things the bank contract their issues; money becomes scarce, bills cannot be discounted, and trade is dull. Now, then, the importer having already a heavy stock of goods, will buy no more, he is anxious to sell, for he has not now sufficient capital to keep so large a stock—a general desire of selling will cause a fall of price. Fewer commodities will now be imported, and these obtained at a less price; hence there is less money due to the foreigner. The exporters on the other hand, deprived also of their usual accommodation, cannot carry on business to the same extent; the supply will be reduced, the competition is less, and prices rise to the foreigner. The exporters, too, cannot now give such long credit as formerly; they will call in the sums due to them, and hence more money must come in from abroad. As, then, we have to pay other nations a less amount of money for our imports, and they have to pay us a greater amount for our exports, the exchange will become favourable. It is obvious that this operation will cause great embarrassment to trade; in fact it is only by producing embarrassment that a contraction of the currency can affect the exchanges.

"The amount of notes in circulation affects the foreign exchanges in another way. When an increased issue takes place, money becomes more abundant; the lenders are more numerous, and the supply of capital is increased; hence the price given for the loan of money, that is the rate of interest, falls. Persons who have money to employ will find they cannot obtain the same interest as formerly, hence they will be disposed to invest it in the foreign funds, where it can be employed to greater advantage. In order to remit this money, they will purchase foreign bills; this demand for foreign bills will advance their price, and the exchanges will consequently be unfavourable. On the other hand, when the circulation is considerably reduced, money becomes scarce, a higher price will be given for the use of it, the rate of interest rises; persons who have property abroad will be disposed to bring it home, where it can be more profitably invested; they will draw bills against it, and sell them in the market. This new supply of bills will lower the price, and make the exchanges favourable.

"It should always be recollected that the transmission of money as subsidies, loans, or for investment in the foreign funds, will have the same effect upon the exchanges as though it were transmitted in payment of commodities imported. Whenever, therefore, the issue of notes shall, directly or indirectly, cause a transmission of money from one country to another, the exchanges will be affected; but when this shall not be the case, the expansion or contraction of the currency will have no effect upon the foreign exchange."

It is also an admitted principle in America, that paper issued to excess will have the effect of raising prices, stimulating speculation, and rendering the exchanges unfavorable. The operation of the currency upon the exchange in America was thus described a few years ago by Mr. Biddle, the President of the Bank of the United States.

"The currency of the United States consists of coin, and of bank notes promising to pay coin. As long as the bank can always pay the coin they promise, they are useful; because, in a country where the monied capital is disproportioned to the means of employing capital, the substitution of credits for coins enables the nation to make its exchanges with less coin, and of course saves the expense of that coin. But this advantage has by its side a great danger. Banks are often directed by needy persons, who borrow too much, or by sang uine persons, anxious only to increase the profits, without much pecuniary interest or personal responsibility in the administration. The constant tendency of banks is, therefore, to lend too much, and to put too many notes in circulation. Now the addition of many notes, even while they are as good as coin, by being always exchangeable for coin, may be injurious, because the increase of the mixed mass of money generally, occasions a rise in the price of all commodities. The consequence is, that the high price of foreign productions, tempts foreigners to send a large amount of their commodities; while the high price of domestic productions, prevents these foreigners from taking in exchange a large amount of our commodities. When, therefore, you buy from foreigners more than they buy from you, as they cannot take the paper part of your currency, they must take the coin part. If this is done to a considerable extent, the danger is, that the banks will be obliged to pay so much of their coin for their notes, as not to leave them a sufficient quantity to answer the demand for it, in which case the banks fail, and the community is defrauded. To prevent this, a prudent bank, the moment it perceives an unusual demand for its notes, and has reason to fear a drain on its vaults, should immediately diminish the amount of its notes, and call in part of its debts. So on a large scale, when the banks of a country perceive such a demand for coin for exportation, as diminishes too much the stock of coin necessary for their banking purposes, they should stop the exportation. This they can always do, if their affairs have been well managed: and here lies the test of bank management.

"The law of a mixed currency of coin and paper is, that when, from superabundance of the mixed mass, too much of the coin part leaves the country, the remainder must be preserved by diminishing the paper part, so as to make the mixed mass valuable in proportion; it is this capacity of diminishing the paper which protects it. Its value consists in its elasticity, its power of alternate expansion and contraction, to suit the state of the community; and when it looses its flexibility it no longer contains within itself the means of its defence, and is full of hazard: in truth the merit of a bank is nearly in proportion to the degree of this flexibility of its means.

If a bank lends its money on mortgages, on stocks, for long terms, and to persons careless of protests, it incurs this great risk, that, on the one hand its notes are payable on demand, while, on the other its debts cannot be called in without great delay, a delay fatal to its credit and character. This is the general error of banks who do not always discriminate between two things essentially distinct in banking, a debt ultimately secure, and a debt certainly payable. But a wellmanaged bank has its funds mainly in short loans to persons in busi

ness; the result of business transactions payable on a day named, which the parties are able to pay, and will pay at any sacrifice in order to escape mercantile dishonour. Such a bank has its funds, therefore, constantly repaid into it, and is able to say whether it will or will not lend them out again. A bank so managed, if it finds too much demand for its coin to go abroad, begins by not lending more than it receives every day, and then goes farther, by not lending as much as its income, declining to renew the notes of its debtors, and obliging them to pay a part or the whole; making it a rule to keep its discounts within its income. The operation proceeds thus: by issuing no new notes, but requiring something from your debtors, you oblige them to return to you the bank notes you lent them, or their equivalents. This makes the bank notes more scarcer this makes them more valuablethe debtor in his anxiety to get your notes, being willing to sell his goods at a sacrifice—this brings down the prices of goods, and makes every thing cheaper. Then the remedy begins. The foreigner finding that his goods must be sold so low, sends no more. The American importer, finding that he cannot make money by importing them, imports no more. The remainder of the coin, of course, is not sent out after new importations, but stays at home where it finds better employment in purchasing these cheap articles; and when the foreigner hears of this state of things he sends back the coin he took away. He took away merely because your own domestic productions were so high that he could not make any profit in his country by taking them. But when the news reaches him that his productions are very cheap in our country, he will also learn that our productions are cheap too, and he sends back the coin to buy these cheap productions of ours. therefore get back our coin by diminishing our paper, and it will stay until drawn away by another superabundance of paper. Such is the circle which a mixed currency is always describing. Like the power of steam, it is eminently useful in prudent hands, but of tremendous hazard when not controlled; and the practical wisdom in managing it lies in siezing the proper moment to expand and contract it, taking care, in working with such explosive materials, whenever there is doubt, to incline to the side of safety.

We

"These simple elements explain the present situation of the country. Its disorder is over-trading brought on by over-banking. The remedy is, to bank less and to trade less.

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During the last year, money was very abundant, that is, the demand for coin being small in proportion, the banks distributed freely their discounts and notes. This plenty concurred with other causes, especially the expectation of a new tariff, to induce an increased importation of foreign goods, and at the same time furnish great facility for procuring them on credit. For instance, in the difficulty of procuring profitable investments, there were found capitalists who exported the coin of the country, and sold their bills for it on credit; thus obtaining a small profit on the shipment, and a greater on the discount of the notes taken for their bills.

"This fraction of a per centage on the shipment of coin, seems to be a trifling gain for the great inconvenience to which it often subjects the community; but the profit though small, is lawful, and no odium should

be attached to the agents, for the operation is often a wholesome corrective of excessive issues of paper. The effect was, that by the month of February, the exportations of specie to France and England had become unusually large, amounting probably, in the preceding twelve months, to between four and five million dollars; and great importations were constantly arriving, and which when sold would require remittances to Europe. Hitherto at this season, the demand for exchange had been supplied by the bills drawn on the produce of the South, when shipped to Europe; but this year the crop, and with it the bills produced by it, has come tardily into the market, so that the demands of exchange for the proceeds of the arriving shipments were directed immediately to the exhausted vaults of the bank. Such an effect was to be averted without loss of time. The directors of the Bank of the United States, as was their natural duty, were the first to perceive the danger, and the bank was immediately placed in a situation of great strength and repose. The State Banks followed its example. They began by restraining their loans within their income, and gradually and quietly decreasing the amount of them, and more especially directing their retrenchments on those whose operations were particularly connected with the exportations they desired to prevent. The course of business has been this: a merchant borrows from the banks and sends abroad £100,000 in coin, or he buys bills from one who has shipped the coin. With these he imports a cargo of goods, obtaining a long credit for the duties, sends them to auction, where they are sold, and the auctioneer's notes given for them. These notes are discounted by the bank, and the merchant is then put in possession of another £100,000, which he again ships, and thus he proceeds in an endless circle, as long as the banks, by discounting his notes, enable him to send the coin, and tempt him so to do, by keeping up prices here by their excessive issues. The banks, therefore, begin by diminishing or withdrawing these artificial facilities, leaving the persons directly concerned in this trade to act as they please with their own funds, but not with the funds of the banks. The immediate consequence is, that the auctioneers can no longer advance the money for entire cargoes, that they no longer sell for credit but for cash, that the price of goods fall, that instead of being sold in large masses they are sold slowly and in small parcels, so that the importer is not able to remit the proceeds in large amounts. This diminishes the demand for the bills and for specie. to send abroad. In the meantime, the importer finding the prices of his goods fall, imports no more, and the shipper of coin finding less demand for exchange, and that he can make more of his money by using it at home than by exporting it, abstains from sending it abroad. Time is thus gained till the arrival of the Southern exchange, which will supply the demand without the aid of coin, and then every thing resumes its accustomed course.

"This is the point to which the present measures of the banks are tending. The purpose must be accomplished, in a longer or shorter time, with a greater or less degree of pressure, but the effect must or will be produced.”

While however the admitted principles of the cur

I

rency are the same, there is a considerable difference in the mode of its administration. In America there is no national bank: even the late Bank of the United States had no monopoly; its only privileges consisted in being the banker of the government, and in being able to establish branches in the respectives states, without being subject to local taxation. All the banks issue notes, even for so low an amount as five dollars, and in many of the States for even one dollar. If there is an evil in unlimited competition in the issue of notes, that evil must be experienced in America. It is therefore worthy of inquiry, whether derangements have occurred in the American currency more frequently than in this country; and if so, whether they have arisen from a spirit of competition between the issuing banks, or from the circumstance of their issuing very small notes?

With regard to England, the case is this:-In London, and for ten miles round, we have exclusively the circulation of Bank of England notes. From ten to sixty-five miles round London, we have exclusively the notes of private bankers. Beyond sixty-five miles from London, we have the notes of private bankers, the notes of joint stock banks, and the notes of branches of the Bank of England.

First, we shall consider the circulation of London. The bank charter committee of 1832 proposed to themselves the following inquiries:

1. "Whether the paper circulation of the metropolis should be confined as at present to the issue of one bank, and that a commercial company; or whether a competition of different banks of issue, each consisting of an unlimited number of partners, should be permitted?

2. "If it should be deemed expedient that the paper circulation of the metropolis should be confined as at present to the issues of one bank, how far the whole of the exclusive privileges possessed by the Bank of England are necessary to effect this object?"

Upon these points, the committee declared they