REPORT,

&c.

Treasury Department, Dec. 13, 1790.

IN obedience to the order of the HOUSE of REPRESENTATIVES, of the ninth day of August last, requiring the SECRETARY of the TREASURY to prepare and report, on this day, such further provision as may, in his opinion, be necessary for establishing the PUBLIC CREDIT—the said Secretary further

RESPECTFULLY REPORTS,

THAT from a conviction that a National Bank is an institution of primary importance to the prosperous administration of the finances, and would be of the greatest utility in the operations connected with the support of the Public Credit, his attention has been drawn to devising the plan of such an institution, upon a scale which will entitle it to the confidence, and be likely to render it equal to the exigencies, of the public.

Previously to entering upon the detail of this plan, he entreats the indulgence of the House, towards some preliminary reflections naturally arising out of the subject, which he hopes will be deemed neither useless nor out of place. Public opinion being the ultimate arbiter of every measure of government, it can scarcely appear improper, in deference to that, to accompany the origination of any new proposition, with explanations, which the superior information of those to whom it is immediately addressed, would render superfluous.

It is a fact well understood, that public banks have found admission and patronage among the principal and most enlightened commercial nations. They have suc-

4

cessively obtained in Italy, Germany, Holland, England, and France, as well as in the United States. And it is a circumstance which cannot but have considerable weight, in a candid estimate of their tendency, that after an experience of centuries, there exists not a question about their utility in the countries in which they have been so long established. Theorists and men of business unite in the acknowledgment of it.

Trade and industry, wherever they have been tried, have been indebted to them for important aid. And government has been repeatedly under the greatest obligations to them, in dangerous and distressing emergencies. That of the United States, as well in some of the most critical conjunctures of the late war, as since the peace, has received assistance from those established among us, with which it could not have dispensed.

With this two-fold evidence before us, it might be expected, that there would be a perfect union of opinions in their favour. Yet doubts have been entertained; jealousies and prejudices have circulated; and though the experiment is every day dissipating them, within the spheres in which effects are best known; yet there are still persons by whom they have not been entirely renounced. To give a full and accurate view of the subject, would be to make a treatise of a report; but there are certain aspects in which it may be cursorily exhibited, which may perhaps conduce to a just impression of its merits.—These will involve a comparison of the advantages, with the disadvantages, real or supposed, of such institutions.

The following are among the principal advantages of a Bank :—

First. The augmentation of the active or productive capital of a country. Gold and silver, where they are employed merely as the instruments of exchange and alienation, have been, not improperly, denominated dead stock; but when deposited in banks, to become the basis of a paper circulation, which takes their character and place, as the signs or representatives of value, they then acquire

5

life, or, in other words, an active and productive quality. This idea, which appears rather subtile and abstract, in a general form, may be made obvious and palpable, by entering into a few particulars. It is evident, for instance, that the money which a merchant keeps in his chest, waiting for a favourable opportunity to employ it, produces nothing till that opportunity arrives. But if, instead of locking it up in this manner, he either deposits it in a bank, or invests it in the stock of a bank, it yields a profit during the interval, in which he partakes or not, according to the choice he may have made of being a depositor or a proprietor; and when any advantageous speculation offers, in order to be able to embrace it, he has only to withdraw his money, if a depositor; or if a proprietor, to obtain a loan from the bank, or to dispose of his stock; an alternative seldom or never attended with difficulty, when the affairs of the institution are in a prosperous train. His money thus deposited or invested, is a fund upon which himself and others can borrow to a much larger amount. It is a well established fact, that banks in good credit can circulate a far greater sum than the actual quantum of their capital in gold and silver. The extent of the possible excess seems indeterminate; though it has been conjecturally stated at the proportions of two and three to one. This faculty is produced in various ways. First—A great proportion of the notes which are issued and pass current as cash, are indefinitely suspended in circulation, from the confidence which each holder has, that he can at any moment turn them into gold and silver. Secondly—Every loan which a bank makes, is, in its first shape, a credit given to the borrower on its books, the amount of which it stands ready to pay, either in its own notes, or in gold or silver, at his option. But, in a great number of cases, no actual payment is made in either. The borrower frequently, by a check or order, transfers his credit to some other person, to whom he has a payment to make; who, in his turn, is as often content with a similar credit, because he is satisfied that he can, whenever he pleases,

6

either convert it into cash, or pass it to some other hand, as an equivalent for it. And in this manner the credit keeps circulating, performing, in every stage, the office of money, till it is extinguished by a discount with some person who has a payment to make to the bank, to an equal or greater amount. Thus large sums are lent and paid, frequently through a variety of hands, without the intervention of a single piece of coin. Thirdly—There is always a large quantity of gold and silver in the repositories of the bank, besides its own stock, which is placed there with a view, partly to its safe keeping, and partly to the accommodation of an institution, which is itself a source of general accommodation. These deposits are of immense consequence in the operations of a bank. Though liable to be redrawn at any moment, experience proves, that the money so much oftener changes proprietors than place, and that what is drawn out is generally so speedily replaced, as to authorize the counting upon the sums deposited, as an *effective fund*; which, concurring with the stock of the bank, enables it to extend its loans, and to answer all the demands for coin, whether in consequence of those loans, or arising from the occasional return of its notes.

These different circumstances explain the manner in which the ability of a bank to circulate a greater sum than its actual capital in coin, is acquired. This, however, must be gradual; and must be preceded by a firm establishment of confidence; a confidence which may be bestowed on the most rational grounds; since the excess in question will always be bottomed on good security of one kind or another. This every well-conducted bank carefully requires, before it will consent to advance either its money or its credit; and where there is an auxiliary capital, (as will be the case in the plan hereafter submitted,) which, together with the capital in coin, define the boundary that shall not be exceeded by the engagements of the bank, the security may, consistently with all the maxims of a reasonable circumspection, be regarded as complete.

7

The same circumstances illustrate the truth of the po-
sition, that it is one of the properties of banks to increase
the active capital of a country. This, in other words, is
the sum of them—The money of one individual, while he
is waiting for an opportunity to employ it, by being either
deposited in the bank for safe-keeping, or invested in its
stock, is in a condition to administer to the wants of
others, without being put out of his own reach, when occa-
sion presents. This yields an extra profit, arising from
what is paid for the use of his money by others, when he
could not himself make use of it; and keeps the money
itself in a state of incessant activity. In the almost in-
finite vicissitudes and competitions of mercantile enter-
prise, there never can be danger of an intermission of
demand, or that the money will remain for a moment idle
in the vaults of the bank. This additional employment
given to money, and the faculty of a bank to lend and cir-
culate a greater sum than the amount of its stock in coin,
are, to all the purposes of trade and industry, an absolute
increase of capital. Purchases and undertakings, in ge-
neral, can be carried on by any given sum of bank paper
or credit, as effectually as by an equal sum of gold and
silver. And thus by contributing to enlarge the mass of
industrious and commercial enterprise, banks become nur-
series of national wealth: a consequence, as satisfactori-
ly verified by experience, as it is clearly deducible in
theory.

Secondly. Greater facility to the government in ob-
taining pecuniary aids, especially in sudden emergencies.
This is another, and an undisputed advantage of public
banks : one which, as already remarked, has been real-
ized in signal instances among ourselves. The reason is
obvious : The capitals of a great number of individuals
are, by this operation, collected to a point, and placed
under one direction. The mass formed by this union is,
in a certain sense, magnified by the credit attached to it.
And while this mass is always ready, and can at once be
put in motion in aid of the government, the interest of

8

the bank to afford that aid, independent of regard to the public safety and welfare, is a sure pledge for its disposition to go as far in its compliances, as can in prudence be desired. There is in the nature of things, as will be more particularly noticed in another place, an intimate connection of interest between the government, and the bank, of a nation.

Thirdly. The facilitating of the payment of taxes. This advantage is produced in two ways. Those who are in a situation to have access to the bank, can have the assistance of loans to answer with punctuality the public calls upon them. This accommodation has been sensibly felt in the payment of the duties heretofore laid, by those who reside where establishments of this nature exist. This, however, though an extensive, is not an universal, benefit. The other way in which the effect here contemplated is produced, and in which the benefit is general, is the increasing of the quantity of circulating medium, and the quickening of circulation. The manner in which the first happens has already been traced. The last may require some illustration. When payments are to be made between different places, having an intercourse of business with each other, if there happen to be no private bills at market, and there are no bank notes which have a currency in both, the consequence is, that coin must be remitted. This is attended with trouble, delay, expense, and risk. If, on the contrary, there are bank notes current in both places, the transmission of these by the post, or any other speedy or convenient conveyance, answers the purpose; and these again, in the alternations of demand, are frequently returned very soon after to the place from whence they were first sent; whence the transportation and re-transportation of the metals are obviated; and a more convenient, and more expeditious medium of payment is substituted. Nor is this all—The metals, instead of being suspended from their usual functions, during this process of vibration from place to place, continue in activity, and administer still to the ordinary circulation; which of

9

course is prevented from suffering either diminution or stagnation. These circumstances are additional causes of what, in a practical sense, or to the purposes of business, may be called greater plenty of money. And it is evident, that whatever enhances the quantity of circulating money, adds to the ease with which every industrious member of the community may acquire that portion of it, of which he stands in need; and enables him the better to pay his taxes, as well as to supply his other wants. Even where the circulation of the bank paper is not general, it must still have the same effect, though in a less degree. For whatever furnishes additional supplies to the channels of circulation, in one quarter, naturally contributes to keep the streams fuller elsewhere. This last view of the subject, serves both to illustrate the position, that banks tend to facilitate the payment of taxes; and to exemplify their utility to business of every kind, in which money is an agent.

It would be to intrude too much on the patience of the House, to prolong the details of the advantages of banks; especially as all those, which might still be particularized, are readily to be inferred as consequences from those which have been enumerated. Their disadvantages, real or supposed, are now to be reviewed. The most serious of the charges which have been brought against them, are—

* That they serve to increase usury:

* That they tend to prevent other kinds of lending:

* That they furnish temptations to over-trading:

* That they afford aid to ignorant adventurers, who disturb the natural and beneficial course of trade:

* That they give to bankrupt and fraudulent traders a fictitious credit, which enables them to maintain false appearances, and to extend their impositions: And lastly,

* That they have a tendency to banish gold and silver from the country.

There is great reason to believe, that on a close and candid survey, it will be discovered, that these charges, are

B

10

either without foundation, or that, as far as the evils they
suggest have been found to exist, they have proceeded
from other, or partial, or temporary causes; are not inhe-
rent in the nature, and permanent tendency, of such in-
stitutions; or are more than counterbalanced by opposite
advantages. This survey shall be had, in the order in
which the charges have been stated. The first of them
is—

That banks serve to increase usury.

It is a truth, which ought not to be denied, that the me-
thod of conducting business, which is essential to bank
operations, has among us, in particular instances, given
occasion to usurious transactions. The punctuality in
payments, which they necessarily exact, has sometimes
obliged those who have adventured beyond both their ca-
pital and credit, to procure money, at any price, and con-
sequently to resort to usurers for aid.

But experience and practice gradually bring a cure to
this evil. A general habit of punctuality among traders,
is the natural consequence of the necessity of observing it
with the bank; a circumstance which itself more than
compensates for any occasional ill which may have sprung
from that necessity, in the particular under consideration.
As far, therefore, as traders depend on each other for pe-
cuniary supplies, they can calculate their expectations
with greater certainty; and are in proportionably less
danger of disappointments, which might compel them to
have recourse to so pernicious an expedient as that of bor-
rowing at usury; the mischiefs of which, after a few ex-
amples, naturally inspire great care in all but men of
desperate circumstances, to avoid the possibility of being
subjected to them. One, and not the least of the evils in-
cident to the use of that expedient, if the fact be known,
or even strongly suspected, is loss of credit with the bank
itself.

The directors of a bank too, though in order to extend
its business and its popularity, in the infancy of an institu-
tion, they may be tempted to go further in accommodation

11

than the strict rules of prudence will warrant, grow more circumspect of course, as its affairs become better established, and as the evils of too great facility are experimentally demonstrated. They become more attentive to the situation and conduct of those with whom they deal; they observe more narrowly their operations and pursuits; they economize the credit they give to those of suspicious solidity; they refuse it to those whose career is more manifestly hazardous: In a word, in the course of practice, from the very nature of things, the *interest*, will make it the *policy*, of a bank, to succour the wary and industrious; to discredit the rash and unthrifty; to discountenance both usurious lenders and usurious borrowers.

There is a leading view, in which the tendency of banks will be seen to be, to abridge, rather than to promote, usury. This relates to their property of increasing the quantity, and quickening the circulation, of money. If it be evident, that usury will prevail or diminish, according to the proportion which the demand for borrowing bears to the quantity of money at market to be lent; whatever has the property just mentioned, whether it be in the shape of paper or coin, by contributing to render the supply more equal to the demand, must tend to counteract the progress of usury.

But bank lending, it is pretended, is an impediment to other kinds of lending; which, by confining the resource of borrowing to a particular class, leaves the rest of the community more destitute, and therefore more exposed to the extortions of usurers. As the profits of bank stock exceed the legal rate of interest, the possessors of money, it is argued, prefer investing it in that article, to lending it at this rate; to which there are the additional motives of a more prompt command of the capital, and of more frequent and exact returns, without trouble or perplexity in the collection. This constitutes the second charge which has been enumerated.

The fact on which this charge rests, is not to be admitted without several qualifications; particularly in refer-

12

ence to the state of things in this country. First—The great bulk of the stock of a bank, will consist of the funds of men in trade, among ourselves, and monied foreigners; the former of whom could not spare their capitals out of their reach, to be invested in loans for long periods, on mortgages, or personal security; and the latter of whom would not be willing to be subjected to the casualties, delays, and embarrassments, of such a disposition of their money in a distant country. Secondly, There will always be a considerable proportion of those who are properly the money lenders of a country, who, from that spirit of caution which usually characterizes this description of men, will incline rather to vest their funds in mortgages on real estate, than in the stock of a bank, which they are apt to consider as a more precarious security.

These considerations serve in a material degree to narrow the foundation of the objection, as to the point of fact. But there is a more satisfactory answer to it. The effect supposed, as far as it has existence, is temporary. The reverse of it takes place in the general, and permanent operation of the thing.

The capital of every public bank will of course be restricted within a certain defined limit. It is the province of legislative prudence so to adjust this limit, that while it will not be too contracted for the demand, which the course of business may create, and for the security which the public ought to have for the solidity of the paper which may be issued by the bank, it will still be within the compass of the pecuniary resources of the community; so that there may be an easy practicability of completing the subscriptions to it. When this is once done, the supposed effect of necessity ceases. There is then no longer room for the investment of any additional capital. Stock may indeed change hands by one person selling and another buying; but the money which the buyer takes out of the common mass to purchase the stock, the seller receives and restores to it. Hence the future surplusses which may accumulate must take their natural course, and lending at interest must go on as if there were no such institution.

13

It must indeed flow in a more copious stream. The bank furnishes an extraordinary supply for borrowers, within its immediate sphere. A larger supply consequently remains for borrowers elsewhere. In proportion as the circulation of the bank is extended, there is an augmentation of the aggregate mass of money for answering the aggregate mass of demand. Hence greater facility in obtaining it for every purpose.

It ought not to escape without a remark, that as far as the citizens of other countries become adventurers in the bank, there is a positive increase of the gold and silver of the country. It is true, that from this a half-yearly rent is drawn back, accruing from the dividends upon the stock: but as this rent arises from the employment of the capital, by our own citizens, it is probable, that it is more than replaced by the profits of that employment. It is also likely, that a part of it is, in the course of trade, converted into the products of our country: and it may even prove an incentive, in some cases, to emigration to a country in which the character of citizen is as easy to be acquired, as it is estimable and important. This view of the subject furnishes an answer to an objection which has been deduced from the circumstance here taken notice of; namely, the income resulting to foreigners from the part of the stock owned by them, which has been represented as tending to drain the country of its specie. In this objection, the original investment of the capital, and the constant use of it afterwards, seem both to have been overlooked.

That banks furnish temptations to over-trading, is the third of the enumerated objections. This must mean, that by affording additional aid to mercantile enterprise, they induce the merchant sometimes to adventure beyond the prudent, or salutary point. But the very statement of the thing shows, that the subject of the charge is an occasional ill, incident to a general good. Credit of every kind, (as a species of which only can bank-lending have the effect supposed,) must be, in different degrees, charge-

14

able with the same inconvenience. It is even applicable
to gold and silver, when they abound in circulation. But
would it be wise on this account to decry the precious
metals; to root out credit; or to prescribe the means of
that enterprise, which is the main spring of trade, and a
principal source of national wealth, because it now and
then runs into excesses, of which over-trading is one?

If the abuses of a beneficial thing, are to determine its
condemnation, there is scarcely a source of public pros-
perity which will not speedily be closed. In every case,
the evil is to be compared with the good; and in the pre-
sent case, such a comparison will issue in this, that the
new and increased energies derived to commercial enter-
prise, from the aid of banks, are a source of general pro-
fit and advantage; which greatly outweigh the partial
ills of the over-trading of a few individuals, at particular
times, or of numbers in particular conjunctures.

The fourth and fifth charges may be considered toget-
her: These relate to the aid which is sometimes afford-
ed by banks to unskilful adventurers and fraudulent tra-
ders. These charges also have some degree of founda-
tion; though far less than has been pretended, and they
add to the instances of partial ills, connected with more
extensive and overbalancing benefits.

The practice of giving fictitious credit to improper per-
sons, is one of those evils which experience, guided by in-
terest, speedily corrects. The bank itself is in so much
jeopardy of being a sufferer by it, that it has the strongest
of all inducements to be on its guard. It may not only
be injured immediately by the delinquencies of the per-
sons to whom such credit is given; but eventually, by
the incapacities of others, whom their impositions or fail-
ures may have ruined.

Nor is there much danger of a bank's being betrayed
into this error from want of information: The directors
themselves being for the most part selected from the class
of traders, are to be expected to possess individually, an
accurate knowledge of the characters and situations of

15

those who come within that description. And they have,
in addition to this, the course of dealing of the persons
themselves with the bank, to assist their judgment, which
is in most cases a good index of the state in which those
persons are. The artifices and shifts, which those in
desperate or declining circumstances, are obliged to em-
ploy to keep up the countenance which the rules of the
bank require, and the train of their connexions, are so
many prognostics, not difficult to be interpreted, of the
fate which awaits them. Hence it not unfrequently hap-
pens, that banks are the first to discover the unsoundness
of such characters, and by withholding credit, to announce
to the public that they are not entitled to it.

If banks, in spite of every precaution, are sometimes
botrayed into giving a false credit to the persons describ-
ed; they more frequently enable honest and industrious
men, of small, or perhaps of no capital, to undertake and
prosecute business, with advantage to themselves and to
the community; and assist merchants of both capital and
credit, who meet with fortuitous and unforeseen shocks,
which might, without such helps, prove fatal to them and
to others, to make head against their misfortunes, and fi-
nally to retrieve their affairs; circumstances which form
no inconsiderable encomium on the utility of banks.

But the last, and heaviest charge, is still to be examin-
ed: This is, that banks tend to banish the gold and silver
out of the country.

The force of this objection rests upon their being an
engine of paper credit, which by furnishing a substitute
for the metals, is supposed to promote their exportation.
It is an objection, which, if it has any foundation, lies not
against banks peculiarly, but against every species of pa-
per credit.

The most common answer given to it is, that the thing
supposed is of little or no consequence; that it is immaterial
what serves the purpose of money; whether paper, or gold
and silver; that the effect of both upon industry is the
same; and that the intrinsic wealth of a nation is to be

16

measured, not by the abundance of the precious metals contained in it, but by the quantity of the productions of its labour and industry.

This answer is not destitute of solidity, though not entirely satisfactory. It is certain, that the vivification of industry, by a full circulation, with the aid of a proper and well regulated paper credit, may more than compensate for the loss of a part of the gold and silver of a nation; if the consequence of avoiding that loss, should be a scanty or defective circulation.

But the positive, and permanent increase or decrease of the precious metals in a country, can hardly ever be a matter of indifference. As the commodity taken in lieu of every other, it is a species of the most effective wealth, and as the money of the world, it is of great concern to the state, that it possess a sufficiency of it to face any demands which the protection of its external interests may create.

The objection seems to admit of another, and a more conclusive answer, which controverts the fact itself. A nation, that has no mines of its own, must derive the precious metals from others; generally speaking, in exchange for the products of its labour and industry. The quantity it will possess, will therefore, in the ordinary course of things, be regulated by the favourable or unfavourable balance of its trade; that is, by the proportion between its abilities to supply foreigners, and its wants of them; between the amount of its exportations, and that of its importations. Hence the state of its agriculture and manufactures; the quantity and quality of its labour and industry; must, in the main, influence and determine, the increase or decrease of its gold and silver.

If this be true, the inference seems to be, that well constituted banks, favour the increase of the precious metals. It has been shown, that they augment, in different ways, the active capital of a country. This it is, which generates employment; which animates and expands labour and industry. Every addition which is made to it, by

17

contributing to put in motion a greater quantity of both, tends to create a greater quantity of the products of both. And by furnishing more materials for exportation, conduces to a favourable balance of trade, and consequently to the introduction and increase of gold and silver.

This conclusion appears to be drawn from solid premises: There are, however, objections to be made to it.

It may be said, that as bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals as a medium of circulation, which, in the case of a wrong balance might restrain, in some degree, their exportation; and it may be added, that from the same cause, in the same case, it would retard those economical and parsimonious reforms in the manner of living, which the scarcity of money is calculated to produce, and which might be necessary to rectify such wrong balance.

There is, perhaps, some truth in both these observations; but they appear to be of a nature rather to form exceptions to the generality of the conclusion, than to overthrow it. The state of things, in which the absolute exigencies of circulation can be supposed to resist with any effect the urgent demands for specie which a wrong balance of trade may occasion, presents an extreme case. And a situation in which a too expensive manner of living of a community, compared with its means, can stand in need of a corrective, from distress or necessity; is one which perhaps rarely results, but from extraordinary and adventitious causes: such, for example, as a national revolution; which unsettles all the established habits of a people, and inflames the appetite for extravagance, by the illusions of an ideal wealth, engendered by the continual multiplication of a depreciating currency, or some similar cause. There is good reason to believe, that where the laws are wise and well executed, and the inviolability of property and contracts maintained; the economy of a people will, in the general course of things, correspond with its means.

c

18

The support of industry, is probably in every case, of
more consequence towards correcting a wrong balance of
trade, than any practicable retrenchments in the expenses
of families or individuals; and the stagnation of it would
be likely to have more effect in prolonging, than any such
savings in shortening, its continuance. That stagnation,
is a natural consequence of an inadequate medium, which,
without the aid of bank circulation, would, in the cases
supposed, be severely felt.

It also deserves notice, that as the circulation of a bank
is always in a compound ratio to the fund upon which it
depends, and to the demand for it; and as that fund is it-
self affected by the exportation of the metals, there is no
danger of its being overstocked, as in the case of paper
issued at the pleasure of the government; or of its pre-
venting the consequences of any unfavourable balance
from being sufficiently felt to produce the reforms alluded
to, as far as circumstances may require and admit.

Nothing can be more fallible than the comparisons
which have been made between different countries, to il-
lustrate the truth of the position under consideration.—
The comparative quantity of gold and silver, in different
countries, depends upon an infinite variety of facts and
combinations, all of which ought to be known, in order to
judge whether the existence, or non-existence, of paper
currencies, has any share in the relative proportions they
contain. The mass and value of the productions of the
labour and industry of each, compared with its wants;
the nature of its establishments abroad; the kind of wars
in which it is usually engaged; the relations it bears to
the countries which are the original possessors of those
metals; the privileges it enjoys in their trade; these, and
a number of other circumstances, are all to be taken into
the account, and render the investigation too complex to
justify any reliance on the vague and general surmises,
which have been hitherto hazarded on the point.

In the foregoing discussion, the objection has been con-
sidered as applying to the permanent expulsion and dimi-

19

nution of the metals. Their temporary exportation, for
particular purposes, has not been contemplated: This, it
must be confessed, is facilitated by banks, from the facul-
ty banks possess of supplying their place. But their utili-
ty is in nothing more conspicuous, than in these very cases.
They enable the government to pay its foreign debts, and
to answer any exigencies which the external concerns of
the community may have produced. They enable the
merchant to support his credit, (on which the prosperity of
trade depends,) when special circumstances prevent re-
mittances in other modes. They enable him also to pro-
secute enterprises, which ultimately tend to an augmenta-
tion of the species of wealth in question. It is evident,
that gold and silver may often be employed in procuring
commodities abroad; which, in a circuitous commerce, re-
place the original fund, with considerable addition. But
it is not to be inferred from this facility given to tempora-
ry exportation, that banks, which are so friendly to trade
and industry, are in their general tendency inimical to the
increase of the precious metals.

These several views of the subject, appear sufficient to
impress a full conviction of the utility of banks, and to
demonstrate that they are of great importance, not only
in relation to the administration of the finances, but in the
general system of the political economy.

The judgment of many concerning them has, no doubt,
been perplexed by the misinterpretation of appearances,
which were to be ascribed to other causes. The general
devastation of personal property, occasioned by the late
war, naturally produced on the one hand, a great demand
for money; and on the other, a great deficiency of it to
answer the demand. Some injudicious laws, which grew
out of the public distresses, by impairing confidence, and
causing a part of the inadequate sum in the country to be
locked up, aggravated the evil: The dissipated habits,
contracted by many individuals during the war, which af-
ter the peace plunged them into expenses beyond their in-
comes; the number of adventurers without capital, and in

20

many instances without information, who at that epoch
rushed into trade, and were obliged to make any sacrifices
to support a transient credit; the employment of considera-
ble sums in speculations upon the public debt, which from
its unsettled state was incapable of becoming itself a sub-
stitute: all these circumstances concurring, necessarily
led to usurious borrowing; produced most of the inconve-
niences, and were the true cause of most of the appearances,
which, where banks were established, have been by some
effectively placed to their account: a mistake which they
might easily have avoided, by turning their eyes towards
places where there were none; and where, nevertheless,
the same evils would have been perceived to exist, even in
a greater degree than where those institutions had ob-
tained.

These evils have either ceased, or been greatly mitigated.
Their more complete extinction may be looked for from
that additional security to property, which the Constitution
of the United States happily gives; (a circumstance of
prodigious moment in the scale, both of public and private
prosperity,) from the attraction of foreign capital, under
the auspices of that security, to be employed upon objects,
and in enterprises, for which the state of this country opens
a wide and inviting field; from the consistency, and sta-
bility, which the public debt is fast acquiring, as well in
the public opinion at home and abroad, as in fact; from
the augmentation of capital, which that circumstance, and
the quarter-yearly payment of interest will afford; and
from the more copious circulation, which will be likely to
be created by a well-constituted national bank.

The establishment of banks in this country, seems to be
recommended by reasons of a peculiar nature. Previously
to the revolution, circulation was in a great measure carri-
ed on by paper emitted by the several local governments.
In Pennsylvania alone, the quantity of it was near a million
and a half of dollars. This auxiliary may be said to be
now at an end. And it is generally supposed, that there
has been for some time past, a deficiency of circulating

21

medium. How far that deficiency is to be considered as
real or imaginary, is not susceptible of demonstration; but
there are circumstances and appearances, which, in relation
to the country at large, countenance the supposition of
its reality.

The circumstances are, besides the fact just mentioned
respecting paper emissions; the vast tracts of waste land,
and the little advanced state of manufactures. The progressive
settlement of the former, while it promises ample
retribution, in the generation of future resources, diminishes
or obstructs, in the mean time, the active wealth of the
country. It not only draws off a part of the circulating
money, and places it in a more passive state, but it diverts
into its own channels, a portion of that species of labour
and industry, which would otherwise be employed in furnishing
materials for foreign trade; and which, by contributing
to a favourable balance, would assist the introduction of specie.
In the early periods of new settlements,
the settlers not only furnish no surplus for exportation, but
they consume a part of that which is produced by the labour
of others. The same thing is a cause, that manufactures
do not advance, or advance slowly. And notwithstanding
some hypotheses to the contrary, there are many
things to induce a suspicion, that the precious metals will
not abound in any country which has not mines, or variety
of manufactures. They have been sometimes acquired by
the sword; but the modern system of war has expelled this
resource; and it is one upon which it is to be hoped the
United States will never be inclined to rely.

The appearances alluded to, are, greater prevalency of
direct barter, in the more interior districts of the country,
which, however, has been for some time past, gradually
lessening; and greater difficulty generally in the advantageous
alienation of improved real estate; which also
has of late diminished, but is still seriously felt in different
parts of the Union. The difficulty of getting money,
which has been a general complaint, is not added to the
number; because it is the complaint of all times, and one