7.53, D.D.

Hamilton Ban

THE FINANCIAL REGISTER

OF THE

UNITED STATES.

DEVOTED CHIEFLY TO FINANCE AND CURRENCY, AND TO BANKING AND COMMERCIAL STATISTICS.

"It is the interest of every country that the standard of its money, once settled, should be inviolably and immutably kept to perpetuity. For whenever that is altered, upon whatever pretence soever, the public will lose by it. "Men in their bargains contract, not for denominations or sounds, but for the intrinsic value."-Locke on Money.

Vol. I.

WEDNESDAY, FEBRURY 14, 1838.

From the National Gazette of June, 24 1837.
ON THE CIRCULATION OF SMALL
NOTES OR TICKETS.

No. 17.

he has for sale, he will always offer the person to whom he is indebted, the least valuable of the two. If, for instance, as was the case in the United States prior to 1834, a One of the most extensive evils resulting debt for a given amount could be discharged from a suspension of specie payments by the in one ounce of gold, or in fifteen ounces of banks, is the expulsion of the small coins silver, the debtor would have paid in gold if from circulation, and their substitution by he could have got more than one ounce of gold small notes or tickets issued by banks, cor- for the same quantity of goods or labour that porations, or individuals. As a circulating would only have commanded fifteen ounces of medium, they are liable to so many objections, silver. On the other hand, if he could have that the legislature of Pennsylvania in the obtained more than fifteen ounces of silver for year 1817, and subsequently in the year 1828, prohibited their emission in terms which admit of no evasion, and nothing but the absolute impossibility of doing without them, should induce any individual to give them his sanction. It is indeed upon this ground that, in the present emergency, so many respect able people give countenance to what they admit to be a positive nuisance, and it is therefore not to be questioned, that if a measure could be devised by which the necessity of small notes could be obviated, it would be welcomed by the whole community. The writer is of opinion that there is such a remedy, and he proposes to offer respectfully to his fellow citizens the views which have led him to that conclusion, which if they do not meet with general acceptance, may possibly be the means of bringing out the suggestions of others which may be more worthy of adoption. It is true that this remedy, like all other remedies, will cost something, but he thinks that the expense will not be half as great as that which will result from leaving the disease uncured, although the parties who will have to pay for it may be different.

the same quantity of goods or labour that
would only have commanded one ounce of
gold, he would have paid in silver. Indeed
this latter state of things did actually exist
between the years 1822 and 1834, and it was
for that very reason that every body during
that period paid their debts in silver. Fifteen
and a half to sixteen ounces of silver were
then as easily to be had as one ounce of gold,
and nobody therefore paid in gold. Gold,
therefore, became of no use as a circulating
medium, but gradually disappeared, by being
exported to foreign countries, leaving its
place to be supplied with fresh importations
of the cheaper metal silver. It is this una-
voidable tendency of the dearest of two me-
tals, to disappear from circulation, which
renders it impossible that any permanent re-
lative value can be established between gold
and silver by any mint regulations. Let the
laws be as rigid and as severe as they may,
the laws of commerce will out-manœuvre
them.

What has been here said of the two metals, is equally true of the relation which subsists between coin and paper not redeemable on deIt is a fact perfectly settled by all the mand. The want of redeemability depreciates writers on political economy, that two curren- the paper below the value of the precious cies of different values, but of the same deno-metals, as is evident from the fact, that coins mination, cannot at the same time and at the can be sold for more paper than the paper same place, perform the functions of a circu-promises to pay; and upon the principle lating medium. If a man having money to above laid down, it is evident, that paper pay, has his right to choose between two metals for instance, each of which by law is a legal tender for the same amount, and can procure a greater quantity of the one than he can of the other, in exchange for any thing

being cheaper than gold or silver, every one
who has a debt to pay, or wishes to make a
purchase will offer the paper in preference to
coin. For the truth of this proposition, 1 ap-
peal to every individual who may read this

the remedy intended to be proposed, may be the better understood, I will now proceed to state it as follows:—

article, and will venture to assert, that if he goes to market, having small notes and coin both in his pocket, he will not offer his coin in payment as long as he finds the cheaper Let the banks of Philadelphia, for instance, currency to answer. It is true that paper is or a majority of them, agree to fix from week not a legal tender, and therefore creditors to week a scale of prices, at which they will cannot be forced to take it. But in place of agree to receive the current coins in payment a law of the land, there is a law of necesity of debts due to them, to an amount less than which induces the great body of creditors to five dollars in any one payment, giving them accept what is offered, when the depreciation a higher valuation than their intrinsic worth. is not too great, rather than go to law, and This valuation would of course be varied from especially as they can pass it off to others at time to time, according as the market price the same rate. It may, therefore, be assumed of specie, measured by paper, would be as a principle admitting of no dispute, that higher or lower, which could be determined coins and irredeemable notes cannot circulate by a standing committee appointed for the concurrently, if the difference be sufficiently purpose. Thus, for instance, if the price of great to render it an object to melt or to ex-specie in the market was what is called twelve port coin. The only reason why all the coins per cent. premium, as at this day, let the dollar have not yet disappeared from the markets be received at 112 cents, the half dollar at and shops, is that time has not yet been af- 56 cents, and the quarter dollar at 28 cents. forded for the manufacture of as many small To the smaller American coins of full weight notes as would supply their place. a higher proportionate valuation might be From these positions it is plain that the de-assigned for the sake of putting them beyond mand made upon the banks for the redemp-the power of exportation, and for the purpose tion in coin of their five dollar notes, would of obviating the necessity of frequent changes be attended by no practical good to the pub-in their valuation. The ten cent piece might lic. The only effect would be to enable be fixed at 12 cents, and the five cent piece those who were so fortunate as to be in the at 6 cents. The limited quantity of these last actual possession of five dollar notes to make in existence places a limit upon the loss which a profit by the sale of the silver, which they the banks might sustain in consequence of so should receive for them, whilst those who high a valuation. Standing advertisements held ten dollar notes, and who would be en- in all the city papers, giving the bank agio titled to quite as mnch consideration, would of the week in a conspicuous place, would have no such advantage. After a few days apprise the public of the current bank value not one dollar of the specie thus drawn out of coins, and would fix their price as certainly would be in circulation, for even if those who in all transactions between individuals, as the drew it out were to put it in circulation, it government could fix it by establishing a rate would very soon get into the hands of those at which they would be receivable for duties, who knew its value, and would be sold to the or as the banks of Philadelphia themselves, a brokers, and by them to merchants for ex- few years ago, fixed the value of the worn portation. But not only would the state of coin of six and a quarter cents, by resolving the currency not be bettered, but it would in not to receive it at a higher rate than five reality be made worse. We should then be cents, at which valuation it has continued to in want of five dollar notes, for our own banks pass ever since in this city by universal conwould issue no more, and in the place of those sent. One week's notice of any change which withdrawn from circulation, we should be in- might be necessary, in consequence of the undated with those from other states, pre- gradual melioration of the currency, ought to cisely as New York is now, in defiance of be given, that the public might be apprised law, drawing supplies of one dollar notes in due time, so that in case of a reduction of from New England and elsewhere. Against the valuation, no one need be caught with too such a recourse to a foreign currency, there much on hand. is no prohibitory law in Pennsylvania, so that the banks of New York, New Jersey, Delaware and Maryland, would be looked to as the sources of our supply, and be made to reap a profit, which our own banks might as well enjoy.

Having considered it necessary to be thus particular in laying down the general principles connected with currency, in order that

That this plan would be effectual in giving a free circulation to the coins, at the new temporary valuation, admits not of a doubt. The sixteen banks of the city and liberties of Philadelphia, are creditors of the public to the amount of at least fifty millions of dollars, and the daily payments of promissory notes made at their counters, is probably greater than the daily amount of revenue paid to any

ON THE CIRCULATION OF SMALL NOTES AND TICKETS.

259

existing government, and their powers over necessarily gradual, be very great, but whatthe subject, therefore, are full and absolute. ever it might be, it would be an easy matter It is, therefore, evident that no shopkeeper, for each bank to make a special agreement grocer, or dealer of any kind, who has goods with its own customers for the payment of for sale, would hesitate to receive from any checks for fractions less than five dollars in body who wished to purchase, the current specie at the same rates at which it was recoins at their bank valuation, because he ceived from them. Against such special conwould know that he could in his turn pass tract there is no prohibitory law in Pennsyl them off at the same rate to others, or, at allvania, any more than there is against the speevents, apply them to the payment of his cial contract lately introduced of receiving notes, or to the payment of his debts to others deposites repayable in "current bank notes," who would have notes to pay. It is admitted and as there would be no profit on the transthat there would be some trouble and incon-action, public opinion would sustain a meavenience attendant upon a change in the de- sure the design of which would be to promote nominations of coins, especially with persons the public convenience. not accustomed to accounts; but great as this To this plan the writer is not able to permight be, it would not be half as great as that ceive any plausible objections which could be which must result from the use of tickets,which urged, except on the part of the banks. Those exposes ignorant persons who cannot read institutions might say, that their willingness to the risk of being imposed upon by others, to receive coins in payment of debts at a and subjects the whole community to a loss of higher valuation than the legal one, would be time in making change, which amounts to a acknowledging the depreciation of their pavery serious evil. Frequent changes in the per. It is not easy to perceive why there bank valuation of the coins would not be pro- should be any backwardness in acknowledgbable, and it might happen that the same agio ing what every body knows to be true. If a might continue for several weeks at a time, single bank had stopped specie payments, or even months, in reference to the smaller there might be some excuse for such reluccoins. tance, but at a time when out of eight hunHaving thus shown how the coins could be dred and twenty-three banks and branches put into circulation, it remains to be consi-throughout the United States, scarcely one dered how those which should find their way pays its notes and deposites in specie, such into the banks could be got out again. It is an objection could hardly be considered to be very certain that although a bank would have in good taste. There is no harm in calling a right to receive coins in payment of debts things by their right names, especially when due to her, at any valuation she might choose the depreciation of the paper is not the result to set upon them, in the same manner that of any apprehension of eventual inability to any individual might do, yet she would have pay, but of the want of immediate converti. no right to compel any person who might have bility into coin. The banks might also say, a demand upon her to take them at any other that by adopting the plan suggested, they valuation than the one established by law. lf, might be considerable losers: it might happen therefore, she could not lawfully pay them that after they had received at a high valua out, it might be supposed that they would tion a quantity of coins, the gradual meliorahave to remain in her vaults. To meet this tion of the currency would reduce their price difficulty, a very simple as well as lawful pro- as measured by paper, so as to throw upon cess is at hand. In the first place, a very them a loss equal to the premium which was small amount of coins would be offered to the allowed in the first instance. This is highly banks, inasmuch as they could not be spared probable, and even if it were to prove to be from the channels of circulation, in which a so, I should like to know, whether the loss large amount is always required in every large could possibly fall upon more appropriate community to carry on its retail transactions. shoulders? If the banks are now drawing an The knowledge of the fact, that the bank interest from the persons who borrowed from valuation was the valuation at which every them the bank notes, the non-payment of which body would take them, would render it unde- occasions a resort to this expedient, is any sirable for people to send them to the banks, thing more reasonable than that they should and it would only be towards the close of a contribute a part of their profits on the transweek, when a considerable reduction in the action to save the public harmless from a loss agio of the next week might be announced which they themselves had no hand in prothat any quantity would be likely to be sent ducing? Certainly no stockholder of a bank in. At no time, therefore, would the amount, who has a regard for justice, would sanction owing to the reduction of the valuation being such an objection. But after all, the loss

sales are made, and in order that the dealers may know the relation which it at any time bears to bank money, the agio is settled and published every day, by a committee or board, and bulletins are transmitted to all the mer chants and brokers, as the guide for their transactions. Here then is a practical instance of the settlement of a daily agio to which a whole community refers, as to the standard of value, which is sufficient to satisfy any one who will examine into the subject, of the entire feasibility of the plan here suggested.

which might accrue from this process, would (money, a large portion of the purchases and be trifling compared to the benefits which the banks would derive, from conciliating a very large body of people, who are put to immense inconvenience by the use of small notes, and from accommodating another large body, who need no conciliation, but who, nevertheless, are exceedingly annoyed at the prospect of a long continuance of a small paper currency. Admitting that the sum which the banks might receive at the highest agio, and which might not be drawn out again at the same rate, should be, what is highly improbable, as much as a hundred thousand dollars, an improvement of the currency to the extent of twelve per cent. during the whole course of the suspension, would amount to the insignificant sum of twelve thousand dollars. But even if it were twice, or thrice that sum, it would be a small amount for the purchase of so important a benefit.

The writer is aware that such a measure may meet with opposition from some indi viduals who desire to see the corporations of the city and liberties continue to raise money for their current expenses, by the emission of certificates of loan for small amounts, bearing an interest of one per cent. per annum. But surely, the people who compose these corporations, who are the very public now proposed to be benefited, cannot be averse to a measure which is calculated to save them ten dollars in time and convenience, for every

In offering these suggestions, the writer professes to lay claim to no originality in the principles of the plan. The well known system of bank tokens adopted by the Bank of England during her suspension of specie pay-one dollar they may save in taxes. Specie ments, was a practical illustration of the pre- brokers who buy coins at 11 per cent. present scheme. In order to prevent the disap- mium, and sell them at 12, will also be apt to pearance of the silver coins, a stamp was put oppose such a plan, as will also the many inupon them by the bank, by which that insti-dividuals who have turned bankers, and have tution was pledged to receive them at a valua-issued small tickets in violation of law. But tion as much higher than their intrinsic and from such opposition little is to be appre legal value, as would save them from being hended. The great mass of the community melted or exported. By that means a silver must be in favour of keeping small notes out currency to meet demands for a less amount of circulation, and there cannot be a doubt than a one pound note, was kept up at a pe- that if a strong expression of public opinion riod when the bank paper was depreciated on the subject were made to the banks, they twenty per cent., and the British public was would readily accede to the request. consequently saved from being inundated by a mass of miserable rags, such as that with which we are now threatened.

AN EXAMINER.

A DEFENCE OF THE JOINT STOCK BANKS; An Examination of the Causes of the present Monetary Difficulties, and hints for the future management of the Circulation. By David Salomons, Esq. Lon. don, 1837.

Nor in reference to the agio, between bank money and current money, does the writer offer any thing new. He had in his eye the mode by which commerce is carried on in Hamburgh. In that city there is a bank which No subject can be more interesting than that of the confines its operations to receiving specie and circulation of the country. The welfare of the whole bullion on deposite, by weight, giving the de-commercial body depends upon it, and if any thing positor a credit on the books of the bank for occurs to interrupt the usual steady course of a healthy the intrinsic amount in marcs banco. This currency, the derangement does not alone affect com merce, but it extends itself to the body politic. It thus money is the money of commerce, in which becomes an object of great national importance to all large mercantile payments and bills of ex-guard it by legislative enactments from all frequent change are paid, but as the bank issues no and sudden changes; and it is therefore desirable that notes, it can only be paid to another by trans-amined, and the causes of the present derangement of the question should at this moment be thoroughly exfers on the books of the bank. But there is the circulation investigated. besides in Hamburgh another money in use. In approaching this subject, I am anxious not to inwhich is called current money, consisting of the coins of the surrounding states, which are depreciated below bank money, by wear and tear, and by the course of exchange. In this

troduce any speculative theories, regarding the means by which the periodical derangements of the circulation cious, than that so grave a question should assume the may be avoided. Nor can any thing be more perni. features of a mere contest between the Joint Stock

Banks and the Bank of England, in which the public at large have not a direct and immediate interest. Much, however, may be gained in having the question thoroughly discussed, its reputed causes examined, and by enquiring whether the accusation, that the present state of things is caused by the over issue of the joint stock banks, be well or ill founded.

to shield the government from that portion of blame which attaches to them, for having permitted institutions so vitally affecting the welfare of the country to exist, unless under proper limitations and restrictions. No system of country banking can be safe, that does not compel a statement of issues periodically made up and published by authority, sufficiently clear to convey information even to the most superficial observer; for to leave the public to guess the sum actually in circu lation, by the circuitous mode of an average amount, made up and published quarterly, and calculated through the stamp office returns, is necessarily ineffi

tion, the same protection for the public that is required from the parent establishment, was indeed in some measure indemnifying the joint stock banks for any abuse of the power conferred on them; and it is rather to be wondered at, that more mischief has not been caused by their instrumentality, than at the disasters which the admitted mismanagement of some of them may have occasioned.

That accusation is stated to be, that the present difficulties of our monetary system, and the low amount of the bullion at the Bank of England, and consequent danger to that national establishinent, are caused by the mismanagement and over issue of the joint stock banks. This charge has been brought against themcient. Not to have extended to the country circulafor months past, it has been proclaimed throughout the country, it has been reiterated in the house of com. mons, and by repetition it has become as it were an admitted fact. Attempts have also been made to excite the public feeling against the joint stock banks, by quoting the official returns which exhibit an increase in their circulation, and a diminution of that of private country banks, and by representing the great increase in their issues compared with that of private country banks, as evidence of their mismanagement. This charge can be refuted by stating, that many of those private banks merged their interest in joint stock banks, by either forming new banking companies, or disposing of their business to banks already established; and therefore, to arrive at the truth, and to be able to form an accurate opinion of the state of the country circulation, it would be useful to ascertain how many banks have actually done so.

It seems to be still more surprising, that the legislature did not at least require from banking companies, a definite amount of paid up capital in proportion to their nominal capital, some stated qualification for directors, some means of ascertaining before a bank opens, that it is actually what it pretends to be; a bank with a real and bonâ fide paid up capital, having direc tors to superintend the management of it, and share. holders to be responsible for its solvency. Ought we not rather to be thankful, that this universal liberty system has not produced more loss, inconvenience, and ruin? But with all these admitted disadvantages, it will require an extraordinary degree of ingenuity on the part of those who contend for the infallibility of the Bank of England, to show how the increase of less than two millions of paper by the country banks, could have abstracted nearly six millions of bullion from the cof

Whatever further may be said of the misconduct of some, or the nismanagement of any of the joint stock banks, the evidence of figures still appears against the Bank of England, and the directors of that establishment will themselves find it hard to escape from the charge, which the authentic evidence of their own pub. lished account brings against them. For, strange to say, in looking at the whole country circulation as ex-fers of the Bank of England. hibited by the stamp office returns, it does appear some. what astounding that the whole addition to the currency by the issues of country and joint stock banks during a period of three years amounts to less than two millions. The whole country circulation being

In December 1836 1833

Increase

£12,011,697
10,152,104
£1,859,593

These observations are not made in a spirit unfriendly to the Bank of England-far from it. No one is more convinced than I am of the usefulness of a controlling establishment, which by its superintending care shall regulate the circulation of the country, by its high reputation give a tone to commercial credit, by its power grant assistance to every legitimate undertaking, and by its well-conducted system, serve as an example to all other institutions. Neither do I wish to underrate the difficulty, which the directors of the Bank of Engwhilst the returns of the Bank of England exhibit in land occasionally encounter in their efforts to control December, 1833, a circulation of £18,216,000, and bul- the circulation. They must frequently strive to resist lion £9,948,000, and in January 1837 a circulation of the solicitations of the government, for assistance to £17,422,000, and bullion £4,287,000.* How can the carry into effect some favourite financial project, and joint stock banks be made accountable for this state of have difficulty in denying the importunities of indithings? The question which must always present it-viduals in seasons of danger and commercial discredit. self in referring to these published accounts is, how does it happen that the circulation of the Bank of England is nearly of the same amount, with a stock of bullion of only four millions, as when there were ten mil. lions in its coffers? If it be said that the country and joint stock banks are in fault, the reply is that a reference to figures implies the impossibility; for if we turn to those unerring guides, it will appear that in three years the addition to the country circulation is below two millions, whilst the Bank of England's stock of gold has been reduced nearly six millions.

In vindicating the joint stock banks from the sweeping charge made against them, that THEY are the cause of the present derangement of the circulation, I must not be understood as defending the vicious system on which some of those banks are founded, or as desiring

* Vide Appendix.

The aid which they afford to government, is very often inconsistent with their other duties as controllers of the circulation, and becomes a source of much subsequent trouble.

A charge having been made against the joint stock banks that their proceedings have caused the present difficulties, the question should be examined closely, not for the purpose of indulging in a useless recrimination, but rather to determine how errors can be guarded against for the future: for the joint stock banks do not hesitate to repel the charge, and to accuse the Bank of England of having caused the mischief, which they attempt to lay to the account of the joint stock banks. It has already been shown that figures make against the accusation of the Bank of England, and there is no doubt that a more decided and active course of conduct, on the part of the Bank of England for controlling the circulation, might have averted much of the present