the money of both places, and consequently an equal scale of prices, there could have been no motive for the transmission of merchandise, stocks, or bills of exchange, from one place to the other for sale, except that which ordinarily exists, and which at all times, under a sound currency, leads to a mutual and equivalent interchange of commodities and property.

*

The remarks which have here been made in reference to the domestic exchanges will apply with equal force to the foreign exchanges of the country. Foreign bills will show in their market price the relative degrees of the depreciation of the currency of the places at which they are sold. If there be a favorable or unfavorable balance of trade, capable, under a sound mixed or metallic currency, of depressing or raising the price of bills one or two per cent. below or above par, that amount will subtract from, or add to the rate of depreciation, and consequently make it appear less or greater than the true rate. In like manner, also may the market rate of exchange fluctuate to a greater extent than under a mixed or metallic currency, owing to the uncertain continuance of the same degree of depreciation at the place where bills are drawn. Thus if the currency of New York under a suspension for example, were five per cent. depreciated below the gold standard of London, whilst the course of trade was such that, under a convertible currency, the exchange would be at par, the paper money rate of exchange on London would be five per cent premium. if there were all at once to arise a strong probability that within a short period the banks of New York would resume specie payments, it might be more advantageous for the holder of a bill on London to sell even as low as the paper money par, which would be

Now,

Upon the resumption of payments by the Philadelphia banks, on 13th August, 1838, the exchange at New York on Philadelphia fell to to 3, and from that period up to the suspension of October, 1839, it was at no time below and was frequently at par.

in fact, five per cent. below the true par, than to import gold for the amount of his bill; for the simple reason, that by the time his gold could get there, the banks might have resumed payment, in which event he could obtain no premium for it, and would consequently be the loser of all the expenses of importation. It was the gradual diminution of the currency of New York, attended by a great pressure, which by degrees reduced the premium on specie, and gave assurance of an early resumption of specie payments, which in the month of February, 1838, reduced the exchange on England five or six per.cent below the true par, which could not have happened in ordinary times, under a metallic or mixed currency.*

So also on the other hand, if the currency of New York were five per cent. depreciated below the gold standard of London, and the paper money rate of exchange, as in the former case, were at five per cent. premium, that is, at the true par, it might, if the currency were expanding, be more advantageous for the holder of a bill on London if he had debts to pay, which could be discharged with paper money, to import gold than to sell his bill at five per cent. above that true par, for the simple reason that the price of specie might rise to such a premium as to afford him an additional profit over and above the expenses of importation, which could not have happened under a mixed or metallic currency.

* On the 10th of February, 1838, nominal exchange on London at New York was quoted at 7 to 8 per cent. premium, being an average of 73. The true par as has been shown is near 9 per cent. advance on the old computed par. The price of specie on the same day, payable in New York currency, was 31 per cent. premium, and consequently exchange on London, if paid for in coin, was 4 per cent. nominal premium, which was in reality 5 per cent. below the true par.

CHAPTER III.

OF THE TRUE CHARACTER AND EFFECTS OF A GENE. RAL SUSPENSION OF PAYMENTS BY THE BANKS, AND THEIR OBLIGATIONS UNDER IT.

WHEN an individual bank fails by mismanagement or over-trading, so that it cannot pay its notes or deposites, we say that the bank has broke; but when eight hundred or a thousand banks do the same thing, we call it suspending specie payments, as if there were any thing but specie of which a stoppage of payment by a bank or any individual could be predicated. For all the banks, therefore, of a country, to stop together, call it what we may, it is nothing more nor less than a general bankruptcy, under which the banks find themselves in the precise condition of individual traders, who, when they meet with temporary embarrasments, are obliged to call upon their creditors for an extension of time. Between the mode, however, in which the two parties make the appeal to their creditors for this extension, there is a very wide difference. The individual trader solicits it as a favor which his creditor may grant or withhold at his pleasure; and if, in his opinion, his estate is ample for the ultimate payment of the whole of his debts, he stipulates to pay interest for the time he is to be indulged, and during which his creditor is to be kept out of his property.

On the other hand, banks, when they default in their payments, not only never ask the indulgence of their creditors for any specified extension of time, but they do not even think themselves under obligations to pay interest to their creditors for the funds they forcibly detain from them;* nay, they very frequently,

* Since the first edition of this work was printed, one excep

in the midst of their insolvency, declare dividends of the very profits which actually belong to their creditors, who, and not the stockholders, are entitled to interest for their withholden funds. Excepting where legislative enactments have forbidden dividends under a suspension of payments, instances are extremely rare wherein a sense of justice on the part of the directors of banks has led them to refrain from such manifest injustice, and the consequence has been, that a direct inducement is thereby created for taking no steps towards a resumption of payment, for fear of diminishing the profits of lending other people's money, whilst refusing to allow interest for its use.

*

From these remarks, it may be inferred, that I consider a resumption of payment by solvent banks, after they have stopped, as not of so difficult accomplishment as many persons imagine. The fact is even so, and the chief delay that takes place with most of them is the simple result of a calculation of profit and loss. It is not profitable to resume expeditiously. This is with such banks the whole pith of the question, and that I may not be considered as asserting a proposition unsusceptible of proof, I will establish it thus:

tion to the generality of this remark has been presented in the case of the Branch Bank of Darien in Georgia, located at Milledgeville, which stopped payment a second time on the 27th of March, 1839. The directors, in announcing the fact to the public, gave notice, that the bank would pay an interest of seven per cent. upon all sums of one hundred dollars and over, deposited in the bills of said bank during the suspension.

*During the suspension of 1837 and 1838, all the banks of Pennsylvania made dividends, although it was prohibited in the charters of most of them. After the suspension, which took place in Philadelphia, in October, 1839, most of the banks of that city resolved not to declare dividends, until the pleasure of the Legislature could be known. By an act authorising the continuance of the suspension until the 15th of January, 1841, permission was granted to make dividends, contrary to every principle of justice and equity.

A bank with a capital of ten millions of dollars, has loans out at the time of the suspension to the amount, we will suppose, of fifteen millions. Of this fifteen millions, we will suppose three to constitute that excess, which, in conjunction with the excesses issued by the other banks, has caused the depreciation of the currency, terminating in the stoppage, and consequently, that that is the amount of immediate liabilities, which, if they were put out of the way, would restore the bank to a sound condition, seeing that under the securest conduct, it can always maintain without danger of reaction, loans amounting to twelve millions.

The first and most natural mode that presents itself to accomplish this end is to call upon the debtors of the bank for the payment of three millions of dollars. One could hardly suppose, that any bank having loans out to the amount of fifteen millions, could not within a reasonably short period collect twenty per cent. of the amount, seeing the fact to be, that paper money must needs be plenty, as is proved from the very necessity of diminishing its amount in consequence of its being in excess; and more especially would this be true, if any large part of the loans made by the bank was upon a pledge of stocks of any kind; for it must be manifest that all such stocks are saleable for cash at the market price; and if a loss should occur upon a forced or unexpected sale, the owner would have no right to complain, because such was the contingency under which he pledged them.

But let us suppose, what is most commonly urged upon such occasions, that the debtors of the bank can not pay at all without a long indulgence as to time, and that if their stocks are sold at forced prices, the bank will lose a large part of the security she holds for the debt. I can see no objection to a creditor, if he finds it consistent with his interest, accommodating his debtor by a postponement of his demands. It is done every day, and is just as legitimate when