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and the tendency towards increase of growth being in the direct ratio of the destruction of private credit. In 1844 its stockholders had 9 per cent. The next year they received 12-4; but in 1846, preliminary to the crisis which then soon after occurred, they had no less than 14:4 per cent., or nearly thrice the ordinary rate of interest.

§ 5. In both the physical and social world increase of force results from increased rapidity of motion. The use of the circulating note tending to produce that effect, its effect is seen in the rapid growth of both the commerce and the power of France. Both, however, are small, when compared with what they might attain to be, under a system calculated to give to the movement of the societary machine that steadiness which is required for obtaining a constantly accelerating force.

"Not a man in France," says M. Coquelin, "produces as much as he could"-a fact whose cause is to be found in languid circulation. The real difficulty, as he continues, is not that of production, but that of finding a purchaser for the things produced. Why does this difficulty exist? Because of the existence of a political and financial centralization unexcelled in Europe.

France is, however, a country of "contrasts." A centralization that is unmatched tends towards slavery and death; but, on the other hand, she profits by the advice of Colbertseeking always to bring the consumer and the producer close together, and thus to give value to the produce of the farm. The consequences are seen in the fact, that she exports a larger quantity of home-grown products in a finished form than any other country of the world-that she obtains for them a higher price than any other-that her power to attract the precious metals is steadily increasing-that she prospers in despite of a taxation for governmental purposes that is most oppressive, and a taxation for the maintenance of the stockholders of the Bank of France compared with which that required for the support of her fleets and armies sinks into insignificance.

CHAPTER XXIX.

OF THE INSTRUMENT OF ASSOCIATION-CONTINUED.

VII.-Of Banking in the United States.

1. Gradual development of the American banking system. How it stood at the close of the half century which followed the Revolution. Its progress since that time. Large proportion borne by capital to the amount of investments.

2. Steadiness in the action of banks is in the direct ratio of their dependence upon the power of affording means of circulation, and in the inverse ratio of their dependence upon deposits. American banks possess more of the elements of stability than those of France and England.

3. Small proportion borne by the currency to production when compared with either of the above-named countries.

24. Superior economy of the American system.

5. Steadiness in its own value the great desideratum in a currency. Tendencies of the American system in that direction.

6. Trivial amount of losses by American banks under the system of local action prior to 1837. Heavy losses of the people of England from the failures of private banks.

87. Growth of centralization in the last twenty years, and consequent diminution in the steadiness of the currency. Maintenance of a sound and stable currency incompatible with the existence of an unfavorable balance of trade. That balance unfavorable in relation to all purely agricultural countries.

8. Instability of American policy. Periods of protection and free trade alternating with each other. Prosperity the invariable attendant of the former, and bankruptcy of the people and the State that of the latter.

9. The money-shop, or bank, one of the most necessary portions of the societary machinery. More than any other, the American banking system tends to promote the habit of association, the development of individuality, and the growth of wealth.

§ 1. THE political system of these United States tends towards decentralization. So, too, does their financial one; but here, as elsewhere, a policy that seeks to build up foreign. trade on the ruins of domestic commerce, produces disturbance, whose result is already seen in the establishment of a centralization that but a few years since would have been regarded as beyond the possibility of occurrence.

The gradual development of the banking system in the half century which followed the peace of 1783, is here exhibited: Capital. ....................................... ....................... $42,000,000 246........................... 89,000,000 .....................307........................... 101,000,000

1811.
1816

No. of banks.

........................

1820...

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88...

1830...........................328........................... 110,000,000

The loans and investments of all kinds at the last of these dates, as nearly as can be ascertained, were $170,000,000, giving an excess beyond the capital of little more than fifty per cent.

For later periods the amounts are thus given, the item investments including not only loans and discounts, but stocks, real estate, and all other property, except specie, the mode of statement least favorable to the institutions :

Number..........

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1837. 1843. 1848.
634 691 751 879 1208.. 1300

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Capital-in millions.............. ................ 290
204 226
... 228
Investments-in millions................. 567 319 398 464

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301 630

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332 711

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329 ...

379

Excess investments......... .................. 270... 91 189 238 With the exception of the period immediately succeeding the great financial crisis of 1841-2, the amount of investments appears in all these cases to have been, as nearly as may be, about twice the capital; whereas, as has been seen, the loans of the banks, public and private, of England and France, are three, four, five, and even as much as ten times their capitals.

Adding the profits on hand to the nominal amount of capital, we obtain for the last of these years a total of....... $345,000,000 While the investments would scarcely exceed................................................................. 655,000,000

Giving as the excess of investments..........

or about ninety per cent.

$310,000,000

That excess represents the total amount of circulation and of credits on the books, for the redemption of which the institutions have not specie in their vaults.

§ 2. The amount of the currency of a country dependent upon the movements of its banks, is to be found in the circulation and the deposits, minus the quantity of specie retained on hand. The first, as has been shown in the examination of English banking, is an almost constant quantity; whereas, the last tends to change with every rise and fall of the political or financial barometer. The first, while increasing the utility of gold and silver by giving greater facility for the transfer of property therein, is regulated strictly by the wants of the people themselves; as, whatever the extent to which a bank may see fit to extend its loans, it has no power to compel the persons to whose credit the securities are placed, to convert them into notes. He may do so if he will, but he will not do so unless it pleases him; and so long as the option rests with him, and others like himself, the amount of the circulation rests with him and them, and not with the bank. Hence it is that the tendency to steadiness in the circulation is so very great.

In the case of "deposits" directly the reverse of this occurs, increase in their amount being dependent upon the will of bank directors, who may, or may not, add to the credits on their books. Every such addition swells the amount of private capital in their hands, unproductive to its owners; and hence it is that the tendency to instability in the loans dependent upon deposits is so great. Again, the bank-note simply facilitates the transfer of an existing piece of money, enabling a single piece to do as much work as without its help could be done by five or ten. The loan that is based upon a deposit doubles the apparent amount of currency, the power of purchase remaining with the real owner of the money, while being exercised, and to the same extent precisely, by him to whom the bank has lent it.

Such being the case, the tendency to stability and regularity should be found existing in the precise ratio in which the excess of loans is based upon the circulation; and, vice versâ, the tendency to instability should be in the ratio in which that excess is based upon the deposits. Assuming this to be the case and that so it is cannot be questioned by any one who has carefully examined the facts already laid before him -we may now compare the extent to which American banks are possessed of the qualities required for giving stability and regularity, as compared with those of England.

The loans of the first, not based upon actual capital, amount $310,000,000 Their actual circulation is probably about.................................................................................. 160,000,000 Leaving, as the amount of loans based upon deposits.............. $150,000,000 The dependence upon the variable quantity-that one which, to its whole extent, duplicates the money at the command of individuals amounts, therefore, to only $160,000,000, being less than the amount of such loans made by ten joint-stock banks in London, whose whole capital is but $18,000,000. Adding to this the similar loans made by the Bank of England, the country banks of all kinds, and the Scottish ones, we should find the element of instability in the British institutions to an amount five times greater than in the American ones. Even this, however, does not truly represent the facts; and for the reason, that while the amount increases in an arithmetical ratio only, the risk of change does so in a geometrical one. A bank with a capital of $1,000,000 may safely calculate that the credit on its books can never fall below $200,000; and when the amount of its loans based

upon such credits is limited within that sum, no change can ever be required. Let it, however, extend this to $400,000, and a probable necessity for considerable change will have been produced. Extending them to $600,000, a necessity for future change will have become certain. Carrying them up to $1,000,000, there will arise a high degree of probability that the change required will be so great as to bankrupt the customers, and annihilate the bank itself, with all its powers. The quantity of the excess has only quintupled, but the danger of instability has grown a thousand times. Instability and insecurity thus grow with the growth of the power of banks to trade upon the capital of individuals left temporarily in their hands; while it declines as the loans of those institutions become more and more limited to their power to furnish circulation. Such being the case, the perfection of instability should be found in England, while the nearest approach to stability should be presented by the banks of New England, the one furnishing almost the nearest known approach to the highest centralization, and the other exhibiting a decentralization that is almost perfect.

§ 3. Centralization and slavery travel always in the same direction. So is it, too, with decentralization and freedom. The more perfect the local action, the more instantly will the demand for capital follow its production, and the less will be the power of banks to trade upon deposits lying unproductive to their owners. The more perfect that action, too, the greater will be the power of association, and the less will be the proportion borne by all the instruments of circulation -whether gold and silver coins, or circulating notes-to the operations of the community and the amount of commerce. Such being the case, the currency of the United States should be found representing a smaller number of days of labor than that of England or France; and that it does so is proved by the following facts :

........francs 3,500,000,000

The specie of France is estimated at... The circulation and deposits of the bank-minus the specie actually in its vaults-may be taken at............................................................ 400,000,000

3,900,000,000

or about 110 francs per head-a sum representing probably 80 days of agricultural labor.

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