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So far as all external indications enable us to judge, commercial credit is now in a sound and satisfactory state. Money, to any extent, may be had on good securities at a low rate of interest. All government stock is high. The quantity of bullion in the Bank of England is extraordinarily large—it has risen from £13,817,000 on the 26th July to £17,320,000 on the 27th December, 1851. All the predictions as to the drain of bullion to be caused by the repeal of the corn laws have been falsified. The country banks, under the operation of Sir Robert Peel's Act, continue in a sound and healthy state; the few failures which have lately occurred have not been owing to over-issue of paper.




This essay was written in consequence of meeting with the following allegations in Gouge's work upon banking

" The practice of lending on bond, to which banking has nearly put an end, was perhaps more advantageous to the country than any other kind of lending.” “ Banks do not increase the amount of loanable capital in a country.”

"All that bauking can do is to take the loanable capital out of the hands of its owners and place it in the hands of irresponsible corporations."

I propose to refute the allegation, thus quoted, that nothing is gained through the extension of credit

, by banking. In pursuance of this intention I shall in the first place show upon what grounds the value of the precious metals

, and their competency as money is founded. In the next place I hope to demonstrate, that bank credit has precisely those attributes which are required in a substitute for hard money, while at the same time it has not only the well known advantages of peculiar cheapness and conveniency; but also that of being much more at command, and of springing into existence, and expanding with those pecuniary transactions, of which efficient money is an effect, as well as an exciting cause.

It is evident that the market price of the metals employed as money, is regulated by the ratio of the demand to the supply, as in the case of all merchandise. The demand for them, and of course their value, was originally dependent on their utility in the arts. Subsequently, on account of their superior value in proportion to their bulk, indestructibility, and their susceptibility of subdivision without loss, gold and silver were found, of all commodities, those which could be most advantageously set aside to be used as money, or in other words, as the means of barter for all other marketable articles. Hence the quantity of the metals in question employed as money, became greater than that otherwise employed; and consequently the demand for them resulted more from their usefulness as money, than the qualities which caused them at first to become objects of cupidity.

Coin bas therefore a double foundation for its value, one may be called the original, the other the adventitious basis. Yet the original basis is never inefficient; since it is by his confidence in the intrinsic value of the metal, that the owner conceives himself safe in retaining it till he may have occasion to use it as money.

Supposing that of all the precious metals in human possession, four parts

out of five are held as money ; it follows that any other substance would answer the same purpose as the four parts so employed, provided the holders could feel equally secure that it could at any time be exchanged for its value, in gold and silver. It is precisely this quality which is imparted to bank credit; which, whether in the form of notes or that of book entries, being always convertible into specie, may to a great extent take the place of that portion of the precious metals which would be used as money. Thus associated with specie, bank credit constitutes a currency, cheaper, more convenient, and more efficient than any other. It unites at once the advantages of specie and paper money. That the banking system requires a certain degree of morality in the people, and in the legislative, judicial, and executive departments; that it cannot exist advantageously under an arbitrary government, are attributes, or characteristics, which its friends are pleased to admit.

The author of the allegations quoted above, appears not to have perceived that the establishment of a bank creates a credit, which otherwise would not exist; and that the bank credit, thus created, in the form of notes, and book-credits, transferable by checks, is in utility superior to hard money. The bank-note is as good to the holder as the coin, which it obligates the bank to pay on demand, so long as the credit of the bank is unimpaired. The capital wbich a good bank receives from its depositors, and note-holders, is not borrowed, as usually supposed. It is paid for, or compensated, by an equal value in bank credit, either in their notes, or on their books; which, so long as it is preferred by them to specie, is by this very fact, proved to be more than an equivalent. The bank at the same time, insures the currency of its notes, and of checks drawn on it, by paying specie when required; and only becomes the debtor of the depositors and note-holders, when it does not perform this condition in consequency of insolvency, the expiration of its charter, or any other cause.

Under such circumstances, the bank ought not to be considered as indebted to the holder of one of its notes, to a greater amount than the discount, at which the note may be sold to the highest bidder.

I am aware, that agreeably to the ordinary way of viewing the subject, the assertion that the bank is not indebted to its depositors, may seem strange; yet it appears to me more correct to consider the deposit as the price of the privilege of using an equivalent portion of bank credit. The bank is in effect the obligee of the depositor, not his debtor.

In order to afford a more substantial illustration to the idea which I have endeavored to convey, let us suppose that, by a miracle, any substance, otherwise worthless, could be endowed with the faculty of producing a certain weight of gold, whenever wanted. Suppose that, in consequence of its being lighter than gold, it were to be preferred. Would any one allege that the seller at the price of ten dollars of a quantity of this substance equivalent to produce an eagle, would be in debt to the purchaser? Would not the latter have full value for his ten dollars? In what respect then does a good bank-note differ from the miraculous substance imagined? Will it not reproduce its price in gold and silver whenever desired, or at least with a degree of facility sufficient to cause owners in general to employ them in preference to their metallic equivalent, in all cases where the weight of the latter is an inconvenience ?

It follows also from the premises, that the author of the opinions above quoted is mistaken, in supposing that the same amount of substantial capital will be as efficient when loaned out to individuals on bond, as if employed in banking. I do not mean to assert that an individual may not establish a bank as well as a corporate body, but it seems to be attended by this disadvantage, that he cannot be as effectually restricted from speculating and trading ; nor obliged to inform the public of the amount of his notes, receipts on deposit, or loans. But unless employed in banking, the same amount of capital will not be as efficient in the hands of individuals as in the stock of a bank. In a community in which there are few wealthy men, in order to accumulate an amount of capital sufficient for a bank, it is necessary that a large number of persons should associate in a company. This prudent men will not do, unless their responsibility be restricted by a charter. Hence it results, that in the United States, where wealth is more equally distributed, banking has been, with few exceptions, carried on by corporations, while in aristocratic England, excepting in the instance of the National Bank, corporate powers have not been found necessary. I consider our banks to be comparatively democratical institutions, since that power is lodged in many, which is according to the English system lodged in a few.

The multiplication of individual obligations, or debts existing by mutual consent, mainly incurred with a view to mutual benefit, is not a proof of an adverse state of trade. On the contrary, I believe that national prosperity will be found greater, in proportion as the debts thus existing are multiplied; and that generally only those debts are injurious, which continue in opposition to agreement.

Debt is usually understood as conveying the idea that the debtor is unwilling or unable to pay ; and as it is commonly in this form that the community has cognizance of debts, an erroneous notion arises that to be in debt is injurious. Were we to hear of Commerce only in cases of shipwreck, we should form an unfair estimate of its profits.

The failures and frauds which result from the facilities afforded by banks, are objects of animadversion with many who do not consider how small in proportion is the loss thus incurred, to the gain of community at large. With much better reason might we avoid Commerce from a fear of shipwreck, or steamboats, from a fear of being scalded, burned, or mutilated, than cease to use a circulating medium or currency which is pre-eminently convenient, and which is the only one which we can command to an adequate extent, lest we suffer some evils to which it is liable.

That the banking system is capable of being mischievous when abused by corrupt legislators, and unprincipled bankers, I do not deny, but would inquire whether there be any great means of public good, which may not, by fools and knaves, be made the medium of evil ? What has been more abused than the liberty of the press, democracy, executive power, and even religion, when perverted by fanaticism, or superstition, or when employed as a cloak, by ambition or avarice.

In the feudal times a strong prejudice seems to have existed against the art of writing, in consequence of the refined roguery with which that accomplishment was sometimes associated. Hence the sentiment which Scott attributes to Douglas, incensed by the villainy of Marmion.

• A letter forged! Saint Jude to speed;
Did ever knight so foul a deed ?
At first in heart it liked me ill,
When the king praised his clerkly skill.
Thanks to St. Botham, son of mine,
Save Gawain, ne'er could pen a line."

It may be admitted that when men are disposed to act dishonestly, their previous credit with banks will enable them to do more mischief than they could accomplish otherwise ; but the usual effect of banking is to induce punctuality, and of course fidelity, in the discharge of pecuniary obligations. In the first place, a failure in a single engagement at bank, deprives the individual of any further accommodation by banks. It constitutes what is called a failure in the mercantile sense, and consequently a deprivation of all those advantages which result from mercantile credit with the community in general. In the next place, while the banking system is thus productive of great inducements to punctuality, it at the same time furnishes to dealers the means to supply the gaps made by occasional disappointments.

Metaphorically, a bank may be considered as a species of financial flywheel, by which contingent pecuniary deficiencies are compensated. By enforcing and facilitating punctuality, it produces an habitual fidelity in the discharge of debts, which is favorable to morals. It engenders a pride of punctuality in persons, in whom, from genuine rectitude, it would not exist. No doubt it is on this account that it is not found preferable to make sales upon credit in those parts of our country in which people are most jealous of their honor. Such sales are, agreeably to experience, more safely made in our mercantile communities, in which not only men of integrity, but many on whose honor no reliance can be placed, will not allow their notes to be protested at bank.

It is to the correction of the abuse, not to restrictions on the use of the banking system, that our exertions should be directed.

Many persons injudiciously ascribe to banking, all those reverses of price which occur in all countries more or less, and which are peculiarly apt to arise in a new country rapidly advancing in population, both by natural increase and immigration.

In Europe the value of real estate is in general comparatively stationary, and only small portions can come into the market; but here it is always an article of speculation; and as a large portion while unproductive, is still held with a view to its future value, the estimate put upon that value is liable to great changes. Hence as in the case of other marketable articles, there are great elevations and depressions in the prices of real estate, and men are made alternately rich or poor, accordingly as greater or less confidence exists with respect to our national prosperity, and the consequent prospective demand for farms, plantations, or building lots, increases or diminishes.

I do not deny that the facility of getting credit, by multiplying purchasers, may contribute towards such fluctuations, but so long as the rich are content with the consequences, it ill becomes the great mass of the people to complain, since it tends to destroy the monopoly which men of capital would otherwise enjoy.

Judging from experience, it may be a question whether the ultimate, or average accumulation of national wealth, is less in consequence of the fluctuations of prices to which I have alluded. Such fluctuations rouse men to extraordinary exertion, and by a reaction after each subsiding wave, cause business to revive with a renovated and accumulated force. It is in consequence of the stimulus and reaction which accompany or follow great catastrophes, such as are produced by floods or fires, that after a few years, communities which have been subjected to them, will appear to have VOL. XXVI, NOVI.


made advances even greater than might have been anticipated, had no such deteriorating accident occurred.

Some years since, during a debate in the Senate, a member stated that when he was in England, Sir James M'Intosh had inquired of him how it came that there were so many more bankruptcies in the United States than in Great Britain ? The proper reply to this would have been, that in the United States a more profitable business is transacted, in proportion to the capital, than in Great Britain, or probably any other country, and that while the prospect of great profits occasionally induces sanguine men to overtrade, and consequently to break; the community is nevertheless, upon the whole, greatly a gainer. The indubitable proof that the profit vastly exceeds the loss, is that the credit system, which Sir James considered as the source of the failures, has been incessantly expanding instead of being abandoned. An unprofitable method of dealing could not have so long endured. Our senator should in return, have inquired, in what way, if credit were not to be employed, could a population originally so poor, have supplied the money indispensable to their negotiations! By what means have they been enabled to double their numbers and quadruple their wealth every twenty-three years? How comes it that so many cities, numerous villages, and innumerable farms, have been created out of a wilderness, in a period less than that which is requisite to transform an infant into a man?

The ingenious senator would have us use the money which is dug out of the earth by the miner. Had our ancestors waited till they had dug the gold necessary to their pecuniary wants, could they have accomplished the revolution ?

The money which they obtained from Europeans, was a borrowed capital, upon which our country rose from a state of thraldom, to one of liberty; from a state of indigence, to one of wealth; from a state of adversity, to one of unexampled prosperity.

R, H.


It will be known to some of the readers of the Merchants' Magazine that a work was published last fall by Mr. John A. PARKER, formerly known as a merchant, and now connected with the business of marine insurance in the city of New York, in which this problem in mathematical science is at last claimed to have been accurately solved.

If Mr. Parker's discovery should prove to be true, the necessary results of it will be—a remodeling, to some extent, of all geometric science, simplification of much of the subtil and abstruse reasoning of modern mathematicians—the correction of important data in astronomy, and the perfection of the science of navigation. It therefore bas a commercial as well as a scientific value.

The careful examination of the subject for a number of years, and the application of his principles of reasoning in a variety of ways, satisfied him

a of the truth of his solution, and of the prevailing error of geometricians ; and accordingly, last fall Mr. Parker, in order to bring the subject before the mathematical world, published a small edition of 300 copies of his


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