The Register of Pennsylvania : devoted to the preservation of facts and documents and every other kind of useful information respecting the state of Pennsylvania, Vol. IX, Part 87

Author: Hazard, Samuel, 1784-1870
Publication date: 1828
Publisher: Philadelphia : Printed by W.F. Geddes ;
Number of Pages: 440

USA > Pennsylvania > The Register of Pennsylvania : devoted to the preservation of facts and documents and every other kind of useful information respecting the state of Pennsylvania, Vol. IX > Part 87

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It would depend entirely on circumstances, whether the holder of the notes, could make more by the use of them, than by returning them.

19. Is that not a fallacious plan of Banking, the ob- ject of which seems to be to save interest by substitut- ing Bank notes for a metallic currency, while a portion of the community annually lose the interest on five times that amount, composed of Bank deposits and dor- mant Capitals?

20. If we were to change our banking system, and call into active use all the savings of labor, the profits of trade, and the annual accumulations of income, by com- pelling all our banks to allow an interest of four per cent. on all deposits, is it not probable that a capital would be drawn from these resources, for the uses of trade five times greater than any amount of paper mo- ney which all the banks in the Union could possibly sustain in circulation ?

I see no fallacy in the present plan, and no advantage in the proposed change of it. Undoubtedly the substi- tution of paper for coin, saves interest on the coin which it replaces, quite equal, I should think, to the capital which would be rendered active by the suppression of the paper. In addition to their present circulation, the banks might "possibly sustain"' an amount which would make the whole one hundred and fifty millions. Five times one hundred and fifty millions, make se- ven hundred and fifty millons: and it is said that the offer of four per cent. interest, would rouse into com- mercial activity, these seven hundred and fifty millions. I somewhat doubt this. Interest in the United States varies from five to six, seven and eight, and even ten per cent. If this dormant capital has resisted these rates, I fear it would not be awakened by four per cent. , I doubt the more, because in many cities of the United States, there already exist Banks or Saving Funds, or some institution of charity or trade, which have for years, pursued this very plan of giving interest on de- posits-and yet the 750 millions have not shown them- selves.

But there is an objection to the change of system which seems to me final and fatal .. At present a bank discounts it or owns capital; if deposites are added they

16. If the Bank of the United States and its branches are welcome; but they are not paid for; and the Bank

1832.]

UNITED STATES BANK.

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does business in proportion to its capital, which being unchanged, the business partakes of this uniformity. But if, as is now proposed, the Bank should have no Capital of its own, but do business on Capital which it has borrowed from others, and on which it pays inter- est, two things seem inevitable-first, that the Bank must do a much greater amount of business in order to pay for the use of its borrowed Capital. And secondly, that the business of such a Bank must be in a far great- er state of uncertainty and fluctuation than that of other Banks-because whenever there is a demand for mo- ney, whenever a greater interest can be made out of doors than by leaving the money in the Bank, these de- posits will of course be withdrawn, and the Bank, just at the moment when it might be useful in sustaining trade, would find its whole borrowed Capital melting away from under it.

21. Were we to adopt that system, would not trade safely regulate itself, and keep pace with annual accu- mulations of Capital; and would not Capital increase more rapidly than it now does under a Banking Sys- tem, which substitutes a paper representative of pow- er, and excludes from the active uses of trade, a much larger amount of the real wealth of the country}

Trade contrives now to regulate itself well without the proposed improvement, which I should not think calculated to hasten the increase of Capital.

22. Were all the Banks of the Union compelled at once to become borrowers of, and to cease manufactu- ring Capital, could not the change be effected without any derangement of trade or currency?

Mr. Gallatin estimated that in January 1830, there were three hundred and thirty Hanks having a Capital of 145, 192,268 dollars. If these banks were "at once," instead of lenders to become borrowers, such a transi- tion would be a highly interesting movement, but I in- cline to think that "trade and currency" would be a little deranged before the process subsided.

23. When Bankers lend their money, or the money of others upon which they pay interest, have you ever noticed that extraordinary but imaginary deficiency of Capital, which we hear of periodically in every coun- try where Banks are permitted to lend without re- striction or any self-regulating principle, a currency manufactured by themselves?

I have never noticed any periodical deficiency of capital which was at once "extraordinary but imaginary, " and as far as I am acquainted with the Banks of this country, they are not permitted to lend without restriction or any self-regulating principle. What I have noticed is this- that the Bankers of England "lend their own money or the money of others, on which they pay interest," and that for ten years past, the failures among these English Bankers have been more numerous in the proportion of the analogous arrangement of the Banking System.

six or seven, and probably ten to one, than the failures of American Banks.

2.1 .. May not a bank note currency be safely tolerated, where the mass of your Capital for the active uses ol ; boats, and all the other improvements belonging to

trade is drawn from other and legitimate sources, and where your paper circulations must necessarily bear but a small proporton to the amount of your deposites, as in Scotland?

25. In Scotland, the Bank deposites in 1826, amount- ed to about twenty-four millions sterling, say in our mo- ney, one hundred and thirty-millions of dollars, more than half of which amount was composed of deposits in sums under one thousand dollars, and drawn from the laboring classes, its circulation, which had been gradu- ally enlarging for more than one hundred and thirty years, was about three and one-third millions sterling- equal, in our money, to about sixteen millions of dollars. Suppose the Bank deposits of Scotland now to be one hundred and fifty millions, and its circulation eighteen millions-can the trade of Scotland ever suffer Irom re- actions while it is sustained by so large an aggregate of real and active Banking Capital, or its currency ever be agitated while the amount of notes in circulation scarce- ly exceeds onc-tenth of the amount of Bank deposits?

26. If the trade of Scotland depended, as ours docs, not upon the accumulations of a Capital which never diminishes, but on a capital manufactured by live hun- (Ired Banks, and which diminishes with every re-action, and may almost vanish with a panic, woukl not Scotland suffer as we do, and as they have frequently done in England, from every convulsion in the money mar- ket?

27. Suppose our trade was sustained by deposits equal, (in a ratio to those of Scotland, ) to seven hundred and fifty millions, and facilitated by a proper currency of ninety millions; is it your opinion that our country could ever suffer, in peace or in war, from a scarcity of money, or want of confidence?

28. Ifwe were to oblige our Banks to pay an inter- est of four per cent. on all deposits, would not our la- borers, mechanics, traders, farmers, nay, all our pro- ductive classes, become lenders of capital, to give activi- ty to trade, and enlarge the employment of labors, and would not the ability of the Bank of the United States to facilitate trade, be tripled in a very few years?

29. Is not the Scotch plan of Banking more profita - ble to the Banks and the community, than any adopted in any other country?

30. If this plan should not be adopted by Congress and our State Legislatures, would not redundant cir- culations be effectually checked by limiting dividends to six per cent. and compelling the Banks to divide their profits?

The inquiries from twenty-four to thirty inclusive, re- late to Scotch Banking. Scotch Banking is doubtless an excellent system for Scotch people, but these pecu- liarities are difficult to transplant among a people of to- tally different manners, habits, and modes of existence; and as their English, Irish, French and Dutch neigh- bors, who are the more immediate witnesses of its mer- its, have never adopted the system, I shoukl hesitate to recommend it for this country. It suits Scotland be- cause it has grown up with the trade of Scotland. For the same reason our system does probably better for us than any scheme which could be imported. Our whole trade and business has been connected with the system, and the general prosperity which has accompanied it, proves that if it has not caused, it has not inarred, the advances of the country. I doubt whether it would be judicious, as is here suggested, to destroy all Banks, or to take away their Capitals, or to make them pay inter- est on their deposits, or, in short, to do any thing with them. The whole machinery works well. It moves harmoniously with all our systems of government. The Government of the States, with the addition of the Na- tional Government, form our political system. The State Ranks, with the addition of the National Bank, is The idea at the present day of doing the business of this country without Banks, woukl be equal to the pro- ject of renouncing canals, and rail roads, and steam- trade.

That Banks do occasional mischief there can be no doubt; but until some valuable improvement is found which supplies unmixed good, this is no objection to them. And constituted as they now are, the Ranks of the United States may be considered safe instruments of commerce.

During the last ten years, for every American Bank which has failed, there have probably been at least six or eight English Banks which failed. In 1825-6, no less than seventy-six to one hundred English Banks fail- ed at onec.

On the whole it seems wiser to retain the established institutions of the country, instead of resorting to doubt- ful and hazardous experiments. What is wanted, I think, in our Ranking system is this: First, to widen the basis of metallic circulation, by abolishing the use of small notes, so as to allow coin to take the place of them, as it inevitably woukdl. And second, to annex to the non-payment of specie by the Banks, so heavy a penal-

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UNITED STATES BANK.

[MAX

ty, say an interest of twelve per cent. as in the Bank of the United States, or twenty-four per cent. as in some of the New England Banks, or a forfeiture of the char- ter as in some of the Jersey Banks, as would deprive the Banks of all temptation to incur the risk of insol- vency.

These simple measures would, in my judgment, be far preferable to any other plans suggested in these inqui- ries-better than the plan of destroying all the Banks in the country-better than the plan of making them pay four per cent. interest -- better than the plan of li- miting the dividends to six per cent. and better than the plan of compelling them to divide their profits, instead of husbanding some portion of them to provide against contingencies.

QUESTIONS "ON THE INFLUENCE OF THE BANK OF THE UNITED STATES UPON TRADE."

1. Since 1816 have we not experienced re-actions in 1818-19, 1825-26, 1829-30,-and has not the de- mand for money been increasing since October last?

It is difficult to understand precisely what is meant by re-actions. In the active commercial business of this country, there are constant vibrations, but the only real danger which I have ever seen since 1819, was in the fall of 1825. The troubles of 1818-19, had little con- nexion with trade. They grew out of the transition from a depreciated to a sound currency, which necessa- rily occasioned a great reduction of the circulating me- dium. The estimate of Mr. Crawford was, that the Bank notes in 1813, amounted to 62 millions-in 1815, during the suspension of specie payments to 110 mil- lions-Mr. Gallatin estimates their amount in 1816, at 70 millions, and in 1820, at 45 millions. These fluctu- ations were in themselves sufficient causes of the em- barrassments of 1819. The demand for money in Octo- ber last, has not been increasing to this time, (April 1832, ) but is nearly past.

2. Are not such re-actions in trade usually attended with stagnation of industry, bankruptcies among trad- ers and manufacturers, and distress among labourers thrown out of employ?

3. In every such re-action, does not a large amount of property pass from the active and enterprizing to the wealthier classes?

This again depends on what is meant by re-action. I have never seen any such disasters arising out of the temporary vibrations of the active business of this coun- try.

4. Are not countries where a large paper circulation is substituted for a metallic currency, most liable to these distressing fluctuations?

5. Does not this arise in a great degree from the ten- dency of prices where such a currency exists, to rise higher and fall lower, than in countries where the price of labor and the value of property are more uniform through an unchanging and sound currency?

This is generally true, but by no means univerally. A metallic currency may be exposed to as violent fluc- tuations as a paper currency, the expansive power of credit often supplying the diminution of coin. More- over, the paper currency of Scotland is perhaps less fluctuating than the metallic currency of France.

6. Independent of the varions incidental causes which may agitate trade at any time, and in all countries, are not some of the fluctuations in value of property of all kinds, exclusively attributable to changes in the reven- ue laws-and do not the most violent arise from sudden alterations in the currency, or from too abrupt an ex- pansion or contraction of bank loans and circulation?

I should think that changes in the revenue laws, sud- den alterations of the currency, and " too abrupt an expansion or contraction of the bank loans and circula- tion" would occasion fluctuations in the value of pro- perty.

7. If a bank or a government adds ten millions sud- denly to an existing paper currency, and as suddenly

loans it to trade, will it not injuriously affect both your trade and your currency?

Not necesssarily nor naturally. It depends wholly on the existing state of the trade and the currency.

8. Is there any substantial difference between issuing ten millions of a new paper currency, not representing capital, and arbitrarily adding that amount to the value of your metallic currency, by increasing its value by law, except in degree as to the suffering of the commu- nity?

A very substantial difference. To depreciate the coin is a fraud on the part of the government; an in- crease of paper convertible into coin, may be very ad- vantageous, if the trade and business of the country re- quire it; and if they do not require it, the evil will soon correct itself, because it will be converted into coin.

9. Was not the distress of 1818-19 caused, or its severity much increased by the proceedings of the Bank of the United States, between January 1817, and Octo- ber 1818, in too rapidly loaning more than forty millions of dollars, and increasing our general circulation up- wards of ten millions in bank notes?

I do not think the distress was either caused or in- creased by the loans and circulation of the Bank. When a bank with a capital of thirty-five millions, established for the purpose of supplying a circulation, has issued at the end of twenty-one months, only $8,713,951, not ten millions as the question suggests; the surprize is not that it was so great, but that it was so small.

10. Was not the distress much increased by a sudden contraction of its loans, between July 1818, and May 1819?

The contraction was not sudden but gradual, the whole reduction between the two periods, a space of ten months, in the whole establishment, was only $8,954,794.

11. Was not the distress of 1825-26, much increas- ed by the change in our revenue laws in 24, by the in- creased loans of the Bank of the United States, by an addition to its circulation, between 1st January 1824, and the 1st of July 1825, of five millions of dollars, and by too rapidly increasing itsinvestments in funded debt, from June 1824, to June 1825, from ten to twenty mil- lions of dollars?

It is doubtless very difficult to connect events with their remote causes. But it is not extremely easy to as- cribe the existence of the greater commercial and finan- cial calamity both in England and the United States, to the circumstance of the Bank's having increased its busi- ness eighteen months before that period. There is the less reason to ascribe these great events to this cause, inasmuch as the loans of the Bank for nineteen months previous to that pressure, so far from being increased, were actually diminished, as will appear from the fol- lowing statement ;--

Loan. Bills of Exchange. 2,323,830 19

Ist Jan. 1824, 31,108,253 96 31st July, 1825, 29,489,174 34 3,622,882 69

Total. 33,432,084 15 33,112,057 03

$ 1,619,079 62 $1,299,052 50 8 320,027 12

Here is an actual diminution of loans in the Atlantic cities of $1,619,079 62, and an actual increase in the remittances of bills from the south and west to sustain them, of $1,300,000; and finally an aggregate reduction of the loans of the whole establishment of $300,000 As all this reduction took place three months before the pressure, it seems scarcely reasonable to ascribe the pressure to an alleged increase.

12. Suppose the speculations and re-actions of 1825 -26, to have originated in England, should we not have been less affected by it-had not the circulation and funded debt of the Bank both been suddenly dou- bled?

It is difficult to discover the least connection between thetwo events. This re-action, as it is called, took place here in October 1825. In May 1824, eighteen months before, the Bank took the five million loan, and in Ja- nuary and March 1825, another loan of five millions;

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but its general business was actually diminished, and object of its creation was precisely that; and as no incon- its circulation, so far from being suddenly doubled, un- venience has happened, or will probably happen in derwent the most gradual and gentle increase ima- ginable. The whole increase of the circulation of the Bank, from the 1st of July 1824, to the Ist of July 1825, was only $3,277,885 50.

13. Was not the distress among our manufacturers in 1828-29, partly attributable to our tariff of 1828, and to the Bank's increasing its circulation four millions, and its total investments five millions from June 1828, to June 1830?

I do not know what might have been the effect of the tariff, but certainly no part of the distress can be as- cribed to the Bank, for its total investments, that is, its total loans, were actually reduced.

They stood in June 1828, at $55,866,872 01

And in June 1830, at 54,407,800 66

A reduction of $1,459,071 35

The only increase of investment was in the specie.

The Bank had in June 1828,

$6,577,681 74

And in June 1830, 9,746,884 56

Increase, $3,169,202 82

So that this increase of investments, which misled to their ruin, the manufacturers, was in fact, an increase of 83, 169,202 82 in the specie, and a diminution of its loans to the amount of $1,459,071 35.

14. To what other cause than the operations of the Bank of the United States can you attribute the demand for money which began in October last, and has contin- ued to the present time?

15. Was it not the natural consequence of the Bank's. rapidly increasing its bank note circulation from Janua- ry Ist 1829, to January 1st 1831, ten millions, and its total discounts in thirteen monthis, to 1st January last, from forty-one te sixty-six millions of dollars?

/ I see no connexion whatever, between the operations of the Bank, and the demand for money, except that the Bank has supplied the demand. The state of things in Europe sufficiently accounts for an increased impor- tation of merchandize, and a demand for money to cir- culate them; and the simple fact that the increase of the business of the Bank has arisen since the importation, seems decisive as to the fact that the increase has not oc- casioned them, but has averted any mischief from them. Then, too, this is much exaggerated. Thus it is here stated, that the increase of circulation from January 1829, to January 1831, was ten millions. Now the fact is, that the actual increase was only $3,981,286.

Then again the increase of loans for thirteen months, to 1st January last, is stated at twenty-five millions. Now the factis that the Government stock of the Bank was reduced from Janua- ry 1st 1829, to January Ist 1832, $16,096 899

That the Bank, which in May 1830, had in Europe $3,700,000

Drew for that and overran its balances there 2,245,000 - 5,945,000

So that it had an actual increase of means of

$22,041,899

Yet with these additional means, its loans (exclusive of bills of exchange) were increased from December 1829, $32,498,501 08

January 1832, 49,602,577 86

$17,104,076 78

The domestic bills purchased during the same time, be- ing mainly the transfers of funds to sustain the Atlantic cities, and to carry the southern crop to market.

Now, if there was a demand for money, and the Bank had the means of supplying it, why should it not? The | your business immediately, as that, without denying

consequence of it, and as great distress would have been occasioned if it had not taken place, it seems a sin- gular objection to a bank, that finding a demand for money, and having the means of supplying it, it did sup- ply it.

16. Was it not probable that an increase of loans and bank notes corresponding with that made in 1817-18, might in 1832, be followed by consequences similar to those realized in 1819?

There is no analogy between the two cases, and no resemblance in the situation either of the Bank or of the country, at these respective periods. The Bank in 1817, was urged by the government into immediate operation, and its loans and circulation, whatever their amount, had less reference to the wants of business than the wants of the government. 'The increase of 1831, was an increase growing out of the actual business of the country, which will necessarily subside when the business is done.

17. Was not a rapid addition of twenty-five millions to the discounts of the bank, and a sudden transfer of loans from government to trade, calculated inevitably to produce over-trading.

As there was no such rapid addition, and no such sudden transfer, they could not have produced over- trading.

18. Did not the sudden addition of ten millions to our bank note circulation, affect our circulation unfavora- bly, and force our specie abroad?

There has been no suchi increase of ten millions. The whole increase of 1831, was not near five millions.

19. Did not the Bank of the United States lose, be- tween the first of July, and first of January last, five millions of its specie?

The amount of specie was reduced about that amount in the ordinary course of its business.

20. Hlad the directors of the Bank of the United States, became alarmed as in July 1818, and resolved to curtail their loans extensively; or had any political or commercial event occurred to produce a sudden con- traction of the expanded circulation and loans of the Bank, should we not have seen the same demand for specie, and the same commercial distress, which the Bank brought upon itself and the country in 1819)

As the Directors did not become alarmed, what would have happened in case they had become alarmed, must be entirely conjectural; but the circumstances of the Bank and of the country, were so entirely different at these respective periods, that there appears to be no analogy between them.

21. Did the President and Directors of the Bank of the United States, on the 7th of October last, direet a circular to the Cashiers of all the offices, instructing them to curtail their business, and to favor the offices in New York and Philadelphia as much as possible, and will you insert a copy of that circular in your answer?

The Circular was as follows:

CIRCULAR.

BANK UNITED STATES, 2 October 7, 1831. S

SIR-

The unusually heavy reimbursement of six millions of funded debt, which was on the 1st inst, advertised by government to take place on the Ist and 2d days of January next, but which, according to a subsequent no- tice from the Treasury Department, under yesterday's date, may, it appears, be demanded of the Bank by the public creditors at any period of the present quarter, is calculated to press very inconveniently upon the pa- rent Bank, and upon the office at New York; the more so from our uncertainty as to the time when the neces- sary provision must be made, from the prevailing artive demand for money. Be pleased, therefore, soto shape

UNITED STATES BANK.

EMAY

reasonable accommodation to your own customers, or sacrificing the interest of your office, you may throw, as early as possible, a large amount of available means into our hands, in Philadelphia and New York, and at the same time, abstain, as far as practicable, from draw- ing upon either of these points. Checks and short drafts on the local banks and on individuals, will prove particularly acceptable for several months to come, and whenever direct claims of that kind, on either of those two places, are not to be procured, you might material- ly aid us by taking drafts upon the large cities nearest to them.

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The Register of Pennsylvania : devoted to the preservation of facts and documents and every other kind of useful information respecting the state of Pennsylvania, Vol. IX, Part 87

Author: Hazard, Samuel, 1784-1870 Publication date: 1828 Publisher: Philadelphia : Printed by W.F. Geddes ; Number of Pages: 440

Author: Hazard, Samuel, 1784-1870
Publication date: 1828
Publisher: Philadelphia : Printed by W.F. Geddes ;
Number of Pages: 440