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favour, that banks, in their formation, draw capital from foreign sources. Such is, no doubt, the case; but are not those who thus furnish it, always drawing a profit from our labour, which constitutes a large amount periodically drawn from the capital and circulation of the community? There is no doubt, a use in the money thus borrowed from abroad, but it is not without its corresponding injuries.
There is no doubt that banks, as now established, can, and are made, materially to affect the money market of almost every community to a greater or less extent, and change the ordinary channels of loaning.
Again :--That they induce over-trading
This charge has been treated of in part, already, in a former paragraph. All experience has taught us, that, when the supply of money exceeds our legitimate demand, such a state of affairs is produced by every over-issue of bank paper. When our products are excessive, the banks are better able to extend their issues ; because, the greater the supply of products, the more money is required to effect its transfers. The banks, having an eye to business, perceive the opportunity of increasing their issues, and are not long in taking advantage of it. They enlarge their facilities by increasing their discounts, which induces eager crowds to enter into the field of speculation. This increases correspondingly the demand for, and, as a consequence, the price of commodities, and still further the fictitious demand for money. The banks, stimulating others, are themselves stimulated, and continue to supply the funds, until they begin to fear for themselves the inevitable consequences of over-issuing, and are thus induced to check, suddenly, their further advances. The panic is thus begun, and the recoil is proportioned strictly to the previous excitement. This causes a reactionary movement in the produce market; the advancing strides of speculation are stayed in their full career, and trade, after going through an ordeal of terror, slowly commences its return back to its proper level, but not without leaving ruin and desolation everywhere along the path of its eccentric progress. Thousands are suddenly made bankrupt, who were before in affluent circumstances.
Again :-That banks increase the number of ignorant and fraudulent traders, and, having done so, bolster up their fictitious credit, and thus enable them to continue their impositions at the expense of prudent traders and the community at large.
This charge only applies to the officers of those banks who make use of its funds to press purely personal and selfish objects, and to advance the fortunes of some of their relatives and friends; and, by these means, foist upon the community persons who are really unworthy of confidence, and enable them to defraud the public, by reason of the countenance given them by the bank. Sometimes, banks will extend their credit to persons, who, if their affairs were wound up, would not be able to pay fifty cents upon the dollar. By their aid, these bankrupts maintain their credit, to the great injury of confiding creditors. Their policy is of the most basely selfish character, since it is designed only to increase the resources in the hands of the secret bankrupt, in order to the increase of their own securities. They sustain him until he can defraud other citizens, and, taking care to obtain a lien upon his new acquisitions, as soon as they feel themselves made secure, they cast the worthless debtor aside, having used him only long enough to delude other creditors, whom their seeming confidence has persuaded to believe in his good faith and soundness. This is a frequent practice, and is regarded as quite a meritorious operation. We have known merchants to recommend a customer to brother merchants, knowing all the while that he was totally unworthy of truth. Their object was that of the bank. It was simply to realize out of the goods that he may buy from them the claim which they hold against him, and which, otherwise, they know must be lost. This criminal practice, applying as well to individuals as to banks, cannot be used against them especially, only so far as that their greater operations, by reason of their concentrated capital, enables them to operate more extensively in such dishonest transactions, resulting in a consequently increased evil to the innocent community
Again :- That banks indirectly influence the exportation of gold and silver.
Banks, having been established for the express purpose of increasing the amount of the productive capital of the country, are authorized to make issues of their own paper, upon gold and silver as its basis. It is, therefore, their interest to retain within their vaults the precious metals. It cannot well be their interest to send it away. But there are causes arising from their excessive issues, which will give us the right to accuse them of being the cause, indirectly at all events, of doing so. It is always the case, when there is an excessive issue of paper money, that people increase their domestic expenses and business expectations. New foreign luxuries are introduced. The importing merchant increases his foreign purchases, because he expects an increase of sales; for all of which he must pay in gold and silver, or in material wealth of some kind. But the increase of paper money will also increase the prices of our products to such an extent as to preclude their shipment to foreign ports, when the difference in price will not allow a sufficient margin for a profit over the expenses of shipment; and thus we still farther increase the balance against us, to be only lessened or liquidated by the shipment of gold and silver.
The banks, so long as they do business at all, cannot resist this necessity, which strictly results from their eagerness, in the first instance, to enlarge their business beyond the strict need of the community, and beyond the real measure of their strength and their resources. Governed by the same appetites which sway the desires of individuals, they reach the same results, and suffer from the same causes ; but, to them is chiefly chargeable the fault of excess on the part of individuals, and the vastly greater evils to the people, flowing from their sudden stoppage of those issues which they had made too excessive for their own and the public good.
We have thus briefly, and, perhaps, superficially, indicated, in a simple and inartificial way—that we may be the more easily understood—the leading causes of those monetary difficulties—those caprices of banks and bankers-to which the
mercantile community is so periodically subject in this country; caprices which, seemingly, help trade for a season, only to hurt it more seriously in the end. To enter into illustrative details of the subject would require volumes.
We propose now to throw out, for the consideration of citizens and lawgivers, a few suggestions in respect to the banking system, by the adoption of which, we are of opinion that we may obviate much of the objectionable features in their present organization. Our plan shall be submitted without arguinent. We propose, then
1st. The establishment, by the State governments, of a banking department, to be under the control of a board, consisting of three persons, whose duties shall be equal in the general management, but who shall each have allotted to him a particular department of the same, which he shall directly superintend.
2d. That all banks of issue, within the State, may be conducted or owned by one or more persons, as they may elect.
3d. That all banks of issue shall, before commencing business in the State, deposit with the banking department, twenty-five dollars in specie, and seventy-five dollars in sound United States' or State stocks, for every one hundred dollars of notes which they propose to issue. But, if the amount already issued shall be at the rate of ten dollars to each man, woman and child, in the State, as compared with the last returns of population, they must deposit a greater proportion of gold and silver, and less of stock.
4th. That all institutions, not already authorized to do so, shall be prohibited from issuing any notes or bills, which it may be intended to circulate as money, unless they have been issued from the banking department, with the endorsement of the registrar thereon, as an evidence of their being so issued and secured.
5th. That all notes, so issued, must be presented for redemption at the banking department of the State only; which requisition must appear on the face of the note.
6th. That all plates made use of for taking the impressions of bank notes, must be obtained by, and remain in the hands of, the State banking department.
7th. That all interest received on the stocks deposited with the department, shall be at all times subject to the order of the parties having placed them there.
8th. That when all the notes which any bank may have issued, in accordance with these regulations, shall have been returned to the department, or five years having elapsed after the closing of such bank, it shall be entitled to all stocks and moneys still remaining in their hands.
9th. That in the case of any stocks deposited being paid by the party issuing them, it shall be the duty of the board to reinvest them as soon as possible, in like securities, provided they can obtain the same at a par value; but, if not, it shall be the duty of the depositors to supply them with a sufficient amount of funds for that purpose, and if they shall decline to receive them, the department will retain the same in gold and silver, without allowing them interest thereon.
We claim that this system will increase the productive capital as much as it is safe and expedient to do; because it takes out of the hands of banks the right to issue notes to an indefinite amount, without any regard to the amount of their specie; and it also secures the redemption of their notes beyond any contingency, and deprives them of those chances of affecting the monetary interest of the community, which they may and do make use of, under the present system.
It also gives the public a certain place of redemption for all notes issued, without being subject to the standing of the institution which issues them; and saves, in case of the bank becoming involved, the appointment of a receiver, and, consequently, the extra expenses of such appointment. These advantages will have a tendency to prolong the circulation of the notes greatly beyond the time now enjoyed under the present system.
In fact, when we take from the banks their powers of issue and redemption, we reduce them to the same standing as that of individuals. Their power for evil is shorn, while their power for doing good, according to their legitimate uses, still remains. They cease to be the only monied influencing power, and become as one of the community, identified with its interests, and equally subject to the changes which affect its general fortunes.