282 



THE FARMERS' REGISTER, 



therefore paying for it a higher price. And thus, 

 if legal restrictions and monopolies, and exces- 

 siveissues of paper money did not prevent, the 

 amount of currency in any country would never 

 injuriously vary from the quantity needed. 



Again — we have supposed the case of the en- 

 tire currency of the country having been chan- 

 ged from metallic to paper, which could not pos- 

 sibly be true, so long as the paper is converti- 

 ble to specie on demand from the banks. The 

 greatest possible extension of banking operations, 

 and with the aid of paper of the smallest deno- 

 minations, and the most perfect state of popular 

 confidence in the banks, could not effect so com- 

 plete a substitution as we assumed merely for 

 illustration, and to avoid embarrassing the gene- 

 ral operation by continued reference to the partial 

 exception. Instead of the v/hole (formerly) metal- 

 lic currencv of 10 millions being substituted by pa- 

 per, it would be more likely that about 9 millions 

 would be so substituted, under circumstances the 

 most favorable to the operation, and that one 

 million of specie would still rem_ain in circula- 

 tion, and passing to and from the banks, as well 

 as between individuals, to serve for c^liange, and 

 for small dealings. This quantity of specie 

 would vary according to the size of the lowest 

 denomination of paper money permitted by the 

 law. If there was no bank note permitted of 

 less amount than ^5, the average amount of 

 specie in circulation might be one to two millions 

 in a currency of 10 millions. If notes for SI 

 were permitted, and issued in plenty, every sil- 

 ver dollar would soon disappear, and not one- 

 tenth of a million, and that in parts of a dollar, 

 would remain as currency. And even this 

 would vanish, if as small bank notes were issued 

 as a substitute. If, on the contrary, no bank note 

 under S50 Avere issued, gold and silver would be 

 necessary for all transactions of less amount ; 

 and as these (from their number") would very 

 far exceed all larger transactions, that restriction 

 on paper issues, alone, would keep half, or per- 

 haps three-fourths, of the whole currency in spe- 

 cie. The proportion of the general currency 

 which would continue metaUic, v/hether large or 

 small, according to the different circumstances 

 named, would then be so far an exception and 

 offset to the foregone supposition of an entire 

 substitution of specie by paper, 



XL Beginning of depreciation of paper money, 

 and decline and prostration of bankmg credit. 



In the preceding pages we had traced the 

 progress of banks of circulation to what their 

 advocates would consider the highest poss-ible 

 etale of their prosperity, and the best possible 

 condition of the banking system. Next is to be 

 observed the turn of the banking tide— which 

 will as surely follow, as the ebb of the ocean 

 must come after the flood. 



The condition of things before supposed was, 

 that the banks had fillecl the circulation of the 

 whole country with their paper money, but had 

 not perrnanently overflowed the channels— (be- 

 cause of the outlet of specie to foreign coun- 

 tries — ) that they had thus substituted and caused 

 the withdrawal from circulation of the specie, 

 but had not, by still greater excess of issues, 

 caused the depreciation of money to any marked 



or considerable extent. It is manifest that the 

 more of its paper money that each bank can use 

 in makinir loans, and keep in circulation, the 

 greater will be its profits. As surely, then, as 

 men and banks are governed by self-inierest 

 more powerfully than by regard to the interests of 

 others, so surely will each, and all the banks, 

 strive to expand their circulation. And this will 

 be the more certainly and injudiciously done, if 

 there are many banks, than if few, or but one. 

 For, in the Ibrmer case, each separate bank acts 

 lor its own separate interest; and not only in dis- 

 regard to the general interest of the country, but 

 even in disre<i:ard to the general interest of all 

 the banks. Their conductors, (unless indeed not 

 totally iirnorant of the first principles ol'currency,) 

 know very well that all the banks cannot (while 

 continuing to pay specie,) add very greatly to 

 the already expanded paper currency. They 

 can only substitute by their paper the specie cur- 

 rency, and add a small excess — which effects we 

 have supposed already produced. But, still, each 

 bank will strive to make its own notes form as 

 large a pro;)ortion as possible of this substituted 

 general currency, and of the excess which exist- 

 ing liavorahle circumstances may permit all the 

 banks to put into circulation. This continually 

 operating tendency to the greatest possible ex- 

 pansion of the currency, (and that a paper cur- 

 rency, almost exclusively,) must, of course, al- 

 ways keep some excess of paper in circulation. 

 If the currency were metallic, or any portion of 

 it that could be spared from the ordinary business 

 of trade, even that slight excess would soon find 

 its way abi'oad. But paper money cannot be 

 sent out of the country, and therefore the excess 

 remains. The reason why the excess cannot as 

 yet become very considerable is, that the bank 

 notes are as yet redeemable in specie ; and if the 

 effect of their excess in circulation is perceptible 

 in causing depreciation of the value of the cur- 

 rency below that of the foreigrn value of specie, 

 (which is the certain effect of excessive issues,) 

 the notes will be presented to the banks for specie 

 as fast as they are issued in loans, and the specie 

 will be sent abroad, as long as it can be so obtain- 

 ed, and the whole circulation is in excess. 



But if nothing worse, more imprudent, more 

 injudicious, or more dishonest, were done by the 

 banks, than the strictly legal and very cautious 

 course supposed above, to produce reverses to 

 them and great disaster to the country, external 

 causes will sooner or later bring about such re- 

 sults. Various agencies, of fr-equent and certain 

 occurrence, first affecting foreign trade injuriously, 

 will be extended to this country, so as to require 

 from it large payments, and which can be made 

 only in specie. The particular cause of the de- 

 mand may be either foreign wars, or other ope- 

 rations which create a greater demand for, and 

 of course a higher price of specie abroad ; or it 

 may be that heavy debts have been contracted to 

 foreigners by the banking country, in over-trading, 

 which is a certain result of the previous delusive 

 appearance of general prosperity, and prospective 

 large profits, and which every season of bank- 

 paper expansion always and necessarily produces. 

 It may be the paying the price for any other 

 kind of foregone national folly. If we consider 

 Virginia as the banking country in question, it 

 will never be at a loss for the production of such 



