The national era. [volume] (Washington [D.C.]) 1847-1860, 1857-10-22
WASHINGTON. D. c..
From the Philadelphia Press.
THE BANKING SYSTEM AND THE PRESENT
CRISIS,

men are apt to be hurried by the pressure of
their difficulties beyond the circle of reason,
and they catch eagerly at any suggestion, how
ever wild, or any project, however extravaganza,
that holds out promise or possibility of re-
lief to the exigencies Of the occasion. 1t is
therefore peculiarly important at such times
10 recur to first principles; to trace effects to
their causes; and, having thus ascertained the
origin and spring of the prevalent disorder, ap-
Ply the appropriate remedy. With this object
before us, we shall endeavor, in a very brief
space, TO state what features of the banking
system experience has demonstrated 10 be val
nable, and what iDj furious.
In the first place, then, bank of deposit is
o commercial necessity. The celebrated Bank
Of Amsterdam, so renowned in the history of
Holland, was purely a bank of this character.
The merchants placed their coin in its custody,
snd received certificates therefor, which were
transferable like specie. These certificates
we're of such reputation that they passed cur
rent throughout Europe. 1t is obvious that,
with banks of this description, the exchanges
of a country would be very easily conducted.
The payments and transfers of the General
Government, through the agency of the exist
ing Sub Treasury system, are made in accord.
snce with the principles Of q bank of deposit.
In the next place, bank of discount or loan
1t is sort of fountain where is collected to-
gether the scattered capital of q community,
whence it pours forth again in a thousand
streams, to bless and encourage and invigorate
human industry. Those who have money to
lend place it In the bank, and those who wish
70 borrow naturally resort there for such &C.
commodstion as they may desire. Lenders
and borrowers are thus brought together, and
the bank merely acts as an agent to make and
collect loans, receiving fair compensation for
Its trouble, &c. Banks of this character are
established in England they issue no notes of
their own, but are purely Offices of discount.
Our savings banks are in a measure founded
upon similar principle. They collect the
means of small owners, and loan them out for
their benefit.
We now come to banks Of circulation or
issue, whose prominent disadvantages this
community at the present moment both per-
ceiyes and feels. Before proceeding however
to notice the evils of these institutions, and
suggesting the means to obviate them, we shall
first point out one or two errors that popularity
obtain with regard to them. 1t is supposed
that the mere issue of bank notes increases the
capital of a country. Nothing could be more
Ill founded. A promise to pay is no addition
TO capital, whether made by bank or an indi.
vidual; nor whether it be verbal, written, or
printed promise. If capital could be accumu.
lated by the issue of promissory notes, nobody
need to be poor. Should these notes, how
ever, be redeemable in specie, as the notes of
our banks profess to be, and thus circulate as
money, the amount of the medium of exchange
is incre ased but it falls in value as it is aug
mented in quantity, and for this reason Every
community requires certain amount of money
to carry on its exchanges, and this is the only
benefit of money as money, and the only office
It performs. If the amount thus required is
increased in quantity, it falls in value. Ifonly
ten millions is needed to conduct the exchanges
OF community, then only ten millions in value
can be employed, no matter how much the
nominal amount may be increased But, it
may be asked, how, without the issue of paper
money, can the possession and circulation of
these ten millions be secured? The answer is
by the operation of law which is uniform
and universal in it's action. Whenever, from
any cause, the circulating medium Of a coun-
Try ls less than IS required, 1t Immediately in
creases in value. The moment this occurs
specie will be exported to that country from
every other country where it is Of less value ::
and this expectation will continue until the de-
hciency IS supplied, and the price of metal
eqnahzed. The operation Of the same law is
witnessed when the currency Of . country ia
increased beyond the required amount By the
issue of bank notes. The price Of the whole
falls, money becomes cheap-that il. it takes
more OF 1t TO buy the same article than before
The farmer, the manufacturer, ard the Ia.
borer, finding that their products or their in
dustry command more money than formerlv.
naturally enough, perhaps regard themselves
as peculiarly fortunate and the country "a nm
commonly prosperous. But this state of things
does not last long. 1t is soon perceived that
money will buy more abroad than at home. be-
cause 1T Is of greater value abroad than at home.
But paper money does not circulate in foreign
countries, and consequently specie alone is ex-
ported to pay for the articles that NAV be DIR.
chased. AS 1t continues to be sent out of the
country, thus decreasing the amount of the
circulating medium at home, the residue is con.
stanty increasing IN value And now the evils
OF the banking system begin to exhibit them
selves. The banks, alarmed BY the constant and
steady demand which Is made upon them for
specie, which is required by the merchants tn
pay Tor their purchases abroad, contract their
loans or suspend them altogether Ii is now
found that a large proportion of specie has
been parted with, the circulation Of the banks
curtailed, and the residue of the medium of ex.
change immensely enhanced in value. The
farmer, deiuded by high prices, bought per-
paps, additional land giving bond and mort
gage for its payment. But ali his products
now sell for much less than before; his land
has equally fallen in value yet he is compelled
10 pay the stipulated amount for II, and TINS
lose hundreds or thousands of dollars. And
the same causes produce the same effects
throughout the entire community, Whoever
contracts debt when money bears one ratio.
and pays it when it bears another. though the
nominal amount is the same, will find that be
has paid, in value, perhaps twice as much as
he received. So, on the other hand, whoever
loans money while it bears one ratio, and re
ceives payment while it bears another, gets
the nominal amount to be sure, yet this may
not be one-half the sum in value that he
loaned. With the fluctuations of price, which
are the natural consequence Of paper money
the contract Of to-day may mean a very diffsren
thing to morrow. The man who agreed on tn,
first day of August to pay ten thousand dollars
for certain amount of goods in sixty DAYS there
after, now finds that, with bank contraction,
and bank suspensions, he can scarcely sell then
for five thousand; but his notes, nevertheless
must be paid in full.
The evils OF paper money-we mean pape
money issued by our banks as at present con
stituted-are inevitable; they are inherent il
the system. Expansion and contraction, sea
sons of prosperity followed by seasons o
gloom and distress, the alternate elevation ant
depression of private fortunes, have marked III
history throughout. And, so long as human
nature remains unchanged, and banks unalter
ed that history will continue to be repeated
for like causes everywhere produce like results
Let our banks, with their present charters
renew their business tomorrow let their in
debtedness, ard the Indebtedness of the com
munity, be swept away; let the currency b.
reduced to its normal condition-that is, TO th
amount necessary to facilitate EXCHANGES. AM