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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
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Farmers' and Mechanics' bank of Philadelphia, to the amount of nearly six hundred thousand dollars, when we know the specie of this institution, from their own statement, hardly to exceed three hundred thousand dollars. Suppose the proposed loan were to increase the balance of the government-account . in this bank by half a million more—in what situation will be i the government?—in what the institution? The government— unless it take care to expend these funds entirely within the sphere of the bank, will cause it to fail, and may loose the greatest proportion; if the precaution be impracticable—the funds will be useless.
Must we not suppose that all banks, more or less, are in a similar situation? Have they not all conducted their business under the same temptations, or influenced by the same motives, of necessity or complaisance, with regard to their customers? must we not presume that our directors are not inferior, in prudence and sagacity, to any?
But suppose that patriotism—ill understood,—or the sapient injunctions of a profound state legislature, here and els; where,overcome the prudential reluctance of bank-directors;— that they discount freely; that circulating medium becomes plenty; that the loan takeu place;—then, of course, government will become possessed of eleven millions of dollars, scattered between Massachusetts and Georgia, and only receivable in the respective bank notes of the several states.
Suppose that under these circumstances the Copenhagen scene should be renewed before New York—which we trust will never happen—of what avail to government, would be New York bank notes?—If Massachusetts should be invaded from Canada, or an insurrection take place among its inhabitants—what use could be^ade of the right to draw on the banks at Boston?—If another \rising among the slaves in and around Richmond—who have\dready risen twice— should convulse that city—of what advantage to government, would be Virginia paper? If a solitary \British seventy-four should blockade the mouth of the Mississippi—could government purchase a single barrel of flour fk>T a hill on New Orleans? It might as well have funds in the flfloon!
Thus it may happen, that government, e\en after a successful loan, only finds itself enriched with a\tfeDt> remains as empty-handed as before!
We appeal to the intellect of our readers, wheth*1- 'maff,nation can conceive a financial situation,more <'onsumr\ateJ-r Precarious and miserable than that which we have just (VscTM^
Of course, we cannot resist the conviction, that no circulating medium is fit for the purposes of the general government, except one, the circulation of which is coextensive with the Union, and such, in our country, can only be the paper of a powerful national bank.
But a national bank would be unconstitutional!—This was the objection of Mr. Jefferson, then secretary of state, when General Hamilton proposed the first plan of a national insti- . tution of this kind. There is a peculiar propriety in calling to mind, at this moment, the ground on which it was then attempted to support this objection.
The words of the constitution, relating to this subject, are, that congress shall be authorized " to make all laws necessary for carrying into execution the powers with which it is specifically vested, and all other powers, vested by that instrument in the government of the United States, or in any department or office thereof."
The secretary of state argued, that this clause of the constitution, under which the legality of the projected institution was attempted to be defended, could not support it, because the word "necessary" did not here mean—needful, requisite, incidental, useful, or conducive to—as Hamilton contended, but absolutely, indispensably necessary, so necessary that the thing could not be done, in any mode or manner, without.
Against a political measure of vast importance, the secretary of state took his grammatical stand. Against a national bank—intended to encourage industry, to aid revenue, to support public credit, to secure financial power, to cement the Union—he argued from a dictionary?*
But, if at the period alluded to—when there existed but three state banks, when bank paper could not yet be considered as the general circulating medium of the country, if even at that period the paltry grammatical ground could hardly be supported with a colour of plausibility—how much more untenable must it now be, when the want of coin, and the abundance of paper, multifarious in form, and confined in operation—threaten to place government in a predicament such as has been stated above?
Taking it then for granted, that the constitutionality of a national bank could not, particularly at this day, be rationally questioned; and referring those of our readers, who may en
.* The Works of Alexander Hamilton, vol. i. p. 118.
tertain any doubts on this point, to the masterly paper of the first secretary of the treasury, in which it is fully discussed; we shall proceed to advance some ideas concerning the particular organization of such an institution, most conducive to the interests of government, and of the nation at large.
In order that we may be well understood, it is necessary for us to premise a few general observations.
Extensive banking operations do not require the actual employment of a large capital. Their vital principle is confidence and credit. The essential qualifications of those who engage in them, are great responsibility and great prudence. Great means are, therefore, not required for any direct, but for their indirect service, in establishing responsibility.
Discounting is the process which brings bank notes into existence and circulation. The real, and regular basis of their solidity, is the substantial property of those whose promissory notes, or bills, are discounted. A body of directors, of notorious omniscience, and unquestionable integrity, might establish a bank without a cent of capital, and their notes would, notwithstanding, command an unlimited confidence, and circulate freely. Since omniscient directors cannot be found, and since among the best, some may be frail, the confidence of the public cannot be perfect, unless those, who engage in the business, are possessed of a capital. This capital is the guarantee of the public, against the bad consequences of any mistakes of judgment, or possible deviation from strict propriety of conduct.
The specie of a bank, rigorously speaking, is not more essential to their business, than their general capital. Their business, in concise terms, consists in facilitating, and expediting transfers of property, by the cheap and convenient means of credit. They create credit, on value pledged to them. They give this credit a convenient shape, by expressing it on the face of a bank note. With these bank notes the public deals. All this, strictly, requires neither specie, nor property. It is a mere affair of agency, for the well conducting of which judgment—beyond liability to mistake,—and integrity beyond the reach of corruption, would be alone sufficient. A general capital, or the possession of property of their own, is necessary with the institution, for the indirect purpose of affording a guarantee against the evils,that might arise from mistakes, or misconduct. Specie is requisite as a summary evidence of the existence of this guarantee.
A countryman presents himself at the bank, and says— "Here, I have some of your notes. I am going to settle beyond the mountains. May I be well assured, that I am safe with them, and that they will always serve me as money?"— The answer would be—" You may, because we understand our business; we never issue notes except on good security; we are honest men, and we have besides a capital of our own. —But it is a more energetic, a plainer answer, to say—if you doubt it—take this" and to show him the silver. It is a better " argument to the man," an argument that addresses itself to every capacity; which is not subject to misconception, or misrepresentation.
A practical proof of the truth of this position, that capital and specie are not rigorously essential to the business of banking, is afforded by the modern history of the bank oi England.—The capital of this institution, for an age back, has been in the hands of government. Its specie, since fifteen years, has nearly disappeared. Yet, so momentous are the operations of this bank, that it successfully supplies the British nation with circulating medium, in its own notes, to the amount of -no less than one hundred millions of dollars, which serve, moreover, as the basis of a new superstructure—the issue of country bank notes to the amount of one hundred millions more.
Thus then—the general capital of a bank serves the purpose of guarantee; the specie, the purpose ol a summary evidence of that guarantee. The latter is an argument of solidity, unanswerable, expeditious, within the reach of every comprehension. It is therefore expedient, and highly proper, that both should exist, though neither is indispensable.
If the notes of a bank had a universal currency—then specie would never be wanted, except to form the summary evidence. It would never be appealed to, except as argument. If their currency is confined, then specie may also be called for, as we have seen above, from motives of convenience; because it will answer the purpose of effecting transfers, in places where the notes would be useless.
If a traveller, setting off from Philadelphia for Savannah, can supply himself here with bank notes which will be received all the way, he will take them. But he will rather supply himself with half eagles, than be obliged to exchange his travelling money every hundred miles.
Hence the more extensive the circulation of the notes, which a bank issues, the more exclusively will the use of specie be confined to the sole purpose of occasionally establishing the summary evidence. When their circulation is confined, an additional supply must be kept, to meet the demands of convenience.