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Banking Companies.

difference may be very important. It appears by the report of the commissioners appointed by the Secretary of the Treasury, already referred to, that on the 3d of March last the bank stood as follows: Notes in circulation, $12,109,352 23; specie, $5,595,077 25: and by the return made to the Auditor General of the State of Pennsylvania, by the bank chartered by that State, in November following, it stood thus: notes in circulation, $9,733,032 28; specie, $3,275,292 36: being reduced nearly one half in specie and more in circulation, although it had in the mean time contracted a loan in Europe of $6,788,194 44, and its liabilities equal to its entire resources. Since that time it has still further dwindled down in specie and in business; and should the redeemed notes of the expired corporation continue to be reissued, as they have been, in a few months the whole resources out of which the claim of the Government ought to have been paid must be abstracted, and an entirely different responsibility substituted, and one of a very doubtful character.

In proposing remedies against the mischiefs here adverted to, we are met with the objection that the reissues have been made by the bank chartered by the State of Pennsylvania, which, being a State institution, is beyond any control or legislative action by Congress. Your committee concede, to the full extent, that Congress possesses no power to legislate directly over institutions purely of a State character, and unconnected with the Government of the

United States. The answer, however, is, that a remedy may be provided without interfering with the relations between the Government of the United States and the State institutions, further than has been done heretofore without objections. Congress has heretofore directed the description of circulation which should be received in payment of public dues, regulated the deposite of the public money in State banks, and passed other acts which, in their operation, affected indirectly more or less the institutions incorporated by the States. But again, the Bank of the United States chartered by the State of Pennsylvania, as already seen, has connected itself with this Government more intimately than any other institution of the kind, having, without the request or consent of the Government, taken possession of more than $8,000,000 belonging to the people of the United States, and added it to its own stock, and voluntarily assumed the payment to the Government of the United States, but has refused to pay it or to settle the amount, and continues to reissue the notes of the Bank of the United States in which the Government was a stockholder, and for the redemption of which notes the money of the Government in its 'hands is liable. Its relation to the Government, therefore, is peculiar, and of its own seeking; being a voluntary and unsought depository of the public money, and placed in possession of the funds in which the Government have an interest, and thus by its own act brought within the legitimate control of Congress.

Your committee believe it to be not only the right but the duty of Congress to protect the community from the deception of a circulation spurious in its character, bearing the authority of the United States, being the same, in effect, as counterfeit paper. By directing that such circulation shall not enter into the collection of the public revenues, it is believed a large portion of it will be thrown out of the circulation of the country, and its true character made generally known. By this means, the intention of the act of Congress, that all the notes of the Bank of the United States should be called in and redeemed within the two years after the expiration of its charter, may be at least in part carried into effect.

With this view, they propose a joint resolution for the adoption of the House, excluding such notes from circulation, so far as regards the collection of the public revenues. Your committee are also fully satisfied of the power of Congress to render penal any future act violating the pro

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visions of an act of Congress, and having a mischievous tendency upon the currency of the country, calculated to destroy or lessen the funds of the Government, or weaken the securities for the collection of the public revenues, or to deceive and impose upon the people of the United States; and, under this view of the matter, beg leave to report a bill providing for the punishment of the reissuing the notes of the Bank of the United States once redeemed, by those in whose possession they are after redemption, and who are charged, by their own assumption, with their payment. Joint resolution relative to the notes of the Bank of the United States.

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That until the notes of the late Bank of the United States which may have been returned since the third day of March last, and redeemed out of the funds of the said bank, shall have ceased to be reissued by its officers, directors, trustee or trustees, and until the amount due to the Government from said bank shall be settled to the satisfaction of the Secretary of the Treasury of the United States, the notes of said bank, and the notes of any bank to which its funds and estate may have been transferred in trust for the payment of its debts and the discharge of its duties and obligations, shall not be received in payment of any debts due to the Government of the United States, or taken in exchange or on deposite in any of the banks selected as depositories of the public money; and the Secretary of the Treasury is hereby directed to adopt such measures as he may deem necessary to carry this provision into effect.

A bill providing for the punishment of reissuing the notes of the late Bank of the United States.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That if any officer of the Bank of the United States shall reissue, or cause or permit to be reissued, any note or notes of the said bank which had been redeemed at the said bank, or the trustee or assignee of said bank, out of the funds belonging thereto, since the third of March last, it shall be deemed a misdemeanor; and, on conviction thereof in any district or circuit court of the United States, the offender shall pay a fine of one thousand dollars; the one half thereof to the use of any person who shall prosecute the same, and the other half to be paid into the Treasury of the United States.

Mr.

BANKING COMPANIES.

HOUSE OF REPRESENTATIVES, MARCH 3, 1837.

Galbraith, from the select committee to which the subject had been referred, made the following report: The select committee to which were referred certain memorials suggesting an amendment of the constitution of the United States in relation to banking companies, and against the reissuing of the notes of the United States Bank, beg leave to make their final report:

At the time of the adoption of the constitution of the United States, there were but three banks in all the States, with a capital, in all, of $4,550,000: the Bank of North America, in Philadelphia, with a capital of $2,000,000, first chartered by the old Congress in 1781, and afterwards by the Legislatures of Pennsylvania and New York; the Massachusetts Bank, at Boston, chartered by the Legislature of Massachusetts in 1784, with a capital of $1,600,000; and the Bank of New York, chartered the same year, with a capital of $950,000. This constituted the whole banking capital of the United States at that time. The framers of the constitution, therefore, had but little knowledge of a banking system, such as it now is in this country. It could scarcely be expected that they could have anticipated that, within half a century, there could be eight hundred

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Banking Companies.

and twenty-three banks, with a capital of $378,421,168. Such an anticipation would have required a revival of the spirit of prophecy. They had experienced the fatal effects of the provincial paper money, and the no less pernicious results of the continental paper, and provided, as they supposed, in the constitution, against both: against the former, by providing in the 10th section of the 1st article that "no State shall emit bills of credit, make any thing but gold and silver coin a tender in payment of debts;" against the latter, by nowhere giving to Congress the power of creating a paper circulation. It is matter of history, that the old Congress of 1776 had emitted continental paper to carry on the war, by a majority of its members, until the adoption of the articles of confederation in 1778, in which it was provided, among other things, that Congress should not "emit bills, nor horrow money on the credit of the United States, &c., unless nine States should assent to the same. It is very probable that the small amount of bank issues at that time attracted very little attention, particularly as specie was very abundant for some time after the revolutionary struggle: the French and English armies at New York and other places, the foreign loans, and the Havana trade, having introduced great quantities of the precious metals into this country. With the provisions, therefore, that "no State should emit bills of credit, make any thing but gold and silver coin a tender in payment of debts;" and that Congress should have the power "to coin money, regulate the value thereof and of foreign coin, and fix the standard of weights and measures;" and the silent negation of power to Congress to emit bills of credit, the framers of the constitution, no doubt, supposed they had thrown an ample guard around the currency of the country, and secured the poor and industrious from the pestilential effects of a paper-money system, and the curses of the speculations and frauds which follow it. Such appears to have been the sentiment of political writers of that day. We shall content ourselves here with one quotation from Mr. Madison, than whom no one was better qualified to expound the intention of that invaluable instrument. In the forty-fourth number of the Federalist, speaking of the clause of the constitution providing that "no State shall emit bills of credit," &c., he says:

debts, is withdrawn from the States on the same principles with that of issuing a paper currency."

But whatever may have been the intention of our political patriarchs in framing the constitution, or their deep-felt regrets in seeing what they supposed its spirit departed from, in the multiplication of banks, and the unexpected deluge of nominal paper money; a paper system has become too firmly settled in almost all the States of the Union to have the most remote prospect of relief from it, but in a radical change of the fundamental instrument of compact by which the States are bound together. However ardent they may have been in their efforts to fix the impression upon their posterity, and those who came to administer the Government after them, that the precious metals should constitute the only constitutional currency of this highly favored country, which should preserve the sound principles of equality to all its citizens, by establishing a "hardmoney Government;" yet, through a variety of brilliant schemes and projects, apparently for the promotion of favorite objects of improvement, and the untiring activity of those who found it easier to live upon the industry of others than to labor themselves, we have found a paper system grown by progressive steps to its present enormous and appalling extent of nearly $400,000,000 of banking capital authorized by the Legislatures of the several States. In the various stages of its progressive increase, we have occasionally heard the voice of some disinterested and patriotic statesman, in the simple eloquence of political truth, exclaim against it as an encroachment upon the equal rights of man; as rapidly building up a mushroom aristocracy in the country, of a most dangerous and destructive character, and bearing down the most dear and sacred principles of our republican fabric; but it has as often been hushed and stifled by the more noisy and zealous clamors of interested projectors and speculators, who could see their own immediate and pecuniary interests involved, and likely to be swept away by the destruction of their darling monopolies. The paper system, through the instrumentality of soulless and irresponsible corporations, notwithstanding repeated fluctuations, panics, bankruptcies, and ruin, clearly traceable to it as the prime cause, has still grown up and extended, until we find it what it now is. What the States were bound, or rather what they had solemnly agreed, not to do directly, has been done indirectly, by the surrender of a high sovereign power to incorporated companies, by vesting them with exclusive privileges of banking.

"The extension of the proposition to bills of credit must give pleasure to every citizen, in proportion to his love of justice, and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilential effects of paper money on the necessary confidence between man and man; on the The system of banking by companies incorporated by the necessary confidence in the public councils; on the indus- State Legislatures, as they now exist in this country, blendtry and morals of the people; and on the character of re-ed as it has become, and interwoven with all the business publican government, constitutes an enormous debt against and transactions of society, and reaching the personal inthe States chargeable with this unadvised measure, which terests of every individual in community, from the humble must long remain unsatisfied; or, rather, an accumulation day-laborer to the most extensive wholesale merchant, is of guilt which can be expiated no otherwise than by a vol- extremely complicated and difficult to understand in all its untary sacrifice on the altar of justice of the power which various ramifications. Its intricacy and complexity is such has been the instrument of it. In addition to these per- as to call in requisition the closest scrutiny and investigasuasive considerations, it may be observed, that the same rea- tion of the skilful political economist; and its general and sons which show the necessity of denying to the States the universal operation upon all branches of industry demands power of regulating coin, prove with equal force that they from every citizen who regards his own interests, the equalought not to be at liberty to substitute a paper medium in ity of rights, and the spirit of our republican institutions, or the place of coin. Had every State a right to regulate the the liberties of this country, his undivided attention and value of its coin, there might be as many different curren- coolest and most serious reflection. cies as States, and thus the intercourse between them would be impeded; retrospective alterations in its value might be made, and thus the citizens of other States be injured, and animosities be kindled among the States themselves. The subjects of foreign Powers might suffer from the same course, and hence the Union be discredited and embroiled by the indiscretion of a single member. No one of these mischiefs is less incident to a power in the States to emit paper money than to coin gold and silver. The power to make any thing but gold and silver a tender in payment of

Your committee do not profess an intimate acquaintance with all the minute intricacies of the banking system, or the complicated machinery of corporate privileges, or the usurpations, assumption, and arrogance, the corruptions and oppressions of incorporated companies. They propose, however, with what lights they possess, and with as much reflection as they have been able to bestow upon it, consistent with their other duties, entering briefly into the consideration of the subject submitted to them in the memorials, under the following heads of inquiry:

Banking Companies.

First. What is money, its use, and essential properties? Second. What is the banking system as it now exists in the several States of this Union? What its nature, history, and effects upon the various transactions of society? Third. What remedy may be provided against its evil consequences?

As preliminary to and closely connected with the subject more immediately submitted in the memorials, we take up the first inquiry proposed, viz:

What is money, its use, and essential properties? Money is the standard of value established by law; the sign or medium of price by which labor and products are estimated, products and commodities exchanged, and contracts fulfilled. It is an essential part of the machinery of civilized society; without which, commodities in their complicated varieties could not be compared with each other as to value. Dr. Adam Smith, in his Wealth of Nations, vol. 1, book 1, page 44, says: In all civilized nations, money has become the universal instrument of commerce; by the intervention of which, goods of all kinds are bought and sold, or exchanged for one another." Hume, in his Essays on Money, vol. 1, page 299, (Edinburgh edition,) says: "Money is not, properly speaking, one of the subjects of commerce, but only the instrument which men have agreed upon to facilitate the exchange of one commodity for another. It is not one of the wheels of trade: it is the oil which renders the motion of the wheels more smooth and easy."

It would be a tedious labor, and answer no valuable practical purpose, to inquire into the origin of money, or what led mankind first to adopt a common instrument of value; and perhaps the result of such an investigation would be extremely uncertain. We may imagine a state of barbarism, and probably might trace it, when the transactions of men were so rude and simple as to be purely subjects of first occupancy and barter. Such an inquiry might be in-teresting to the curious, and arrest the attention of the philosophic antiquarian, but could serve little purpose to the practical statesman of the present age in our country. That different commodities have been employed by different nations, as media of exchange, at different periods, we have from authentic history. Oxen were used among the Greeks; bulls in India; salt in Abyssinia; tobacco in Virginia; sugar in some of the West India islands; iron in Sparta; and copper among the Romans. Corn, leather, and cocoa, have each, in their turn, served as the selected commodity to determine the value of all others. Silver and gold have been adopted by most civilized commercial nations as the most convenient commodities to serve as money, or the measure of value. They were first used in bars or bullion, and required weighing or assaying, which interposed an inconvenience. To avoid this, and to accommodate it to the exchanges, in process of improvement, civilized Governments directed the coinage of the precious metals by dividing them into convenient fractional parts or quantities, and stamping it in such a manner as to denote the quantity or denomination of such parts. Until public authority, by its stamp, confers upon the precious metals the character of coin, it is not legal money, however valuable they may be intrinsically as an article of merchandise. Nor can public authority add to or diminish their value; it only fits them better as a medium of exchange. As Mr. Ganible says, "the monetary law is simply declaratory of the fact," (the value.) Silver has been more generally adopted as money than gold, owing to the too great scarcity of the latter metal to serve the purpose. Gold was not used but as an article of merchandise in England, until 1728. The United States have adopted both as standards of value.

The reasons why improved and civilized Governments have adopted gold and silver as the preferred commodities,

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to measure the value of all others, are very obvious. They are more appropriate and suitable than any other articles. They are easily divisible into small fractions, and as easily united without loss. Their quantity is the least susceptible of increase or diminution, and, therefore, the least liable to fluctuation-a most important property for money, as we shall explain more fully hereafter. They are of the same quality in all countries and under all circumstances, which is not the case with any other metals. Iron, for example, is of very different quality, even in the same neighborhood; and copper is much finer and heavier in some countries than in others. They are both fusible and malleable, so as to be capable of being united with sufficient convenience, and receive the stamp or certificate of the Government designating the weight and purity of the particular piece; and, at the same time, sufficiently hard to prevent the obliteration of the sign that is stamped upon them, though freely circulated.

The material of which money is formed must possess intrinsic value. The stamp, or certificate that such a piece contains a certain quantity of that material, of such a quality, so that the people may confide in it without the inconvenience of weighing or assaying it, is the attribute of sovereignty alone. It is most appropriately so when the Government is republican, framed and controlled by the people themselves, and those who administer it are immediately responsible to them. The power to impress this stamp, or certificate of quantity or quality of the material, designating its value, can never be lodged safely any where, so as to secure the confidence of the people as an instrument of value, but in the Government; and least of all can it be safely intrusted to corporations not created by, nor under the control of, the people, and whose officers are placed under no responsibility to the people, either moral, political, or pecuniary. Although it is necessary that Government should stamp some device upon the metal, in order to designate the quantity and purity of the coin, and thus fit it as an instrument of exchange, no absolute value is thus imparted to it. That it possessed before, else it could not serve as a measure of value. Mr. Raymond, in his Elements of Political Economy, volume 1, page 234, adds his own opinion in support of Mr. Reed, whom he quotes, thus: "Money has two distinct functions to perform; the one is that of a measure of value, the other an instrument of exchange. Those different functions, though intimately and inseparably connected and blended together in practice, are perfectly separate and distinct in their own nature; and the qualities likewise requisite in the material substance of which money is composed, necessary to fit it for the proper performance of each of those functions, are distinct and different.

"To be capable of performing the function of a measure of value, money must have value in itself, and inseparable from it, to the full amount of that for which it passes current. To be adequate to officiate as an instrument of exchange, it is sufficient that it be the representative of that which has value. For the former purpose, gold or silver, or some substance possessing similar qualities, is indispensable. For the latter, paper, or any article conveniently portable, on which can be marked an engagement or obligation, rendering it the representative of that which has value, may be sufficient. But paper never measures value. It acts merely as an instrument of exchange. It is merely the representative of that which measures. Its own value must be measured and defined. It depends for the definition, or measure of its own value, totally on that of which Nor can it it is no more than the representative or sign. be dependent upon, when separated and disconnected from that which it represents, to continue the same for the shortest period.

"It is necessary, therefore, to have a money of quite a different description from paper, to act in the capacity of a

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measure of value, and to fix, determine, and define, the | value of paper, and every other money which circulates at a greater value than it is intrinsically worth.

"A measure having neither length, nor breadth, nor thickness, could not measure those qualities of matter. A measure having no weight could never measure the weight of bodies; neither can a measure having no value measure their value. Money, as a measure, is not different from measures of other kinds. A measure of length must have length; a measure of weight must have weight; and a measure of value must have value.

It

etary system, by increasing its quantity without increasing the value, are not only useless, but unjust and pernicious, and have always been found so, whenever the experiment has been tried.

Mr. Raymond says, at page 237 of the volume before quoted, "It seems to have been a prevailing opinion, even down to the present time, that the quantity of money could be increased by various expedients, without increasing the actual quantity of value. Hence, in the earlier periods of civilization, the denomination of the coin was frequently changed, for the purpose of increasing the quantity and plentiness of money. In some cases the coin has been adulterated with a baser metal, while its nominal value was refined method of adulteration and deception has been practised, with better success as to accomplishing a fraud on the public, but with no better success as to increasing the quantity of actual value. Instead of using a baser metal for alloy, and incorporating it with the precious metals by a coinage, a quantity of paper, purporting to be money, has been infused into the volume or mass of circulating medium; and in that way the nominal quantity of money has been increased, without any increase of the quantity of value."

"If it be necessary to define and fix precisely the measure of length-as an inch, a foot, a yard; and the measure of weight, as a grain, a pennyweight, an ounce, a pound-retained, for the same purpose. In modern times, a more so it is equally necessary to define and fix precisely the measure of value, as a shilling, a guinea, a pound sterling." Mr. Raymond, at page 236 of the same book, proceeds: "The value of a piece of coin depends on the quantity of metal it contains, and not on the device with which it is stamped." Mr. Gouge, in his excellent treatise on the Principles of the American Banking System, at page 9, holds the same sentiment: "The precious metals do not differ essentially from other items of wealth. This is distinctly seen when they are in the form of bullion. Converting them into coin does not change their nature. only adapts them to a particular use; fits them for passing from hand to hand, without the trouble of weighing or assaying each piece at each transfer." Again he says: Some fancy that it is the authority of Government that gives money its value. But the true value of money, as measured by the amount of goods for which it will honestly exchange, cannot be affected by edicts of princes or acts of Parliament. Monarchs and ministers may alter the weight of coins, or lessen their purity; but they cannot make a coin containing one half of an ounce of pure silver worth as much as a coin containing an ounce. The stamp of the State is a mere certificate of the weight and fineness of the piece.

When $100,000 of specie or coin constitutes the circulating medium of a community, that $100,000 measures the value of all the property in that community. If the Legislature then resort to the expedient of increasing the quantity of the circulating medium, by directing twice the quantity of alloy to be infused into this medium, and the mixed mass to be coined in the same way, still calling it so many dollars, or by emitting 200,000 nominal paper dollars, to pass into the circulation with the specie, and obliging the citizens to take it in all contracts and exchanges, three dollars then will measure just as much property as one did before the resort to this unskilful expedient; and the man who had sold his land or other property for the price of $100, is paid in the depreciated medium, and cheatIt follows from those premises, that money being neces-ed out of two thirds of his honest debt. On the other hand, sarily a measure of value, as well as an instrument of exchange, without increasing the quantity of value, its real and actual quantity cannot be increased. It is true that it may be numerically or nominally increased; the volume of the circulating medium may be enlarged by adulteration of the metals themselves, or the emission of something else in their place; yet the quantity of real pure money remains the same; and just as much as it has increased in quantity it has diminished in quality, and will measure no more value than it did before the infusion of alloy, or other valueless matter, into its mass.

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It is also true that a measure of value is, in its very nature, somewhat more imperfect than that of either weight or measure, and even gold and silver are not entirely free from this imperfection; but the variations to which they are subject are so trifling and inconsiderable as not to be perceptible in the practical affairs of life; at least, they are infinitely the nearest perfection of any commodity that has yet been discovered.

the man who buys when the mass of circulation is thus enlarged, and before pay-day the Legislature withdraws the alloy or abolishes the paper dollars, pays just three times as much as he had agreed to pay.

Your committee have, perhaps, been somewhat tedious on this branch of the subject involved in the inquiry proposed; yet, as they have regarded the first and fundamental distinction in the properties of money, between the quantity of the medium and the quantity of value, of great importance-a distinction between money and its supposed representative, often very imperfectly understood, and the confounding or overlooking of which has, perhaps, produced more mischiefs upon communities than all other errors in political economy besides-they have thought proper to be thus minute in relation to it.

It is bad enough when Government undertakes directly, by its own legislation, to destroy the distinction between money and its essential properties as a measure of the value of other commodities; still, while legislators, amenable Any change in the relative proportion between money to the people, choose to exercise such power, their proceedand other commodities, by an artificial increase of quantity ings are public, and must be known, and are the subject of without an increase of value, will necessarily produce a animadversion and discussion, and the citizens have some change of price. If the quantity of money be nominally opportunity of anticipating the result, and preparing for it; increased, the price of property to be measured by it rises; but when that power is surrendered to corporations, whose the depreciation of money and the rise of price being pre-proceedings are secret, and whose officers are no way cisely the same thing. If the value of what is called a dol- answerable to the people, it becomes infinitely more perlar be lessened by the infusion of alloy, or the enlargement nicious and unjust. of the mass of which it is a fractional part, it will require a greater number of dollars to measure the value of a horse, or other commodity, just as it will require a greater number of the measure of length called a foot, when shortened, to measure the length of a piece of cloth. All attempts, therefore, on the part of Government, to tamper with the mon

This leads to the second head of inquiry: What is the banking system, as it now exists in the several States of this Union? What its nature, history, and effects upon the various transactions of society?

The banking system, as it now exists in this country, is a machinery of no ordinary complexity and magnitude.

Banking Companies.

Few subjects are less generally understood; and, at the same time, few, if any, in the scale of political existence, affect more closely the interests of every man in society. The banking business in America is performed almost entirely by companies incorporated for the purpose by the Legislatures of the several States. These banking companies are not merely offices of loan and deposite; they are also offices of discount and banks of circulation, or manufacturers of paper money; that is, they are not merely authorized to loan what money they actually have, at the legal rate of interest, and to undertake the safe keeping of money for a reasonable per centage for their risk and trouble, but they are also authorized to discount notes of those who wish to borrow, and manufacture paper money to the amount of twice or thrice the amount of money they really possess. They are permitted, in fact, to supply with their own paper the circulating medium of the country, and to drive the constitutional currency out of circulation; and thus swell the volume of nominal money, and, just in the same proportion as they enlarge the mass, decrease the value of the whole.

The banking institutions of this country are thus seen to possess a combination of four several functions, viz: to loan money, to receive money on deposite, to discount notes and bills of exchange, and to manufacture paper money for circulation, stamping upon it the signs of value corresponding in denomination with the legal coins of the country; and, for the exercise of all these functions com. bined, they enjoy exclusive chartered privileges, without individual responsibility. As a loan office, or a depository, a bank, well conducted upon substantial capital, may be not only harmless, but even useful and convenient; and, as an office of discount merely, it can do but little mischief. Many, indeed, have confounded the function of a loan office with that of an office of discount. There is a slight difference. In the former case, the bank is the direct creditor; in the latter, it acts rather in the capacity of a collector. A merchant who holds the promissory note or bill of exchange of a third person, payable at a certain day, throws it into bank for collection, endorses it, and the bank discounts it, according to the time the note or bill has to run, and gives the merchant the amount, deducting the discount. In this case it performs the functions of an office of discount, and acts as a collector. If a merchant wishes to obtain a loan, he makes his own note, with an endorser, and puts it into bank, and the bank pays him the amount, deducting the discount. The bank then becomes the direct creditor, and in this case acts as a loan office. In the exercise of neither of those three functions do the banking institutions affect materially the transactions of the society, or operate to the prejudice of others.' It is mainly in the capacity of paper-money manufacturers, combined with their functions of loan offices, with incorporated privileges, that they will be hereafter considered and treated.

As the object of the inquiry here is intended more to be addressed to those who are not intimately acquainted with the affairs of banking than for those who are well versed in all its details, in order to simplify the nature of such institutions, we will represent the principle on a small scale, and separated from the great variety of combined circumstances with which they are now surrounded, which conccal their effects. Suppose that a certain community contains a population of one hundred citizens, each producing his equal share of wealth and property by his industry, and each enjoying the benefits of what he produces, and no more; and there are no artificial laws or regulations by

* Most if not all banking institutions in Europe, excepting in Great Britain, are merely loan offices, and offices of discount and deposite; such as Hamburg, Amsterdam, &c.

[24th CONG. 2d SESS.

which one citizen is enabled to acquire, or have transferred to him, the property or acquisition of another, without an equivalent in what he had produced himself. Suppose there is in this little community a capital of real money of ten thousand dollars, which measures all the property within it, and serves as the common medium of exchange in the transfer and exchange of commodities, the payment of labor, &c.; and that its circulation is limited, as the business is within the community itself; no increase of the quantity of this circulating medium takes place without a corresponding change in the quantity of value; consequently, prices will be uniform, and always the same. In this state of society, every one acquires just in proportion to his industry and economy, whether farmer, mechanic, laborer, or whatever his profession may be; all is happiness and tranquillity; no extravagant or wild schemes are projected of making a splendid fortune in a short time, without labor or substantial enterprise; and every one knows what price he is to receive for what he has or what he does, and can calculate accordingly in confidence. But a few of those individuals-we will suppose ten-conceive the project of establishing a bank of circulation, urging, as an argument, that it would make money plentier, afford great facilities to trade and business, furnish a cheaper money, and more convenient, portable, &c., and such other arguments as we have often heard in favor of those institutions. They apply to their Legislature, and obtain a charter for a bank with a capital of ten thousand dollars, with the privilege of issuing notes for circulation to the amount of twice their capital; and all the rest of the individuals who do not become stockholders are prohibited, under penalties, from issuing their own paper. These ten subscribe the stock, and pay in the instalment required, say one hundred dollars each; they elect their officers; and the machine, thus fitted up, is ready to commence operations. Five of the stockholders themselves put in their notes to the bank for two thousand dollars each, making ten thousand dollars; and, aware of the effect they are about to produce throughout the society upon prices, go into the country and purchase up all the produce that is to spare at the then and heretofore steady and uniform prices; say wheat, at one dollar per bushel, paying for it in the notes of the new bank. In a very short time, it is seen and felt that money is becoming plenty; business becomes brisk and lively, and a new aspect is presented. Others begin to lay plans of speculation; and, for the purpose of carrying them out, go to the bank to borrow. Forty of the remaining individuals put in their notes for two hundred and fifty dollars each, (ten thousand dollars,) which are shaved by the bank at the rate of bank interest, six dollars and forty cents per cent. per annum, and receive the notes of the bank, paying no interest for circulation. Some go into speculation, and others to building houses or making other improvements; and each, feeling that he had obtained this money with so much more ease, by simply throwing a note into bank, and calculating that money, as they call it, was going to be still plentier than it had been; that the same bank which had made it so much plentier now could just as easily make it still more so; and its directors were very excellent men, and would certainly direct its energies for the benefit of the public, regard it very differently than they did when obtaining it only as they earned it; spend it more freely, and indulge in the purchase of articles they would not have purchased before, and venture to make im provements they did not before. Every thing assumes a new appearance; every description of business is active; prosperity seems to glisten in every sunbeam; every body praises the bank, and its projectors and managers are blessed as the greatest and wisest men of the age; the president, or the man who can be traced as the first inventor of this happy scheme of making money plenty out of paper, is

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