Western Sun & General Advertiser, Volume 11, Number 20, Vincennes, Knox County, 13 May 1820 — Page 2

tk? influence of the gre&nnats of bank debtors. Ecvei y dollar in specie drawn out of the banks, especially fir exportation, induced the necessity of curtailments To this portion of the community all other evils, were light, when-compared with the imperious demands of banks. Theii exertions to prevent iht drm of apetie in the possessions of those w ho commuted their destiny equalled the magnitude of the evils which were to be avoided. I ti most parts of the union this Forced state of things is pasrin:; away. The convei tibiiity oF binii notes into specie is becoming rn.il wherever it is ostensible. II public opinion docs not correct the evil in those states where this con-

vet tibiiity is not even ostensible, it will be the imperious duty of those who aie invested with the power oF correction to apply the appropriate remedy. As the currency is, at least in some parts of the union, depreciated, it must, in those parts, suffer a further i eduction before it becomes sound. The nation must continue to suffer un'il this is effected. After the currency shall be reduced to the amount which, when the present quantity of the piccious metals is distributed aniong the various nations of the world, in proportion to their respective exchangeable values-shall be assigned to the United States ; when time shall have i emulated the price of labor- and of commodities, according to that amonut ; and when pre-existing engagements shall have been adjusted, the sufferings from a depreciated, decreasing, and deficient currencv, will be terminated. Individual and public prosperity will gradually revive, and the productive energies of the nation resume their accustomed activity But, new changes in the cur rency, and circumstances adverse to the perpetuity of the gener i prosperity, may reasonabh be expected to o cur So far as the changes depend upon the currencv, their recurrence, to an extent sufficient to distvub the prosperity of the nation, Mould be effectually prevented, if it could be rendered purely metallic. In that even, we should always retain that proportion of the precious metals which our exchangeable commodities bear to those of other nations. The currency would seldo rt be either redundant or deficient, to an extent that would seriously affect the interest of society. Hut when the currency is metallic, and paper convertible into specie, changes to such an extent it is believed, will frequently occur The establishment of banks which are restrained from issuing notes of small denominations, fnrnishes great facilities for the transmission of money, and mcreasses the ellici'Micy of the capital subject t." their control, to the extent of the credit employed by them. The degree of facility afforded by them for the transportation or transmission of mo ey, depends upon the extent of country within which their notes circulate, and preserve a value equivalent to specie. Ordinarily, this extent is determined by the interior trade of the country ; they will circulate through the whole extent of country, th produce of which is carried for sale to the place of their est iblishment. If the arc established only in the principal commercial city of the nation, their notes will circulate through the whole extent of its territory, and afford the gre itest possible facili'v for the transmission of money. If they are established in several of the commec'ul cities their circulation will be ciicuni-icribed by the sections of co. miry, the inhabitants of which trade to I hose cities. The facility for transmitting money will be dimin ished bv their establishment. Hut if 1) an.is shoul.l be established in all the interior towns, this facility would be imr tired to a still greater , decree. In that evct, their notes would circulate within very narrow limits; but, within those lim'.ts, the notes of the banks in the commercial cities would no longer 'orm part of the circulation. Should they, bv acci dent, hr carried within it. the fst in dividual having remittances to unkc, and into whose hands thev mi. come, would use them for that purpose. '1 'he degree of credit which a bank can employ, in proportion to its capital, depends upon a variety of circumstances. If the community l eposes gteat confidence in the prudence and integrity of those who direct its concerns ; if the capital employed is nail in proportion to the demand for the transmission of money ; if there is no other bank, whoe local situation repels Us circulation from those sections of country, the produce of which is ultimately carried to the pl r ' wh'-re i? W established the ct lit which it will be able to employ will be verv threat. Where all these facilities are warning, the extent of the credit which it will employ will

tional efficiency which in the latter case, will be imparted to capital intested in banks, will it is believed, not countervail the evils which necessarily result from their establishment. Among the advantages which have been supposed most strongly to recommend their establishment, especially in acammunity whose resources are rapidly expanding, their capacity suddenly to increase the currency to the utmost demand for it, has been considered the most important. In a country where the currency is purely metallic, no considerable addition can be made to it, without giving, at the time of its acquisition, articles in exchange of equal value. No addition can le made to the currency without affecting, to the extent of such addition, the enjoyments of the community. The amount so addsd will, to the same extent, diminish the quantity of articles which would otherwise be imported into the country for domestic consumption, or for re-exportation.

Ordinarily, the currency of one

country will not be exported to ano- j ercd sufficient to sustain it A debt ther, because its value in every coun- j of 8 1 1 7 millions, could not under the try is nearly the same. It will not,' most adverse citcumstances, be contherefore like other commodities, j sidered inadequate to meet one of

command a commercial profit upon j $52 millions. But in the case of exportation It will be taken from j currency, the capacity of ultimate one country to another, onlv when the redemption is not sufiicient. The price of commodities in the former is 1 capacity to redeem it as it is presentso high as to produce a loss in the cd is indispensable. Whenever the latter, equal to the expense ol trans-j public confidence, in this capacity, is

porting specie. It is this condition, , annexed to every acquisition to the currency of a state, when it is purely metallic, of diminishing, to the same extent, the enjoyments of the community, which affords the most efficient protection against its beioming redundant. It is equally efficient in guarding against a deficiency, to an extent that can seriously affect the interest of the community. But this condition is not annexed to the increase of the currency, by the issue of bank notes, even when convertible into specie. The notes, by which the currency is suddenly augmented, do not, in any degree, diminish the enjoyments of the community. No equivalent is, by such issue, transfer red to another community, as is in variably done when an acquisition is made to a metallic currencv When4 ever the currency can be augmented, exempt from such transfer, it must be subject to some degree of fluctuation in quantity Every addition made to the currency by the hsuc of bank notes, changes the relation which previously existed between the amount of the currency, and the amount of the commodities which are to be exchanged through its agency. Their issue depends not upon re ceiving, in exchange, articles of equal value ; but, upon a pledge of the credit of one or more individuals, to the amount ol such issue. No evil can result to the community from the advance of the capital of a bank in exchange for the credit of individuals. In that case, no addition is made to the amount of the currency previously in circulation. It is perfectly immaterial to society, whether this capital be lent by individuals or by corporations The relation between the currency and the exchangeable commodities of the state is not disturbed. But, when their credit is . , .,,.1 . greatly extenueu, tne currency is expanded, and that relation is deranged. An expansion of the currencv, through the agency of banks, will generally occur only in periods of prosperity. During such periods, enterprizc will be fostered, industry stimulated, and the comfort and happiness of the people advanced without the fictitious aid of an expansive currency- But there can be no doubt that a sudden increase of the currency during periods of prosperity, through the agency of bank issues, gives additional force and activity to the national cnterpiize. Such an increase will be followed by a general rise in the value of all articles, especially of those which cannot be exported. The price of lands, houses, and public stock will be augmented, in a greater degree, than if no such increase had taken place. If these prices could be maintain ed ; if thev could even be protected against sudden reduction, they would he ause of gratulation rather than of complaint. Hut the expansion of the currency by the issue of pape, in a period of prosperity, will inevitably be succeeded by its contraction in periods of adversity. The extent to which the currency may be contracted, through the agency of banks, depends upon the use which they may have made of their credit. The excess of their discounts beyond their capital actually paid, determines the tmount of the credit which they have employed. Thus, in 18 13, the capii of the banks in the United States has been estimated at $65 millions

and their discounts at 8 1 17 millions. The extent to which their credit was then employed was 852 millions. Their circulation, at the same period, has been estimated at 862 millions. In thigcstimatc no allowance was made for 'notes stated to be in circulation, but which were probably in the possession of other banks. A reasonable deduction being made on that account, it is probable that the paper circulation did not much exceed 852 millions. But the liability of the banks for specie, was equal to the whole amount of notes represented to be in circulation besides the individual deposites To meet an immediate demand, they are estimated to have had g28 millions in specie. If the deposites of individuals should be estimated at 818 millions, theii ultimate means of meeting the demand of g62 millions, without sacrificing their capital, would consi of 8 10 millions, in specie, and 85 -millions secured by the notes of individuals ; this sum being the excess of their discounts over their capital Under ordinary circumstances, the basis upon which the credit of tbis

' circulation rested, might be considimpaired, an immediate demand for specie will be created; and, if it is not promptly met, depreciation will ensue. But, even in circumstances in some degree adverse to the operation of banks, if their discounts consisted principally of notes founded upon real transactions, in which the idea of renewal was excluded ; and if specie formed a considerable proportion of the circulation, the capacity of the banks to meet the demands upon them for specie, might have been sufiicient to sustain the credit of the currency. If, rn the other hand, the debts due to the banks consisted chiefly of fixed or perma nent loans, generally denominated accommodation paper, if specie had been banished from circulation, by the issue of dollar notes, the suspension of payment by the banks could not fail to be the result of any considerable pressure upon them for specie. In the former case, as their notes should be withdrawn from circulation, they would gradually be reduced to the demand for them for the transmission of money. If the effort to withdraw them should be continued beyond that point, specie, would be paid into the banl-ii by their debtors, in preference to bank notes ; and the just proportion between the paper circulation, and the specie in their vaults, would be promptly restored. In the latter case, as the debts due to the banks would not, according to the understanding ol the narties, become due at short interva., the only mode of meeting the increasing demands upon them for specie would be to require of the whole mass of debtors the payment of a fixed proportion of the sums due by them As the circumstances which would require this measure, on the part of the banks would generally affect the community in the same deirree ; the capacity of their debtors to meet this demand would generally be found to be in an inverse ratio to the demand. The demand itself being inconsistent with the impression under which the debt was contracted, would be resisted in every case, where the interest of the debtor would be subserved b delay. As specie formed but an inconsiderable part of the currency, the reduction of the paper circulation would have to be carried to a greater extent than in the former case. A just proportion between the paper circulation and the specie necessary to support it, could be obtained only by the positive reduction of the former, as it would be impracticable to increase the latter, while the demand continued. Under such circumstances, the suspension of payment would be the probable result. Such, in fact, were the circumstances under which the suspension in 1814 occurred. The injudicious multiplication of banks, where capital in that form to some extent, might have been useful; the establishment of them where they only could be injurious, the Dcrmission to issue dollar notes, by which specie was banished from circulation ; and the demand for specie for expor tation which existed during the years 1813 and 1314. imposed upon the t l - banks in the middle, southern and western states, the necessity of sus - pending payment. A longer effort to discharge their notes in specie would not onIyhavcbeenineffectual,but wo'kl certainly have postponed, to a more

frimotc pericd, the resumption of spe-1

cie payments. 1 lie evils which have resulted to the community from that suspension have certainly been great : but, it may well be doubted, whether others of equal magnitude would no' have been suffered, if that event hat: not occurred The extent to which the currency must have been reduced, in order to have avoided the suspension, could not have failed, at any pe riod. to produce great embarrassments and distress to the communit) But, in a time of war, when the com. .rv was invaded when the pub.i afety required that the energies tl .he nation should be fully developed, a sudden and extensive reduction c.-f the currency by any c use whatever, would have been fatal. Under such circumstances, the demand for cur ency would have been too imperious o be resisted. It would, from necessity have been supplied by the issue of treasury notes. The fact, that, in a small portion cf 'he union, specie payments were continued, cannot be admitted as evidence, that it was practicable throughout the nation. In that part of the country, the extensive bank issues. consequent upon loans to the govern ment in the middle states, had not occurred. Foreign trade, which, in other parts of the union, was ncaily annihilated, still preserved there a languid existence, through the permission or connivance of the enemy. These circumstances could not fail to enable the banks, in the eastern states, to continue specie payments longer than those of the middle, south ern, and western states In an effort to preserve their credit, they would, inevitably, be the last that would fall. In such a struggle, however, they must have failed, had not the circula ion of the paper of their weaker neighbors and the issues of treasury notes come to their aid. But for this adventitious assistance- wholly uncon nectcd with the wisdom and foiesiirht of their directors, specie paymeits must have been suspended there, or the best interests of the community have been sacrificed. Fiom that pe riod, until the resumption of specie payments in the early part of 18 i7. treasury notes, and the notes of the banks which had suspended payment, formed the great mass of circulation in tne eastern part ot tne union. Specie, or the notes of banks which continued to pay specie, formed r.o part of the receipts of the govern ment in Boston and the districts cast of that town, until about the close of the year 1816. In all great exigencies, which in the course of human events, may be expected to arise in every nation, the suspension of payment by banks, where the circulation consists princi pally of bank notes, is one of the evils which ought to be considered as the inevitable consequence of their estab Iishment Even in countries where paper does not form the principal part of the circulation, such an event will sometimes happen. In the year f797, when the restriction was imposed upon the bank of England, the average of its circulation, for several successive years, was about 10,000, 000. sterling, whilst the metallic currency was estimated at 30.000,000. Yet in that country, whose trade in the time of war, through the protection of its fleets, was rather expanded than contracted, it was found necessary to authorise the bank to suspend payment, which suspension, af ter a lapse of twenty-three years, still continues. When the existence of banks depends upon the authority that regulates the currency, it mav be practicable to impose salutary checks against excessive issues of paper during suspension , and in some degree to guard against an excessive issue of the currency. But, where these itstitutions are created by an authority having no power to regulate the currency, and, especially, where they arc created by a great variety of authorities independent of each other, h practically incapable of acting in such concert, it is manifest that no checks or restraints can be imposed. It is impossible to imagine a currency more vicious than that which depends upon the will of nearly four hundred banks, entirely independent of each other, when released from all restraint against excessive issues. By the term currency, the issue of paper by government, as a financial resource, is excluded. Even such an issue, in a state where the reign of law is firmly established, and public opinion controls the public councils, would be preferable to a currency similar to that which existed in some parts of iric uiiucu cuaies, curing tne enc al susneiisinn. nrrl whirK r,,v I "7 " invil Iv in some of the states. This truth !has been practicably demonstrated, by ' the redemption of the whole of the ' treasury notes, i?sued during the war j within the short space of about two J years after the peace ; whilst i lar-c

amount of bank notes issued durir.t;

me suspension aie yet unredeemed and greatly depreciated. Thcie can be no doubt, that a me tallic currency ; connected with a paper circulation, convertible into specie, and not exceeding the demand for the facile transmission of money," is the most convenient that can be de vised. Whe n the paper circulation exceeds that demand, the metallic currency to the amount cf the excesi will be exported, and a liability to" sudden fluctuations to the same ex tent will be produced. If banks were established cr.ly in t' e principal commercial cities of each state: if thev wcic restinirerl frcm the ibsue of notes of small denominations; it thev should retain an absolute control over one half of their capital, and the whole of the credit which they employ, bv discounting to that amount nothing but tiansacticn paper payable at short dates : the credit and stability of the bunks wmi!dr at least, be unquestionable. Their notes could always be redeemed in specie on demand. The rtinsinir.tr part of their capital might be advanced upon long ci edits to manufacturers, and even to agriculturalists, without the danger cf being under the necessity of calling upon sich dtbtors to contribute to their itiief. if emeigencics should cccur. fci.ch, debtors are, in fact, unuble to nutt sudden exigencies and ought never to accept of advances fiom banks, but upon long credits, for which timely provision may be made The latter class, of all others, is the leatst qualified to meet the sudden demar:i!i which a pressure upon banks compels them to make upon their debtors The returns of crpital invested in agricultuie arc two slot' and distant to justify engagements hh bunks, except upon long credits. If the payment of the principal should be dcmai ded at other periods than these at which the husb:n:dn an receives the annual leward of his toil, the distirss which would result frcm the exr.c.iien would greatly outweigh any bent-fit which was anticipated from the lean. That tl c establishment of banks, m agricultural districts, has greatly improved tho general appearance of the country, is not denied. Comfoi table mansions, and spacious barns, have been erected ; lands have been cleared and reduced to cultivation : faims have been stocked and rendered more productive, by xl.e aid of benk credits. I'm these improvements will eventually be found, in most cases, to cfuct the ruin of the proprietor. The furm, with its improvements, will frequently prove unequal to the discharge of the debts incurred in its embellishment. Such, in fact, is the actual or apprehended state of things wherever banks have been established in small inland towns and Tillages Poverty and distiess are impending over the heads of most of these who have attempted to improve their farms by the aid of bank credits So general is this distress, that the principal attention of the state legislatures, where the evil exists, is, at this moment, directed to the adoption of measures calculated to rescue their fellow citizens from the inevitable effects of their own indiscretion. If, in affording a shield to the debtor, against the legal demand of his creditor, the axe shall be applied to the root of the evil, by the annihilation of banks where they ought nev er to have existed, the interference, howeverdoubtful in point of policy or principle, may, eventually, be productive of more good than evil. The general system of credit, which has been introduced through the agency of banks, brought heme to every man's door, has produced a fictitious state of things, extremely adverse to the sober, frugal, and industrious habits, which ought to be cherished in a republic. In the place oJ these virtues, extravagance, idleness, and the spirit of gambling adveuture have been engendered and fostered by our institutions. So far as these evils have been produced by the establishment of banks, where thev are ret required, by the omission to impose upon them wholesome restraints ; and by the ignorance or misconduct of tnose who have been entrusted with their elirection, they are believed to bs beyond the control of the federal government. Since the resumption cf specie payments, measures have been adopted in some of the states to en force their continuance ; in others, the evil has been left to the correction of public opinion. There is. however, some reason to apprehend, thst the authority of law may be Interposed in support of the circulation cf notes, not conv ertible into specie. But the federal government has, by its measures, in some degree, contributed to the spirit of speculation, and of adventurous enterprise, which, at this moment so strongly characterise the citizens of this republic, the system of credit, which, in the infancy cf