The Washington union. [volume] (City of Washington [D.C.]) 1857-1859, 1857-10-27
THE BANKING SYSTEM, IT'S DEFECTS AND
ABuSES-CONTINUED

THE BANKING SYSTEM, lis DEFECTS AND
ABUSES CONTINUED.
Correct general principles are the basis Of all
truth; but being in their very nature unsusceptible
of demonstration. they must necessarily rest ON an
innate perception of right or on example and expe
rience Having in previous articles discussed
the banking system general principles, we shall
now proceed to more particular analysis with a
view Of showing its practical operation the differ
cnt classes of society. In other words we propose
to appeal to examples and experience.
In a former article we stated as among the most
serious defects of our banking system the universal
practice of discounting on depostes. We argued
that these deposites might be Withdrawn pleas
ure and would unquestonaby be withdrawn on the
slightest apprehension Of danger, they furnished
security for the issues of bank notes based upon
them, nor for the public on whom they wert palned
The truth of this has been recently exemplifed in
the city of New York, where the immediate cause
of the suspension of the banks was, not on
them by the bill-holders, but the dopositors. The
banks might, and probably would, have withstood
the one, but they could not Withstand the other The
depostors became alarmed many, if not all of them,
demanded specie, though they had deposited moth
ing but paper and, under the most favorable cir
cumstances no bank could possibly stand such a
run. 1t may be said that if banks could only dis
count their capital the business would not
be worth following, it would yield no profit.
We say SO much the better The sooner a
system which mainly subssts by lending out the
money intrusted to its care, and pocketng the
profits, becomes extinct the better. 1t is high
time the public should be relieved from a device
which converts the debts due to others into source
of profit to ourselves
At the commencement of the system there are
doubtless many living who recollect the avdity
exhibited for subscribing to the stock of anewy-char
tered bank by capitalists who had actually the money
to invest There always contest for preference
and tho subscriptions generally exceeded the amount
of the capital two, three, and fourfold What is
more, the subscribers to great extent able to
pay the amount of their instalments when they be-
came due, and in the early stages Of banking, we
verify believe, it established solid basis of
capital and thus far the public had security for
the redemption of paper money issues.
When, however, the rage for banks increased, and
Legislative bodies, yielding to the seducons of lobby
members, became prodigal of bank charters, and
when the tempting speculatons presented them
selves, it gradually became and more difficult
to make up the capital of a new bank in the manner
contemplatedrby law. Many of these banks were
got up by men of no standing either in the social
or mercantile community, and who were not only
destitute Of money themselves, but without credit
to procure it from others In short it notorious
that they bubbles of speculation, and no
man would risk money he really possessed in an
institution in which he had no confidence.
Instead, therefore, of men crowding, as formerly,
and elbowing each other to get good slice Of the
loaf, it soon became impossible to fill up the sub
scriptions in such way as that the stock of these
banks should be represented by any real substantial
capital But, in pursuit of gain, men become more
acute in scent than the staunchest hound, and
pedient devised, if not for paying at least for
securing" the payment, of the bank capital Those
who procured the charter of the bank had done 30,
not for the investment but the erection of capital
So far from having money to lend, their sole object
was to borrow. The expcdent adopted was this /:
Each man gave his note for the amount of his sub
scription for sixty or ninety days. and each became
endorSer Tor the otner Inc caplal OF the DaiK De-
ing thus secured to be paid it went into operation,
and as matter Of course the parents of the bantng
had full share of its gratitude. BY the time the
stock-notes became due, the bank prepared to
discount them regularly and thus it continued to in
cur immense debts to the public, with other CAPT
tai than notes of hand that were never intended to
be paid We know of two instances, at least where,
on the failure Of the bank, not single of these
stoclS-notes was to be found They had all been
either Withdrawn or destroyed; and it appeared
what indeed was the fact-that they had never pos
sessed any real capital whatever The public sym
pathies were, however, DANGEROUSLY invoked in be-
half Of the poor widows and orphans whose property
had been invested in the stock of these banks an
appeal was made to the Legislature and that compass
sionate body, by special law, virtually legazed
their frauds by permitting these mertorious institu
tons to resume business, and cheat the public again
for the benefit of the widows and orphans. The good
people who had been thus duped wondered little
at all this but continued to receive the notes of these
banks with perfect confidence until they cheat
ed again, as they richly merited. The most wary
man may be defrauded once but if he becomes
second time the dupe of the same impostor he de-
serves his fate. s
But even if the capital of banks were represented
by anything of intrinsic value, such as houses and