finitum, as notes can be comparatively under the old system, it is manifest that the banks organised under it, have not the power to augment the currency to the extent that the others have, inasmuch as, like banks of discount, they can only meet the claims of depositors by compelling some of their debtors to pay up a corresponding amount, it being understood, as in the case of those banks, that the usual stock of money is always to be kept on hand to meet occasional or unexpected demands.

În reference to the other provisions of the law, they must speak for themselves. If the numerous banks that have been organised under it, and which are daily increasing in number, act wisely, they will invest nearly the whole of their capitals in fixed securities and will be careful not to force into circulation a larger amount of their notes than the currency can readily bear without reaction. They will also take especial care, that in lending the money of depositors, they will discount nothing but business paper, having a short time to run, or they may, if overtaken by a panic, find themselves in the hands of the comptroller before they are aware of it.§

* A clear illustration of the difference here adverted to, is contained in an unpublished pamphlet on the reform of the currency of England, which the author has read, in the following paragraph:

"The business of banking is one thing: that of issuing a paper money is another thing. There is no necessary connection between the two. The bankers in London and Paris are bankers strictly so called. They are lenders of their own and of other people's money. They must obtain it by industry or loan before they can lend it. They do not make it. The business of making and then issuing a paper money on loan, is very different from that of obtaining a paper money on loan, and then re-lending it."

† A copy will be found in the Appendix, marked D.

The whole of the capital of the Bank of England is invested in a loan to the government, and no part of it ever appears in the monthly statements of the assets and liabilities of the bank. § For an account of the practical working of this system, see Appendix J.

APPENDIX.

A.

ON THE RELATIVE VALUE OF GOLD AND SILVER.

From the National Gazette, of January 26th, 1822.

Messrs. Editors:-In the autumn of the year 1820, an article written by me was published in your Gazette, explaining the cause of the disappearance of gold from the United States. It was there shown that, in spite of all the attempts made by the laws of various nations, to establish fixed proportions between gold and silver, those two metals had confirmed their right to be governed by the same laws of supply and demand, which regulate the relative value of all other commodities, and had actually in the market of the trading world assumed proportions different from those which had for many previous years been maintained. It was also shown, that one ounce of gold was at that time worth in Europe near sixteen ounces of silver, and that so long as the laws of the United States decreed that the proportions should be as one to fifteen, gold would not circulate, but would be exported from the country, in payment of debts, or in exchange for silver. The truth of that assertion has been verified; for although during the

year 1820, gold was coined at our mint to the value of $1,319,030, and during the year 1821, to the amount of $185,325, yet not a gold coin is any where to be seen in circulation.

During the last session of congress, this subject of the disappearance of gold was considered by a committee, who made a report, recommending an alteration of the legal proportions, so as to make them correspond with the proportions which were at that lime supposed to exist in Europe. At the present session, the same matter will probably come before the committee, to whom the subject of the coinage has been referred; and as it is an important one, a few observations in relation to it may not at this time be inappropriate.

Any attempt to fix by law, what cannot be fixed by nature, carries on its face an air of absurdity. Without animadverting upon the policy which led our predecessors to follow the footsteps of many of the European nations, and which may perhaps be justified by the then existing state of the country, it is certainly not the part of wisdom to pursue a course, which the lights of science and experience so clearly prove to be unsound. The very fact that gold and silver have departed from the proportions established by our laws, is ample proof that no such laws should ever have been enacted; and the certainty of a future change, is equally conclusive against any further legislation on the subject. Even since the date of the report of the committee above referred to, a more wide separation between the two metals has taken place; and had a law been enacted a year ago, agreeably to their suggestion, it might possibly have required an additional one in the present year to give it effect. The truth is, that until the physical and moral causes, which operate upon a currency, shall combine to establish an immutable relation between gold and silver, laws to determine their relative value can be nothing more than temporary expedients, at war with

the true interests of the country, and the genuine principles of political economy. No nation ought to attempt to create two legal tenders; and as we have virtually, at least for a time, got rid of one of them, we ought not to be hasty in restoring it.

In a discussion upon this subject, it is not essential to consider the question, whether a gold or silver coinage is to be preferred. Many weighty arguments might be advanced in favor of each, but as the American people are best acquainted with silver, and as most ancient contracts stipulate for the payment of silver coins, there would seem to be a propriety in adhering to that metal; especially, too, as the universal establishment of banks of deposite, obviate almost entirely the expense and inconvenience of transporting and counting large sums. I take it for granted, that if one metal was alone declared to be a legal tender, that metal would be silver; and under that impression, I submit my remarks.

The first objection against an alteration of the relative legal value of gold and silver, is that there would be, no certainty of the new proportions being maintained for any length of time in the general market.— Gold might rise still higher, and in that event the law would be of no avail. Or gold, might fall, and in that case, the silver would all be exported from the country, upon the principle that gold now is, as being the dearest of two commodities, which are declared by law to be equally legal tenders in discharge of the same debt. In case of such an event as the exportation of all our silver, it is easy to foresee what evil consequences would result. Gold would become the only circulating medium, and as it is impossible that the ordinary transactions of life could be carried on with such small pieces of gold as would correspond with our small silver coins, congress would be compelled to pass another law to bring silver back, and there wonld be no end to our legislation on the subject. If silver should be legislated out of the country,

and afterwards be legislated back again, the nation would lose the whole value of the expense and risk of a double transportation, without an equivalent in

return.

The second objection against this measure is, that it would be an improper interference with the rights of all creditors, public as well as private, in relation to contracts, existing at the time of the change. By the present laws, an individual or the nation has its option, in discharge of a debt, to pay one ounce of gold or fifteen ounces of silver; but if the proportions were altered as proposed, creditors could be compelled to receive in satisfaction of their claims, a less quantity of gold than they stipulated for. It is true, that no absolute injury would be sustained by creditors, so long as the new proportions should be maintained in the market, because with the new quantity of gold they could purchase as much silver, as the debtor had contracted at his option to pay. But the case would be widely different in the event of a falling back in the market to the present proportions. All debts would then be paid in gold, and creditors would be compelled to take in discharge of their contracts, a less quantity of gold than they had bargained for.

Whether or not congress possesses the power of enacting laws which shall thus impair the obligation of contracts, it is not necessary here to inquire. Be that as it may; it is a matter of deep concern, to the people of this republic, that their representatives should cautiously shun every measure, which has a tendency to countenance those frauds upon creditors which some European nations have practised, by debasing their coins, or by diminishing their weight without altering the denomination. The pound sterling was originally a pound of standard silver, which was coined into twenty equal pieces called shillings. The same quantity of silver is now coined into sixty-six shillings, twenty of which are a pouud sterling. The livre of France, now worth less than