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when the currency becomes too mach reduced, exchequer bills are purchased and bank notes thrown into circulation.
The amount of currency is thus regulated by a power, fearful indeed in its extent, and requiring in order to be judiciously exercised, the most intimate knowledge of the state of the country, as well as the most disinterested devotion to its best interests, and which thus exercised may at times be of the utmost service to commercial credit and the general prosperity. But in England we must remember almost every thing is artificial. The government regulates the value of land by its corn laws, and the bank, the value of money by the amount of its issues. According to the opinions of some of their most intelligent men, it is quite doubtful whether the public interest, as to both, has not sometimes suffered from too much regulation.
In this country, the issues of paper depend almost entirely upon individual discounts, regulated in amount by what the banks consider their ability to redeem. Every additional note discounted, makes a new emission of currency, so that whenever the community are found to have been overtrading, the currency is generally found to be overloaded, and thus, at the very time when the mercantile interest most needs relief, the banks are least able to afford it.
The amount of currency should undoubtedly be proportioned to the amount of business to be transacted, and if it were possible to limit it to precisely that proportion, without its being subject to enlargement, for the purpose of furnishing capital to create business, or to contraction from mere caprice or misjudgment, we should have nothing to apprehend. And as it is, our system is probably preferable to any which should attempt to regulate the amount by an arbitrary estimate of the supposed necessities of the country.
What sufficient guaranty could we have for the accuracy of judgment and purity of purpose so indispensable to the proper exexcise of a power so delicate and momentous ? It is quite possible that we are at this moment enduring a rigid course of suffering for having at a time of peculiar embarrassment, yielded to the imaginary necessity of the times a power over the currency of the whole Union, which under no circumstances nor under any go vernment ought to be committed to mortal hands.
It is the improper exercise of this power of expanding themselves at one time and contracting at another, which, more than any thing else, the community have to fear from banks of issue.The Bank of the United States increased its loans more than twenty millions between December, 1830, and December, 1831. The importations of that year were increased nearly thirty millions, and a severe pressure was the consequence of overtrading. Instead of since curtailing gradually, if that was deemed necessary, these enlarged accommodations are continued sufficiently long to become interwoven with the business of the community, and almost the whole operation of curtailment is left as the work of a few months. Another pressure upon the community is the necessary consequence. It is not supposed that banks are directly chargeable with the consequences of mercantile overtrading, or that they are justly liable to censure for the collection of their debts; but it is supposed that extraordinary issues on their part furnish the means of, and facilitate overtrading, and that a sudden withdrawal of those facilities, after business men have become accustomed to, and have, therefore, calculated upon their use, however strictly just it may be, is nevertheless extensively injurious.
In whatever degree banks may be considered dangerous, in consequence of their power of expanding and contracting the facilities of business, and the currency of the country, it would seem to require no argument to prove that more may justly be apprehended from a single institution, of immense capital, possessing the power of action in every part of the country by a single impulse, having but one interest or inclination to consult, and controlled perhaps by a single individual, than from a number of independent institutions, possessing collectively the same capital, but governed by individuals residing in different places, strangers to each other, having separate interests and inclinations, limited in their sphere of operation, and incapable under almost any circumstances of combining and acting in concert. Certainly no considerable portion of the community can have any thing to fear from the capricious management of the local banks.
Much is said of the necessity of having a large and powerful institution to regulate the issue, and keep in check the local banks,
and this office is said to have been performed by the United States Bank. But we have seen that institution expand and contract itself to an extent far beyond any example of the State banks, and it has the power of doing so at all times. Instead of checking the circulation of the local banks, which is alleged to be excessive, we have seen it co-operating with them in swelling the amount of paper circulation, and forcing its own to an unprecedented extent. We know of no monied institution on the continent, possessing over half a million of capital, which has ever forced into circulation any thing like such an amount of paper, in proportion either to its capital or discounts.
The free issues of this bank have enabled the local institutions to enlarge their business and so far from checking their issues, hare produced an effect directly the reverse. True, it is said the local bank notes are sent home for redemption, and more than twenty millions are said to have been received during the last year, at places other then where they were issued, and thus sent home.
Such is precisely the operation of all State institutions. Anactive system of redemption is constantly kept up between them, and is essential to their existence, and must always be continued with or without a national bank. The country notes of this State are sent home for redemption as often as every fifteen days, and the banks in Albany alone have probably thus compelled the redemption of nearly twenty-five millions of paper issued by the institutions in the western part of the State during the last year.
The whole bank paper of New-England, is in like manner returned for redemption by the Boston banks, and of the whole operation in the Union, but a mere fractional part can ever have been performed by the United States Bank,
But while these considerations are calculated to inspire jealousy of institutions possessing extraordinary powers over the currency, and consequently over the industry of the country, we should not be unmindful of their force as applicable to our own legislation upon the subject. Notwithstanding we have less to fear from the fluctuating and capricious policy of many independent banks, than from a single one possessing the same power, yet there are other causes of apprehension common to all.
The fluctuations of trade affect all monied institutions issuing currency nearly alike, and their effects are first experienced in the contraction of the circulating medium. The more banks we have, the greater will be the proportion of paper to specie, and as every bank lends its capital and credit to the community, every demand for specie and every derangement of mercantile credit affect all the banks and the whole community within their influence. The creation of every new bank exposes the public within its influence to more fluctuations in business than it would otherwise be subject to, because the currency it issues forms a connecting link between that community and the interests of trade. When trade becomes embarrassed, or its interests require the conversion of paper into specie, that paper is returned with a demand upon the bank, and through the bank upon its debtors, for redemption, at whatever sacrifice the specie is to be obtained. And thus a district of country, although agricultural in its character, and otherwise liable to be but little affected by the alternations of commercial business, by means of the paper currency set afloat upon its credit, becomes liable to all the revulsions incident to trade, and exposed to sacrifices to sustain the currency, at a time too when its productions are most depressed by commercial embarrassment. All experience proves that these alternations in business always have occurred, and he would enter upon a hopeless task, who should endeavor to prescribe the means of avoiding them in future.
So far as banks loan capital, their operations are as indifferent to the public as those of an individual capitalist; but in the operation of creating a currency, based upon their credit, and diffusing that among the community, they become an object of the highest
When not overdone, their operation is interesting, as tending to stimulate and invigorate business; but when pushed too far, as tending to aggravate the distresses always incident to overacting enterprize.
It has been often suggested, that the establishment of new banks merely enables them to divide the circulation with the existing ones, without essentially increasing the aggregate amount; and it has even been contended that the freest distribution of charters was the best remedy for the excessive demand for them.
The profits of banks in the country arise chiefly from their circulation, and to what extent it would be necessary to multiply them in order by that means so to curtail their profits as to check the demand, we dare not predict; but it would certainly be mor safe to predict that such a remedy would probably be found a most hazardous experiment.
Our experience thus far shows that the establishment of new banks in the country, has increased the aggregate circulation by about the amount of new capital created. This fact is shown by the following statement of the banks out of the city of New York, taken from our last anual report, with the addition of the result of the past year's experience:
1830, Jan. 1, ...........
Capital. 84,452,260 7,022,260 8,172,260 8,720,260 9,920,260
Circulation. $3,974,345 6,862,541 8,622, 277 8,783,360 10,396,171
The banks mentioned in the following table, were all in operation previous to the adoption of our present system, and they are all the institutions which were in operation in that part of the State north of the Highlands, except three not subject to our visitation. Their capitals amount to $4,104,600. Since the first of January, 1830, additional banks have been put into operation in that part of the State, whose capitals amounts to $5,250,000, and which now have a circulation of over $6,500,000; and yet, as will be seen by the following table, the circulation of the old banks remains very near stationary.