, 1840-10-17
From Raguets Currency and Rankieg.1
EXAMINATION OF THE COMMON OPINION
THAT BANKS CREATE CAPITAL.

cry SCu'ioi !" tiS'o"S "''' NV
public, arising from a want Of analytical ex.
animation Of the subject, which is that
banks have the power To create capital. As
this error lies at the bottom Of the whole
system of false reasoning with which the
speeches in legislative bodies, and the COL
urnns of newspapers are filled, and as its
eradication is of vital importance to the
country. and must precede any real reform
in the banking system, shall enter in detail
into lis investigation, and solicit the readers
particular attention.
What is capital? The capital of a com
munitv is that aggregate mass of things
possessing e~xchangeabIe value, which are
destined to supply the necessaries the COM
forts and the ~luxuries of life, or, which are
intended TO be employed in the production
Of otaer things with such ultimate view.-
Hence lands, houses, workshops. factories.
rail roads. canals, provisions, clothing, fuel,
merchandise, raw materials Of every kind,
articles, including gold and silver are capital:
If the farmer wishes to cultivate more fields.
or to cultivate his present fields more highly,
or to make improvements on his farm, or ex-
tend his operations in any way, the capital
he stands in need of is land, cattle, horses,
sheep. implement, seed, food and clothing.
II n manufacturer desires to enlarge his op-
e~rations, he requires buildings. machinery.
raw materials, and subsistence for his work
men. II 4 merchant proposes to extend his
commerce, he wants ships, cargoes of az
ricultural produce, or merchandise, and pro-
visions for his crew. The money which is
wanted by each of these operations to deal
with, as well as To pay the wages of those
whom he employs, is only the instrument by
which lie and his liborers are enabled to
procure some of the articles above
ted, sn that it is manifest that the power OF
any given population to set additional indus
try in motion. is limited by the amount of
lis capital as ADORE described. Vow ii is We
~ evident. that the mere emission OF bank
notes adds nothing 10 the mass of capital
previously existing. ltcreates neither lands,
houses, machinery, ships, Iaw materials,
provisions, raimenis. gold, silver. or anv
other conceivable thing that comes under the
denomination Of capital. In fact. a bank
note is nothing but Il promise To deliver on
demand Il certain quantity of gold and silver.
which is capital, and it is easily to be seen,
that a promise to deliver capital is not capital
itself, and that no conceivable number OF
such promises can ever constitute one atom
of the thing promised. As well might be
asserted TO a hungry man. that Il bakers
promise TO deliver a loaf of bread. was bread
itself, or TO q shivering man, on Il cold day.
that a iailor's promise 70 delivera suit of
clothes would protect him from the weather
as well rs the suit itself. The matter is so
,ln,n ,h,t No ono o,n foil 10 par,a,ra tho
truth of these positions.
How, then. it nav he asked. do the issues
Of paper credits, by banks of circulation.
operate upon the community. and produce
that appearance of increasing wealth in pla-
ces where they have been established!-
This is an important question, and if closely
examined, will be found 10 lead to an answer,
calculated TO dispel much of the delusion I'M
der which the public labors. az to a supposed
magic p0per Of production conferred upon Il
number of individuals by an dct of incor-
poration. II is this: These issues facilitate
the transfer Of the existing capital. that is.
of things possessing exchangeahle value. by
creating an additional set of dealers, with
bank notes in their hands, and who are
thereby enabled to purchase, with the cred
it Of the bank what they could not purchase
so conveniently with their own credit. A
bank note. indeed, may be considered as a
draft in favor of the borrower, given by a
bank upon the public at large, TO deliver him
il certain amount Of capital Of any descrip-
ton he may want; the bank promising any
one who may honor its draft, TO pay on de-
mand an equal value in gold and silver. Or.
the bank may be imagined as borrowing up
on its promissory note. certain amount OF
capital from A, and handingit over TO B. TAX
Ing in payment the promissory note Of the
latter, and charging n commission for its
agency. That this is the case, will be made
plain from the following statement:
Let us suppose a bank with a capital OF
one million Of dollars. After this is all loan.
ed out. it is very evident that the bank has no
more capital to lend. A offers a note for
discount, having sixty days to run, for one
thousand dollars, and the bank discounts it.
by giving one thousand dollars of its own
notes payable on demand. These notes. as
| have shown, are not capital, but a promise
to deliver capital, and it is only because the
bank supposes that no demand will be made
upon it before the expiration of sixty days,
when AS note become due, that it considers
itself safe in exchanging notes with 4 for