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But the circulation of bank notes becomes confined, in proportion as banks multiply.
The greater, therefore, the number of banks, the larger ought to be their respective specie funds.
The more specie a bank is obliged to keep in its vaults, the less the business of banking is profitable.
Consequendy, when banks become very numerous, they become also, either less profitable—if prudentially conducted, —or less safe—if the dictates of prudence are violated, which is what will most generally happen.
Besides, not only will convenience oftener compel a demand for specie, when the abundance of banks has impaired the aptitude of their notes as a substitute for coin; but specie will also be liable, in this case, to be more frequently appealed to as argument. With the number of banks, must increase the chances of mismanagement, or of a disordered state of affairs, from local causes, among which we may reckon invasion by an enemy. The more, therefore, will the confidence in bank paper generally, be subject to be shaken, and the greater the necessity of being always abundantly provided with the argument. If this precaution is neglected, by those who manage these institutions, a few untoward events may throw the whole country into confusion, beyond the possibility of re-establishing confidence and order.
Thus, we think, it is positively, and irresistibly proved that a multiplicity of banks, either endangers the solidity of the whole fabric of credit, and the general prosperity depending on it; or else compels the keeping of so much specie, that one of the leading objects for which banks were contrived, and which constitutes their chief usefulness—to obviate the necessity of specie—is defeated.
And it is apparent from all our preceding observations, that the public interest—which is the interest of the revenue, and of government,—requiring a real substitute for coin, a circulating medium of extensive currency—as well as the general prosperity—with which banks whose solidity is precarious are inconsistent—demands the existence of a powerful national institution, and demands, in strict theory, that there should be but one institution of this kind.
The framers of our system of polity wisely provided one social compact—the constitution, the source of all rights, all institutions, all laws; and one executive head—the ultimate reliance of the whole empire for security and protection. There is wanting, one main financial organ—the steady prop of industry, commerce, civilization, and of government itself. Without it, a body politic, of the nature of ours, remains deficient in one of the essential requisites of durable vitality.
On the other hand, banks are of a peculiar utility to the people within their immediate sphere. They enable such, as are possessed of property, to command, by pledging it, through the means of promissory notes, any quantity of circulating medium, for which they may have occasion, at a moderate interest, for any period of time. Thus they enjoy a facility in the prosecution of business, of which people remote from the banks, who cannot raise money so readily, are in a great measure deprived.—Individual interest, therefore, supported in some degree by equity, demands the multiplication of banks, while public interest, and the permanence of general prosperity, forbid it.
As in the case of revenue, we find a clashing between what is most conducive to the rapid attainment of private wealth, and what comports best with the public good. Those who are zealous for the indefinite increase of banks, from philanthropic or private motives, and the state legislatures—so much disposed to countenance the same system,—have their imaginations engrossed with such considerations alone, without being aware,that,by yielding to them indiscriminately,the whole machinery of circulation by means of credit, and with it general prosperity, revenue, financial power, tranquillity at home, respectability abroad, national greatness—are ultimately placed in the most imminent peril.
In the case of revenue, perfection,as we were told by Burke, lies in the preservation of a proper balance. We have endeavoured to point out the mode of taxation, which would, under our general circumstances, be most conducive to this end. Is there no mode of reconciling individual interest, and the public weal, with regard to circulating medium and banks?
We think this important object might be attained, by instituting one powerful national bank, whose notes should be at all times exchangeable for specie, and by causing all other banks to render their notes exchangeable for national notes, or specie, at their own option.
That this arrangement would be efficient, is evident at first sight. As no payments could be exacted from the local banks, in exchange for their own notes, except payments in national paper—unless they choose to pay specie—national bank notes would of course become as current all over the Union, as hard dollars are at present, because no bank would refuse to receive them.—As the local banks need not keep a larger amount of national paper, than they do at present of specie, their profits would remain unimpaired.—As, on extraordinary emergencies, supposing the state of their affairs to be sound, a supply of national paper could always be obtained from the national institution—their safety would be greater.-—As, in cases of invasion, insurrection, and the like, they would not have so much of cumbersome treasure to transport, and to save, as at present, these events, were they to take place, would not be attended with the same disastrous consequences as under the established system.—Individuals, possessed of substantial property, could be accommodated with circulating medium, whenever there should be a sufficient number in a neighbourhood to support a local bank, without exposing the community at large, to any of those serious evils, with which we have proved the multiplicity of banks to be now pregnant.—Much less specie would be wanted on the whole, than is wanted a: present, and yet, the aggregate currency of the country, would receive, from the ultimate evidence, a support, equally unequivocal, and infinitely less liable to be endangered by inauspicious events. certain sum—say three, or five dollars.—We cannot discover that this plan would militate against any interests whatever, whilst it would powerfully support and secure, the most important interests of government, and the public at large.— We, therefore, see no reason why it might not be carried into effect, and we think that it ought.
The advantages, which would attend this plan, cannot be doubted. It3 practicability our readers will be more readily disposed to admit, when they reflect, that the same thing, io sfact, exists in England, where innumerable country banks, circulate their own notes, payable, on demand, in notes of the Bank of England, or what amounts to the same, in bills on London.
What indeed could render it impracticable? Specie demands for purposes of convenience, would totally cease;—because the convenience, afforded by national paper,would be superior to that of specie itself,, Specie demands, from want of confidence,would be converted into demands for national notes, the convertibility of which into coin, would be so firmly established by the nature of the national institution, by public opinion, and the ultimate summary evidence, that every one would consider it as equal to specie itself.—Should a Bonaparte at our door, a world in convulsion, cause an unexampled suction of specie, and leave us exhausted—still would the machinery of credit perform its revolutions undisturbed.—Gold and silver, for purposes of exportation, would become articles of merchandise, in which the banks would continue to deal.—In order to keep in circulation a certain amount of specie and preserve at the banks the metallic exhibition, it would only be required, that none of the banks should issue notea below a
The following appears to us the most convenient mode, in which its execution might be attempted.
Let a national bank be established, with a capital of thirty millions of dollars.
Twenty millions to be subscribed by the general government.
Ten millions by individuals.
The subscriptions of the latter to be totally furnished in gold and silver.
The subscription of government to remain a debt, demandable in case of need. The institution can have no occasion for the actual payment of this subscription, in the regular course of things; since, as we have seen, the use of the capital of such an institution, is only to guarantee responsibility; which guarantee is as effectually afforded, whether government actually pay up its subscription, or only remain liable.
The term of the charter—the duration of the constitution.
The payment of a bonus, taxation of the capital, of dividends, stamp duties on the notes, and the like—by charter out of the question.
The directors—solely to be chosen, by the individual stockholders in the usual way. All interference of the government, in the management of the concerns of the institution, by appointment of directors or otherwise, would be injurious. "The keen, steady, and, as it were, M magnetic sense of their own interest as proprietors, in "the directors of the bank, pointing invariably to its true "pole, the prosperity of the institution, is the only secu"city that can always be relied upon for a careful, and "prudent administration. It is, therefore, the only basis, M on which an enlightened, unqualified, and permanent "confidence can be expected to be erected and main"tained."*
The notes of the institution to be payable on demand, in I specie.
/ The Works of Alexander Hamilton, v. i, p. 99 —The conduct of some «late legislatures, and chiefly that of the legislature of New Jersey on a late
/ Vol.111. 2 0
All payments to, and by government, to be made in national notes.
National bank notes to be legal tender, and their genuineness to be established by reference to competent authority.
Government to be intitled to no more than one half of the profits; so that each individual stockholder would draw one and a half dividend per share. This will be proper, because the individual stockholders will have their funds actually engaged; the general government will draw dividends only in consideration of its guarantee, charter, giving extensive circulation to the notes, &c
The institution to have a right of establishing branches, wherever they may think proper. These branches to discount with their own notes, payable on demand, in national notes, or specie, at their option.
These are the outlines of the plan of a national bank, such as we have in view. Let us cast a rapid glance on its probable, operations.
With a capital of thirty millions, and a specie fund of ten millions, the institution might, with great propriety, employ their credit,* to the amount of thirty millions.—We request our readers to bear in mind, that we speak of a perpetual bank. If it could not do business to the extent mentioned, immediately, its means, nevertheless, would be soon no more than commensurate with the exigencies of an increased, and more opulent population.
Of these thirty millions, fifteen, perhaps,would be employed in discounts by the mother bank.
With the remaining fifteen millions, five branch banks might be established, each with a capital of three millions, in national notes.
Supposing these to employ their own credit to the amount of six millions each, then the aggregate amount, of the discounts of the branches, would be thirty millions. The discounts of the mother bank we have stated at fifteen millions. Of course the institution would draw profits on a sum employed in discounts, amounting to forty-five millions.
The discounts of the late bank of the United States, with its branches, averaged about fifteen millions, which enabUed
occasion, after Hamilton had thus written on the subject, bespeaks a wiston neglect of duty, or an unpardonable degree of ignorance. j
• We prefer this expression, as it includes both—bank credit, giren *on the books, and notes issued.