The Madisonian. [volume] (Washington City [i.e. Washington, D.C.]) 1837-1845, 1841-04-20

this continents
Answer. The price ofbis Of exchange, or the value
Of money in different marts oftrade must change with
thousand causes that may rise during the course
of one year. The value Of money depends upon
the demand, and the value Of exchange upon any
given place must depend upon the Indebtedness that
may exit in favor Of the place upon which the bill is
drawn
Ii the grain crops abundant in section Of the
country, and scarcity exists in another, the ship
ment of flour and grain sometimes influences the rate
of exchange by changing the balance ofindebtedness
and SO of other crops. Occasionally, when goods
have been purchased at the East and North and the
crops Of cotton have failed in part, and rendered pay
from that source impossible for time, the ex
changes said to be in favor of New York, Boston,
&c. and against Charleston, New Orleans, &C.: that
is to say, the articles sent from the Southwestern mar
kets for sale have not been sufficient to pay the in
debtedncss to the Northeast. The meaning intended
to be conveyed may be better understood by stating
case:
In the course Of trade shipment Of cotton from
New Orleans to Baltimore and sale for cash Of the
article may create larger amount of debt than may
he due from the merchants Of New Orleans. In such
event, the sellers Of the cotton would not be able
to obtain bills Of exchange on New Orleans without
paying more than par for them; and if they do not
wish to purchase goods other things for Shipment
they would be likely to take specie Ifthe balance is
large, demand for specie is created and the banks
called upon to furnish the amount demanded.
In the Of the year it may happen that the
merchants of New Orleans may purchase very large
amount Of goods in Baltimore and when the time for
payment arrives there may be deficiency Of bills Of
exchange in market to pay the debt, because per-
son has funds in Baltimore that he wishes to exchange
for money in New Orleans; in that case bills will be
above specie par, and the merchants Of New Orleans
will send the specie back to the city of Baltimore.
This is called changing the balance of trade, or
fuctuation Of exchange.
Question. Does the high rate of domestic ex-
change and the consequent transportation of specie
within the United States, prevent the banks generally
from paying specie for their notes7
A. YES. Banks are created to furnish currency
and loan money. The object Of all stockholders is
prof, upon their capital If bank loans its capital
on mercantile paper at six seven per cent. and
ceives deposits and issues circulating notes, il
divide full interest among its stockholders,
because the rent of banking the salary Of its
officers, and the nominal loss upon paper discounted,
must be deducted from the interest upon the capital
To make money by banking credit must be
tablished and used depositcs without interest must
be obtained and notes put in circulation The profits
of bank must depend upon the amount of money
that can be obtained and loaned upon its deposits and
circulation.
Thus bank loans all its capital on interest.
II then obtains 100000 on deposite, without inte-
rest, and its circulation averages 100000. Out of
these two items all the expenses and losses of the in
s,i,ulion be paid and its ready provided
for speedy redemption Of deposits and notes.
In ordinary cases, banks provide but a small amount
to meet engagements. On the above sum, about
5000 would remain without paying interest,
tingent fund to meet sudden demands from b-hold-
ers or depositors. The balance, 600 would be
loaned out upon mercantile paper, and the proceeds
placed to the profits Of the bank after deducng ex-
pcnses and losses This is the advantage and all the
benefits that holders of stock obtain over holders Of
mortgages.
| While the exchanges are below specie par, no de-
mands for large small sums, by bill-hoders or de-
positors, create any anxiety but soon as domestic
exchange rises above specie par bank can be secure
against failure unless it shall keep specie in its vaults
equal to the whole amount of its deposits and crcula
| ton.
| Thus il appears that if bank does not obtain
interest upon its deposites and circulation, it cannot
pay interest and expenses: and if it does make such
loans, sudden demand for specie may destroy its
credit. A bank must be able TO every call for
deposits and redemption of its bills, or it is in state
of suspension total failure.
| And as the fuctuation of exchange will call for
very large sums for shipment to different sections of
the country the local institutions in the absence Of
any general system will be unable at certain periods,
to meet their engagements Hence there will be sus-
pensions occurring constantly These institutions in
one section ofthe country may pay specie, is the
case in New York and farther East at this moment-
so long the balance due them from other sections
remains unpaid and there is demand from Europe.
But while this Indebtedness remains unpaid other in
siitutions must remain in state ofsupension
II may so happen in few years. that the Northeast
may become indebted theSouthwcst In that the
Southwestern Banks will and the Northeastern
will as certainly suspend Again, il any thing like
balance of trade could be kept up for year two,
slight local causes will operate upon isolated nstitu
tons where there is latitude for their circulation,
controlled by system that will check their action.
This will produce failures of very serious character
and impair public confidence in the stability Of our
institutions.
While Exchange huctuates, Banks cannot pay their
bills and depositcs in specie unless they keep in their
vaults amount Of specie equal to these two sums.
Question. What do you mean by system Of Ex-