THE FARMERS' REGISTER. 



^78 _ 



baneful operation ; and yet it is this one office of 

 fabricatinor currency which constiiutes the great 

 merit and public benefit of banks, in the opinion ol 

 those persons who most strongly advocaie the 

 general procedure of the banking system ol this 

 country. 



Vf. The three operations of banks as combined, 

 either in legal and honest banking, or illegal and 

 fraudulent banking. 



The definition given above ol a bank of cir- 

 culation applies however only to such as com- 

 ply, and but so long as they continue to comply, 

 with the proposed object of their institution, arid 

 their oh\\3;sV]on to pay their notes on demand in 

 specie. Even when so complying with all their 

 obligations, the evils and the dangers of banks 

 of cTrcnlation are still impending, and their oc- 

 currence inseparable (rom the system, alihough 

 in its most perfect stale. But the impending dan- 

 gers are lully realized, and the previous evils are 

 ujcreased beyond computaiion, when these banks 

 have leased lo comply with their obligations, as 

 all in Virginia and nearly all in the United States 

 row have done, either avowedly or virtually. 

 The above definition therefore does not apply lo 

 banks such as ours now are, and are like long to 

 be— issuing notes for which the banks promise to 

 pay on demand, but which they Jo not pay and 

 cannot expect to pay for years to come, if indeed 

 ever. It should therefore be borne in mind by 

 the reader, that the name and character of a bank 

 of deposiie, of discount, or of circulation, or com- 

 bining all ihese three operations, is deserved only 

 by such institutions as truly conform to the design 

 of these several operations. Such would lorm 

 another general class, exercising the business of 

 legal and honest banking ; even though their ope- 

 rations in point of fact may be unsound, illegitimate, 

 more or less injurious to the public interest, and 

 Blill more dangerous, in tendency to the greater 

 evil of running into illegal bariking, and fraudu- 

 lent banking, whether it be afterwards legalized 

 or not — and to which latter grand division now 

 belong all the banks of Virginia, and nearly all 

 of the United Slates. This, which we designate 

 as the fraudulent banking system, then requires 

 a very important modification of the foregoing 

 definition of a bank of circulation. The opera- 

 lion of a bank of circulation, upon this the more 

 general system, is to exchange its notes (which 

 carry no interest,) and which it promises upon 

 their face to pay on demand, but does not pay, 

 (anil is protected by law in the relijsal lo pay, 

 and from all efficient penalty or reparation for the 

 wrong,). for the notes of individuals which bear 

 interest, and of which the payment is strictly en- 

 forced, both by law and usage. 



If the banks had been at first established upon 

 this non-paying principle, there would have been 

 something like honesty in the course pursued. 

 Borrowers and the public generally might then 

 at least have exercised their discretion, and have 

 chosen upon true grounds, whether or not to re- 

 ceive paper, as money, which was avowedly ir- 

 redeemable, and dishonored and discredited by 

 the issuers from the first outset. But, on the 

 contrary, the banks complied with their obliga- 

 tion to pay specie on demand, until the confi- 

 dence of the public had been secured, and until 



the whole circulation of the country had been 

 filled almost exclusively with this paper currency, 

 and it had had iis sure and inevitable effect of 

 substituting and driving off the previous metallic 

 currency of the country. Then, when pressed 

 by the just consequences of liieir gambling spe- 

 culations, and other misconduct, or urged by the 

 desire to make larger profits than legal or honest 

 means would permit, the banks refused to pay 

 their notes, which were in circulation to the 

 amount of many millions of dollars, and which 

 indeed formed the almost entire currency of the 

 country. There never was a more gross and 

 enormous Iraud perpetrated on any people, than 

 was exhibited in each of these bank suspensions ; 

 and each and all of which have been afterwards 

 legalized and sustained by the governments of all 

 the slates of the union. 



VIL 



The best and safest course of banks of circu- 

 lation illustrated. 



But these remarks, on the existing state of fraud- 

 ulent banking and irredeemable paper currency, 

 are in advance of the regular order of the sub- 

 ject. Let us therefore return to the operation of 

 banks of circulation, while they really and truly 

 continue to pay on demand the sums promised on 

 their notes. 



It is easy enough to understand how a bank 

 makes profit by issuing more paper than the 

 amount ot its capital stock, and that the greater 

 the excess of the issues, il the notes can be kept 

 from being returned to the bank to be redeemed, 

 the greater will be the profit. 



Suppose the actual and proper amount of cur- 

 rency of a country to be 10 millions in gold or 

 silver coin. Banks of circulation are then first 

 established, whose capital amounts to 5 millions, 

 with the usual legal privilege to issue three times 

 the amount of their capital in paper, or 15 mil- 

 lions. Suppose that there is paid into the bank, 

 and afterwards retained there, (both of which sup- 

 positions are monstrous, and will be universally 

 ialse,) the whole 5 millions of capital stock in gold 

 and silver, and that ihe banks use their privilege 

 of fabricating paper money so moderately that 

 they issue a«d keep in circulation only twice as 

 much paper as the amount of their capitals, or 

 but 10 millions of paper money.* Then the el- 



* The capital of no bank has been paid in specie, 

 in any case, and generally but a sinall proportion of it 

 was in specie. Alter paying a small part in specie, 

 the usual course is for the stockholders to give their 

 notes for the balance due. In many cases, (though 

 not in Virginia,) the stockholders have done still bet- 

 ter, and paid scarcely any thing; they merely exe- 

 cuted their individual notes to the bank for their entire 

 payments, due in specie, and gave their certificates of 

 stock as sole security to the bank. Of course there 

 never could have existed the least degree of responsi- 

 bility of such a bank, and its circulation was a mere 

 means for levying contributions upon, or of swindling 

 and stealing from the community, from the beginning to 

 the end of the bank's career. The other supposition 

 above, of a bank's retaining all its capital in specie, or 

 even one dollar in specie tor two dollars of the paper 

 in circulation, is never appioached in practice; and 

 was assumed above merely to illustrate the operations 

 of a bank of circulation when in ihe best possible 

 condition of responsibility. An indication of the ac- 

 tual practice may be seen in a recent "bank relief" 



