The Ohio Democrat. [volume] (Canal Dover, Ohio) 1840-1900, 1841-08-19
From Gouge's Journal on Banking
THE TRUE PRINCIPLES OF COM
MERCIAk BANKIN G.

COunt@ Ao tney express " ''lnO proper JUST
ness Of bank is MOTTO lend capital, but 10
isod credil'-noi to furnish the trader with
sufficient means TO carry on his business inde'
.pendeHtly of other RESOURCES, bat simply 10
enable 'him1o anticipate the proceeds Of his
sales, by making advances to him 10 supply
'lhe place of such portion Of bis own capital as
he has parted with by selling on credit. Bet
ter terms might, perhaps, be selected: but we
will not, on the present occasion, quarrel with
Terms. The meaning Of those who use them
lis quiieinielligible. II a bank discounts aolh.
ling bat business paper, the notes itssuos re-
spresent the notes il discounts, and the notes it
discounts represent the commodities, or the
vslne Of the commodities, which the mer~
cchant has bought or sold. betthese commo-
sdItie0 be'flour, sugaf, cotton, tobacco, or any
thing else Of which the Price Current makes
rmenNon,S they form fund by witch the mer-
chant may in due season., pay tho note dis--
counted by the bank, and thereby enable the
bank 10 redeem it's issues.
So long as banks observe this rule, they
cannot, according 10 this theory, make issues
TO excess; for the accommodations they grant
are exactly adapted to the commercial busi.
ness cf the country, increasing as it increases.
and dimlshiug as it dminshes. The exact
proportion Of currency to commodities is pre-
served, no matter WLat may be the flucIua-
tons of commerce.
So long, moreover, as banke observe this
rule, domestic exchanges cannot be thrown
into confusion. Ii the trade between differ
snt psrls of The county were reduced lie mere
barter, (both money and credit beng exclud,-
cd ,therefrom, it seli-eviGent that exchang~
es'would part with commodities, except on
receiving commodoie- Of equal valpe 10 res
turn.- Eqaaiy reg u'et would be the exchanges,
il, instead Of being carried on by mere barter
Of commodities, they should be carried on
by the medium Of paper, which shnuld be the
= exact representative Of the value OF those com
sitnodoties.
But let banks make issues to enable their
cnstomefs"to pay taxes, and they introduce =
disorder into both currency and exchanges
lnsueh' Gases, their papsris not the represent
'tafive accommodates, andno apecikc fund is
PtUyided for its redemption, This banks are
accommodating, not ths wants Of commerce,
bat, in an indirect way, the wants Of Govern
. meni. The issues Of the banks no longer
adapt themselves to tho trade Of the country,
expanding as 1t increases, and contracting as
It diminishes; but expanding aud contracting
according 10 the demand for public revenue.
The Foundation is also laid for confusion in
exchanges. Wbile tbs banks restricted them.
selves 10 discnunting business peper, = the ex-
'changes Of coalmodnies by tfiiisrenl parts of
ahe country afforded efieclupl means ol. equal
'4izing the exchanges Of bank notes, which
were the mere representatives of the vAue OF
these coGmodb,icS. &ut iharo are no comm J.
dilles torepsesant bank nolfs- ,,ts;aed FOR tho
payment of public revenue; and Goveynment-
Goes 'vctT IN IT'S diUhurs6mentS, psy out bsrk
~notes-in the places ia y hch they would find
their way in tiIe natural course Of trade, bat
very probably in the points directly opposite.
'}tischafdly neCessary TO say thai when Gov
"prHmem receives bank notes in payment Of
public dues. bank notes viii Sc issued 10 an
amount sufficient TO sapplythe demand. 1t
matters no, what particular form bank loans
may then assume. Iii PLAIN that, in such
cases, bank issues exceed what the CONNER
riat wants Of The com nunity require, and 60 TO
supply its wants for other objects.
II the banks issue notes for the purchase
and improvement, of real estsle, they may
disorder currency and exchanges az much as
hy issuing notes for the payment Of taxes. 10
NIch cases, their notes are indeed the repre>
sntatives Of commodities, but not Of COM
modities which can be advan.ageo cold in
time TO enable borrowers 10 repay what has
been lent 10 them, and thus enable the banks
10 meet their engagements. In some parts II
the country. the banks may be under the me-
cessity OF redeemiug the aggregate amount Of
their Issues once in three months, in others in
q shorter, and in others in longer period.
But It would be but poor ''accommodation"
10 the purchaser of a cotton plantation in Mis-
sissippi, to be obliged 10 repay-hs loan before
he could carry hrs crop to market; or The bull
der Of palace in New York TO refund what
he had borrowed, before his wife had an ops
POrtunhy Of giyingher Grst soiree 10 her splen.
did. mansion. Yet If the banks Of Missis-
eippi IOiH in addition 10 making issues suffi-
cient 10 circulate the annual produce Of the
boi, also make issues equal to the amount Of
real estate vhtown inio market, exchanges will
be wofully against Mississippi. Part Of these
excesaIve issues will 6nd their way TO New
Eofk and Philadelphia, but lhe land cannot be
ezporled in order TO redeem them. The same
yemarks VIII, mGtdtis mutandis apply to the
New York banks, IL lhey will make loans 10
gecple WhetswIth1ll tO'build palaces al New
Brighton, =
Here il is proper 10 enforce The remark that
thie strict rule applies sAiy to the credit deal.
ings Of the banks, or to such Of their opera
GiODB 90 ere based on their circulation and de-
nneiia. IL IL 0f little m0mani IN raced a. ,L.