Nashville union and American. [volume] (Nashville, Tenn.) 1853-1862, 1857-10-25
from Hunfs Merchants Magazine.
BANKS AND CURRENCY.
I01ff1stsd
MIXED cuRRExoY-1rs xArURE AND EFFECTS.

MIXED cuEREECY-ITs EATURR AND EFFECTS
We have previously seen that the mixed currency
Of the presentdsy consists of two distinct elements
VIZ, vGtEe money and credit anORey-the first being
that part Of the paper circulation which does actual
ly represent an equal amount ofspecie in the bank
and the ether that which only represents Credits
what the bank promises pay the strength of the
promises of those whom it has loaned its money
that however apparently alike the mass of this crcu-
latou may be, it is in fact composed Of these two
kinds Of money.
To ascertain the nature OF this mixed currency
rs shown By its effects and trace these effects and
demonstrate their influence upon trade and indus
try, Is cur present object. To accomplish this we
take the whole system of mixed currency as exhibit
ed in practical operation. Whatever theory nav
teach u.s. it is with actual facts we have TO do in the
examination Of question likethat before US.
l. The first thing we notice, as Characteristic OF
kind of currency, is that is from its very ma
ture unsteady and fuctuatiag both in quantity aud
qHatity. And FIRST as TO quantity, being an elastic
currency, dependent on the will Of man and not on
the laws Of nature, like value money currency it
IS continually expanding andcontracting. Not hay
ing full absolute value in ITSELF it perform well
only one Of the two important functions of money
viz, that Of medium exchange As standard OF
value tits never correct because it is always want
ing, 70 greater or less extent in the element OF
value. IL is this fact that makes local currency
and renders it powell less in general international
ComAtECe- IN consequence OF TINS peculiarly, too.
the moment there is any considerable demand for
specie for shipment, its imperfection is made appa
rent For export IL Is worthless. Although aaoney
at home, it is mooHShtHe abroad This being the
case, If there happens 20 be unfavorable balance
Of trade and of a demand for money TO be
sent out Of the country then the specie must be TAX
en- from the banks for that purpose; aud, as it IS
based upon the specie in the banks the paper money
must be Withdrawn from circulation in the same pro
portion that 1t 1.-THE paper money! bears the specie
IN the banks.
For example, on the LIST of July, 1856. there was
in the United States paper circulation of 1876 mil
hon dollars having SO million of specie basis
Suppose, At that Ime 30 million had been required
las in 1881 for shipment how would it have affect
ed the mixed currency? Evidently, as there were
more than threeand-a third dollars Of paper in cir
culatlOn 10 Of specie, the banks must withdraw
paper circulation to three-and a-third times the g.
mount of specie shipped. If they should not do this
If they should let their specie 90 without contract
ing their circulation, except to the exact amount of
specie Withdrawn-hOw would they stand?
Circulation $50 millions.
Specie withdrawn, fer which
the banks took in the same
amount of theiI own notes.. so
Balance in circulation.........-l66
For the redemption of which there would remain OIL
~ 70 millions in the possession Of the banks leaving
the proportion of paper specie almost SIX to one
risk imminently hazardous for if there were dan
ger of further demand, or a suspicion in the pub
lie mind to the ability of the banks topay all their
notes In specie, and in consequence run should be
made upon them for the redemption of their bills a |
general suspension, like that OF 1887 would be in
eVitsble. This the banks well understand and |
hence would, In the case supposed, contract
their circulation least SlOO 600 900 lin 3d. OO-
900 by 81, and the currency would stand
Notes IN cIrculatiOn....... ........ 500 OOO 900
Specie IN bank ......... ............ 2y,OCOOO0
Leaving the proportion essentially as before and |
the circulation would be reduced more than 50 Der
cent. Contrast this with value money currency
all the bills in circulation being based on an equal
amount of specie in the banks In that case the
withdrawal Of 80 millions would leave l66 millions
In circulation. 1t would reduce the money of the
country only to the exact amount OF the specie sent
out-Would cause no panic and little comparative
pressure-for WHILE in the first instance, tue people
would be obliged TO discharge their obligations with
less than half of the amount Of money existing
when they incurred them, in the latter case they
would suffer from diminUtion only TO the extent OF |
Oae-szth. This would make an immense difference
beth IN their ability TO get the money to pay their
debts with, and in the value Of their property. In
the one case there would by salutary pressure &C.
cssioned by the operation Of the natural laws Of
trade-n The other, distress and bankruptcy arising
from the defective currency. Ia the one the fail OF
property would be sIght-in the other, ruinous.
We have said that a mixed currency is elastic ex-
panding and contracting, in virtue of its inherent
MS Is obvious The follow
ing facts.
There are some 300 banks in the United States.
all competing for the profits arising from the OF
credit money. The bank that can issue the greatest
amount Of this money-that is can put out the
greatest excess of paper the specie in its pos
sessiOn-Wil, other things equal, pay the largest !
dividends, because il gels the interest its
credit money, which costs nothing, or the mere ex
pense Of manufacturing 1t, that IL does Tor its spe
Gle capital This being the case, there is constant
effort made to the largest possible circulation.
Various expedents often resOrted Tor this pur
pose. Persons are sometimes employed to take the
paper money Of the bank distant places for circu
latiOn. The banks al the East often make loans TO
persons going Vest 10 purchase produce, in cOnsId
GRAFTON of The favorable circulation they may give
to their notes. We are cOgnizant Of many like the
following:
A receives of bank $40 600 of its bills and gives
has note for the same with interest and binds MIN
self TO keep that amount Of bills constantly in circu
iatiOn for given time. This is effected by having
si the bills &c marked'-that is, stamped with the
initials Of A name, figure agreed upon, and
as last those bills returned TO the bank is
obliged TO redeem them at once with other money |
By such devices banks Tor all do not res,r to
tricks are enabled TO extend their circulation far
beyond what II would otherwise attain. but with |
Out such expedients, the loaning OF such money by
The banks generally throughout the country WILL in
short time, bring vast amount into circulation
and il the credit the banks be unsupported IL will
continue to circulate until a general contraction
takes place Such we know is the result OF the mix
cd currency system of the United States and such
vail be the result in all countries having like cur
rency 1
But the very issue Of so much money causes such
rise IN prices, such extensi n OF credits and l
such demand or foreign products, that a call for
specie for export is inevitable, and then Contrac-
hon must take place. Hence expansions and CON d
fractions succeed each other and effect The a
following statistics confirm the general principle we
have laid down: &
TABLE A.
The circulation Of all the banks in the United q
States has been in round numbers as follows
In 1885 Sl03 millions. a
1896 lao an expansion Of 3G per cent t