The Charleston daily news. [volume] (Charleston, S.C.) 1865-1873, 1869-03-06
THE NITIONdL BANKS.
TO THE EDITOR OF THE NEWS.


and depositors. Let us take these in their or
der. Experience On the frst OF these heads ls
ample. Tho limitation of the issue would ap-
pear to have been copied from the restrictive
clause of the act of the 7th and 9th Vict., en-
titled San act to regulate the issue OF bank
notes, and for giving to the governor ana COM
panv of the Bank Of England certain privi-
leges for limited period;" in other words'
called Peel's act OF 1874. This act was sus-
mend ID on two occasions, in 1917 and 1851 on
account of its too restrictive character. 1t
compelled the Bank of England to separate
into Two departments the functions OF bank
inc tn wit: an issuing and banking depart
mani. the former of which were to Issue
notes for god 10 the extent OF 814 600 QUO,
and cold for -Iutes to the same amount. Ine
amount Of noles was to huctuate wltn the
variations that would attend o metallic
curreucy. The effect of this regulation was
that when there was an influx OF gold from
favorable balance of trade, the bank note
currency of the Bank of England was proper
tionately increased, money became superabun,
dant, he rate OF interest fell. speculation and
oyertrading took place, followed by distress
and numerous bankruptcies. On the contra
ry, when there was an ef1ux Of gold, from an
unfavorable balance Of trade, arising either
from an import Of corn in consequence OF =
deficient harvest or large foreign loans plaoeo
on the Eng,ish market, money became scarce'
the rate of fipterest rose, speculation was arrest
ed, credit was curtaied, followed, at times, by
boarding. e., a;,, ,r,,
ance. 1. An external drain or specie. z. AN
internal drain. The first may arise from seEe-
raj causes. 1. From overtrading, producing an
nnfsTorable mr.. balance of trade, and requiring an
EXPORT OF specie to adjust the balance. z.
From deficient harvest and an export OF spe-
Gle TO nav for imported corn. 8. From the ne
gotiation of foreign loans, which abstract spe-
Gle. either from the banks or the circulation.
An internal drain arises from alarm ana panic
which leads to holrding. England mas e5pe- N
riepced these evils to a greater extent tnal
any countly in Euroce, and occasionally all oi
them ut the same time.
The act OF 18+. Peels act, WIS intended 10
guard against aud prevent the recurrence OF
one OF these evils-spoculation and over TRAD
ing, supposed to arise from an over issue OF BANK
of England notes. We say supposed to arise,
for ample inquiry has established the TACT
that the ultimate source OF speculation anu
oyertrading proceeds from ufidus eT'enston o.
credit, and that the proxmate cause OF causes
of such undue extension OF credit are pro-
duced more largely from other forms OF cfeulI
besides bank notes, such as bills OF excnange,
deposits, book debts, &c. 20
l. was mistake, then, in the trainers OF
Peel,s act to provide against speculation by
limiting the issues OF the Bank OF Eng
land and it was worse mistake IN the
trainers Of the Bank act OF yhe United
States to adopt the limitation of the
amount Of the issues of the national banks,
for this obvious reason, that when absolute
necessity required the suspension OF me tns Drlt-
ish act on two occasions-in 1847 and 1857-the
the British Ministry had only to give letter
or order authorizing the directors OF the Bank
of ENGLAND to suspend the act; whereas II a
similar suspension were required OF our DanK-
ing law as regards the limitation IN quesnsn,
it could bo done by no less authority than that
OF Congress, and before that body could be as
limit, numerous bankruptcies might take place.
1t is not difficult to demonstrate that such
limitation destroys the most valuable property
OF bank notes, to wit, their elasticity. II Is
when g. deficiency of the circulation IS produc-
ed by an effiux OF specie, or by hoafohg, teaS
tho expansion of paper mouey Dccomesa val
liable auxiliary to credit. Le; as suppose to,-
the Bank OF England; the bank increases tue
rate OF discount to arrest the further outflow
of her gold. This OF course contracts tho cur
reucv. Let us aiso suppose that panic arises
and gold to all equal amount Is abstracted rom
it's vaults for tho purpose OF hoarolnS, tne
joint stock banks and bankors M at the sumo tiIne
increasing their reserves. This double drsln
would lead to hiatus of fi0, 600 600 lS5g, ,0Oo,-
00Ol in the currency. How is this hlatus to be
filed unless by an issue OF an equal amount by
the Bank of Englan12 Aud how is this to take
place under tho restriction limiting the ls9ue
OF notes to stated and arbitrary amount
Then let US suppose tho opposite state OF
things Let us imagine favorable balanc, OF
trade and an influx of gold, the deposits OF the
Bank OF England and OF the joint stock banks
and private bankers to increase. What course
OF policy should there pc pursued by the Bank
of Epqland? The augmentation OF tho depo-
sits is sure sign OF the abundance OF money.
1t might amount to plethora. Does no. com,
mon sense dictate that the exccss or gold
should not be employed to augment the cur
rency? Yet this is precisely what the British
law says ought to be done. Its principle Is 10
keep the notes on an equality in amount with
the cold--as it increases TO increase the notes,
as 1t tliminshes to diminish them. Inc practloe
of the Bank Of England is to invest its surplus
of gold in excheqIer bills, and not IN ollls OF
exchange or in promissory notes, 80 as pot to
interfere with the iont stock banks and prl-
vate bankers in the discount OF mercantile
bills. But what is this but to add to the Cir
culation which is already full 10 repletlon Z
Is not the proper course to let the surplus gold
remain in passive state, even losing the m
terest on it until there is demand for it IN
consequence OF an unfayoraoie cxcnangct Aha
then it will flow out without effort OF any klnd
either in payment for imported coin, to I'LL
Russian loan, or to redress an unfavorable
balance of trade.
Under the British system, the condition of
merchants and all those classes dependent on
them for employment, will be much more
favorable than under the national bank sys-
tenn, for the reasons already given. 1t is obvi-
ous from this train OF facts and course OF rea-
soning, that the restriction imposed on these
banks, by which they are limited to an issue OF
three hundred millions Of dollars, by which all
discretion is withheld from them when neces-
sity imperatively requires expansion and nos
restriction, is not eonsonant with principles OF
sound banking.
AS regard the other detect Of these institu-
tions, the discrimination made between de-
positors arI aoteholders, in protecting the lat
ter from less, oy such security as is afforded
by q deposit OF United States bonds, it amounts
to palpable violation Of justice; but we have
not left ourselves space to-day to make any
comment on it. D. M Y.
at affords q remarkable illustration Of the error
of the position that none but practical men are COM
petent to deal with questions which involve kn W
Ledge Of details with the knowledge OF Prinotptes
The Bullion Report, issued in 1910. was framed oy
some of the most eminent ncn In the British Parlln-
ment-Horner, Huskissos, Thornton, &c. That re-
port. which em5i aced the most scienade s4Pcai.nq
OF the principles OF currency ever made IN England
contained. among its other important truths. the
following: 'ThatG mxee currency. composed OF tue
precious metals and paper. should fuc uate or vary
In amount exactly as ono constituted exclusively OF
gold and silver would Huctuate or vary 1his prin-
citle which is one of undoubted truth, in heorc-
cal point of view, is impossible IN practice
those concerned in framing the oct Of lS43. ccm-
monty called Psers act, made the great mistake OF