The Madisonian. [volume] (Washington City [i.e. Washington, D.C.]) 1837-1845, 1839-11-20

Legislatures to restrain the over-issues oil
banks is TO restrict their profits. This can be
done by declaring by law that their dividends
shall not exceed certain rate per annum,
admitting sufficient for a small surplus for
contingencies. II might also be done by
compelling the banks upon the renewal OF
their charters to pay their profits, over the or
binary rate Of interest, to the State.
THE CREDIT SYSTEM AND THE BANKS.
II is one of the rules in the administration
of the Bank Of England, as regards its issues,
that they should be governed entirely by The
aetion Of the puJlic--that is they are increas-
ed during favorable foreign exchange, or
when bullion is sent to the bank to he ex-
changed for notes, and diminished during an
uniavorable foreign exchange or when notes
are sent to the bank TO be exchanged for gold
That all the evils which have followed from
excessive issues in both England and the
United States have arisen from leaving them
to be governed by The action Of the public,
we feel satisfied. II the public were never
excited by a rash spirit Of enterprise, guided
in its expenditure by extravagance, or inhu-
enced by morbid love OF gain, there could
be no hazard in the adoption OF this rule. But
this takes for granted that the passions of the
community, so far as regards speculative en-
terprise, extravaganza in living, and the pur-
suit of profit, require no restraint. II assumes
that all other popular desires admit with pro-
priety of being controlled by law and govern
ment except those connected with avarice and
the excitement accompanying its too eager
and intense pursuit The people are to be
left, therefore, to their unregulated wishes,
however extravap ant, as regards some Of the
strongest Of their impulses, while they have,
where popular government has been establish
ed, instituted checks on themselves, restain-
ing their passions in every other mode or
manner that they violate social prosperity and
the moral law. Ii is the action of the public,
no matter how strongly excited by the conta-
gious influence of speculation or by luxurious
indulgence, that demands, il is said, the stimu-
liant OF credit, and banks are therefore bound
to supply this stimulant in the form of issues.
This is the false doctrine which lies at the
foundation of our modern system of currency
in two of the most commercial nations of the
earth.
Now our notion of the true principle of ad-
ministration relating TO paper currency, issued
as loans of credit by banks, is that the more
they restrain the action Of fhe public in those
conjunctures when the public mind is unduy
excited by speculation, the nearer they will
approach to the standard Of perfect system
Of bank credit circulation. Ii is sympathy
with orer-action Of the public that impels
banks Of circulation to respond to it by cor
respondent over-action. They are tempted
to this by the hope Of those large profits out
OF their circulation, against which there is no
legal check, and to which larger profits such
over-action necessarily leads. To remove
this temptation, therefore, is the great deside-
ratum which should be sought--the only prac-
tcal problem to be solved How can il be
removed in any other mode, than by prevent
ing banks from dividing more than the ordi-
nary rate of interest on the inv estment Of
moneyed capital
The Bank of England has divided and 10
per cent. per annum on the par value Of its
stock, when the market rate Of interest for
good securities was per cent. How could
this have been effected, except by extending
her loans during those dangerous conjunctures
at the commencement Of speculation, to
which we have alluded, when what is called
The action Of The public, brought in gold to
be exchanged for Bank of England notes p
If the Bank of England, and the other banks
of issue throughout England, Scotland and
Ireland, had been restrained from dividing
more than per cent. per annum net on their
capitals, such being, on supposition, the mar
ket rate, il is impossible that those yicissitudes
in commerce and currency, which have visit
ed those countries, produced by an abuse of
their loans Of credit, leading to alternate ex-
pansion and contraction of the circulating
medium, could have occurred. And if the
second Bank of the United States, when un-
der the administration Of Mr. Biddc, had been
prevented by law from dividing more han 7
per cent per annum, the restraint would have
been equally sautary at the period when its
stockholders shared 8 per cent. annually, and
the loans and circulation of the bank were
proportionally extended between 1881 and
'33.
Could the Legislatures of the States be
brought, therefore, to adopt some uniform
system similar to that we have indcated-if
they would declare on the expiration Of the
charters of the present banks, that the prv-
lege OF trading on credit by the issue Of paper
money, and using capital in the business of
banking, may be exercised, provided the pro-
fit derived did not exceed the ordinary rate Of
interest ON moneyed Observation-Disclosures
every other restriction against the abuse of
the privilege might be dispensed with. There
would be the utmost scope permitted to the
due creation Of banks under such a restraint,
because applications for charters being limit
ed by the check of not obtaining larger profits
by banking than in other moneyed invest
ments, there would be no more such applca-
tons than would be conducive to the public
welfare. Steadiness would be impaired to
the currency, and that part of it consisting of