The enquirer. [volume] (Richmond, Va.) 1804-1815, 1804-08-01

Sou'plSS winch nave permitted Lie etfdbI.h-
meat OF Banks, have experienced new aud con-
hderab!e augmentation Uftacir wealthy
Having then enumerated the principal advan-
tages, which banks can reader 10 nation, it
might have been proper perhaps 10 nave tcrmi-
mated THIS part OF the dlcuiGIu il another
On -tton, ioIncwNat curious IN iji.le aul pr5Il-
bly, ineXplcahle 70 fumr of my !, ld.Is, had no,
demanded a ihort invehis1t'n. They NAV be
anxious 10 know tll particular method, -
Which banks themicycs AZ benefited by then.
own operations Ia what way, the Sforf3oLiey5
derive profit from the iaveni!ure OF their Pro-
ptgty ia bank itDc1. The Individual who Dor
rows money from the bank pays no more than
the legal lnterea for It, and ths bank conequent-
iy receives no more than The legal in:erln OH il.
-8ow then does 1t hGpD.l, that the an
nu1' dividend on bank fock is fometrres as
great as 10 or ~ per cent. and that at this
time, the flock o! The United States bank is
worth in the market at leaf 40 per cent il al
vance \ few iimple observations will be iu,T-
cient 10 elcidate this fubieSt.
The Bank can receive 20 more than the LEGAL
intrrc0 Of per cent for all the paper tia; ii
leads but it vii. receive this interet or fun
which Is greater chan It's own capital. The pr
per which ii lends out. will exceed its capital in
ipecic ior two rsaions: the fri and principal is
tHat rs ipecie will give credit and Crcu,a-
tor to greater amount in paper, on which il
receives the legal intcrer. The tcon,i is that as
this paper is lent Out for ihort periods, com
monty months the ntsrcGs which accrue il.
any one period, may Ie added to the negcciahe
fund q tee nest pe,c,. and thus by genuine
operation OF compound ntrre!t iucreafe the
whole intcrott II the courlt of the year.
We muir recoeCt that Elnks are PRINCIPAL
ly founded on ovdit. Il is not real capital, an
actual fun in gold and FLYER or an actual value
III eXchangeable commodities, which il lends
out but paper, mere representative Of this
capital, OF this gold and FLYER Confidence is
the very foul OF this credit. Il an Individual,
who has 4 bank note III his hands, believes t,at
the Bank would give him gold and fi,vcr for il,
II he were to preftnt il for repayment, it would
be indifferent to him, whether he had that fun
IN the FORM o. paper, or of gold and lilver. 1'ie
Bank then has no othcr policy to puriue, than
to be always ready TO take up is ownnotes, and
give gold ard River i'll exchange for any CT It's
notes, which may DC occaiiuaally preirnted to
II FOR repayment. Ii it be abie to accompii!I,
this object, It may be cert ain that MANY Of its
notes viii circulate months and years, without
Being preitnted to them for payment. This
very hmPle faSt will be iuIicient 70 explain the
reaion, why it is able to multiply its notes be-
You'd the extent Oft actual capital. 4 mer
chant we Will fuppoie, oficrs his own note for
100 dollars to be d.fcounted AZ the Bank at the
ordinary rate &C intsreG. For this note the
Bank does not pay him in gold and FLYER, bat
Imply INJURIES his c.ciitby lending him one Of It's
own notes in place Ofhis. IF the Bank has auy
reaioa 10 believe that it viii be preGentrd
for repayment before the expiration of
the Two months, when the merchants note
becomes due, the Bank could not have
fately ventured TO difcount at the fame time tine
note OF another merchant for 100 dollars and
It mii!t therefore have contented itielswith the
Intere't on one of its notes during part only of
the two months. If the bank ihomld expect chat
one OF tAeie notes only would be- rreientcd to Il
Tor payment before the end OF The two rnonths
1t might have ftfely diftouDted two notes for
100 dollars each, although it had only one hun
dred dollars in fpece; becaule by the time
when the iecond note fhould be prtf.nt-
| ed to it FOR repayInct, the bank would have
received the amount of the merchants notes.
Should there be any reaton to believe that one OF
thete bank notes wouldrun on acreditofGo dqys,
&anotheron acredit of l2odays, the banks miEht
perhaps lately incur the rifk of dfcountiEg thre
notes OF 100 dollars each Gecauie even IF The
three notes OF TIE merchants be not taken I'd Lv
them on The expiration of the so DAYS, there IS
GRANGE, that they would rtimburje the b.:nk
before the end Of the 100 days, before which
time the bank will not be called upon for the
, payment of its three notes. But even this
| iuppolition is not IS favourable t. mott Of the
as they really dcf.rve. 1t has been already OBJ
ierved that the notes OF fuch banks nay circu-
late even for years, before they are preiented
for repayment. Thtfe banks may therefore
lend ont Their paper to greater amount than
their actual capital. In different intitutions of
this kind, this ratio is no doubt continually fuc~
tuating. BY their charter, the Bank of Virginia
cannot liiue theirnotcs 10 greater amount than
three times its capital. If the Bank therefore
puts all its retourcsG into operations flare ofioo
dollars, would produce a profit OF 8 dollars ;
even lift were not augmented by
2. The operation Of compound interef.
The Bank having received the intereG of it's
mcney,wlth the fun which il had advanced, du-
ring two months, does not fIfEer this additional
fun toremsinidle Golfers, but converts It into
acapitaI, for the difcountin2 ofother notes. st
the expiration OF the two next month";, It
receives the intereR not upon the original fun,
but upon that fun, augmented b. L. intereG fo.
the two frA months. During each fuccei-iye
period OF two months, the fame operation is
repeated; TIE t1nle accumulation ~ intcrcf up
or ntereit is produced. What TINS compound
interct would amodrt to in the courfa ga year
upon ihare Of 100 dollars, the following table
contracted by very fmple rule Of arithmetic
viii clearly demonitrate.
! -f'HerriJ f,f,y.f an ,rer.,- tobiiai.
month. fU- e-fif5kn
o y 100