It is then plain, that however great the expansion of credit might have been, it was not more than would be likely to happen under any unrestricted system, and that however severe the drain of specie may have proved, it was not caused so much by any well founded apprehension of the character of the bank notes, as by the inevitable course of trade, the high rate of foreign exchange, and consequent necessity for specie. To which contingencies, it may be added, the free banks will be no less liable for the future than the chartered ones have been heretofore.

But it is maintained that a suspension of specie payments by the banks ceases, under the new system, to be attended with the evils which have heretofore marked its occurrence under the old one; and that if such an event is unavoidable at certain stages of the credit system, it must be admitted to be a great thing, that its most injurious tendency, the depreciation of the paper, from the mere force of panic, has been prevented. The public will now be perfectly satisfied, that however difficult it may be at some single moment to convert the paper bills of the free banks into gold and silver, yet that these have a substantial and positive value, independently of their immediate convertibility, which no former notes of the same kind possessed, and which render it perfectly unnecessary for any body to be uneasy in the possession of them. We are inclined to the opinion, that there may be some foundation for this reasoning; and that, to a certain extent, the danger of excessive panic may be remedied by this new feature of banking. But the reasons why we do not believe it entirely remedied are these: In times of scarcity of money, the great pressure upon the commercial community commonly arises from a necessity to pay foreign debts. Bills of exchange are not to be had, and specie must then be resorted to. Now the value of bank notes in the hands of merchants consists in their instant convertibility into a means of paying their debts equally abroad as at home, and when that convertibility ceases from any cause or other they must necessarily be losers. So long as the banks can meet their engagements by furnishing the medium wanted to pay these debts, so long will the machinery of the credit system work easily; but the moment that they do not, the moment that it becomes impossible for them to redeem their paper with silver or gold, that moment the whole train of calculations based upon their ability to do so is dispersed. The demand for specie is not the more remitted on account of the failure of the banks, unless we are to suppose all the merchants to fail too, which they never will while they can help it; and the supply of it to meet that demand becoming, by the act of the banks, who take out all their stock of the article from the market, so much the more limited, a monopoly necessarily takes place in the hands of the holders, which they are not slow to improve. The price of specie rises, that is, a silver dollar becomes more valuable than a paper dollar. The currency of the community, which is paper, becomes depreciated to the extent of the difference, and the free banking law is exactly to the same extent of no avail. The comptroller of the state can do nothing to check this state of things, for he is not supposed to possess a single dollar of specie; on the contrary, he holds securities which it is his business to try to convert into specie, at the time the catastrophe happens. Hence he comes into the market as a competitor to purchase the very article for which too great a demand for the supply to be had exists in other quarters already. His interference must aggravate the disorder rather than cure it, inasmuch as he must sell his securities at a sacrifice, or he must withdraw without gaining his object, in either case weakening to

some extent that degree of confidence which alone induces the public to give equal currency to free bank paper money with the precious metals, and by weakening it, also confirming a scale of depreciation between the two.

It is true, that if it were possible for the comptroller to possess property in his hands as collateral security, which never fluctuates in value to the extent of more than one or two per cent even in the worst of times, it would be very easy for him, and for the banks whom he represents, to calculate upon the ultimate redemption of their notes in specie. But the experience of the past distinctly teaches us, that there are moments in the commercial world, when no property of any kind can be negotiated; even in Great Britain, where the national funds possess so very fixed a value in comparison with any thing we have, and where so much more private wealth exists to be drawn out in cases of great emergency, and where such resources for raising money exist in the neighborhood of the other wealthy countries of Europe, it was clearly shown in 1825-6 that at one moment even exchequer bills could not be negotiated upon any terms. And if in Great Britain, with all her advantages, and with a credit system so much less elastic than ours is in the United States, this is occasionally the result, what can we expect from any attempt to convert securities, such as we possess, upon any similar contingency?

Here lies, in short, the great obstacle to the success of the new experiment of free banking, as adopted in New York. The state is made to hold securities for paper bills, which are liable to be affected in value nearly as much as the bills which they propose to secure. No suspension of specie payments is very likely to take place, unless after every expedient to raise money has been resorted to by private individuals and companies in vain. It is not the want of property to offer, which ever creates a general suspension, but it is the impossibility of finding money into which to convert property. The comptroller here has no advantage over and above any one else, and he is subjected to the serious inconvenience of coming into the market only after it has been tried already to exhaustion. How can he expect to convert his securities, then, excepting at a most ruinous sacrifice? and if he does not so convert them immediately, who is to judge of the period to which it can be postponed, and of the goodness of the bills which rest upon their convertibility in the interval?

The whole plan is now, it is true, in its infancy, and as yet we cannot at all judge of the extent to which it may be pushed; but even now we can form some slight idea of the difficulties to which the comptroller would be subjected, if compelled at any moment to redeem any considerable amount of bills in circulation. By a return made up to the 30th of April last, it appears that state stocks had been offered and accepted to the amount of $2,137,090, and lands had been mortgaged to the value of $851,316 13. This sum is trifling, unless we regard it as the mere outset of a system, which, if it has even a moderate share of temporary success, must extend itself to the supply of a much greater proportion of the currency. But even of this sum, $877,000, or more than a quarter part, consists of the six per cent stocks of the state of Arkansas, and 518,000, or over a sixth part, is of the six per cent stocks of Michigan; while the remainder is in a great degree composed of the stocks of Missouri, Maine, Alabama, Indiana, and Kentucky, and the mortgaged lands. Now, without meaning to express a doubt of the ultimate value of all this property, we must be allowed to question whether, in a time of panic, out of the whole three millions pledged, the comptroller would

be able to sell at par more than at farthest $4,000 of United States stock, which we presume to be Treasury Notes, and $25,090 of the 5 per cent of the state of New York. It is but very lately that the new states of the Union have had any credit at all. They have neither fixed population, nor accumulated capital, sufficient to authorize any steady estimate to be formed of their character in meeting their engagements, and although it may be admitted that they have the capacity of enlargement to an extent which older states are not readily susceptible of, yet this is rather an argument in favor of the withdrawal of their stocks into the hands of capitalists, who never want to convert them, than to make them the basis of a fluctuating credit system, the changes of which affect them as much as any species of existing property. We hardly think it ought to be pretended, even by the most enthusiastic believer in state stocks, that in moments of panic, when the wealthy business men of our commercial cities shall have exhausted all means of raising money, even with the offer of property in ordinary times of the highest negotiable value, the State will have any means of redeeming the circulation of the free banking companies, by the offer of such securities as those which have now been named. The tendency of this law to increase the disposition of the states to make loans, is a feature of the system which has scarcely yet been sufficiently observed. The whole creation of the permanent debts of the states has been so much the work of a moment, that hardly time enough has elapsed to see its practical operation. One hundred and eight millions of dollars have been contracted for within three years. Of this sum, as indeed of the whole amount, all which is in the best credit, has a tendency to find its way to London, whilst that which will not do there will be retained as material for domestic banking. So long as it is practicable, under the law, to carry on the business of lending money profitably, so long will there exist a demand for State stock, which would never have existed if it had not been for the law. And if, ultimately, that stock should, for any cause, not necessary to be stated, fail to be redeemed, we do not perceive that the loss would be likely to fall upon the bankers, who will have enjoyed the value of a paper currency, co-extensive in amount; nor upon the State which authorized them; but it would fall almost exclusively upon the very holders of the bills, who were sought, most especially, to be secured.

Moreover, the intimate connexion which is thus forming between the states and the banking system, through the operation of these large loans, is another incident which has not as yet met with the consideration which it appears to deserve. Of the entire sum borrowed under the authority of the states, up to this time, estimated to be equal to one hundred and seventy millions of dollars, fifty-two millions have been raised for the purpose of banking. And it would be a curious circumstance in our history if, whilst in Louisiana, for example, the money borrowed by the creation of stock, is used as capital for the banks there, the stock itself should be made the basis for other banks, under the law of New York. Yet we see nothing impossible, or even improbable, in the supposition. How much the interests of Louisiana and New York are thus made to depend upon the success of the credit system of the former State, fully appears. Indeed, upon further examination, we perceive that the case we state hypothetically, has already happened. For the states of Missouri and Arkansas have created no stock, excepting that which has set in motion their banks; and this very stock, to the amount of $69,000 of the former State, and $877,000 of the latter State, making more than a full quarter part of the whole capital in the hands of the Comptroller, has already been made the basis of double banking opera

tions, under the free law of New York. It is thus easy to perceive what a stimulus must be given to overaction, throughout the country, when the same capital can be used for so many different purposes; and when once used, and the edifice of the paper system is once made to rest upon the substratum of State credit alone, the inducements operating upon the State to keep up that system at all hazards, rather than to meet the responsibility which must ultimately, in case of its failure, fall upon them, can easily be estimated.

We have, as yet, said little of those more obvious objections to the law, which have already occurred to the minds of most sensible and reflecting persons among us. Yet we cannot pass the subject without, at least, remarking upon the difficulty likely to arise under our popular system of government, from combining the interests of private individuals into masses, by throwing their lands, to a great extent, into the hands of the State government, subject, in case of trouble in the pecuniary affairs of the public, to be levied upon, summarily, at a ruinous sacrifice to the owners. The notion of making land the basis of a currency is not a new one. It has often been attempted in times past, and in various shapes, but so far as we have the means of knowing, with uniform want of success. Now, we are at a loss to perceive why the operation, again proposed, should be likely to be any more fortunate than its predecessors have been. The indispensable attribute of money is convertibility into any and every article wanted, whether by the pleasure, or caprice, or convenience of the holder. In order to this, it must also be divisible to the extent necessary to accommodate a purchase, whether it be very small or very large. Neither of these qualities can ever belong to land; but, on the contrary, land itself is always the article which stands in the most need of the aid of money, in order to become transferable at all. A laborer can buy neither bread nor meat for the day with an acre of land, but must first proceed to sell that acre for money, and with that he gets what he wants, exactly in the quantity required. So the comptroller of New York, with fifteen or twenty millions of landed estate, mortgaged for the redemption of bills to that amount, would be utterly unable to convert a five dollar bill without coming into the market to get the coin. But fifteen or twenty millions of landed property cannot be brought into the market at any one time in any part of the United States, without at once reducing the value of the whole of that species of property in the vicinity of where it is situated. Hence the difficulty of conversion, and a necessity of sacrifice or delay. Sacrifice will be ruinous to the owner, while delay will prove injurious to the bill-holder, especially to that poorer class who cannot keep money for any length of time on hand. The alternative is disagreeable, for on either side great popular uneasiness may reasonably be apprehended: on the part of the combined land owners, if their property is sold at much less than its value; and on the part of the bill-holders, if it is not, and they suffer by the consequent depreciation of their bills.

After all, it is not unlikely that the effect of any public disaster, if such should happen, would simply be to compel the State to guarantee the circulation in the first instance, and reserve to itself an opportunity, subsequently, to convert the assets in such manner as completely to indemnify her for the advances she would be compelled to make. This would not probably be severely injurious to her prosperity, although it might be embarrassing. For ourselves, we hope that she will never have occasion 16

VOL. I.NO. II.

to be driven even to this; and that the dangers we have thus undertaken to foresee from the free banking law, will prove imaginary. If it were not for the extensive injury to result from all errors committed in this department of science, we should always be in favor of testing the value of new theories by experiment. We believe there is something yet to be learnt, and if the state of New York shall prove fortunate enough to establish, by her present law, the possibility of securing even the stability of that portion of the circulating medium within her limits, which has heretofore been subject to injurious fluctuations; we think the rest of the country, and the commercial world generally, will have reason to be grateful to her, for risking so much in the attempt.

But whether the free banking law is an improvement, or is not, there is no probability that it will afford any solution of the great problem presented to the world by the credit system: which is, whether any issue of notes to serve as money, by private portions of the community, can be so restricted as to prevent the fluctuations in property, which are found at present in pretty regular recurring intervals to take place. In England, the writers upon the subject are gradually retreating to the position that there should be but a single source of issue. We are not yet prepared to admit the superiority of that plan in practice, however fair it may seem in theory. And even if we were, a single glance at the condition of the United States would show that at least for them the idea is not feasible. Whatever may be the political bearing of the subject, no one acquainted with the past experience of the country can fail to admit that a national bank has hitherto been the only remedy in our power which has answered any useful purpose, and we think Professor Tucker has done nothing more than strictly his duty in submitting to the public, as he has done, the reasoning which, upon purely financial ground, has brought him to this conclusion. A national bank, with powers more divided than they were heretofore, in some respects restricted and in others modified, is the only device which we have ever yet been able confidently to believe a means of preserving the currency in the Union perfectly sound. It is with some surprise that we perceive the author to maintain the expediency of more than one national bank. This idea appeared to us so entirely at variance with the habitual good sense which reigns elsewhere in his work, that we were curious to see the reasoning by which he endeavors to support it. That no injustice may be done him, we will now extract it.

"Whatever may be the benefits of a national bank, they would all seem to be increased by having more than one, except that the profits to the shareholders would be somewhat diminished. This division of the privileges and duties of a national bank is recommended by the following considerations:

"First, whatever may be the power and influence which may be possessed by a bank that has a large capital, with branches dispersed over every part of the Union, and is the fiscal agent of the government, it would obviously be lessened by being divided. Though this power and influence have been greatly overrated by popular jealousy and party antipathies, yet, as it is still honestly believed by a large mass of our citizens to be formidable, their fears are entitled to respect, and should be quieted if possible. The feelings of a large portion of the people will never be disregarded by a wise and a just government, even when they are founded on prejudice.

"Secondly, the plan would secure to the public the benefit of competition in all those functions in which a national bank has any advantage over state banks; as in domestic exchange, in furnishing a more