^^^^^^ Ws- 
 
 UNIVERSITY OF ILLINOIS 
 LIBRARY 
 
 Class 
 
 Book 
 
 Volume 
 
 \mmm y 
 
THE 
 
 CREDIT SYSTEM 
 
 FEANCE, GREAT BRITAIN, 
 
 UNITED STATES. 
 
 ■ 1 1 1. 
 
 BY H. c. Carey, ' ^ 
 
 AUTHOR OF " PRINCIPLES OF POLITICAL ECONOMY," ETC. 
 
 LONDON: 
 
 JOHN MILLER, HENRIETTA STREET, COVENT GARDEN. 
 PHILADELPHIA: 
 CAREY, LEA, & BLANCHARD, CHESTNUT STREET. 
 1838. ' 
 
C. SaviU, Printer, 107. St. Martin's Lane, Charing 
 
CONTENTS. 
 
 Page 
 
 Chaptkr 
 
 I. — Rise and Progress of Credit - -- -- -- 1 
 
 II _0f Credit in France - -- -- -- -- - 11 
 
 III —Of Credit in England - -- -- -- -- - 19 
 
 IV.— Of Credit in the United States ------ 24 
 
 Y. Insecurity of Property and its Effects — England, 
 
 France, United States - -- -- -- - 41 
 
 VI. Friction — England, France, Scotland, United 
 
 States ------ 76 
 
 VIL— The United States in 1836-7 90 
 
 VIIl.— England in 1825 and 1836 -------- 116 
 
 IX.— Conclusion - -- -- -- - -122 
 
 1^9.250 
 
THE CREDIT SYSTEM. 
 
 CHAPTER I. 
 
 RISE AND PROGRESS OF CREDIT. 
 
 When person and property are secure, the owners of capital 
 are willing to apply it in various ways tending to aid the ex- 
 ertions of the labourer. One employs it in making railroads 
 or canals, secure of receiving toll for their use ; another builds 
 houses and barns ; a third constructs machines by which the 
 labour of the farmer, or that of the cotton or woollen manufac- 
 turer, is rendered more productive ; a fourth opens a shop, at 
 which the manufacturer and the ploughman may exchange 
 their products ; and a fifth builds wagons or ships for the 
 transportation of such portions thereof as they may desire to 
 exchange with persons at a distance. Unless they felt secure 
 in so doing, all would be disposed to retain their property in 
 the most portable form, in order that it might most readily be 
 concealed or carried off. Thus, in India, exposed to plunder 
 from the army of friend or of foe, the owner of capital would 
 not be willing to build houses, nor would he open a shop, be- 
 cause he could have no security that the former would not be 
 destroyed, or the latter plundered. 
 
 The owner of the railroad, or of the ship, or of the wagon, 
 grants the use of his capital to the man who wishes his com- 
 modities transported to market ; and the labour of the latter is 
 thereby rendered more productive, or is improved in its quality. 
 For the use of the capital so lent the former receives a portion 
 of the commodities transported, or the value in money of that 
 portion. The owner of a house lends it to another, and receives 
 payment for its use, in the form of rent, — as does the owner of 
 a farm from a third who desires to cultivate it. The owner 
 of woollen or cotton machinery lends it to the workman, who 
 leaves in the hands of the proprietor a certain proportion of the 
 
 B 
 
2 
 
 RISE AND FROGUKSS OF CREDIT. 
 
 product, as compensation for its use ; or the owner agrees to 
 take the whole product, and to pay the labourer for his share, 
 in money, what are termed wages. 
 
 When the capitahst lends his capital freely credit is said to 
 be high, and he is willing to take a small proportion of the 
 product of labour for the loan of his machinery ; when he 
 does not lend it freely credit is said to be low, and he requires 
 a large proportion of the product for its use. Where credit is 
 high, labour is productive, and the small proportion yields him 
 a large return, as in the United States and England. Where 
 credit is low, labour is unproductive, and the large proportion 
 of the capitalist gives him a small return j as in France and 
 India.* 
 
 We have already shewn,t that in the infancy of society, when 
 cultivation is limited to the superior soils, labour is unproductive, 
 capital is scarce, and its owner takes 2i\sirge proportion ; but as 
 population and capital increase, and cultivation is extended 
 over the inferior soils, labour becomes productive, capital is ac- 
 cumulated with facility, and the owner takes a smdM proportion. 
 In the first, credit is low, and the owner of capital is unwilling 
 to lend it; whereas, in the last, credit is high, and the capitalist 
 is not restrained by any of those doubts of the general security 
 of property which exist in the former period. High credit is 
 inconsistent with a scattered population, as witness Russia, 
 Poland, and Spain, when compared with England, Scotland, 
 and Holland. If we take the several States of the American 
 Union, we shall find that credit is highest where population is 
 most dense, and that the former diminishes as the latter be- 
 comes more scattered ; and thus the owner of capital in Massa- 
 chusetts prefers five per cent, at home to the prospect of twelve 
 per cent, in Arkansas, and with that five per cent, can obtain 
 a larger amount of the conveniences and enjoyments of life in 
 the former than with twelve in the latter. 
 
 * The owner of a loom in India takes more than half of the product, and lives 
 in poverty and wretchedness. The owner of a few looms in Lyons takes one-half 
 of the product. The workman retains for his share only one-half. Both are 
 poor. The owner of looms in England and the United States takes one-tenth, 
 leaving nine-tenths to the labourer. Both are enabled to live well, and con- 
 stantly to improve their condition. 
 
 t Principles of Political Economy, Part the First : Of the Laws of the Pro- 
 duction and Distribution of Wealth. 
 
RISE AND PROGRESS OF CREDIT. 
 
 3 
 
 The same state of things that is observed throughout the 
 United States, would exist throughout the world, were it not 
 for disturbing causes. Credit should be higher in France 
 than in Scotland ; in India than in France ; and in all higher 
 than in the United States ; yet such is not the fact. The 
 capitalists of the latter are more willing to apply their means 
 to facilitate the operations of the labourer by the construction 
 of rail roads, canals, houses, ships, and machinery of every 
 description, than are those of France, and the consequence is 
 that labour is more productive. 
 
 There are other modes in which credit tends to render labour 
 productive, and which we propose now to consider. In those 
 to which we have referred, the capitalist retains his property in 
 possession of himself or of his agents ; but in those to which 
 we now refer, he places it out of his possession, trusting to the 
 honesty of those to whom he lends it, that it, or an equivalent 
 value in other commodities, will be returned, with rent, or in- 
 terest, for its use. Thus the shopkeeper parts with spades and 
 axes, or provisions, or clothing, to those who have occasion for 
 them, trusting that out of the proceeds of their labour they will 
 repay him. He, in his turn, obtains from the maker of axes 
 and spades, or the grower of wheat, or the manufacturer of 
 clothing, a quantity of those commodities, upon his assurance 
 that he will pay him their value at a given time, and the manu- 
 facturer obtains from a bank or banker a credit which enables 
 him to purchase machinery, or raw materials, and to pay wages, 
 and is thus enabled in his turn, to grant credit to the retailer. 
 
 In the infancy of society little credit of this kind is given, 
 and never unless the capitalist expects to obtain a very large 
 return. In the fur trade the trader grants to the Indian a 
 few goods, but he expects to have in payment that which will 
 yield him three, or four, or five hundred per cent. The 
 trapper thus obtains but about one-third, one-fourth, or one-fifth* 
 
 * " Three marten skins are obtained for a coarse knife, the utmost vahie of 
 which, including the expense of conveying it to those distant regions, cannot be 
 estimated at more than (id. ; and three of the skins were sold, last January, in 
 London, for five guineas. With the more expensive furs, such as the black fox, 
 or the sea-otter, the profit is more than tripled ; and but a few years ago, a single 
 skin of the former species sold for fifty guineas, wliilc the native obtained in ex- 
 change the value of 2s." — King''s Arctic Expedition. 
 
4 RISE AND PROGRESS OF CREDIT. 
 
 of the value of the commodities produced by his labour, 
 while the trader obtains but small returns for the use of his 
 capital, on account of the large proportion of it that he is 
 obliged to retain concealed and unproductive.* The Indian 
 and the trapper remain in a state of poverty, and the trader is 
 but moderately compensated for his toils and his risks. He 
 has a large proportion, but the whole product is trifling in 
 amount. As population becomes more dense and security 
 more complete, shops increase in number, and the owners 
 grant credit more freely. Labour becomes further divided, 
 and there are shops in which capital may be had in the form 
 of provisions ; others in which it is to be found in he form of 
 coats, hats, and shoes ; and others in which it is to be had in 
 that of gold or silver. 
 
 With the further increase in the density of population, 
 labour become still more productive, and new divisions take 
 place. One man deals in flour only — buying and selling large 
 quantities thereof; another deals in cotton ; a third,^in wool, &c. 
 Confidence is increased, and the purchaser of a commodity no 
 longer finds it necessary to verify for himself the quality of that 
 which he has purchased, the name of an individual upon the 
 barrel of flour, or upon the bale of cotton or wool, being suflS- 
 cient guarantee for it. He finds it inconvenient to receive them 
 into his possession, and is content to take an agreement for 
 the delivery of the quantity purchased, and thus property 
 changes owners ten, twenty, or thirty times, without having 
 been removed. The saving of labour that is thus caused is a 
 diminution of the cost of production, resulting from the confi- 
 dence of man in his fellow man. If that confidence did not 
 exist, a number of persons would be employed in removing 
 
 * Captain Bonneville now made his arrangements for the autumn and the 
 winter. The nature of the country through which he was about to travel ren- 
 dered it impossible for him to proceed with wagons. He had more goods and 
 Supplies, of various kinds, also, than were required for present purposes, or than 
 could conveniently be transported on horseback ; aided, therefore, by a few con- 
 fidential men, he made caches, or secret pits, during the night, when all the rest 
 of the camp were asleep, and in them deposited the superfluous eflfects, together 
 with the wagons. All traces of the caches were then carefully obliterated. 
 This is a common expedient with the traders and trappers of the mountains. 
 Having no established posts and magazines, they make their caches, or deposites, 
 at certain points, whither they repair occasionally for supplies. It is an expedient 
 derived from the wandering tribes of Indians.'' — Rocky Mountains, Vol. I. p. 98. 
 
RISE AND PROGRESS OF CREDIT. 
 
 5 
 
 commodities from one place to another, instead of cultivating 
 or manufacturing others for themselves. The greater the 
 quantity of commodities produced, the larger is the proportion 
 retained by the labourer ; and it is, therefore, to him of the 
 highest importance that every man should be productively 
 employed. With the increase in the production of commo- 
 dities the proportion of the capitalist falls ; but he finds a con- 
 stant increase of quantity^ so that he also has every reason to 
 desire that labour should be productively employed. Both, 
 therefore, benefit by the increase of confidence. 
 
 In the infancy of society, the owner of sheep barters for oxen, 
 and the owner of wheat exchanges it for labour. With the in- 
 creased density of population this is found inconvenient, and 
 a medium of exchange is adopted, as wheat, tobacco, cowrie 
 shells, gold, or silver. As civilization increases we find the pre- 
 cious metals exclusively used for this purpose. The transport 
 even of these from one country to another is found inconvenient, 
 and the gradual increase of confidence permits the substitution 
 of bills of exchange, by which A., residing in Venice, and having 
 gold in Paris, transfers the same to B., who has gold in Venice, 
 and desires to transfer it to Paris. This species of transaction 
 exists, however, among the mercantile class only, and a much 
 higher degree of confidence is necessary before the labouring 
 classes can dispense with the use of coin. By degrees the in- 
 convenience of using the precious metals at home leads to the 
 adoption of a similar system in smaller traub. ctions, and A. in 
 the Strand, having gold in Fleet-street, transfers to B. the 
 right of receiving the same, which B., in like manner, transfers 
 to C, D., E., and F. Here the saving of labour is very consi- 
 derable, as twenty payments may be made in less time than a 
 single one could be were it necessary to count down the 
 amount in either gold or silver. In this case there still remain 
 two inconveniences, both of which tend to cause loss of time, 
 and to render labour less productive than it would otherwise 
 be. The first is, that the order drawn by A. in favour of B. 
 would not be for the sum that B. might wish to pay to C, or 
 C. to D., and it might therefore become necessary to convert 
 it into gold before it could perform a second operation. The 
 second is, that A., not being personally known to B., C, or D., 
 
6 
 
 RISE AND PROGRESS OF CREDIT. 
 
 mi^ht find it difficult to use his check without delay in sending 
 to the place in which his gold was deposited to ascertain that 
 it was good. Both of these difficulties would be removed, if 
 he were to place the gold with some person generally known, 
 who would give him agreements to pay out the same whenever 
 demanded — such agreements to be in certain sums — say 10, 
 20, 50, or 100 dollars, or pounds. Here would be a vast sav- 
 ing of labour, tending to render that of the community more 
 productive, and to increase the reward of both capitalist and 
 labourer. It would, however, be only by degrees that the 
 labouring classes would acquire sufficient confidence in those 
 agreements to accept them in lieu of the gold or silver which 
 they might be entitled to receive as wages. In the commence- 
 ment of such a system there would be few notes used except 
 of the larger denominations,* such as would pass among mer- 
 chants or traders on an extensive scale ; but as the small 
 shopkeeper and the labourer became accustomed to them, 
 notes of 5, 10, 15, and 20 dollars, and perhaps even of smaller 
 denominations would be brought into use, and with every in- 
 crease of confidence there would be found an increase in the 
 productiveness of labour. 
 
 Increase of confidence would be manifested by the adoption 
 of all those modes of operation by which transfers are facili- 
 tated, and the productiveness of labour augmented. The 
 numberf of shops at which provisions, or clothing, or money 
 
 * The Bank of Bengal issues notes which vary in amount from 10 to 20,000 
 rupees, there being no limitation. The largest portion is in notes of 100 rupees and 
 upwards. The average amount in circulation is 800,000/. 
 
 The Bank of France issues no notes of less than 500 francs. In both countries 
 the confidence in paper is small. With the improvement in the quality of labour, 
 small notes will take the place of the precious metals. 
 
 t With the increase in the facilities of exchange, there is a diminution in the 
 proportion which the traders, or persons employed in the performance of ex- 
 changes, bear to the community. In the infancy of society, the trader collects 
 his own merchandize, accompanies it to the great market, where he exchanges it 
 for what he requires, and returns to attend personally to the exchange of the latter 
 directly with the consumer. Such we see now to be the case in the east, where 
 thousands of merchants are constantly on the road with small quantities of mer- 
 chandize. By degrees several traders unite to place their property in the hands 
 of a third person, and a considerable portion of the property in a caravan, or in a 
 ship, will be under the charge of persons who are not owners thereof. A further 
 step in the progress of confidence places the whole cargo under the care of a 
 
RISE AND PROGRESS OF CREDIT. 7 
 
 could be purchased, would be increased. The facility of ob- 
 taining upon credit the use of the commodities or machinery 
 required by the labourer would be increased, attended with 
 a constant diminution in the proportion charged by the owner 
 for the risk of payment, and a constant increase in the con- 
 fidence reposed in the agreement of the seller to deliver the 
 quantity and quality of commodities contracted for, whether 
 wheat, cloth, wine, gold, or silver. 
 
 The increase in the facilities of intercourse and exchange, 
 resulting from an increase of the number of shops and fac- 
 tories, and the improvement of roads, would be attended by a 
 diminution in the quantity of capital required to be invested in 
 any particular commodity. The man who could draw his sup- 
 plies daily from the manufacturer of cotton-cloth, would not 
 keep on hand more than a week's supply, whereas another, 
 who was distant five hundred miles, would be compelled to 
 keep sufficient for one, or two, or three months. The former 
 could trade upon |1000 to an extent as great as the latter could 
 do with ^5000 ; and he, on his part, could do as much as could 
 be done by another, distant one thousand miles, with an invest- 
 ment of ^10,000 in the same species of commodity. If the 
 three traders possessed each a capital of |10,000, the first could 
 appropriate |9000 to the purchase of other commodities, of a 
 house in which to transact his business, or of machinery ; the 
 second would have |5000 ; and the third would have nothing, 
 his whole capital being employed in keeping a supply of one 
 description of commodities sufficient to meet the current de- 
 mand — to furnish the currency of cotton-cloth. 
 
 In like manner, a man who lived near a shop at which money 
 was bought and sold, or a bank, and who felt entire confidence 
 that he could draw from it a daily supply, would not keep on 
 
 single individual, as is now done in the case of voyages to China, the Sandwich 
 Islands, &c. Another and the last step is, where the trader in one city, reposing 
 entire confidence in a trader of another city, places his property in his hands for 
 sale, with orders to purchase in return such commodities as are required. Such 
 is now the case between the different parts of the United States, and between 
 the United States and England. With each of these changes there is a diminished 
 proportion of the labour of a community required for the performance of exchanges, 
 leaving a larger proportion to be directly engaged in the cultivation or manu- 
 facture of commodities, the consequence of which is, that labour becomes more 
 productive, to the great advantage of both labourer and capitalist. 
 
1 
 
 8 RISE AND PROGRESS OF CREDIT. 
 
 hand more than sufficient for his daily demands; whereas, 
 others, Uving at a distance of five hundred or one thousand 
 miles, would be compelled to keep on hand as much as would 
 meet the demands for weeks, or perhaps months. A single 
 hundred dollars might be sufficient for the first, whereas the 
 last might find it necessary to keep |1000 or ^5000 employed 
 in furnishing the currency of money, whether of paper or of 
 gold and silver. 
 
 Money is used for facilitating exchanges. So are wagons. 
 When the facilities of intercourse are small, a large quantity 
 of money is required for performing a small amount of ex- 
 changes. When the roads are bad, many wagons are required 
 for transporting a small quantity of commodities. As the faci- 
 lities of intercourse are increased — as shops for dealing in 
 money increase in number — there is a constant decrease in the 
 quantity of money required, attended with a constant increase 
 in the quantity of exchanges to be performed ; and as turnpikes 
 and rail roads appear, there is a constant decrease in the 
 quantity of wagons employed in transportation, and an equally 
 constant increase in the quantity of merchandise transported. 
 A single guinea in London will perform as many exchanges as 
 would be performed by ten in most of the villages of England, 
 by twenty in the counties of Cumberland or Westmoreland, 
 by one hundred in the Highlands, or by one thousand in the 
 Orkneys. A single car on a rail road transports as much as 
 would be transported by a dozen wagons on the best turn- 
 pike, or by five hundred in the neighbourhood of the Rocky 
 Mountains. 
 
 Every increase in the facilities of intercourse, resulting from 
 the increase of population and of capital, would thus be at- 
 tended with a diminution in the quantity of currency required 
 for the performance of any given number of exchanges. Every 
 increase of confidence in bank notes would tend to diminish 
 the proportion of the currency required to be in gold or silver. 
 Further increase of confidence would be attended with the 
 substitution of individual checks, drafts, &c., for bank notes, 
 gold, or silver. Here would be a further decrease in the quan- 
 tity of currency required, and in the quantity of capital re- 
 quired for its support, attended with a further increase in the 
 quantity that might be applied to production, and in the 
 
RrSE AND PROGRESS OF CREDIT. 
 
 9 
 
 quantity of commodities to be exchanged. MiUions of ex- 
 changes are performed in London daily, without the necessity 
 for using as much currency, in the form of gold, silver, or 
 bank notes, as are required for the purchase of a cargo of 
 hides at Buenos Ayres. 
 
 The smaller the quantity of capital required to be kept in 
 the form of money for the purpose of facilitating exchanges, 
 the larger will be the quantity that maybe applied to the con- 
 struction of machinery for aiding production. And thus with 
 the increase of population, of capital, and of confidence, there 
 is a constant increase in the quantity of production without a 
 corresponding increase in the quantity of currency. There is, 
 therefore, a constant decrease in the proportion of currency to 
 production. 
 
 Credit cannot exist without confidence in the security of 
 property* and in the disposition of the purchaser of a com- 
 modity to pay for it at the time appointed. No man parts 
 with his property except when he believes that an equivalent 
 will be returned. No man accepts a note, check, or draft, in 
 return for his commodities except when he believes that it will 
 be duly paid. In accepting it he gives evidence that he be- 
 lieves the party purchasing means to pay him, and will have 
 the ability so to do. The existence of a system of general 
 credit is evidence that the people, composing the community in 
 which it exists^ believe that their neighbours are honest and, 
 will pay the debts they may contract. Referring to the history 
 
 * In India credit has scarcely any existence, except among the merchants and 
 traders of the principal cities. The owner of seed lends it to the agriculturist, 
 on condition of receiving one hundred per cent, for its use until the time of harvest.^ 
 3, 4, and 5 per cent, per month,t are the ordinary charges for the use of capital, 
 but the great majority of the people of that country cannot obtain it on any 
 terms whatever. 
 
 At the Bank of Bengal, government hills are discounted at 4 per cent. , go- 
 vernment /)a/)er 5 per cent., private bills 7 per cent. The difference marks the 
 extent of risk, which is obviously very great, and accordingly we are informed 
 that the Bank * has lost considerably by bad debts and forgeries.' — See Martin's 
 Colonial Library. East Indies. Vol. ii. p. 136. 
 
 t Colebrooke, Husbandry of Bengal, p. 101. X Rickards's India, vol. ii. p. 19C. 
 
 C 
 
10 
 
 RISE AND PROGRESS OF CREDIT. 
 
 of England and of France, we see that a few centuries since 
 credit was unknown, but that as population became more 
 dense, it arose, and that it has steadily increased with the 
 growth of population and increased security of property. 
 
 We shall now proceed to inquire into its actual state in 
 France, England, and the United States, and afterwards en- 
 deavour to ascertain the causes of the differences that are 
 observed. 
 
OF CREDIT IN FRANCE. 
 
 11 
 
 CHAPTER II. 
 
 OF CREDIT IN FRANCE. 
 
 In Fra NCE, the owner of a commodity has little disposition 
 to part with it unless he can have payment on delivery, and 
 little business is therefore done upon credit. The owner of 
 capital is not disposed to lend it, and a necessary consequence 
 is, that large quantities lie idle. The amount of the precious 
 metals in that country is estimated at six hundred millions of 
 dollars,* being three times the quantity supposed to exist in 
 Great Britain and Ireland, and exceeding by 60 per cent, the 
 whole circulation of gold, silvery and paper. The amount of 
 production of France does not exceed two-thirds of that of the 
 United Kingdom ; and as the number of exchanges must, in 
 consequence of the inferiority in the quality of labour, bear a 
 still smaller proportion,-j- it follows that the amount of circula- 
 tion required for their performance is proportionably small, 
 and does not exceed 150 or 200 millions of dollars, or 750 to 
 j 000 millions of francs. At least two-thirds of the precious 
 metals of France, admitting the amount to be 3000 millions, 
 must now lie unproductive, in consequence of the want of 
 confidence that forbids the owners to part with them. J 
 
 * '* The quantity of gold and silver that has been struck in France, of the 
 new coinage, amounted, in 1836, to a little more than 4,000,000,000, of which 
 nearly three-fourths were of silver, and one-fourth of gold. It is not probable 
 that more than 1,000,000,000 have been exported or melted, so that there remain 
 3,000,000,000, (600,000,000 dollars.) A part of this immense capital is out of 
 circulation, and rests buried i7i the coffers of individuals ^ or hoarded by the poor, 
 unwilling to confide to any one their little savings.'' — Chevalier, Lettres sur 
 VAmerique du Nord, t. i. p. 403. 
 
 t When labour is of very inferior quality, as is the case in France, the chief 
 part of the product thereof consists of articles of the first necessity, a large pro- 
 portion of which is consumed by the producer, and does not become the subject 
 of exchange. With every improvement in the quality of labour there is an 
 increase in the quantity of production, and in the proportion of the products that 
 are exchanged. 
 
 X The deposites in the Bank of France, in 1835, were only 75 millions of 
 francs, (15,000,000 dollars); and in 1836, 48,800,000, (9,800,000 dollars.) 
 
12 
 
 OF CREDIT IN IKANCE. 
 
 To this want of confidence is due the fact, that throughout 
 France there has been, until recently, but one of those labour- 
 saving machines, termed banks, at which money is bought and 
 sold. About twenty years since that one made an attempt to 
 establish branches at Lyons, Rouen, and Lille, but without 
 success. Where commodities are not parted with except for 
 prompt payment, there can be little inducement to establish 
 banks, whose chief business ought to be the discount of bills 
 given for merchandise. How little this is the case may be 
 judged from the fact that, in 1836, the Bank of France made 
 a new attempt to establish branches, placing one at Rheims,* 
 and another at St. Etienne ;f and the discounts at each have 
 been but about 200,000 francs (^40,000) per week. 
 
 The maximum of the discounts of the Bank of France, in 
 18S6, was 151,000,000, 300,000,000,) and the minimum 
 77,000,000 (^1 5,000,000), the average being about |22,000,000, 
 or less than two-thirds of the capital of the Bank of the 
 United States. The total amount of discounts in the year was 
 760,000,000 francs.^ The number of notes discounted in the 
 year was 406,187, giving an average of about 1870 francs = 
 I 380, or about .£80 sterling, and the average time cannot 
 have exceeded 50 days.§ Small as is this amount, and short 
 as is the time, the bank requires three endorsersy or two endorsers 
 and a deposite of property equal in value to the loan thai is to be 
 made, shewing how very small is the confidence reposed in the 
 engagements of individuals.|l Under such circumstances, it 
 
 * Population 100,000. t Population 25,000. 
 
 X Tlie fluctuations in the business of this institution have been exceedingly 
 great. In 1826, the total amount of bills discounted was 689 millions. In 1831, 
 it fell to 223 millions. In 1832, to 151 millions, or only 30 millions of dollars, 
 being an average of 2^ millions of dollars per month, instead of above 11 millions 
 in 1826. This course tended greatly to increase the distress then so universal in 
 France. 
 
 § The very small amounts for which notes are given is shewn by the statement of 
 the president of the bank, that " of 406,187 notes discounted in 1836, five-eighths 
 were for sums less than 1000 francs, = 186 67 dollars;" and that many thou- 
 sands for sums under 100 francs (= 18 67 dollars) figured on the books." 
 
 II The following account of the Bank of France we take from Goldsmith's 
 Statistics, p. 138 : 
 
 " The operations of the Bank consist: P'irst, In discounting bills of exchange 
 not exceeding three months date, and bearing three separate endorsements of re- 
 spectable persons not connected with each other. Nevertheless, the bank dis- 
 
OF CREDIT IN FllANCK. 13 
 
 would be extraordinary if the losses of the institution were not 
 small.* 
 
 The same want of confidence which prevents individuals 
 from parting with merchandise on credit, prevents others from 
 applying their capital to the formation of banks, to which 
 those who were desirous of increasing their machinery of pro- 
 duction might apply for aid.f Savings' banks are not po- 
 pular,! and large sums are hoarded which, under other cir- 
 cumstances, would be most usefully applied. 
 
 counts bills which have <m;o respectable endorsements only, provided a deposite be 
 made in property of equal value. 
 
 " Second. It makes advances of money on government securities. 
 
 " Third. It makes advances on deposites of bullion, or foreign coin, diamonds, 
 shares in public companies, &c., at the rate of one per cent, per aimum. Not less 
 than the value of 10,000 francs is received as a deposite, and discount for 45 days 
 is deducted from the amount of the sum advanced; nor, if the deposite be redeemed 
 the next day, is any part of the discount refunded. There are very few bank 
 notes in circulation in the departments ; and those that are, if at any distance 
 from Paris, pass at a discount of \\ per cent., as they are not received in payment 
 of taxes or custom-house duties in sea-ports, so that remittances must be made in 
 hard cash, for which a premium of Jive per cent, is paid at the post-office." 
 
 * The president stated, that of the discounts of 1836 only a single note of 200 
 francs remained as a suspended debt. From other remarks it may be inferred, 
 that there is a considerable amount remaining from previous years. In 1831, it 
 exceeded four millions. 
 
 t The local banks of France are six in number, with a capital of 14 millions 
 of francs, or less than 3 millions of dollars. — Chevalier, t. i. p. 388. 
 
 X Bowring's Second Report, p. 36. Francs. 
 The Savings' Bank of Paris was founded in 1818, and in 1830 its 
 
 deposites amounted to ------- 43,559,117* 
 
 This amount shews that the system was understood, and that 
 credit had increased in the capital; but when we look to the provinces 
 we find a very different state of things. 
 
 Brest, foimded 1821, total amount of deposites to 1829 - - - 82,000 
 Troyes, « '« " . . . 214,000 
 
 Rouen, " 1820, received in 1829 142,426 
 
 Nantes, " 1821 " 176,932 
 
 Havre, '* 1822 " «* .... - 284,864 
 
 Lyons, " 1822 " 258,998 
 
 Rheims, " 1823 « " ... - - 16,000 
 
 Marseilles" 1828 " " 407,516 
 
 Villeneuve, Economic Politique Chretienne, t. iii. p. 96. 
 The amount deposited in Rouen, a city containing above 100,000 inhabitants, 
 is 142,426 frai-vcs, or about 28,000 dollars, being little more than 500 dollars 
 per week. 
 
 * In 1836, the amount, according to M. Chevalier, (tom. ii. p. 500,) was 
 45,633,182 francs, having increased little more than two millions in six years. 
 The Savings' Fund of the departments amounted to 37,965,445 francs. Tolal, 
 83,598,627, or 16 millions of dollars. 
 
14 
 
 OF CREDIT IN FRANCE. 
 
 The consequence is, that those who have occasion to bor- 
 row are obhged to pay high interest, while large sums remain 
 uninvested. Money can rarely be obtained on a Jirst mort- 
 gage at less than 6 per cent., and the small proprietors and 
 manufacturers pay 8, 9, 12, and 15 per cent.* As we descend 
 in the social scale, the rate of interest rises. The workman of 
 the towns f in his purchases y pays 50 per cent., and even 100 per 
 cent, per annum. For the peasant, in his dealings with the 
 blacksmith, the tavern-keeper, and the village shopkeeper, it is 
 sometimes 100 per cent, per quarter. The mean rate of interest 
 throughout France, in transactions of all descriptions, is at least 15 
 to 20, or perhaps 25, per cent.f Here we have abundant evidence 
 that, where insecurity exists, the owner of capital obtains but a 
 small return, which, nevertheless, absorbs a large proportion 
 of the product, leaving little for the labourer. The govern- 
 ment can borrow at 4 per cent, per annum, and the bons du 
 tresor, or treasury notes, bear an interest of 2 per cent only, 
 whereas the owner of land pays 6 per cent, in addition to the 
 heavy charges of the government, which add H or 2 per 
 cent.J to the cost ; and the farmer pays to the dealer, with 
 whom he performs his exchanges, 100 per cent., because of 
 that insecurity which prevents the application of capital to 
 the increase of the number of shops, roads, canals, and all 
 other machines that tend to facilitate his approach to market, 
 or to give him advantages of situation. Under these circum- 
 stances, it is not extraordinary that capital should accumu- 
 late slowly, that production should continue to be small, and 
 that the labourer of France should find it difficult to improve 
 his condition. 
 
 If the owner of commodities of any description is thus un- 
 willing to part with them, except on receiving prompt pay- 
 ment therefor, not less unwilhng is the individual who has 
 entitled himself to receive commodities in return for his ser- 
 vices, or wages, to permit them to remain out of his possession, 
 receiving the promise of bankers or banking companies to pro- 
 duce them. The labourer of France must have gold or silver, 
 which are with him the object of regard to a degree that *^ is 
 
 * ** The rule of interest on mortgages varies from 5 to 12, and even 15 per 
 cent. The mean rate appears to be not less than 8 per cent." — Chevalier- t. ii. 
 p. 489. 
 
 t Chevalier, t. ii. p. 256. t Villeneuve, t. iii. p. 315. 
 
OF CREDIT IN FRANCE. 
 
 15 
 
 incomprehensible to an American or an Englishman.'** The 
 consequence of this is to be found in the vast amount of those 
 commodities required for the exchange of the products of 
 France, compared with the small quantity required for the 
 purpose in Great Britain or the United States. 
 
 The same want of confidence that is thus shewn by the 
 labourer is exhibited in trade. A single ship has sometimes 
 several supercargoes. Merchandise is not received on the 
 faith of the sellers, nor is it extraordinary that such should be 
 the case, when the foreign trade of France has been, in a 
 great measure, destroyed by frauds in the preparation of com- 
 modities for exportation.f In the dealings of the smaller 
 traders with their own countrymen,:}; as well as those of the 
 manufacturer^ and his workmen, || we find a similar state of 
 
 * Chevalier, t. ii. p. 247. 
 
 t Chevalier, t. ii. p. 207. See also extract from the Voyage of the Fa- 
 vourite, given by M. Chevalier, t. ii. p. 468. 
 
 X A recent American traveller says — " The people of Paris have no mutual 
 confidence in their dealings, or in any of their external relations. They watch 
 each other when they negotiate, buy, or sell, with a closeness that implies uni- 
 versal distrust ; to American or British strangers, the circumspection and precaution 
 which they finally learn to he requisite are not a little painful. Any pledges of 
 good faith may be asked — any will be tendered. In my purchases, I have felt 
 ashamed of the stipulations which tradesmen and shopkeepers have volunteered. 
 Any price is asked — any reduction may be deemed practicable. You can get 
 less for much money, or more for little money, than anywhere else in the world. 
 You are liable to be cheated in whatever you seek ; you may be better or worse 
 served than anywhere else. Your domestics will rarely steal from you directly, 
 but all will collude with butcher, grocer, baker^ with every one who has to fur- 
 nish you, if they can go between. No fidelity to your interests is to be expected 
 from them, when those of their compatriots are in the way." 
 
 § " In the relations of master and workman, there exist at Paris, and gene- 
 rally in our large manufacturing towns, the most disgraceful practices. A large 
 number of masters, to obtain those profits of which they are likely to be deprived 
 by the competition of other manufacturers, are reduced to the employment, in 
 relation to their workmen, of the most miserable artifices — as, for instance, ad- 
 vancing the clock in the morning, and putting it back in the evening. The work- 
 men make reprisals when the opportunity occurs." — Chevalier, t. ii. p. 408. 
 
 II " The mass of the American people are more fully initiated than the mass 
 of European population, in what relates to the dignity of man, or at least in re- 
 gard to their own dignity. The American workman is full of self-respect, which 
 he manifests not only by an extreme susceptibility, and by his repugnance to use 
 the term master, which he replaces by that of employer, but also by much greater 
 good faith, exactitude, and scrupulousness in his transactions. He is exempt 
 from the vices of the slave, such as lying and stealing, which are so frequent 
 
16 
 
 OF CREDIT IN FRANCE. 
 
 tilings. The necessary consequence is a vast waste of time 
 and labour expended in the performance of operations that, in 
 the United States or England, would be deemed unnecessary, 
 and the general effect is to render labour unproductive, as it 
 must always be where insecurity exists.* Merchants and 
 traders are not permitted to judge for themselves in what 
 manner they will keep their accounts. The law determines 
 what books they shall keep, and requires that they be sub- 
 mitted annually to an examination of one of the judges of the 
 Tribunal of Commerce, or the Mayor, or his assistant.f 
 
 It is impossible to look to any part of the operations of 
 France, without being struck with the universal want of con- 
 fidence in each other. No man can act as a stock-broker, 
 attorney, or notary, without giving security for the due per- 
 formance of his engagements; and personal security not being 
 deemed sufficient, he must pay to the government, in money, 
 the amount required as caution. On the first of January, 1834, 
 the government held 61 millions of francs, or 12 millions of 
 dollars^ as security for the honour and honesty of 21,530 
 stock-brokers, attorneys, and notaries,;]: being an average of 
 nearly 3000 francs each. That bail should thus be demanded 
 is evidence of great want of confidence in each other, and the 
 small average amount is evidence of the small amount of busi- 
 ness to be transacted, and of the very small amount of con- 
 fidence that would be required. 
 
 Collectors of taxes, cashiers, paymasters, receivers, retailers 
 
 among our labourers, particularly those of our cities and factories. The French 
 workman is outwardly much more submissive, but pressed by want and sur- 
 rounded by temptations, he rarely omits an opportunity of deceiving his em- 
 ployer, when he thinks he may do so with impunity. The workman of Lyons 
 steals the silk that is given to him to weave. (The loss to the employers of 
 Lyons is estimated at a million of francs, or 200,000 dollars. ) The workman of 
 Rheims does the same by the wool. (The loss is also estimated at a million.) 
 Frauds are also committed in America ; charcoal is sold for indigo, and talc for 
 white soap, but they are rare exceptions. The character of the American work- 
 man, considered as a labourer, is most honourable, and excites the envy of the 
 European, who compares what he sees here with that which he has left at 
 home." — Ibid. 
 
 * A long time must elapse before we can enjoy in France a system of credit 
 as extensive as that which exists in England and the United States. We are, in 
 that respect, in a state of barbarism.'' — Chevalier, t. ii. p. 248. 
 
 t Code de Commerce, Titre, 2me, § 8, 9, 11. 
 
 \ Documens Statistiques de la France, 
 
OF CREDIT IN FRANCE. 
 
 17 
 
 of tobacco, &c., place their funds in the hands of the govern- 
 ment, and the total amount so held, on the first of January, 
 1 834, was 225 millions,* or nearly 45 millions of dollars. The 
 effect of this system is to take from those whose means are 
 small, and who desire to make a living by retailing tobacco, 
 or by acting as brokers, or attorneys, the very capital by aid of 
 which they might possibly succeed, and they are therefore 
 compelled to leave all such employments to those who can give 
 security, and yet retain the means with which to carry on their 
 business — to the capitalists. The consequence is, that those 
 who have little capital find it exceedingly difficult to place 
 themselves in business, and those who are without find it al- 
 most impossible, and thus this uniform distrust of each other 
 almost forbids the improvement of condition. Production is 
 diminished, and the capitalist is enabled to take a large pro- 
 portion thereof as compensation for the use of his capital.f 
 
 The amount of exchanges performed in France is very small. 
 The great mass of the population is engaged in producing the 
 commodities directly required for their own subsistence ; and 
 as the quantity produced but little exceeds that which they 
 require for themselves, they have very few exchanges to per- 
 form with the shopkeeper. The latter has therefore but few to 
 perform with the manufacturer, as is shewn by the exceed- 
 ingly hmited amount of the business of the Bank of France, 
 
 * Documens Statistiques de la France, 
 t " It is with the utmost difficulty that a poor German or a Frenchman suc- 
 ceeds in the acquisition of property ; his progress is slow and tedious, and his 
 facilities of credit never much in advance of his actual stock in trade. In America 
 the case is different. Men are there trusted in proportion to their reputation for 
 honesty and adaptation to business. Industry, perseverance, acquaintance with 
 the market, enterprise — in short, every moral qualification of a merchant in- 
 creases his credit as much as the actual amount of his property."—- Grund. The 
 Americans, p. 260. 
 
 *' In a country organized for commerce, and possessing a system of credit, the 
 dollars of the merchant, and the merchandise which he has in store, are not his 
 whole capital ; the most essential portion is that which comprises the skill which 
 he has acquired, the relations which he has established, and the value which is 
 attached to his word, constituting a capital which fire cannot destroy, and which 
 can brave all risks of whatever nature. In New York, because of this moral 
 capital, so much valued in countries possessing a genius for commerce, a mer- 
 chant possessing 200,000 francs, does business to the amount of a million or a 
 million and a half. In Paris, the same man, under the same circumstances, could 
 with difficulty do it to the amount of half a million."— Chevalier, t. i. p. 393. 
 
 D 
 
18 
 
 or CREDIT IN FRANCE. 
 
 although performing the chief part of the banking operations 
 of the kingdom. As a necessary consequence, there should 
 be a very limited amount of bankruptcy. We find, however, 
 that in 1831 the number of bankrupts was 800 ; in 1835, 329 ; 
 in 1836, 529. Of the latter, it was stated by the president of 
 the Tribunal of Commerce, that 
 
 191 did not exceed 20,000 francs each, 
 
 57 « 60,000 
 105 " 200,000 
 
 20 exceeded 200,000 
 
 59 statements not made out. 
 
 432 
 
 If we suppose the first class to average 10,000 francs, the 
 second 40,000, the third 130,000, the fourth 300,000, the last 
 45,000, there will still remain 97, of which we have no 
 account, and if we average them at only 30,000 francs we 
 shall have an aggregate of 30 millions of francs, being about 
 f of one per cent, of the total product of France,^^ and pro- 
 bably one and a half per cent, of the amount of the commodities 
 parted with hy the producer in exchange for other commodities 
 needed for his consumption.-]; 
 
 Here we find that although want of confidence prevents in- 
 dividuals from parting with their property without prompt 
 payment, the bankruptcies bear, nevertheless, a large propor- 
 tion to the whole amount of exchanges performed. How large 
 a proportion they bear to the amount upon which credit is 
 given, may be inferred from the fact, that while the government 
 can borrow at 4 per cent., the owners of capital require from 
 6 to 15 per cent, on loans to individuals, even on mortgage 
 security, the difference being the charge for collecting the in- 
 terest, and insuring the repayment of the debt. 
 
 * The production of France is estimated at from six to eight thousand mil- 
 lions of francs. We have taken seven thousand millions as being nearest the 
 true amount. 
 
 t " If, up to the present time, failures are more frequent in the United States 
 than with us, they are as numerous with us as in England." Chevalier, t. i. p. 
 
OF CREDIT IN ENGLAND. 
 
 19 
 
 CHAPTER IIL 
 
 OF CREDIT IN ENGLAND. 
 
 In England, confidence is almost universal. The banker 
 credits the manufacturer and the farmer. They are willing 
 to give credit to the merchant, because they have confidence 
 that he will pay them. He gives credit to the shopkeeper, 
 who, in his turn, gives credit to the labourer. Almost all have 
 it in their power to improve the machinery of production, by 
 the use of the capital of others, who receive interest for its 
 use. The labourer is generally willing to receive the notes of 
 the Bank of England in lieu of coin, and to invest his savings 
 in the savings' banks,^ or to pay them over to some of the 
 numerous friendly societies,^ with full confidence that he can 
 have coin for his notes ; that his savings will be returned ; 
 that the promised aid will be rendered ; or that his widow or 
 children will receive the amount for which he has effected in- 
 surance. 
 
 The consequence of this general confidence of man in his 
 fellow man is, that there is little disposition to permit 
 capital to remain unproductive — and that the quantity of coin 
 required to perform the exchanges is much smaller than in 
 France. 
 
 Immense masses of property change owners without exami- 
 nation, confidence thus producing a great saving of labour. 
 Orders to a vast extent are given with a certainty that they 
 will be executed with perfect good faith, and this system is 
 continued year after year, proving that the confidence was 
 deserved. 
 
 Almost every man who possesses capital places it in the 
 
 * " The number of savings' banks in England and Wales, in 1834, was 401, 
 and the amount invested .£13,919,000,=^66,800,000."— Porter's Tables, Part 
 iii. p. 8. 
 
 t " The number of friendly societies, in 1832, was 17,365."— Porter's Tables, 
 Part iv. p. 29. 
 
20 Ol< CREDIT IN ENGLAND. 
 
 Bank, or with his banker, who lends it out to those who desire 
 to use it, and those who have commodities are ready to part 
 with them on receiving promise of payment from those who 
 require them. 
 
 We have no means of shewing the number or extent of the 
 bankruptcies, but they are great. In Manchester, alone, 66 
 cotton manufacturers failed in the years from 1831 to 1835,* 
 being an average of more tlian 13 per annum. One mode 
 of testing: the risks of trade is to ascertain the rate of insurance, 
 or the amount of security required. In France we have found 
 that the bank requires three endorsers^ and in England we 
 find the Northern and Central Bank requiring two names in 
 addition to the drawer,^ being a less amount of insurance, 
 and indicating diminution of risk. The losses of banks in 
 their business with individuals will enable us to form a toler- 
 ably accurate idea of the punctuality with which contracts are 
 executed in that country — more accurate than could be 
 obtained from any statement of the number or amount of 
 bankruptcies. 
 
 It is stated that of the bills re-discounted in London for 
 account of the Bank of Manchester, " only 7s. 4^?. in every 
 £100" was dishonoured, many of which were afterwards paid, J 
 and the smallness of this proportion is adduced and received 
 as indisputable evidence of the prudence and judgment of the 
 directors.^ If we suppose the time to average ninety days, 
 we shall have bills dishonoured to the amount of £1 9s. Ad, 
 (or nearly 1^ per cent.) per annum upon the average amount 
 of capital loaned. || The bills re-discounted are usually those 
 of the best description, and their character is above the average.^ 
 
 * Wheeler's Manchester, p. 244. 
 
 t Report of Committee on Joint- Stock Banks^ 1836, p. 110. 
 
 J Ibid. p. 7. $ Ibid. p. 10. 
 
 II If the average amount of capital lent be one million, and all loans be for a 
 period of 90 days, the total annual amount of loans in the year will be four 
 millions. A loss of one-half of one per cent, upon the amount of loans, (four mil- 
 lions,) would give a loss of two per cent, upon the capital. 
 
 f Bankers, in general, do not re-discount bills that are at all doubtful in 
 their estimation ; they re-discount bills that they think to be good, and there- 
 fore the risk upon their return is not great."— Evidence of P. M. James, Report, 
 1836, p. 54. 
 
OF CREDIT IN ENGLAND. 
 
 21 
 
 That sucli is the case we have evidence in the fact that 
 at the Northern and Central Bank, although requiring, 
 as we have stated, two endorsers, the discounted bills on hand, 
 overdue and unpaid, fluctuated, during the first eleven 
 months of 1836, between 43 and 95 thousand pounds, while 
 the whole amount of bills varied from 293 to 483 thousand 
 pounds. In the early part of the year, at a period of the 
 highest prosperity, the past due bills exceeded 60 thousand 
 pounds, being more than one-fifth of all the discounted bills 
 on hand.* At the close of the year the bills on hand not at 
 maturity amounted to £192,678, and the past due bills to 
 £115,703.t The losses of that institution, in four years, 
 amounted to £160,000,J being an average of £40,000. The 
 capital was £800,000, and if we take its average amount of 
 loans to have been £1,500,000, the losses are 2| per cent, per 
 annum upon the capital lent. Large as is this proportion, it 
 was stated before the Committee of Parliament that it was 
 ^'notorious" that the institution had made fewer losses 
 than any other joint-stock bank."§ This view is not mate- 
 rially different from that which we obtain from the evidence 
 of Paul Moon James, Esq., for twenty-three years a private 
 banker, and upwards of five years manager of the Birmingham 
 Banking Company. That gentleman states, as the result of 
 his experience, that the losses had not averaged one per cent, 
 upon the amount of loans.\\ If we suppose them to have 
 been three-fourths per cent., it will amount to three per cent, 
 per annum upon the capital employed ; if we take them at a 
 half per cent., it will give two per cent, as the average loss. 
 That it does not vary materially from this we have evidence 
 in the fact that the average annual loss of the Branches of the 
 Bank of England, from 1828 to 1831, was £12,400, or nearly 
 one and a half per cent, upon the average amount loaned, 
 which was £866,000.11 
 
 The average number of private banks, from 1808 to 18 J 8, 
 
 * Report, 1837, Appendix, p. 161. 
 t Report, 1837, p. 97. 
 
 t Ibid. p. 91. § Ibid. p. 48. 
 
 II " In point of fact it has not averaged, within my own experience, one per 
 cent.''— Beport, 1836, p. 53. 
 
 ^ Report on Bank Charter, Appendix, p. 51. 
 
22 
 
 OF CREDIT IN ENGLAND. 
 
 was 691,* and from 1824 to 1827, 765.-\- Of these the 
 bankruptcies were 
 
 From 1809 to 1814, 6 years, 91, being an average of 15^ per an. 
 1815 1820, " 87, " " 144 " 
 
 1821 1826, 974 16^ " 
 
 1827 1830, 4 years, 28, " " 7 " 
 
 The proportion, in the first period, was - 2.20 per cent, 
 do. do. second do. - 2.10 
 
 do. do. third do. - 2.12 " 
 
 do. do. fourth do. - 0.92 
 
 Exclusive of the above, many others stopped payment that 
 afterwards resumed, and the affairs of some bankrupt concerns 
 were arranged without a commission. In 1814, 1815, and 
 1816, no less than 240 stopped, being more than one-third of 
 the whole number. This, too, was at a time when they were 
 not required to redeem their notes in specie. It is obvious 
 that the losses of the bankers must be very heavy, but of this 
 we have further evidence in the statements of the Bank of 
 England. 
 
 That institution, until within a few years, has limited its 
 transactions to the city of London, and a very large proportion 
 has been with the bankers in and out of the city, to whom it 
 advanced money on the security of the bills which they had 
 previously discounted, the advantage to the latter being that 
 of borrowing at a rate somewhat lower than that at which 
 they had loaned. Here the Bank has had the security of 
 drawer, endorser or endorsers, and banker, and could lose 
 nothing until all of those parties were ruined. We have no 
 means of ascertaining what is the general proportion its loans 
 to bankers bear to those to individual traders, but in the year 
 1831 they amounted to 55 per cent, of the whole.§ For many 
 years past there has been a constant increase in the facilities 
 afforded to individuals in doing business directly with the 
 Bank, accompanied by an increase in the proportion which 
 their business bears to that of the bankers. It is fair, therefore, 
 to estimate, that during the previous forty years, three-fourths 
 
 * Supplement to Encyclopaedia Britannica. Article, Money, 
 t M'Culloch's Commercial Dictionary, p. 88. | Ibid. p. 85. 
 
 § Report on Bank Charter, Appendix, p. 46. 
 
OF CREDIT IN ENGLAND. 
 
 23 
 
 of the discounts were guarantied by bankers. As a conse- 
 quence of this increased guaranty obtained by the Bank of 
 England, we find that, in the 37 years from 1795 to 1831, 
 both inclusive, during which time the average amount of loans 
 on commercial paper was £7,500,000, the average amount of 
 losses was only £31,696, or of one per cent, upon the 
 capital employed. If we suppose the bills to have averaged 
 three months, the loss has been one-tenth of one per cent, 
 upon the total amount of bills discounted, whereas the losses 
 by the private banks can hardly be taken at less than one-half 
 of one per cent., as proved by the experience of the witnesses 
 examined by the committee, and by the proportion of failures 
 among those institutions. It must be obvious that their losses 
 must be very much heavier than those of the Bank of England, 
 which, upon a very large portion of its business, can sustain 
 none, unless the private banker is ruined. 
 
 The amount of past due bills, held by one of the joint-stock 
 banks in 1836, as above given, bears a small proportion to the 
 amount held on another occasion by the Bank of England. 
 The average amount of the loans on personal security, of 
 that institution, for September and December, 1825, was 
 £6,900,000, and the amount protested for non-payment from 
 December 1, 1825, to April 30, 1826, a period of five months, 
 was £208,487, being about 4J per cent, of the whole amount of 
 loans. 
 
 In comparing the bankruptcies of England and France, it 
 must always be borne in mind, that although the production 
 of England, with 15 millions of inhabitants, is but little more 
 than equal to that of France, with 33 millions, the proportion 
 that is exchanged is vastly greater, and is probably not less 
 than three-fourths of the whole, or 200 millions of pounds 
 sterhng. The products thus exchanged give rise to an amount 
 of credit operations many times greater than arise in France, 
 and the superior confidence of man in his fellow man, is 
 shewn in the fact that the difference between the rate of 
 interest paid by the government and that paid by individuals 
 is very small. British stocks pay about 3^ per cent, interest, 
 while tradesmen and farmers obtain loans readily at 5 per cent., 
 shewing how small, in comparison with France, is the charge 
 for the collection of interest, and for insurance of the repay- 
 ment of the money loaned. 
 
24 
 
 OF CREDIT IN THE UNITED STATES. 
 
 CHAPTER IV. 
 
 OF CREDIT IN THE UNITED STATES. 
 
 As confidence grows with population and capital, it should be 
 found to a greater extent in Massachusetts, and in New Eng- 
 land generally, than in any other part of the United States, 
 and gradually diminishing as we pass south and west to those 
 states and territories in which population is widely scattered, 
 and where the superior soils only are cultivated. Such we 
 shall find to be the case. Following the order of density of 
 population, it should increase as we go from Massachusetts to 
 France and England, in both of which it should be at a much 
 higher point than in any part of the United States. How far 
 this is the case, we propose to examine. 
 
 There are few circumstances connected with the American 
 Union more worthy of remark than the credit system, which 
 extends itself over the whole of their vast territory. The 
 traders of Missouri and Arkansas — of Mississippi and Ala- 
 bama—of Illinois and Michigan— distant 1000,1500, or 2000 
 miles, and returning but once in 12 or 18 months, are supplied 
 with merchandise on credit, and the small difference charged 
 in consideration thereof is evidence of the punctuality with 
 which they fulfil their engagements. Those traders give 
 credit to the farmer, the planter, and the small storekeeper, 
 who in turn grants it to the labourer, and the charge that is 
 made therefor is exceedingly small. As credit is the offspring 
 of confidence, and as no man reposes confidence where he 
 deems it likely to be abused, the existence of this extensive 
 and universal system of credit may be taken as evidence of a 
 general belief among those who have commodities for sale, 
 that those who desire to obtain them have the disposition, and 
 will have the means, of paying for them, in such manner and 
 at such times as may be agreed upon.* Desiring, however, to 
 
 * '* There is probably no other country in which credit is so purely personal 
 as in the United States." — Grund's Americans, p. 259. 
 
OF CREDIT IN THE UNITED STATES. 
 
 25 
 
 shew from actual returns what is the nature of the operations 
 of the United States, we have collected statements of those of 
 various individuals and institutions, for a quarter of a century, 
 from 1811 to 1836, a period embracing times of embargo y non- 
 intercourse, war, suspension of specie payments, resumption 
 thereof, change from a state of universal war to one of universal 
 peace — that period, in short, which has, throughout the world, 
 been attended by the most remarkable changes in the fortunes 
 and prospects of individuals and of nations, which was most 
 likely to exhibit extraordinary losses by individuals, and 
 consequently by banks. 
 
 In 1811, the number of banks in Massachusetts was fifteen. 
 In 1835, it was 106. The average number during that period 
 was 46. The average amount of capital was ^15,406,000. 
 The average amount of deposites on interest, was 1 1,600,000. 
 The average loans were ^23,100,000. 
 
 If we suppose the whole sum to have been loaned at 6 per cent., the 
 
 amount of interest has been, per annum =8*1,386,000 
 
 From which deduct 4 per cent, interest upon the deposites, 
 say ^64,000 
 
 Deduct also 1 per cent, tax on the capital 154,000 
 
 218,000 
 
 ^1,168,000 
 
 The average dividend for the whole period has been .... ^902,000 
 
 The reserved profits amount to ^S^l, 175,000 
 
 From which are to be deducted doubtful debts, 
 amounting to 335,000 
 
 ^840,000 
 
 This sum, divided over a period of twenty-five years, gives 
 
 an average of 34,000 
 
 — 936,000 
 
 Leaving, to cover all expenses and losses ^232,000* 
 
 Which sum, divided among forty-six banks, gives |5,000 per 
 annum for each, and an average of 1 per cent, per annum upon 
 the capital loaned. If we average the expenses, including those 
 of circulation, at |3333=£700 per annum each, we shall have 
 
 * This statement is made up from the Schedule of the Condition of the Banks 
 in Massachusetts, published by order of the Senate of that State, January 18, 1738. 
 
 E 
 
26 
 
 OF CREDIT IN TIIK UNITED STATES. 
 
 |1667=£350 for the losses, being one-third of one per cent, 
 per annum upon the average amount of capital loaned, and 
 one-fifth less than is sustained by the Bank of England, which 
 has drawer, endorser, and banker^ for security. 
 
 Although we have made every exertion, we have been able 
 to obtain from the city of New York a return of but one in- 
 stitution — the Bank of America. During twenty-five years, 
 from July, 1812, to July, 1837, its loans on personal security 
 averaged 1 2,945,000, and its losses $2820 per annum, being 
 less than one-tenth of one per cent. This is not offered as a 
 fair specimen of the losses incurred by the banks generally, 
 but as the only statement that could be obtained. It is pro- 
 bable that the average loss has exceeded that of the banks of 
 Massachusetts. One, the Franklin, failed a few years since, 
 having sunk the whole of its capital. 
 
 We have now before us a statement of the operations of one 
 of the largest purchasers of bills on England, from which it 
 appears that in twelve years the amount purchased was nearly 
 21 millions sterhng, and that the loss thereon, in the first eleven 
 years, was less than £5000 ; but that in 1837, in consequence 
 of the great fall in all American products, which caused nu- 
 merous bills to be returned, there was a loss of £83,000, 
 making in the whole £88,000, being of one per cent, upon 
 the whole amount of bills. We have here included the most 
 calamitous year for transactions with Europe, yet the loss does 
 not vary materially from that which took place at the branches 
 of the Bank of England in ordinary times. During the first 
 eleven years of this period, the amount of dishonoured hills was 
 less than £2000 per annum, or about ^ of one per cent. It 
 has been already shewn, that of the bills re-discounted in 
 London by private and joint-stock banks, 7s. 4c?. in every 
 £100, ox ^-^Q of one per cent., was dishonoured; that that 
 amount was deemed very moderate ; and that it was received 
 as evidence that an institution had been well conducted. Of 
 the above 21 millionsy three-fourths at least were purchased upon 
 the faith of a single name, whereas, at the Bank of France, 
 three endorsers are required for a note of 100 francs.* 
 
 Stephen Girard, of Philadelphia, commenced banking early 
 
 * See page 12, ante. 
 
OF CREDIT IN THE UNITED STATES. 
 
 27 
 
 in 1812, and died at the end of 1831, having acted as banker 
 for nearly 20 years. The average amount of his loans for 
 that period was about 2^ millions, and his losses were about 
 •225,000 dollars, being about one-half of one per cent, per 
 annum. 
 
 One of the incorporated banks of Philadelphia, in the pe- 
 riod from 1810 to 1838, twenty-eight years, loaned upon per- 
 sonal security $ 131,816,000, upon which the total amount 
 of loss was $ 109,619, being only of one per cent. If we 
 take the average time of the loans as being ninety days, the 
 average amount loaned out during that period must have been 
 $ 1,170,000, with an annual loss of less than ^4000, or about 
 -^Q^ of one per cent, of the capital. 
 
 Another, for a period of thirty years, has had loaned out on 
 personal security, on an average, 1 1,950,000. During that 
 period, the total amount of bills unpaid, and charged to profit 
 and loss, has been 1 641,000, of which there has been reco- 
 vered about 1 80,000, leaving a loss of 1 561,000, being an 
 average of $ 18,700, or -^^^ of one per cent, per annum upon 
 the amount of capital loaned. 
 
 During a period of twenty-five years, the loans of a third, 
 on personal security, have averaged ^2,161,080, upon which 
 there has been incurred a loss of ^704,000, or an annual 
 average of ^28,188, being 1^ per cent. 
 
 A fourth, which commenced operations in July, 1828, has 
 loaned in nine and a half years, on personal security, 
 $ 26,301,199, upon which it has suffered losses amounting to 
 I 19,978, or nearly -jf □ of one per cent. Estimating the loans 
 at ninety days, the average amount lent out must have been 
 ^ 700,000, and the average loss |2100, being -f^^ of one per 
 cent, per annum. 
 
 We are thus enabled to give a much more full view of the 
 operations of Philadelphia than we could do of those of New 
 York. The average amount of loans of the above-named five 
 banks has been ^8,231,080 ; and the average annual loss has 
 been $ 63,988, or -^^^ of one per cent. This is a higher ave- 
 rage, we believe, than would be obtained by extending our 
 examination to all the banks of the city, among which no case 
 of failure has ever occurred. 
 
 A comparison of the above results with those given by the 
 
28 
 
 OF CREDIT IN THE UNITED STATES. 
 
 private and joint-stock banks of England tends to shew that 
 the risk of loss is less in the United States than in that coun- 
 try. In making this comparison, it is important to remark 
 that the losses of the Northern and Central Bank, -and others 
 referred to, as well as those of the branches of the Bank of 
 England, took place in a time of high prosperity, whereas 
 those now given are the averages obtained during a period of 
 a quarter of a century, embracing the terrible period between 
 1811 and 1820. 
 
 We come now to examine the operations of the Bank of the 
 United States. The average amount of the loans by that 
 institution, on personal security, during a period of twenty 
 years, from 1817 to 1837, was ^36,644,790, and the average 
 annual loss was 1 223,000, or of one per cent. The total 
 amount of loss sustained was ^4,469,806, of which three- 
 fourths were in the first four years of its existence. That such 
 should have been the case will not appear extraordinary to 
 those who recollect the disordered state of the currency and 
 of trade in the years following the close of the war, throughout 
 the Union, and particularly in the Western States. Of the 
 local banks that it was then attempted to establish in those 
 states everi/ one failed, and the branches of the Bank of the 
 United States suffered heavily. Nearly one-fourth of the 
 whole amount of loss took place at those of Ohio and Ken- 
 tucky. From the year 1820 to 1837, it has not exceeded one- 
 fifth of one per cent, per annum upon the capital lent on per- 
 sonal security at the parent institution and its twenty-seven 
 branches.* 
 
 We have already seen that the losses of the Bank of Eng- 
 land amount to of one per cent., notwithstanding the 
 guaranty of drawer, endorser, and hanker. Had the loans of 
 the Bank of the United States been guarantied in like manner 
 by other banks, it may safely be assumed that the losses would 
 not have exceeded -/o part of one per cent. Not being so 
 
 * Since the above was written, we have seen a report upon the branch at 
 Pittsburg, made up to June, 1838 (including, of course, the tremendous revul- 
 sion of 1836-7), from which it appears that out of ^1,070,000 of bills dis- 
 counted, not one was under protest, and also that in seventeen years the losses did 
 not amount to ^oOO. 
 
OF CREDIT IN THE UNITED STATES. 
 
 29 
 
 guarantied, to have suffered a loss of only ^Vo of . one per cent, 
 indicates a higher degree of security in banking operations 
 throughout the Union than exists in London itself. 
 
 In comparing the two institutions, it is important to observe 
 how great is the difference between one transacting its busi- 
 ness in that great centre of trade, and another, having nume- 
 rous branches scattered over the vast territory of the United 
 States. Credit should be higher, and punctuality should be 
 greater, in that city, than in Boston, New York, or Philadelphia, 
 and if so, how vastly greater should it be than in Pittsburg, 
 Cincinnati, or St. Louis. We have already seen, that while 
 the losses of the mother Bank are only -^^q of one per cent., 
 those of the branches are IJ per cent., and we should, of 
 course, find the same result in the United States, as we pass 
 from the dense population of Massachusetts, with their 
 commercial habits, to the scattered population of Mississippi 
 and Missouri ; and this, with some exceptions, is the case. At 
 the branch in Boston, the whole amount of loss was |75,"206. 
 At that of Providence, Rhode Island, doing business generally 
 to the amount of nearly two millions, the total loss at the 
 closing of the institution was only 1 3,797, being an average 
 of less than ^200 per annum, or only the one-hundreth part 
 of one per cent.* Passing south and west we find generally 
 an increase in the proportion of losses ; and thus at the two 
 offices of Norfolk and Richmond, doing a smaller business 
 than that of Providence, they were |486,514 — at Charleston, 
 ^250,000— at Louisville and Lexington, ^556,000. At St. 
 Louis, on the other hand, the whole amount of loss was ^263. 
 At Mobile, ^620— and at Natchez, nothing ! 
 
 A bank having twenty-seven branches dispersed throughout 
 the Union has thus carried on business with a loss little 
 greater than that of the Bank of England, in London, and 
 with only two-fifths of that incurred at its branches. When 
 it is recollected that a large portion of the capital has been 
 managed by directors who had little or no interest therein, 
 we think it will be taken as evidence that the credit system of 
 
 * For many years not a single note remained unpaid. At length there was 
 one amounting to ^100, and the directors paid it themselves, rather than permit 
 it to remain on the books. 
 
30 
 
 OF rilEUIT JN THE UNITED STATES. 
 
 the United States at large is better than that of England at 
 large.* 
 
 There exist in the United States [1838] 677 banks, with a 
 capital of 378 millions of dollars. Of these, 33 are in the 
 distant states of Ohio, Kentucky, Tennessee, and Mississippi, 
 with a capital of 90 millions, owned cliiefly by the capitalists 
 of New York, Philadelphia, or Boston, who thus place it at a 
 distance from them and out of their immediate control, hoping 
 to secure 7 or 8 per cent, per annum, while the best securities 
 at home yield them 5 per cent. At the same time the capi- 
 talists of Europe place their funds under the control of the 
 directors of the banks of Boston, New York, and Philadel- 
 phia.f 
 
 * In two years and eleven months the Leeds branch of the Northern and Cen- 
 tral Bank lost jg40,000, the Nottingham branch £'12,000, and the Sheffield branch 
 from 12,000 to £14,000, the average loss being above £20,000 per annum, 
 and more than the average losses of all the banks in Massachusetts for 25 years, 
 and more than those of the Bank of the United States during a large portion of 
 its existence, when its loans on personal security were from fifty to sixty millions 
 of dollars. 
 
 t In the division of labour which takes place with the increase of population 
 and of capital, the trade in money gradually separates itself from others, as does 
 that in sugars or cloths ; but if any one attempt prematurely to confine himself 
 to dealing in money, or in cloths, or sugars, he will find that his expenses will 
 eat up his profits. The rate of profit is already fixed by his neighbours, who 
 deal in various commodities, and he cannot demand a larger proportion than they 
 do. In a new settlement, if a shopkeeper undertook to confine his operations to 
 buying and selling wheat or flour, the quantity to be exchanged would be so 
 small that it would be necessary for him to take 15, or 20, or perhaps 50 per cent, 
 of the commodities passing through his hands, to enable him to live, whereas his 
 neighbours, who bought and sold provisions, wool, and other articles, could do 
 the same business for one-half. If he attempted to increase his business by im- 
 porting a quantity of wheat, he would find that he had more than would be pur- 
 chased by those possessing the means and the ability to pay him, and he would 
 be obliged to choose between keeping it on hand to be spoiled, or selling it to 
 those who probably would never pay for it. In either case he would probably 
 be ruined. In like manner, a man who undertakes prematurely to deal in 
 money, finds that his neighbours have but little to lend, and that he cannot live 
 by his trade unless he can have a large commission. To increase his business, 
 he obtains a supply of capital from abroad, in hopes to make considerable profit 
 by lending it out ; but he soon finds that he cannot safely do so — that although 
 he might advantageously place 10,000 dollars, he cannot place 50,000 dollars 
 without incurring great risk. He has, however, agreed to pay interest, and if 
 he cannot lend his capital, he will be ruined by ihc operation. He therefore 
 
OF CREDIT IN THE UNMTEl) STATES. 31 
 
 The following^ table shews the manner in which those insti- 
 tutions increased in number from 1811 to 1830 : — 
 
 
 
 1811. 
 
 
 1816. 
 
 
 1820. 
 
 
 1830. 
 
 
 
 
 
 ' s 
 
 
 
 
 J 
 
 
 
 
 
 
 
 
 
 
 
 lanks, 
 
 
 lunks. 
 
 
 ianks. 
 
 
 cn 
 O 
 
 
 
 
 Canifal 
 
 
 
 'o 
 
 V^dpil/(tl. 
 
 W 
 
 o 
 
 
 
 o 
 
 
 6 
 
 
 6 
 
 
 ^ 
 
 
 Massachusetts, 
 
 15 
 
 6,292,144 
 
 26 
 
 11,650,000 
 
 28 
 
 10,485,700 
 
 66 
 
 
 
 20,420,000 
 
 Maine, 
 
 6 
 
 1,250,000 
 
 14 
 
 1,860,000 
 
 15 
 
 1,654,900 
 
 18 
 
 2,050,000 
 
 New Hampshire, 
 
 8 
 
 815,250 
 
 10 
 
 998,000 
 
 10 
 
 1,005,276 
 
 18 
 
 1,791,670 
 
 Vermont, 
 
 
 
 
 
 1 
 
 44,955 
 
 10 
 
 432,625 
 
 Rhode Island, 
 
 13 
 
 1,917,000 
 
 16 
 
 2,317,320 
 
 30 
 
 2,982,026 
 
 47 
 
 6,118,397 
 
 Connecticut, 
 
 5 
 
 1,933,000 
 
 10 
 
 4,017,575 
 
 8 
 
 3,689,337 
 
 13 
 
 4,485,117 
 
 New York, 
 
 8 
 
 7,522,000 
 
 27 
 
 18,766,756 
 
 33 
 
 18,562,774 
 
 37 
 
 20,083,353 
 
 New Jersey, 
 Pennsylvania, 
 
 3 
 
 739,000 
 
 11 
 
 2,072,115 
 
 14 
 
 2,130,949 
 
 18 
 
 2,017,009 
 
 4 
 
 6,163,050 
 
 43 
 
 15,384,597 
 
 36 
 
 14,681,780 
 
 33 
 
 14,610,333 
 
 Delaware, 
 Maryland, 
 
 
 - 
 
 5 
 
 974,500 
 
 6 
 
 974,900 
 
 6 
 
 1,000,000 
 
 6 
 
 4,895,202 
 
 20 
 
 8,406,782 
 
 14 
 
 6,708,131 
 
 13 
 
 6,250,495 
 
 Dist. of Columbia, 
 
 4 
 
 2,341,395 
 
 10 
 
 4,294,013 
 
 13 
 
 5,525,319 
 
 9 
 
 3,875,794 
 
 Virginia, 
 
 1 
 
 1,500,000 
 
 12 
 
 4,512,173 
 
 4 
 
 5,212,192 
 
 4 
 
 5,571,100 
 
 North Carolina, 
 
 3 
 
 1,576,600 
 
 3 
 
 2,776,600 
 
 3 
 
 2,964,887 
 
 3 
 
 3,195,000 
 
 South Carolina, 
 
 4 
 
 3,475,000 
 
 5 
 
 3,832,758 
 
 5 
 
 4,475,000 
 
 5 
 
 4,631,000 
 
 Georgia, 
 
 1 
 
 210,000 
 
 3 
 
 1,502,600 
 
 4 
 
 3,401,510 
 
 9 
 
 4,203,029 
 
 Alabama, 
 
 
 
 
 
 3 
 
 469,112 
 
 2 
 
 643,503 
 
 Mississippi, 
 
 
 
 1 
 
 100,000 
 
 1 
 
 900,000 
 
 1 
 
 950,000 
 
 Louisiana, 
 
 1 
 
 754,000 
 
 3 
 
 1,422,300 
 
 4 
 
 2,527,420 
 
 4 
 
 5,665,980 
 
 Tennessee, 
 
 1 
 
 100,000 
 
 4 
 
 815,281 
 
 8 
 
 2,119,782 
 
 1 
 
 737,817 
 
 Kentucky, 
 
 1 
 
 240,460 
 
 2 
 
 2,057,000 
 
 42 
 
 8,807,341 
 
 
 
 Ohio, 
 
 4 
 
 895,000 
 
 21 
 
 2,061,927 
 
 20 
 
 1,797,403 
 
 11 
 
 1,454,386 
 
 Indiana, 
 
 
 
 
 
 2 
 
 202,857 
 
 
 
 Illinois, 
 
 
 
 
 
 2 
 
 140,900 
 
 
 
 Missouri, 
 
 
 
 
 
 1 
 
 250,000 
 
 
 
 Total, 
 
 88 
 
 42,609,101 
 
 246 
 
 89,822,297 
 
 307 
 
 101,714,551 
 
 328 
 
 110,186,608 
 
 risks it in the hands of those who have no immediate use for it, and the conse- 
 quence is, a rise of prices, or, in other words, a fall in the value of money. The 
 borrowers commence speculations which end in the ruin of themselves and the 
 money-dealer. Every premature attempt at extending the division of labour is 
 attended by similar results. 
 
 Most governments, and among others, those of the United States, have under- 
 taken to determine who shall, and who shall not, trade in money. The existence 
 of these restrictions has tended to induce a belief that much profit was to be 
 realized from that trade, and whenever there has been a disposition to remove 
 the restrictions, there has existed an almost universal disposition to rush blindly 
 into it, establishing banks wherever they were permitted, without attending to 
 the fact, that lenders and borrowers are essential to the existence of such insti- 
 tutions. They have been created where only borrowers could be found, and 
 where only very small amounts could be profitably used. Capital has been 
 introduced from a distance, to the injury of both lender and borrower, and the 
 result has been the ruin of all the parties concerned, precisely as men are ruined 
 
 f 
 
32 
 
 OF CREDIT IN THE UNITED STATES. 
 
 Havins: shewn the nature of the transactions of the commu- 
 nity with the banks, we offer the above with a view to shew 
 what has been the nature of those of the banks with the 
 people, and what has been the proportion of loss sustained by 
 failures among them. In doing this, we shall generally rely 
 upon the statement furnished by Mr. Gallatin in 1830,* adding 
 thereto the failures from that time to 1836, thereby completing 
 a period of a quarter of a century, embracing embargo, war, 
 suspension, and resumption of specie payments, the revulsion 
 which followed the close of the war in Europe, the speculation 
 of 1825, &c. 
 
 The average number of banks in Massachusetts, from 1811 
 to 1830,t was thirty-four, and the average capital above 12 
 milhons. The failures to 1836 were five+ in number, or 
 about of one per cent, per annum. The capitals amounted 
 to |700,000, but nearly all their debts were paid, the total 
 amount of outstanding claims upon two of them having been, 
 at the date of the last published returns, only ^19,878. A 
 third paid off all its debts, and another it is believed did the 
 same ; and of the last, the amount of bills outstanding at the 
 time of its stoppage was only ^27,000. If we estimate the 
 total loss at ^50,000, it will be a large allowance, and will give 
 less thanj^ue dollars in every million, or the two thousandth 
 
 who attempt prematurely to establish manufactures, or to commence mining 
 operations. 
 
 Whenever restrictions of any kind have existed, and are suddenly removed, 
 the results are the same. South America was abundantly supplied with warming 
 pans and blankets when its trade was thrown open, and the consequence of the 
 wild speculations of the day was immense loss. The removal of the restraints 
 upon the formation of joint-stock banks in England was attended with results 
 somewhat similar. In order that men should make a judicious use of freedom 
 it is necessary that they should have been accustomed to feel free. 
 
 * Considerations on the Currency and Banking System of the United States. 
 
 f We have in every case taken the average number of banks from 1811 to 
 1830, instead of that from 1811 to 1836, which would have caused a great de- 
 crease in the proportion which the failures would bear to the whole. We have 
 done so because we were not desirous of diminishing the ratio of loss. The aver- 
 age number of banks in Massachusetts, from 1811 to 1836, was forty-eight, and 
 the failures in the same period having been five, the proportion would be only 
 42-100 of one per cent, per annum. 
 
 X Mr. Gallatin gives six as the number, with capitals amounting to =8^850,000. 
 The Bedford Bank, however, did not fail. It closed its business under a law for 
 that purpose, and divided its capital. 
 
OF CREDIT IN THE UNITED STATES. 
 
 33 
 
 part of one per cent, of the transactions that were facilitated by 
 the existence of such institutions, and by the substitution of 
 bank notes for a metallic currency. 
 
 This estimate is based upon the supposition that the capital 
 of a bank performs in a year only forty operations. That this 
 is below the truth will be obvious to the reader from the fol- 
 lowing statement. If lent for ninety days, and then repaid, we 
 have annually eight operations. If it changed hands, either 
 by loan and repayment, or by the purchase and sale of commo- 
 dities, only 2^ times in each period of ninety days, it would 
 produce the number of operations we have stated, in every one 
 of which the saving of labour afforded by the use of bank 
 notes and checks instead of s^old and silver would be material. 
 Instead of changing 2\ times in every ninety days, it is pro- 
 bable that it would do so at least ten times in that period, 
 which would give, during a period of twenty-five years, a loss 
 of one dollar and a quarter in every million of transactions in 
 the performance of which labour had been saved.* 
 
 The average number of banks in Rhode Island, in the same 
 period, was twenty-seven, with capitals exceeding three mil- 
 lions. The failures have been two,t giving an annual average 
 of -l^Q of one per cent. Their capitals amounted to 50,000. 
 The proportion of loss cannot vary materially from that of 
 Massachusetts. 
 
 The average number of banks in Maine has been 13|. The 
 charters of three expired in 1812, and were not renewed. They 
 paid their debts and were discontinued. The failures are 
 five in number, being an annual average of 1| per cent. The 
 average capital was 1 1,700,000, and that of the banks which 
 have failed has been |500,000, or 1| per cent, per annum. 
 
 In New Hampshire, the average has been 11^, and the failures 
 have been two, or about two-thirds of one percent, per annum. 
 
 * We have made inquiry at one bank in Philadelphia, and find that the daily 
 exchanges performed at its counter amount, on an average, to one-fourth of its 
 capital, and annually to eighty times its capital. If to this we add the exchanges 
 facilitated by the circulation of its notes and drafts among the community, we shall 
 find that this view is nearly correct. 
 
 t The Burrilville and the Scituate banks. Mr. Gallatin includes the Farmers' 
 Exchange Bank, which failed in 1809, and was, it is believed, the first bank that 
 failed in New England. He mentions also the Farmers and Mechanics', which 
 we believe is a mistake. 
 
 F 
 
34 OF CREDIT IN THE UNITED STATES. 
 
 The average capital has been ^1,150,000, and the failures 
 ^129,600, being less than one-half of one per cent. The amount • 
 of loss sustained by the creditors of the banks of Maine and^' 
 of New Hampshire we have no means of ascertaining, but it is 
 obvious that the per centage must be exceedingly small. 
 
 In Vermont, no failure has taken place. 
 
 In Connecticut, the banks have averaged nine in number. 
 The failures have been two, or somewhat less than one per 
 cent, per annum. The capitals have averaged ^3,500,000, 
 and those of the two institutions which failed amounted to 
 ^600,000, being about two-thirds of one per cent, per annum. 
 
 The average number of banks in the above six States, con- 
 stituting New England, from 1811 to 1830, was ninety-seven, 
 and the whole number of failures in twenty-five years was 
 sixteen, being two-thirds of one per cent, per annum. The 
 average capital was about 22 millions. The capitals of tho^e 
 which have failed were about |2,000,000, giving about -^^^ 
 of one per cent, per annum. The whole loss sustained by 
 the community cannot have much exceeded ^500,000,* 
 being an annual average of |20,000, or^^ of one per cent, 
 of the capitals of the banks, and probably about 3^^^ of one 
 per cent, of the operations facilitated by those institutions. If 
 this estimate be correct, the risk attendant upon transactions 
 with the banks in New England, for a period of above a 
 quarter of a century, has averaged one dollar in every fifty 
 thousand. If we exclude Connecticut, in which one failure 
 was attended with great fraud, productive of considerable loss, 
 it has not exceeded five dollars in a million. 
 
 In New York, the banks have averaged twenty-six in num- 
 ber, and there have been eleven failures, being an annual 
 average of If per cent. The capital has averaged 16 millions, 
 and that of the institutions which have failed was about 3^ 
 millions, being about seven-eighths of one per cent, per annum. 
 The losses, however, as in Massachusetts, fell generally upon 
 the stockholders, and not upon their creditors. But two 
 failures took place between 1825 and 1837, so that in that 
 
 * The Eagle Bank of New Haven owed, in 1827, after its failure, above 
 ^800,000. What portion of this was paid we do not know. All the losses sus- 
 tained in New England in the period referred to, excluding this bank, have been 
 trivial in amount. 
 
OF CREDIT IN THE UNITED STATES. 
 
 35 
 
 period the annual average was less than one-half of one per 
 cent, upon the number that existed in 1830. One of them 
 paid all its debts, and there was no loss except that of the 
 stockholders. The loss by the other was, we believe, small. 
 In that time, the risk of loss in trading with a bank, or in 
 using a bank note, could not be taken to exceed five dollars 
 in every million, and probably, as we have stated in relation 
 to Massachusetts, not more than a single dollar in every mil- 
 lion of transactions, the performance of which has been aided 
 by the existence of those institutions. 
 
 In New Jersey, they have averaged nearly twelve, and 
 there have been ten failures, being an annual average of 
 3 per cent. 
 
 In Pennsylvania, the average has been twenty-nine, and the 
 failures have been nineteen in number, being an average of 
 21 per cent, per annum. Almost all of these, however, took 
 place in the period immediately following the close of the war, 
 and but three, all of trifling amount, occurred in the period 
 from 1820 to 1837., The average capital of the State banks, 
 from 1811 to 1830, was 15 millions, and the capital of those 
 which failed, from 1811 to 1836, was 2 millions, being one- 
 half per cent, per annum. 
 
 The average number of banks, in the above-mentioned nine 
 States, from 1811 to 1830, was 163. The whole number 
 of failures was fifty-six, being an average of 2i per annum, 
 or If per cent. The average capital was 55 millions, to 
 which must be added one-half of that of the Bank of the 
 United States,* making a total of 72 millions. The capitals 
 of the institutions which failed were 10 millions, giving an 
 annual average of little more than one-half of one per cent. 
 It is exceedingly difficult to ascertain the precise period at 
 which some of these failures took place; but we believe that 
 in the years from 1822 to 1837 their amount did not exceed 
 2 millions of dollars, giving an annual average of about 
 1 133,000, or |1800 to every million of capital. The utmost 
 loss sustained by those who have dealt with the bankrupt 
 banks, or who have held their notes, during the whole period, 
 
 * But about one-half of the capital of the Bank of the United States was em- 
 ployed in those States. 
 
36 
 
 OF CREDIT IN THE UNITED STATES. 
 
 cannot be estimated above 3 millions, and it is probably not 
 one-half of that amount. Assuming it, however, at that sum, 
 it is not more than ^ ^^j part of one per cent, upon the trans- 
 actions of individuals with those institutions, in the form of 
 deposites, drafts, notes, &c.,and would give a risk of one dollar 
 in every 40,000. In the last fifteen years of the period, it has 
 not exceeded five dollars in a million, and has probably been 
 less than a single one. 
 
 We are disposed to believe, that in no country has so great 
 a mass of transactions been carried on in a manner so advan- 
 tageous to the community, and with so small an amount of 
 loss, and that the rate of insurance upon the debts of indi- 
 viduals to banks, or of banks to individuals, is consequently 
 lower than in any other part of the world. 
 
 Passing to the south and west, we find at every step, with 
 diminished density of population, increase of risk. In the 
 States south of Pennsylvania and of the Ohio river, there 
 have been eighty-four failures, and in those west of Pennsyl- 
 vania twenty-seven. Nearly the whole of these resulted, as 
 did all those of Pennsylvania itself, from the premature 
 attempt to establish shops for buying and selling money in 
 regions where all desired to buy and none had any to sell. 
 The consequences were what might have been anticipated. 
 After fruitless attempts to establish themselves in business, 
 they stopped payment, precisely as would be done by men 
 who attempted any other pursuit before the community was 
 prepared for it. The whole number of failures in twenty-five 
 years was 167, of which 130 were south and west of New 
 York, and almost, if not quite, every one may be traced to 
 this cause. The average number of banks in existence in that 
 time was 242, and the average of failures was 2| per cent., being 
 but little more than the average bankruptcies of the private 
 bankers of England between 1821 and 1826 — a period in 
 which there was no extraordinary occurrence, no change from 
 war to peace, or from peace to war, to produce insecurity or 
 loss. From the first institution of banks in America to the year 
 1837, the failures have been less, by about one-fourth, than 
 those of England in the three years 1814, 1815, and 1816, and 
 the amount of loss sustained by the public bears probably a still 
 smaller proportion to the amount of business transactions. 
 
OF CREDIT IN THE UNITED STATES. 
 
 37 
 
 We have seen that in Massachusetts and Rhode Island the 
 proportion of loss is least, and that it gradually increases as 
 we pass from the closely-peopled States of New England to 
 the scattered settlements of the west and south-west. In pass- 
 ing from Massachusetts to France, and thence to England, 
 we should find a higher degree of confidence, accompanied 
 by a smaller proportion of loss, yet such is not the case. In 
 both the losses are greater, and the confidence of man in his 
 fellow-man is smaller, than in that State where it is deservedly 
 greater than in any other part of the world. Individuals in 
 Great Britain enjoy as high a degree of credit as can possibly 
 exist ; but confidence is more universal in the United States.* 
 Every man in the community receives bank notes,t and those 
 which are payable at places distant five hundred or a thou- 
 sand miles, pass from hand to hand, and from bank to bank, 
 without difficulty. Those who, residing in Massachusetts, 
 New York, or Pennsylvania, desire to invest their capital to 
 obtain 8 or 9 per cent., place it in Mississippi, or Louisiana, 
 or Tennessee, without apprehension. 
 
 The revenue of the United States from imports, from 1789 
 to 1827, amounted to ^475,000,000. During two-thirds of 
 that period, their ships were plundered at sea, burnt, or con- 
 fiscated by both of the belligerents, to the entire ruin of a 
 large portion of their owners, whose bonds were held by the 
 United States as security for the payment of duties, the credit 
 upon which was from three months to three years. Under 
 such circumstances it would be reasonable to suppose that 
 the losses would be heavy. At the close of 1827, the whole 
 
 * " Here, any man who offers the guarantee of good morals is sure to obtain 
 credit, and then it depends upon himself alone to acquire fortune." — Chevalier^ 
 t. i. p. 64. 
 
 f " The Americans have the utmost faith in paper money. It is not a blind 
 confidence ; for if we have had our assignats, they have had their continental 
 money ; and it would not be necessary to retrace their history far to find the 
 banks failing, en masse. It is a confidence founded upon reason — a courage, the 
 result of reflection." — Chevalier, t. ii. p. 247. 
 
 The adoption of the same measures by which it has been attempted in the 
 United States to drive bank notes out of circulation would have ruined the 
 Banks of England and of France. Nothing could have prevented the ruin of 
 those of the United States but the general confidence of man in his fellow-man. 
 
38 
 
 or CRliUlT IN THE UNITED STATES. 
 
 amount remaining unpaid was |4,369,617, of wliich ^434,000 
 was deemed recoverable, leaving the total loss short of 
 ^4,000,000, or less than five-sixths of one per cent. 
 
 In consequence of the facility aflforded by joint-stock banks 
 for employing productively small amounts of capital, the in- 
 ducements to place money in savings' banks and in life in- 
 surances is much less than in England. Nevertheless, both 
 exist throughout the Union, and they are found in greatest 
 number where population is most dense, and labour most pro- 
 ductive. In Massachusetts, there are thirty-two savings' 
 banks, with a capital of |4,78 1,426. In New York there 
 were, in 1836, eleven, with deposites amounting to |4,83 1,613. 
 In Pennsylvania the number is less than in New York. That 
 of Philadelphia has deposites to the amount of 1 1,200,000. 
 In Maryland, we beheve there is only one, that of Baltimore, 
 having deposites amounting to |887,522. 
 
 Immense masses of property pass from hand to hand with- 
 out examination, and in a million and a half bales of cotton 
 now annually packed, frauds are of exceedingly rare occur- 
 rence. It is an evidence of the great improvement that has 
 taken place in morals, with the increase of population, that 
 the commodities formerly produced for exportation, as pork, 
 flour, and tobacco, were then subjected to inspection laws, 
 which still remain to impede the course of trade ; whereas, 
 cotton, more recently introduced, has never been subjected to 
 such restraint, and experience has proved that no necessity 
 existed for it. In the conduct of trade with foreign nations 
 we find a state of affairs very different from that described by 
 M. Chevalier, in relation to that of France. 
 
 M. De Beaumont says, that almost all Americans have 
 Jailed more or less frequently * and in so saying, but repeals 
 
 * '* All the Americans being engaged in business, and most of them having 
 more or less frequently failed, it follows that to be a bankrupt is nothing. An 
 offence of which so many are guilty ceases to be one. The indulgence for bank- 
 rupts springs, then, from the commonness of the misfortune ; but its principal 
 cause is the facility with which men there rise from such a fall. If the bankrupt 
 were lost for ever, he would be abandoned to his misery ; people are more lenient 
 when they know that he will recover himself. This is not a very generous 
 feeling, but it is human nature." M. De Beaumont might readily have found 
 
OF CREDIT IN THE UNITED STATES. 
 
 39 
 
 what is not unfrequently asserted in Europe. M. De Tocque- 
 ville says, " the Americans are often shipwrecked, but no 
 trader crosses the seas so rapidly."* The rate of insurance 
 fixes the risk of loss, and where we find, as is the case, that 
 an American ship to Canton and back can be insured for 2^ 
 to 3^ per cent., that the premium on an English ship is 4 to 
 5 per cent., and that a French ship,ybr the single voyage out 
 to Canton, cannot be insured at less than 3 to 3| per cent.,t 
 we may feel satisfied, notwithstanding M. De Tocqueville's 
 impression to the contrary, that if American ships are more 
 rapid, they are also more safe than those of other nations. A 
 similar examination of the credit system of the several countries 
 establishes, we think, the same results as regards the dis- 
 position to comply with contracts. 
 
 A traveller, who on arriving in Lima from Europe, and 
 finding all the houses of one story, should thence conclude 
 that it was safer to reside in them than in a house of six 
 stories in London, would commit the same mistake as a writer, 
 who seeing the small amount of credit in France, and the 
 small average amount and time of the notes discounted at the 
 Bank, should infer that there was less risk than in the United 
 States, where the average amount is so much greater, and the 
 time so much longer. Had the people of Lima not expe- 
 rienced numerous earthquakes, they might now build houses 
 of six stories ; and had the people of France enjoyed security 
 of person and property, their production would now be three 
 times as great, and their merchants would transact business 
 on a scale five times as great, as there would be fewer traders 
 and more exchanges to be performed. 
 
 another mode of accounting for the indulgence observed. Whenever men easily 
 acquire the means of living, they are lenient to those who are indebted to them. 
 When the means of living are obtained with difficulty, the reverse is the case. 
 The creditor of England is more lenient than that of France, and that of the 
 United States is more so than either. 
 
 Society says to the poor man in America, * Labour i * * * ^^d if 
 business should be against you, and you should fall, you will speedily rise again, 
 for here failure is considered as a wound received in battle j it will not cause you 
 to lose esteem or confidence, provided you have been always temperate and regular, 
 a good Christian, and a faithful husband.'' — Chevalier, t- ii. p. 112. 
 
 * Democracy in America, vol. ii. p. 439. 
 
 t Prix Courant du Havre, 5 Mars, 1836. 
 
40 
 
 OF CREDIT IN THE UNITED STATES. 
 
 Tlie existence of the credit system is evidence of mutual con/i- 
 dence, and that confidence results from the knowledge which each 
 man has of the conduct and disposition of his neighbour.* 
 Where property is most secure, labour will be most productively 
 applied — the power to accumulate capital will be greatest — and, 
 the tendency to moral and physical improvement vnll be most 
 rapid. Where such is the case^ confidence will be m.ost universal^ 
 and the existence of that confidence may be taken as evidence of a 
 general disposition to comply with engagements. Where it is 
 greatest, the insurance on debts will be least. Such is the case 
 in the United States. 
 
 That it should be so is most natural. Where good conduct 
 insures to the workmen the power to obtain the aid of capital, 
 by which his labour is rendered more productive, and he is 
 enabled to improve his condition, he has the strongest induce- 
 ments thereto ; but where capital is scarce, and where the 
 best conduct will not have that effect, the inducement does 
 not exist. Were the people of France to abstain from war ; 
 were they to reduce their army ; were they to permit capital to 
 increase, every day would bring with it new inducements for 
 exertion and for good conduct on the part of the workmen, 
 who would desire to shew themselves worthy of confidence ; 
 and the credit system would gradually extend itself throughout 
 society, with constant advantage to the community at large — 
 to both labourers and capitalists. 
 
 We will now proceed to inquire into the causes of the 
 differences we have remarked. 
 
 * In nothing is the beneficial effect arising out of a general state of ease and 
 security more fully shewn than in the conduct of men towards their fellow-men 
 in cases of misfortune, such as is given in the following passage from M. 
 Chevalier, describing the effects of the great fire at New York : 
 
 *' At the first news of the fire there was not a merchant in Europe who did 
 not tremble for his American debtors, for in Europe, and particularly in France, 
 if a similar circumstance had occurred, the people who had been injured would 
 have been deprived of all credit, and of every means of repairing their misfortunes. 
 Tn France, if you want credit, you cannot obtain it, hut if you do not want it, it is 
 offered to you. In the United States, on the contrary, we see that immediately 
 after the fire, the President of the Bank of the United States repaired to New 
 York, and placed 11 millions of francs at the disposal of New York, and the 
 banks in general determined to discount in preference the paper of those who had 
 suflPered by it. * * The result of this admirable disposition was, that no 
 failure of any considerable amount occurred.'' — Tom. i. p. 391- 
 
INSECURITY OF PROPERTY. 
 
 41 
 
 CHAPTER V. 
 
 INSECURITY OF PROPERTY AND ITS EFFECTS. 
 ENGLAND—FRANCE— THE UNITED STATES. 
 
 Property is secure where its owner enjoys the right of using 
 it in such manner as he deems hkely best to promote his great 
 object of maintaining and improving his condition. It is inse- 
 cure where he is denied the exercise of that right. 
 
 Before the revolution, it was held in France that the right to 
 labour was a royal privilege, which a sovereign might sell, and 
 which his subjects must purchase.'^ In accordance with this 
 doctrine individuals obtained grants of permission to apply 
 their labour and capital to the manufacture of various commo- 
 dities. What they previously possessed as a right, was thus, 
 by the will of the sovereign, converted into a privilege, for 
 which a high price was paid. In order to induce the pay- 
 ment of such prices, the number of persons permitted to follow 
 certain trades was limited, and thus was granted to them a 
 monopoly J enabling them to tax their fellow-subjects. In 
 England, similar restraints existed, and monopolies were fre- 
 quently granted to the favourites of the sovereign, or in reward 
 of public services. 
 
 With the increase of population and of capital, we observe 
 a constantly increasing disposition to combine exertions for the 
 attainment of any given object. In the infancy of society 
 men associate for the maintenance of security. Another step 
 in their progress shews associations for the purposes of com- 
 merce ; and in the most advanced stages of society we find them 
 associating for the construction of roads, canals, and bridges 
 — for the erection of theatres, hotels, and club-houses — and 
 for the working of mines, or the fitting out of steam-ships. 
 We may, therefore, assume that a tendency thereto is natural 
 to man, and that where he is permitted to indulge it, he is 
 
 * GSuvres de Turgot, t. viii. p. 337. 
 
 G 
 
42 
 
 INSECURITY OF PROPERTY. 
 
 most likely to attain the object that he seeks — the improvement 
 of his condition. To deny him the exercise of that right is 
 an infringement of the rights of person. 
 
 In a country in which the right to labour was converted 
 into a privilege held of the sovereign, it is not extraordinary 
 that the right of the people to associate together for the pur- 
 pose of rendering labour more productive, should also be con- 
 verted into a source of power and emolument to those who 
 could grant permission to exercise it. Such was the case in 
 both England and France ; and thus this right, which previ- 
 ously existed in all, was converted into a privilege, for which 
 a high price was demanded ; and to enable the purchasers to 
 indemnify themselves from their fellow-subjects, the grant was 
 generally accompanied by a prohibition to other persons from 
 associating themselves in like manner for the like purposes. 
 
 In England, the rights of person and of property were thus 
 violated by prohibitions to associate for the purpose of trading 
 in coal* — for effecting marine insurances^ — for banking^ — for 
 the formation of any species of company having a transferable 
 stock, &c.§ 
 
 * With the view of suppressing societies amongst coal buyers, and thereby of 
 keeping the coal trade open and free, a partnership, composed of more than five 
 persons, for the purchasing of coals for sale, or for making regulations with re- 
 spect to the manner of carrying on the trade, is by a legislative provision rendered 
 illegal." — Gow on Partnership, p. 30. 
 
 f In the case of marine insurances, the right of jointly assuring any ship, or 
 goods, at or going to sea, was prohibited, (except in the instances of the Royal 
 Exchange and London Assurance Companies, upon whom, in consideration of a 
 compensation made by them to the public, an exclusive monopoly in this respect 
 was conferred,) and the policies of assurance effected hy underwriters having a joint 
 interest, were not only declared to he, ipso facto, void, hut every sum underwritten was 
 forfeited in equal moieties — one to the king, the other to the informer. — Ibid. 
 
 X The year 1708 is chiefly memorable in the history of the banks, for the act 
 that was then passed, which declared that during the continuance of the corpo- 
 ration of the Bank of England, "it should not be lawful for any body politic, 
 erected or to be erected, other than the said governor and company of the Bank 
 of England, or for other persons whatsoever, united or to be united in covenants 
 or partnerships exceeding the number of six persons, in that part of Great Britain 
 called England, to borrow, owe, or take up any sum or sums of money on their 
 bills or notes, payable on demand, or in any less time than six months from the 
 borrowing thereof." — M' Culloch, Dictionary of Commerce, p. 66. 
 
 $ Lord Ellenborough was of opinion that it might " admit of a doubt, whether 
 the mere raising transferable stock is in any case, per se, an offence against the 
 act." — Gow on Partnership, p. 37. 
 
ENGLAND. 
 
 43 
 
 While the people at large were thus forbidden to associate 
 for certain purposes, or to transfer their property from one to 
 another in such way as they might deem most advantageous, 
 certain persons obtained grants of power to exercise the rights 
 thus forbidden to be exercised by others ; and the Bank of 
 England, the Royal Exchange Assurance Company, the East 
 India Company, the Levant Company, &,c., were organized 
 under charters in which the parties interested were authorized 
 to trade with others who were willing to do business with them, 
 with the understanding that the joint funds alone were liable 
 for thefmrformance of their engagements. 
 
 The capitahst of England was thus denied the right of in- 
 vesting his means in such way as he deemed most advan- 
 tageous. He might purchase land — or he might become a 
 manufacturer — or he was permitted to become a member of a 
 banking-house, provided the number of partners did not ex- 
 ceed six — or if indisposed to any of these modes of employing 
 his capital, he might lend it out on mortgage, attended with 
 the inconvenience of probable delay in the return — or he might 
 lend it to the government, at a low rate of interest, or to a 
 private banker with the risk of total loss ;* but he was not at 
 hberty to unite with his friends and neighbours in establish- 
 ing an office, under the control of an agent selected by them- 
 selves, at which they might trade with such as might desire 
 to borrow or lend upon personal security. 
 
 The impolicy of some of these monopolies having become 
 manifest, the legislature, a few years since, abolished some of 
 the restrictions upon the business of banking. Unfortunately, 
 however, they were not sensible of the absurdity of all re- 
 straints, nor aware that men can always manage their own 
 business better than governments can do it for them; and 
 therefore, although permission was gY2Lnted, within certain limits, 
 to associate for that purpose, they were expressly restrained 
 from contracting engagements on the principle of limited lia- 
 bility, even although those who traded with them might be 
 willing to do so on that footing. The owner of capital may 
 
 * " The numerous failures that have taken place among them have, by gene- 
 rating a feeling of insecurity in the minds of the depositors, confined this branch 
 of their business within comparatively narrow limits." — Culloch, Dictionary 
 of Commerce, p. 85. 
 
44 
 
 INSECURITY OF PllOPEIlTY. 
 
 now, in addition to the above-mentioned modes of investment, 
 place his funds in a joint-stock bank, in which any share, 
 however small, involves the risk of his whole fortune for a pe- 
 riod of three years after he shall have ceased to hold it. Thus, 
 if he purchase an interest on the first of January, 1836, and 
 sell it on the next day, or in a month thereafter, his whole 
 property is liable until January, 1839. 
 
 The idea of limited liability is commonly associated with 
 ^ that of wzowopo/?/, in consequence of the enjoyment of the right 
 thus to trade having been restricted to a few persons, and it 
 has been denounced by many writers on political economy, who 
 have contended strenuously for the system of perfect or un- 
 limited liability. The maxim, however, that should govern 
 the political economist is laisser faire,'* and when he finds 
 men, animated by the desire of improving their condition, fre- 
 quently adopting a certain mode of operation, he may be sure 
 that there must be good reason for it, although it may not at 
 the moment be obvious to him. One of the first objects for 
 the promotion of which men associate themselves together is 
 that of government. They desire security for themselves, and 
 are willing that others shall enjoy it. Here we find them 
 adopting the principle of limited liability. Every man is 
 bound to contribute his share, and his share onli/, to the pay- 
 ment of the expenses incident to the maintenance of security. 
 Were it otherwise — were the whole property of a single indi- 
 vidual liable to be taken for that purpose — there would be no 
 security/. No man would transfer himself from Europe to the 
 United States, if he were not certain that his property was 
 secure against being seized for the support of government — 
 did he not feel confident that the payment of his proportion 
 would exempt him from further liabihty. 
 
 We find the same principle introduced into associations for 
 mutual insurance against the dangers of fire and water, prov- 
 ing that such limitation of liability naturally arises in the 
 course of the operations of men desirous of improving their 
 condition. We find it universally adopted by men who asso- 
 ciate for any purpose, when left free to select their own mode 
 of action.''^ In this manner were formed some of the earliest 
 
 * The corn banks of Norway are the most primitive institutions of this descrip- 
 tion, of which we have any knowledge. Owing to the restraints upon the em- 
 
ENGLAND. 
 
 45 
 
 insurance offices in the United States, several of the early 
 banks, and there are now a few institutions trading under 
 such agreements. We may suppose that the persons thus in- 
 vesting their capital, and those doing business with them, un- 
 derstand their own interests, and that those interests will be 
 best promoted by non-interference on the part of the com- 
 munity. The right of associating having, however, been made 
 the subject of regulation, and that of forming companies with 
 transferable stock having been denied to all except a few 
 favoured individuals, it has been deemed the duty of courts of 
 justice, wherever possible, to discourage association, and to 
 prevent trading on the system of limited liability. The con- 
 sequence has been to produce a feeling of insecurity in regard 
 to the formation of such associations, because it is known that, 
 in case of suit, a court will set the limitation aside whenever 
 it may be possible, thus changing the arrangements between 
 the parties to a contract, to the entire destruction of security. 
 
 Every measure tending to limit liability tended to establish 
 the right of the people to determine for themselves in what 
 way they would trade together, while the opposite course 
 tended to increase the power of the sovereign, who was thus 
 
 ployment of capital in that country, there are no stores or places of exchange at 
 which the farmer can dispose of his surplus grain ; nor, consequently, are there 
 any places at which those whose supply is deficient can purchase it. To remedy 
 this difficulty the farmers have associated themselves for the establishment of 
 banks, at which corn is received on deposite, and lent out on interest. — See 
 Laings Norway, p. 256. The depositors receive interest at the rate of one-eighth* 
 and the borrowers pay at the rate of one-fourth, the difference being appropriated 
 to defray the expenses of management. 
 
 Even here the principle of limited liability must obtain. The profit, if any 
 there be after paying the expenses, is the property of the community, in the ratio 
 of their interests. The debt, if any arise, must be the debt of the community. 
 If from carelessness or mismanagement the wheat deposited by any certain per- 
 sons be destroyed, they must be entitled to remedy somewhere. They are partners 
 as regards profit or loss, but in the capacity of depositors they are as much sepa- 
 rated from the community as is the person intrusted with the property, by whom 
 a suit might be brought for his wages. Under the system of unlimited liability, 
 any depositor, on failure of the fund, might commence suit against any other 
 member of the association, and compel him to make up the deficiency. It is 
 obvious that no one would incur such a risk, however he might be disposed to 
 associate with his neighbours with an understanding that in case of deficiency 
 each man should be assessed, in proportion to his interest, to make it up. Here 
 would be limited liability and jMsitce. On the other hand would be unlimited 
 liability and injustice. 
 
46 
 
 INSECURITY OF PROPERTY. 
 
 enabled to confer upon a few as a privilege, that which should 
 have been possessed as a right by all, and therefore the courts 
 of law omitted no opportunity of enforcing the doctrine of 
 unlimited liability. 
 
 Acts of incorporation, instead of being (/rants of jjrivilege, 
 are thus merely re-grants of a right, the exercise of which has 
 been forbidden for purposes of monopoly. The security of 
 property has been impaired by forbidding its owners to use it in 
 the manner they deemed most advantageous, in order that the 
 exercise of that right might be deemed a privilege, and paid for 
 accordingly, and therefore it is that men have been and still are 
 compelled to apply to a sovereign or a legislature for permission 
 so to do. This interdiction is in perfect accordance with the 
 system of monopoly, restriction, and exclusion, that has existed 
 in past times. With the increase of population and of wealth, 
 and with the improved modes of thinking of modern times, 
 we find a disposition to remove restraints of all kinds upon 
 trade and commerce, by the reduction of tariffs, by the abro- 
 rogation of navigation laws, and by the liberal grant of dis- 
 pensations from the restrictions imposed in former times upon 
 associating for the purpose of trading upon such terms, whether 
 of limited or unlimited liability, as the parties selling and 
 buying, giving and receiving credit, may deem most beneficial. 
 
 In England, as yet, the only change is that of abolishing 
 restrictions upon association. Joint-stock banks may now be 
 formed, but the capitalist finds himself restrained by a law 
 which expressly denies to him the right of trading with others 
 on any footing but that of unlimited liability ; he finds himself 
 embarrassed by laws regulating partnerships ; and he learns 
 that let the deed of partnership be framed "ever so skil- 
 fully" — let the clauses be ever so minute" — if any one of 
 the shareholders disputes the facts which must be connected 
 with any operation," coming within certain clauses, he is 
 still as much at sea as if the deed were badly prepared."* 
 
 The following statement of the diflSculties attendant upon 
 the working of the joint-stock banking system, will satisfy 
 the reader that the machinery is of a very clumsy kind, and 
 
 * Evidence of P. Mahony before Committee of House of Commons, 1837. 
 p. 241. 
 
ENGLAND. 
 
 47 
 
 attended with risks that should prevent prudent men from en- 
 gaging in it. 
 
 If A, B, C, and D, are joined in a trading partnership 
 carrying on business, say under the firm of A, B, and Co., 
 either A, B, C, or D, may accept bills, or sign other docu- 
 ments binding the whole firm. A joint-stock bank being only 
 an extended partnership, it is a matter of doubt whether any 
 single partner of the five hundred or a thousand partners of 
 which it may consist, has not the power of accepting bills, or 
 signing instruments, that shall bind the whole bank. Surely 
 the want of a declaratory statute on such a point as this, is a 
 serious defect in our laws. 
 
 If A, B, C, and D, are carrying on business in partner- 
 ship, and a bill bearing their endorsement be dishonoured, 
 notice of the dishonour may be served upon any of the part- 
 ners, the law holding that notice to one partner is notice to 
 all. Hence arises another difficulty. If notice of the dis- 
 honour of a bill be given to one of the five hundred in a 
 thousand partners of a joint-stock bank, it is doubtful whether 
 it would not be held to be legal notice to the bank, although 
 the partner served with notice might reside at a distance of a 
 hundred miles from the place where the bank carried on 
 its business. This point, we need hardly remark, is of great 
 importance to banks that re-issue or re-discount the bills they 
 have discounted. 
 
 If A, B, C, and D, be united in partnership, they cannot 
 sue each other in a court of law, but must settle any disputes 
 that may arise between them in a court of equity. Now, a 
 joint-stock bank being, as we have already observed, only an 
 extended partnership, it is doubtful whether the bank can sue 
 any one of its partners, or whether any one of its partners can 
 sue the bank. Thus, if a partner should borrow £10,000 
 from the bank, and then refuse to repay it ; or if a partner 
 should lodge £10,000 in the bank, and the bank should stop 
 payment, is is questionable, in the present state of the law, 
 whether either party possesses a legal remedy. 
 
 If A, B, and Co., bring an action against any other party, 
 they must state the Christian and surname of every one of the 
 partners ; and if an action be brought against them, the 
 plaintiff must likewise state the Christian and surname of 
 
48 
 
 INSECURITY OF PROPERTY. 
 
 every partner in the firm of A, B, and Co. The same rule 
 apphes to a joint-stock bank partnership such as we have 
 described, and the Christian and surnames of the five hundred 
 or one thousand partners must be stated with the same pre- 
 cision. If, during the progress of such an action, any change 
 takes place in the firm by the transfer of shares, or by the 
 death of a partner, or by the marriage of a partner, or any 
 other casualty affecting any individual partner, then the 
 action stops, and the parties must begin again, whether it be 
 the bank that sues or is sued. This inconvenience is, to a 
 certain extent, remedied with regard to those joint-stock banks 
 that are estabhshed at a greater distance than sixty-five miles 
 from London, such banks being allowed to sue and be sued 
 in the names of their public officers, whose names are regis- 
 tered at the Stamp Office. But all other joint-stock banks 
 are exactly in the same condition as ordinary trading partner- 
 ships, and are compelled to have recourse to clumsy expedients 
 to remedy the incompleteness of the law."^ 
 
 All the difficulties here described arise out of the existence 
 of laws which dictate how men shall trade with each other. 
 Even the persons who wish to associate themselves together are 
 not permitted to fix the terms of association. That is done by 
 law, and, as is always the case when law-makers undertake to 
 dictate in what way men shall act, the difficulties are such as 
 to render association too dangerous for men of common pru- 
 dence. 
 
 It is difficult to imagine upon what ground the community 
 can deny to any number of persons the right to contract upon 
 what terms they will trade together, even were it admitted, 
 which it cannot be, that it could better judge what the interests 
 of the parties required than they themselves could do. To do 
 so is an interference with the security of person and of property. 
 If a man borrow money upon a pledge, and it be shewn that 
 his liabihty for its return was expressly limited to the value of 
 the pledge, no court or jury can undertake to change the con- 
 tract. If ten men open a place of business, and announce to 
 the world that each has placed therein ten thousand dollars, 
 which sum, and no more, shall be liable for the debts of the 
 
 * London Atlas. 
 
I 
 
 / 
 
 ENGLAND. 
 
 49 
 
 concern, and if every engagement for the payment of money 
 expresses on its face that it shall be paid out of the joint funds, 
 and no other, the parties who trade with them do so with their 
 eyes open, and are bound by the contract. To deny to indi- 
 viduals, or to an association, the right to make engagements in 
 this manner is as much a denial of a right as it is to prevent 
 them from exchanging their wheat with those who would give 
 them the largest quantity of cotton-cloth, shoes, or hats therefor, 
 and is, loe think, as little susceptible of defence. 
 
 It is perfectly proper for the community, in order to guard 
 against frauds upon the unwary, to define the conditions ne- 
 cessary to the enjoyment of this right. Thus, they may pass 
 a law, requiring that every association shall put over its doors 
 a sign, on which shall be painted the words'' limited liability,'* 
 in letters two feet long; or they may require it to be adver- 
 tised, in one or more newspapers, every day in the year ; or 
 they may require a compliance with certain other forms, as is 
 done in the present acts of incorporation, which merely define 
 the terms upon which the parties named therein shall enter 
 upon the enjoyment of a previously existing right, which the 
 policy of the makers of laws has rendered a privilege. A ge- 
 neral law, defining the terms upon which this right should be 
 exercised, would at once correct the evils that have resulted 
 from the desire to confine its enjoyment to a few individuals, 
 and would enable all the members of a community to trade 
 with each other upon such terms as they might find mutually 
 advantageous, whether of Hmited or unlimited liability. 
 
 The smaller the amount of risk, the less will be the com- 
 pensation required. The owner of capital places his funds in 
 the Bank of England, receiving no interest, in preference to 
 giving it to a private banker, who will allow 2^ per cent. He 
 does so because it is more secure in the hands of the former 
 than of the latter. If the latter would give him 5 per cent, he 
 would take the risk, but not otherwise. So it is with the joint- 
 stock banks; their owners have to incur great hazards, and 
 they require to be paid for them. On a recent occasion, the 
 Bank of England had a judgment against the Northern and 
 Central Bank for one million, under which that institution 
 might seize the whole property of any one, ten, or twenty of 
 
 H 
 
50 
 
 INSECURITY OF PROPERTY. 
 
 the shareholders. It was a lien upon all their property, and 
 not one could sell an acre of land until it was discharged. 
 Such immense risks must, of course, be paid for, and accord- 
 ingly we find that the owner of shares in such concerns will 
 not be satisfied with less than six per cent, interest, being 
 nearly twice as much as the ordinary rate.* 
 
 As evidence of this we offer the following list of prices of 
 shares in joint-stock banks, and of dividends received : — 
 
 
 Shares. 
 
 Paid up. 
 
 Price. 
 
 Dividends. 
 
 London and Westminster, 
 
 £100 
 
 £20 
 
 £21i 
 
 5 per cent. 
 
 Manchester and Liverpool, 
 
 100 
 
 15 
 
 191 
 
 71 " 
 
 Manchester, 
 
 100 
 
 25 
 
 27 
 
 7" 
 
 Monmouthshire, 
 
 20 
 
 10 
 
 13i 
 
 12 
 
 Northamptonshire Union, 
 
 25 
 
 5 
 
 11 
 
 14t 
 
 Average interest upon the selling price 6j per cent., with the 
 privilege of paying up the balance of the shares at par, when- 
 ever the business shall require it. The average dividend upon 
 all the joint-stock banks has been St* per cent., in addition to 
 a surplus fund of about 1 per cent, per annum. 
 
 Such profits cannot be made by any regular and safe busi- 
 ness. They are always held out as the rewards of wild ad- 
 venture and reckless speculation. If it were safe, competition 
 would reduce the rate of profit. Accordingly, we find that 
 
 ♦ Extract from the evidence before the Select Committee on Joint- Stock 
 Banks, in 1837 : 
 
 " Now let me suppose that the individual shareholder, against whom that exe- 
 cution was directed, held shares to the value only of <£100, but that the execu- 
 tion levied amounted to £100,000, what remedy would he have for an appor- 
 tionment amongst his other co-partners, who were proprietors in the company ? 
 He might commence a suit against the public officer, he might obtain a judgment 
 upon that, and deal with some other partners as he had been dealt hy, or he might 
 file a bill against the whole partners for a contribution. * * * j con- 
 cerned against the St. Patrick Insurance Company for various claimants under 
 their marine policies ; I think they stopped somewhere about the year 1826 or 
 1827. It became my duty to recover very large sums from them, and I did so 
 on the equitable principle, that if a party would pay his calls, I would not take 
 out execution against him. There was one man who refused to do so ; he was a 
 Mr. Gough, of Dublin ; I issued execution against him, and levied about £800 
 or £900 for one of my clients ; he commenced his proceeding for indemnity, and 
 it was only late last year that I was examined in the cause to prove the facts. 
 He was able, hy that length of time, just to get so far as to prove the fact that he paid 
 me the money.'' — p. 236. 
 
 t Atlas, J;inuary 27, 1838. 
 
ENGLAND. 
 
 51 
 
 the joint-stock banks of England do a large business upon 
 small capitals, and make their dividends chiefly out of the 
 profits of their circulation and deposites. In a list of those 
 now before us, there are very few with capitals exceeding 
 £70,000, and there is one as low as £28,000, which last ap- 
 pears in three years to have divided 28 per cent, among its 
 stockholders.* Even those which had large capitals pursued 
 the same course of operation, and thus we find the Northern 
 and Central Bank, with £800,000 paid in, lending above 
 £1,900,000, and having in its possession only £160,000 to 
 meet its circulation and deposites, amounting to £1,300,000. 
 
 No man not possessing the nerve of a thorough gambler 
 would deem even 8 or 10 per cent, interest sufficient compen- 
 sation for these risks.f The solid capitalist, therefore, does 
 not purchase, preferring even to let his capital lie idle in the 
 one incorporated bank which he deems perfectly secure, re- 
 ceiving no interest therefor. He thinks, however, that there 
 is no good reason why he and ten or twenty of his neighbours 
 might not each place £5000 in the hands of an agent, to be 
 employed by him under an agreement with all who deal with him, 
 that the liability of his principals shall be limited to the capital 
 so employed. He knows that such an association, trading upon 
 those terms, would command a far greater amount of public 
 confidence than any one, two, or three of the individuals trading 
 separately could do, and he finds it difficult to understand why, 
 if those who ivish to do business loith him are content to take the 
 liability of the subscribed capital, the community should insist that 
 they should not do so, and 7'equire them to retain the right of 
 looking to the private property of the party. He says, and with 
 great reason, " I would be willing to take 4 per cent, for the use 
 of my capital, if permitted to use it in my own way, but if I 
 must take the responsibility of an ordinary joint-stock bank, 
 I must have 6 or 7 per cent.'' He is thus compelled either to 
 take large risks, for which he demands a large proportion as 
 interest, or to place his capital in the Bank of England and 
 
 * " Half the joint-stock banks in the North of England are merely bill- 
 brokers. •'—i?epor* of 1836, p. 151. 
 
 t " It may well excite astonishment that any one who can really afford to make 
 a bona Jidc purchase of shares in a bank should be fool -hardy enough to embark 
 in such concerns." — M'Culloch's Dictionary, Article^ Banks. 
 
52 
 
 INSECURITY OF PROPERTY. 
 
 get nothing, until he can himself seek out some mode of using 
 it, perhaps by the purchase of the stock of some company in 
 the United States, yielding perhaps only 5 per cent., but in 
 which he risks only the amount of the capital paid in. 
 
 The Bank of England, an institution possessing a monopoly 
 of the right of trading on the principles of limited liability, 
 and within sixty-five miles round London a monopoly of the 
 right of banking on the principle of a joint-stock company, 
 enjoys so high a degree of credit that it is enabled to maintain 
 a circulation of about 18 millions of pounds sterhng, while all 
 the private banks throughout the kingdom, numerous as they 
 are, have a circulation of only eight millions. It has also, in 
 general, deposites to the amount of 10 or 12 millions, and of 
 late years varying from 13 to 20 millions, upon which it pays 
 no interest, another evidence of its hip;h credit. 
 
 This large sum is placed there partly by the public and 
 partly by individuals, as will be seen by the following state- 
 ment of the average amount held in the quarter ending March, 
 for each year, from 1815 to 1832.* 
 
 
 Public. 
 
 Private. 
 
 Total. 
 
 1815 
 
 . £10,853,100 
 
 . £1,657,000 
 
 . £12,510,000 
 
 1816 
 
 . 11,738,500 
 
 . 1,328,700 
 
 . 13,067,200 
 
 1817 
 
 . 9,502,000 
 
 . 2,163,300 
 
 . 11,665,300 
 
 1818 
 
 . 6,746,500 
 
 . 1,929,900 
 
 . 8,676,400 
 
 1819 
 
 . 5,817,900 
 
 . 1,889,800 
 
 . 7,707,700 
 
 1820 
 
 . 3,584,200 
 
 . 1,385,900 
 
 . 4,970,100 
 
 1821 
 
 . 4,181,300 
 
 . 1,658,800 
 
 . 5,840,100 
 
 1822 
 
 . 3,877,100 
 
 . 1,997,800 
 
 . 5,874,900 
 
 1823 
 
 . 5,665,800 
 
 . 2,674,900 
 
 . 8,340,700 
 
 1824 
 
 . 7,546,200 
 
 . 2,769,900 
 
 . 10,316,100 
 
 1825 
 
 . 6,404,300 
 
 . 3,252,900 
 
 . 9,657,200 
 
 1826 
 
 . 4,297,700 
 
 . 3,196,900 
 
 . 7,494,600 
 
 1827 
 
 . 4,323,300 
 
 . 4,888,100 
 
 . 9,211,400 
 
 1828 
 
 . 4,114,100 
 
 . 5,472,300 
 
 . 9,586,400 
 
 1829 
 
 . 4,420,900 
 
 . 5,840,000 
 
 . 10,260,900 
 
 1830 
 
 . 4,812,600 
 
 . 6,227,700 
 
 . 11,040,300 
 
 1831 
 
 . 4,720,900 
 
 . 7,058,300 
 
 . 11,779,300 
 
 1832 
 
 . 3,723,500 
 
 . 5,595,100 
 
 . 9,318,500 
 
 * Report on Bank Charter, Appendix, p. 43. 
 
ENGLAND. 
 
 53 
 
 Here we see, that while the expenditure of government was 
 great, and the public loans absorbed capital as fast as accu- 
 mulated, the private deposites did not exceed, and rarely 
 equalled, 2 millions, although the period from 1815 to 1821 
 was that at which the credit of the local banks was lowest, 
 and when the owners of capital must have felt most anxious 
 to place it in security. We see, also, that since the expendi- 
 ture has diminished, and loans have ceased, there has been a 
 constant increase in the amount of private deposites, marking a 
 constant accumulation of capital, the owners of which have 
 been seeking the means of profitable investment. In 1831, 
 they had reached the sum of 7 millions, of which 2 millions 
 were probably required for the daily operations of London, 
 and the remaining 5 millions were totally unproductive to 
 their owners, who were waiting an opportunity to place them 
 where they would yield income. At the close of the same 
 year, the public deposites had fallen to little more than 3 
 millions. 
 
 Subsequently to 1833 we can no longer distinguish the 
 public from the private deposites. It is reasonable to suppose, 
 that as the revenue has, since 1832, been materially decreased, 
 they must have fallen below 3 millions ; but we shall suppose 
 them to have averaged that sum. 
 
 December 31, 1833, the total amount was £15,169,000 
 December 28, 1834 " " 13,019,000 
 
 December 26, 1835 " " 20,370,000 
 
 December 13, 1836, they fell to . . . 13,330,000 
 February 12, 1837, they were .... 14,230,000 
 Which may be thus divided : — 
 
 Required for Lon- Seeking 
 Public. don circulation. investment. 
 
 1833 . £3,000,000 . £2,000,000 . £10,169,000 
 
 1834 . 3,000,000 . 2,000,000 . 8,019,000 
 
 1835 . 3,000,000 . 2,000,000 . 15,370,000 
 
 1836 . 3,000,000 . 2,000,000 . 8,330,000 
 
 1837 . 3,000,000 . 2,000,000 . 9,230,000 
 
 Its capital, which is nearly 15 millions, is all lent to the 
 government, and it trades entirely upon that of others which 
 its credit thus places in its hands, amounting commonly to 
 about 30 millions ; of this it lends out from 20 to 25 millions. 
 
64 
 
 INSECURITY OF PROPERTY. 
 
 retaining the balance, on an average about 8 millions, in 
 bullion, to meet any claims that may be made upon it. The 
 following is the usual average state of its affairs : — 
 
 Capital - . - . £15,000,000 Loans drawing interest, £37,000,000 
 Circulation and (leposites, 30,000,000 Bullion 8,000.000 
 
 £4o,000,000 £45,000,000 
 
 The stockholders, having invested 15 millions, are thus 
 enabled to draw interest upon 37 millions, the consequence of 
 which is, that the stock sells at an advance of 100 or 120 per 
 cent, upon its par value. The owners are permitted to trans- 
 act business with those who desire to deal with them on terms 
 that are mutually agreeable and advantageous, while their 
 fellow-citizens are deprived of the right, being forbidden to 
 do business on any terms but those prescribed by the law. 
 The first are content with 3| per cent, interest for their capital, 
 while the others demand 6 or 6|, the difference being the 
 charge for the risk that is incurred. 
 
 The favoured few enjoy perfect security, and 8 per cent, 
 per annum upon the original investment. The gambler has a 
 high degree of risk and 6 to 7 per cent. The widow and the 
 orphan, the mechanic and the labourer, the prudent merchant, 
 lawyer, or physician, unwilling to encounter such risk, and 
 unable to obtain permission to form associations to trade upon 
 such terms as may be most agreeable to all parties, must 
 invest their capital in mortgages, or in the public securities, 
 yielding them 3 per cent., when under a different system they 
 would enjoy 4 per cent., or perhaps even more, with perfect 
 security. 
 
 The inequality of such a system must strike every one ; but 
 its effects upon the security of property, and upon the produc- 
 tiveness of industry, are what we chiefly propose here to con- 
 sider. We have shewn that the means of the Bank of 
 England amount to 45 millions, of which only 15 millions are 
 capital. The remaining 30 millions are liable to be called for 
 in gold, at any moment, but it is supposed that a reserve of 
 eight millions is sufiicient to meet all claims that are likely to 
 be made. A demand for five millions reduces the liabilities 
 to 25, and the means of meeting them to three, being less 
 than one eighth. Such a demand is liable to produce ruin to 
 
ENGLAND. 
 
 55 
 
 the bank and to those who are accustomed to do business 
 with it ; and while the possibiUty of such an occurrence 
 exists, there can be neither steadiness of action, nor security of 
 property. 
 
 With a view to shew the action of the system, and the 
 mode in which it may be improved, we shall assume the 
 paper circulation, the circulation of the precious metals, the 
 deposites, and the bank capital, of all England, each at 30 
 millions, and that the reserve of gold in the banks amounts to 
 10 millions, the remainder being loaned out at four per cent. 
 These quantities are not probably very wide of the mark, but 
 even were they so, the fact would not affect the principles 
 upon which our remarks are based. The account will now 
 stand thus : — 
 
 No. 1. Capital, - 30 Loans, - 80 
 
 Paper circulation, 30 Gold in banks, 10 
 Deposites, - 30 Coin in circulation, 30 
 
 Coin in circulation, 30 
 
 120 120 
 The currency here consists of — 
 
 Paper in circulation, - - - 30 millions. 
 
 Coin in circulation, - - - 30 " 
 
 Deposites, liable to be converted at any moment 
 into paper or gold, - - - 30 
 
 Total, 90 millions. 
 
 Of the sum thus remaining in the form of deposites in the 
 various banks, it is probable that not less than twenty mil- 
 lions is temporarily placed therein, waiting until means can 
 be found of investing it advantageously. The remaining 10 
 millions we will suppose to be required for the purpose of 
 carrying into effect existing arrangements. In addition to 
 these deposites there are probably not less than 12 millions of 
 coin equally unproductive to their owners. The quantity of 
 gold now circulating is estimated at not less than 22 millions ; 
 whereas, 10 millions of £1 notes performed the same opera- 
 tions when gold was not used, whence we are induced to sup- 
 pose that 12 miUions remain on deposiie with their owners^ 
 making in the whole 32 millions of deposites seeking perma- 
 nent investment. 
 
66 
 
 INSECURITY OF PROPERTY. 
 
 A man who has £1000 in gold in his possession which he 
 wishes to invest makes no inquiry for sugar or coffee, nor are 
 the prices of those commodities more affected by the exis- 
 tence of that sura than if it had none. He inquires for 
 stocks, or real estate, and his demands therefore tend to raise 
 their prices. In like manner, when a man comes to London 
 to purchase sugar, although he may add 10 per cent, to the 
 price of that commodity, his presence will have no influence 
 upon stocks or real estate. 
 
 If A., the owner of that gold, lend it temporarily to his 
 neighbour B., to purchase with it sugar or coffee, there is 
 thereby produced in the prices of those commodities a ten- 
 dency to rise. Although A. has lent it to B., he is still desi- 
 rous of finding some mode of investing it, and is a competitor 
 with other capitalists for the purchase of stocks or real estate. 
 This competition tends to keep up their prices, and to keep 
 down the rate of interest derivable from capital invested 
 therein. The effect upon prices generally is the same that 
 would be produced by two persons each owning £1000, which 
 they had in their possession in gold, and which they desired to 
 invest in sugars or stocks. If A. now conclude to build a 
 house, or to unite with others in making a canal or rail road, he 
 must call upon B. to return his gold, to accomplish which B. 
 must sell his sugar or coffee, and thereby is produced a ten- 
 dency to fall in the price of the commodity. The building of 
 the house, or the making of the rail road, increases the num- 
 ber of investments, withdraws A.'s £1000 from competition 
 with other capital, and tends to produce a fall in the price of 
 stocks and real estate, and an increase in the rate of interest 
 derivable therefrom. 
 
 The existence of capital for which the owner is seeking 
 employment, and which is temporarily lent out, tends to raise 
 the prices of commodities, of stocks, and of real estate, above 
 the proper level, in consequence of the double demand 
 by the competition of the owner of it, and of the person to whom 
 he has lent it, and as soon as this double demand ceases, in 
 consequence of its permanent investment, prices fall. If A., 
 instead of lending it temporarily, had given his £1000 in ex- 
 change for a mortgage upon the property of B., having five or 
 ten years to run, no double demand could in the first place 
 have been produced, nor could any change have taken place 
 
ENG LAND. 
 
 57 
 
 until the five or ten years should have elapsed. A. would at 
 once have ceased to be in the market, as a purchaser of stocks, 
 or real estate, and his absence therefrom would have tended to 
 produce a decline in prices, and an increase in the rate of 
 profit or interest. If, instead of taking a mortgage, he had 
 united with one hundred of his neighbours in creating a bank, 
 the whole capital of which was lent to B., the investment 
 would thus have been made permanent, the shares of stock in 
 his possession being exactly equivalent to the mortgage. He 
 would thereby have created a security for himself, instead of 
 being a competitor for those already existing : there would be 
 consequently no disturbance of prices produced, and no subse- 
 quent adjustment would afterwards be required. The reader 
 will now, we think, see that the more complete the facility for 
 investing capital as it is accumulated, the less will be the 
 quantity temporarily lent,* and the less will be the tendency 
 to disturbance, in consequence of the double demand of the 
 owner and the temporary employer ; and that, on the contrary, 
 the greater the impediments to investment, the greater will be 
 the tendency to the accumulation of capital to be temporarily 
 lent, and the greater the tendency to disturbance. 
 
 We will now apply this. Let us suppose that in a commu- 
 nity there exists an association, with a capital of ten millions, 
 possessing an exclusive privilege of banking. Their capital 
 being lent out at five per cent., and the expenses being one 
 per cent., they may divide four per cent. If they purchase 
 five additional millions of securities, giving bank notes in ex- 
 change for them, they will obtain six or six and a half. The 
 immediate effect of this increase of five millions in the loans, 
 is to raise the prices of stocks and real estate, and to lower 
 the rate of interest upon them ; and thus the same operation 
 by which the interest upon bank stock is raised, tends to 
 lower that of all other investments. Capital is rendered 
 superabundant, and its owners, desirous of placing it, are 
 always in the market, and thus aid in keeping up prices ; but 
 they are unwilling to purchase at the high rates, and therefore 
 
 * The loans of banks to individuals are temporary, but as regards the commu- 
 nity at large they may be deemed permanent. The unemployed capital of indi- 
 viduals is temporarily loaned to the community. 
 
58 
 
 INSECURITY OF PROPERTY. 
 
 leave their capital on deposite with the bank, hoping for an 
 opportunity to invest more favourably. The bank, in conse- 
 quence of this increase of deposites, feels itself at liberty to 
 purchase tv^^o more millions. The same operation is repeated. 
 Prices rise and deposites again increase. Three more milHons 
 are now issued, with a still further increase in the profits of 
 bank stock, in prices, and in the superabundance of capital, 
 with a further reduction of interest and consequent increase of 
 deposites. The owners of these, at length, unable to obtain 
 interest at home, conclude to lend their capital abroad. For 
 that purpose they demand gold. The bank now calls upon 
 the owner of commodities, or of stock, to pay the amount lent. 
 He finds that capital has suddenly become scarce. A fort- 
 night before, the owners were anxious to purchase the stocks 
 which he himself held with their capital borrowed from the 
 bank. Now, they have contracted for its investment and wish 
 it returned to them. Instead of a double demand on one day, 
 there is no demand on another. The bubble bursts. Prices 
 of commodities fall in consequence of the necessity for con- 
 verting them into gold. The prices of stocks fall from the 
 same reason, and from the additional one that some foreign 
 state has created a further supply of the same commodity. 
 Instead of selling at twenty-five years' purchase of the income, 
 they will now sell only at twenty, or perhaps fifteen, or even 
 twelve years' purchase. The profit of bank stock has fallen 
 from the necessity for reducing loans, and that of all other 
 capital has risen, because of this necessity imposed on the bunk. 
 The larger its loans, the greater must be its dividends, and the 
 less must be the profit upon all other capital. It is therefore to 
 its interest to pursue a course that increases the difficulty of in- 
 vesting capital proftablyy and that increases the difference 
 between the profit of banking and other capital. 
 
 Let us now suppose a community in which there were no 
 privileges, and in which men were free to exercise the right of 
 associating and of trading with each other upon such terms as 
 they might mutually judge most advantageous^ and in which, 
 of course, banking was perfectly free. We have seen that 
 the increase of loans from 10 to 15 millions increases the 
 profits of bank stock, while it increases the diflBculty of mak- 
 ing investments, diminishes the rate of interest, and increases 
 
ENGLAND. 
 
 59 
 
 the deposites. Bank stock now yields five per cent., while 
 all others yield only three. The owners of a million, or of 
 two miUions, of the deposites come to the bank and demand 
 gold, for the purpose of establishing a new bank to participate 
 in the profits. The bank diminishes its loans and the divi- 
 dends fall to four per cent. The two millions cease to be in 
 the market seeking for investment, the prices of stocks fall, 
 and the rate of interest rises to four per cent. Equality is 
 again restored. Instead of this, let it be supposed that when- 
 ever bank stock rose to one quarter per cent, above the usual 
 rate of four per cent., and other stocks shewed a tendency to 
 fall to one quarter below that rate, the owners of deposites to 
 the amount of 100,000 dollars or pounds should at once 
 create a bank, or convert it into additional stock of the bank, 
 and thus invest their surplus. In such a case no deposites 
 exceeding the amount required for immediate demands would 
 ever exist, and no double demand produced by the same capi- 
 tal could ever arise. It would be to the interest of the bank to 
 pursue a course that would maintain the profits of>the institu- 
 tion as nearly as possible upon a level with that of other capital, 
 because any departure tending to diminish profits generally, 
 and to produce an accumulation of deposites, would have a 
 tendency to produce rival institutions, and if they were pro- 
 duced too fast, the effect would be that the profits of banking 
 capital would fall below the usual rate, and some of them must 
 retire from the business. 
 
 In the statement given above, 80 millions of pounds are 
 loaned out at four per cent., yielding as interest £3,200,000, 
 being more than ten per cent, upon 30 millions of capital in- 
 vested, while the owners of 30 millions of deposites obtain 
 nothing. Were the interest divided among the owners of the 
 60 millions, each would have five per cent., or, after deducting 
 expenses and losses, perhaps 4 to 4| per cent. net. Here is 
 the inequality of the present system. 
 
 The liabilities are 60 millions, and the immediate means of 
 meeting them are ten millions. Here is the insecurity of the 
 system. 
 
 Let us now suppose that to the owners of those deposites 
 
60 
 
 INSECURITY OF PROPERTY. 
 
 was granted the privilege of forming an association on the 
 same principle of limited liability that we find in the system 
 of the Bank of England, to the amount of 10 millions, and see 
 what would be the effects. The first would be, to withdraw 
 that sum from the existing institutions, which would be 
 obliged to call it in from their debtors, in order that the new 
 one might lend it out again ; or the owners of the 10 millions 
 would be willing to take that amount in good notes from the 
 bank, which would thus at once cancel its liabilities and di- 
 minish its loans to that amount ; or the bank might increase 
 its capital 10 millions, and give them certificates in lieu of 
 their deposites, by which the same effect would be produced. 
 The circulation would remain precisely the same, because it is 
 now always kept as full as it is possible to be without forcing a 
 large export of the precious metals^ which would at once correct 
 any mistake that might be made in extending it. 
 
 The account would now stand thus : 
 No. 2, Capital, - 40 Loans, - 80 
 
 Paper circulation, 30 Gold in bank, 10 
 Deposites, - 20 Coin in circulation, 30 
 
 Coin in circulation, 30 
 
 120 120 
 
 While this 10 millions remained in the bank to the credit of 
 the depositors, it was seeking investment. By the change that 
 has taken place it has become invested, and is no longer a 
 part of the currency ^ which has now fallen to eighty millions. 
 The owners of the deposites receive the interest which before 
 was received by the owners of bank stock. No other change 
 has occurred, and no effect is produced upon prices, except 
 that as the amount of investments yielding interest has been 
 slightly increased, and the amount of capital seeking invest- 
 ment somewhat reduced, the average rate of interest has had 
 a tendency to rise, and consequently property yielding interest 
 will not sell for quite as many years' purchase as before. 
 The prices of commodities are no more affected by this 
 increase in the supply of investments than would be the price 
 of fish by an increase in the supply of lumber. 
 
 Here would be £3,200,000 of interest to be divided among 
 the holders of 40 millions of stock, giving them eight per 
 
ENGLAND. 
 
 61 
 
 cent., while 20 millions would yield nothing. Inequality 
 would still exist. The liabilities of the banks would now be 
 50 millions, and their means of meeting them would be 10, so 
 that security would be increased. 
 
 A similar operation would be attended with the following 
 effect : 
 
 No. 3. Capital, - 50 
 
 Paper circulation, 30 
 
 Deposites, - 10 
 
 Gold in circulation, 30 
 
 120 
 
 Total currency, 70 millions. 
 
 Loans, - 80 
 
 Gold in banks, 10 
 Gold in circulation, 30 
 
 120 
 
 Inequality would be diminished and security would be in- 
 creased ; but yet the holders of stock would have a gross 
 income of six per cent., and the liabilities would still be four 
 times as great as the means of meeting them on any instant. 
 
 Instead of these partial grants, let us suppose a law at once 
 passed recognising the right possessed by every man of seeking 
 in his own way the means of improving his condition, and of 
 employing to that end whatever capital he may possess, in such 
 way as he deems most likely to produce the effect. Let it say 
 that men may associate in such way as they may deem most 
 advantageous ; that if persons think proper to contract to trade 
 with them on the principle of limited liability, they may do so, 
 and that the courts shall grant security to both, by enforcing 
 the performance according to the terms of the contract ; but let 
 it require that notice shall be given in such way as may be 
 deemed most certain to prevent fraud. Let it say, if deemed 
 necessary, that every person trading with them shall give his 
 assent by signing his name to a certain paper, or that in every 
 bank book, upon every contract, shall be printed the terms of 
 the association, so that none may trade with them under an 
 erroneous notion that the parties to the concern are liable in 
 their private property for the debts of the concern. 
 
 That having been done, the remaining depositors, or at least 
 a large portion of them, would feel desirous of applying their 
 means in such way as to produce interest. There must, of 
 course, always remain a moderate amount of money on de- 
 
62 
 
 INSECURITY OF PROPERTY. 
 
 posite, but for the present we shall assume that the remaining 
 10 millions are applied to the formation of new banks, after 
 which the account will stand thus : 
 
 No. 4. Capital, - 60 Loans, - 80 
 
 Paper circulation, 30 Gold in bank, 10 
 Gold in circulation, 30 Gold in circulation, 30 
 
 120 120 
 Total currency, 60 millions. 
 
 There is now £ 3,200,000 to be divided among the holders of 
 60 millions of stock, giving to each a gross interest of 5J per 
 cent., or net from 4 to 4J per cent. Here is equality. The 
 liabilities of the banks are 30 millions, and the means of meet- 
 ing them are 10 millions. Here is comparative security. 
 
 There would be a strong desire on the part of the stock- 
 holders, under such circumstances, to increase their profits by 
 substituting paper in place of gold in circulation, and they 
 might with that view increase their loans to 85 millions, the 
 immediate effect of which would be to cause the shipment of 
 five millions of gold. If those notes were of £5 and up- 
 wards, they would cause a drain upon the bank, and it would 
 be necessary at once to recal them ; but if they were of one or 
 two pounds, they would take the place of the gold in circulation^ 
 five millions of which would go abroad, to be exchanged for 
 commodities that would tend to increase the productive power 
 of the nation. 
 
 The account would now stand thus : 
 
 No. 5. Capital, - 60 Loans, - 85 
 
 Paper circulation, 35 Gold in bank, 10 
 Gold in circulation, 25 Gold in circulation, 25 
 
 120 120 
 
 There would now be £3,400,000 to divide among the 
 holders of 60 millions of stock, giving them 5f per cent., or 
 net about 4f . The immediate effect of issuing this additional 
 amount of notes would be to render bank stock more prqfit- 
 able, and by making credit more easy to be obtained, to render 
 capital otherwise employed less prof table than before — in 
 effect, to offer a bonus to capitalists to establish a new bank 
 
ENGLAND. 
 
 63 
 
 or banks with five millions of capital. This sum we will sup- 
 pose to be paid in in gold, when the account will stand thus : 
 
 No. 5. Capital, - 6 Loans, - 85 
 
 Paper circulation, 35 Gold in bank, 15 
 Gold in circulation, 20 Gold in circulation, 20 
 
 120 120 
 
 Total currency, 55 millions. 
 
 We have, now, gold held by the banks to the extent of 
 nearly one-half of their paper in circulation, and the total 
 circulation diminished five millions. 
 
 Here would be a diminution in the quantity of coin or of 
 paper money in circulation, and it might be supposed that 
 such a reduction would have some eifect in reducing prices 
 and causing an import of gold. Much of this sum would, 
 however, be furnished by those who, in consequence of the 
 increase in the number of shops^ at which money could be 
 had when wanted, would be enabled to diminish the quantity 
 of currency retained for the purposes of trade. Checks would 
 be substituted for coin or bank notes. Banks of equal 
 solidity with the Bank of England would exist in various 
 parts of the kingdom, and the gold now hoarded would be 
 invested in their stock, or placed in them on deposite. The 
 increased activity of the 55 millions, and the substitution of 
 checks of individuals, would prevent any reduction of price 
 resulting from reduction in the amount of the currency, 
 whether of bank notes or of gold and silver. 
 
 The issue of five milhons more of small notes would pro- 
 duce a repetition of this operation. Capital would become 
 slightly abundant, the rate of interest would fall, gold would 
 go abroad, the profits of bank stock would rise, and the 
 
 account would stand thus : 
 
 Capital, - - 65 Loans, - - 90 
 
 Paper in circulation, 40 Gold in bank, - 15 
 
 Gold in circulation, 15 Gold in circulation, 15 
 
 120 120 
 Total currency, 55 millions. 
 
 See page 7, ante. 
 
64 
 
 INSECURITY OF PROPERTY. 
 
 Another five millions applied to banking would give us the 
 
 following state of affairs : 
 
 No. 6. Capital, - 70 Loans, - - 90 
 
 Paper circulation, 40 Gold in bank, - 20 
 
 Gold in circulation, 10 Gold in circulation, 10 
 
 120 120 
 
 Let us suppose the loans now increased to 95 millions, 
 yielding £3,800,000, being 5|- per cent, gross interest, and 
 that the effect is to substitute five millions more of paper for 
 
 gold, which goes abroad. 
 
 Capital, - - 70 Loans, - - 95 
 
 Paper circulation, - 45 Gold in bank, - 20 
 
 Gold in circulation, 5 Gold in circulation, 5 
 
 120 120 
 
 Or the loans are made in gold, which is exported. 
 
 Capital, - - 70 Loans, - - 95 
 
 Paper circulation, - 40 Gold in bank, - 15 
 
 Gold in circulation, 10 Gold in circulation, 10 
 
 120 120 
 Total currency, 50 millions. 
 
 There would be a strong tendency to an increase in the 
 amount of issues, and an increase in the rate of profit. A 
 further portion of the gold would go abroad. Affairs would 
 
 now stand thus : 
 
 Capital, - - 70 Loans, - - 100 
 
 Paper circulation, - 45 Gold in bank, - 15 
 
 Gold in circulation, 5 Gold in circulation, 5 
 
 120 120 
 
 Five millions of circulation being rendered unnecessary for 
 the performance of exchanges, in consequence of the further 
 increase of confidence and of the increased number of banks, 
 may now be converted into the capital of new ones, with a 
 
ENGLAND. 
 
 65 
 
 view to obtain a share of the profit resulting from this increase 
 
 of loans, and the account will now stand thus : 
 
 No. 7. Capital, - 75 Loans, - - 100 
 
 Paper in circulation, 40 Gold in bank, - 15 
 
 Gold in circulation, 5 Gold in circulation, 5 
 
 120 120 
 
 Here we have a constant improvement in the security and in 
 the economy of the currency. In the first there are 60 millions 
 of liabilities with only ten millions to meet them, and this in- 
 secure currency is maintained at the cost of the wear and tear 
 of forty millions of gold. In the last there are forty millions 
 of liabilities, with fifteen millions of gold to meet them, and 
 the total cost of this secure currency is the wear and tear of 
 twenty millions. In the first, the state of the currency is 
 dependant upon a few men, directors of the Bank of England, 
 who have, on various occasions, proved their total incapacity 
 for performing the duties of regulators, while in the latter it 
 is regulated by the laws of nature. In the first, a departure 
 of half a dozen millions from the true course of policy might 
 take place without being marked, except by the few who 
 study the returns of the bank, while in the last it would be 
 marked by all those who possessed capital and desired to in- 
 vest it, and the error would be almost instantly corrected. 
 This will be obvious to the reader on an examination of the 
 following table : 
 
 No. 1. Total currency, 90 millions. An increase of 3 millions would be 1-18 
 
 2, " 80 " " " 1-16 
 
 3 ,c 70 « <^ « 1.14 
 
 4 60 " " " 1-12 
 
 5. " 53 " " " 1-11 
 
 6. " 30 " " " 1-10 
 
 7. " 43 " '* 1-9 
 
 In the first, an error of 10 millions would produce no more 
 effect upon prices than would be produced in the last by one 
 of five millions, and error might thus accumulate for a long 
 period without being marked, whereas, in the last, it would be 
 almost as promptly marked as would a change of temperature 
 by the thermometer. In the first there is no immediate check 
 
 K 
 
66 
 
 INSrcCURlTY OF 1»R0PRRTY. 
 
 upon the disposition of the banker to make large profits. In 
 the last there would exist a knowledge that everTj attempt to 
 make large profits would at once diminish the market value of 
 money and offer inducements for the estahlishment of new shops 
 for dealing therein ; and that thus any departure from the true 
 principles of trade must produce competition, and reduction 
 instead of increase of profits. 
 
 With the increased freedom in the employment of capital, 
 and in the number of banks, or money shops, there would be 
 a steady decrease in the quantity of gold or bank-note cur- 
 rency required, and it would ultimately be found that the 
 whole quantity would not exceed 30 millions of gold and of 
 paper, and would probably be much less. Checks of indi- 
 viduals to an equal, and probably much larger amount, would 
 take their place, as confidence in individuals was increased. 
 We have already seen that in London, where every man has 
 his bank near him, the average of private deposites for many 
 years was less than two millions. Yet that sum daily cancelled 
 engagements to the amount of possibly 30 millions, with the 
 aid of an exceedingly small amount of bank notes, gold, or 
 silver.* 
 
 We will now briefly state the operations of the Bank of 
 France that the reader may see how similar are the effects 
 of monopoly in both nations. The capital is nominally 
 90,000,000 of francs, but 22,000,000 thereof have been 
 bought up by the bank, in order to diminish the amount 
 upon which dividends are to be made, and the present capital 
 is therefore 68,000,000 = ^14,000,000. Its circulation in 
 1836 was 200,000,000, or three times the amount of its 
 capital, and its deposites were 48,800,000. The cost of a 
 share was 1000 francs. The selHng price in 1836 was 2290, 
 and the dividend 112 francs. Here is a monopoly in virtue of 
 which certain persons obtain 1 1| per cent., while the nation is 
 agitated with the discussion of the question, whether or not 
 
 * It was stated in 1810, that the daily amount of transactions at the Clearing 
 House varied from £5,000,000 to £15,000,000, and that the amount of bank 
 notes paid varied from £250,000 to ^500,000. 
 
FRANCE. 
 
 67 
 
 the interest upon a part of the public debt shall be reduced 
 from five per cent, to four. The following may be taken as 
 being nearly the state of the bank : 
 
 Capital, - - - 68 millions. 
 
 Deposites, - - - 48 , 
 
 Circulation, - - - 200 
 
 ♦ 316 millions. 
 
 The quantity of specie retained on hand is above 100 
 millions, leaving nearly 200 millions to be loaned out. After 
 seeing this statement, the reader will not be surprised at the 
 extraordinary reduction of its loans in 1832.* 
 
 We now submit to the consideration of the reader the 
 following propositions : 
 
 I. That perfect security of property is inconsistent with re- 
 strictions upon the mode of its employment. 
 
 II. That the greater the freedom, the greater will be the 
 tendency to uniformity in the rate of profit obtained by its 
 owners. 
 
 III. That the more numerous the restrictions, the greater 
 will be the difference in the rates of profit ; and, consequently, 
 
 IV. That perfect freedom in regard to its employment is 
 most in accordance with justice. 
 
 V. That the excess of loans over capital is limited by the 
 amount of currency that can be maintained. 
 
 VI. That the more perfect the freedom enjoyed by the 
 owners of capital, the smaller will be the amount unemployed 
 by them remaining in the form of gold or bank notes, or on 
 deposite in the banks. 
 
 VII. That the currency will thus be diminished in amount; 
 and, consequently, 
 
 VIII. That freedom in the employment of capital tends to 
 limit the power of bankers to expand their loans. 
 
 IX. That the smaller the mass of currency the more im- 
 mediate is the effect produced by any improper expansion, 
 and the more prompt is the effect of any measure of contrac- 
 tion. It is therefore more sensitive. 
 
 * See page 12, anle. 
 
68 
 
 INSECURITY OF PROPERTY. 
 
 X. That perfect freedom is, therefore, most in accordance 
 with stability. 
 
 XI. That every diminution in the quantity of currency tends 
 to diminish the quantity of the precious metals required. 
 
 XII. That perfect freedom in the employment of capital 
 tends to diminish the cost of performing exchanges, and is 
 therefore most in accordance with economy, 
 
 XIII. That the capital which is thus set free may be other- 
 wise applied to increase the production of commodities. 
 
 XIV. That thus there is a constant diminution in the pro- 
 portion which the currency bears to production.* 
 
 XV. That the larger the quantity of commodities produced, 
 the larger will be the quantity falling to both labourer and 
 capitalist. 
 
 XVI. That perfect freedom in the employment of capital 
 tends to benefit both labourer and capitalist, and is therefore 
 dictated by an enlightened self-interest. 
 
 We shall now proceed to inquire how far the results ob- 
 tained by an examination of the banking operations of the 
 several portions of the United States tend to confirm the views 
 we have thus submitted. 
 
 In none of them have the restrictions upon the right of as- 
 sociating and trading in money been entirely repealed ; but in 
 some of them they have virtually been so, by granting acts of 
 incorporation to all or nearly all who have thought proper to 
 ask for them. In others, restrictions have been maintained, 
 and their abolition, in regard to a few persons, has been re- 
 garded as a privilege enabling them to obtain large profits, as 
 is the case in England. In Massachusetts and Rhode Island, 
 and very generally in New England, banking is almost entirely 
 free ; but as we pass south and west we find a constantly 
 
 * Here we find the result before given in regard to transportation of mer- 
 chandise. Every improvement of the roads diminishes the quantity of capital 
 required to be employed in v^agons and horses, and increases the quantity that 
 may be applied to cultivation. There is, therefore, a constant diminution in the 
 proportion which the wagons and horses, or other means of transportation, bear 
 to the products to be transported. 
 
UNITED STATES. 
 
 69 
 
 increasing tendency to restriction. Throughout New England, 
 notes of one dollar and upwards are used, and scarcely any 
 of the precious metals are required for circulation except the 
 fractions of a dollar. 
 
 
 
 
 <*- . 
 
 
 
 
 
 
 
 
 
 o a 
 
 
 
 
 
 
 
 Popula- 
 tion, 
 
 Capital, 
 
 head 
 ilatio 
 
 Total 
 
 head 
 ilatic 
 
 Specie 
 in 
 
 
 Amount 
 of 
 
 
 1830. 
 
 1830. 
 
 U rv, 
 
 currency. 
 
 
 Banks. 
 
 O. u 
 
 loans. 
 
 
 
 
 (Ai a. 
 
 
 
 
 ^ e. 
 
 
 
 
 Dolls. 
 
 Dols 
 
 Dolls. 
 
 Dols 
 
 Dolls. 
 
 D.C. 
 
 Dolls. 
 
 R. Island*^ - 
 
 97,000 
 
 6,118,000 
 
 63 
 
 1,534,000 
 
 16 
 
 343,000 
 
 3 55 
 
 7,309,000 
 
 Massachusetts 
 
 610,000 
 
 20,420,000 
 
 34 
 
 7,292,000 
 
 12 
 
 987,000 
 
 1 64 
 
 26,825,000 
 
 Connecticut - 
 
 297,000 
 
 4,415,000 
 
 15 
 
 2,400,000 
 
 8 
 
 415,000 
 
 1 40 
 
 6,400,000 
 
 N. Hampshire 
 
 269,000 
 
 1,791,000 
 
 6 
 
 916,000 
 
 3 
 
 226,000 
 
 80 
 
 2,481,000 
 
 Maine - - - 
 
 309,000 
 
 2,050,000 
 
 7 
 
 1,046,000 
 
 3 
 
 208,000 
 
 67 
 
 2,883,000 
 
 Vermont - - 
 
 280,000 
 
 432,000 
 
 
 804,000 
 
 3 
 
 428,000 
 
 1 50 
 
 856,000 
 
 
 1,862,000 
 
 35,226,000 
 
 19^ 
 
 13,992,000 
 
 n 
 
 2,607,000 
 
 1 40 
 
 46,759,000 
 
 Here we find, in Rhode Island, banking capital in a higher 
 ratio to population than in any other part of the world. The 
 steadiness of the action of the system maybe judged from the 
 fact, that small as is the amount of specie on hand, a reduc- 
 tion of 10 per cent, of the amount of loans, combined with 
 that specie, would absorb more than two-thirds of the whole 
 currency. The whole amount of capital remaining in the 
 form of deposites, was |86 1,000, or one-seventh of the amount 
 employed in banking. 
 
 Massachusetts is next in order. A reduction of 10 per 
 cent., combined with the specie on hand, would absorb one 
 half of the currency. The whole amount of deposites was 
 #2,545,000, or one-eighth of the banking capital.f 
 
 * These tables have reference to the local banks only. The capital of the Bank 
 of the United States was distributed throughout the Union, and tended to in- 
 crease in all the ratio of banking capital to population. 
 
 t The currency of Massachusetts is rendered less sound than it would other- 
 wise be, by the imposition of a tax of one per cent, upon banking capital. ^ It 
 will be obvious to the reader that no investment will be made unless it will yield 
 as much above the usual rate of interest as will pay the expenses and the amount 
 of the tax. To do this requires business 40 per cent, beyond the capital : thus — 
 
 Capital, ^500,000 
 
 Interest thereon at 6 per cent. .... »8'30,000 
 
 Tax, . 6,000 
 
 Expenses and losses, say 1 per cent. .... 6,000 
 
 J See page 25, ante. 
 
 =«'42,000 
 
70 
 
 INSECUIUTY OI- PU(3PEUTY. 
 
 In Connecticut, we find a diminution in the ratio of capital 
 to population, and an increase in the ratio of currency to 
 capital. A reduction of 10 per cent., combined with the 
 specie on hand, would here absorb but two-fifths of it. 
 
 In Maine, we find banking capital amounting to only ^7 per 
 head. A reduction of 10 per cent, would produce an efJ'ect 
 somewhat similar to that of Connecticut. 
 
 In New Hampshire, the same. ' 
 
 The amount of exchanges to be performed in Rhode Island 
 is far greater than in Maine, which possesses treble its popula- 
 tion, and therefore a larger amount of currency is required. 
 Viewing New England as a whole, which is the proper mode, 
 we find banking capital amounting to |19, or £4 sterling per 
 head, which is more than in any other part of the world. We 
 find a currency of |7 50, or £1 1 \s. per head, being the total 
 quantity, except the smaller silver coins required for payments 
 of fractions of a dollar. It bears a smaller proportion to the 
 amount of production than the currency of any other part of 
 the world. An increase of 10 per cent, in the amount of loans 
 would give an addition of above 30 per cent to the currency. 
 A reduction of 10 per cent, would absorb one-third, independ- 
 ently of all the specie in the vaults of the banks. It was, 
 therefore, the most sensitive system in the world. The loans 
 exceeded the capital by little more than one-third, and if they 
 were all made at 6 per cent., there would be eight per cent, 
 of gross profits to cover tax, losses, expenses of management, 
 and circulation, and to give dividends to the stockholders. The 
 interest derived by owners of bank stock was nearly the same 
 as that obtained from other loans upon equal security. It was 
 therefore the most just system in the world. It was maintained 
 at the cost of the interest and wear and tear of ^1 40=55. \^d, 
 sterling per head, and was therefore the cheapest system in the 
 world. 
 
 To cover this there must be permanently loaned out ^700,000, leaving 40 per 
 cent, excess. Were the tax repealed, a part of even the small sum remaining on 
 deposite, and upon which the existing banks now trade, would be applied to the 
 formation of nev/ ones, accompanied with a diminution in the amount of currency, 
 a diminution in the proportion whicli it would bear to the capital, an in- 
 crease of sensitiveness to change, accompanied by increased facility in the repa- 
 ration of error and consequent increase of safety. 
 
UxMTED STATES. 
 
 71 
 
 Let the reader now compare it with that of the Bank of 
 England, which stands thus : 
 
 Capital. Currency. Specie. Loans. 
 
 £15,000,000 £30,000,000 £8,000,000 £37,000,000 
 The currency furnished b}'^ that institution is twice the 
 amount of its capital, whereas in New England it is only one- 
 third. It pays 8 per cent, interest to its stockholders, being 
 twice as much as others would be willing to receive, under 
 similar circumstances. The system is therefore less just. A 
 reduction of 10 percent, on its loans, united with all its specie, 
 would absorb but little more than one-third of the currency 
 furnished by it. It is therefore less sensitive and less safe. It 
 requires an unemployed capital invested in gold, in bank, 
 sixteen times as great as that of New England, in addition to 
 a large quantity in circulation, while the amount of its busi- 
 ness is but little more than four times as great. It is there- 
 fore less economical. 
 
 New York, New Jersey, and Pennsylvania, in 
 
 New York 
 New Jersey 
 Pennsylvania 
 
 Bolls. 
 ,918,000 20,083,000 
 320,000 2,016,000 
 348,000 14,600,000 
 To this must, however, be added the specie 
 in circulation in Pennsylvania, in which 
 no notes under 5drs.were used, say. 
 
 Capital. 
 
 3,586,000 36,699,000 10 
 
 Currency. 
 
 Dolls'. 
 23,000,000 
 1,700,000 
 16,000,000 
 
 1,600,000 
 
 Specie. 
 
 42,200,000 12 6,600,000 
 
 Dolls. 
 2,200,000 
 
 200,000 
 2,700,000 
 
 1,300,000 
 
 D. C. 
 
 1 15 
 60 
 
 2 00 
 
 Loans. 
 
 1 84 
 
 Dolls. 
 36,000,000 
 3,500,000 
 26,000,000 
 
 64,500,000 
 
 Here we find capital only one-half as great, per head, as in 
 New England. The loans are nearly double the amount of capi- 
 tal. The communities sell to the banks the privilege of trading 
 upon the principle of limited liability, and endeavour to limit 
 the amount for which they shall be permitted to contract 
 debts. The right of issuing paper money is regarded as a 
 source of great profit, and the governments desire to obtain a 
 portion thereof. Thus, by the very act of granting as a pri- 
 vilege what belongs to every man of right, is produced a ne- 
 cessity for over-tradings and consequent insecurity of property. 
 Banks make large dividends, while Hrge amounts remain in 
 
72 
 
 INSECURITY OF PROPERTY. 
 
 the form of deposites yielding nothing to their owners. The 
 system is less just. The currency rises to ^12 per head. An 
 increase of 10 per cent, in the loans would cause an increase 
 of only one-seventh. The system is therefore less sensitive. 
 The liability to a necessity for decreasing it, and the difficulty 
 of accomplishing it, are both greater, as a reduction of 10 per 
 cent., with all the specie on hand, would absorb only 30 per 
 cent, of the currency, whereas in New England the same 
 operation would absorb one-half. It is therefore /ess s«/e. It 
 is based upon a much larger amount of specie, and is there- 
 fore less economical. 
 
 In Maryland, we find banking capital rise to ^14 per head. 
 Currency falls to ^9. 
 
 Maryland, 
 
 Population. 
 
 Capital. 
 
 Per head. 
 
 Currency. 
 
 Per head. 
 
 Specie. 
 
 Per head. 
 
 Loans. 
 
 447,000 
 
 Bolls. 
 6,300,000 
 
 D. 
 14 
 
 Dolls. 
 4,100,000 
 
 n. 
 
 9 
 
 DoUs. 
 890,000 
 
 B.C. 
 
 2 00 
 
 DoUs. 
 9,510,000 
 
 Virginia, 
 North Carolina, 
 South Carolina, 
 Georgia, 
 
 There being no 
 lation in thes 
 tiou must be a 
 
 1,211,000 
 737,000 
 581,000 
 516,000 
 
 5,571,000 
 3,195,000 
 4,631,000 
 4,203,000 
 
 3 
 4 
 
 8 
 8 
 
 5,831,000 
 1,883,000 
 7,600,000 
 4,101,000 
 
 5 
 
 2i 
 13 
 
 8 
 
 832,000 
 179,000 
 520,000 
 1,305,000 
 
 68 
 25 
 90 
 2 53 
 
 10,571,000 
 4,899,000 
 
 11,711,000 
 7,000,000 
 
 3,045,000 
 notes under , 
 ; States, the 
 dded, say, 
 
 17,600,000 
 3 dollars in c 
 spec^ in cir 
 
 6 
 
 ircu- 
 cula- 
 
 19,415,000 
 3,200,000 
 
 6 
 
 2,836,000 
 
 3,200,000 
 6,036,000 
 
 93 
 
 34,181,000 
 
 3,045,000 
 
 17,600,000 
 
 6 
 
 22,615,000 
 
 7 
 
 2 00 
 
 34,181,000 
 
 Here we have capital amounting to ^6 per head, and giving 
 rise to loans to nearly double the amount. Here we have 
 large dividends on bank stocks. Charters are granted as pri- 
 vileges to a favoured few. The capital lying in the form of 
 deposites, in the vaults of the banks, amounts to more than 
 one-fourth as much as the banking capital; whereas in 
 Rhode Island it was only one-seventh. There is no justice. 
 An addition of 10 per cent, to the loans would add but one- 
 sixth to the currency, which is therefore not sensitive. It is 
 nearly as great, per head, as that of New England, although 
 the amount of production is not one-half, nor are the exchanges 
 
UNITED STATES. 
 
 73 
 
 one quarter as great. A reduction of one-tonlh would absorb 
 less than one-sixth of it. The system is therefore unsafe. 
 It is based upon a large amount of specie, and is therefore not 
 economical. 
 
 Upon comparing these results of experience with the propo- 
 sitions which we have submitted to the reader, he will find 
 them in perfect harmony with each other. Where there is 
 the most perfect freedom in the employment of capital, there 
 the safest and least expensive currency is to be found. 
 
 In France, the paper circulation amounts to ^40,000,000 
 the deposites are probably about 12,000,000 
 the coin in circulation is about 580,000,000 
 
 #632,000,000 
 
 or nearly 19 dollars per head, while the coin in the possession 
 of individuals, and in the vaults of the bank, amounts to 18 
 dollars per head. 
 
 In England, the currency may be taken at 90 millions of 
 pounds, being about 28 dollars per head, of which one-third 
 consists of coin, in addition to that held by the bank. 
 
 In the United States, the total currency cannot usually ex- 
 ceed 9 dollars per head, of which not more than one-fourth 
 would usually consist of coin. 
 
 In New England, the currency is about $1 per head, 
 while the whole coin in circulation, and in the banks, is less 
 than 2 dollars. 
 
 The total annual production of France is about 7000 mil- 
 lions of francs, or 40 dollars per head of the population, equal 
 to 13J cents per day for three hundred working days. That 
 of England is stated at 260 millions of pounds sterling, or 81 
 dollars per head, equal to 27 cents per day for three hundred 
 days. That of the United States is about 1500 millions of 
 dollars, or 95 dollars per head, equal to 3 If cents for three 
 hundred days. That of New England may be taken at 35 
 cents per day. 
 
 The currency of France is equal to the product of the nation for 144 days. 
 That of England is equal to " " 110 
 
 That of the United States is equal to " " 
 That of New England is equal to " " 21 
 
 L 
 
74 
 
 INSECURITY OV l» RO P K UT Y. 
 
 The capital employed in the form of coin is, 
 
 In France, equal to the product of - ... - 129 
 
 In England, " " 40 
 
 In the United States, " . - _ . . 7 
 
 In New England, " - - - - - 5^ 
 
 Here we find currency in the inverse ratio of production. 
 The capital that should be employed in machinery, to aid the 
 labourer in producing commodities for exchange, remains in 
 the form of coin, and is unproductive. Were security as com- 
 plete in France as it is in New England, there would be 16 
 dollars of coin for each head of the population, to be converted 
 into rail roads, canals, horses, ploughs, and machinery of all 
 descriptions.^ As security and confidence increase there will 
 be a constant reduction of currency and increase of pro- 
 duction, giving a constant decrease in the proportion which 
 the former bears to the latter. 
 
 It is a very common error to suppose that the gain to a 
 nation from using bank notes, or checks, in place of coin, is 
 only the interest on the amount of coin that is dispensed with. 
 Thus Mr. Gallatin says,t " the substitution of a paper cur- 
 rency to the precious metals does not appear to be attended 
 with any other substantial advantage than its cheapness, and 
 the actual benefit may be calculated with tolerable accuracy." 
 He then proceeds to estimate that forty millions are thereby 
 added to the productive capital of the United States, which 
 at the rate of five per cent. a~year, may be considered as 
 equal to an additional annual profit of two millions of dollars. 
 The substitution of bank notes to a metallic currency pro- 
 duces the same effect as an addition of two millions a year to 
 the exports of the United States, or as a diminution of taxes 
 to the same amount." It is here totally forgotten that the 
 employer of capital derives a profit from its use, as well as 
 
 * " If we had in France the habits of the English and the people of the 
 United States, it is probable that 1000 millions of circulation, half in paper and 
 half in coin, would suffice for our transactions. Allowing for our commercial 
 inferiority, let us admit that 1500 millions would be required, and that it should 
 be composed of two-thirds metals and one-third paper, it follows that we might 
 usefully dispose of 2000, or at least 1500 millions, now unproductive in the form 
 of coin, adding nothing to our coynforts, to our enjopnettts, or to our productive 
 power." — Chevalier, t. i. p. 99. 
 
 t Considerations, p. 19. 
 
UNITED STATES. 
 
 75 
 
 the owner of it. Forty millions of dollars would add ten dol- 
 lars to the machinery of production of every family in the 
 United States, but to perform the services now rendered by 
 credits in the form of bank notes, checks, drafts, &c., two 
 hundred millions, perhaps five hundred millions, would be 
 required. All the roads and canals of the United States have 
 cost but a small portion of the capital that has thus been 
 saved. Those roads and canals pay interest to their owners, 
 while they increase greatly the wages of the labourer, and the 
 profit of the farmer and manufacturer. 
 
 The coin now in France that would be set free by the esta- 
 blishment of credit as universal as that which exists in Mas- 
 sachusetts is not less than 2500 millions of francs, or 500 
 millions of dollars. That sum would give to every man the 
 use of railroads or canals, or other capital, enabling him to 
 manure bis land, to increase his product, and to exchange 
 that increased product more advantageously with the manu- 
 facturer of cloth or shoes. It would give interest to the owner, 
 and would add one-third to the quantity of commodities at the 
 commmid of every labourer and capitalist of France. The de- 
 struction of credit that would cause the substitution of coin for 
 bank notes, checks, and drafts, in the United States (were 
 such a thing possible), would prevent the construction of an- 
 other canal or rail road for half a century to come. 
 
76 
 
 I'UICTION. 
 
 CHAPTER VI. 
 
 FRICTION. 
 
 FRANCE— ENGLAND— SCOTLAND—THE UNITED STATES. 
 
 The difference between the rail roads of the present day and 
 the mud roads of the last century consists in the difference of 
 friction, and in that likewise consists chiefly, as we propose to 
 shew, the difference between the several systems which we 
 have described. 
 
 A century since, the roads of England were such that it re- 
 quired above a fortnight to pass from London to Edinburgh, 
 and for a part of the distance there was none practicable for 
 carriages. At that time capital was limited, manufacturing 
 establishments scarcely existed, and the town population was 
 small. The shops, or places of exchange, were few in number. 
 The market for the surplus produce was distant, and the modes 
 of transportation were bad. 
 
 The large farmer who had wheat or rye for sale could send 
 it to London or to Bristol, but the cost of transportation was 
 such, and the share taken by those who sold or exchanged it 
 for him was so great, that not more than half of the price paid 
 in London reached his pocket- The cultivator of an acre or 
 two, who had eggs or butter, a httle milk, or a few vegetables, 
 or possibly a calf to spare, could not look for a market beyond 
 his immediate vicinity, where almost all raised their own vege- 
 tables, and ate their own eggs and butter. If he found a pur- 
 chaser, it was at a price not half so great as might have been 
 obtained in London, while the commodities required for his 
 consumption were in a corresponding degree enhanced above 
 the cost in that city. The manufacturing labourer could not 
 obtain, in exchange for the product of his exertions, more than 
 half as much eggs or butter as was paid by the consumer in 
 the country, while the latter could not obtain for his eggs or 
 butter more than half as much cloth as was given for them by 
 the consumer in town. Here tvas great friction. 
 
ENGLAND. 
 
 77 
 
 With the increase of population and of capital there has 
 been a great improvement of roads, while the rapid extension 
 of manufactures has brought the consumer of wheat, of eggs, 
 and of butter, to the immediate neighbourhood of those engaged 
 in their production, who are thus enabled to choose between 
 the markets of Birmingham and of London. The producer of 
 wheat obtains within five or ten per cent, as much as is paid 
 by the consumer, and the producer of eggs and butter is 
 enabled to send them speedily and safely to the capital, 
 through the intervention of the numerous dealers scattered 
 throughout every portion of the country. Each of these 
 dealers collects from day to day the surplus of numerous small 
 producers, with infinite advantage to them, as they are thereby 
 enabled to obtain clothing or groceries for commodities that 
 would otherwise be almost useless; and the producer of clothing 
 finds thus a market for his products, receiving a constantly in- 
 creasing quantity of the necessaries of life in return for a 
 given quantity of labour. Here is a daily diminution of 
 friction. 
 
 France is now, in relation to the trade in money, in the 
 condition first above described. She has one principal market, 
 and four or five smaller ones. Restraints upon the free circu- 
 lation of capital enable the owner of that employed at the 
 great market (the Bank of France) to obtain eleven per cent, 
 for the use of it, while innumerable small sums remain idle in 
 the form of coin, because of the want of modes of safely in- 
 vesting it, and the owners, in the words of M. Chevalier, 
 derive from its possession no addition to their comforts, their 
 enjoyments, or their productive power.'" If they wish to 
 transfer it from one place to another, the charge made by the 
 government for doing it is five per cent. Here is great friction. 
 
 In England we find a single institution of high credit. This 
 is the great market, accessible only to the large proprietors, as 
 London was to the farmers, growers of wheat. In both cases 
 we find the traders taking a large proportion as compensation 
 for their trouble, leaving little for the producer. The owners 
 
78 
 
 FRICTION. 
 
 of bank stock have an interest of eight per cent, upon the 
 capital originally invested, which has, nevertheless, long since 
 been lent out at three per cent. The real owners of the 
 capital that is chiefly used (the depositors) have nothing. 
 Here there is great friction. 
 
 While access to the great market has been limited to the 
 large proprietors, the smaller owners of capital have been pro- 
 hibited from employing their own agents to transact their 
 business for them, and have been compelled to depend upon 
 the small trader, or private banker of the neighbourhood, who 
 borrowed at two or two and a half per cent, interest, and who 
 lent at four to five per cent., charging also commission for 
 paying the checks of his customers.* Here was great friction, 
 yet the system was better than that of France. Many of the 
 smaller portions of capital were thus brought into activity with 
 advantage to all. Unfortunately, however, the owners have 
 found that they had little security for the sums so invested, 
 and that while the return was small, the risk was great, the 
 consequence of which is, the hoarding of large amounts of 
 capital in the form of coin, adding nothing to the comfort, the 
 enjoyments, or the productive power of their owners. 
 
 The disadvantage of restrictions having been seen, they have 
 been in part removed, leaving, however, still so much as 
 should forbid men of common prudence to unite in the asso- 
 ciations now permitted. England is converted into a great 
 gaming-house, where people of all stations in life put at risk 
 their whole property, in the hope of making eight or ten per 
 cent, upon a small portion thereof invested in a joint-stock 
 bank. These risks establish a monopoly of banking in favour 
 of those who have great nerve, or of those who have nothing 
 to lose, and effectually prevent the prudent owner of small 
 capital from uniting in them. Here, again, we find great 
 friction. 
 
 If it thus exists to a great extent in the transactions between 
 those who own, and those who lend out, capital, it exists in no 
 less decree in the relations between the latter and their agents, 
 
 " * The Northern and Central Bank, in 1836, charged commission upon more 
 than o£'400,000 in a single week. In the first three months of that year it re- 
 ceived commission upon more than four millions, or five times the amount of its 
 capital." — Report on Joint- Stock Banks, 1837, Appendix, p. 161. 
 
ENGLAN D. 
 
 79 
 
 all business being transacted in a wasteful manner, when com- 
 petition is, from either natural or artificial causes, diminished^ 
 The amount of securities usually held by the Bank of England 
 may be taken at about £22,000,000,* being nearly five times 
 as much as those held by the Banks of Massachusetts. f The 
 expenses amount to £425,000, or |2,040,000, being nearly 
 nine times as much as the losses and expenses of all those banks, 
 whereas, they should increase much more slowly than the 
 capital. The total revenue derived from the loan of the capital 
 of the institution is less than £450,000, and is nearly all 
 swallowed up in expenses. Here is great friction. The cost 
 to the public is far greater than the revenue to the proprietors. 
 
 The bank has eleven branches, which receive, on an average, 
 £3000 each in interest, and £300 in commissions. The average 
 expenses are £3000 each, or as much as the interest received. ;{: 
 The expenses alone of the Northern and Central Bank, with 
 a capital of £700,000, or |3,400,000 (being little more than 
 one-fifth of the average of the banking capital of Massa- 
 chusetts), were about £25000=^120,000 per annum, or more 
 than one-half of all the expenses and losses of the banks of that 
 State. 
 
 The expenses of the Norfolk and Norwich Bank, with a 
 capital of £17,000, were £4,055 lis. 2d.y or nearly twenty-Jive 
 per cent.^ So wasteful are the operations of associations that 
 are, from any cause, permitted to enjoy monopolies. 
 
 Such institutions are as little calculated to inspire confi- 
 dence as the private banks have shewn themselves to be; but 
 were the trade in money set free, were men permitted to select 
 their own agents, and to trade together as they thought pro- 
 per, there would speedily be established in every part of 
 England banks owned by the cautious and the prudent, and 
 governed by men of sound judgment, that would inspire in 
 every village the same confidence in its local institution that 
 is now felt in the Bank of England, and then every shilling of 
 capital would be brought to aid in the increase of productive 
 power. Competition would compel the practice of economy 
 
 * In addition to this, the capital, 15 millions, is lent to government, but that 
 requires no expenditure for management. 
 
 t See page 25 ante. t Report on Bank Charter, Appendix, p. 46. 
 
 § Report on Joint-Stock Banks, 1836, p. 30. 
 
80 
 
 !■ HICTION. 
 
 in the management,, and the proprietors would thus divide 
 'among themselves nearly the whole price paid by the em- 
 ployers of capital, as the farmer now pockets nearly as much 
 as is paid in London or in Manchester for his wheat, his butter, 
 or his eggs, and finds in his increased reward the strongest in- 
 ducement to use every exertion to increase the quantity sent 
 thereto. Here would be a daily diminution of friction. 
 
 We now proceed to examine the system of the Scottish 
 Banks, in which we find a much greater degree of freedom 
 than in that of England. Three banking companies were in- 
 corporated in 1695, 1727, and 1746, respectively, the capitals 
 of which have been gradually increased until they now amount 
 to £3,500,000, being one-half greater in proportion to popu- 
 lation than the capital of the Bank of England, and twice as 
 great in proportion to the amount of exchanges to be per- 
 formed. 
 
 No restraint has ever been imposed upon the formation of 
 joint-stock banks, but they could trade only on the terms fixed 
 by the law — those of the unlimited liability of all interested. 
 In consequence of this comparative freedom we find such in- 
 stitutions gradually increasing in number. Their dates and 
 the number of partners are as follow : 
 
 Banks, Partners, Banks. Partners. Banks. Partners. 
 1, 1738, 8. 2, 1777, 7,61. 1, 1792, 15. 
 1, 1746, 3. 1, 1778, 15. 3. 1802, 6,4,7. 
 
 1, 1761, 6. 1, 1783, 6. 2, 1809, 85, 19. 
 
 2, 1766, 147,60. 1, 1785, 14. 1. 1810, 521. 
 1, 1767, 80. 1, 1787, 5. 1, 1814, 97. 
 
 1, 1773, 8. 1, 1788, 4. 4, 1825, 446, 112,202, 1238. 
 
 Mr. M'CuUoch informs us that there have been compara- 
 tively few bankruptcies among the Scotch banks."''^ Unfor- 
 tunately he does not state the number, and we are therefore 
 unable to ascertain whether it exceeds or falls short of the 
 number shewn to have taken place in Rhode Island or Mas- 
 sachusetts. The average number in existence during the last 
 twenty-five years may be taken at twenty-eight. The annual 
 average of failures in those States having been about one-half 
 of one per cent., would give for Scotland in the same period 
 
 * Dictionary of Commerce, p. 89. 
 
SCOTLAND. 
 
 81 
 
 three and a half bankruptcies. It is not, however, by them 
 alone that we are to judge of the system. The most important 
 subject for consideration is the amount of friction — the differ- 
 ence in the cost of the commodity, money, to the user, and its 
 product to the owner. 
 
 The incorporated banks divide from eight to ten per cent, 
 upon their capitals, and their shares sell for more than double 
 the original cost. The owners of capital are willing to take 
 four per cent, interest, provided they can have security. 
 
 The restraint upon the freedom of action, which prevents 
 other persons from forming associations to trade upon the 
 footing of hmited liability, compels those who are unwilling 
 to incur the risk of joint-stock banks, to leave large sums in 
 the hands of their bankers on interest. In 1831, the amount 
 was estimated at 24 millions of pounds, or 116 millions of 
 dollars, the interest allowed on which was from 2 to 2^ per 
 cent.^ In 1826, it was 4 per cent. The difference between 
 the average rate at which capital is borrowed and lent by the 
 banks cannot be taken at less than one per cent., and it is pro- 
 bably more. This One per cent, and the projit of circulation 
 are retained by the banker. Here is the friction of a good 
 wagon upon a tolerable turnpike road — a system somewhat 
 better than that of England, but still an inferior one, as the 
 reader will judge from the following statement: — 
 
 The capital of the three incorporated banks is £ 3,500,000 
 
 Let us suppose that of all the joint-stock banks to be twice as much, 
 
 say 7,000,000 
 
 £ 10,500,000 
 
 Yielding, at five per cent £ 525,000 
 
 The deposites being 24 millions, and invested in the public funds, 
 
 yielding only 3^ per cent 780,000 
 
 The circulation consisted, in 1826, of £2,079,344 in notes under 
 £5, and £1,229,838 in notes of £5 and upwards. It is now 
 estimated by Mr. M'CuUoch at £4,000,000, which we will sup- 
 pose to be likewise invested in the funds at 3^ per cent 130,000 
 
 .£1,435,000 
 
 Less 2| per cent, upon 24 millions of deposites, say 600,000 
 
 Balance £835,000 
 
 * M'CuUoch, Dictionary of Commerce, p. 89. 
 M 
 
82 
 
 FRICTION. 
 
 Being, without counting commissiony which is charged upon 
 most of the transactions, eight per cent, gross interest upon 
 the capital, to meet the expenses and losses. If that capital 
 does not exceed eight millions, which we think likely to be the 
 case, it gives a gross interest of nine per cent. Here, it will 
 be observed, we have considered the whole amount of deposites 
 and circulation as placed in the funds, and yielding only 3| 
 per cent., whereas a large portion is probably lent out at four 
 and five per cent., thus greatly increasing the profits of the 
 bankers. 
 
 If we estimated the unnecessary friction at only one per 
 cent, per annum, it would amount, in Scotland, to about 
 £250,000 per annum, or two-fifths of the sum paid as interest 
 in 1831. When it is known that "more than one-half of the 
 deposites" are in sums from ten pounds to two hundred 
 pounds,"* and are the property of labourers, smaller trades- 
 men, &c., it will be seen how important would be the saving 
 of this amount, by an improvement of the machinery. 
 
 The comparative freedom of the trade in money has been 
 accompanied by a gradual increase in the number of places at 
 which it is carried on. The prudence with which the banks 
 have been conducted has inspired confidence to such an ex- 
 tent as to induce the smaller owners of capital to place it on 
 deposite, and the small trader and the labourer to have 
 implicit faith in paper money. The consequence is, that the 
 total circulation is little more than £2 per head, and of that 
 sum a very small portion consists of coin. The growth of 
 improvement in Scotland has been greater than in any other 
 portion of Europe, and is to be attributed, in a great degree, to 
 the comparative absence of restraints upon the employment of 
 capital. Were all restrictions abolished, her growth would be 
 still more rapid. Those who now obtain 2 J per cent, would 
 then have four, and many who cannot now obtain the aid of 
 capital would then do so. The amount invested in the 
 English funds would be smaller, and that applied to the im- 
 provement of Scottish agriculture and manufactures would be 
 
 * M'Culloch, Dictionary of Commerce, p. 89. 
 
UNITED STATES. 
 
 83 
 
 larger. Production would be increased, and both capitalist 
 and labourer would be benefited.* 
 
 In New England, there is almost literally no capital not 
 directly employed for the advantage of its owners. The 
 whole sum on deposite and in circulation is merely that which 
 is required from hour to hour by them. The class of persons 
 who in Scotland place their capitals on deposite, in New Eng- 
 land purchase stock, and they obtain as dividend the same 
 rate of interest that is paid by the borrower, the expenses 
 being paid by the profit of circulation, as we have seen. Here 
 there is the friction of a fine locomotive upon a well-built rail 
 road. How far this system has the tendency of collecting 
 and bringing into activity the small amounts of capital that 
 might otherwise remain idle and unproductive, as is the case 
 when roads are bad and communications difficult with the 
 small surplus of the occupants of farms of two, three, or five 
 acres, who cannot find market for their eggs or their milk, 
 will be shewn by the following statements : — 
 
 It appears from careful examination, that of the stock of 
 all the banks in Portsmouth, New Hampshire, six in number, 
 and comprising an aggregate of 11,045 shares, there are 
 owned by 
 
 Females . _ _ 2438 shares. 
 
 Mechanics - - - 673 « 
 
 Farmers and labourers - 1245 " 
 
 Savings' bank - - 1013 " 
 
 Guardians - - - C30 " 
 
 Estates - - - 307 " 
 
 Charitable institutions - 548 " 
 
 Corporations and State - 157 " 
 
 Government officers - 438 
 
 Mariners . - - 434 shares. 
 
 Merchants - - - 2038 " 
 
 Traders - - - 191 
 
 Lawyers - - - 377 " 
 
 Physicians - - - 336 " 
 Clergymen - 220 " 
 
 Total shares - 11,045 
 
 * The comparative security of the Scottish banks results from the fact that a 
 very large portion of their capital is not employed at home. Their managers 
 transfer a large portion of their deposites to the exchange of London, to be in- 
 vested in the public funds. When those deposites are large, they purchase freely 
 there, and thus increase the difficulty of investment in England, increase the 
 deposites in the Bank of England, and increase the risk of change. When 
 called upon for a return of the deposites, in consequence of its investment by the 
 owners in foreign loans or securities, they sell out in London, and thus increase 
 the pressure, t The disadvantage of the system is, in most respects, similar to 
 
 t " In times of prosperity they push out their notes and credits to an undue 
 extent, and are consequently compelled to diminish them as violently when cir- 
 cumstances alter." — Remarks on Currency, by G. W. Norman, p. 62. 
 
B4 
 
 FRICTION. 
 
 Six other banks in New Hampshire shew about the same 
 proportion of ownership between the different classes. 
 
 The whole number of stockholders of the Bank of Ulica 
 (New York) is one hundred and ninety-one, of whom 
 
 28 are Farmers, 
 18 Merchants, 
 
 15 Trustees of estates, executors, or 
 
 guardians, 
 45 Females, generally unmarried or 
 widows, 
 1 Clergyman, 
 9 Lawyers, 
 1 Physician, 
 
 9 Manufacturers or merchants, 
 
 4 Civil engineers, 
 3 Bank officers, 
 
 2 Officers of the United States' Navy, 
 1 Broker, 
 
 1 Presbyterian church, 
 
 1 School district, 
 1 7 Aged persons retired from business, 
 27 Unknown, residing out of the State. 
 
 191 
 
 More than one-fourth of the whole capital stock of the 
 banks in the State of Massachusetts is held by females, 
 trustees, guardians, executors, and administrators, and insti- 
 tutions for savings. The apportionment is as follows : — 
 
 Amount of stock held by females ^3,834,011 83 
 
 «' " " trustees 2,625,616 67 
 
 '* " " guardians 588,045 17 
 
 Savings' institutions 2,255,554 33 
 
 *' Executors and administrators 692,519 17 
 
 m,995,747 17 
 
 It is impossible to conceive of a system more purely demo- 
 cratic, more perfectly fair, just, and equal, than that of banking 
 in New England. It is a system of savings' banks. In Eng- 
 land, it is deemed disadvantageous to have joint-stock banks 
 with shares of £5 or £10, lest they " degenerate into mere 
 savino-s' banks/' in which " servant-men and women and 
 little tradesmen will put their money."* Banks with unlimited 
 liability are anxious to present the names of men of rank 
 and fortune"t as shareholders, the credit of the institution 
 resulting from the power on the part of the creditors to look to 
 their private fortunes. Banks of limited liability invite little 
 
 that of England ;| but its effects in causing violent changes are felt chiefly in 
 the great market and its vicinity. Were Scottish capital more extensively 
 applied to the improvement of Scottish cultivation or manufactures, the in- 
 jurious as well as the advantageous effects of the system would be more exten - 
 sively felt at home. 
 
 * Report on Joint- Stock Banks, 1836, p. 128. f Ibid. 
 
 J " In periods of commercial difficulty, no country is said to suffer from in- 
 solvency more severely than Scotland." — Remarks on Currennj, by G. W, Nor- 
 man, p. 61. 
 
UNITED STATES. 
 
 85 
 
 tradesmen," and even " servant-men and women," to become 
 stockholders, the credit of the institution depending upon the 
 extent of its capital, and not upon the rank or fortune of the 
 proprietors. The former desire to trade with large operators, 
 and thus maintain a system of monopoly by which the active 
 and industrious are prevented from improving their condition. 
 The latter place capital at the command of the little trades- 
 men," and enable them to become large dealers, and at that of 
 the journeyman mechanic, enabling him frequently to place 
 himself above those who were once his employers. 
 
 The banks of Massachusetts have received on deposite the 
 surplus funds of the people, and they have paid them over as 
 required, or they have transferred them from the account of 
 one to that of another. They have furnished a circulating 
 medium more convenient than gold. The people of that 
 State have enjoyed the advantages resulting from the credit 
 system more completely than those of any other part of the 
 world, except Rhode Island ; their labour has been aided 
 thereby as much as by their turnpikes and rail roads ; and the 
 toll has been almost nothing. The owners of bank stock 
 have received common interest (six per cent.) for the use 
 of their capital, and, in addition, each institution has received 
 on an average |5000 per annum for the payment of its ex- 
 penses and losses in thus doing the business of the people. A 
 commission of one-fiftieth of one per cent, upon the transactions 
 facilitated by them would have amounted to a much larger 
 sum. There is scarcely any friction whatever. The stock- 
 holders thus perform numerous and important duties for the 
 community, and they give as security for the faithful perform- 
 ance thereof the whole amount of their respective interests in 
 the institutions. The security being thus limited, they per- 
 form those duties almost without charge. Were their respon- 
 sibilities increased, their charges would more resemble those 
 of the joint-stock banks of England.* 
 
 Leaving New England and passing south, we find, as has 
 already been shewn, a constant increase in the dividends of 
 the owners of bank stocks, and an equally constant increase 
 in the capital of others remaining in bank in the form o( 
 deposites, to be employed for their benefit. Nevertheless, the 
 
 * The Bank of Hamburg charges nearly one-half per cent, on all moneys that 
 pass through its hands. 
 
86 
 
 FRICTION. 
 
 tendency towards freedom of action is such as to render it 
 necessary for all to endeavour to accommodate the public at 
 moderate cost, and so to conduct their business as to enable 
 them to do it. 
 
 We have before us a statement of the operations of the 
 Girard Bank in Philadelphia, an institution now having a 
 capital of five millions of dollars, but which had until within 
 little more than two years, only one million and a half. In 
 about five years and a half it discounted bills to the amount 
 of 185,931,000, being an average of about 16,000,000 per 
 annum. In 1836, it transacted domestic exchanges to the 
 amount of 43,000,000. During a considerable portion of the 
 time it was one of the fiscal agents of the government, for 
 which it received and paid out ^14,000,000, and paid twice a 
 year above 2000 invalid pensioners. It was, in addition to all 
 this, agent for numerous distant institutions, of the capital 
 of which upwards of ^7,000,000 stood on the books kept by 
 its clerks. 
 
 The total amount of its expenses, including those attendant 
 upon the organization of the institution, the engraving of its 
 notes, &C.5 has been ^185,000, or an average of ^33,700 per 
 annum, being less than double that of the Norfolk and Norwich 
 Bank, with a capital of £17,000, little more than one-fourth 
 of that of the Northern and Central Bank, and exceeding by 
 a very small amount that of two branches of the Bank of Eng- 
 land, whose whole receipts for interest and commissions do not 
 amount to £7,000. 
 
 The usual rate of interest is six per cent, per annum. The 
 stockholders of the Girard Bank have had seven per cent. 
 Thus, between the people and the stockholders, and between 
 the stockholders and their agents, there is a very small amount 
 of friction. 
 
 We have also a statement of the operations of the Bank of 
 the United States in 1832, from which it appears that the 
 total amount of transfers of funds from one part of the Union 
 to another, in that year, was $255,000,000, and that the total 
 charge to the public for this amount of accommodation was but 
 one-twelfth of one per cent.* When the great extent and 
 
 * The following case, given in the Report of the Select Comnnittee on Postage, 
 shews a very differont state of things in Great Britain : — 
 
 " I have (says Mr. Dillon) a bill here upon Edinburgh for £25, and if that 
 
UNITED STATES. 
 
 87 
 
 scattered population of the American Union, and the conse- 
 quent difficulty of transferring money from one part to another, 
 are considered, it must be admitted that no parallel to this can 
 possibly be found. Here is a charge averaging but five days* 
 interest over this vast country, whereas in England, densely 
 peopled as it is, the bankers issue, as cash, post notes payable 
 in London on the ninth day, making a charge nearly twice as 
 great as the average of the United States. From Edinburgh 
 to London we believe it is thirty days, or six times as great. 
 
 The bank had twenty- seven branches, scattered over a sur- 
 face of 750,000 square miles. It was the fiscal agent of the 
 government, collecting and disbursing the whole of the public 
 revenue ; paying the interest on the national debt ; paying, 
 during many years, about 20,000 pensioners ; transferring in a 
 single year, as has been shewn, ^255,000,000 ; independently 
 of the business resulting from the large amount constantly in- 
 vested in public and private securities ; yet the average ex- 
 penditure of this immense concern has been only ^381,181, 
 being less than I-jq per cent, upon the capital, and about f of 
 one per cent, upon the average amount of investments. The 
 total amount of expenses and losses does not exceed 1^ percent, 
 upon the amount of loans, and if we take the last fifteen years 
 it does not amount to one per cent. 
 
 It may safely be asserted that there is no instance to be 
 found in which a business so large and so widely scattered has 
 been transacted with so small loss ; in which the community 
 
 were our only transaction, ov if it were the transaction of a small tradesman, 
 having no other, he must send that bill to a banker in Edinburgh, which would 
 be a double postage ; he would receive another bill on London in exchange, 
 which would be another double postage; and he is bound, by the course of 
 business, to send a letter of advice; that would be five postages of Is. ]hd. each, 
 incurred upon a two months' bill of £25. In all probability there would be a 
 sixth postage, in acknowledgment to the banker. This amounts to more upon 
 a two months' bill of £25 than the discount for the time." 
 
 In addition to all these expenses, the owner of the bill would lose perhaps 
 thirty days' interest upon the bill on London remitted him in payment. The 
 same " small tradesman," living in any town in the United States in which there 
 was a bank, could obtain payment of a bill due in almost any other town, distant 
 1000 or 1500 miles, in which there was also a bank, at less cost, and without the 
 trouble of %vriting or reading letters. Throughout a large portion of the Union 
 there was no charge whatever, and the highest rate charged by the Bank of the 
 United States, in making collections from any one part of the Union to any other 
 partf was only thirty days' interest. 
 
88 
 
 INSECURITY OF PROPERTY. 
 
 has been so largely benefited at so small cost ; in which the 
 cost of management has been so small ; in which there has 
 been so nearly a total absence of friction, as in the case now 
 offered for consideration. It was a nearer approach to per- 
 fection than the world had ever seen, or than probably will 
 soon again be seen, unless the people, by their representatives, 
 shall see the propriety of restoring to all men the right of asso- 
 ciating and of trading together on such terms as they may 
 deem most advantageous. 
 
 On a review of the operations of the United States, the 
 reader will be satisfied that at no period, nor in any nation, has 
 so large an amount of service been rendered at so small a cost 
 as by their banks. They have brought the owner of capital 
 into direct communication with the active, the industrious, and 
 the enterprising, who desired to use it, and the cost of manage- 
 ment has been so small as scarcely to deserve notice. They 
 have enabled the owner of a single hundred dollars to trade on 
 the same terms as the owner of millions, and with a security 
 so nearly complete that none have feared to invest their sav- 
 ings, and thus they have acted as savings' banks of the best 
 kind. They have furnished facilities for the transfer of pro- 
 perty from hand to hand, and from place to place, more com- 
 plete than exist in any part of the world, and thus have acted 
 as great labour-saving machines. By their aid, labour has 
 been rendered productive, and both labourer and capitalist 
 have experienced the advantage in a constant increase of 
 reward for their time, their talents, and their capital. 
 
 In opposition to this is the fact, that there has been un- 
 steadiness in their operations. We do not, however, find this 
 to so great an extent as in the Bank of France, which in- 
 creased its loans from 151 millions in 1832, to 760 millions in 
 1836; nor to so great an extent as in the Bank of England, 
 which increased its loans from 17 millions in 1823, to 33 mil- 
 lions in 1826. This disadvantage exists with those institutions 
 to an extent greater than has ever been experienced in the 
 United States, while they afford in return fewer advantages, 
 and at far greater cost. It is a disadvantage that must con- 
 tinue to be attendant upon the system of granting, as privi- 
 
UNITED STATES. 
 
 89 
 
 leges, the powers that should be exercised by all men as 
 rights. It has its origin in the erroneous idea that banking is 
 different from all other trades ; that it affords the means of 
 making large profits ; and that the right to bank should 
 be held as a privilege to he sold to a few individuals. Com- 
 munities, acting under this false impression, demand large 
 bonuses for its use, thus imposing upon the parties a necessity 
 for trading much beyond their capital ; and when inconveni- 
 ence results therefrom, the error is attributed to the bankers, 
 whereas it belongs to the community, who limit the number of 
 bankers, and thus close one of the markets for capital, while 
 they make it the interest of those to whom they grant the 
 privilege to act in a manner that shall render capital super- 
 abundant to remain in their hands as deposites, yielding no 
 profit to the owners. In proportion as we find that idea dis- 
 appearing, we find the States enjoying the advantage without 
 the disadvantage, and that in Rhode Island^ there exists a 
 system less liable to change than in any country in the world. 
 Such will be the case throughout the Union, and throughout 
 the world, whenever the existing restrictions shall come to be 
 abolished, as we doubt not they soon will be. 
 
 * However sound may be the system of Rhode Island, her merchants are still 
 liable to loss and failure from error in the system of New York or Pennsylvania. 
 In the late convulsion, most of the failures of that State arose out of the irregular 
 action of the banks south and west of that State, and would have been produced 
 if their own banks had not changed their operations in the slightest degree. 
 Under a good system, aid may be rendered to those who suffer from error in that 
 of other states or countries ; whereas, under a bad one, the error of other states 
 or countries is increased, and the banks, instead of aiding others, are compelled 
 to confine their regards to themselves. 
 
 N 
 
90 
 
 THE UNITED STATES IN 1836-7. 
 
 CHAPTER VII. 
 
 THE UNITED STATES IN 1836-7. 
 
 It becomes necessary now to inquire into the causes of the 
 recent and still existing agitation in the monetary system of 
 the United States, with a view to shew how far it tends to 
 confirm or to contradict the views which we have submitted. 
 By way of illustrating it, we will first take an imaginary 
 case, as nearly as possible similar. 
 
 Let us suppose a community with a population of one mil- 
 lion of persons, having banking capital to the amount of ten 
 millions, upon which are loaned thirteen millions, giving a 
 paper circulation of three millions, and that in addition thereto 
 there is in circulation one million of gold. The account will 
 now stand thus : 
 
 Banking Per Per Of which, Per Total of 
 
 Population. capital. head. Currency, head. gold. head. loans. 
 
 Bolls. D. Dolls. D. Dolls, D. Dolls. 
 
 1,000,000 10,000,000 10 4,000,000 4 1,000,000 1 13,000,000 
 
 Gross profits of banking capital, l-fo per cent. ; net profit, 
 65 per cent. Let us now suppose that one of the wealthiest 
 members of the community is carried off by death; that this 
 person has five millions invested in bonds and mortgages fall- 
 ing due at the rate of a million per annum ; that he has left 
 no will ; and that no power exists to prolong those loans, which 
 consequently must be paid up.* The judge, or the chan- 
 cellor, may permit them to be paid into the banks, there to 
 remain until a division can be made ; or he may order them 
 to be paid into court, in gold. We will now examine both of 
 these operations, and try their effect on the currency. In the 
 first case the bank receives one million of deposites at the 
 same moment that a demand is created for one million to meet 
 
 * This supposed case is exactly parallel with that of a government having a 
 large surplus revenue which it can neither invest nor expend, as was the case 
 with that of the United States. 
 
THE UNITED STATES IN 1836-7. 
 
 91 
 
 the claims of the estate. The bank, knowing that it cannot 
 be reclaimed until a decision shall have been obtained, which 
 may not take place for several years, concludes to lend it out ; 
 or, in other words, takes new mortgages in place of the old 
 ones, and becomes itself responsible to the estate. The cur- 
 rency is nominally increased by one million of deposites ; but 
 as that is a deferred debt, there is really no increase, and 
 affairs stand thus : 
 
 Banking Per Total Per Of which. Per Amount of 
 
 Population. capital, head, currency, head. gold. head. loans. 
 
 Bolls. D. Dolls. D. Dolls. D. Dolls. 
 1,000,000 10,000,000 11 4,000,000 4 1,000,000 1 14,000,000 
 Permanent deposite, 1,000,000 
 
 Total, 11,000,000 
 
 The only difference produced by this operation is, that the 
 estate no longer receives interest, and that the bank does re- 
 ceive it. The gross profit of banking is now increased to 
 8yV per cent., and the net profit to about 7 per cent. 
 
 A second year produces another miUion. The account now 
 stands thus : 
 
 Banking Per Per Of which. Per 
 
 Population. capital, head. Currency, head. gold. head. Loans. 
 
 Dolls. D. Dolls. D. Dolls. D. Dolls. 
 1,000,000 10,000,000 12 4,000,000 4 1,000,000 1 15,000,000 
 
 Permanent deposite, 2,000,000 
 
 12,000,000 
 
 The gross profit of banking capital now rises to 9 per cent., 
 and the net profit to about 7J per cent. Here is a change 
 produced by the simple transfer of the mortgages of the estate 
 to the banks, which have been almost entirely passive. They 
 have increased their liabilities two millions, and their loans 
 two millions, and have rendered themselves responsible for the 
 production of that sum, whenever demanded. The currency 
 has not been altered, nor has any variation in prices been pro- 
 duced. 
 
 If, instead of placing this capital at the control of the banks, 
 the chancellor had required it to be paid into court, in gold, 
 
92 
 
 THE UNITED STATES IN 1836-7. 
 
 the followincr would have been the state of affairs at the end 
 of the first year : 
 
 Population. Banking capital. Per head. Currency. Per head. Loans. 
 
 Dolls. D. Dolls. D. Dolls. 
 
 1,000,000 10,000,000 10 3,000,000 3 13,000,000 
 
 The whole million of gold had gone into court, and the cur- 
 rency had been diminished one-fourth, leaving only three mil- 
 lions of paper in circulation. This change must have pro- 
 duced a depression of prices, and the necessary consequence 
 must have been extensive ruin. Here would have been no ac- 
 tion of the banks. 
 
 A second year would produce the same effect. A million 
 of bank notes would now be received in payment of bonds and 
 mortgages, and the banks, being compelled to produce gold in 
 exchange therefor, would be obliged to diminish their loans 
 one million, in order to meet the demand. The following 
 would now be the state of affairs : 
 
 Population. Capital. Per head. Currency. Per head. Loans. 
 
 Dells. D. Dolls. D. Dolls. 
 
 1,000,000 10,000,000 10 2,000,000 2 12,000,000 
 
 The great reduction of prices would of course cause an 
 influx of gold, and thus enable the bank to produce the sum 
 required. 
 
 The reader has seen * that when an individual has in his 
 possession a quantity of gold, for which he is seeking invest- 
 ment, there is produced a demand for securities precisely equal 
 to the amount to be invested ; that when he loans it tempo- 
 rarily until he can find a mode of investing it, there is pro- 
 duced a double demand, — viz., that of the owner and employer 
 of it ; and that this tends to raise prices and produce irregu- 
 larity. The case here suggested is precisely the reverse of this 
 last. The amount paid in would cease to produce any demand 
 for commodities or securities^ and all prices would fall. To 
 place it in the hands of the banks, who should continue to 
 use it as it had before been used, was to continue all as it had 
 been, and all that would be necessary to prevent diflSculty 
 would be that the owner should not enter upon the use of it until 
 
 * Ante, page 56. 
 
THE UNITED STATES IN 1836-7. 
 
 93 
 
 withdrawn from the employer. To that end it should be with- 
 drawn as gradually as it had been deposited. 
 
 We have seen that the accumulation of deposites in the 
 banks did not necessarily produce any change in the state of 
 the currency. The adoption of the other system, on the con- 
 trary, could not fail to produce a violent change. The first 
 mode of operation we will suppose to have been the one 
 adopted. It, however, was attended with circumstances of 
 some difiiculty. The bank had loaned out two miUions, for 
 which it was responsible, and if payment were suddenly de- 
 manded, it would be under the necessity of calling in its loans 
 equally suddenly, thereby producing the same mischief that 
 it had prevented by taking the place of the proprietor, and 
 this could be avoided only by making the demand upon it for 
 repayment very gradual, in order that the re-investments 
 should proceed step by step therewith. It was liable also to 
 another difficulty. The whole of this capital had been 
 managed by a single individual. It was taken from his con- 
 trol by an act of Providence tending to produce considerable 
 disturbance, and in attempting to prevent that disturbance, it 
 would be important to depart as little as possible from the 
 previously existing state of things. If the court continued 
 the management of it in the hands of one bank, or among a 
 certain number of existing banks, not liable to be changed, the 
 profits would, it is true, constitute a bonus to the stockholders 
 of those institutions, but would cause no change in the banking 
 system ; but if the management were to be divided among all 
 the banks that might be created, the effect would be equiva- 
 lent to offering a bounty upon the creation of new ones, and 
 to the diversion of capital from one employment, or one place, 
 to another.* Let us suppose the latter to be the course pur- 
 
 * If the management were granted to a single individual who was permitted 
 to enjoy the profit, no disturbance would be produced ; but if the revenue were 
 to be divided among all persons who thought fit to apply themselves to making hats 
 or shoes, it would operate as an inducement to many to do so who were already 
 otherwise more productively engaged. Good farmers would be converted into 
 bad shoemakers, who could not live by their trades, were they not aided by the 
 bonus thus offered. Production would be diminished. The supply of hats and 
 shoes would be increased, but with every such increase there would be a diminu- 
 tion in their power to command other articles in exchange. If wages were paid 
 
94 
 
 THE UNITED STATES IN 1836-7 
 
 sued ; that it had the effect of increasing profits of banking 
 capital generally, and consequently offered inducements for 
 the establishment of new banks, and for the importation of 
 capital for that purpose, with a view to divide these large 
 profits. 
 
 Let us now suppose that at the same time that this bonus 
 is offered in the form of interest upon capital employed in 
 banking, another bonus is offered upon the importation of 
 gold, by enacting that the same quantity which heretofore 
 passed for ten dollars should now pass for eleven, thus 
 increasing its value in exchange for silver. 
 
 In a neighbouring community B., capital could be readily 
 had at 4 per cent. A million is imported in gold, and appro- 
 priated to the establishment of a new bank, which lends out 
 the whole sum. We now have the following state of affairs : — 
 
 Banking Per Total Per Per Amount of 
 
 capital, head, currency, head. Gold. head. loans. 
 
 Bolls. n. Dolls. n. Dolls. D. Dolls. 
 
 11,000,000 13 5,000,000 5 2,000,000 2 16,000,000 
 
 Permanent ) 2,000,000 
 deposite, 5 
 
 13,000,000 
 
 Gross interest, 8f per cent. — net, 7^ per cent. 
 
 Here we find a change in the currency of 25 per cent., pro- 
 duced not hy the increase of deposites, because the owner 
 thereof was not in the market seeking for means of employing 
 them, but bi/ the importation of foreign gold. Prices now fall 
 in B. and rise in A., and unless the laws of trade be counter- 
 acted, coin will be re-shipped in exchange for other commo- 
 dities, and the equilibrium will be restored. The banks in 
 community B. may, however, prevent this by replacing the 
 million of gold by a million of paper, thus concealing the de- 
 ficit, maintaining the circulation, and preventing the action of 
 the laws of trade, by which coin would have been compelled 
 to flow back from A. to B. 
 
 in those commodities, the labourer would find himself receiving a constantly 
 increasing return for his labour, in appearance, accompanied with a constantly 
 increasing difficulty of supporting himself and family. The capitalist would 
 obtain a constantly increasing rate of profit, accompanied by a constantly de- 
 creasing power of obtaining the conveniences and luxuries of life. What is true 
 in relation to hats and shoes is so in regard to gold or silver. 
 
THE UNITED STATES IN 1836-7. 
 
 95 
 
 The effect of this increase of capital in A. is to render it 
 superabundant, and to diminish its price. It becomes neces- 
 sary to find new modes of employing it, and rail roads or canals 
 are projected. The prices of commodities, of real estate, and 
 of securities, rise, and speculation begins. Large apparent 
 profits are made. The demand for loans is thereby continued, 
 and another million of gold is imported and applied to the 
 creation of a new bank, at the same time that another million 
 of bonds becomes due, and is placed on deposite. The account 
 now stands thus : — 
 
 Banking Per Total Per Of which, Per 
 
 capital, head, currency, head. gold. head. Loans. 
 
 Dolls. D. Dolls. D. Dolls. D. Dolls. 
 
 12,000,000 15 6,000,000 6 3,000,000 3 18,000,000 
 Permanent) 3000,000 
 
 deposite, 5 
 
 15,000,000 
 
 The loans have now risen from 13 to 18 milHons; the in- 
 crease arising from 3 milUons of permanent deposites, and 2 
 miUions of borrowed capital. The currency has risen from 
 4 to 6 millions. 
 
 Each increase prepares the way for a new one. Capital is 
 superabundant, prices rise, new projects are started, every 
 man that can obtain the use of capital makes his fortune, and 
 more is therefore imported. Let us now suppose that 5 mil- 
 lions of deposites have fallen due, and been placed in the 
 bank, and that 4 millions of gold have been imported and 
 applied to the creation of new banks, and that the banks of 
 B. have steadily replaced the gold by paper, and see what is 
 the state of affairs : — 
 
 Banking Per Total Per Of which. Per 
 
 capital. head, currency, head. gold. head. Loans. 
 
 Dolls. D. Dolls. D. Dolls. D. Dolls. 
 
 14,000,000 19 8,000,000 8 5,000,000 5 22,000,000 
 Permanent J 5 qoo.OOO 
 
 deposites, 5 
 
 19,000,000 
 
 Gross interest,*9 5-6 per cent. — net, 8J per cent. 
 
 The loans, which were originally 13 millions, have now in- 
 creased to 22 millions. The currency has risen from 4 to 8 
 millions. The liabilities of the banks are now 3 millions of 
 notes and 5 millions of deposites. I'he interest on bank 
 
96 
 
 THE UNITED STATES IN 1836-7. 
 
 stock has risen from 6j to above 8 per cent. The whole of 
 this change has been produced by circumstances over which 
 the banks had no control, and without any increase in the 
 amount of paper circulation. 
 
 Had not the deposites been liable to division among the 
 banks, there would have been no inducement to import capital 
 for the creation of new ones. Had not the value of gold been 
 altered, it would not have come in that form. Had it come 
 in any other form, there would have been no change in the 
 amount of currency. Without a change in the amount of 
 currency, there would have been no speculation. Had not 
 the banks in community B. kept up the circulation by the 
 constant emission of paper in place of the gold exported, the 
 laws of trade would have prevented the possibility of thus 
 continually abstracting their coin. The import of a single 
 million would have raised prices in A., while its export would 
 have depressed those of B. The substitution in the latter of 
 a million of paper would prevent such depression ; but an in- 
 crease in the total amount of currency would be required to 
 force prices up sufficiently to prevent the reflux of gold from 
 A. to B. 
 
 An account of the banks now made out would stand thus : — 
 
 Dr. Capital - - .- - - - ^14,000,000 
 Deposites - - - - - 5,000,000 
 
 Circulation - - - - - 3,000,000 
 
 ^22,000,000 
 
 Cr. Loans - - 22,000,000 
 
 The community would owe 4 millions of borrowed capital 
 employed in the creation of the new banks. The proper 
 statement of the account would be thus : — 
 
 Original capital 0,000,000 
 
 Borrowed ditto 4,000,000 
 
 Deposites 5,000,000 
 
 Circulation ------ 3,000,000 
 
 ^22,000,000* 
 
 * This account is precisely the same that it would have been had the borrowed 
 capital been applied to the production of houses, factories, machinery, canals, or 
 rail roads. Whether the importer of gold lent it out, or used it himself, or made 
 a bank with it, would be of no importance whatever. The error consisted 
 neither in importing capital nor in the mode of using it, but in importing gold, 
 by which the currency was disturbed. 
 
THE UNITED STATES IN 1836-7. 
 
 97 
 
 The banks are liable to be called upon to pay 8 millions of 
 dollars in gold, while the amount in circulation is only 5 mil- 
 lions ; and if the demands be all made at one time, they must 
 fall, whereas if the demands be made in moderation, they may 
 all be promptly met, and the institutions maintain their credit, 
 although the absolutely necessary reduction of the currency 
 must cause a great amount of loss to individuals. The in- 
 crease of it has not arisen from the issue of bank notes, as no 
 increase whatever has taken place therein ; nor has it been 
 produced by any action of the banks, as they have throughout 
 remained almost entirely passive. 
 
 Let us suppose that community B. calls suddenly for the 
 gold that had been abstracted, that its banks recal the paper 
 they had emitted, and thus lower prices to such an extent as 
 to compel its return. The gold still remains in community A. ; 
 but it is not in the banks. If those who are indebted can 
 collect it from those in whose hands it exists, the excess of 
 currency may be corrected, as it was produced, without any 
 action of the banks. If the owners of the 4 millions of bank 
 stock that have been created can induce those to whom they 
 are indebted in community B. to take that stock in payment 
 of their claims, the foreign debt will be discharged without 
 the export of coin, or other commodities, and the total cur- 
 rency will still consist of eight millions, five of which will be of 
 gold. There will still be an excess. Prices will remain high 
 in A., and will fall still lower in B. The radical error is an 
 excess of currency, produced by the import of gold, and it 
 can only be corrected by exchanging a part thereof for cloth 
 or other commodities. 
 
 If the court should now pronounce judgment, making it ne- 
 cessary to pay off the five millions of deposites, much inconve- 
 nience would result, unless the operation were a very slow one, 
 enabling the banks to call in their loans gradually. If the 
 demand were instant, they would be compelled to issue their 
 notes for the amount, trusting to the confidence of the people 
 to maintain them in circulation until they could call them in by 
 a reduction of their loans. The account would then stand thus : 
 Capital, # 14,000,000 
 
 Paper circulation, 8,000,000 |22,000,000 
 
 Amount of loans, 22,000,000 
 
 o 
 
98 
 
 THE UNITED STATES IN 1836-7. 
 
 The gold in circulation being five millions, the total cuireucy 
 is now thirteen millions. The deposites, while permanent, 
 produced no effect upon prices, but being now at the command 
 of the owner, who is seeking the means of profitably employing 
 them, there is produced a double demand^ for both commo- 
 dities and securities, tending to raise prices still higher, and 
 to increase the necessity for exporting coin or bullion. The 
 banks owe eight millions. If the demand for coin be made 
 upon them, they must stop payment, whereas, if the paper be 
 kept in circulation, and the gold in circulation be exported, 
 the currency may be reduced five millions without making 
 any demand whatever upon them. 
 
 Let us now suppose that community B. should claim pay- 
 ment ; that at the same instant of time payment of the deposites 
 should be claimed ; and that the holders of bank notes should 
 become alarmed and demand gold for them. The banks 
 would have demands amounting to 22 millions, upon one set 
 of people, and liabilities to others for less than half that 
 amount, and their ability to meet the one would depend upon 
 their power to obtain payment of the other. They would en- 
 deavour to reduce their loans, and would probably pay for a 
 time, but ultimately would be compelled to choose between 
 breaking all that were indebted to them, or suspending opera- 
 tions for a season, with a view to collect their debts and gra- 
 dually discharge their liabilities. 
 
 During the whole of this operation there has been a constant 
 fall in the value of the currency in A., 'produced by the import 
 of gold, and marked by an increase in the prices of commodi- 
 ties of all descriptions. The effect of this fall would have been 
 to create an export demand for specie, in consequence of its 
 diminished value, had not the banks in community B. kept up 
 the amount of its currency by issuing paper still faster than 
 gold was withdrawn, thereby diminishing the value of their 
 currency also. If, instead of importing into A. four millions 
 of gold, there had been imported four millions of cotton and 
 woollen cloths, and other commodities, as would have been 
 the case had no alteration taken place in the value of gold, 
 the following would have been the state of affairs, supposing 
 
 * See page 56, ante. 
 
THE UNITED STATES IN 1836-7. 
 
 99 
 
 the parties to have applied the proceeds of the cloths in a simi- 
 lar manner ; to wit, in the creation of new banks : — 
 
 Banking Per Total Per Per 
 capital, head, currency, head. Gold. head. Loans. 
 
 n. Dolls. D. Dolls. D. Dolls. 
 14,000,000 19 4,000,000 4 1,000,000 1 22,000,000 
 
 Permanent > 5 000,000 
 deposites, ) 
 
 19,000,000 
 
 The effect of this operation would have been directly the 
 reverse of the other. The prices of cotton and woollen cloths 
 would have fallen on account of the increased ratio, which the 
 supply of such commodities would bear to the supply of cur- 
 rency ; whereas, in the former case, the increased ratio of cur- 
 rency to commodities had a tendency to raise prices. 
 
 No gold being, in this case, withdrawn from community B., 
 no necessity would there be experienced for supplying its place 
 with paper, and its currency would be undepreciated. The 
 reduction of prices of cotton and woollen cloths in A. would 
 have a tendency to prevent any further import of them, while 
 exports would be increased, and in a short time the debt would 
 be paid off. The amount of currency and the transactions 
 with foreign communities being thus left undisturbed, there 
 would remain to be settled only the question of the with- 
 drawal of the deposites. If that were done gradually, it would 
 be attended with little inconvenience; but even, if done 
 promptly, it might perhaps be accomplished without any very 
 extraordinary inconvenience to the community or the banks. 
 
 We now submit to the reader the following propositions : — 
 
 I. That the necessity for caUing in the five millions of bonds, 
 without the power of re-investing the same, tended to produce 
 disturbance. 
 
 II. That placing the bonds and mortgages of the great pro- 
 prietor in the hands of the banks, and permitting them to loan 
 out the proceeds thereof, tended to preserve steadiness in the 
 monetary concerns of the community. 
 
 III. That much disturbance would have resulted from collect- 
 ing the proceeds of the bonds in gold to be deposited in court. 
 
 IV. That the use of the deposites tended to increase the 
 profits of bunking capital. 
 
100 
 
 THE UNITED STATES IN 1836-7. 
 
 V. That if the enjoyment of these profits had been limited 
 to any certain institution or institutions, an increase of their 
 profits would not have offered any inducement to create new 
 ones. 
 
 VI. That not being so limited, increase of their profits 
 tended greatly to increase the number of new banks, competi- 
 tors for the enjoyment thereof. 
 
 VII. That this increase in the profit of capital tended to 
 promote the import thereof from community B. 
 
 VIII. That its import in the form of merchandise would 
 tend to cause exportation of gold to B., and to raise the prices of 
 commodities therein, while it would tend to diminish the prices 
 of commodities and increase the value of the currency in A. 
 
 IX. That the import of the same amount, in the form of 
 gold, tended to increase the currency, to diminish the value 
 of gold, and to raise the prices of commodities in A., while it 
 tended to lower the price of commodities in community B., 
 and to promote importation therefrom of commodities to be re- 
 exchanged for gold. 
 
 X. That this tendency to a fall of prices in B. could be 
 counteracted in no other mode than that of supplying by 
 paper the place of the gold so exported, thus maintaining the 
 currency of B. at its previous amount, and preventing the fall 
 in the price of commodities. 
 
 XI. That every attempt at counteraction, by thus issuing 
 new paper, must produce an increased export of gold, tending 
 to reduce prices in B., and to raise them still further in A., 
 which tendency to reduction of prices could only be counter- 
 acted by the emission of more paper to keep up, and even to 
 increase, the quantity of currency in B. 
 
 XII. That the longer this system vvas continued, the greater 
 must be the excess of currency, the larger must be the 
 proportion of gold, and the greater must be the decrease of 
 its value in exchange for other commodities in A., and the 
 larger must be the proportion of paper to gold, and the less 
 secure the currency in B. 
 
 XIII. That a reduction in the amount of loans in B. must 
 produce an increase in the value of capital in that community, 
 compelling its members to demand payment from A. of the 
 gold that had been lent. 
 
THE UNITED STATES IN 1836-7. 
 
 101 
 
 XIV. That the loan of four millions to A. had doubled the 
 amount of the circulating medium of that community, and 
 doubled the prices of commodities in gold. 
 
 XV. That the necessity for returning that sum would re- 
 duce the circulating medium one-half, and reduce prices in 
 like manner. 
 
 XVI. That no injury would have arisen from the death of 
 the great proprietor, had not the use of the deposites been 
 offered as a bonus for the creation of new banks; that no 
 injury would have resulted from the creation of new banks, 
 had not a bonus been offered for the increase of the currency, 
 in the form of a bounty on the importation of gold ; that no 
 injury would have resulted from both these causes combined, 
 had not the banks in community B. filled the vacuum with 
 paper, thus preventing the action of the laws of trade by ren- 
 dering the currency daily less sound. 
 
 Here we find the same phenomenon, in regard to com- 
 munity A., that we have described as existing in England, — 
 viz., a large amount of capital for which the owners have no 
 immediate use, and which, being placed in the banks, is used 
 by them for the purpose of increasing their loans, and conse- 
 quently their profits. We find, however, that in consequence 
 of the owner not being in the market for the purpose of in- 
 vesting them, their existence had no influence upon the cur- 
 rency, but that when rendered active, by being converted into 
 circulation or temporary deposites, they tended rapidly to 
 increase prices. We find that the importation of a single 
 million of gold produced that effect in a very great degree, but 
 that any error resulting from such importations would speedily 
 be corrected by the laws of trade, unless the banking institu- 
 tions of B. should attempt to prevent the action of those laws. 
 
 The picture which we have thus submitted to the reader is 
 almost precisely that of the United States in the five years 
 from 1833 to 1838. The existence of a surplus revenue, that 
 could neither be expended nor distributed without an order of 
 Congress, was liable to produce disturbance. To permit it to 
 accumulate, in the form of gold, in the vaults of the Treasury, 
 would have been to lessen the circulating medium. To permit 
 the banks to take the engagements of those indebted to the 
 government was simply to permit the currency to remain un- 
 
102 
 
 THE UNITKD STATES IN 1836-7. 
 
 affected by this new state of things. To permit the banks to 
 receive interest upon the funds of the government was to in- 
 crease their profits. To confine the receipt of this interest to 
 one bank, or any certain set of banks, was to continue every- 
 thing almost precisely on the former footing. To offer a 
 division of these profits among all banks was to offer an 
 inducement to the creation of institutions not called for by the 
 trade of the country. To offer such bounty tended to induce 
 a forced import of foreign capital. To reduce the standard 
 of gold tended to produce importations of that commodity. 
 Each such import tended to increase the currency ; to produce 
 difficulty in making investments ; to increase the amount re- 
 maining on deposite ; to increase prices ; to enhance apparent 
 profits and to increase the appetite for speculation. Every 
 such increase of prices tended to produce a necessity for re- 
 shipment of the gold that had been imported, for the purpose 
 of filling the gap that had been created in England, and such 
 demand for a single million of pounds would have arrested the 
 progress of speculation. The Bank of England filled the gap 
 with paper, which caused a new export of gold, and made a 
 new gap, which was again and again filled with paper, until 
 at length its extent and the consequent danger were seen. The 
 change now took place. The following was the situation of 
 the banks at the close of 1836 : — 
 
 Capital - - - 1291,000,000 
 
 Deposites on interest* - 36,000,000 
 
 ^327,000,000 
 
 Deposites and circulation - - 276,000,000 
 
 1603,000,000 
 
 Total amount of investments - - ^567,000,000 
 
 Notes held by banks - - - 36,000,000 
 
 ^603,000,000 
 
 It will be obvious to the reader that no danger could result 
 from increase in the amount of capital of the banks. Whether 
 the owner of capital chose himself to lend out his own 
 
 * The banks return this amount under the head of "other liabilities,'' and we 
 believe that nearly the whole consists of capital placed with them for fixed periods 
 and drawing interest. 
 
THE UNITED STATES IN 1836-7. 
 
 103 
 
 money, or to place it in the hands of a board of directors to 
 lend it out, could produce no effect upon the currency. If 
 they were made too fast, the loss was likely to fall upon their 
 owners, who could have but small dividends. 
 
 If a bank were injudiciously placed, the loss to the owner 
 would be the same as if he had built a mill, or a house, from 
 which he could get but little rent. If they were too numerous, 
 the price of stocks would fall, precisely as houses and mills 
 would fall if the production exceeded the demand. The rapid 
 import of capital consequent upon the excess of speculation 
 produced by an increase of the currency, had caused a rapid 
 augmentation in the quantity of stocks, houses, mills, &c., the 
 prices of which must fall, with great injury to the owners, 
 whenever it became necessary to pay the debts that had been 
 incurred ; but the only source of danger to the banks was to 
 be found in the increased amount of their liabilities, the extent 
 of which we will now examine. 
 
 At the close of 1829 the account stood thus rf 
 Liabilities . - . - |1 17,000,000 
 
 Less, notes on hand, held by the various banks, 
 
 but not yet returned - - 10,000,000 
 
 Net circulation - - - - ^107,000,000 
 Specie 22,000,000 
 
 Balance _ . - - ^85,000,000 
 
 In 1837 it stood as follows: — 
 Liabilities, (exclusive of deposites on interest,) |276,000,000 
 Less, notes of other banks on hand - 36,000,000 
 
 Net circulation, - - - ^240,000,0000 
 Specie, 38,000,000 
 
 Balance, ... - ^202,000,000 
 
 Here was a state of affairs very much resembling that of 
 England, in which we find circulation and deposites amount- 
 ing to above 50 millions of pounds (or 240 millions of dollars), 
 based upon six or eight millions of pounds in the vaults of the 
 
 * Gallatin on Banks, p. 53. 
 
104 
 
 THE UNITED STATES IN 1836-7. 
 
 bank. In both we find great insecurity, — in both a con- 
 vulsion must result from any violent action, destructive of 
 confidence. 
 
 In the case of the United States, we find an increase in the 
 net liabilities of thebanksfrom 1830, amounting to 1 17millions. 
 In the same period of time there had been an increase of 
 population amounting to nearly 25 per cent, so that liabilities 
 of 105 millions might now be deemed not greater than 85 
 millions were in 1830. This would leave an excess of 95 
 millions, of which above 40 millions were the property of the 
 people themselves, placed in the hands of the banks for the 
 purpose of being lent out to those who were indebted to the 
 government, until some permanent disposition should be made 
 thereof, and 40 millions more represented the debt due to 
 the people of Great Britain, chiefly for the gold which had 
 been taken from the vaults of the bank. Nearly the whole of 
 this sum we find lying in the banks, in the form of deposites 
 or unemployed capital, which had increased from 55 millions 
 in 1830 to 127 millions at the close of 1836, the difference being 
 72 millions. We find thus that whenever capital is rendered 
 abundant, either by the desire of banks to make large profits, or 
 by the forced import of it, in consequence of interferences such 
 as we have described, there is produced a difficulty of invest- 
 ment, accompanied by an increase in the amount on deposite 
 yielding no advantage to the owners. 
 
 The superiority of the system of Massachusetts and Rhode 
 Island, and of New England generally, was most clearly shewn 
 in this period of almost unparalleled speculation, as will be 
 seen by the following statement. 
 
 The following was the condition of all the banks of New 
 England at that time : — 
 
 Capital - - - - ^62,170,000 
 Deposites on interest - - 7,015,000 
 Net circulation - - - 17,500,000 
 Deposites - - - -. 15,500,000 
 
 ^102,185,000 
 
 Specie - - - - | 2,587,000 
 Investments - - - 102,882,000 
 
 105,469,000 
 
THE UNITED STATES IN 1836-7. 
 
 105 
 
 The capital, deposites on interest, and surplus^ amount to 
 about 72 millions; and the total investments of all descriptions 
 are but 43 per cent, above that amount. 
 
 A reduction of 10 per cent, upon the amount of loans, 
 added to the specie on hand, would reduce the currency to 
 about 20 millions, being about 11 dollars per head. How 
 readily such a reduction might be made, if undertaken gently, 
 and in such a manner as not to shake public confidence, will 
 be seen from the fact, that the deposites, or capital unem- 
 ployed by the owners, had risen from |4,800,000to 1 15,500,000, 
 being an increase of 1 10,700,000. By a gradual reduction of 
 the loans of the banks these deposites would be rendered pro- 
 ductive to their owners, and would be made to cancel the 
 debts to, and the liabilities of, those institutions. 
 
 We will now give the condition of Rhode Island and Massa- 
 chusetts separately : — 
 
 In the first,lhe Bankingcapital in January, 1 837,was ^9,837,000 
 Net circulation, . > - 1,673,000 
 Deposites, - 2,113,000 
 
 ^13,623,000 
 
 Specie, - - - - I 243,000 
 
 Investments, - - - 13,765,000 
 
 ^14,010,000 
 
 The capital and surplus exceed 10 millions, and the loans of 
 all descriptions exceed that amount only 37 1 per cent. A re- 
 duction of 10 per cent., with the specie on hand, would absorb 
 nearly 45 per cent, of the currency, leaving the amount little 
 more than in 1830. The whole of this reduction would 
 come from the deposites, or unemployed capital. 
 
 In the second, the Banking capital was - ^34,478,000 
 
 Deposites on interest, - 6,477,000 
 
 Net circulation, - 7,464,000 
 
 Deposites, - - 8,784,000 
 
 157,203,000 
 
 p 
 
106 
 
 THli UNITED STATES IN 1836-7. 
 
 Specie, - - $ 1,455,000 
 
 Investments, - - 57,783,000 
 
 159,238,000 
 
 Here we have the investments exceeding by less than 40 
 per cent, the capital and deposites on interest. A reduction 
 of 12^ per cent, would bring the currency nearly into the 
 condition in which it was in 1830. 
 
 In Pennsylvania, we find, including the Bank of the United 
 States and its agencies j 
 
 Capital, - - #58,750,000 
 
 Deposites on interest, - 8,337,000 
 Net circulation, - 23,600,000 
 
 Deposites, - - 15,200,000 
 
 #105,887,000 
 
 Specie, - - $ 5,751,000 
 
 Investments, - - 107,000,000 
 
 #112,751,000 
 
 The loans here exceed, by about 50 per cent., the amount 
 of capital, surplus, and deposites on interest. It is diflScult to 
 make a comparison with 1830, on account of the change in 
 the position of the Bank of the United States. It is, however, 
 probable that a reduction of not less than 15 per cent, would 
 be required to bring them into the condition in which they 
 then were. 
 
 In New York, we find Capital, - - #37,101,000 
 
 Deposites on interest, 7,078,000 
 Net circulation, - 13,311,000 
 
 Deposites, - - 30,883,000 
 
 #88,373,000 
 
 Specie, - - # 6,500,000 
 
 Investments, - 87,761,000 
 
 #94,261,000 
 
 The loans exceed, by about 87 1 per cent., the amount of 
 capital, surplus, and deposites on interest. Had the banking 
 
THE UNITED STATES IN 1836-7. 
 
 107 
 
 capital been permitted to extend itself with the wants of the 
 community, ten or fifteen millions of the circulation and de- 
 posites would have been converted into stock, by which the 
 liabilities would have been diminished to that extent.* 
 
 In Virginia, we have Capital, - - ^6,731,000 
 
 Deposites on interest, - 294,000 
 
 Net circulation, - 7,207,000 
 
 Deposites, - - 5,309,000 
 
 #19,541,000 
 
 Specie, - - #1,624,000 
 
 Investments, - - 18,930,000 
 
 #20,554,000 
 
 The loans exceed, by 150 per cent., the amount of capital, 
 &c. The currency has risen from #5,831,000 in 1830 to 
 above 12 millions, and the deposites alone are nearly equal to 
 the deposites and circulation at that period. A reduction of 
 30 per cent, would here be required. 
 
 In Rhode Island, the deposites amount to 21 per cent, of 
 the capital employed in banking. In Massachusetts, and in 
 New England generally, they amount to 25 per cent. In 
 Pennsylvania, the proportion is nearly the same. In New 
 York, and in Virginia, they are about 80 per cent. 
 
 In exact proportion with the tendency to monopoly that is 
 found to prevail in legislation respecting banks, we find an in- 
 crease in the quantity of capital lying- in their hands to be em- 
 ployed for the benefit of the stockholders thereof, and a rise 
 in the nominal price of money. 
 
 In proportion to the freedom that exists in banking transac- 
 tions do we find a diminution in the proportion of deposites to 
 banking capital, and an increase in the disposition on the part 
 of the owners of banks to allow interest for the use of deposites. 
 The loans of the banks of Massachusetts, for twenty-five 
 years, exceeded the capital only 50 per cent., and of that 
 
 * In all these cases a part of the increase of deposites arises from an accumu- 
 lation of the public revenue, that could not have been invested. In New York 
 it amounted to about one-fourth of the whole sum, being above seven millions. 
 
108 
 
 THK UNITED STATES IN 1836-7. 
 
 small surplus more than one-fifth consisted of moneys left 
 with them on interest. 
 
 Capital, - - - .J 15,406,000 
 
 Deposites on interest, - 1,600,000 
 
 1 17,006,000 
 
 Total loans, - - 23,100,000 
 
 Excess, - - ' $ 6,094,000 
 
 or less than 40 per cent.* 
 
 In Rhode Island, the right to associate and to bank is 
 almost as fully admitted as is the right to labour, and accord- 
 ingly we find the currency more sound than in Massachusetts, 
 where capital is restrained from flowing freely into that trade 
 by a tax of one per cent. It is there, however, more free than 
 in Pennsylvania, and its currency is more sound. Pennsyl- 
 vania is more free than New York, which in its turn is more 
 so than Virginia, and precisely as we find freedom diminish 
 do we find the banks trading largely on the capital of others, 
 who ought to have liberty to employ it for themselves. With 
 the diminution of security, we find too an increase in the cost 
 of currency. Massachusetts and Rhode Island employ but 
 about ^2 50 per head, while New York and Pennsylvania 
 have about ^3 50 in banks, in addition to at least ^1 50 per 
 head employed in performing operations that in New England 
 are performed with notes of one, two, and three dollars. The 
 currency is therefore less sound, and at least twice as ex- 
 pensive. 
 
 New England maintains a currency at less cost than any 
 other part of the world. New York and Pennsylvania in- 
 creased the specie basis, and increased the cost of the cur- 
 rency, which is nevertheless far less stable. Had their legis- 
 latures repealed all laws by which men are restrained from 
 employing their capital as they judge most advantageous, 
 instead of passing laws to increase restrictions, by forbidding 
 the substitution of paper for silver, the currency of New York 
 would be as sound and economical as that of Massachusetts. 
 
 * See page 25, ante. 
 
THE UNITED STATES IN 1836-7. 109 
 
 The surplus revenue of the government so long accumulat- 
 ing in the hands of the people was now to be paid by the banks, 
 by which it had been lent. Had the government dealt 
 directly with the people, the claim must have been made 
 upon them, and great ruin would have been produced ; but the 
 banks having been interposed as endorsers, the demand was 
 made upon them, and they looked to the people to return it. 
 If the demand upon the banks were gradual, so as to enable 
 the payment to go on pari passu with the investment, no great 
 difficulty could take place ; but if made promptly, it must pro- 
 duce great derangement. 
 
 The gold borrowed from England was also to be repaid. 
 Had the whole quantity been placed in the banks, and paper 
 put in circulation in its stead, although the total currency 
 loould have been precisely the same, the demand for its return 
 could have caused no inconvenience to those institutions. 
 Whenever the English creditor received a bank note or draft, 
 and with it obtained a given amount of gold, the operation 
 would at once diminish both the liabilities of the bank and 
 the amount of the currency. If we suppose 20 millions of 
 this gold to be in circulation, and the banks enabled to sub- 
 stitute paper therefor, paying it out to those who had claims 
 upon them as depositors, to be by them exchanged with the 
 holders of gold, the result would have been the same. The 
 sudden demand for 40 millions would have ruined many indi- 
 viduals, in consequence of the sudden contraction of the 
 currency, but it would not be the consequence of any opera- 
 tion of the banks, nor could it in any manner affect them. 
 The reader will be satisfied of this from an examination of the 
 
 following statements : — 
 
 Actual state of affairs : 
 
 Banking capital, - 327 Specie in bank, 38 
 
 Net liabilities, - 240 Loans, - 529 
 
 567 567 
 
 Circulation and deposites, 240 
 
 To which add of the gold which had been imported, - 20 
 
 Currency, 
 
 260 
 
110 
 
 THE UNITED STATES IN 1836-7. 
 
 Had the gold been left in the banks it would have been — 
 
 Capital, - - - 327 Specie in bank, - 58 
 
 Liabilities, - - 260 Loans, - - _ 529 
 
 587 587 
 
 Currency, - - - - 260 
 
 After the payment of 40 millions, in either of the above sup- 
 posed cases, it would have been — 
 
 Capital, - - 327 Specie in bank, - 18 
 
 Liabilities, - - 220 Loans, - - 529 
 
 547 547 
 
 Currency, ----- 220 
 
 If the government had not demanded payment, there would 
 have been only 40 millions of English debt to be discharged, 
 and if the banks could thus have induced the people to take 
 bank notes in lieu of 20 millions of gold in circulation, that sum 
 could have been paid, and the currency reduced 40 millions, 
 without an immediate reduction of the bank loans. The same 
 would be the case if only the claim of the government were 
 pressed, while the English claim was converted into stock, or 
 suspended debt. 
 
 If either party had been willing, supposing both to have 
 possessed the power, to convert its claims into stock of a bank, 
 or into a permanent loan to the banks, the state of affairs 
 would, after the other had been paid, stand thus : — 
 
 Capital, - - 327 Specie, - - 18 
 
 Deferred liabilities, or Loans, - - 529 
 
 increase of capital, 40 
 
 Immediate liabilities, 180 
 
 547 547 
 
 Currency, - - - - 180 
 Here the specie on hand would be nearly as great as in 
 
THE UNITED STATES IN 1836-7. 
 
 Ill 
 
 1830, while the immediate liabilities would be 73 millions 
 greater, of which 20 or perhaps 25 millions were required by 
 the increase of population over so wide an extent of country. 
 A reduction, gentle and gradual, to the extent of 5 per cent., 
 would now bring the currency into a condition differing very 
 little from that which existed in 1830, when it was certainly 
 not in excess. 
 
 It will now be obvious to the reader, that to whatever ex- 
 tent the banks might be able to substitute paper for the specie 
 in circulation, there would be to that extent a power to pay 
 their depositors, and thus reduce their liabilities, without 
 diminution in the amount of their loans ; and equally obvious 
 that every measure tending to diminish the quantity of paper 
 circulation, by the demand of specie in exchange for it, would 
 tend to increase the difficulty. Twenty millions of paper sub- 
 stituted for specie would diminish the amount of reduction to 
 40 millions, while a reverse operation to a similar amount 
 would increase it to 80 millions. 
 
 Here were difficulties, very few of which were ascribable to 
 the action of the banks of the United States, yet they were 
 liable to be made the scape-goats on the occasion. The cur- 
 rency had been enlarged by the gold lent by the Bank of 
 England, and the import of which had been forced by the 
 measures of the government. It was now to be reduced by 
 the return of that gold which was scattered throughout the 
 Union, and could only be collected very gradually. With 
 gentle action on the part of the Bank of England, and on 
 that of the administration, it might be accomplished without 
 great ruin, but not otherwise. What was their action ? 
 
 The Bank clamoured for the gold which she had squan- 
 dered. Her only cry was — gold ! gold ! gold ! She was like 
 a lioness which had lost her whelps. Looking around, she 
 suspected in turn A., B., C, and D., as having been the cause 
 of her trouble, and she laid her huge paws upon them, to their 
 destruction. She found that the ruin of American houses 
 did not produce the desired effect ; that, on the contrary, the 
 measures she had adopted tended to produce uncertainty and 
 doubt, and to prevent those who were solvent from paying 
 their debts, and of course to prevent the reflux of the gold. 
 Failing in this, she endeavoured to induce the Bank of the 
 
list 
 
 THK UNITED STATES IN 1836-7. 
 
 United States to act as her agent in collecting it. Here again 
 she failed. She had produced alarm, and those who held the 
 commodity she was anxious to obtain would not part with it. 
 But little gold was shipped, while much was withdrawn from 
 the banks to be hoarded. 
 
 The opposition compelled the passage of a law that made it 
 necessary to call upon the banks for payment of the deposites. 
 
 The administration destroyed the confidence of the people 
 in bank notes, and caused the return of a vast quantity to be 
 exchanged for silver ; it transported gold and silver from 
 places at which it was wanted, to others at which it was not 
 wanted, and by every means in its power increased the de- 
 mands upon the banks. 
 
 Those institutions would have met the foreign demand with- 
 out difficulty. They could, with some difficulty, have met it 
 and have paid off the government also, but they could not do 
 so in the face of a constantly decreasing confidence in their 
 ability to comply with their engagements, and in opposition to 
 increasing demands upon them for silver and gold, for the 
 purpose of being carted about the country from one place to 
 another. They called in their loans, at the risk of producing 
 universal bankruptcy among those indebted to them. Their 
 debtors met their demands so long as any sacrifice whatever 
 would enable them to do it. Both banks and individuals 
 made exertions that cannot, we believe, be paralleled,* yet all 
 would not do. The merchants stopped by scores, and almost 
 by hundreds. Doubt and uncertainty existed everywhere. 
 Confidence in bank notes was almost destroyed, and at length 
 it became necessary for the banks themselves to suspend pay- 
 ment, and make preparations at leisure for resumption. 
 
 That there was some want of prudence in their operations 
 cannot be doubted, but they could have retrieved their own 
 errors without difficulty. Those of the Bank of England, 
 combined with those of their own government, were too much 
 for them. 
 
 * Between the 23rd of March and 11th of May, 1837, when specie payments 
 were suspended, the Girard Bank refunded to the government ^1,179,000, all of 
 which it was obliged to collect, in that short period of fifty days, from those to 
 whom it had been lent. In one year it refunded «S'3,330,000, and is now ready 
 to resume payment. 
 
THE UNITED STATES IN 1836-7. 
 
 113 
 
 They have borne the odium that should have been borne by 
 others. Should any future writer, however, examine this 
 period, he will admit that more universal determination to 
 comply with engagements never existed,^' and he will be 
 obliged to say that no case can be produced of more total in- 
 capacity than was exhibited by the administrations of the 
 Bank of England and of the Treasury of the United States. 
 
 The admirable effect of freedom is finely exhibited in the 
 situation of the New England banks in 1837, after a period of 
 unparalleled speculation, during which they could not increase 
 their loans to more than 43 per cent, beyond their capital. 
 Such being the case, it will be obvious to the reader that the 
 suspension of payment by those institutions did not arise out 
 of their own inability to call in as much as was necessary 
 to comply with their engagements.^ Had the system of the 
 Union been the same as that of New England, no suspension 
 could have taken place, but as it was rendered necessary on the 
 part of the banks south and west, those of New England 
 united in it from a desire to aid their merchants and manufac- 
 turers, who found it almost impossible to make collections. 
 They were thereby enabled to extend their issues instead of 
 decreasing them, and thus to prevent many failures that other- 
 wise must have taken place. The difference in the situation 
 of Massachusetts and New York is shewn in the fact, that in 
 the first no material reduction was deemed necessary in the 
 first six months which followed the suspension, and payment 
 was finally resumed after a reduction of about ten per cent, of 
 the amount of loans, whereas in New York it was necessary 
 to commence immediate reduction, which was continued until 
 
 * " He must say, and he said it the more freely because it related to another 
 country, that the exertions made hy the commercial men of the United States of 
 America had been such as to reflect the highest credit on their character as commer- 
 cial people. (Hear.)" — Speech of the Chancellor of the Exchequer, April 11th, 
 1838. 
 
 t Several of the Massachusetts banks have failed. In some cases their failure 
 is attributable to frauds, in others, to mismanagement. No argument is to be 
 drawn from this against the system. If the stockholders elect incompetent 
 managers, the fault is with them, and to them belongs the loss. 
 
 Q 
 
114 
 
 THE UNITED STATES IN 1836-7. 
 
 the loans were reduced more than 20 millions, or about one- 
 fourth. This could never have happened, had not the trade 
 in banking been restrained by unwise laws. 
 
 In the latter State were exhibited the injurious effects result- 
 ing from the expulsion of the Bank of the United States. The 
 local banks filled with their notes the vacuum thereby caused. 
 When the day of difficulty arrived, a temporary remedy was 
 found in recalling that capital. It was temporary, because 
 the loans were to be repaid in three or four months. Had the 
 branch at New York possessed a capital of 5 millions, at least 
 six millions of the notes of the merchants would have been 
 held by it, and a reduction of 14 millions would have accom- 
 plished what has now required one of 20 millions. It is pro- 
 bable that 10 millions would have accomplished the object, 
 because the pressure would not have been so severe, the dis- 
 trust would not have been so great, the circulation would not 
 have been so much impeded, and consequently a smaller 
 amount of capital would have been required. 
 
 In Pennsylvania, we find the reverse of this picture. The 
 capital of the United States Bank was thrown back upon that 
 State, and the consequence was greatly to diminish the neces- 
 sity for contraction. The gradual payment of the debts due 
 to its branches enabled it to diminish its liabilities without a 
 rapid diminution of its loans at home. The grant of an act 
 of incorporation to that institution was to that extent a removal 
 of the restraints upon freedom of action in Fennsylvania, and 
 the refusal of an extension of its charter by the United States 
 was the re-imposition of restraints upon the freedom of action 
 throughout the United States. By this approach to freedom, 
 Pennsylvania escaped much of the distress she would other- 
 wise have experienced, and by a contrary course, New York 
 was injured. 
 
 It may be asked why Louisiana and Mississippi did not 
 escape. In both, banking capital was increased with an un- 
 sparing hand. The grant of privileges produced an effect 
 very different from that which should have resulted from the 
 recognition, of rights. Every one was anxious to obtain a 
 share of the privilege, because it was believed that fortunes 
 might be made by all who could do so. Capital was imported 
 
THE UNITED STATES IN 1836-7. 
 
 115 
 
 to such an extent that it was rendered superabundant ; prices 
 rose ; fortunes were made in a day, or a week ; every one de- 
 sired to do the same ; every one borrowed all he could, and 
 purchased all he could ; until at length the day of reckoning 
 arrived, and the golden apples proved to be 
 
 " Dead Sea fruits, 
 Which tempt the eye, but turn to ashes on the lips.'' 
 
 Had freedom been granted, there would have been little or no 
 speculation. 
 
116 
 
 ENGLAND IN 1825 AND 1836. 
 
 CHAPTER VIII. 
 
 ENGLAND IN 1825 AND 1836. 
 
 We shall now briefly inquire into the operations of the 
 Bank of England in 1825 and 1836, and for some years prior 
 to both, with a view to shew the correctness of the views we 
 have submitted. 
 
 Circulation 
 
 under £b. above £5. Deposites. Securities. Bullion. 
 August, 1822, £855,330 £16,609,460 £6,399,440 £17,290,510 £10,097,960 
 February, 1823, 681,500 17,710,740 7,181,100 18,319,730 10,384,230 
 August, 1823, 548,480 18,682,760 7,827,350 17,467,370 12,658,240 
 February, 1824, 486,130 19,250,860 10,097,850 18,872,000 13,810,060 
 August, 1824, 443,140 19,688,980 9,679,810 20,904,530 11,787,470 
 February, 1825, 416,730 20,337,030 10,168,780 24,951.330 8,779,100 
 August, 18-25, 396,343 19,002,500 6,410,560 25,106,030 3,634,320 
 February, 1826, 1,375,250 24,092,660 6,935,940 32,918,580 2,459,510 
 
 Here we find the directors increasing their securities for the 
 purpose of increasing the dividends on bank stock, and pro- 
 ducing a daily increasing difficulty of investing capital advan- 
 tageously, and of consequence a constantly increasing amount 
 of unemployed capital in the form of deposites. We find 
 them continuing the same course in February, 1825, while the 
 deposites have become stationary. The constantly increasing 
 difficulty of making investments at home has driven the 
 owners of capital to seek abroad for employment for it, and 
 five millions of gold have been shipped. A continuance of the 
 same state of things to August, 1825, causes a further with- 
 drawal of deposites in the form of gold. The directors have 
 now lost all control over the currency, and are compelled 
 either to produce universal ruin, or to continue to enlarge 
 their circulation, at the risk of bankruptcy, and thus we find 
 them at the close of the year holding less than £1,300,000, in 
 gold,* and issuing small notes in place thereof, while their 
 loans are nearly double what they were three and a half years 
 pieviously. 
 
 * Report on Bank of England Charter, p. 154. 
 
ENGLAND IN 1825 AND 1836. 
 
 117 
 
 Had the people of England been at liberty to form another 
 joint-stock bank on the principle of limited liability, such a 
 one would have absorbed the deposites of 1824 ; the gold 
 would have gone to another streety instead of going to another 
 country ; the Bank of England would have made smaller di- 
 vidends, and it would have been restrained from any further 
 excess of loans by the fear of creating three or four banks in 
 London to divide with it its deposites, and the profits of circu- 
 lation. 
 
 We come now to the recent period : — 
 
 Circulation. Deposites. Investments. Bullion. 
 
 December 31, 1833, £17,469,000 £15,160,000 £24,567,000 £10.200,000 
 
 December 28, 1834, 17,070,000 13,019,000 25,551,000 6,978,000 
 
 December 26, 1835, 16,564,000 20,370,000 31,764,000 7,718,000 
 
 December 13, 1836, 17,361,000 13,330,000 28,971,000 4,545,000 
 
 February 12, 1837, 17,868,000 14,230,000 31,085,000 4,032,000 
 
 Here we find a repetition of the same operation. Invest- 
 ments are increased. Capital is made redundant. Deposites 
 grow from 13 to 20 miUions. The owners of bank stock obtain 
 large dividends. The owners of deposites wish to get some- 
 thing, and seek abroad the means of safely employing their 
 capital, denied them at home. The stock of bullion is di- 
 minished. The bank endeavours to limit its operations, and 
 produces universal distress and bankruptcy. It is at length 
 compelled to extend its loans in the face of a constant diminu- 
 tion of bullion, and at the risk of stopping payment. Such 
 are the results of monopoly. The same gold would have been 
 applied to the formation of a bank at home, if permitted, and 
 all the distress and ruin would have been avoided. 
 
 In Manchester, at the same moment, the Northern and 
 Central Bank increases its loans from £1,400,000 in January, 
 1836, to £1,900,000 in June, 1836, and this is accompanied 
 by a constantly increasing difficulty of making profitable in- 
 vestments, as is obvious from the fact that the deposites 
 increased in the same period from £723,000 to £1,062,000, 
 Had the owners of those deposites not been denied the liberty 
 of forming a bank on the same principle as the Bank of Eng- 
 land, they would have been so applied at home ; but as they 
 
118 
 
 ENGLAND IN 1825 AND 1836. 
 
 were denied the enjoyment of that right, they transferred their 
 capital to the United States, where it could be exercised. 
 
 Numerous pamphlets have been published by the friends of 
 the Bank of England and those of the joint-stock banks, each 
 endeavouring to shew that the fault rests with the other, when 
 in fact they prove only that it belongs to the system, and can- 
 not fail to occur periodically while that system shall be con- 
 tinued. The Bank of England makes its loans out of the 
 uninvested capital which its monopoly causes to exist, and out 
 of the circulation which its credit enables it to maintain. 
 Every circumstance tending to increase the facility of using 
 capital tends to diminish its deposites, and every one tending 
 to the establishment of institutions of higher credit than those 
 previously existing tends to diminish its circulation. With 
 every such occurrence there should be a diminution of its loans, 
 and consequently of its profits. The establishment of joint- 
 stock banks had, to a certain extent, such a tendency, but the 
 desire of profit prevented it from diminishing its loans as pru- 
 dence required. The opening for investing in those banks the 
 capital remaining with it on deposite tended to diminish the 
 amount of those deposites and should have admonished it of 
 the necessity for curtailment, and a similar opening in the 
 United States should have admonished both it and the joint- 
 stock banks ; but both went madly on until they had ap- 
 proached the brink of ruin. The remedy to the bank was to 
 produce doubt and insecurity. It did so, and its deposites 
 were restored. The credit of the joint-stock banks not being 
 so firmly established as that of the Bank, the former were the 
 victims; whereas, the sulFering should have been divided. 
 Whenever capital can be securely invested in banks formed 
 upon such a system as that of Rhode Island or Massachusetts, 
 the dividends of the Bank of England must fall to four per 
 cent. ; but while the monopoly of banking is continued to the 
 Bank of England, or to the hardened gambler, willing to risk 
 his all in the establishment of a bank with unlimited liability, 
 the profits of banking will be large, and there will be a great 
 amount of capital in the form of deposites, for the use of which 
 the owners will receive nothing, but which will always be a 
 cause of disturbance in the currency. When property shall 
 
ENGLAND IN 1825 AND 1836. 
 
 119 
 
 be perfectly secure, and the owners perfectly free in regard to 
 its employment, there will be a constantly increasing tendency 
 to uniformity in the rate of profit. 
 
 The complaint under which England labours is surplus 
 capital, which her restrictive laws will not permit to be invested 
 at home. The demand from the United States tended to pro- 
 duce a necessity for permitting it to be invested at home in the 
 form of a new bmik, or in that of an increase in the capital of 
 the Bank of England, and thus prevent it from being exported. 
 This necessity was produced by the credit of American securi- 
 ties, and was to be averted by discrediting them. It was done, 
 and the danger was over. The flow of gold ceased. Capital 
 ceased to be employed by its owners, and was returned to the 
 bank to be loaned out for its own profit. 
 
 England is to the monetary system of the world what the 
 heart is to the body. So long as her action is regular there 
 will be regular action throughout the whole system. There 
 may be local irregularity, but that can only be temporary. If 
 a bank at Cincinnati or St. Louis pursue an injudicious course, 
 issuing too large an amount of its notes, the error is discovered 
 at New York or Philadelphia, provided they he not themselves 
 in error. If New York do so, the error is speedily discovered 
 in I^ondon, and a demand for bullion tends to correct the 
 procedure. 
 
 If New York and Philadelphia go wrong, their error is pro- 
 pagated throughout the Union, constantly increasing in ex- 
 tent, until they are compelled to endeavour to correct it at the 
 cost of ruin to the trading part of the community. If London 
 go wrong, the error is propagated throughout the world, as 
 we have recently seen to be the case, and it can be corrected 
 only at an enormous expense of human happiness. 
 
 It was in the power of the Bank of England to have ar- 
 rested, at any moment, the career of speculation in the United 
 States, and the gradual reduction of her loans would have 
 arrested it ; but, on the contrary, she fed the market with 
 paper, and maintained the spirit of speculation. The directors 
 were governed solely by the desire of making dividends, and 
 willing to incur large risks to accomplish that object. 
 
120 
 
 ENGLAND IN 1825 AND 1836. 
 
 If in 1834 or 1835 Parliament bad authorized the esta- 
 blishment of a new bank with a capital of fifteen millions, the 
 deposites in the present bank would have been converted into 
 capital for that institution, and would have stayed at home, and 
 the excitement of 1836 would not have taken place. AJl the 
 difficulty of the last three years has resulted from the existence 
 of a large surplus of capital that is kept unemployed by the 
 existing restrictions on its investment, and so long as that ex- 
 ists, there must always be a tendency to unsteadiness. It is 
 therefore of the highest importance to the commercial world 
 that the errors of the monetary system of England should be 
 corrected. 
 
 The difference between the effect produced upon the United 
 States and England by the recent occurrences, is the same 
 that is produced upon a banker and his customers by a change 
 of operations. The former makes capital appear abundant by 
 lending his credit freely. His neighbours commence building 
 houses ; they extend their business ; or they make rail roads 
 and build ships. When these operations are half completed 
 the banker finds that he has overtraded, and that, to save him- 
 self from ruin, he must diminish his loans and his investments. 
 He is pressed for payment and in danger of bankruptcy, but 
 by compelling his debtors to pay him, he places himself in a 
 few weeks out of danger. His unfortunate customers, com- 
 pelled to sacrifice their houses, ships, merchandise, and rail 
 road stocks, are ruined, while he boasts of the skill with which 
 he has extricated himself. The loss which should fall upon 
 him has fallen upon his innocent customers, and he escapes 
 scot free; whereas, had they been as indifferent to their obli- 
 gations to him as he was of his to them, the loss would have 
 fallen upon him, and they would have retained their property. 
 Their losses have been in the proportion of their integrity. 
 Such has been the conduct of the Bank of England, which 
 has proved its total incapacity for controlling the financial 
 operations of that country. It is, we think, doubtful if any 
 case has ever occurred, in which has been shewn so total a 
 want of capacity for business. Its loans were increased in the 
 face of a constant reduction of bullion. It destroyed its cus- 
 
 * See Report on Renewal of the Bank Charter. 
 
ENGLAND IN 1825 AND 1836. 
 
 121 
 
 tomers with the hope of compelling a return. It thereby 
 ruined the innocent merchants of the United States, para- 
 lyzed the operations of the country, and destroyed its power of 
 purchasing the manufactures of Great Britain. It would take 
 nothing but gold. Gold came. It was then found that gold 
 was not wanted, and that it would do more good if replaced 
 in- the United States, and it was shipped to New York in 
 search of a market. Such has been, and such will ever be, the 
 consequence of placing the control of currency in the hands 
 of a few men intent upon making profit, instead of setting it 
 free to be governed by the laws of trade, which forbid such 
 mistakes. 
 
 R 
 
122 
 
 CONCl.USION, 
 
 CHAPTER IX. 
 
 CONCLUSION. 
 
 Governments have arrogated to themselves the task of 
 regulating the currency, and the natural effect is, that nothing 
 is less regular. At present, each day brings to London an 
 abundant supply of fish, meat, vegetables, &c., and each day 
 proves that the persons who furnish those supphes understand 
 tolerably well what is required. Were government to regulate 
 the markets as they do the currency, there would be a suc- 
 cession of over supplies, during which vast quantities of pro- 
 vision would be spoiled, followed by a succession of scarcities, 
 when double prices would be paid for the necessaries of life, 
 precisely as is now the case with money. Whenever those 
 who control the operations of government shall learn that the 
 trade in money is like all other trades; that every man has a 
 right to associate himself with his neighbours, and to trade 
 with others on such terms as they may mutually deem most 
 likely to be advantageous, whether of limited or unli- 
 mited liability ; and that every man has the same right to fur- 
 nish currency that he has to furnish hats, coats, or shoes ; and 
 whenever they shall abolish all restrictions thereupon, there 
 may and will exist a good, sound, safe, and cheap currency, 
 but not till then. 
 
 Various propositions have been made, in regard to that of 
 both England and the United States, by persons who believe 
 that more steadiness would be obtained by having a single 
 body or institution authorized to issue paper to be used there- 
 for, and by others for preventing the circulation of notes under 
 ten and twenty dollars, or pounds, &c. Experience, however, 
 teaches, that when governments undertake to regulate trade or 
 commerce, to furnish roads or education, there is at one 
 time, or in one place, an over supply, and at another, a 
 deficiency. Such would be the case in regard to currency. 
 Experience also teaches us that when the people undertake to 
 supply themselves, and they are not restrained in their action. 
 
CONCLUSION. 123 
 
 the supply is well regulated. In no part of the world is the 
 
 power of supplying currency so much divided, in none are 
 silver and gold to so great a degree dispensed with, and in no 
 country of the world is there one combining so many of the 
 requisites of a perfect currency, as are to be found in that of 
 Massachusetts and Rhode Island. 
 
 No advantage can ever result from attempting improvement 
 by diminishing freedom of action, by limiting the number of 
 persons who shall issue notes, or by enacting that they shall 
 not be below a certain amount, while, on the contrary, great 
 improvement may be hoped from the abolition of all restric- 
 tions. One dollar notes will not be used unless the benefit 
 derived from them exceed the cost of furnishing them ; and if 
 it do so, their use is beneficial to the whole community, per- 
 mitting every man to apply the silver that he would otherwise 
 have been obliged to use to the improvement of the ma- 
 chinery by which labour is aided. 
 
 Every man who now issues a note furnishes currency, and 
 no law that could be passed would give him more power to do 
 so than he now possesses. He gives his note, payable in 
 5, 10, 60, or 90 days, and it remains current so long and no 
 longer, because at the end of that time no one is willing to 
 keep it in his possession, preferring to take the promise of a 
 bank to pay the same sum. He gives his check, payable on 
 demand, but it remains current only an hour, because the per- 
 son to whom it is given prefers that species of currency, the 
 value of which is known to all — a bank note. When two 
 kinds of currency exist, the strong will always drive out the 
 weak, because every man who receives the latter will at once 
 exchange it for the former. All the private banks of England 
 cannot maintain a circulation of one-half the amount of a 
 single bank in London. Were the system adopted that we 
 have proposed, there would be established throughout England 
 a large number of banks owned by men of the highest cha 
 racter for respectability, and they would speedily supersede 
 altogether the circulation of individuals. Circulation is ex- 
 pensive, and unless the amount be considerable, it produces 
 no profit. Under that system, the first private banker in 
 England could not maintain a circulation, the profits of which 
 would pay his expenses, and the inferior ones could maintain 
 
124 
 
 CONCLUSION. 
 
 none. The notes would be returned as fast as issued. There 
 is no more propriety or necessity for regulating who shall or 
 who shall not issue his note, to be exchanged with those who 
 are willing to take it, than there is for regulating who shall or 
 who shall not grow potatoes or make shoes. 
 
 It may be asked, " would you permit all persons to trade 
 upon the footing of limited liability?" 
 
 In answer, we would remark, that there are always two 
 parties to a contract, and that no man can get in debt unless 
 he can find some one to trust him. If that person deem it 
 advantageous to deal with him on those terms, what reason is 
 there for preventing him from so doing ? It may safely be 
 assumed, that he understands his interest better than any 
 legislators can do for him. If the individual banker, or hatter, 
 or shoemaker, were to propose to trade on such terms, no one 
 would trust him, yet the persons who would refuse to give him 
 credit would prefer the note of a banking company with a 
 capital of half a million, which capital alone was responsible 
 for its debts, to that of an individual worth millions, whose 
 whole property was liable for the performance of every en- 
 gagement he might make. 
 
 Limitation of liability must be confined almost altogether to 
 associations. It will be permitted to them, because the reason 
 therefor is obvious ; but it will be refused to individuals, be- 
 cause no such reason exists. The tendency to association 
 increases every day, and will continue to do so ; and with it 
 there will be an increasing tendency to permitting men to 
 trade together in such manner as they may deem most advan- 
 tageous.* With every increase in the habit of association, 
 there will be a tendency to increase in the productiveness of 
 labour. At present, one hundred persons own a rail road or a 
 canal, and a single individual, with a salary of three or four thou- 
 sand dollars, superintends the whole concern; whereas, if each of 
 the one hundred owned his separate mile of road, a large por- 
 
 * Limited partnerships have made their way gradually through a considerable 
 portion of the Union, and will in a few years be universally permitted. There 
 is also a constant tendency to relaxation of the unlimited liability of partners 
 of mercantile houses. At the late session of the legislature of New York, a 
 l^w was passed authorizing creditors to compromise with individual partners, 
 without prejudice to their claims upon the others. 
 
CONCLUSION. 
 
 125 
 
 tion of his time would be required for its management. The 
 owners of half a dozen, or of a dozen, ships unite them together 
 to form a line of packets, placing the whole under the control 
 of a single individual, who does all the business, leaving the 
 owners to employ their talents in whatever manner they think 
 proper. The Bank of the United States does as much busi- 
 ness as would be sufficient for fifty or one hundred private 
 bankers. The stockholders pay but one president. The con- 
 sequence is, that the cost of management is less, and the in- 
 stitution can do business on more advantageous terms for its 
 customers. A diminution of one per cent, in the rate of ex- 
 change is so much added to the production of the planter, or 
 farmer, or manufacturer, and is a reduction of friction pre- 
 cisely similar to that produced by the rail road. The time is 
 not distant when the same system will be applied, with the 
 same results, to many other pursuits. 
 
 At present, certain persons in New Orleans place their 
 capital in banks under charters. Certain other persons, called 
 cotton factors, grant their acceptances to the growers of 
 cotton, who forward their produce to them for sale. Those 
 acceptances are discounted by the banks. Occasionally the 
 cotton-factor fails, and both banker and planter lose thereby. 
 If any one of the companies now acting as bankers, with a 
 capital of five or ten millions, were to announce to the world 
 that in future it would confine itself to receiving cotton and 
 selling it on commission; that it had, with that view, selected 
 as president one of the most skilful of the dealers in that com- 
 modity ; that it would make all advances in cash on bills at 
 short date ; and that its charges would be the same as those 
 of the cotton-factors, the growers of cotton would desire to 
 employ it, because of the perfect security, notwithstanding the 
 limitation of liability^ If they did not, it would do no business, 
 as no man would be compelled to trade with it. The owners 
 of capital would deem it more advantageous to lend it on 
 cotton than upon the notes of cotton-factors, who might fail ; 
 and the owner of cotton would prefer the engagement of the 
 company to that of any cotton-factor. Both being thus will- 
 ing to do business together, there would be only one difficulty 
 in the way — that of the law, which prevents people from asso- 
 ciating and trading together in such wai) as they may deem 
 
126 
 
 CONCLUSION. 
 
 most advantageous. Were all restraints abolished, we should 
 speedily see such a company engaged in receiving cotton and 
 making advances thereon ; and, vi^ith a single president, it 
 would do the business now done by fifteen or twenty cotton 
 factors, who might be advantageously employed in cultivating 
 cotton instead of selling it. If the planters preferred it as 
 their agent, it would make large profits. If it succeeded, it 
 would make large dividends, which would speedily give rise to 
 another, and it would then be discovered that the commission 
 might be reduced one-half. A third would cause a further re- 
 duction, and at length it would perhaps be found that they 
 required, as compensation for the sale of the cotton, very little 
 more than is required by the banks of Massachusetts for taking- 
 care of the deposites of the people of that State, and for sup- 
 plying them with a circulating medium;* in fact, that a very 
 small commission for accepting drafts, and common interest of 
 the capital advanced, would enable them to make as large 
 dividends as any other institutions. Here would be increased 
 security and reduced friction, with a great increase in the pro- 
 ductiveness of labour. There would be no monopoly or exclusive 
 privileges. 
 
 Were such a company established in New York for re- 
 ceiving shoes or cotton-cloths, and making advances thereon, 
 the makers of shoes and of cloth would most probably give 
 their business to it, provided it were as well done, notwith- 
 standing the limitation of liability. Existing restrictions will 
 be abolished, and such arrangements will be made. The ten- 
 dency to combined action is such that it will triumph over all 
 attempts to restrain it. It increases everywhere with the 
 increase of population, of capital, and of civilization. It has 
 extended itself from Great Britain to France,t and is rapidly 
 making its way throughout Germany.! 
 
 * See page 85, ante. 
 
 t In connexion with this subject, tables have been published, shewing the ex- 
 traordinary increase of joint-stock companies (en commandite) in France, from 
 which it appears that their number, which in 1826 was but twenty-six, was on 
 the 1st of January, 1838, 1039; and their capital, which at the first-mentioned 
 period was but 56,397,090 francs, was at the latter 1,008,029,300. This in- 
 crease is in part attributed to the sales made of five per cent, stock in expectation 
 of its conversion, and the investment of the proceeds in joint-stock companies. 
 
 t A Vienna letter gives the following description of a scene which took place 
 there a few days ago, on the opening of the subscription for a rail road from that 
 
CONCLUSION. 127 
 
 It is asserted that joint-stock companies, not being generally 
 under the control of persons largely interested in them, are not 
 usually well managed, and that they constitute a very imper- 
 fect species of the machinery of production. In reply to this, 
 we say, that the repeal of the law, which forbids the exercise of 
 the right to which we have referred, by no means implies any 
 necessity on the part of people to avail themselves of it. 
 No one will do so, unless he believes that he will be benefited 
 thereby. It is said, however, that they would deceive them- 
 selves, and should not be permitted to do so. This is the 
 same argument that is used in France in defence of regulations 
 of every kind, and it is as true in relation to restrictions upon 
 the time of gathering the grape, as in regard to restraints 
 upon the mode in which men shall transact business, one with 
 another. 
 
 Were all persons at liberty to associate themselves upon the 
 same footing as the present incorporated companies, they 
 would do so only after mature reflection. Under the present 
 system, in many of the States, as well as in England, an act of 
 incorporation is regarded as a privilege, and men rush head- 
 long into enterprises that would not be thought of, were not 
 that idea connected with them. Two years since, the legis- 
 lature of Pennsylvania passed a general law for the incorpo- 
 ration of companies for making iron with mineral coal, and up 
 to the present time we believe but one company has been 
 formed. Had they granted charters for twenty companies, 
 persons would have been found to take up the whole under an 
 idea that profit might result from the possession of the privi- 
 lege. The State of New York has abolished nearly all re- 
 strictions upon associations for the purpose of banking* As 
 
 capital to Raab : — " The magistrates having found the offices at first appointed 
 too small, Prince Schwartzenburg granted the use of his palace for this purpose ; 
 still the pressure of the crowd, which was estimated at thirty thousand at least, 
 was so great, that doors were forced in, walls scaled, limbs broken, and even 
 blood shed. The efforts of a battalion of grenadiers, a detachment of light horse, 
 and two hundred police officers, were insufficient to keep back the crowd, and 
 with the flats of their swords produced no effect. Several of the military were 
 also hurt." 
 
 ♦ They are restricted from issuing notes to an amount exceeding their capital. 
 The passage of the law was equivalent to saying that no bank should in future 
 divide more than the ordinary interest of money, or to a limitation of its liabilities 
 to 30 or 35 per cent, beyond its capital. Wherever trade in banking is free, the 
 
128 
 
 CONCLUSION. 
 
 yet we hear of no new banks having been formed, but on the 
 contrary, the merchants of New York have applied to the 
 Bank of the United States to establish one. Had a charter 
 been granted for an institution of fifty millions, the whole 
 would immediately have been subscribed, because the parties 
 would have obtained a privilege out of which they could make 
 profit. Now they will examine carefully for themselves before 
 they engage in the formation of a new one. They will invest 
 the capital they have unemployed and no more, being per- 
 fectly certain that as it may accumulate again, they will find 
 means of employing it. There can never be to any extent a 
 double demand produced by the same capital^ in consequence of 
 its temporary loan, while the owner is seeking the means of per- 
 manently investing it. Under this law, banks will become at 
 once the property of the owners of capital, large and small — 
 the widow and the orphan, as well as the merchant and the 
 millionaire ; whereas, under the existing system, in the Middle 
 and Southern States, it is notorious that the shares are taken 
 by stock-jobbers, and float about in the market for months, 
 and perhaps for years, before they are taken up by the 
 capitalist. 
 
 When trade shall become free, the banks will know that if 
 they act in such manner as to render capital superabundant, 
 the immediate effect will be the production of rivals in busi- 
 ness. When men shall be restored to the enjoyment of their 
 rights, the prudent will, in England, be the owners of joint-stock 
 banks ; whereas, under the present system, they dare not incur 
 the risk attendant thereupon.* When that time shall arrive, 
 
 interest receivable from capital employed in it will be equal to that of other 
 capital, and the business will be limited to the quantity that is necessary to give 
 that interest. 
 
 * I think unlimited liability discourages a great many wealthy persons from 
 taking shares. A party reasons with himself very justly, — why should I, who 
 have property, subject my property to loss on the chance of the trifling dividends 
 I can obtain in a bank? If the liability was limited, he could not so view it; 
 there would be a better class of stockholders." — Evidence of Gen. Austin before 
 Committee of the House of Commons, 1836, p. 127. 
 
 "Would it [limited liability] increase the stability of banking ?" "Yes, I 
 think it would; it would very much increase the number of respectable persons 
 taking an interest therein, and thus improve their management as well as their 
 credit ; the personal exertions of such individuals have great effect in time of 
 alarm and discredit." — Evidence of V. Stickney. Ibid. p. 91. 
 
CONCLUSION. 
 
 129 
 
 banking will become a safe and steady business ; the losses 
 of the banks by the people will be small, and those of the 
 people by the banks will be so. 
 
 We now submit to the consideration of the reader the fol- 
 lowing propositions : 
 
 I. That with the increase of population and of capital there 
 is a tendency to increase of security, both of person and of 
 property. 
 
 II. That perfect security of property is inconsistent with 
 restrictions upon the mode of employing it. 
 
 III. That perfect security of person is inconsistent with re- 
 strictions upon the mode of applying labour, or talent, to 
 production. 
 
 IV. That when men are left most free in the application of 
 their talent, their labour, or their property, in other words, 
 when person and property are most secure, their time and 
 their property will be most productive. 
 
 V. That with the increase of security there is an increase 
 in the confidence of man in his fellow man. 
 
 VI. That commercial credit is the result of that confidence. 
 
 VII. That where credit is greatest, we should find security 
 tlie most complete; and vice versa, that where security is 
 greatest, credit should be most universal. 
 
 VIII. That with the increase of confidence there is an in- 
 creased disposition for employing capital in the construction of 
 roads, canals, bridges, and ships ; in the estabhshment of 
 stores and banks ; and in all other modes by which exchanges 
 are facilitated. 
 
 IX. That increase of confidence tends, therefore, to diminish 
 the stock of commodities kept on hand for the supply of daily 
 wants, whether of wheat, cotton-cloth, gold, or silver, and 
 to increase the quantity of capital that may be applied to 
 facilitate production. 
 
 X. That increase of confidence tends to increase production 
 and to diminish the quantity of currency, and therefore to 
 diminish the ratio of currency to production. 
 
130 
 
 CONCl.USION. 
 
 XI. That the more perfect the freedom in the employment 
 of capital, the less will be its tendency to accumulate in the 
 form of gold and silver, or in that of deposites yielding no 
 return to the owner, and the greater will be the tendency to 
 increase in the number of rail roads, canals, and other aids to 
 labour. 
 
 XII. That freedom of employment tends, therefore, to in- 
 crease the amount of production, and to decrease the quantity 
 of currency. 
 
 XIII. That there is, therefore, with the increase of confidence, 
 and increase in the freedom of employing capital, a tendency to 
 diminution in the proportion which the currency bears to the 
 amount of production, and consequently to the amount of ex- 
 changes to be performed. 
 
 , XIV. That with the increase of confidence, there is a con- 
 y^stant tendency to the substitution of bank notes, checks, and 
 drafts, for the precious metals, thus diminishing the quantity of 
 capital required to be used as currency. 
 
 XV. That such substitution is attended with an increased 
 facility of improving the machinery by which labour is aided. 
 
 XVI. That the increase of confidence manifested by the 
 substitution of bank notes, checks, and drafts, for gold and 
 silver, tends therefore to diminish the proportion of capital re- 
 quired for the performance of exchanges, and to increase the 
 productiveness of labour. 
 
 / XVII. That, on the other hand, decrease of confidence in- 
 ^ creases the quantity of the precious metals required, and dimi- 
 nishes the productiveness of labour. 
 
 XVIII. That every measure tending to diminish confidence, 
 and to cause the substitution of the precious metals for bank 
 notes, checks, or drafts, tends to diminish the productiveness 
 of labour. 
 
 XIX. That while with every increase in the productiveness 
 of labour there is a tendency to reduction in the proportion 
 which the currency bears to production^ there is likewise a ten- 
 dency to reduction in the proportion which the precious metals 
 bear to the currency. 
 
CONCLUSION. 
 
 131 
 
 XX. That diminution in the propoi tion of the currency to 
 the exchanges is attended with increased sensitiveness to change, 
 and consequently with increased steadiness of action. 
 
 XXI. That perfect security and perfect freedom produce 
 that confidence which tends to diminish the proportion which 
 the currency bears to the exchanges. 
 
 XXII. That security and freedom tend therefore to produce 
 steadiness of action. 
 
 XXIII. That in comparing the several parts of the United 
 States one with another, we find that in Massachusetts and 
 Rhode Island credit is greater, labour is more productive, 
 the proportion of the currency to the exchanges is smaller, 
 the proportion of precious metals required therefor is smaller, 
 and the currency is more sensitive to change, and more per- 
 fectly within control, than in any other part of the Union. 
 
 XXIV. That this is to be attributed to the greater freedom 
 of action existing in those States. 
 
 XXV. That the same improvement which is found in passing 
 from the new-er States to those of dense population should be 
 found in passing from the latter to England. 
 
 XXVI. That, on the contrary, we find that credit is less 
 universal, that labour is less productive, that the proportion of 
 the currency to the exchanges is greater, that the proportion 
 of the precious metals required therefor is greater, and that it 
 is less sensitive to change. 
 
 XXVII. That want of confidence, generated by restraints 
 upon the employment of capital in England, tends to cause 
 large quantities thereof to remain in the hands of its owners 
 unproductive, and frequently compels its owner to send it 
 abroad in search of employment. That labour consequently is 
 less productive. That credit is therefore less universal. 
 
 XXVIII. That the capital thus rendered unproductive re- 
 mains with its owners in gold, or is placed in bank on de- 
 posite until they can find the means of investing it. Being 
 loaned by the bankers, it is employed by those who borrow it, 
 while the real owners are desiring also to employ it. It pro- 
 
132 
 
 CONCLUSION. 
 
 duces, therefore, a double demand for commodities, real estate, 
 or stocks, while thus unproductive. 
 
 XXIX. That while labour is thus rendered unproductive, 
 the proportion of the currency to production, and to the quan- 
 tity of commodities to be exchanged, is increased. 
 
 XXX. That restrictions upon the substitution of paper for 
 the precious metals tend to increase still more the amount of 
 capital rendered unproductive, and thus to prevent improve- 
 ment in the quality of labour. 
 
 XXXI. That thus the proportion of the currency to the 
 exchanges, and of the precious metals to the currency, is in- 
 creased ; the currency is rendered less sensitive, and less under 
 control. 
 
 XXXII. That the remedy would consist in the adoption of 
 measures that would give entire freedom of action, and free- 
 dom in the employment of capital. 
 
 XXXIII. That the more perfect the freedom the more com- 
 pletely would the trade in money be brought under the control 
 of the laws of trade, and the less would it be under the control 
 of men. 
 
 XXXIV. That the more numerous the restraints the more 
 completely will it be under the control of men, and the less will 
 it be subject to the control of laws. 
 
 XXXV. That if we look to France, we find restraints 
 abounding, and the control of men complete; that in Eng- 
 land we find a state of affairs nearly similar; that in Scot- 
 land we find a slight improvement; that the same improve- 
 ment, which is thus observed as restraints diminish, is likewise 
 observed as we pass from the Southern States to Massachu- 
 setts and Rhode Island, where freedom is most complete, 
 and where the laws of trade have the greatest, and where men 
 have the least, control. 
 
 XXXVI. That the want of confidence generated by the 
 measures of the administration of the United States tended to 
 the substitution of gold and silver for bank notes, checks, and 
 drafts. 
 
 XXXVII. That as increase of confidence tends to di- 
 
COiNCLUSlON. 
 
 133 
 
 minish, so diminution of confidence tends to increase, the 
 quantity of currency, and th^ proportion of the precious metals 
 required therefor. 
 
 XXXVIII. That it was a movement in opposition to the 
 universal law of nature, that with increased capital and popu- 
 lation there is increase of security; increased confidence of 
 man in his fellow man ; increased tendency to the use of credit, 
 attended by diminution in the proportion of the currency to 
 the exchanges ; and diminution in the proportion of the pre- 
 cious metals to the currency. 
 
 XXXIX. That the remedy is to be found in the restoration 
 of confidence, by which the existing currency may be rendered 
 active. 
 
 XL. That increased activity would enable the banks to call 
 in their loans, and thus diminish the currency.* 
 
 XLI. That delay in its restoration tends to produce further 
 importation of the precious metals; increase in the quantity 
 of currency ; increase in its cost ; diminution in its steadiness 
 and security, and in the productiveness of labour. 
 
 * For an illustration of this we will refer the reader to the present state of af- 
 fairs. Capitalists have large deposites, and the banks have large liabilities. In- 
 dividuals have abundant property which they cannot sell, because confidence does 
 not exist. Its restoration would induce the owners of deposites to purchase the 
 property of those who are indebted to the banks, and the property thus exchanged 
 would cancel the deposites and diminish the currency. It is almost impossible 
 to effect any material diminution when there is no confidence, because there is 
 no circulation. 
 
 The banks of New York have reduced their circulation from 24 millions to 10 
 millions, yet their private deposites have been reduced only eight millions. So 
 long as they continue a course that destroys confidence, the deposites will remain. 
 They may break their debtors, but they will not thereby induce the owners of 
 unemployed capital to part with it. Property falls in price, but there is a con- 
 stant expectation that it will fall still lower. The unfortunate debtor is crushed 
 as between the upper and the nether mill-stone. The slightest appearance of 
 improvement sets the deposites in motion, atid the banks are relieved of their 
 liabilities, while the condition of their debtors is improved. 
 
 Were the war against banks and bank notes at an end, there would be an 
 immediate exchange of deposites against the property of those who are indebted 
 to the banks; the debts to the banks would be cancelled; their liabilities would 
 be diminished ; the currency would be diminished, and prices would rise. If 
 there be a continued diminution of confidence, the import of coin will afford no 
 relief, but will, on the contrary, tend to a constant diminution in the quality of 
 labour, in the power of production, in the reward of both labourer and capitalist. 
 If there be a restoration of confidence, the reverse will be the case. Confidence 
 cannot he restored under the present syslcnu 
 
134 
 
 CONCLUSION. 
 
 XLII. That every measure tending to delay the restoration 
 of confidence sliould therefore be avoided. 
 
 XLIII. That its restoration would tend to prevent a further 
 importation of the precious metals, increase in the currency, 
 and increase of its cost ; would promote its re-establishment 
 on a safe and steady footing, and would greatly increase the 
 productiveness of labour.* 
 
 * Gold, to a considerable extent, has been imported, but it was not wanted, 
 and its arrival has been productive of no advantage. The currency was redundant, 
 and if confidence had been re-established, there would very soon have been an ex- 
 port of the coin that is now hoarded. Every dollar of gold imported from Eu- 
 rope takes the place of so much iron or other commodity, by the use of which 
 labour would have been rendered more productive ; and its importation tends con- 
 sequently to diminish the reward of labour. The exportation of coin in exchange 
 for iron tends, on the contrary, to increase production, giving a constant increase 
 of both wages and profits. 
 
 The substitution of coin for bank notes was a favourite object with the past 
 administration as it is with the present. The first enjoyed advantages for the 
 accomplishment of its object which the second wants. During the whole pro* 
 gress of the " experiments" upon the currency under General Jackson, the Bank 
 of England rendered him essential service in furnishing gold without decreasing 
 its loans. The consequence was, a rapid increase of the currency, a rapid in- 
 crease of prices, and great apparent prosperity. Both labourer and capitalist 
 were content, and the experiments were permitted to proceed. 
 
 At present a different state of things exists. The country is filled with gold, 
 but confidence is wanting. The Bank of England can export the first, but it 
 cannot send the second. If it could, the first would he instantly rejected. Gold 
 may be imported until the people of the United States become as poor as those 
 of France, yet the instant confidence shall be restored, it will be sent abroad to 
 be exchanged^or other commodities, and its export will be an evidence of im- 
 provement. An excess of the precious metals can be retained in no other way 
 than by a diminution of confidence, attended by diminished production, dimi- 
 nished wages, and diminished profits. The popularity of General Jackson was 
 due, in a great measure, to the Bank of England, by whose aid wages and profits, 
 counted in gold, were increased. The unpopularity of his successor is due to the 
 fact, that his measures tend to destroy confidence, to diminish production, and 
 to diminish wages and profits. Every importation of gold under the first was 
 an evidence of increased confidence of the people in the continuance of pros- 
 perity, and tended to increase his popularity. Every import of it under the 
 second is an evidence of want of confidence of the people in the restoration of 
 prosperity, and tends to increase still further his unpopularity. There is much 
 rejoicing over the arrivals of gold, by his friends, but they should look upon 
 them with regret. Whenever it shall begin to fiow out, there will he an improve- 
 ment in the state of affairs ; production will hegin again to increase ; wages and 
 profits will hoth rise ; and the administration may hegin to recover popularity. 
 
 The stoppage of the banks in 1837 was owijig in a great degree to its measures, 
 and to a continuation of the same insane policy is now to be attributed the want 
 
CONCLUSION. 
 
 135 
 
 XLIV. That the attempt to substitute government agents, in 
 lieu of the banks, for the receipt and disbursement of the pub- 
 lic revenue, tends to prevent the restoration of confidence. 
 
 XLV. That the attempt to compel the use of gold and sil- 
 ver for all sums under twenty dollars, and in all payments to 
 the government, has a similar tendency. 
 
 XLVI. That both tend, by thus preventing the restoration 
 of confidence, to diminish the productiveness of labour, to the 
 injury of both labourer and capitalist. 
 
 XLVn. That the experience of individuals, and of the go- 
 vernment in their intercourse with banks, has proved that the 
 charges of management, as well as the risk of loss, are infi- 
 nitely small when compared with the advantages derived 
 therefrom. 
 
 XLVIII. That individuals, with a view to economy and 
 security, prefer to employ banks, rather than individuals, as 
 their agents. 
 
 XLIX. That a government will always consult its interest, 
 by adopting those modes of action which individuals have 
 proved to be most economical and safe. 
 
 L. That a departure from the course thus indicated will 
 be attended with increased expense of management, and in- 
 creased risk of loss. 
 
 LI. That the substitution of individual agency for that of 
 the banks is in direct opposition to experience, which teaches 
 that where business is transacted on a large scale, the agent 
 takes a small commission, and is well paid ; whereas, when 
 it is done on a small scale, he takes a large commission, and 
 is ill paid ; and also that a higher degree of security is at- 
 
 of confidence that still exists. It wars upon credit and upon banks as if they 
 were enemies of the people, not observing that they are the creation of the people 
 themselves, as much as are rail roads and canals, and that they aid production to 
 as great an extent. It appears to believe that it is possible to annihilate the 
 system, but it would be as easy to annihilate the habit of eating and drinking, 
 now that men have felt its advantages. The system will outlive the administra- 
 tion, whose existence will be but brief, unless its course be changed. Its oppo- 
 nents have reason to rejoice at the blindness which induces a continuance in that 
 course, and find in it strong evidence of the truth of the assertion, 
 
 QUEM DEUS VULT PERDERE, PRIUS DEMENTAT. 
 
UNIVERSITY OF ILLIN0I8-URBANA 
 
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