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APRIL 1, TO OCTOBER 1, 1826.
HARRISON GRAY, NO. 74, WASHINGTON STREET.
en we app has, of coile feelings,
Remarks on the Banks and Currency of the New England
States ; in which an Attempt is made to show the Public Benefits resulting from the System pursued by the Allied Banks in Boston. First published in the Boston Daily Advertiser. Boston. 1826. 8vo. pp. 40.
This judicious little tract relates to banking operations of very extensive influence upon the paper currency of New England. The subject has been much discussed in the newspapers, sometimes by impartial, but more often we apprehend by interested persons. Among the mercantile classes, it has, of course, been regarded with deep attention, and with friendly or hostile feelings, according to the situation of individuals. We consider it one of those phenomena in the commercial world, which, however local and temporary in character, deserve mature reflection as questions of political economy.
The object of the tract is to collect certain of the facts, and to present in a connected view, the reasons which tend to vindicate the policy pursued by the Allied Banks. These facts and reasons, it appears to us, make out a conclusive defence of their system, so far as the public good is concerned. We think a few plain statements will exhibit the truth in a clear light.
A common bank-note is the promise of the bank to pay so much money to the holder on demand. Of itself, it possesses no value. Its general currency arises from the faith of the public in the ability of the bank, which issues it, to redeem it with specie, according to its tenor; and in its superior convenience to gold and silver as a medium of exchange. The currency of the notes of a particular bank at a particular place will depend partly
upon the nearness of the bank to that place, as well as upon the credit of the bank. The more remote the bank, the more difficult is its convertibility into specie, and the greater, on that account, its depreciation below par value.
Within the immediate sphere of any great commercial city the value of foreign bank-notes will be governed mainly by their value in that city. And the accumulation of capital in such a place, united with its wide-spread dealings, and the better knowledge of banking likely to exist in it, must of necessity give superior value to its bank-notes, if business be left to regulate itself.
Hence the distinction between foreign money and home money, which makes the former pass in exchange at a discount from its nominal value.
Now previously to a year ago the state of the money market in Boston, which controlled that of the banks in its immediate vicinity, was, on this account, extremely inconvenient to the whole community. The remote country banks made immoderate issues of bills, which they forced into the market, by the agency of brokers. These bills circulated as the ordinary currency of trade, in full credit, but were refused at the Boston banks either as deposite or in payment of debts. The consequence of this was, that Boston bills never remained in circulation. Merchants being obliged to deposite or pay them alone at the Boston banks, they were bought up at a premium for that purpose, while foreign bills were the universal medium of traffic. All payments to merchants in Boston, made by retailers in the country, were in this degraded currency, as were all ordinary small transactions among persons in Boston. The rate of discount at which foreign bills were bought and sold, that is, the premium on Boston money, varied at different periods from two per cent. to a half or three fourths of one per cent.; and the amount daily exchanged is rated in the pamphlet before us at a hundred thousand dollars. The evils of this state of things were great and numerous. It evidently impeded the operations of trade, by creating a necessity for an additional exchange. It occasioned a great loss to the city merchant in the premium paid by him for Boston bills. A single merchant has been known to pay eighteen hundred dollars in one year for exchanging current money. This loss, too, went to give the foreign banks, whose notes were at a discount, a most iniquitous species of gain. They themselves bought their own bills at a discount, and immediately issued them again at par; thus deriving profit from the very debasement of their notes. Again, a part of the profit of banking, it is well understood, is the saving