in 1811, the state of New York was applying, through De Witt Clinton and others, to the General Government at Washington, for a little assistance in executing what was then thought the stupendous work of the Erie Canal, who could have foreseen that in five and twenty years afterwards it would seem a trifle, in comparison with what not merely that state, but others of not half her size and wealth, were undertaking to do? Who could then have supposed, that she who shrunk from the proposal of applying five millions of dollars to the original plan, would be considering whether eight times that sum was too much to be devoted to the same and similar purposes? It is the recollection of such facts as these, which bring to the mind of foreigners as well as natives, something like a feeble realization of the rapidity with which we advance. The world has given no similar lesson in its history. Strong as the expression may seem, yet it is no great exaggeration after all to say, that time and space, those obstacles to industry, once regarded so impracticable to deal with, stand nearly annihilated before the force of our experience.

We can

Yet it must be allowed that this amazing rapidity is calculated to confuse and dizzy the head most calmly employed in observing it. take no note of distance but by its loss; and as to the scrutiny of every particular wheel or spring that is set in motion, while all are in such constant action, the attempt is vain and fruitless. Whatever danger there may be in the path, must come, and must be met without any hope to avoid its consequences; for the people of the United States have become so habituated to swiftness of motion in their career, that they are as little conscious of it as they are of the daily revolution of the globe. We know not that the result would be greatly different, if they thought more about it. The country is generally considered as destined to furnish illustrations of the practical working of new theories in political economy as well as in government. Things unattempted yet, are the great ends which we would arrive at. And, inasmuch as the success of this policy has hitherto been unexampled, we have no right to presume that it will not continue hereafter, when more extensively followed out. Our province in America is not to dogmatise about any thing, but to observe; not to strain and twist facts into an arbitrary theory of our own, but to let the theory be drawn out from the facts by that process of philosophical induction which ascends to a general principle only, over the steps formed by the study of particulars.

It may be affirmed that there have been three eras in the progress of the United States, in wealth and resources. The first and longest was that during which the organization of the financial system of the country took place, and efforts were making to release it from the embarrassments incurred in establishing its independence. The second period passed in opening the means of internal communication between the States, and in attempts to develop the natural resources which they were believed to contain. The third and last, which is even now barely begun, appears to be likely to establish in its course the new principles by which credit and currency are hereafter to be regulated. Until the expiration of the charter of the National Bank, in 1836, the system first recommended by Hamilton, was, with a single brief interruption, that upon which the stability of our circulating medium was made to rest. It was then determined that the objections to a continuance of this system, were too serious to compensate for the advantages it furnished, and accordingly it was suffered to expire by its own limitation. The experiment was at that moment first entered upon, of letting the currency take care of itself, the ultimate value of which, although it was extremely

disastrous in its first consequences to the community, remains still to be tested by the result of a longer continued trial. The first effect of liberating the banks throughout the Union, from all idea of central control, was perceived in an expansion of their issue of bills to an amount largely upon trebling what it had before been. A rapid rise in price of all commodities liable to be affected by it, was the consequence, which stimulated gambling speculation. Credit may accelerate the formation of capital, but it can never itself be capital. This idea was not remembered in the hurry to make money; and the consequence was, that the first application of the unerring test of exchange with foreign countries, which easily recognise the difference between the two, brought on a convulsion. The banks suspended the payment of their obligations in cash, and the little gold and silver in circulation instantly disappeared All of these event sfollowed each other with extraordinary rapidity; the fluctuations incident to them were all experienced in turn; the distress which they create was suffered, and yet here we are, in the year of our Lord 1839, to all external appearance, recovered from the effect of every injury. Coin has again gone into circulation as money quite as much as it ever did, while the paper bills of the banks still form the great medium for effecting the exchanges of the community, as much, if not more, than they have always done a convulsion of no ordinary character, in the estimation of all those who ever studied the subject from books, has actually passed away, if not without leaving its marks upon the fortunes of numberless private individuals, at least, making no visible alteration in the prosperity of the mass. Prices have not fallen in bringing round the change-the wages of labor are as high as ever—the returns from industry are as quickly realized the profits of business do not fall short.

Now, we must frankly confess at once, that there is something in this, very well calculated to make students of politico-economical treatises stare. There is no such thing in the record, as the so rapid recovery of a nation from an inconvertible paper money, upon so slight a previous preparation, as was made by this one. The amount of that paper diminished during the year that cash payments were suspended, far less than it changed its character, particularly in those states where the banks had been prohibited from issuing notes under five dollars. The sum of debt actually existing, was diminished by bankruptcy, far more than by payment. Property changed hands, but it did not become the more available as it went. And yet, notwithstanding the existence of these unfailing indications of a deeply disordered pecuniary condition, most of the banks were enabled to re-assume, within a year from the time of their suspension, the performance of their engagements, and that, as it proved, with hardly a risk to themselves from the effort. And now we should like to know, how many people can be found who take bank bills in payment, the less willingly, because they have found out that they are not equally, at all times, convertible into as much gold or silver as they represent?

It is impossible to come at any adequate explanation of this phenomenon of recovery, without a close examination of all the resources to which we may have had access to produce it. Perhaps the most effectual, as it certainly was the most curious, was the extension of our credit in foreign countries, in the midst of all our distress. It now appears clearly, that whilst we at home were considering our case as very desperate, it was viewed with different eyes from abroad. The punctual payment of the interest and part of the principal of some of the loans negotiated by the States, with a liberal allowance for

the depreciation of the paper medium, sufficient to make up the full amount due in coin, was a pitch of heroism struggling against adversity, to which the experience of London bankers in Spanish bonds, or South American scrip, and even their imagination, could furnish no ready parallel. There were indications in our affairs, of a moment of excessive exhaustion, from our undertaking to do more than we were able to do, but not of enduring prostration from which no recovery could be reasonably hoped or expected. Reasoning of this kind had a tendency to raise rather than to depress the credit which the States enjoyed; our resources became better known, as curiosity increased to examine them, our punctuality better appreciated, our commercial importance more fully established. And exactly in proportion as these favorable opinions were forming or becoming more confirmed, were the opportunities offering for testing them, by immediate investments in new American stocks. It is not easy from the data before us exactly to specify the amount of money raised in England, in this way, since the year of the suspension of specie payments, but a good idea may be formed of it, from the fact that, out of the sum of one hundred and seventy millions of dollars which the States now owe, one hundred and eight millions, or about five eighths of the whole debt, has been contracted since the year 1835. This amount, drawn in three years, is twice and a half greater than what was procured in the same manner during the five years immediately preceding, and nine times greater than in any other five years before them. It would appear, then, that the United States, commercially considered as one body, has been receiving from Europe during the last two or three years, a sum which, after all deductions made, cannot be reasonably set down at less than twenty-five millions of dollars per annum, on account of the loans of states. If to this sum there be add

ed what cannot well be estimated, although it is known to be a considerable item; we mean the loans furnished to private corporations, and investments in local stocks, such as that of the United States, and other banks, Railroad and Trust Companies, &c.; it is clear that, in this direction, we have been gaining a most important, although temporary resource. Indeed, one of such magnitude as when taken in connexion with a year of reduced importation, and a small curtailment of bank discounts, to be quite sufficient to account for our easy return to cash payments again.

A concurrence of circumstances has enabled the growers of the great staple of cotton in the United States, to maintain the price of that article in England, through the year, which has had no trifling effect in facilitating the re-establishment, as well as the restoration of the currency. We may then take it for granted that that restoration is, for all present purposes, tolerably complete; and having thus examined the state of the past, we can now go on to consider the present and the future. We are not aware that a single additional precaution in legislation has been the result of the experience of the year 1837, nor that in the states generally, there has been any very material modification of the erroneous system of banking heretofore carried on. The national government stands in no respect better secured against future danger of the currency, than it did before the suspension. The soundness of bank paper depends now, exactly as it did in 1836, upon the will of the banks themselves. They may keep it good if they will listen to prudent counsels; and they may depreciate it if they do again as they did before. We have hopes of the best, not entirely unmingled, it must be confessed, with fears for the worst.

The reasons for those fears may be very briefly enumerated thus: The

foreign loans, whilst they effectively answer the present purpose of keeping the rates of exchange with foreign countries favorable, must yet be remembered to carry with them the certainty of a heavy annual burden for the future, in the shape of interest, which will go to swell a stream that may flow the other way. And although the application of the funds thus procured to purposes of internal improvement, may be granted to be likely in the main to be beneficial to the country, it will not prevent the absorption of the metallic medium, or that shape in which they were conveyed to us, into the banking system, from which it can never again be safely withdrawn; and the substitution of paper, which cannot answer to meet demands from abroad. We are aware that this very brief suggestion of the difficulty is not sufficient to explain the idea it is meant to convey. And although transgressing the limits we proposed to occupy, without nearly terminating our views of the subject, we must sacrifice the further expression of them at present to the object of developing it more fully.

Whatever may be the positive quantity of gold and silver in the country, whether equal to $50,000,000, or to three times that amount, one thing seems pretty clear, that a very small portion of it can be used as money of circulation, so long as the disposition exists in the banks to issue their notes instead, and this disposition is attended with a corresponding inclination on the part of the public to prefer them. The immediate effect of increasing specie, seems then to reduce itself to this, that it furnishes ready means for increasing the quantity of bank notes, until the proportion between them is arrived at, which, according to the usual notions, is regarded as safe. If a sum of $40,000,000 of coin was considered in 1835, as justifying an issue of 120,000,000 of bills, there is no reason why the receipt of $40,000,000 more will not justify the issue of at least $240,000,000 of bills. So far as the United States is concerned, there is no reason for supposing any limit to exist in the amount of circulating medium, which may be used-the effect only being that the prices of all commodities and labor continue to graduate themselves to the increase. The danger from such an operation arises from the action of foreign countries, by creating a tendency to import largely of their commodities, which must be paid for by money; and that money must be gold and silver. This produces what is called an unfavorable balance of trade. The rates of exchange become high- -a desire to procure gold and silver, in preference to paper, leads to an attempt to convert the latter into the former at the banks, and this in its turn involves them, and through them, the trading community, in considerable embarrassment. In ordinary times, it may be said that the great danger to the banking system is to be found in the demand which may arise for the conversion of bank notes into coin to send abroad. And thus whenever the exchanges run up so high as to make it cheaper to send coin than to send any thing else, and this state of things continues for any length of time, the whole system of bank paper issues, which we use as money, must be considered as in very great jeopardy.

Now the effect of borrowing so largely of Great Britain and other countries in Europe, as we have done during the past two or three years, is to keep the exchange between us and them for the time in our favor; and hence we are either receiving specie, or at any rate are in no danger of losing what we have. But if we receive any more specie in this manner, every body knows that it does not go into the circulation of the country, which is supplied by paper, but that it goes into the vaults of new banks, which instantly set to work to increase the sum of that paper. The effect of that in

crease is felt in prices, and these prices in turn hasten the arrival of an unfavorable balance of trade. When this happens, however, the gold and silver which came here so easily, cannot be sent away with equal ease, because it has been made the basis of a large paper circulation, which cannot continue safely without it. And if the loans have stopped in the interval, and no artificial means can be resorted to of avoiding the crisis, it will then become necessary not merely to pay in silver and gold the amount of the actual difference between the trade of the two parts of the world, but an amount of annual interest due upon the sums theretofore borrowed superadded thereon. When it is considered that this article alone is probably equal in amount at this time to twelve or fifteen millions of dollars per annum, this view of the case may not be entirely without its importance to commercial men.

That there is at this moment going on a very rapid expansion in the issues of the banks throughout the country, can hardly be doubted. If any evidence was needed, we could quote nothing more decisive than the rise in prices of all domestic commodities. Perhaps the new experiment now commenced in our state of free banking, may be contributing, in an important degree, to this effect. There is a disposition strikingly manifest in many quarters, to adopt new theories and principles for banking, which must, in the absence of all central control, have a very extensive operation upon the future condition of the currency. Perhaps they may result in something good, and at any rate it is too early to condemn them unequivocally yet. So long as the influx of foreign capital continues, it will be difficult for any body to go wrong. But in the mean time, it may not be unadvisable for those large capitalists and wealthy institutions, which now possess all the power left in the country of regulating the currency, to consider well what they do, and how far it is expedient for them, by countenancing the spirit of speculation, to put out of their hands the means they may have of meeting a moment of danger. New York is entitled to great credit in restoring us to a specie paying condition; and this credit, gained under adversity, she must not lose by any forgetfulness of her duty in moments of apparent prosperity.

We originally proposed to furnish to our readers some views of the nature of, and objections to, a few features of the general banking law of the state, but having already exceeded the proper limit for a single article, we must reserve what we have to say upon that subject for a future number.

ART. VII. THEORY OF MONEY AND BANKS.

The Theory of Money and Banks investigated. By GEORGE TUCKER, Professor of Moral Philosophy in the University of Virginia, and Member of the American Philosophical Society. Boston: 1839. Charles C. Little and James Brown.

AMONG the many symptoms that are visible among us, of the increasing estimate formed of the subject of money, considered as a science, none is of a more positive nature than the production of such a work as the one before us. Professor Tucker is already well known to the public, first as having filled a seat in the house of representatives of the United States from Virginia, then as a teacher of moral philosophy in the University of that state, and still more lately as the defender and apologist of the fair fame of Thomas Jefferson,