I will illustrate it by reference to the case of the same country, which was above supposed to require a circulating medium of ten millions of dollars.

Wrhout pretending to determine the precise extent to which its coin might be safely substituted by paper, I will suppose, for the sake of argument, that one half of the former shall be exported, and that consequently the currency consists of five millions of coin and five millions of paper. Under this state of things, the bank would be drawing interest on a sum five times as large as its capital, even allowing that it retained a sum equal to its whole capital of a million in its vaults in coin, to meet occasional demands. The profits of its business would therefore be very great on account of the small capital of which it was the income, and the consequence would no doubt be, as soon as the secret should become known to others, that a second bank would be established.

Few of the projectors, however, of this new bank would probably believe that the great profits made by the original bank were the result of a monopoly, and that they would not have been any greater in absolute amount, if its capital had been five millious instead of one; but under delusive notions that the same per centage of profit, or something near it, would attach to a large capital as to a small one, they would probably establish their new bank with a capital, let it be supposed, of two millions of dollars. Now to make a proportionate profit equal to that enjoyed by the original bank, paper must be issued to the amount of ten millions, and the bank accordingly commences its operations by a profusion of loans. But the channels of circulation are already full of the paper of the old bank, and there is no room for any more. Issues, however, go on until money becomes plenty, and the currency becomes depreciated below the general level, as in the case of the original bank. Prices of all commodities rise; foreign merchandise, by its high price, holds out inducements

for importation; domestic products become too dear for exportation; bills of exchange rise, because the demand for them to pay for foreign commodities increases faster than the supply; and as soon as their price in the market exceeds the amount of the expense of transmitting gold and silver abroad, a portion of the remaining five millions of coin will be exported. Then is the new bank first reminded of its mistaken views. Its notes return upon it for payment in coin, to be sent out of the country, and its neighbor, too, the old bank, which has five millions of paper in circulation, feels the effects of this reaction, and both are obliged to call in a part of their loans, in order to avoid a worse state of things. The consequences would be, a general scarcity of money, and a temporary commercial embarrassment. The result, however, would be found to be, that as five millions of dollars was the total amount of paper that could be kept in circulation without depreciation, the profits of furnishing this amount are now to be divided between two banks instead of being monopolised by one, and in such proportions as the particular influence or management of each may be able to establish.

A similar effect precisely would follow the creation of every additional bank; and should the number increase to five or ten, the aggregate profit would still be the same; for although the paper currency of five millions would be occasionally augmented in quantity as each bank commenced its operations, as has been shown, yet in the long run it would settle down at the old amount. But, notwithstanding the certainty of this fact, there would still be a perpetual endeavor on the part of some of these banks to get the largest share of the profits of this supply of the paper currency by extraordinary issues. This, however, it could not accomplish, if the public would always insist upon strict convertibility, and if other banks were true to their interests by making a daily demand upon each other for the payment of balances

occurring in their mutual transactions, not in paper, but in coin.

And here I will remark, that precisely as each bank of a city thus checks the issues of its neighbors, the united banks of a city check the issues of other neighboring cities. If the currency of a particular city, Philadelphia, for example, were to become depreciated below that of New York, the effect would immediately be shown by a rise in the former city in the prices of stocks, bills of exchange, and other securities of easy transmission, of which the consequence would be, that amounts of these would be sent to Philadelphia for sale, and by that means the banks of that city would be brought into debt to the banks of New York, which would call for payment of the balance in coin, and that would lead to a contraction of the currency, until the equilibrium would be again restored. It is precisely upon the same principle that the general currency of the country is corrected by the influence of those of foreign countries, and therefore, if any obstruction to the free exportation of coin should at any time exist, either by the timidity of the holders of bank notes to demand their rights, or by the laws of a country, or by the exciting of public odium against the exporters, either by banks, politicians, or otherwise, so as to deter them from exporting when it is profitable for them to export, the currency must inevitably sustain depreciation, and mischief must be the result.

In connection with this subject, it may here he also remarked, that should the time ever arrive, when all the principal commercial countries of the world should adopt the circulating banking system, the whole of the benefits resulting from the substitution of paper money for coin will vanish. The only reason why this substitution is now productive of profit to any country where banks of circulation exist, is, that there are other countries in which there is no paper money, and which are willing to give other commo

dities for gold and silver. But only let them all adopt the policy of issuing bank notes in an equal proportion, so as to preserve their respective currencies upon the same level, and it will at once be seen that the precious metals will not flow out from either, and that the inevitable consequence will be, that the prices of commodities and property will be increased all over the world, whilst not a dollar will be added to their value. Every movement made in Europe towards the establishment of banks of circulation, is a step towards that terrible consummation, when no domestic or foreign checks will longer exist to prevent those unlimited expansions, which cannot possibly exist without alternate contractions, subversive of the industry and prosperity of the whole civilised world.

CHAPTER IV.

OF THE SAFEST AND MOST PROFITABLE MODE OF INVESTING THE CAPITALS OF BANKS OF CIRCULATION.

Ir has been shown that banks of discount upon the corporate or joint-stock principle could not generally be conducted to a profit, seeing that the income they derive from the loan of capital would not be as great as the income which the individual proprietors could have derived from lending their money without the agency of salaried officers and the rent and other expenses of a banking house. It has also been shown, that for the same reason, banks which perform the double function of banks of discount and banks of circulation, can make no banking profit by the mere lending of their capitals. All their profits are derived

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from lending their credit; for, although where the fate of interest is six per cent. per annum, the practice of taking the interest beforehand, and charging sixtyfour days discount for the use of the money for sixtythree days, as in Philadelphia and other places, the actual rate received is 6 per cent., yet the additional four-tenths of one per cent. do not pay the proportion of the whole expenses of the bank, which the amount of its capital bears to the whole amount of its loans. Indeed, a little reflection will enable any one to perceive, that not only do all the profits beyond legal interest of a bank of discount and circulation, where it is successful, arise from the loan of its credit, but those profits must besides furnish a fund for making up the loss incident to the lending of its capital. Thus, if we suppose a bank of discount and circulation with a capital of one million of dollars, having loans out to the amount of one million and a half, and the whole annual expenses of the bank to be fifteen thousand dollars, or one per cent. upon the amount of the loans, it will be seen that two thirds of this expense attaches to the lending of the capital, and only one third to the lending of the credit of the bank, so that if separate accounts were kept of the expenses of each department of the institution, they would show a gain upon the lending of credit and a loss upon the lending of capital. If, therefore, the whole operation be profitable, the profit must arise from the lending of credit, and must consist of what remains after defraying the loss incident to the lending of the capital, which is precisely equal to the excess of the expenses of bank agency in loans over those of private agency, deducting the four-tenths of one per cent. which a bank charges, more than individuals would have a right to charge by law on loans.* At all events, no one will pretend that banks

*The banks of Pennsylvania, and perhaps most other states, are authorised to charge one per cent. interest for sixty days,