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

TO THE EDITOR OF THE NEWS.
The system of national banks is defective in
two particulars 1. In the limitation of the
issue OF notes; g. In the discrimination be-
tween the two classes or creditors s-noteholdsrs
and depositors.' Let us take thcee in their or
der Experience On the first of these heads is
| ample. The limitation OF the issue would ap-
pear to have been copied from the restrictive
clause of the act OF the 7th and 9th Wet, en-
titled can act to regulate the issue OF bank
| notes, and for giving to the governor and COM
pany of the Bank of England certain prvi-
leges for limited period;" in other words,
called Peel's act of 1874. This act was sus-
pended on two occasions, in 1847 and 1857 on
account of it's too restrictive character. 1t
compelled the Bank of England to separate
into two departments tho functions Of bank
mont; e1 the former Of which were to , issue
notes for gold to tho extent OF Ella 600 900,
end gold for notes to the same amount The
amount of notes was to fuctuate with the
| currency. 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 propor-
| tionately increased, money became superabun-
dant, the rate of interest fell, speculation and
overtrading took place, followed by distress
ry,. when there was an efflux Of gold, from an
unfavorable balance Of trade, arising either
from an import Of corn in consequence Of
deficient harvest or largo foreign loans placed
on the English market, money became scarce,
the rate of fintercst rose, speculation was arrest
ed, credit was curtailed, followed, at times, by
hoarding.*
There are two sources of financial disturb
ance. l. An external drain Of specie. 2. An
internal drain. The first may arise from seve-
raj causes: /. From overtrading. producing an
unfavorable balance Of trade, and requiring an
export Of specie to adjust the balance. Q.
From deficient harvest and an export of spe
ole to pay for imported corn. 8. From the ne
gotiation of foreign loans. which abstract spe-
ole, either from tho banks or the circulation.
An internal drain arises from alarm and panic
which leads to boarding. England has expe-
rienced these evils to greater extent than
any country in Eurore, and occasionally all OF
The act Of 1874 Peel's act, was intended to
guard against and prevent the recurrence Of
one OF these .evils-speculation and over trad
OF England notes. We say supposed to arise,
for ample inquiry has established the fact
that the ultimate source of speculation and
overtrading proceeds from undue extension OF
credit, and that the proximate cause or causes
OF such undue extension Of credit are pro-
duced more largely from other forms Of credit
besides bank notes, such as bills Of exchange
deposits, book debts, &c.
1t was q mistake, then, in the trainers of
Peels act to provide against speculation by
limiting tho issues Of the Bank of Eng
land, and it was q worse mistake in the
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 the Brit
the British Ministry had only to give letter
ororder authorizing the directors of the Bank
OF England to suspend the act; whereas if
similar suspension we're required Of our bank
sSSz. H. IL
it could be done by no less authority than that
of Congress, and before that body could be as
sembled, and tho power given to enlarge the
limit, numerous bankruptcies might take place.
limitation destroys the most valuable property
of bank notes, to wit, their elasticity. 1t is
whom deficiency of the circulation is produc-
ed by an eft1ux Of specie, or by boarding, that
liable auxiliary to credit. Lot us suppose E5,-
900 ($25, 900 000) in gold withdrawn from
tho Bank of England; the bank Increases the
rate Of discount to arrest the further outflow
of her gold. This of course contracts the cur
rency. Let us also suppose that panic arises.
and gold to an equal amount is abstracted from
it's vaults for the purpose of boarding; the
joint stock banks and bankers at the same time
increasing their reserves. This double drain
would lead to o hiatus of E10, ,000, 900 ($5a OOO-
0OO) in the currency. How is this hiatus to be
the Bank Of England? And how is this to take
place under the restriction limiting the issue
of notes to stated and arbitrary amount2
Then le5 US suppose the opposite state Of
things. Let us imagine a favorable balance 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
os .cv .,.,cv should there be pursued BY the Bank
of England The augmentation Of the depo-
sits is a sure Sign OF the abundance of money.
1t might amount to plethora. Does not COM
mon sense dictate that the excess Of gold
should not be employed to augment the our
V>t& 1aH@ n,,k,H
law says ought to be done. It's prinopleis is to
keep the notes on an equality in amount with
the gold--as it increases to increase the notes;
as it diminishes to diminish them The practice
of the Bank of England is to invest its surplus
OF gold in exchequer bills, and not in bills OF
exchange or in promissOry notes, so as not to
interfere with the JOINT stock banks and pri-
yate bankers in the discount OF mercantile
culation which is already full to repletion
Is not the proper course to let the surplus gold
remain in q passive state, even losing the in
terest on it until there is q demand for it in
then it will flow out without effort OF any kind,
either in payment for imported coin, to fill o
Russian loan, or to redress an unfavorable
balance OF trade. -if3t
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. It is obvi-
GUS 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-
sty mperatively requires expansion and not
restriction, is not eonsonant with principles OF
sound banking. -
AS regard the other defect of these institu.
tions, the discrimination made between de-
positOrs and nOtehOlders, in protecting the lat
ter from loss, by such security as is afforded
by deposit or United States bonds, It amounts
to o palpable violation or justice; but we have
not left ourselves space to-day to make any
comment ON it. j. NO.
eft affords remarkable illustration OF the error
Of the position that none but practical
petent to deal with questions which involve knew
| ledge Of details with the knowledge OF priMoipyss
The Bullion Report, issued In 1910, framed by
some OF the most eminent men In the British Paxlia-
| ment-Horner, Huskisson, Thornton, &c. That ne
port which emb aced the most scientific expoMHon
Of the principles Of currency made In England,