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parts of the commercial world, and with all parties concerned in trade. Men would no more consent to go back to a pure metallic currency, than they who had once experienced the benefits of such a medium, would have consented to go back to the mode of trade by barter. The invention of paper-money is not, perhaps, so great an improvement on an exclusive metallic medium, as the latter was on barter; but it is too great a convenience to all parties, in ways that will occur to every man's experience, whether doing much or little business; whether receiving or transmitting by mail or otherwise, five dollars, or a hundred, or thousands, or tens of thousands, on a piece of paper, which, if lost by the way, is yet no loss; or whether he be travelling, or sleeping in his own house, and would feel insecure with specie in his charge, but perfectly safe with a piece of paper, equally good, and payable only to his order, or with a bank-note, payable on demand, concealed from any search but his own; and withal, it is such an immense saving of time and expense, such economy, that it will never be abandoned, till men are more inclined to go backward toward barbarism, than to advance in civilization.

Brande's Dictionary, of which M'Culloch was an assistant editor, and who doubtless wrote the article on money, says: "The use of a metallic currency is accompanied by a heavy expense; and there is a much greater difficulty in effecting payments by the agency of coins, than one might at first be disposed to believe. If the currency of the United Kingdom consisted wholly of gold, it would certainly amount to at least 60 millions sterling, the expense of which, allowing per cent. for wear and tear, and loss of coins, could hardly be estimated at less than three millions [sterling] a year. [Under the head of banks, this cost is stated at £3,250,000 a year.] But [even] this heavy expense is really a far less serious obstacle to the exclusive use of the precious metals, than their weight, and the trouble and expense attending the carrying them about... Hence it is, that all commercial nations endeavor to fabricate a portion of their money of some less valuable and more portable material than bullion; and hence, also, the origin of bills of exchange, checks, and other devices, for economizing the use of money." Jacobs, speaking of the condition of things as far back as in the 12th century, also says: "The risk and expense of conveying it [metal-money] to a distance were still more powerfully opposing obstacles. Hence arose the invention of bills of exchange."

But one of the most important effects resulting from the use of paper-money, is its influence in augmenting the amount of trade, and as a consequence, of wealth. Banking is the necessary instrument of paper-money, without which, under proper regulations of the public authorities, it can not be issued with adequate security to all the parties concerned. A banking system for every country, should be the creation of a most careful and wise legislation, watched with a supervision and guarded with penalties corre sponding with the importance of the interests involved. Banking, like all human institutions, is liable to be abused; but the abuse of a thing is not conclusive evidence of its inutility. The wreck of banking institutions in the United States, as is now generally perceived, has been rather the effect of the political action of the government, than of any tendency inherent in the system; and the result of all this experience is, the establishment of banks on a footing, and with securities which better deserve and generally receive the public confidence. There are very few of the hundreds of chartered banks in the country, now in operation (1847), the paper of which is not received without hesitation, and with entire trust. They are the chief reliance for the currency of the country, and must necessarily be so. It is, therefore, a matter of great importance, first, that the banks should be held under proper guards against abuse; and next, that their legitimate operation, in supplying a sound and adequate currency, should not be embarrassed.

Banking, in all countries, is necessarily based on like principles, as the objects everywhere are similar. In the United States, however, the necessity of augmenting a currency usually, almost always, defective in amount, as compared with the demands of trade, has, perhaps, been more urgent than in European countries. Hence the temptation to excessive issues, and the necessity of adequate provisions of law to check and hold them in restraint. The conditions of bank charters are devised with special care to secure this end, at the same time that this species of trade-for banking is trading in money—is allowed an extent commensurate, as near as possible, with the wants and security of the public. That security can only be made good by conditions which shall confine the circulation of banks within the limits of their ability, under all exigencies, to redeem their paper when offered. Their credits are legitimate, only as they are based on their stock, deposites, and circulation; the first of which is firm and reliable; but the other two

are precarious, the management of which constitutes the chief task of bank financiering. It demands experience and vigilance.

The usual mode of banking in the United States has been through the agency of corporate companies; but the state of New York has recently authorized private banking, by requiring deposites of public funds with the comptroller as security, and the comptroller's stamp on all such private issues as a method of inspection and control.

No system of banking can stand, except as the notes are always payable on demand, in legal tender, that is, specie. They who prefer the paper, for convenience, are usually many to one of those who want the specie. The chances and probabilities of calls for specie are obliged to be well considered by the bank, so that it may not be taken by surprise, and its issues are regulated accordingly. By this means, the country is usually supplied with an amount of currency, two or three times in excess of the precious metals in the vaults or at the command of the banks, with safety and profit to all parties, so long as the system is executed with fidelity; and by the same means the business and trade of the country are augmented in a corresponding degree. None can fail to see, that this is, and ever has been, a great blessing to the people of the United States, and the means of increasing their wealth, and consequently the power of the nation, to an incalculable

amount.

The following extract from a work recently published in London, under the title of "Lectures on the History and Principles of Ancient Commerce, by A. W. Gilbart," will serve at the same time as an illustration of this subject, and as an expose of the principles of banking.

"The banker who first makes advances to the agriculturist, the manufacturer, or the merchant, in his own notes, stimulates as much the productive powers of the country, and provides employment for as many laborers, as if, by means of the philosopher's stone, he had created an amount of gold equal to the amount of notes permanently maintained by him in circulation. It is this feature of our banking system that has been most frequently assailed. It has been called a system of fictitious credit, raising the wind, a system of bubbles. If it be a fictitious system, its effects are not fictitious; for it leads to the feeding, clothing, and employment of a numerous population. If it be a raising of the wind, it is the wind of commerce, that bears to distant markets the products of our soil, and wafts to our shores the productions of every

climate. If it be a system of bubbles, they are bubbles which, like those of steam, move the mighty engines that promote a nation's greatness, and a nation's wealth.

"Thus a banker, in three ways, increases the productive power of capital. First, he economizes the capital already in a state of employment. Secondly, by the system of deposites, he gives employment to capital, that was previously unproductive. Thirdly, by the issue of his own notes, he virtually creates capital by the substitution of credit. The means which a banker possesses of granting facilities to trade and commerce, will be in proportion to the amount of these three sources of capital. If his own capital amounts to £100,000, and the deposites in his hand to £100,000, and his notes in circulation to £100,000, he has then at his command the sum of £300,000, with which he may discount bills to his customers. But if the public say to him, we will take your notes no longer, give us gold, he will issue gold, but he must reduce his discounts from £300,000 to £200,000. If the depositors also demand the return of their deposites, he must reduce his discounts from £200,000 to £100,000, the sum raised by deposites being again rendered unproductive in the hands of the owners, and that raised by the circulation of notes being altogether annihilated.

"Banking promotes the prosperity of a country, chiefly by increasing the amount and efficiency of its capital. In the history of commerce, we find no p:inciple more firmly established than this: that, as the capital of a country is increased, agriculture, manufactures, commerce, and industry, will flourish; and when capital is diminished, these will decline. The man who attempts to annihilate any portion of the capital of the country in which he dwells, is as forgetful of his own advantage as the miller who should endeavor to dry up the mountain-stream which turns the wheels of his machinery, or the farmer who should desire to intercept the Isun and the showers which fertilize his fields."

Adam Smith was clearly of opinion, that paper-money augmented trade and commerce. He says: "When paper is substituted in the room of gold and silver money, the quantity of the materials, tools, and maintenance, which the whole circulating capital can supply, may be increased by the whole value of gold and silver which used to be employed in circulating them. The whole value of the great wheel of circulation and distribution, is added to the goods which are circulated and distributed by means of it.

I have heard it asserted that the trade of the city of Glasgow

doubled in about fifteen years after the first erection of the banks there, and that the trade of Scotland has more than quadrupled since the first erection of the two public banks at Edinburgh." It is true he does not make banks the sole cause of this increase of trade; though he seems to think it the greatest.

But Adam Smith assumes, that a paper medium banishes from the country an amount of the precious metals equal to the amount of paper in use; that is, as we suppose, equal to the excess of paper above the specie deposites; and that this specie, thus gone abroad, is employed in foreign commerce, as capital of the country, from which it goes; and consequently, that the external trade of that country is enhanced in proportion to the amount of specie thus disengaged from domestic uses. There might have been some reason for this theory, in Adam Smith's time; and it may still have some truth in it, in the same quarter. But the great error of Adam Smith and his school, is, that they are ever deducing general principles from isolated facts, and insisting on their application everywhere.

Practically, it does not seem probable, that paper-money in the United States ordinarily has the effect to banish the precious metals, to any considerable extent, if at all, because the objects of banking here are rather for domestic than for foreign purposes. Money will of course be employed where it is worth most; and it has happened, down to this time, to have been always worth more in the United States, than elsewhere, since we have been a nation. The American banking system was not established solely, nor chiefly, for economy in the machinery of the circulating medium -which is the reason assigned by Adam Smith-but its main design is to supply a defect of that medium. This being the principal object, there is no natural reason why the existence of a paper medium should banish the precious metals, although, to some extent, their absence might, perhaps, better be afforded. But, so far as they are withdrawn from circulation, it is not to employ them abroad, but to hold them in deposite, in the bank vaults, as a basis of the paper medium. A balance of trade against the country, that happens for want of an adequate protective system, may tend to draw them off, and will naturally do so. But they ought not to be liable to such a draft, nor does it enter into the design of the American banking system, that they should go abroad. When they begin to go, through the influence of the above-named cause, it is a just subject of concern, and will

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