try bankers distant sixty-five miles or more from London, who choose to issue them, and redeem them either in gold or Bank of England notes. Thus the whole burden of preserving the convertibility of the currency falls upon the Bank of England; and when the paper issues become excessive, the drain commences upon the bank. To counteract it, the bank resorts to contraction; but, notwithstanding its utmost efforts at contraction, it is often so embarrassed by the continued expansion of the country issuers, that it finds it exceedingly difficult to diminish the circulation, and has within a few months been on the very verge of suspension.

The defects of these systems are apparent to all. In regard to the remedy, no two persons can be found who entertain the same opinions.

It has been, of late years, supposed that a certain proportion between the issues and specie should be ascertained and fixed; and, this proportion preserved, the convertibility of the paper circulation would be secured. When the charter of the Bank of England was renewed in 1832, this principle was adopted, and the proportion fixed was one third the amount of the circulation and deposits, to be held in bullion. The recent parliamentary inquiry has, however, shown that this principle has been rather the exception than the rule, in the management of the bank, since the time of its adoption. Its directors have, in its management, under the influence of circumstances beyond their control, been rather governed by considerations of expediency; and, having no control over the country issuers, who are also governed by notions of expediency, the community are subjected to all the evils attendant upon excessive fluctuations.

To remedy these evils, it has been proposed, both in this country and England, to establish a bank of issues, which should possess the sole power of issuing notes. The leading feature of the plan appears to be to issue a certain amount of notes, to be determined by law, upon securities, and the rest only in exchange for bullion. Mr. Samuel Jones Lloyd, the proposer and principal advocate of this plan in England, states it as his opinion that the issues of notes should correspond with the influx and efflux of bullion from the country.

We must declare that we see in this plan nothing more than an exchange of one evil for another. In the first place, the amount of the currency issued on securities must be left to the discretion of somebody. In this country the men who administer the government are constantly changing. Legislators usually remain but a short time in office. Each new one that comes in is desirous of trying his own experiments, and testing his own theories, regardless of what has been done by those before him, and of what may be done by those who may come after him. This constant liability to fluctuation in the management of the issues, would subject the currency at times to greater danger. Besides, when bullion comes into a country, the tendency of paper money is to diminish; but a forced issue of notes, at the time of an influx of bullion, would only tend prematurely to stimulate prices, bring on an immediate efflux of bullion, and render the accompanying contraction calamitous in a corresponding degree. It is also proposed in this country, to set up a great bank to regulate all the little ones. But who is to regulate the regulator? Who is to decide when it is proper for the currency to be expanded, and when it is desirable it should be contracted by the operations of the regulating machine, and have the vibrations occur at precisely the right moment, and to the right amount? The grand difficulty in the way of this mode of managing

the banking system, is that all these movements must be left to the discretion of somebody. And experience has demonstrated that a board of directors of a bank, possessing a discretionary power over the currency, are subject to influences, that, however honest their intentions, they find it extremely difficult if not impossible to resist.

We object decidedly to any such system. We object to any system which leaves the currency to be fluctuating at the discretion of any body whatever. We object to any regulation on the part of the government beyond the exercise of its power of coinage, and the enactment of such simple general laws as will secure the fulfilment of contracts made by issuers of paper money.

We can approve no system that is not self-acting. The currency must regulate itself. If the precious metals flow into the country, our banking institutions must be so constructed as to admit of such an expansion as the demands of business require. If the exchanges turn, they should at once accomplish the needed contraction, and part with the coin necessary to restore the currency to its proper equilibrium with the currencies of other nations.*

If a system of banking can be devised which shall accommodate itself to these vibrations of the currency which must unavoidably occur in commercial nations, with ease, regularity, and certainty, we believe it would be a perfect system.

We believe this can be done without interfering with the banks now in existence; that is to say, the solvent banks in existence may be incorpo

*The precious metals being universally adopted as the measure of value, and there being no restriction to their circulation, every commercial nation will, in the course of trade, obtain its proper share.

Withdrawing from one nation any part of that proportion, adds to the value of the remainder, and depresses the price of all other commodities.

Adding that amount so withdrawn to the currency of another nation, diminishes the value of the precious metals in that nation, and raises the price of all other commodities. The nation that has lost the metals, exports its other cheap commodities to the nation that has gained them, where the other commodities have become dearer. They do not receive commodities in exchange, because it is not for the interest of anybody to buy in a dear market, and sell in a cheap one.

The process in due time creates what is called a balance of trade, and draws the metals back again to settle that balance.

This movement in the metals causes a reaction in prices.

The object of government should be to let the currency work freely, and it will thus keep itself on a par with that of other nations.

Paper is substituted for specie for the purpose of economy-but to answer as a substitute, must perfectly represent it, and be convertible into it at will.

The instant it is issued in excess, it will, if left to work with freedom and without regu lation, be converted into specie and exported, and must be reduced in amount until the equilibrium of the metals is restored.

All regulation of the currency in opposition to the course of trade, tends only to derangement, as for example, an importation of specie is followed by a fall in the price of other articles exported. Perfect freedom is therefore indispensable, that prices and cur rency may preserve themselves in equilibrium among commercial nations.

rated into such a system with ease. By solvent banks, we mean those that can pay their liabilities in specie.

Banks that can pay any thing, can pay specie. If a bank has not specie, it should have some kind of securities that will sell for it. If it has none of these, its capital has too little vitality to be useful for banking purposes, and the sooner it goes into liquidation the better. Under a sound selfacting system, these institutions could not stand for a single day.

In order to explain the true principle on which a banking system should be founded, in a country where the currency is a mixed one, we must first point out the great defect in the present system.

The moment a bank in this country* issues its notes, such of them as are not needed for payment of demands at the bank itself, fall a little in value. The further they go from the bank, the greater their depreciation. The tendency of bank notes is always towards some central point of trade; and as most of these notes flow into this reservoir, they are at a discount when they arrive there; great enough to pay the broker who buys them for the expense of sending them back for redemption, and a profit on the capital he employs in the business.

In the commercial cities, the case with the banks is different; their notes, issued at the centre of trade, are at par. If they travel away from home to any distance, they are more valuable than the currency into which they introduce themselves, and are caught up at once and returned home.

If the currency becomes redundant, the demand for specie for export is first felt by the banks in the commercial cities. The notes of these banks instantly return upon them for redemption. That portion of the currency which exists in the form of deposits, and which is identical with that part of the currency in circulation in every thing but form, is drawn out, and the banks are forced to a contraction.

But with the country notes, the case is different-they fill all the channels of circulation-no bank but that which issues them will receive them, and they thus become the cheaper currency, and it is for the interest of everybody to keep them from the channel through which only they can return home, i. e. the broker.

Now if the contraction caused by the first demand for coin could be felt immediately by all the banks in the country, the currency would be restored to its equilibrium immediately.

But while the contraction goes on where the demand for specie is first felt, there may be a continual expansion elsewhere. There often is such an expansion which keeps the currency redundant, and prolongs the drain of specie until the convertibility of the whole currency is seriously endangered, if not entirely destroyed; the mercantile interests suffering in the mean time the entire action of the contraction necessarily going on at the great commercial points.

The general circulating medium consists entirely of the notes of banks of the second grade. The circulation of the really rich and sound banks does not penetrate into the mass of paper afloat throughout the interior. This circulation is made up of notes of distant banks-the more remote the situation of the bank, the greater its circulation-the greater the dis

These remarks do not apply to the banks in New England, which we shall have occasion to speak of hereafter.

count on its notes, (provided it does not go beyond that point at which people in general will submit to it, rather than refuse to receive it,) the greater the certainty of its continuing in circulation.

Thus it is for the interest of every bank to push out its notes as fast as possible. The surest way to keep them out, is to make them a little less valuable than the notes of other institutions.

The currency under this existing system of banking, is, if our view of it is correct, constantly tending towards depreciation, and requiring at regular intervals a convulsion of some sort to restore it to a sound state.

The banking system is a machine constantly getting out of repair-now breaking a wheel here, and a cog there-men constantly taxing their wits to repair its defects, which are no sooner repaired in one place than they show themselves in another. The people, through their legislatures, have been at work for two generations, and the machine goes none the better, but rather worse.

Let us state then what we conceive to be the true principle on which the banking system of the country should be founded; it is the principle of making it for the interest of everybody to send bank notes home for redemption.

This interest is not to be created by discrediting the paper-by causing the apprehension of loss to operate as an inducement to the holders of the issues of banks to force them back to the issuers, in opposition to their considerations of convenience or necessity. Such a course would subject the community to a loss of all advantages derivable from the use of paper as a circulating medium.

Nor should it be done by arbitrary enactments to restrain circulation from perfect freedom in its motions-nor to compel its return to the source of issue by any unnatural way—or in a way to cause expense to its issuers, or holders. This expense must in some form fall upon the public in the end, and to its extent diminishes the amount of convenience and economy of the circulating medium.

It is rather to be created in other ways which we will point out.

In the first place, the idea almost universally prevalent, that the point of issue is to be the point of redemption, must be given up. Banks are often instituted in remote places, inconvenient of access; and as their issues cannot be returned, except at heavy expense to the holders of their paper, their notes under the existing system, as we have described it, are less valuable, and thus displace the notes of banks nearer at hand; thus weakening the circulation, and rendering corrective measures more difficult in case of a redundancy.

All banks should therefore be required to redeem their issues at some point, which serves as a centre for the trade of the section of country in which it is located, or as the centre of the trade of the whole country. In this way, the course of trade, and the interest of the public, will carry its issues to be redeemed, as naturally as a log of wood would float down the Hudson from Albany to New York. Thus the banks in the state of New York should be required to redeem their issues in New York; the state of Pennsylvania, in Philadelphia; and other sections of the country, at those points towards which, in the course of trade, they most naturally tend.

In the second place, there must be freedom in the business of banking. In advancing this proposition, we are well aware that we run counter

to a deep-rooted prejudice in favor of a system of regulation; but it is the system of regulating that we strenuously oppose. We want a system to act of itself, and upon general, sound, fixed principles, to regulate itself. This it cannot do without entire freedom.

The system of chartering banks is radically defective. One state may charter too few-and the whole emolument derived from the business of a bank of circulation, is engrossed by a few rich aristocrats, who get hold of the stock, and assume the entire control of it; and as they make currency plenty or scarce, so they raise and depress prices to answer their own ends.

Another state may charter too many, or may burden the corporations they create with troublesome restrictions, or undue taxation. Hence these charters cease to be an object of desire to those who have real capital to invest, and fall into the hands of speculators, who keep up a show of capital where there is none in reality; and by means of the machinery of the bank, furnish themselves with funds, to a small extent, from its limited

means.

The public, however, make no distinction between such weak banks and the really sound ones. All put forth their issues under legislative sanction, and the public relying upon what is thus accredited, esteem all alike sound-in fact, surrender all judgment of their own respecting it, and place full reliance in the sanction the public authorities have given to its issue.

In this way, by means of legislative charters, bills emitted by banks without capital enjoy almost equal credit with those of solid resources, until something turns up to destroy the public confidence. A dozen men who are not worthy of credit for a single dollar, and who individually could not obtain credit for that amount, by some means become possessed of a charter, and thus collectively obtain unlimited credit. By means of a charter, a number of nothings are manufactured into something. The circulation they obtain is palmed off upon the unwary and ignorant: after which comes the catastrophe, involving loss to the public, and shaking confidence. in all banking institutions.

The state of New York has tried a system of free banking-how it will work, remains to be proved. The system we think is faulty in principle; but it is certain that it requires more character and more credit to establish a free bank, than it ever required to set up a chartered bank. Men of straw, and mushroom speculators, do not establish them, because the public will not take their bills. Some such were started when the system was first established, and the bills passed at distant points, because the public was wedded to the idea that all bank issues were made by legisla tive authority as soon as it was discovered to be otherwise, they dropped out of circulation. A free bank now, without real capital, and honest managers, cannot get bills enough into circulation to pay for their engraving. There can be no reason given why the two branches of banking business, lending money and receiving it in deposit, should not be left open to a competition as free as is allowed to any trade or business whatever. The issue of bills for circulation, is a branch of the business respecting which the public have a right to say something; and while we would not by any means wish it to say too little, we would not have it say too much. The public use the bank notes as the representative of specie, and have a right to say they shall be fully equal to specie in every respect. And as