character and limited resources, as in the present American system, is one of no substantive importance. As our small banks necessarily deal with each other, by receiving each other's bills and settling their mutual accounts every day, they are virtually bound together into one institution; if the issues of any one of their number become excessive, the others are the first to perceive it, and are the first losers by its insolvency. This remark applies to them, however, only in their single. function, as banks of circulation; their other two functions, of receiving deposits and making discounts, may be, and often are, exercised by private merchants and capitalists, just as well as by the banks themselves. And these two functions constitute far the larger part of the banking business. In those States of our Union where, as in South Carolina and Missouri, there is but one State bank, which monopolizes the issue of bank-bills, there are numerous private bankers, as they are termed, who perform the greater part of the banking and exchange business. These bankers are under very few legal restrictions; their business is just as open to the community as any other branch of commerce. The office of issuing bankbills, which are to become a part of the currency of the country, is certainly a more delicate and important one; but it is not easy to see that it would be more safely performed by one institution, than by many. If the transactions of one great bank are more publicly known and closely scrutinized, and if it can be managed by a few persons of high reputation for probity, wealth, and intelligence, so the consequences of its failure would be more general and more disastrous. It would not be watched by any rival institution deeply interested in an early detection of its insolvency. Massachusetts has 169 banks, with an aggregate capital of over 58 millions, and an aggregate circulation of less than 23 millions. If all this business were concentrated in the hands of one institution, even the rumor that it was in danger would create a panic that would paralyze the business of the whole State, and its actual failure would occasion almost universal bankruptcy. But under the present system, the unsoundness of one bank is quickly detected, and the rotten member is easily lopped off without shaking public confidence, or doing more than slight injury to very few individuals. The average circulation of a

Massachusetts bank is but little over $135,000, and that of the largest banks does not equal half a million. There are many private merchants whose liabilities greatly exceed this amount, and whose failure would be a more serious shock to public credit. And the cases of insolvency are proportionally more numerous among the merchants than among the banks; of the latter, there have not been more than half a dozen failures during the last fifteen years.

Nothing can be more erroneous than the common opinion that the banks are able to increase their loans, and augment their circulation, at pleasure, or according to their own ideas of what is safe and expedient. There are no other funds from which loans can be made but (1.) the capital, (2.) the average amount of the deposits, and (3.) the excess of the circulation over the specie reserve. The first of these is a fixed quantity, determined by the charter and the nature of the case. The amount of the second depends upon the number of the customers of the bank, and upon the nature and extent of their business; the deposits are made up by those who need to have money at hand, or within call, as it were, but have no immediate occasion to use it, and though their deposits are continually being withdrawn and replaced, or transferred from one person's credit to another's, their average amount is nearly a fixed quantity, and, after a little experience, can be easily determined. The third fund, though generally supposed to be variable, is in truth as much a fixed quantity as either of the others. We have seen that a reflux of the bank issues is always steadily going on, not through their presentation for specie, but through the receipts in deposit and in payment of the loans and discounts which have come to maturity. The bank can do nothing to lessen or retard this reflux, except by diminishing the issue of the bills. If it should suddenly and incautiously enlarge its issues to-day, there would be an equivalent augmentation of the reflux to-morrow; for as the community was previously supplied with currency enough for its usual exchanges, the additional amount of money thus thrown into the market must come into the hands of persons who would have no immediate occasion to use it, but would lodge it on deposit in the banks, and it would thus be immediately returned to the source whence it came.

Experience as well as theory confirms this statement. The doctrine which "denies to banks any power of increasing their circulation except as a consequence of, and in proportion to, an increase of the business to be done," is supported, says Mr. J. S. Mill, "by the unanimous assurances of all the country bankers who have been examined before successive Parliamentary committees on the subject. They all bear testimony that, in the words of Mr. Fullarton, 'the amount of their issues is exclusively regulated by the extent of local dealings and expenditure in their respective districts, fluctuating with the fluctuations of production and price; and that they neither can increase their issues beyond the limits which the range of such dealings and expenditure prescribes, without the certainty of having their notes immediately returned to them, nor diminish them, but at an almost equal certainty of the vacancy being filled up from some other source.'' Thus Mr. Anderson, manager of the Glasgow Union Banking Company, when asked by a Parliamentary committee, if the extraordinary advances made by the banks in a season of pressure did not increase the circulation of the country generally, answered, “Those notes which we pay out, do not remain out; they must be paid back, either to us or to some other bank, in the shape of deposits, till they are to be used, and they do not increase the permanent circulation of the country unless for a day or two, scarcely even for a day.” As a bank cannot issue its own bills to any great extent without making additional loans and discounts, it cannot take advantage of the fact that the bills must remain out at least a day or two, before they find their way back; for if they were returned even on the third or fourth day, the bank would have nothing wherewith to redeem them except the notes which it had just discounted, and which have still from two to six months to run.

Accidental circumstances, indeed, sometimes enable a bank to pay out a considerable amount in its own bills, taking in return, not notes or drafts which will mature some months hence, but securities that are immediately convertible; a bank, for instance, is sometimes requested to furnish small bills, of the denomination of $10 and under, in exchange for a single $1,000 note of another bank. These bills of a low denomination, being needed to effect small payments, pass almost imme

liately into the hands of retail dealers, who are consequently enabled to collect and deposit an equivalent amount, either in hese very bills or in others of the same tenor. These dealers nay deposit in several different banks, and the result will be, that a portion of the bills will be immediately returned to the bank which issued them, while the remaining portion will drive out of circulation, or force back upon their issuers, an equivalent sum in the bills of other banks. The operation will increase to some extent the circulation of one bank at the expense of the others; it will not augment the general circulation of the country.

The doctrine which I have endeavored to establish, may be summed up in the two following propositions.

1. The currency of any commercial nation, whether it consists exclusively of specie, or of a mixture of specie with bankbills redeemable in specie on demand, is a fixed quantity, determined by the extent of the trade and the population, and by the perfection of the financial arrangements of commerce, as compared with the trade, population, and financial arrangements of all other commercial nations; the necessary equalization of the prices of all commodities in different countries, through the operations of international trade, is at once the result and the proof of this equal distribution of the total currency of the commercial world among all commercial nations, in exact proportion to the wants and circumstances of each. In the same manner, and under the operation of the same laws, prices are equalized through the various cities and towns of any one nation, and each city and town is consequently supplied with its due proportional share of the total currency of that country. This distribution of money is a self-adjusting process, not requiring any interference of legislation, or any efforts of individuals or associations specially directed to the purpose. Laissez faire.

2. In any mixed currency consisting of specie and convertible bank-bills, the amount of bank-bills of any given denomination which remains in circulation is determined exclusively by the convenience, the feelings and preferences at the time, of the people among whom they circulate, wholly irrespective of the regulations and the efforts of the institutions which issue these bills, provided only that they issue them freely, or do

not arbitrarily keep the supply below the amount which the community is willing and desirous to receive. The banks may create a deficiency, but they cannot create an excess, in the circulation of such bills. In the numerous payments which are daily made at the banks, either in deposit or in liquidation of notes, that element of the currency, be it specie or bills, which is least in demand, least adapted to the present wishes and convenience of the people, will predominate, and will thus be quickly eliminated from the active circulation, till the ratio of the two branches of the currency is reduced to that point which the popular will requires. As the daily payments into the banks must, on an average, just equal the daily payments out of them, no effort or contrivance of the bank managers can avert this result. They may pay out, they usually do pay out, nothing but bills, and therefore, as a general rule, only bills are paid in; and thus the proportion of bills to specie continuing in circulation remains unaltered. But if a panic respecting the solvency of the banks should be created, besides the usual payments in deposit and in liquidation of notes, bills will be presented at the counter to be cashed, or redeemed in specie; and thus the proportion of coin in active circulation is rapidly augmented. After the panic has subsided, finding that so much coin is inconvenient, on account of its weight and bulk, and the trouble of counting it, specie will be freely paid in on deposit; and then the bank payments in bills will quickly restore the usual amount of paper to the currency.

The conclusion of the whole matter may be thus stated: that the total amount of the currency is determined by the exigencies of international trade, or by the equalization of the prices of commodities throughout the commercial world; and the proportion of bank-bills to specie in a mixed currency is determined by the convenience and the wishes of the community at large.

Mr. Tooke, the able advocate in England of what is called "the banking principle," in opposition to "the currency principle," states a portion of his conclusions in the following

manner:

"That it is not in the power of banks of issue, including the Bank of England, to make any direct addition to the amount of notes circulating in their respective districts, however dis