, it is to have notes discounted The evils which are produced by paper money Banking, are so great as necessarily to force themselves on the attention of those who are most deeply interested in the continuance of the system. 1’0 remedy these evils, they propose various restrictions on Banking corporations or new modes of conducting their business.
A common opinion is, that, if the Banks would not discount accommodation notes, and if they would confine themselves to a business paper of short dates, their operations would not be injurious to the community.*’ But, a little reflection may convince us, that, by discounting business paper, as much Bank paper might be set afloat, as by discounting accommodation notes. The same lot of goods might be sold to a dozen persons, and each might give a note, and each of these twelve notes might be discounted at Bank. The limit on Bank issues would be the same as at present that is, the demand for specie for foreign trade. The anxiety of the Banks to extend their issues would be in no way diminished. The inducement, then, would be to buy and sell goods that notes might be discounted at Bank. Nowat Bank, that goods may be bought and sold. The spirit of speculation being excited by any cause, notes would flow in for a discount, and the Banks would, as at present, discount as many as they might deem prudent.
The severest legislative enactments could not confine the Banks to discounting business paper of short dates if this paper did not afford full employment to all their” capital” and all their “credit.” They would soon find sufficient reasons for “renewing” the business notes of some of their customers, and those notes, thus renewed, would become accommodation notes.
Except in the cases of applications from Directors, and their favorites, the Banks now prefer business notes, because these place their issues more immediately under their control. More than a certain amount they cannot lend on accommodation paper, for they must keep so much capital under command as is necessary to support their credit. Their deposits would otherwise be withdrawn, and the circulation of their notes would cease. It does not appear that these accommodation notes have any especially mischievous effect on prices. they are permanent in amount, or nearly so. The fluctuation of prices appears to be occasioned by that part of Bank “capital” and of Bank “credit,” which is always varying in amount.
Limiting the amount of issues to double the amount of capital, and the amount of loans to thrice the amount of capital is a favorite provision with legislators. But, Mr. Gallatin says, “amongst more than three hundred Banks, either now existing, or which have failed, and of which we have returned, we have not found a single one, the loans of which amounted, so long as specie payments were in force to three times, or the issues to twice, the amount of capital. It is clear, that provisions applicable to such improbable contingencies are purely nominal.”
Compelling the Banks to give an annual statement of their affairs, is also a favorite measure. But it is not easy to compel them to give a faithful statement. The accounts of the Banks that break look nearly as well on paper as the accounts of the Banks that continue payments. They who are acquainted with the secrets of Bank management, say, little reliance is to be placed on these accounts. Preventing the Banks from issuing notes of a less denomination than five dollars, is a pleasure which is effective so far as it goes. But it still leaves the Banks the power to substitute paper for specie and to carry on credit dealings to a very pernicious extent. In England, where the issue of notes of a less denomination than one pound sterling, or about four dollars and eighty cents, has, for many years, been prohibited, the contractions and expansions of the Bank have done so much evil, that it has been found necessary to prohibit the emission of any notes of a less denomination than five pounds sterling, or about twenty-four dollars Federal currency. The Bank of France issues no notes of a less denomination than 500 francs, equal to about ninety-four dollars of our money, yet the Bank of France is at times forced to make such sudden and great curtailments, as inflict much evil on many of In the charter of the Bank of France, there is a provision that all profits above six percent. shall be converted into a reserved stock, on which reserved stock the Bank may make dividends not exceeding five percent. Such a provision in the American Bank charters would remove many inducements to over-banking and would make speculations in their stock less frequent.those who are within the sphere of its influence. The manufacturers in Alsace had a doleful experience of this power of the Bank in France, in 1825. The merchants of Paris, and throughout the kinidotD, felt it in 1819. In 1822, also, the. contractions which the Bank of France found it necessary to make, produced much commercial embarrassment in many parts of that country.
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