"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. Political centralization requires for its support an amount of taxation, in money and in service, wholly out of proportion to the resources of the country. The necessity for accumulating the money with which to pay their taxes, causes stoppage in the circulation. When paid, it goes to Paris, and thither go the people who otherwise might be employed at home; and hence the extraordinary tendency to instability of the government. Financial centralization now steps in, and makes a further stoppage of the circulation-rendering it necessary for all who have money to invest to send their means to Paris, there to be employed in supporting thousands and tens of thousands of people, who might otherwise be productively employed elsewhere. 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 Colbert — seeking 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 and 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 XXXVI. THE SAME SUBJECT CONTINUED. VII.- Of Banking in the United States. § 1. THE political system of the United States tends towards decentralization. So, too, does their financial one; but here, as elsewhere, a policy that seeks the extension of trade at the expense of 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 oc currence. The gradual development of the banking system in the half century which followed the peace of 1783, is here exhibited :— Prior to this last, owing to the imperfection of the returns, neither the amount of loans, nor the proportion borne by them to the capital, can be shown. Of that date, however, we have returns from 281 banks, with capitals amounting to $90,000,000leaving unreturned, 49, whose capitals were $20,000,000. loans and investments of all kinds, of those returned, were $130,000,000; and if to this be added double the amount of the capital of those unreturned, or $40,000,000, we obtain a total of $170,000,000, based upon a capital of $110,000,000 — giving an excess of little more than fifty per cent. § 2. 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.. 1848. 1851. 1837. 1843. ... ... ... ... 879 1208 1300 Capitalin millions.......... 290 228 204 226 ... ... ... 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 of England and France are three, four, five, and even as much as ten, times their capitals. Great as is this difference between the American and European systems, it yet represents but a part of that which really exists. Of the capital of English banks, very much is frequently found in expenditures made with a view to securing business; while the Banks of England and of France hold real estate, banking-houses, &c., not included in the statements given above; whereas in those of the American banks all such investments are included. Again, the only real banking capital of the Bank of England is to be found in its surplus fund, or Rest, of £3,000,000 being an addition to capital such as exists almost everywhere among the American banks, and constituting an offset against the excess of loans above exhibited. Adding this to the capital of 1856, and deducting, on the other While the investments would scarcely exceed............................... or about ninety per cent. 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. § 3. 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 may be the extent to which a bank may see fit to extend its loans, it has no power to compel the person 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 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 it is so, 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 English ones. The loans of the first, not based upon actual capital, amount $310,000,000 160,000,000 Their actual circulation is probably about......... The total amount of loans dependent upon the variable quantity that one which, to its whole extent, duplicates the money at the command of individuals amounts, therefore, to only $150,000,000, 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 credits 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. |