without mines, no more to be relied on exclusively, for purposes of circulation and loans, than customs for revenue. Both disappoint the country, and government, at the time when supplies are most wanted.

A contrivance, vastly superior, for purposes of circulation, to the use of the precious metals, is the use of paper, as a sign of credit, issued, without the interference or participation of government, on the security of individual property. Banks are the institutions, through which the issues of paper, thus qualified, are effected.

As soon as one, or more banks, have been established in a country, where, previously, circulation was performed by means of the precious metals, the notes, which they issue, and the transferable book credits which they grant, become the principal, and may be considered as almost the sole circulating medium. The precious metals, partly retire to the vaults of the banks, and partly leave the country.

This is the necessary result of two circumstances. The superior convenience of paper for the purposes of circulation, and the usefulness of coin, in its character of an exportable commodity.

As this position is of importance, and has been contested, we must dwell on it for a moment.

The first secretary of the American treasury was of opinion, that banks had no tendency to prevent the increase of the precious metals, or to banish them, in some degree, from the country. "A nation," he remarks, "that has no mines of its own, must derive the precious metals from others; generally speaking, in exchange for the products of its labour, and industry. The quantity it will possess, will therefore, in the ordinary course of things, be regulated by the favourable, or unfavourable balance of its trade; that is, by the proportion between its abilities to supply foreigners, and its want of them; between the amount of its exportations, and that of its importations. Hence, the state of its agriculture and manufactures, the quantity and quality of its labour and industry, must, in the main, influence and determine the increase, or decrease of its gold and silver.

"If this be true, the inference seems to be, that well constituted banks favour the increase of the precious metals. It has been shown, that they augment in different ways, the active capital of a country. That it is which generates employment; which animates, and expands, labour and industry. Every addition, which is made to it, by contributing to put in motion a greater quantity of both, tends to create a greater

quantity of the products of both. And by furnishing more materials for exportation, conduces to a favourable balance of trade, and consequently, to the introduction and increase of gold and silver."*

This argument, however, is defective. That banks-and the energies of credit, the rapid circulation, and greater punc tuality, which attend them-multiply the products of indus try, and of course the means of a nation to purchase the precious metals, cannot be doubted.-Whether it actually will purchase them, is a different question.

The nation certainly must dispose of its surplus produce. If it could not, industry would languish, and produce dimi nish. The surplus produce-whether natural, or manufactured-is therefore exported. But, for what will it be exchanged? If people, though becoming richer, were not inclined to increase their enjoyments; if they would not consume more, though able to buy more; if they were willing to work, for the mere pleasure of working; then an exchange of the exported produce for the precious metals might be a necessary consequence. But our merchants, who are the agents in this affair, and whose interests regulate the course of the different transactions, know better. They will not import the precious metals if they can avoid it-because their importation occa sions expense, and brings no profit. They will, on the contrary, bring back every imaginable commodity, that can stimulate consumption-because by such returns they gain. The nation, therefore, enabled, on the one hand, to increase its enjoyments, by an accession of means; and tempted, on the other, by desirable objects, placed within its reach-inevitably consumes more, in proportion as it has more surplus produce to exchange, and no additional importation of the precious metals, will result from the process.

Specie will only be imported from places, which yield no other returns for produce sold. Produce will be the less frequently sent to those places, the dearer it is at home; because, unless the difference of price is very considerable, the operation can yield no profit, and will therefore be relinquished. But produce will always be dearer at home, if there is an abundance of convertible paper in circulation, than it would be if there were none. Of course, importations of specie will be so far less frequent.

Supposing even that, through the multifarious combinations of business this effect should be partially counteracted, and

*The Works of Alexander Hamilton, vol. I. p. 75.

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that considerable importations of specie should take place, still will the specie, thus imported, soon emigrate, if it can be advantageously invested any where abroad. It is not in the nature of things, that a commodity of no use should be retained, if it can be exchanged for one, the possession of which is desirable; and a nation has hardly any, we may say, has no use for the precious metals, when it has learned to perform its circulation, more conveniently, more advantageously, and, above all, more independently, by means of portable credit,-of bank notes.

Banks, therefore, in the first place, necessarily lessen the quantity of coin which, cæteris paribus, would be in the country-if they did not exist. In the second place, they put the remaining coin out of circulation.

The introduction of banks, in fact, assigns to coin a new duty. It is relieved from that of circulating property; but the substitute, though in itself perfectly equal to the task,* labours under a want of confidence, particularly with those who are deficient in information, and coin is therefore required for its support.-A young practitioner, though superior, perhaps, in talents, to him under whose auspices he begins his career, would often find it difficult to maintain himself in business, but for the knowledge, among his employers, that the tutor is always at hand, to be resorted to on trying occasions. Coin is no longer necessary abroad, but it has a post assigned it, where prudence requires that it should always be found. It is no longer wanted in the field, but placed on garrison-duty, in which new situation its functions are by no means unimportant. The safety of the operations of the many thousands in active service, requires that the fast holds of the country should be well secured against surprise.

Thus we see that the introduction of bank paper, not only causes a smaller amount of the precious metals to be retained in the country, than would be retained but for its existence; but also that the amount remaining is proportionably taken out of circulation, inasmuch as they have stations assigned them, namely the vaults of the bank, whence they cannot be removed without imminent danger. Of course, we are warranted in the assertion, that after the general establishment of banks in a country, coin ceases to be, and bank credits, in the

* The present situation of England, in this respect, strongly corroborates the assertion. Notwithstanding all we have heard, for two years past, on the depreciation of the paper of the bank of England, the latest accounts mention, that exchanges improve, and gold falls. There was indeed by the last accounts, but a trifing difference between the market and mint price of gold!

shape of notes, or checks, become in reality, the circulating medium of the country.

Having established this point, we shall next examine, what ought to be the qualifications of a good circulating medium, particularly for the purposes of government.

Circulation implies a succession of transfers. A circulating medium consequently must be the more deserving of its name, which is expressive of its character, the wider the range, in which it is qualified to effect transfers.-Bank of England notes, Sicca rupees, Russia rubles, could not, in this country, effect a single transfer, though they might be disposed of, as a commodity, to particular people. A Savannah, a Newbern bank note, in Philadelphia, or New York would be as bad, if not worse. The English bank note might find a purchaser in a British agent; the rupees, the rubles, might be taken to a silversmith, but you could not procure a meal, nor escape a protest with Savannah notes.

Hence it follows, that a bank note is the more ineligible a substitute for coin, the more circumscribed its sphere of circulation. But, the respective sphere of bank notes will be the narrower, the greater the number of banks by which they have been issued: because it is the policy and interest of banks, in order to retain their coin, not to receive in payment any other notes, except their own, and those of banks at the same place, which regulation prevents notes of distant banks from having circulation within their precincts. Hence bank notes generally, must be the more ineligible a substitute for coin, which they nevertheless cause to disappear—the greater the number of banks, by which they have been issued.

In regular times no great inconvenience arises, to private citizens, from this defect of our bank notes, in their character of circulating medium; because the business between the different states is mostly settled by exchange of commodities, creating drafts of one merchant on another, which exchange of commodities, the maritime situation of the principal towns, in each, singularly facilitates; and the business of the towns with people in the interior country, whose produce they receive, whose wants they supply, is then also steady; so that their respective transactions can be mostly settled, without forcing any bank notes out of their usual circuit.

The general government, however, cannot fail to experience, even in regular times, some embarrassments on this score. The receipts of the revenue, as derived from customs, take place along a seacoast, fifteen hundred miles in extent. The distance from each other, of the customhouses at the two

remotest points, in a straight line, is hardly less. The merchants, spread over all this ground, can only pay the duties in such money as they have, namely, each in bank notes, current where he resides. Of course, the revenue, after having been collected, still remains scattered. Massachusetts notes, Rhodeisland notes, Louisiana notes, Georgia notes, &c. can only be employed in their respective states. It becomes necessary for government, not only to keep accounts with a number of banks, all over the Union, but also to adapt, in some measure, the local disbursements to the local receipts. This may be practicable, though unavoidably attended with inconvenience and risk,-in regular times, and as long as the transactions of the treasury continue very limited, in their amount, and simple in their nature. But it would become impracticable to manage, in this way, affairs of greater magnitude, as the country advanced in wealth and power; and, even in their present state of simplicity, the necessity of such proceedings would be fraught with the most serious consequences, during a period of unusual expenditure, occasioned by civil commotions, or war.

The effect of such events is always to derange the usual routine of business,-to disturb the ordinary course of circulation. The notes of one bank will be forced within the sphere of another. Received there from necessity, and unfit for circulation, they will be collected, and taken to the place, where they were issued, to be exchanged for specie. The banks, foreseeing this contingency, will be aware, that their limited specie funds, cannot safely maintain in circulation the same amount of paper, during such a period, as in times of perfect tranquillity. Prudence, and regard for their interest, will oblige them to reduce their discounts. Circulating medium will become scarce, at the critical moment when it should abound. Private individuals, as well as government, must suffer from this state of things.

The banks will be aware, that the general government must be unable, during war, to adapt its local disbursements, to its local receipts, with the same facility as during peace. The question of a loan to government, by individual subscription, will, therefore, put them particularly on their guard, and the scarcity of circulating medium, which the superior commands of self-interest, and perhaps their duty towards government itself, oblige them to create, may defeat the loan.

To convince ourselves that this is no dream of a gloomy imagination, let us remember that the general government has at this moment, previously to any loan, deposits, in the VOL. III. 2 N