conduct of the Bank of England, and of the country issues. To his reasoning on this important question we cannot revert; but the conclusions he arrived at were, that a strong remedy was required, and that it was expedient to secure, strengthen, and if possible to extend, the monopoly of the Bank of England as regards the currency, with the view of rendering the indirect control which she can exercise over subordinate issuers more powerful: that it was desirable to make some gradual approach towards the separation of its banking functions from its management of currency, with the view of rendering the body which undertakes the latter duty free from all conflicting interests and motives, and at the same time make her responsibility distinct and complete, and the nature of its proceedings simple and easily understood; and that it was proper, in the meanwhile, to separate the accounts of the Bank of England, of the management of the currency, from every branch of its business, to subject the superintendence of this department to a separate committee of currency, and to associate with this committee a representative of Government, whose presence should always be requisite to constitute the committee for business. In 1840 the question of the conduct of the currency was reopened by the appointment of a committee of the House of Commons to enquire into the effects produced on the circulation of the country by the various banking establishments issuing notes payable on demand, but the committee did not report fully on the subject, and only presented the large amount of evidence collected. Let it not be imagined that the Bank of England at this period was guided by no principle in the regulation of its issues. Generally, and excepting under special circumstances, the Bank considered it quite sufficient to keep on hand securities bearing interest, to the extent of two-thirds of its liabilities, the remaining third being held in bullion and gold; any reduction of the circulation, so far as it might be dependent upon the Bank, being subsequently regulated solely by the foreign exchanges, or by internal extra demand. The object of retaining a fixed amount of securities by the Bank at a period of full currency, and continuing it afterwards, so far as it was practicable, was to throw the action of the increase or decrease in the circulation upon the public, with reference to the state of the foreign exchanges on the import or export of bullion. The rule had not been adhered to in several instances, and doubts were expressed as to the soundness of its principle as applicable to the Bank of England, from its mixing up deposits and circulation. But the Bank directors conceived that this rule had received some sort of legislative sanction, and they felt themselves bound to adhere to it as closely as circumstances would permit.

CHAPTER X.

AMERICAN BANKING.

The Banking System of the United States.-The Circulating Medium in the American Colonies.-Foundation of the Bank of the United States.Removal of Deposits.-General Banking Law of 1838.

THE condition of currency and banking in the United States of America has always excited the liveliest interest in this country, on account not only of their intrinsic importance in an economic aspect, but of their immediate bearing on the state of commerce and finance in the United Kingdom. A large portion of the commerce of England with foreign countries has always been carried on with the United States. The amount of British property invested in American securities is very large. It is in London that all the exchanges between the United States and India and China are settled. Enormous amounts of bills are daily running reciprocally between England and the United States. Next, indeed, to what is passing in the United Kingdom itself, it is to the United States that the attention of the financier and economist must be directed, and many are the changes and oscillations which vibrate through the electric wire safely lying at the very depth of the Atlantic.

Many are the problems suggested by a survey, however rapid, of the banking system of the United States. How far has banking, which is recognised everywhere as a powerful auxiliary in the production of wealth, tended to advance or retard the prosperity of the United States of America? Whence have arisen those frequent panics and crises which have marked the history of American banking and finance? What lesson can be drawn from the history of banking in a country which boasts itself of allowing the principles of freedom to operate their necessary consequences in every department? What analogy does exist between the State banks of the United States, and the State banks of Russia, or the banks of England and France? What connection is there between the currency system adopted after the conclusion of the recent war in America, and the national banks thereafter organised? There is much in the history of American banking which is worthy of careful attention.

To form, however, a correct notion of the working of any

system of banking, we must not ignore the idiosyncrasies of the nation among whom it operates. Compare the cool, shrewd, calculating mind of the Scotch or the Dutch, with the impassioned, go-a-head spirit of the American. The same law may operate very differently among the one or the other. Account also should be taken of the geographical condition of the country. A national bank may be effective in England, which is intersected all over by railways, and is otherwise conspicuous for the unity of her institutions. But in the United States, where each state possesses a certain amount of autonomy, and where the area of each is so vast, no single bank, and probably no single system of banking, may be at all sufficient. In the Old World, moreover, we advance but slowly, and the wants of banking and finance may be calculated with sufficient accuracy. Not so in the New World, where progress is so rapid and intermittent. The principles must necessarily be always the same, yet when applied over a wider area and appearing in new combinations and modifications, they reveal themselves in a new light, and may become the subjects of fresher studies.

Gold and silver have not been always the circulating mediums of the United States. When the pilgrim fathers sought for themselves in the New World that freedom of conscience which was denied to them in the Old, they carried with them a most insufficient supply of the precious metals. Tobacco and corn were then used as a circulating medium. In 1641 General Court, of Massachusetts, ordered all payments to be made in corn at the usual price. Two years after, wampourhead, an article of traffic with the Indians, was constituted a valid currency. In Virginia, young men and old bought wives and paid for them in tobacco. Maryland, in 1732, adopted tobacco as legal tender at 1d. per lb. These were, indeed, the days of small things for the American colonies. Gold and silver were scarce, and produce was not always realisable. Yet the British Government was not favourable to the introduction of paper money. In 1764 an act was passed, declaring that no paper money should be legal tender in payment, and enjoining the paper in circulation to be sunkthat is, paid off in hard money within a limited time. But necessity has no law, and only a few years after, in 1773, another act was passed, providing that the paper issued by the governments of the colonies in America, as security to their public creditors, should be received by the public treasurers as a lawful tender for the payment of taxes.

At the breaking out of open hostilities against the mother country, the American colonies found themselves wholly unprovided with the sinews of war, and they began to issue paper or 'continental money,' as it was called. The first issue, in limited quantity, in 1775, was well sustained, but rapidly as the struggle

advanced, and the amount swelled, the depreciation became more and more sensible. With an issue of $30,000,000, in 1778, six dollars in paper were given for one silver dollar. With an issue of $200,000,000, in 1780, $80 in paper were given for one silver dollar; and so the depreciation increased till $400, and even $1,000, in paper, were given for one silver dollar. Matters at last came to such a point that it was impossible to fix any standard of value for the paper in circulation. No one knew what he was doing in money matters. The currency had ceased to be any longer a standard whereby the value of any property or labour could be ascertained. But what happened in North America, in 1780, is just what happened only thirteen years after in France, with the circulation of the assignats. A currency resting on confidence may exist advantageously, but the primary conditions of success must necessarily be a sound discretion as to the amount of issue, and ample guarantee for the stability of public institutions. Here both were wanting. The issue was inordinate. The war with England was a step, the result of which no one could foresee, and, as might be expected, all the elements of fear and uncertainty were reflected in the depreciation of the colonial issues.

The strife, however, was not long. The colonists gained the day, and a new era in currency and banking was inaugurated with the final adoption of the constitution of the United States of America in 1789. Not a year, in fact, elapsed when Alexander Hamilton, the Secretary of the Treasury, laid before Congress a plan for the establishment of a Bank of the United States, for which he presented a bill before the House understood to have been approved by Washington himself. The bill itself, which passed into law,' was simply an act to incorporate the subscribers to the Bank, or to establish a corporation, but it contained two clauses of doubtful expediency. The first was, that bills and notes of the corporation payable on demand should be receivable in all payments to the United States. The second, that no other bank should be established by any future law of the United States during the continuance of the corporation thereby created, for which the faith of the United States was pledged. Constitutionally, it was highly questionable whether Congress had the power to grant such rights. True, the right of the State to coin money, to regulate the value thereof, and to fix the standard of weights and measures, was granted by the constitution to Congress, but it was a stretch of argument to say, that inasmuch as a national bank is an appropriate means for carrying into effect some of the enumerated powers of government, therefore it could create an

The act of incorporation was adopted by Congress and approved by Washington on February 25, 1791. The capital of the Bank was $10,000,000, and the charter was to expire on March 4, 1811.

institution to issue paper money, and might also bind the hands of Congress at all future time not to establish another Bank. Before the expiry of the charter the expediency of its renewal was greatly discussed, but Congress was divided, and the bill for the purpose was lost. The State Banks which opposed the renewal of the charter thought themselves strong enough and quite adequate to fulfil all the fiscal requirements of the Government and the wants of trade. But the result was very different. With their issues unduly expanded, many of them succumbed, producing great distress, and from 1811 to 1817 the utmost confusion prevailed. On January 17, 1817, the second Bank of the United States was established on a very verge of a great monetary crisis, and very soon after it found itself in a condition of danger from excessive losses. In 1829, however, President Jackson recommended that Congress should take into consideration the constitutional difficulties which might interfere to prevent a re-charter of the Bank, and in 1834 Congress resolved accordingly. After considerable agitation, involving the general subject of the currency, a law was passed in 1832 by both Houses for the renewal of the charter, but the President refused to ratify it. After this the Bank and the State could no longer work together. With the President rested the nomination of five directors. He appointed persons hostile to the management. The Bank and the Government did not work together, and to put an end to the dissension, in 1833, the Bank was ordered to pay all the public deposits into the Treasury, and a decision was arrived at that thenceforth all matters relating to stock belonging to the United States should be managed by the Secretary of the Treasury. The advantages of a national bank were asserted to be, first the issue of a uniform and, as far as paper can, a sound currency, and second, complete security to government in its fiscal operations. But none of these advantages were really rendered by the Bank of the United States, for, on the one hand, the states of the Union never abandoned their rights to charter banks, with the right of issue, and, on the other, neither the financial resources nor the commercial administration of the Bank of the United States were such as to enable it to grant material help to the fiscal operations of the states. The Bank of the United States succeeded in 1835 in obtaining a charter from Pennsylvania, and so continued. for a time an ignoble existence, but at last, in 1836, it suspended cash payments.

The removal of the public deposits from the Bank of the United States and their distribution among the different State Banks gave great impetus to the creation of banks all over the country, and consequently to a proportionate extension of the currency. It had been, as we have seen, the uniform practice of the different states of the Union to allow banks to be established for