houses in the article of sugar. There was no 
 doubt an excess of imports, but no greater than for several years, and 
 the eflect of these was wholly cured on the 5th September, by the 
 rate of exchange on London. Why continue contraction further ? 
 Was not 88 millions with 10^ millions of specie, being 11-1- per cent, 
 as safe a proportion as 104: millions in January, with 11 millions of 
 specie, or 11 per cent, on their liabilities. 
 
 There is but one answer. The New York banks have been act- 
 ing under a panic, and that panic they have communicated to others, 
 until there is almost a total loss of confidence. The consequences are 
 before us, in the paralysis of all trade from Bangor to New Orleans, 
 the stoppage of banks through a great part of the United States, the 
 stoppage of factories, the discharge of thousands of laborers, the ina- 
 bility to bring our large crops of produce to market, the ruinous rate 
 of two or three per cent, per month on the strongest paper, a ruinous 
 depreciation in the price of all stocks, and even on exchange on Lon- 
 
60 
 
 don. In my whole experience I have never known a crisis so severe 
 as the present, and, I must say, so wholly uncalled for. 
 
 I was a bank director in 1814, when New York and all the States 
 South and "West suspended specie payments. Boston had ample 
 means and stood firm, whilst many croakers thought it madness for 
 Boston to hold on, when all the rest of the country suspended. She 
 did so, however, and all New England with her, and thus saved them 
 the losses which accompanied the resumption in other States in the 
 terrible revulsion of 1819. 
 
 In 1834 Mr. Biddle was flagitiously endeavoring to force Congress 
 to grant him a charter, through the distress he had it in his power to 
 inflict on the country. In March of that year a committee of the 
 merchants and bankers of New York informed him that unless he 
 changed his course, and would agree to their terms, which were that 
 the United States Bank should cease to call upon the other banks for 
 its balances for thirty days, his course would be denounced at the ad- 
 journed meeting at the exchange. 
 
 Mr. Biddle, at the last moment, agreed to their terms, in conse- 
 quence of which the country was immediately relieved. But Mr. 
 Biddle was reckless enough, when the thirty days expired, without 
 the slightest necessity, to call for these balances, and give the screw 
 another turn. 
 
 This produced an intense and unexpected pressure, for it was the 
 New York understanding that Mr. Biddle should not again press 
 them without some show of necessity. This pressure he continued 
 until the adjournment of Congress in July, when be gave up the 
 chase, and soon after extended the loans of the bank from 47 to 63 
 millions. 
 
 There was nothing in that pressure to compare in severity to the 
 present. It was wholly owing to the unprincipled action of Mr. 
 Biddle. 
 
 The pressure of 1837 was wholly unlike the present. During a 
 period of great overtrade, a few London houses imprudently created 
 an American debt of fifty or sixty millions of dollars, by giving out 
 their acceptances, to be met by other equally fictitious bills as they 
 fell due. These houses fell into discredit, and informed their corres- 
 pondents in America that the whole debt must be liquidated at once, 
 or they must become bankrupt. This was in March, when no remittan- 
 ces could be made except in specie, which the banks were called on to 
 furnish. The New York banks went on for something over a month, 
 when they found it impossible to continue. They then suspended, 
 
61 
 
 and with them the whole country. There is nothing like it now, as 
 there is no foreign demand for specie. 
 
 The question now arises. What is the remedy? — what is to be 
 done ? Nothing can be plainer. The New York banks must retrace 
 their steps, and speedily, or it will be too late. They should at once 
 increase the circulating medium by expanding their discounts ten or 
 fifteen millions of dollars. No other course will set the wheels in 
 motion. 
 
 NATHAN APPLETON. 
 Boston, October 12, 1857. 
 
 TABLE OF THE BANKS IN THE CITY OF NEW YORK. 
 
 i85r. 
 
 Specie. 
 
 Liabilities, consisting of 
 Deposits and Circulation. 
 
 Proportion 
 of Specie. 
 
 January 3, 
 
 11,172,000 
 
 104,000,000 
 
 1 1 per cent. 
 
 April 4, 
 
 11,538,000 
 
 106,000,000 
 
 11 " 
 
 July 3, 
 
 12,837,000 
 
 108,000,000 
 
 12 " 
 
 August 15, 
 
 11,360,000 
 
 101,000,000 
 
 11 " 
 
 22, 
 
 10,197,000 
 
 98,000,000 
 
 10 " 
 
 29, 
 
 9,201,000 
 
 93,000,000 
 
 10 " 
 
 Sept'r 5, 
 
 10,227,000 
 
 88,000,000 
 
 Hi •' 
 
 12, 
 
 12,181,000 
 
 85,000,000 
 
 14 " 
 
 " 19, 
 
 13,556,000 
 
 84,000,000 
 
 16 " 
 
 « 26, 
 
 13,327,000 
 
 81,000,000 
 
 16i " 
 
 October 3, 
 
 11,400,000 
 
 76,000,000 
 
 15 " 
 
 « 10, 
 
 11,476,000 
 
 71,000,000 
 
 16 " 
 
 Since the above was written, we have the returns of the banks of 
 New York for another week, showing a further contraction of four 
 millions. The further persistence in a wrong course, has produced 
 its natural result. It has frightened the community until the banks 
 are driven to the desperate remedy of suspension. 
 
 AFTEK SUSPENSION. 
 
 October 17, 7,843,000 61,000,000 13 per cent. 
 
 « 24, 10,411,000 64,000,000 16 " 
 
 " 31, 12,883,000 68,000,000 19 
 
 Nov'r 7, 16,492,000 75,000,000 22 " 
 
 14, 19,451,000 79,000,000 24^ " 
 
 The circulation varying very little from eight miUions, the in- 
 crease or diminution of discounts is shown in (he deposits. 
 
62 
 
 P. S. It is well understood that the actual suspension of the New- 
 York banks was not the result of natural causes, but arose from the 
 disgust and indignation of the merchants, who viewed the action of the 
 banks in its true light, and were determined to let them know that 
 driven to the wall and crushed as they were, they were still able to 
 retaliate by using their power. This was acting out the common 
 principles of human nature. They were indignant that the banks, 
 after providing for their own safety and being relatively stronger 
 than they had been for two years, should continue the violent system 
 of contraction which was prostrating solvent houses in every direc- 
 tion. It was a narrow selfish policy, without reference to their high 
 duty as guardians of the currency of the country. 
 
 It is difficult to say where the responsibility lies for this lamentable 
 mistake. It is impossible to consider the aggregate of the banks other 
 than a unit, although it is well known that many of the oldest and 
 most respectable of the bank directors deprecate the course of contin- 
 ued contraction. Doubtless the directors of the strongest and most 
 powerful of the banks must by their own action have controlled the 
 action of the whole. It is impossible, on a full review of the subject, 
 to aquit the leaders, whoever they were, of a ruinous failure in the 
 performance of their duty. 
 
 Our delicately -balanced system of circulation and credit, instead of 
 being regulated with judgment and discretion, has been shattered 
 and overthrown by unskilful hands. The whole thing has been a 
 mistake and a blunder, preposterously continued. On the 6th Sep- 
 tember the banks were perfectly safe, trade was expanded, but not in 
 excess, and all was weU. The banks had only to stand as they were 
 and we should have had no bank suspensions whatever. Even Phil- 
 adelphia, with her suspensive proclivities, imbibed from Mr. Biddle, 
 would have left the rotten Bank of Pennsylvania to her fate. With 
 the New York banks there was no just cause for suspension. We 
 have seen that it was not the result of their weakness, but of their 
 strength which they refused to use. 
 
 The only plea brought forward in justification of the course of the 
 New York banks, consists iA endowing them with the gift of fore- 
 seeing events, in taking effects for causes. Can banks avoid contract- 
 ing during a severe money pressure? during a panic ? when failures 
 were impending? when there was a tendency to hoarding? with 
 country banks calling for specie ? All these were simply the natural 
 effects of the violent continued contraction, but in no sense a cause 
 for it. 
 
63 
 
 The banks were making a new experiment in banking, they seemed 
 disposed to try how far a contraction of the circulation could be car- 
 ried, without regard to consequences. It has reached forty per cent. 
 It has not only paralyzed all action in this country, it has even dis- 
 turbed the currency of England and France. Even now, with more 
 specie than ever before, with double the average, they neither resume 
 nor expand. They should do both. 
 
 N. A. 
 
 Boston, Nov. 20, 1857. 
 
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