William Graham Sumner

“ 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 more valuable in proportion. It is the 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 loses its flexibility it no longer contains within itself the means of its own defense and is full of hazard. ”

“ If the great Bank secured through its branches, as it appears to have done, all the internal exchange business of the entire country, it would indeed, by promising to pay everything, never need to pay anything, but settle the whole by bookkeeping balances. ”

“ Law cannot regulate credit. The present system of banks is "in too many of its features, a dark and disgraceful picture." Contraction is a policy by which banks save themselves and ruin the community after leading it into error. The great fault of the banks is that they are not founded on real capital. He proposed a system of free banking, the capital to be invested in stocks, etc.; the fundamental idea of the free banking law of 1838. In "A Peep into the Banks," the anonymous author criticized adversely a project which was then proposed for a Bank of the State. ”

“ The Bank of the United States began the business of dealing in inland bills of exchange, buying and selling bills on all points where it had branches upon terms which gave it a profit. He regards this dealing as mischievous for reasons which are connected with the expansions and contractions of the currency; that is, at different places the Bank makes money easy when it wants to sell bills and tight where it wants to buy them. He represents the Bank as trying to act as the arbiter of exchange. ”

“ The annual tax of onehalf per cent., imposed under the name of 'a safety fund,' is unjust towards the banks which are well administered, and injurious to the community at large. To make a bank responsible for the misconduct of another, sometimes very distant, and over which it has no control, is a premium given to neglect of duty and to mismanagement, at the expense of the banks which have performed their duty and been cautiously administered. ”

“ April 9, 1825, seven expresses arrived at Philadelphia from New York in one day with news of a great rise of prices in the markets of Liverpool and London. All prices advanced, especially cotton. In July the price of cotton fell 3d. a pound at Liverpool. This produced a crisis in New York with many failures. "Many of the banks were in great difficulties. Several of them broke, and such were the straits of the United States Bank that one of the directors talked publicly on the exchange at Philadelphia of the expediency of suspending specie payments." ”

“ There appears to have been some difficulty in the Bank of the State, in 1824, when a committee was appointed to investigate it and report whether there had been any mismanagement. Perhaps as a consequence of this, private stockholders were allowed to be admitted by a law of December 20, 1826. Commissioners were to be appointed to value the existing assets, which the State should make equal to $1.2 millions; individuals might subscribe $1.6 millions, paying $20,000 bonus on each million. The charter was to be extended until 1848, but after 1840 the State might withdraw its capital. ”

“ The revenue from taxes and dividends was to go into the bank; the Governor to appoint three directors, each of whom was to give $100,000 bonds, and the cashier the same; to discount notes of two or more endorsers; debts not to exceed the capital; to last until 1840; all accommodation notes to be renewed every six months, six per cent. interest being paid in advance. The directors "shall loan as much money upon accommodation paper as the interest and safety of said bank will permit," and not call for more than 20 per cent. per annum on these loans unless the exigencies of the bank require it. ”

“ 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 falls; 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 bills and for specie to send abroad. * * * Time is thus gained until the arrival of the southern exchange which will supply the demand without the aid of coin and then everything resumes its accustomed course. ”

“ Fools and knaves in their individual transactions obtain little or no credit, but when congregated by a legislative act, have too frequently been invested in the eyes of humble but honest and industrious mechanics with a dignity and importance that have been alike ruinous to the possessor and beholder."
By an act of April 2, 1829, in accordance with a recommendation of Governor Van Buren, the safety fund system of banking was established in New York. ”

“ It was "required to appropriate one-tenth of its whole funds to loan to citizens of the Commonwealth, residing out of Boston, engaged in agriculture or manufactures, in sums not less than one hundred or over five hundred dollars, with interest annually, these loans to be secured by mortgage." "The State was at liberty to subscribe for an increase of stock equal to one-half of the paid up capital; to appoint a pro rata proportion of directors; and to borrow at any one time any sum not exceeding ten per cent. of the capital of the bank, payable at any time short of five years, at five per cent. ”

“ 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 seizing 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. ”

“ Raguet says that the banks of North Carolina had long refused specie payments. "A law was proposed but not enacted which has induced them to call in their issues, the commencement of which has produced such an alarm throughout the State that the grand jury in several counties have recommended a special call of the Legislature in order to prevent a measure which they have the folly to believe will ruin the whole people." ”

“ At the triennial meeting of the stockholders, in 1828, the enthusiasm was very great over the good management and prosperity of the Bank. The increase of the value of real estate at Cincinnati made it probable that the loss there would be recovered. The suspended debt was $7.1 millions. The whole anticipated loss was $3.1 millions, to meet which there were reserves, etc., for $2.9 millions. The domestic exchange business was $22 millions, on which the profits were nearly half a million. The circulation was $13.4 millions; the specie $5.8 millions; the loans $31.5 millions. ”

“ That if any bank will deposit with the Suffolk Bank $5,000 as a permanent deposit, with such further sums as shall be sufficient from time to time to redeem its bills taken by this bank, such bank shall have the privilege of receiving its own bills at the same discount at which they are purchased." "That should any bank refuse to make the deposit required, the bills of such banks shall be sent home for payment at such times and in such manner as the directors may hereafter order and direct." ”

“ In October we find him complaining once more that money is very scarce among all who depend on bank accommodation, and that six or seven millions of dollars have lately departed for England. Prices are falling under forced sales. [70] In 1831 the Bank of England exported specie and curtailed its circulation. [71] In February, 1832, there are complaints of a great stringency of money and exportations of specie with bankruptcies because banking assistance is refused. There is a great contraction of the currency. ”

“ It was a necessary consequence of the restoration of the currency to specie value.
The directors of the Bank resolved, December 2, 1823, to "operate in exchange." In the next two years, the active capital was increased by the sale of $3 millions or $4 millions worth of stock which had been forfeited in the stock jobbing operations of 1818. In the same years it took government loans of $10 millions. ”

“ The receipt of branch drafts at New York in 1828 was nearly $12 millions and in 1829 over $11 millions. The total receipt of them in 1828 and 1829 at Philadelphia, New York, Baltimore, and Boston was over $37 millions. They became the medium with which the South and West paid for its purchases. [84] Gallatin said of them that they "are of the same character, depend on the same security, and in case of failure, would share the same fate with bank notes. ”

“ It appears that the notes of the Darien Bank lying in the treasury [60] were amongst the assets which were delivered to the Central Bank. The contract with the Darien Bank that it should pay $75,000 every six months was re-affirmed, and the Central Bank was forbidden to demand more, December 22, 1829. A Legislative committee had reported, at the beginning of this session, in November, that the Darien Bank was sound again; that its notes were at par, having recovered from great depreciation ”

“ When Biddle took charge, the circulation was $4.3 millions; the specie, $4.4 millions; the public deposits, $2.7 millions; credit of public officers, $1.5 millions; private deposits, $3.3 millions; loans, $30.7 millions; public stocks, $11 millions.
The Bank had petitioned Congress, in 1818, [76] for an amendment to the charter to allow some other person than the president and cashier of the parent Bank to sign the notes; but the petition had been refused. This labor was very great, the circulation then being over $8 millions. ”