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debts for wealth, and the contrary. The first belongs especially to bankers and stockbrokers; the second, to merchants and shopkeepers.

The error of supposing a banker to be a lender of money, arises from the fact that a banker must be a capitalist or pretend to be one, as must each of the individuals who go to compose a joint stock bank: but a close investigation of the ordinary business of a bank which issues a paper currency of its own, will convince us that a banker must be a capitalist, to give the public security who take his notes at par, yet that he is not a lender of capital, that he borrows more money than he lends, the difference being the discount which composes his income. The late contest in America, between the President and the United States Bank, on the question of the renewal of the Charter, disclosed to the world the utter ignorance of the true principles of banking, of many of the leading merchants and writers of the day. To the obstinacy of the President and the injudicious use of his veto, both Americans and Europeans attributed the late calamitous failures. We shall briefly notice some of the evils of the system which was struck down by the uncompromising general.

Viewed at a distance, the banking and credit system of America and England, though differing a little in practical matters, seem to coincide in theory; but a closer investigation of the operation of the former, leads to the conviction that this is not the case. In Europe, it is held to be a requisite for a banker, or the component parts of a Joint Stock Company, to be in possession of a certain amount of capital, to meet the paper currency they may issue. In America, the joint stock banks are frequently got up by needy adventurers, seeking to make a profit on the scrip or stock of the concern, or to borrow more than they lend to other banks. They borrow money to purchase stock, and pledge the stock to the bank for money to pay the first lender. So that many of the banks are without any other security for the currency they issue, than the debt of their pretended proprietors. They are mere nominal proprietors, for the bank has repaid them all they originally contributed to its funds; but this is skilfully kept out of view. These gentry have the right of voting for directors. A party votes for those who, he is confident will assist him in his speculations; if he is lucky enough to become a director himself, he discounts no bill or note, unless he is concerned individually in the transaction. A system of accommodation is thus established, and a director's endorsement is a sine qua non to the discounting of paper. This endorsement may be procured for a consideration of one, two, or more per cent. on the amount of the bill, a very snug thing for the accommodating director.

But this is not the only good thing that falls under the fingers of VOL. III. (1837). No. 1.


the director, he has a more extensive means of acquisition. As the joint stock banks were founded to give accommodation to landjobbers, builders, and speculators in every department of industry, (real bills of exchange being an almost evanescent portion of the business), as long as the bank chooses to renew those bills, things go on gloriously, the builder cheers on the land-jobber, and the speculator-presently the bank refuses to discount the bills, having previously secured mortgages on the property created, smash go the speculators, while the cunning directors march off with the profits of their industry. The fluctuating nature of the population of the American towns, allows the pursuit of this system of plunder for a length of time; in a settled or well regulated community, it could not exist long. It appears that the United States Bank has pursued this appropriation system with very great success. Its accommodation was always given to be expended on the permanent improvement of real estate. The progress of this improvement was carefully watched and ascertained; when it was ripe for the sickle, the bank, by refusing to discount, obliged the holders of this species of property, sometimes several at a time, to stop payment-the property was sold by the sheriff, and purchased by the bank at a great apparent loss. The bankrupt speculators speedily transfer their industry to other quarters, and make way for new comers, who, in addition to their own property, purchase, at a large profit, the property of their predecessors, which has remained for some time in the hands of the bank. As long as they have the assistance of the bank, they prosper and flourish, when that is withdrawn, they share the fate of their predecessors, and swell the tide of victims, so that if Jackson had not used his veto steadily and unflinchingly, the bank of the United States would have grasped the greater portion of the lands of the Union.

The political influence derived from this power over property and enterprize, was proportionally great. Senators, representatives, editors, were their dependants and partizans, and stoutly maintained their cause against the president. They made the renewal of the charter a party question, and the struggle was long and violent.

It has been very fairly suggested, that the existence of the Stamp Act would have operated as a check upon this "Kiting" system, and no doubt a previous outlay on every transaction would damp the aspirations of many an ambitious but needy speculator.

A feeble attempt was made by the government to compel the joint stock banks to be always provided with a quantity of metallic currency to meet runs and urgencies. A government officer makes his rounds and his reports. But as the time of his visit is previously ascertained, each bank borrows cash from its neighbours, lending them cash in its turn, for the satisfaction of the not over

scrupulous functionary, who closes his eyes to everything but the specie placed beneath them, and reports that the bank in question had on such a day, so much paper afloat, and so much metallic currency to meet it, in their vaults.

In Scotland and Ireland, much benefit results to the merchant, by the system of cash advances, but they vary in character from the paper accommodation of America. The discounters of kites, consider themselves lenders of paper currency, and not changers of private into public debts, so that individual responsibility forms the basis of the credit system, resting on the current value of goods sold. For it is obvious that a merchant would never sell his goods except at a profit, if he could defer indefinitely the payment of his bill.

A Scotch banker advances cash on the character of the borrower, and his own personal knowledge of his business, and his talents for conducting it. But the American accommodation paper is not restricted to any particular use, and may be laid out as income in daily expenditure. This begets a system of extravagance, which, it is understood, has been carried to the utmost pitch by the townspeople for the last ten years. The consequence has been the almost universal bankruptcy of those individuals. It was to meet the accommodation paper pledged by these gentry (who, besides their constantly accumulating debts with Europe, in connexion with the banks, have another debt with the country people)-it was to meet their paper, that the gold was lately imported from England, and after a moment's delay in the banks, it passed into the hands of the independent farmers, who preferred it to the bank paper which they formerly held. As this latter class are generally free from debt to the townspeople, and free from the temptation of speculating in town lots, and the other jobs of the townspeople, it is but reasonable to presume, that the gold they have thus got into their hands, will be very slow to leave them. The question then arises, what is to become of the merchants and bankers who have been living beyond their means, and where are they to find money to meet their engagements? A jubilee, or general cancelling of debts, has been proposed, and we have no donbt the idea is not unacceptable to Yankee debtors, however it may mar the self-esteem of Jonathan to be reminded of the year of national insolvency. By the by, it seems strange, and yet it is an ascertained fact, that a "free-born American," who piques himself on his superiority over an European, is, of all human beings, the most anxious to get into debt, and the least anxious to get out of it. How he reconciles this with the high mindedness of a republican, we are at a loss to discover. Mr. Clibborn having paid a small account to the editor of an Adams's paper, the latter remarked, "I wish every one was like you." After making out the receipt and handing it to him, he inquired why he paid him. Mr. C. replied, "because it was so small, and he did

not wish to open an account with him. He looked at me with astonishment," continues Mr. C. "You English are queer people. A real American would neither pay the bill or enter it. I am satisfied," said he, " that our merchants have innumerable accounts of this amount due, which they will never think of until they have grown into considerable sums, and the chances are they will contest them then."

When a banker discounts a fictitious bill of exchange, technically "a kite," as the bill represents no wealth, he virtually lends so much of his capital to the drawer for the time the bill has to run, or he pretends to do so by issuing a certain quantity of his notes, which passing at par, lead people to suppose would be exchanged for coin if demanded at the Bank. The American view of this transaction is curious and characteristic. It is perfectly fair, says Jonathan, because it is understood by both parties, that the paper given by one, is as spurious as that given by the other; the bill representing goods in the same degree that the notes represent metallic currency, a slight run on the bank would reduce both to their real nothing


The discount in this case is equivalent to the risk, the drawer paying at the rate of per cent. per month, for what passes for cash. This is supposed to be equal to the wear, or waste of a coin currency; but it is obvious that this paper currency at 6 per cent. per annum, is more costly than the old-fashioned gold and silver money.

The facilities of bank accommodation are productive of another inconvenience to the public, by causing artificial scarcities and plenums of certain commodities in the market, when naturally the opposite state of things should occur. This state is called intermittent in America, an epithet derived from the ague, which physically and morally affects the New Orleanists and their neighbours. Bank directors have it in their power to throw the market into this state whenever they please; and as many of them are dealers in the essential commodities, it is not to be supposed that they resist the temptation of levying a tax upon consumers and realizing large profits. Again, by the accommodation system, as merchants commence in debt, it is absolutely necessary that they should realize a profit, and any chance is turned to account that will enable them to put off selling at a loss, though every day they hold over adds to their debts and responsibilities. If this accommodation is general, the evil consequences become so too. A rise of price of particular commodities must ensue, to cover the additional expenses of storage and insurance, discount and stamps if with British merchants; a rise of price produces a reduction of consumption; the public discontinuing its use, or substituting something else in its stead. Diminished sales alarm the holders, and

they suspect a loss is impending. A knowing one throws his stock upon the market, and immediately all his panic-stricken brethren imitate his example, each one anxious to sell at the least possible loss. The price goes down to Zero, when in a healthy state of the market, it would have been steady and remunerative. To correct the manifold evils resulting from joint stock banking, and to reduce it within proper limits, has been the anxious desire of the legislatures of the various states. Laws have been enacted, framed with all the ingenuity which the cunning of men, who, having been directors themselves, were acquainted with all the mystery of the craft, could supply, but without effect. So great is the temptation to fraud held out by the system, that few or rather none are capable of resisting it, and the numbers and influence of those interested directly or indirectly in the maintenance of the system are so great and so widely diffused, that the law is either defeated or evaded.

Such are the moral and political objections to Joint Stock Banks, springing out of the states of society and inherent in the nature of things. The accommodation system demoralizes the honest and honourable trader, and gives unfair advantages to the needy and reckless desperado and gambler, who laughs at the slow pace of a soberplodding neighbour until the day of retribution comes and hurls the exulting speculator from the height of his artificial prosperity into the mire of bankruptcy and ruin. In America it has been the immediate cause of all the late disasters; the source of overtrading panics, and all but national bankruptcy. Good average health is much to be preferred to unnatural fits of elevation of spirits which are sure to be followed by depression and despondency.

With regard to the working of the system in England, Mr. H. Palmer in a pamphlet lately published, and which may be considered as expressive of the sentiments of the directors of the Bank of England, of whom he has long been considered a trading member, says, "that it becomes questionable whether the Bank of England and Joint Stock Banks can permanently exist together." He ascribes to the existence of the latter, the recent panic and derangement in the money-market, as over their management the Bank of England was not able to exercise that controul which he asserts had formerly been successfully applied to private banks at former periods of commercial difficulty. On the other hand, it is a curious fact that the late Lord Liverpool and the then Chancellor of the Exchequer attributed the panic which occurred eleven years ago to the conduct of the "private banks," and actually recommended such an alteration in the bank charter, such as the formation of joint stock banks to prevent the recurrence of the evil, a recommendation which led to their establishment. Happily for the soundness of that recommendation, it appears that while the losses by private banks from 1826 down to the present period have

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