Page:A History of Banking in the United States.djvu/45

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FIRST BANK OF THE UNITED STATES.
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making a deposit; from which it would result that some constant amount within limits could be depended upon. Unfortunately, however, Hamilton mixed up this sound and useful view of a bank with the popular misconception: "It is a well established fact that banks in good credit can circulate a far greater sum than the actual quantum of their capital in gold and silver." This is the fundamental notion of all juggling with bank issues. He here planted a germ which, as we shall see, grew to a great size and produced most evil fruit. It taught the banker to believe that his legitimate business was to carry on a kind of high class confidence operation. Next Hamilton speaks about the cases in which the operations of banking legitimately consist in setting off things against each other, which balance; but he introduces the cases as if they explained the possible inflation of bank issues, and as if they explained the transactions with actual deposits mentioned in the first place. Having mixed and confused these three things, he concludes: "This additional employment given to money, and the faculty of a bank to lend and circulate a greater sum than the amount of its stock in coin, are, to all the purposes of trade and industry, an absolute increase of capital." The confusion here introduced was important and unfortunate, especially as regards the confusion between deposits of surplus capital and the supposed increase of capital by the circulation. The gains of a bank must come either from its deposits or its circulation. Until the middle of the nineteenth century the deposits of surplus capital, even in the larger cities, were small, for the reason that capital was always in such active employment that surpluses waiting for employment were not formed. Any encouragement, therefore, which was given to the-notion already so widely current that paper issues could increase capital was directly mischievous. Hamilton went on to connect this also with 'the opinion which he said prevailed that there was a lack of a sufficient supply of money. He thought that the use of barter in remoter districts was a proof of this, and he showed that he participated in the belief that a bank could increase the amount of circulating medium in a country,—that is, not only increase the amount of capital available for employment in industry, but also increase the amount of currency acting. on prices and available to pay debts. As the confusion of these two things has been the most profound and most mischievous error in the entire currency history of the country, the fact that he shared in it and lent it his authority was most unfortunate forthe subsequent history. "It is evident," he says, "that whatever enhances the quantity of circulating money adds to the ease with which every industrious member of the community may acquire that portion of it of which he stands in need, and enables him the better to pay his taxes as well as to supply other wants." This has ever been a popular notion, and his enunciation of it was no doubt one of the most effective recommendations of his plan.

Answering objections made against banks, he shows that they bring about punctuality, and he answered very correctly the complaint that, if foreigners owned the stock, there would be a drain of specie to pay their