

H O 11 T I C U L T U f{ A L 



REGISTER. 



PUBLISHED BV JOSEPH BRECK & CO., NO 52 NORTH MARKET STREET, (Agricultural Warehouse.) 



vol.. XI v. 1 



BOSTON, WEDNESDAY EVENING, SEPTEMBER IC, 1840. 



[NO. II. 



N. E. FARMER, 



BANKS AND THE CREDIT SYSTEM. 

 No. IV. 



We B])oke at large in our last nf tlie necessity 

 of a bank maintaining an undoubted and niisus- 

 pectcd credit; and in order lo this, of its resting 

 its operations and crc^dit upon a specie basis. Tliis 

 only can be considered as a perfi'ctly secure founda- 

 tion. The formation of banks was authorized in 

 .Michigan, whenever twelve persons would associ- 

 nte, and pledge for the redemption of their notes a 

 certain amount of land. We do not know the pre- 

 cise form in which this was to be done ; but we 

 suppose these securities were lodged with some 

 officer of the government; nor do we know by 

 what rule the land was valued. The scheme, as 

 might be e.\pected, e.xploded ; the notes immedi- 

 ately depreciated; they were not convertible into 

 money; and we counted in a single paper publish- 

 ed in Detroit the present month, no less than nine 

 banks whi;so assets were advertised to be sold by 

 the sheriff; these assets consisting of worthless 

 debts, a banking house, and a few chairs and ta- 

 bles. 



In New York the system of what is called free 

 banking has been adopted. As we understand it, 

 any number of individuals are allowed to associate 

 for banking purposes and issue their bills, upon 

 their depositing with the Comptroller of the State 

 a specified amount of available stock, sufficient in 

 his opinion to secure the community against loss, 

 should they fail to redeem their issues. This is as 

 yet an experiment; and liable to so many abuses, 

 that we predict its failure in any extraordinary 

 emergency. The notes of these banks, many of 

 them, became at once distrusted and depreciated, 

 until the government required that every bank 

 wkerever situated, should redeem its bills in spe- 

 cie in New York at half per cent, discount. There 

 seems no good reason why the holders of the bills 

 should be subjected even to this loss. Under this 

 system of free banking, several t'raudulent and 

 mushroom banks have already sprung up, who have 

 to a certain extent succeeded in their impositions ; 

 and there seems, in our apprehension, ample room 

 for more. In the present deranged state of the 

 currency, men are willing to take and give almost 

 any thing in the shape of money ; and it is wonder- 

 ful witii what pliilusophical forbearance and pa- 

 tience they submit to the loss. Most men, how- 

 ever, in such cases, are pretty careful not to make 

 tliemselves the depositaries of any considerable 

 sum for any length of time, but pass it off as soon 

 as practicable after receiving it. 



We believe that no bank is safe that does no', 

 rest upon a specie basis. Wo hold that no bank 

 has a right to suspend specie payments at its plea- 

 sure, either for a longer or a shorter time. We 

 hold that no bank ought to be indulged or tolerated 

 in the community a day, which is not ready and 

 prompt to redeem its notes in specie exactly ac- 

 cording to their tenor. If these principles had 

 been maintained, and they are no other than what 



the law contemplates and enforces, we should nev- 

 er have heard of bank snspiinsions and failures. 



The banks at present in the country arc in very 

 bad odor. The public indignation, exclusive of all 

 party considerations, is loud and deep against them ; 

 and many of the best minds in the community have 

 been led to distrust the justice and expediency of 

 the wbole system. The aim of every friend to the 

 public good should be to correct the abuses which 

 have crept into it. The notion of getting entirely 

 rid of banks in our community, is perfectly idle. 

 The people have so long enjoyed the advantages 

 and facilities which they furnish, that they will not 

 give them up. The United Slates government 

 may refuse if it will, and as long as it will, the es- 

 tablishment of a national bank, and may pile its 

 systems of cash duties and sub-treasuries one upon 

 anotlier as high as it pleases ; but it cannot con- 

 trol the Stat<'s in their legislation, and baidis the 

 States will have. 



The banks have brought the odium they suffer 

 upon themselves. While we accord all due praise 

 to those banks who have conducted their busim.'ss 

 with perfect honor, and such there are in New 

 England and out of it, we are compelled to say of 

 a large proportion of the banks throughout the 

 country, thisir condtrct has been most fraudulent 

 and atrocious. In Boston and its vicinity, where 

 mercantile honor has always stood so high, to our 

 deep himiiliation at least eleven banks almost at 

 the same time exploded, and scattered loss and 

 suffering throughout the community. They viola- 

 ted, and therefore forfeited their charter. Their 

 notes were immediately at a large discount : many 

 are entirely worthless. The notes of some of them 

 have been redeemed : the notes of several of them 

 never can be, because nothing is left in the vaults, 

 or as nothing ions ever there to be left. The defal- 

 cations of banks in other parts of the Union have 

 been tremendous. In Michigan millions were lost. 

 In Mississippi, the famous bank of Brandon is sup- 

 posed to have issued upwards of eighty millions of 

 dollars, not a note of which is worth more than the 

 paper on which it is engraved. The mammoth 

 Bank of Pennsylvania, by its speculations and tra- 

 ding character, has depreciated its stock fifty per 

 cent., and its notes are much below their par value. 

 A traveller as soon as he passes out of New Eng- 

 land anil New York, is subjected to infinite vexa- 

 tions in the uncertain, worthless and depreciated 

 currency which he is compelled to take. This 

 comes of banks without capital, or banks violating 

 their charters and acting in defiance of law as well 

 as of justice.. 



That many banks have been created in New 

 England without a capital as well as in other parts 

 of the country, there can be no doubt. The law 

 IS explicit, that no bank shall go into operation 

 " until two thirds of the capital stock are bona Jide 

 paid in in specie, there to remain for the use of the 

 bank." Language need not be more direct. Now 

 how is this provision grossly evaded. On a cer- 

 tain day commissioners are appointed and required 

 to examine the means of a bank about to go into 

 operation. The money representing the capital is 



hired of some other bank for the occasion, for that 

 day or that hour. None of it belongs to the bank 

 whose supposed condition is examined. It is 

 shown for the occasion ; and as soon as the occa- 

 sion is over, it is returned to the bank of which it 

 hired or borrowed. When shown to the commis- 

 sioners, some of the officers of the hank make sol- 

 emn oath that it has been bona fide paid in as a 

 part of the capital, and is there to remain for the 

 use of the bank ! Some people smother their ci n- 

 sciences by calling this oath a mere formality, or 

 as they denominate it, a " custom house oath ;" but 

 if it be not deliiierate perjury, then we do not know 

 the use of the terms. 



A second abuse in banking is discounting upon 

 stock. In a case as described above, where in 

 truth little or no capital is paid in, where stock- 

 holders are allowed to have loans to the amount of 

 seventyfive per cent upon their stock, the certifi- 

 cate being dejiosited with the cashier, the effect is 

 obvious. If we suppose in the first place that no, 

 or comparatively no capital was actually paid in, 

 then the certificate is in a degree worthless so far 

 as the public security is concerned ; and in any 

 case it is essentially diminished by the substitu- 

 tion of an individual's private security or note for 

 three quarters of the amount, for that which ought 

 to represent so much actual specie. Such a bank 

 then rests not upon a specie capital, but for at least 

 three fourths of its capital where stockholders avail 

 themselves of their privilege, upon the mere notes 

 of individuals without even an endorsement. 



A third abuse of banking is, where, as in too 

 many cases, the getters up of the bank are them- 

 selves borrowers, not capitalists or lenders of mo- 

 ney. It is obvious to what abuses the funds of 

 the bank may be applied, and what motives to fa- 

 voritism are presented, when those who have the 

 exclusive control of the moneys of the bank, them- 

 selves want to use them. No director or officer of 

 a bank should, under any circumstances, be allow- 

 ed the use of the money of that bank or to become 

 its debtor. The public have justly felt indignant, 

 when in times of severe pressure, the notes of good 

 customers have been refused to be discounted, 

 while at the same time the directors of the bank, 

 by a system of log-rolling, could obtain money ; 

 and by the agency of a broker, purchase out of 

 doors these same notes, which were refused to be 

 discounted at the bank, at a large discount, and 

 then lodge them in the bank at their full value, of 

 course as security for the money which they them- 

 selves had borrowed, making themselves a large 

 per centage without incurring any responsibility 

 whatever. These practices, we do not say to how 

 great an extent they prevail, certainly not at all 

 with men of honor and principle, are too well au- 

 thenticated to be denied. 



Another abuse, of which great and just com- 

 plaint has been made, has been favoritism in mak- 

 ing loans. Oftentimes one man can obtain his 

 thousands where another, whose security was equal- 

 ly sound, could not obtain his hundreds. A bank, 

 we admit, has a perfect right to loan its funds ac- 

 cording to its best discretion, where the security is 



