The constitutional powers of Congress on the subject, are the next and principal object of inquiry.
We have already adverted to the provisions of the Constitution, which declare, that no state shall either coin money, emit bills of credit, make any thing but gold and silver coins a tender in payment of debts, or pass any law impairing the obligation of contracts, and which vest in Congress the exclusive power to coin money, and to regulate the value thereof, and of foreign coin. It was obviously the object of the Constitution to consolidate the United States into one nation, so far as regarded all their relations with foreign countries, and that the internal powers of the general government should be applied only to objects necessary for that purpose, or to those few which were deemed essential to the prosperity of the country, and to the general convenience of the people of the several states. Amongst the objects thus selected, were the power to regulate commerce among the several states, and the control over the monetary system of the country.
This last-mentioned power is, and has ever been, one of primary importance. It is for want of such general power, that Germany has always been inundated with coins often debased, and varying from state to state in standard and denomination the same defect was found in the former United Provinces of the Netherlands : and the banks of deposit of Hamburg and Amsterdam, were originally established for the purpose of correcting that evil. Even under the articles of confederation, Congress had already the sole and exclusive right and power of regulating the alloy and value of coins struck by their own authority, or by that of the respective states. It was on a most deliberate view of the subject, that the same powers were confirmed and enlarged by the Constitution, and the individual states excluded from any participation, which might interfere with the controlling power of the general government. With the exception of those which are connected with the foreign relations of the United States, either in war or in peace, there are no powers more expressly and exclusively vested in Congress, of a less disputable nature, or of greater general utility, than those on the subject of currency. Arbitrary governments have, at various times, in order to defraud their creditors, debased the coin, whilst they preserved its denomination, and thus subverted the standard of value by which the payment of public and private debts, and the performance of contracts, ought to have been regulated. This flagrant mode of violating public faith has been long proscribed by public opinion. Governments have, in modern times, substituted for the same purpose issues of paper money, gradually increasing in amount, and decreasing in value. It was to guard against those evils, that the provisions in the Constitution on that subject were intended : and it is the duty, not less than the right, of the United States, to carry them into effect.
The first paragraph of the eighth section of the first article, provides that Congress shall have power “ to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defence and general welfare of the United States ; but all duties, imposts, and excises, shall be uniform throughout the United States.”
It has sometimes been vaguely asserted, though, as we believe, never seriously contended, that the words “ to provide for the common defence and general welfare,” were intended, and might be construed, as a distinct and specific power given to Congress, or, in other words, that that body was thereby invested with a sweeping power, to embrace within its jurisdiction any object whatever, which it might deem conducive to the general welfare of the United States. This doctrine is obviously untenable, subversive of every barrier in the Constitution which guards the rights of the states or of the people, expressly contradicted by the tenth amendment, which provides, that the powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people ; and tantamount to an assertion, that there is no Constitution, and that Congress is omnipotent. Mr. Jefferson stigmatizes this construction as “a grammatical quibble, which has countenanced the general government in a claim of universal power. For, (he adds,) in the phrase, to lay taxes, to pay the debts and provide for the general welfare, it is a mere question of syntax, whether the two last infinitives are governed by the first, or are distinct and co-ordinate powers ; a question unequivocally decided by the exact definition of powers, immediately following.”
The words “ to provide for the common defence and general welfare of the United States,” are as obligatory as any other part of the Constitution ; they cannot be expunged, and must be so construed as to be effective. Mr. Jefferson did not deny this, which is indeed undeniable ; and he only contended, that the words did not convey a distinct power, but were governed by the preceding infinitive ; that is to say, that this clause in the Constitution, instead of giving to Congress the three distinct powers, 1st, to lay taxes, &c., 2dly to pay the debts, 3dly to provide for the common defence and general welfare of the United States, gave only that “ to lay and collect taxes, duties, imposts, and excises, in order to pay the debts and provide for the common defence and general welfare of the United States.” He states the question as one of syntax, susceptible of only two constructions ; one which would give, as a distinct, a sweeping power inconsistent with the spirit and other express provisions of the Constitution, and which he accordingly rejects ; the other, which he adopts, and which admits, but confines the application of the words “ to provide for the general welfare,” to the only power given by that clause, viz. that of laying taxes, duties, &c.
This appears to have been the construction universally given to that clause of the Constitution, by its framers and contemporaneous expounders. Mr. Hamilton, though widely differing in another respect from Mr. Jefferson in his construction of this clause, agrees with him in limiting the application of the words “ to provide for the general welfare,” to the express power given by the first sentence of the clause. In his report on manufactures, he contends for the power of Congress to allow bounties for their encouragement, and, after having stated the three qualifications of the power to lay taxes, viz. 1st, that duties, imposts, and excises, should be uniform throughout the United States ; 2nd, that no direct tax should be laid unless in proportion to the census ; 3d, that no duty should be laid on exports ; he argues on the constitutional question in the following words :
“ These three qualifications excepted, the power to raise money is plenary and indefinite ; and the objects to which it may be appropriated, are no less comprehensive than the payment of the public debts and the providing for the common defence and general welfare. The terms ‘general welfare,’ were doubtless intended to signify more than was expressed or imported in those which preceded ; otherwise numerous exigencies, incident to the affairs of a nation, would have been left without a provision. The phrase is as comprehensive as any that could have been used ; because it was not fit that the constitutional authority of the Union to appropriate its revenues, should have been restricted within narrower limits than the ‘ general welfare;’ and because this necessarily embraces a vast variety of particulars, which are susceptible neither of specification nor of definition.”
“ It is therefore of necessity left to the discretion of the national legislature, to pronounce upon the objects which concern the general welfare, and for which, under that description, an appropriation of money is requisite and proper. And there seems to be no room for a doubt, that whatever concerns the general interests of learning, of agriculture, of manufactures, and of commerce, are within the sphere of the national councils, as far as regards an application of money.
“ The only qualification of the generality of the phrase in question, which seems to be admissible, is this ; that the object to which an appropriation of money is to be made, be general and not local ; its operation extending, in fact, or by possibility, throughout the Union, and not being confined to a particular spot.”
“ No objection ought to arise to thus construction, from the supposition that it would imply a power to do whatever else should appear to Congress conducive to the general welfare. A power to appropriate money with this latitude, which is granted too, in express terms, would not carry a power to any other thing not authorized in the Constitution, either expressly or by fair implication.”
Mr. Hamilton insisted that the power to lay and collect taxes and duties, implied that of appropriating the money thus raised, to any object which Congress might deem conducive to “ the general welfare.” But he confines throughout the application of those words to the power given, as he understood it, by the first sentence of the clause. Mr. Jefferson, who agreed with him in that respect, denied altogether that the power to lay taxes implied that of applying the money thus raised to objects conducive to the general welfare. It cannot be objected to this construction, which is the most literal, that the words “for the general welfare” are thereby rendered of no effect. For there are several cases, in which the laying a tax or duty does alone effect the object in view, without the aid of an appropriation or of any other distinct act of the legislature. On that point, however, and on that alone, they differed. But it is foreign to the object now under consideration, and we do not mean to discuss it. All that is necessary for us is, that, as admitted by both, the power to lay duties and taxes, is vested in Congress, and may be exercised, to provide (or, in order to provide) for the general welfare of the United States, without any other limitation than the three qualifications specified by the Constitution, and above stated.
It has indeed been lately contended by some distinguished citizens, that the words “general welfare,” referred only to the powers expressly vested in Congress by the Constitution : or, in other words, that the power to lay duties and taxes could not be exercised but for the purpose of carrying into effect some of those specific powers. It seems to us, that this, if intended, would have been distinctly expressed, instead of using the words “ general welfare.” And although it is undeniable, that a constructive power cannot be legitimately claimed, unless necessary and proper for carrying into execution, or fairly implied in, a power expressly delegated ; we do not perceive why it should be necessary, in order to justify the exercise of a power expressly given, that it should be exercised in reference to an other similar power. But we do not mean to discuss this question, which is also foreign to our object. Allowing, for the sake of argument, the validity of the objection, it does not apply to cases where the object, in reference to which the duty or tax is laid, is clearly embraced within the powers of the general government. Although, because the power to protect manufactures is not expressly vested in Congress, that to lay taxes in order to effect that object should be denied, the power of laying a tax or duty, for the purpose of carrying into effect an express provision of the Constitution, would still be undeniable.
Congress has the power to lay stamp duties on notes, on bank notes, and on any description of bank notes. That power has already been exercised ; and the duties may be laid to such an amount, and in such a manner, as may be necessary to effect the object intended. This object is not merely to provide generally for the general welfare, but to carry into effect, in conformity with the last paragraph of the eighth section of the first article, those several and express provisions of the Constitution, which vest in Congress exclusively the control over the monetary system of the United States, and more particularly those which imply the necessity of a uniform currency. The exercise of the power for that object is free of any constitutional objection, provided the duties thus laid shall be uniform, and applied to the Bank of the United States as well as to the state banks. The act of laying and collecting the duties, which is expressly granted, is alone sufficient to effect the object. As no appropriation of money is wanted for that purpose, the exercise of power which is required, is purely that of laying duties ; and it is not liable to the objection, that to assert that the authority to lay taxes implies that of appropriating the proceeds, is a forced construction. It is equally free of any objection derived from any presumed meaning of the words “ general welfare,” since the power to lay duties will, in this instance, be exercised, in order to carry into effect several express provisions of the Constitution, having the same object in view. Congress may, if it deems it proper, lay a stamp duty on small notes, which will put an end to their circulation. It may lay such a duty on all bank notes, as would convert all the banks into banks of discount and deposit only, annihilate the paper currency, and render a Bank of the United States unnecessary in reference to that object. But if this last measure should be deemed pernicious, or prove impracticable, Congress must resort to other and milder means of regulating the currency of the country. The Bank of the United States, as has already been shown, was established for that express purpose.
An act incorporating a bank, is not an act either to raise or appropriate money. The power to establish the bank cannot, in any way, be founded on that clause of the Constitution which has reference to the general welfare of the United States. It is sanctioned exclusively by that clause which gives to Congress power to make all laws, which shall be necessary and proper for carrying into execution any of the powers vested in the government of the United States. And the first object of inquiry is the meaning of the words “necessary and proper” in that clause.
We are aware, that it has at times been suggested that the word “ necessary,” in its strict sense, means “ that without which the specific power cannot be carried into effect,” and ought to be so construed. If appeal be made to verbal criticism, it may be answered, that if such was the meaning of the word “ necessary,” in that sentence, the word “proper” would not have been added ; since that which is necessary in that strict sense is of necessity proper. This last expression must, therefore, be taken in connexion with the first ; and since it was contemplated, that what was called necessary might be proper or improper, the words “laws necessary and proper” do not appear to have been intended in that most limited sense, which implies absolute impossibility of effecting the object without the law, but to mean such laws as are fairly intended, and highly useful and important for that purpose. We believe this to be the fair, and to have been the uniform construction of the Constitution, and that indeed without which it could not have been carried into effect. In order to prove that this has ever been deemed the natural and clear construction, we will not resort to the establishment of light-houses, or to other numerous precedents, the authority of which may be disputed. We will appeal to the most general and important law of the United States, such as it was enacted from the first organization of the government under the Constitution, and to a provision in it, which, under its various other modifications, has uninterruptedly, and without any constitutional objection, remained in force to this day.
The laws to lay and collect duties on imports require, and have always required, a variety of oaths, and particularly that of the importers or consignees, with respect to the correctness of the invoices of goods imported, both as to quantity and as to cost or value. Yet this provision, however useful and important, is not so absolutely necessary, in that strict sense of the word, as that the laws could not possibly be carried into effect without it. There are countries, France for example, where those duties are efficiently collected without the assistance of similar oaths. This may be done at least as effectually by an appraisement of the merchandise, as by resorting to the oaths of the parties. In point of fact, there has always been a discretionary power to appraise, which has lately been enlarged. Since it is on that provision, and not on the oath, that the ultimate reliance for the faithful collection of the duties is placed, those duties might be collected without the assistance of oaths, by substituting in every instance an appraisement or valuation. Oaths are not, therefore, necessary for the collection of duties, in that strict sense which is contended for : they are not that, without which the duties could not be collected. The observation indeed applies to various other provisions of the revenue laws. Any one who will give them a perusal, will find several implying powers not specially vested in Congress, the necessity of which was not absolute, and without which the object of the law might still have been effected. The oaths and various other provisions have been resorted to, as means only highly useful, important, and proper, but not as being of absolute necessity for carrying the law into effect.*
Whenever it becomes the duty of Congress to carry into effect any of the powers expressly defined by the Constitution, it will generally be found that there are several means to effect the object. In that case, and whenever there is an option, each of the means proposed ought not to be successively objected to, as not being strictly necessary because other means might be resorted to, since this mode of arguing would defeat the object intended, and prevent the passage of any law for carrying into effect the power, which it was the duty of Congress to execute. If every provision of a revenue law was successively opposed on that ground, no efficient revenue law could be passed. In the present case, it is proposed to resort, either to a stamp duty or to a Bank of the United States, in order to regulate the currency. Unless some other equally efficient mode can be suggested, this important object will be defeated, if both means are successively rejected, as not strictly necessary. But, on the other hand, the means proposed for carrying into effect any special or expressed power vested in Congress, should be highly useful and important, having clearly and bona fide that object in view which is the avowed purpose, and not be intended, under color of executing a certain special power, for the purpose of effecting another object.
It was on this ground, that the former Bank of the United States was at first opposed. That Bank had not been proposed for the express purpose of regulating the currency, but as incident to the powers of regulating commerce, of collecting the revenue, of the safe keeping of public moneys, and generally, of carrying on the operations of the Treasury. There had been at that time but three banks established in the United States ; their operations were confined within a very narrow sphere ; there had been no experience in the United States of the utility of a bank in assisting the operations of government, but that which, during a short time, had been afforded by the Bank of North America, incorporated, in the first instance, by Congress, under the articles of confederation. The Bank of the United States was considered by its opponents, as not being intended for the purpose alleged, but as having for its object the consolidation of a moneyed aristocracy, and to further the views at that time ascribed to a certain party and to its presumed leader. And the fears then excited respecting that object, and the supposed influence of the Bank in promoting it, though long since dissipated, have left recollections and impressions which may still have some effect on public opinion in relation to the constitutional question.
Experience, however, has since confirmed the great utility and importance of a Bank of the United States, in its connexion with the Treasury. The first great advantage derived from it, consists in the safe keeping of the public moneys, securing, in the first instance, the immediate payment of those received by the principal collectors, and affording a constant check on all their transactions ; and afterwards rendering a defalcation in the moneys once paid, and whilst nominally in the Treasury, absolutely impossible. The next and not less important benefit is to be found in the perfect facility with which all the public payments are made by checks, or Treasury drafts, payable at any place where the Bank has an office ; all those who have demands against government, are paid in the place most convenient to them ; and the public moneys are transferred, through our extensive territory, at a moment’s warning, without any risk or expense, to the places most remote from those of collection, and wherever public exigencies may require. From the year 1791 to this day, the operations of the Treasury have, without interruption, been carried on through the medium of banks ; during the years 1811 to 1816, through the state banks ; before and since, through the Bank of the United States. Every individual who has been at the head of that department, and, as we believe, every officer connected with it, has been made sensible of the great difficulties, that must be encountered without the assistance of those institutions, and of the comparative ease and great additional security to the public, with which their public duties are performed through the means of the banks. To insist that the operations of the Treasury may be carried on with equal facility and safety, through the aid of the state banks, without the interposition of a Bank of the United States, would be contrary to fact and experience. That great assistance was received from the state banks, while there was no other, has always been freely and cheerfully acknowledged. But it is impossible, in the nature of things, that the necessary concert could be made to exist between thirty different institutions ; and in some instances, heavy pecuniary losses, well known at the seat of government, have been experienced. To admit, however, that state banks are necessary for that purpose, is to give up the question. To admit that banks are indispensable for carrying into effect the legitimate operations of government, is to admit that Congress has the power to establish a bank. The general government is not made by the Constitution to depend, for carrying into effect powers vested in it, on the uncertain aid of institutions, created by other authorities, and which are not at all under its control. It is expressly authorized to carry those powers into effect by its own means, by passing the laws necessary and proper for that purpose, and in this instance, by establishing its own bank, instead of being obliged to resort to those which derive their existence from another source, and are under the exclusive control of the different states, by which they have been established.
It must at the same time be acknowledged, that, inasmuch as the revenue may be collected, and the public moneys may be kept in public chests, and transferred to distant places without the assistance of banks, and as all this was once done in the United States, and continues to be done in several countries, without any public bank, it cannot be asserted, that those institutions are absolutely necessary for those purposes, if we take the word “necessary” in that strict sense which has been alluded to. All this may be done, though with a greater risk, and in a more inconvenient and expensive manner. Public chests might be established, and public receivers, or sub-treasurers, might be appointed in the same places where there are now offices of the Bank of the United States, and specie might be transported from place to place, as the public service required it, or inland bills of exchange purchased from individuals.2 The superior security and convenience afforded by the bank, in the fiscal operations of government, may not be considered as sufficient to make its establishment constitutional, in the opinion of those who construe the word “necessary” in that strict sense.
But it is far from being on that ground alone, that the question of constitutionality is now placed. It was not at all anticipated, at the time when the former Bank of the United States was first proposed, and when constitutional objections were raised against it, that bank notes issued by multiplied state banks, gradually superseding the use of gold and silver, would become the general currency of the country. The effect of the few banks then existing, had not been felt beyond the three cities where they had been established. The states were forbidden by the Constitution to issue bills of credit : bank notes are bills of credit to all intents and purposes ; and the state could not do, through others, what it was not authorized to do itself : but the bank notes, not being issued on the credit of the states, nor guarantied by them, were not considered as being, under the Constitution, bills of credit emitted by the states. Subsequent events have shown, that the notes of state banks, pervading the whole country, might produce the very effect which the Constitution had intended to prevent, by prohibiting the emission of bills of credit by any state. The injustice to individuals, the embarrassments of government, the depreciation of the currency, its want of uniformity, the moral necessity imposed on the community, either to receive that unsound currency, or to suspend every payment, purchase, sale, or other transaction, incident to the wants of society, all the evils which followed the suspension of specie payments, have been as great, if not greater, than those which might have been inflicted by a paper currency, issued under the authority of any state. We have already adverted to the several provisions of the Constitution, which gave to Congress the right, and imposed on it the duty to provide a remedy ; but there is one which deserves special consideration.
Whatever consequences may have attended the suspension of specie payments in Great Britain, there still remained one currency which regulated all the others. All the country bankers were compelled to pay their own notes, if not in specie, at least in notes of the Bank of England. These notes were, as a standard of value, substituted for gold : and, if the currency of the country was depreciated, and fluctuating in value from time to time, it was at the same time uniform throughout the country. There was but one currency for the whole, and every variation in its value was uniform as to places, and at the same moment operated in the same manner everywhere. But the currency of the United States, or, to speak more correctly, of the several states, varied, during the suspension of specie payments, not only from time to time, but at the same time from state to state, and in the same state from place to place. In New-England, where those payments were not discontinued, the currency was equal in value to specie : it was, at the same time, at a discount of seven per cent. in New-York and Charleston, of fifteen in Philadelphia, of twenty and twenty-five in Baltimore and Washington, with every other possible variation in other places and states.
The currency of the United States, in which the public and private debts were paid, and the public revenue collected, not only was generally depreciated, but was also defective in respect to uniformity. Independent of all the other clauses in the Constitution which relate to that subject, it is specially provided, 1st, that all duties, imposts, and excises, shall be uniform throughout the United States ; 2d, that representative and direct taxes shall be apportioned among the several states, according to their respective numbers, to be determined by the rule therein specified ; and that no capitation or other direct tax shall be laid, unless in proportion to the enumeration. Both these provisions were violated whilst the suspension of specie payments continued. It is clear, that after the quota of the direct tax of each state had been determined, according to the rule prescribed by the Constitution, it was substantially changed by being collected in currencies differing in value in the several states. It is not less clear, that the clause which prescribes a uniformity of duties, imposts, and excises, was equally violated by collecting every description of indirect duties and taxes in currencies of different value. The only remedy existing at that time, was the permission to pay direct and indirect taxes in treasury notes. But those notes did not pervade every part of the country in the same manner as bank notes ; they were of too high denomination to be used in the payment of almost any internal tax ; they were liable also to vary in value in the different states ; and they could operate as a remedy, only as long as their depreciation was greater than that of the most depreciated notes in circulation.
We will now ask, whether, independent of every other consideration, Congress was not authorized and bound to pass the laws necessary and proper for carrying into effect, with good faith, those provisions of the Constitution ? and whether that could or can be done, in any other manner than, either by reverting to a purely metallic, or by substituting a uniform paper currency to that which had proved so essentially defective in that respect, and which, from its not being subject to one and the same control, is, and for ever will be, liable to that defect ? The uniformity of duties and taxes of every description, whether internal or external, direct or indirect, is an essential and fundamental principle of the Constitution. It is self-evident, that that uniformity cannot be carried into effect without a corresponding uniformity of currency. Without laws to this effect, it is absolutely impossible that the taxes and duties should be uniform, as the Constitution prescribes : such laws are therefore necessary and proper, in the most strict sense of the words. There are but two means of effecting the object, a metallic, or a uniform paper currency. Congress has the option of either ; and either of the two, which may appear the most eligible, will be strictly constitutional, because strictly necessary and proper for carrying into effect the object. If a currency exclusively metallic is preferred, the object will be attained by laying prohibitory stamp duties on bank notes of every description, and without exception. If it is deemed more eligible, under existing circumstances, instead of subverting the whole banking system of the United States, and depriving the community of the accommodations which bank loans afford, to resort to less harsh means ; recourse must be had to such, as will insure a currency sound and uniform itself, and at the same time check and regulate that which will continue to constitute the greater part of the currency of the country.
Both those advantages were anticipated in the establishment of the Bank of the United States ; and it appears to us that the bank fulfils both those conditions. As respects the past, it is a matter of fact, that specie payments were restored and have been maintained through the instrumentality of that institution. It gives a complete guarantee, that under any circumstances, its notes will preserve the same uniformity which they now possess. Placed under the control of the general government, relying for its existence on the correctness, prudence, and skill with which it shall be administered, perpetually watched and occasionally checked by both the Treasury Department and rival institutions ; and without a monopoly, yet with a capital and resources adequate to the object for which it was established ; the bank also affords the strongest security which can be given with respect to paper, not only for its ultimate solvency, but also for the uninterrupted soundness of its currency. The statements we have given of its progressive and present situation, show how far those expectations have heretofore been realized.
Those statements also show, that the Bank of the United States, wherever its operations have been extended, has effectually checked excessive issues on the part of the state banks, if not in every instance, certainly in the aggregate. They had, been reduced, before the year 1820, from sixty-six to less than forty millions. At that time, those of the Bank of the United States fell short of four millions. The increased amount required by the increase of population and wealth during the ten ensuing years, has been supplied in a much greater proportion by that bank than by those of the states. With a treble capital, they have added little more than eight millions to their issues. Those of the Bank of the United States were nominally twelve, in reality about eleven millions greater in November 1829, than in November 1819. The whole amount of the paper currency has, during those ten years, increased about forty-five, and that portion which is issued by the state banks only twenty-two and a half per cent. We have indeed a proof, not very acceptable perhaps to the bank, but conclusive of the fact, that it has performed the office required of it in that respect. The general complaints, on the part of many of the state banks, that they are checked and controlled in their operations by the Bank of the United States, that, to use a common expression, it operates as a screw, is the best evidence that its general operation is such as had been intended. It was for that very purpose that the bank was established. We are not, however, aware that a single solvent bank has been injured by that of the United States, though many have undoubtedly been restrained in the extent of their operations, much more than was desirable to them. This is certainly inconvenient to some of the banks, but in its general effects is a public benefit to the community. The best way to judge whether, in performing that unpopular duty, the Bank of the United States has checked the operations of the state banks more than was necessary, and has abused, in order to enrich itself at their expense, the power which was given for another purpose, is to compare their respective situations in the aggregate. In order to avoid any erroneous inference, we will put out of question those banks of which we could only make an estimate, and compare, with that of the United States, those only of which we have actual returns.
The profit of banks, beyond the interest on their own capital, consists in that which they receive on the difference between the aggregate of their deposits and notes in circulation, and the amount of specie in their vaults. We have given the aggregate situation for the end of the year 1829 of 281 banks with a capital of 95,003,557 dollars, the deposits and circulating notes of which amounted together to ............ $71,706,033
from which deducting the specie in their vaults,...................1,989,643
leaves for the said difference, ..............................................59,716,390
or 62.8 per cent. on their capital.
The notes in circulation of the Bank of the United States (adding one million for its drafts in circulation) amounted in November 1829, to $14,042,984, and together with the deposits, to....................$28,827,793
from which deducting the specie in its vaults,.....................7,175,274
leaves for the difference,.....................................................21,652,519
or 61.8 on its capital.
It is clear that those state banks, taken in the aggregate, have no just reason to complain, since that of the United States imposes no greater restraints on them than on itself. It will also be perceived that it had in specie, more than one-fifth part of the aggregate of its notes in circulation and deposits ; whilst the state banks had little more than one-sixth ; and the Bank of the United States had in addition a fund of about one million of dollars in Europe. The difference would have been more striking, had we taken a view of the situation of all the state banks, including those on estimate ; for the difference between the aggregate of their notes and deposits, and their specie, is 67¼ on their capital.
This view of the subject applies to the present time, when the Bank of the United States has surmounted the difficulties which it had, in its origin, to encounter, and has reached a high degree of prosperity. It did not go into operation till the commencement of the year 1817, and such were the losses which it first experienced, that its dividends, during the first six years of its existence, fell short of 3½ per cent. a year. The dividend has since gradually increased from 5 to 7 per cent.; but the average, during the thirteen years and a half ending on the 1st of July 1830, has been but 4.33 per cent. a year. An annual dividend of about 9 per cent., during the residue of the time to which the charter is limited, would be necessary, in order that the stockholders should then have received, on an average, 6 per cent. a year on their capital. The dividends of the state banks vary too much, and our returns are too imperfect in that respect, to enable us to estimate the average ; but it has certainly far exceeded that of the Bank of the United States.
The manner in which the Bank checks the issues of the state banks is equally simple and obvious. It consists in receiving the notes of all those which are solvent, and requiring payment from time to time, without suffering the balance due by any to become too large. Those notes on hand, taking the average of the three and a half last years, amount always to about a million and a half of dollars ; and the balances due by the banks in account current (deducting balances due to some) to about nine hundred thousand. We think that we may say, that, on this operation, which requires particular attention and vigilance, and must be carried on with great firmness and due forbearance, depends almost exclusively the stability of the currency of the country.
The President of the United States has expressed the opinion, that the bank had failed in the great end of establishing a uniform and sound currency, and has suggested the expediency of establishing “ a National Bank, founded upon the credit of the government and its revenues.” He has clearly seen, that the uniformity of the currency was a fundamental principle derived from the Constitution, and that this, unless the United States reverted to a purely metallic currency, could not be effected without the aid of a National Bank. But it appears to us, that the objection of want of uniformity, which may be supported in one sense, though not in the constitutional sense of the word, applies generally to a paper currency, and not particularly to that which is issued by the Bank of the United States. And although we are clearly of opinion, that the United States at large are entitled to the pecuniary profit arising from the substitution of a paper, for a metallic currency, we are not less convinced, that this object cannot be attained in a more eligible way and more free of objections, than through the medium of a National Bank, constituted on the same principles as that now existing. On both those topics we will make but few observations, those branches of the subject having been nearly exhausted, in their report, by the Committee of the House of Representatives.
It has already been observed, that the substitution of paper to gold and silver is a national benefit, in as far as it brings into activity an additional circulating capital, equal to the difference between the amount of paper, and that of the reserve in specie necessary to sustain the par value of that paper. But it is clear, that the community derives no other immediate benefit from the substitution, than the accommodations which the banks are thereby enabled to afford, and for which the borrowers pay the usual rate of interest. The immediate profit derived from the paper currency, is received exclusively by the banks ; about three-fourths by the state banks, and one-fourth by that of the United States. So far as relates to profit, it is only to that one-fourth part of the whole, that the measures of the general government are intended to apply. Several of the states, by levying a tax on the capital or on the dividends of their own banks, receive the public share of those profits. Other states have resorted to the mode suggested by the President, and have established banks of the state exclusively founded on its resources and revenue.
The proposition has not been suggested to resort to a third, though the most simple mode, that of issuing, without the aid or machinery of any bank whatever, a government paper payable on demand in specie. We unite in considering it altogether inadmissible. Government may put its paper in circulation by lending it, like banks, to individuals ; and this is, in fact, the proposition which has been suggested. But unless this mode is adopted, to issue paper in any other way, is to borrow money ; and the United States at this time wish to discharge and not to contract a debt. Nor would such a paper, without a mixture of banking operations, control in the least the issues of state banks, and assist in establishing a general sound currency.
The general objections to a paper issued by government, have already been stated at large. Yet it must be admitted, that there may be times when every other consideration must yield to the superior necessity of saving or defending the country. If there ever was a time, or a cause which justified a resort to that measure, it was the war of the independence. It would be doing gross injustice to the authors of the revolution and founders of that independence, to confound them with those governments, which from ambitious views have, without necessity, inflicted that calamity on their subjects. The old Congress, as the name purports, were only an assembly of plenipotentiaries, delegated by the several colonies or states. They could only recommend, and had not the power to lay taxes ; the country was comparatively poor ; extraordinary exertions were necessary to resist the formidable power of Great Britain ; those exertions were made, and absorbed all the local resources ; the paper money carried the United States through the most arduous and perilous stages of the war ; and, though operating as a most unequal tax, it cannot be denied that it saved the country. Mr. Jefferson was strongly impressed with the recollection of those portentous times, when in the latter end of the year 1814, he suggested the propriety of a gradual issue, by government, of two hundred millions of dollars in paper. He had, from the imperfect data in his possession, greatly overrated the amount of paper currency which could be sustained at par ; and he had, on the other hand, underrated the great expenses of the war. Yet we doubt whether, in the state to which the banks and the currency had been reduced, much greater issues of Treasury notes, or other paper not convertible at will into specie, would not have become necessary, if the war had been of much longer continuance. It is to be hoped that a similar state of things will not again occur ; but at all events, the issue of a government paper ought to be kept in reserve for extraordinary exigencies.
The proposition then recurs, to issue a paper currency payable on demand in specie, through the medium of a bank, founded on the revenue of the United States ; or, in other words, to convert the general government, or its treasury department, into a banking institution. The experiment has been made in four of the states, and may have succeeded on a smaller scale, and where all the agents are personally known to government, and are not merely in name, but in reality, under its immediate superintendence. But if thirty-five millions of dollars are to be placed at the disposal of three hundred bank directors, selected by the government of the United States, and living in twenty-five different states or territories, with the authority to contract debts in behalf of the public to an equal amount, and to lend the whole to individuals at their discretion ; we must inquire, how and over whom that enormous power will be exercised. However they may have differed with respect to removals from office, the various administrations, with some exceptions, commanded by the public interest, have all preferred, in appointing to office, their friends to their opponents ; and in making the selections at a distance, there is not perhaps, out of ten officers who are appointed, one who is personally known either to the President or to any of the heads of the departments. It is morally impossible that the direction of the branches of the proposed bank should not fall into the hands of men generally selected from political considerations, often of a local nature. Without salary, or any personal interest in the concern intrusted to their care, they would also be altogether irresponsible. The duties of the other officers of government may always be, and always are, defined by law : for any wilful official misconduct, for any act of oppression towards individuals, they may be prosecuted and punished. But the power vested in a bank director is in its nature discretionary, and error of judgment may always be pleaded, for having improperly granted or withdrawn an accommodation. The exercise of that arbitrary power over the property and private concerns of individuals would be so odious, that, if the attempt was made, we are confident that it would not be long tolerated. Considered as a source of profit, which is its only recommendation, it is equally obvious, that the plan could not succeed ; that whenever there was a temporary pressure, and what is called a want of money, the debtors would ask and obtain relief, and that the same measure of indulgence would gradually be extended to every quarter of the Union. It seems indeed self-evident, that a government, constituted like that of the United States, cannot by itself manage and control a banking system spread over their extensive territory ; and we know, on the other hand, that the same object may be attained through the means of a bank governed and controlled as that of the United States. It may be added, that, if an objection is raised against that institution, because the power to incorporate a bank is not expressly granted by the Constitution, it appears to be equally applicable to the plan that has been suggested ; since there is no clause in that instrument, that expressly authorizes the government of the United States to discount the notes of individuals, or to become a trading company.
The United States are, however, justly entitled to participate in the advantages which the bank derives from its charter, by being permitted to issue paper, and to extend its operations over the whole country ; and that institution must also be allowed, in addition to the usual interest on its capital, a reasonable profit ; since it incurs all the risks, and is liable for all the losses incident to those operations. The government receives already a portion of the profits, in the shape of those services, which are rendered here gratuitously, and form in England no inconsiderable part of the benefit allowed to the bank. But for the residue, we would prefer to a bonus, either a moderate interest on the public deposits, or a participation in the dividends when exceeding a certain rate. There can be no doubt, that, independent of perfect security, the United States would, in that way, derive greater pecuniary advantages, than from any bank managed by its own officers.
In order to attain perfect uniformity, the value of a paper currency should, in the United States, be always the same as that of the gold and silver coins, of which it takes the place. It is impossible to fulfil that condition better, than by making that currency payable on demand in specie and at par. This cannot be done but at certain places designated for that purpose. The holder of a bank note cannot, at any other place, give such note in payment of a debt, or exchange it for specie, without the consent of another party. Strictly speaking, it is not, therefore, at any other place, of the same value with specie. This is equally true of any bank note, or convertible paper, in any other country. A note of the Bank of England, being only payable in London, will not be of the same value with gold or silver in Scotland, Ireland, or even at Liverpool, unless the exchange between those places respectively and London should be at par. This defect is inherent to every species of paper currency, even when payable on demand. There were three hundred and twenty-nine state banks, and twenty-two offices of the Bank of the United States, in operation on the 1st of January, 1830. We had therefore three hundred and fifty-one distinct currencies, all convertible into specie, but each at different places. A note of the Bank of the United States, or of the Bank of North America, both payable at Philadelphia, was no more exchangeable for gold or silver, at Bedford, in Pennsylvania, than at Cincinnati ; the only difference consisting in the greater distance from the place of payment, which renders a fluctuation in the rate of exchange more probable. When, therefore, it is objected as a want of uniformity, that the notes issued by the Bank of the United States, and its several offices, are not indiscriminately made payable at every one of those places, the objection does not go far enough. In order to attain perfect uniformity, or to render those notes everywhere precisely equal in value to specie, they should be made payable at every town or village in the United States. But, although it may be admitted, that the notes of the Bank of the United States now consist nominally of twenty-four currencies, each payable at a distinct place, they still fulfil the condition of uniformity required by the Constitution ; and the defect complained of is not peculiar to them, but would equally attach to any other possible species of bank notes or paper currency.
Those notes, wherever made payable, are, by the charter, receivable in all payments to the United States : and as the bank is obliged, without any allowance on account of difference of exchange, to transfer the public funds from place to place within the United States, any loss arising from that cause falls on the institution. For that purpose, therefore, all the notes issued by the bank constitute but one uniform currency, with which all the duties, taxes, imposts, and excises, may be paid. Not only the condition of uniformity imposed by the Constitution is strictly fulfilled, but by far the greater part of the notes which may happen to circulate out of the states in which they are made payable, is also absorbed by that operation. The objection is reduced to the simple fact, that individuals who may still hold such notes, cannot always exchange, them at par at a place distant from that where they are payable. In answer to this, it must, in the first place, be observed, that notes are never found in that situation, but by the act of the parties themselves. The bank and its offices never issue or make payments in notes payable at another place than that of issue, but at the request of individuals, whose convenience it may suit to apply for such notes. Through whatever channel a man residing in New-Orleans may have come in possession of ten thousand dollars in notes payable at Charleston, it has always been with his own consent, and never by the act of the bank. When this objection is made, what in fact is complained of, is, that the bank will not, or cannot, transfer the funds of individuals, as well as those of the public, from place to place, gratuitously ; an operation which has no connexion with the uniformity of currency. Supposing there were no bank notes in circulation, and there was no other but a uniform metallic currency, the man who had taken a cargo of flour from Louisville to New-Orleans, must, in order to transfer the proceeds back to Louisville, either have purchased a bill of exchange, or transported the specie. This he may still do, since the institution of the bank ; and he has no more right to ask from the office at New-Orleans, to give him, in exchange for the specie, bank notes payable at Louisville, than to require that it should pay the freight of his flour from Louisville to New-Orleans.
But supposing there was any weight in the objection, it is inherent to the nature of a paper, which cannot, in that respect, be made better than a metallic currency. If A contracts to pay a certain sum to B, it must be at a certain specified place. He cannot engage to do it at five or six different places, at the option of B, since it would compel him to provide funds at all those different places, and therefore to five or six times the amount of his debt. It is true, that the Bank of the United States has, through its extensive dealings in exchange, facilities to give accommodations in that respect, which no individual can have. But it is its interest to extend, as far as is safe and practicable, the circulation of its notes ; and one of the best means to effect that object, is to pay everywhere their notes, wherever issued, whenever that is practicable. The five dollar notes are already made thus payable ; and, in reality, payment of notes of every denomination, wherever made payable, is rarely refused at any of the offices. The bank may be safely trusted for giving the greatest possible extension to a species of accommodation, which it is its interest to give : but the condition can never he made obligatory, either on that institution, or on any other bank, by whatever name designated, or on whatever principle constituted, without endangering its safety. It is obvious, that no bank which has branches, can have funds at every place sufficient to meet a sudden demand for the payment of a large amount of notes payable elsewhere, which may fortuitously or designedly have accumulated at some one place. Even supposing this to be practicable, the condition imposed must necessarily occasion an additional expense, much greater than the benefit derived from it ; and if this was done through the means of a bank founded on the public revenue, it would be a tax laid on the community, for the advantage of a few individuals.
A similar objection has been made with respect to the dealings in domestic exchange of the bank. These consist of two correlative but distinct operations. The bank purchases at Philadelphia, and at every one of its offices, bills of exchange payable at different dates, and on all parts of the United States where there are such offices ; and the bank and its offices sell their drafts on each other, payable at sight. The amount of both has been progressively increasing, to the great convenience of the public. That of bills of exchange was 29,335,254, and that of bank drafts 24,384,232 dollars, during the year 1829. In the same year the transfers of public moneys, which are effected by treasury drafts, analogous to bills of exchange at sight, have amounted to 9,006,000 dollars. The three items together make a total of 62,785,486 dollars, transmitted by the bank in one year, through the medium of bills and drafts, which are thus substituted to the transportation of specie to the same amount. The purchase of bills of exchange is an operation similar, as relates to interest, to the discounting of notes. The interest accruing, from the time of purchase or discount to that when they become due, is equally allowed in both cases. Deducting this, the gross profit, on the purchase of bills, arising from the rate of exchange at which they were purchased, amounted in the year 1829 to 227,224 dollars, or less than three-fourths per cent. The premiums on the sale of bank drafts amounted to 42,826 dollars ; but to this must be added the interest accruing on the, drafts actually in circulation, and which, estimating, as before stated, the time during which, on an average, they remain so, at fifteen days, amounts to near sixty-one thousand dollars. The profit on those drafts is therefore near one hundred and four thousand dollars, or about three-sevenths per cent. The interest lost by the bank on the treasury drafts, is from fifteen to twenty thousand dollars ; and the charges for transportation of specie, postage, and incidental expenses, amounted, in the year 1829, to 49,847 dollars. The nett profit of the bank, on the aggregate of those transactions, is, therefore, about two hundred and sixty-four thousand dollars, or a fraction more than two-fifths per cent. on the whole amount.
There is not, it is believed, a single country where the community is, in that respect, served with less risk or expense. It is obvious that no one will sell his bills to the bank, unless that institution purchases them at a higher, or at least as high rate as any other person ; and that no one will purchase its drafts, unless they are as cheap as any others at market, or are considered safer. There is no other ground of complaint, unless it be that the bank can afford to purchase bills dearer, and to sell its drafts cheaper, than any body else. This is certainly a public benefit ; and the only consideration which has been urged with some degree of plausibility, is, that one of the reasons which enables the bank to obtain a higher price for its drafts, is the greater degree of security which they offer ; whilst, at the same time, its peculiar situation would enable it to sell them cheaper than other persons. Without admitting the validity of this observation, or denying that the current rate of exchange ought to regulate the price of those drafts, we would wish that they might be sold at par, whenever it happens that the operation, from the situation of its funds, is in no degree inconvenient to the bank. Government receives its full share of the profits on those operations. As its business is done gratuitously, it not only saves the interest as above stated, but also the premium which it would otherwise have to pay on the sale of its drafts. This, calculated at the same rate as for other bills of exchange, would amount to more than seventy, and together with the interest, to about ninety thousand dollars a year.
We have also heard complaints made against the purchase of foreign bills by the bank at the south, and the sale of their own bills on Europe at the east. That this may interfere with the business of capitalists who deal in exchange, is true ; but the principal public consideration seems to be, whether the bank confers a benefit on the southern planters or merchants, by entering into competition for the purchase of their bills, and on the public by offering for sale cheaper or safer means of making remittances abroad. Another great advantage is found in the facility, thereby afforded to the bank, of having a fund in England on which it receives interest, and which, on an emergency, answers the same purpose as specie. That branch of business, either for the year 1829, or for the average of that and the two preceding years, amounted to 3,580,000 dollars.
The principal advantages derived from the Bank of the United States, which no state bank, and, as it appears to us, no bank established on different principles, could afford, are, therefore First and principally ; securing with certainty a uniform, and as far as paper can, a sound currency : Secondly ; the complete security and great facility it affords to government in its fiscal operations : Thirdly ; the great convenience and benefit accruing to the community, from its extensive transactions in domestic bills of exchange and inland drafts. We have not adverted to the aid which may be expected from that institution in time of war, and which should, we think, be confined to two objects.
First. The experience of the last war has sufficiently proved, that an efficient revenue must be provided, before, or immediately after that event takes place. Resort must be had, for that purpose, to a system of internal taxation, not engrafted on taxes previously existing, but which must be at once created. The utmost diligence and skill cannot render such new taxes productive before twelve or eighteen months. The estimated amount must be anticipated ; and advances to that extent, including at least the estimated proceeds of one year of all the additional taxes laid during the war, may justly be expected from the Bank of the United States.
Secondly. It will also be expected, that it will powerfully assist in raising the necessary loans, not by taking up, on its own account, any sum beyond what may be entirely convenient and consistent with the safety and primary object of the institution, but by affording facilities to the money lenders. Those, who, in the first instance, subscribe to a public loan, do not intend to keep the whole, but expect to distribute it gradually with a reasonable profit. The greatest inducement, in order to obtain loans on moderate terms, consists in the probability that, if that distribution proceeds slower than had been anticipated, the subscribers will not be compelled, in order to pay their instalments, to sell the stock, and, by glutting the market, to sell it at a loss and the assistance expected from the bank is to advance, on a deposit of the scrip, after the two first instalments have been paid, such portions of each succeeding payment, as may enable the subscribers to hold the stock a reasonable length of time. As this operation may be renewed annually, on each successive loan, whilst the war continues, the aid afforded in that manner is far more useful than large direct advances to government, which always cripple the resources, and may endanger the safety of a bank.
NOTES AND STATEMENTS.
NOTE A.
RELATIVE VALUE OF GOLD AND SILVER.
It has already been observed, that the intrinsic value and average market price of current coins are greater than those of bullion of the same weight and standard ; and that the difference is, on account of the greater comparative expense of coinage, greater with respect to silver than to gold coins. The ratio of 15.7 to 1 is nearly that of gold to silver bullion in France, and it has been found to correspond, during a long period, with the market price in that country ; whilst the average price of the gold and silver coins has been in the ratio of about 15.6 to 1, making a difference of about 5/8 per cent. between the two ratios. The English market is, with respect to silver, much more uncertain, from the want of a constant demand and uniform mint price. Silver is accordingly exported in preference to France, and gold to England. The respective prices, as quoted in England, give the ratio of gold coins to silver bullion. If this average ratio is taken at 15.85 to 1, and the average English market price of standard gold bullion at 77 7½, the ratio of gold to silver bullion will be found to be less than 15.8 to 1; and, making the above-mentioned allowance of 5/8 per cent. for the difference between the two ratios, that of gold to silver coins, as deduced from the British average market prices, does not exceed 15.7 to 1. It is, in order to guard against any exportation of silver, in preference to gold coins, and any possible danger of altering the present standard of value, that we are desirous that this ratio should not be exceeded. The premium on gold coins in France, has, in the text, been generally rated at one half per cent. The true average taken for six years was only one-third per cent.
NOTE B.
ON SCOTCH BANKS.
Chiefly extracted from the Report of the Select Committee of the House of Commons on Promissory Notes of Scotland and Ireland, May 26, 1826.
EXTRACT.
“ There are at present thirty-two banks in Scotland, three of which are incorporated by act of Parliament, or by royal charter, viz. The Bank of Scotland, the Royal Bank of Scotland, and the Bank called the British Linen Company.
The National Bank of Scotland has 1238 partners.
The Commercial Bank of Scotland has 521.
The Aberdeen Town and County Bank has 446.
Of the remaining banks there are three in which the number of partners exceeds 100; six in which the number is between 20 and 100; and seventeen in which the number falls short of 20.
The greater part of the Scotch banks have branches in connexion with the principal establishment, each branch managed by an agent acting under the immediate directions of his employers, and giving security to them for his conduct.
The Bank of Scotland had, at the date of the last return received by your committee, sixteen branches, established at various periods between the year 1774 and the present.
The British Linen Company had twenty-seven branches. The Commercial Banking Company in Edinburgh, thirty-one.
The total number of branches established in Scotland from the southern border to Thurso, the most northerly point at which a branch bank exists, is one hundred and thirty-three.
Speaking generally, the business of a Scotch bank consists chiefly in the receipt an charge of sums deposited with the bank, on which an interest is allowed, and in the issue of promissory notes upon the discount of bills, and upon advances of money made by the bank upon what is called a cash credit.
The interest allowed by a bank upon deposits varies from time to time, according to the current rate of interest which money generally bears. At present the interest allowed upon deposits is four per cent.
It has been calculated that the aggregate amount of the sums deposited with the Scotch banks amounts to about twenty or twenty-one millions. The precise accuracy of such an estimate cannot of course be relied on. The witness by whom it was made thought that the amount of deposits could not be less than sixteen millions, nor exceed twenty-five millions, and took an intermediate sum as the probable amount.
Another witness, who had been connected for many years with different banks in Scotland, and has had experience of their concerns at Stirling, Edinburgh, Perth, Aberdeen and Glasgow, stated that more than one-half of the deposits in the banks with which he had been connected were in sums from ten pounds to two hundred pounds.”
* * * * * * * * * * * * * *
“ On sums advanced by the banks on the discount of bills of exchange, and upon cash credits, an interest of five per cent. is at present charged.
A cash credit is an undertaking on the part of a bank to advance to an individual such sums of money as he may from time to time require, not exceeding in the whole a certain definite amount, the individual to whom the credit is given entering into a bond with securities, generally two in number, for the repayment on demand of the sums actually advanced, with interest upon each issue from the day on which it is made.
Cash credits are rarely given for sums below one hundred pounds ; they generally range from two to five hundred pounds, sometimes reaching one thousand pounds, and occasionally a larger sum.
The bank allows the party having the cash credit, to liquidate any portion of his debt to the bank, at any time that may suit his convenience, and reserves to itself the power of cancelling, whenever it shall think fit, the credit granted.”
The amount of deposits, on which the Scotch banks allow interest, may be estimated at about £18,000,000 sterling. One-half is said to consist of small sums deposited by mechanics, fishermen, and laborers ; and that part of the system may be considered as analogous to that of the Saving Banks, and as having the same beneficial effect.
The cash credits are generally for sums from 200 to 500 pounds, sometimes as high as £1000, and sometimes as low as £50. The total amount, for which credits are opened, is estimated at six, and the average amount actually drawn, and due to the banks, at four millions sterling. They are generally granted to shopkeepers commencing business, and to tradesmen generally. The great advantage of this system, which is thus far substituted to the discounting of notes, is, that the borrower never draws more from the bank than what is absolutely necessary for the purposes of his business. The banks require that the capital loaned should be actively and constantly employed. One of the witnesses says, “ I would say that no cash account is at all well operated upon, unless, at the close of it in a year, the amount of the transactions on each side is, at the very least, five times the amount of the grant. When the account continues stagnant for any length of time, we intimate to the holder, that, at a fixed period, he must pay it up.”
The total amount of the notes in circulation is stated for 1825 :
in notes of £5 and upwards......................1,230,000
in do. of under £5, never lower than £1, . 2,080,000
..................at £3,310,000
The great and efficient method of preventing the over-issuing of bank notes, and the depreciation of their value, consists in the practice, rigorously adhered to by all the banks, of exchanging each other’s notes twice a week, and paying immediately the balances. For that purpose, “all the banks of Scotland have agents at Edinburgh, who exchange their notes twice a week, Monday and Friday; .... and the balances (are) paid by short dated bills (ten days) on London. The state of those balances is looked at by the banks, with the utmost jealousy and attention; .... if any thing in any degree wrong were to appear, the banks would instantly correct it, and force a bank acting improperly to alter its mode of conduct.” This method is the same which, though with less rigor and uniformity, is successfully used by the allied banks of Boston, and by the Bank of the United States, for preventing excessive issues of paper.
It is asserted, that the whole loss sustained in Scotland by the public, by bank failures, through more than a century, has amounted to no more than £36,344; and this result seems to be altogether ascribed to the peculiar features briefly noticed in this note.
NOTE C.
RESTRICTIONS ON PRIVATE BANKING.
It is also provided by a law of the State of New-York, (1818,) that “no person, association of persons, or body corporate, except such bodies corporate as are expressly authorized by law, shall keep any office for the purpose of receiving deposits, or discounting notes or bills, or issuing any evidence of debt to be loaned, or put in circulation as money : nor shall they issue any bills or promissory notes or other evidences of debt as private bankers, for the purpose of loaning them, or putting them in circulation as money, unless thereto specially authorized by law.”
The prohibition to issue any species of paper, that can be put in circulation as money, is perfectly proper, and indeed necessary : but that of receiving deposits, or discounting notes or bills, must have had some special and temporary object in view, and does certainly require revision. Why individuals should not be permitted to deposit their money with whom they please, is not understood. In such cases, interest is generally allowed, and this practice promotes frugality, and should rather be encouraged than for bidden. So long as credit is deemed essential to commerce, the discounting of notes or bills, by private individuals, creates competition, and is a public benefit. Incorporated banks cannot conveniently alter, either the rate at which they discount, or the time at which the notes discounted must be paid or renewed. Private capitalists may and do modify their loans, in both respects, according to the state of the money market, and to the wants of the community. They will discount at the rate of four or five per cent., when the use of capital is worth no more ; and, being still controlled by the general law of the land, they never can legally receive more than the legal rate of interest. And they may, to the great benefit of commerce, discount business notes due at three and six months date. The advantages, if not the necessity, of this accommodation are such, that it is understood, that the law in question is, in that respect, daily disregarded. The prohibition alluded to has no other effect, than that of deterring some prudent capitalists from engaging in that business, and of enhancing the premium, which, those who, in order to meet their engagements, negotiate the evidences of debt due to them, must pay for the discount.
* The opinion of the Supreme Court, in the case of M’Culloch vs. State of Maryland, had not been seen by the writer of this essay, when it was committed to the press : and the important inference, drawn from the use of the words “ absolutely necessary,” in another clause of the Constitution, had escaped his notice.
2 With the exception of the power of receiving private deposits, the object of which provision is not perceived, this is precisely the species of National Bank, which has been suggested in the President’s last message. The question, whether the purchase of drafts would, as we think, be a charge on the Treasury, or prove, as seems to be expected, a source of profit, is one of secondary importance. It is sufficient to observe, that the issues of the state banks could not, nor indeed is it anticipated in the message that they would, be checked by this plan. It would not, therefore, effect the great object contemplated by the Constitution, to carry which into effect is enjoined by that instrument, and for which we principally contend, viz. that of securing a sound and uniform currency.