the currency would be uniform throughout the state, and payments could be then made in correspondence with the true principles of commercial equality.

A bank, not subject to deposit drafts, and free from all rivalry, can sustain a larger circulation, on a less amount of specie, than can be steadily supported, on a wider basis, by a multitude of conflicting competitors. It is the apprehension of irresponsibility, generally the result of a want of information in the public, that gives rise to "runs" on banks, in order to convert paper into specie; which a bank, thus constituted, can never be liable to. In fact, no instance was ever known, where a general suspension of specie payment has taken place through the direct influence of the billholders only; and as the state bank is to take no deposits, it cannot be subjected to a drain from any other source than its notes in circulation; but, inasmuch as a demand for specie has a direct tendency to absorb a portion of the paper currency, its natural consequence, by the contraction, would be to enhance the value of the residue, and thus effectually to counteract any serious result.

The issues of the state bank are to be guaranteed by ten millions of state stock, one dollar in specie for every five in paper; with the balance of the capital invested in stock loans and regular business exchange. As an additional satisfaction to the public, the nature, amount, and character of the securities, are, at all times, subject to legislative inspection; while the direction is composed of intelligent gentlemen, representing the public and private interests; thus concentrating all the essential ingredients to unite and exhibit a state of responsibility beyond all possible cavil or jealousy.

This is based on the true federal principle, that the best security of our republican institutions is in the virtue and intelligence of the people; while no policy can be more fatal to the harmony of our political movements than the adoption of measures catering to public prejudices. In our fiscal concerns, we seem now to be governed by a contrary doctrine. If any attempt be made to lift the veil which shrouds their mysteries, the war-cry is, sacrifice the intruder; and yet, there is no subject so important to the general welfare as a correct understanding of the condition of the currency. With the nature of our government and the mode of legislation, we are all familiar; but of the operations of the money power we are essentially ignorant; or, perhaps, it might be more correctly stated that our information is superficial, extending only to the conclusion that there is a labyrinth too intricate for the wisest to penetrate with success. The subject of currency has either become too refined, or too much of a humbug, to admit of elucidation.

The legitimate patronage of a republican government is to diffuse knowledge as widely as possible, and then, with well-established revenue laws, the commercial world want no other protection. Has our legislation been governed by these wise principles in reference to our currency? Is not the whole subject a perfect chaos; and can any person, not excepting the official dignitaries of the banks, give any estimate, from day to day, of its probable variations? Situated as we now are, apprehension and alarm are constantly agitating the money market; the slightest demand for specie immediately creates dismay and embarrassment. There are too many contriving heads employed in regulating the exchanges, and very few who look beyond the walls of their own institutions for motives of action.

I submit to the most intelligent of our merchants, the inquiry, whether any of them are governed, in their operations, with any dependence on the consistency of the conduct of the banks. The fluctuations in the circulation are not periodical; they are at constant variance with the natural movements of commerce, they tend to bias, rather than to aid, its developments, and vary without any apparent cause. The conclusion seems irresistible, from such an uncertain state, that we must either resort to an exclusive metallic currency, or adopt some substitute better adapted to the exigencies of the times, leaving mercantile credit to regulate itself.

If such a bank of issues as has been proposed were established, would it not afford a substitute less liable to causeless changes than that currency which is dependent upon innumerable caprices? There would be then no deleterious influences in the money market, no inconsistent contraction when trade and commerce require an expanded currency. The trade of the interior with the commercial depots would be carried on by bills of exchange, instead of country bank notes. The corporate bank associations would assume their legitimate character of private bankers, and, confined to the negotiation of real exchange, would, in co-operation with the state bank of issues, soon restore credit to its legitimate limits. That such a change is neccessary, no man, conversant with the fictitious construction of our credit fabric, can doubt; for to him it must be apparent that a very large portion of our indebtedness arises from the creation of most of our corporate capital, to establish a vicious circulation on the credulity of the public; while the real, substantial, bona fide wealth of the country stands appalled at the inflated credit, and becomes useless to the public.

A farther recommendation to legislative action in favor of a responsible bank of issues, would be the inevitable tendency to defeat any successful attempts at forgery. In a currency familiar to the public, it would be much more difficult to circulate a spurious emission, than when the issues are of innumerable and unknown institutions. A degree of skill in the community to detect impositions would almost intuitively assume the place of ignorance. The genuine characteristics of bills and notes would be so well known, from constant observation, that every individual, and especially those most subject to deception, would be protected.

The records of our courts of justice would essentially cease to be blackened with the crime of forgery, and its attendant consequences of deeper villany. While I appeal to the intelligence of our enlightened judiciary to sustain this position, could it not be wished that the force of their experience might be enlisted in attracting public attention to this important subject.

It is impossible to estimate the cost to the industry of the community, occasioned by the facilities afforded by the present extensive system of forgery. There is scarcely a day passes without some new caution or notice to the public; and permit me to ask, on whom does the loss most seriously fall? If, for no other cause, this calamnity is almost sufficient to create an insuperable prejudice to a paper currency; and does it not therefore become the duty of those who believe in the system, to endeavour to introduce some more simple medium, less liable to be counterfeited?

With reference to the administration of the state bank:

In our experienced community it would seem superfluous to explain the important advantages incident to a direction composed of the delegates of the political interest, and those who represent the immediate intelligence, wants, and necessities of the people, abstractly. The influence of the first protects the public object in creating the bank; while that of the latter gives an influence and judicious vitality, essential to the prosperity of a commercial community. As merely a public institution, acting under the sole administration of public officers, it would be deficient in intelligence, vigor, and promptitude; thus operating without the stimulus of direct profitable remuneration; the direetion would be remiss, arrogant, and soon become wedded to crude notions of financial policy.

As the government agent, to collect, keep, and transmit the public revenue, can there be any question that such a bank would be most fitted for the employment? It would not only be a responsible depository, but fully competent to perform the duty assigned it; and might eventually supersede the necessity, expense, and inexperience of a canal fund commission.

In reference to the limitation of the business of the state bank to special objects:Independent of the motive for guarding the bank of issues from participating in the business of discounting promissory notes, as tending to embarras its supervisory control over the currency, is the fiscal propriety of preserving the legitimate business of private bankers in their fullest usefulness, that they may the more effectually contribute to the accommodation of trade and commerce. It is the avowed experience of the bank of England, and pre-eminently known to the intelligent merchants of this country, that the commercial world is much more liberally and efficiently aided and assisted by private bankers of real capital, than public institutions of any description can possibly afford. The same object has also governed my views in wishing to exclude private deposites from the bank of issues, as tending more effectually to keep the money of the country in constant active circulation. The deposites now lying idle and useless in our corporate banks are enormous, and will continue to be so while the banks are engaged in tampering with the currency, to the great injury of the public, and do not allow interest on balances. Is it not also true, that when our banks shall be confined to discounts and deposits, much of the expense attendant on their present operations would be reduced, and ultimately cheapen the price of loans?

The competency of the bank of issues to supply an adequate amount of currency with security:

Among those conversant with the essential ingredients of a paper medium, it is an admitted truth, that a single bank, with respectable capital, can expand the circulation with a less metallic basis than when the employment devolves on several; consequently, with this admission, there can be no doubt, that an institution can be so organized as to respond to the necessities of any reasonable contingency.

In the existing system there is no prospective knowledge; the responsibility of guarding against difficulty is the peculiar duty of none, and even when suspected to be on the approach, it is esteemed invidious to anticipate the necessity of making preparation to meet the event. To this want of a premonitory understanding, the consequence invariably has been, and ever will be, that the banks, anxious for their own security, essen

tially contribute to increase embarrassment when they ought legitimately to afford relief. There is this peculiar and paramount advantage possessed by a bank, essentially established as a bank of issues, that, being restricted from engaging in any commercial entanglements beyond its necessities, in regulating the state currency by the negotiation of exchange, it must always be prepared to meet the exigencies of the money market, and will not be compelled to contract its circulation in periods of commercial distress. A bank thus organized, cannot be hastily required to withdraw its accommodation from the public; and even when the necessity for a contraction does occur, its policy, as well as its duty, will be to commence the curtailment by recalling its stock loans, or disposing of its stock investments. But should a still farther retrenchment be deemed imperative, the ultimate recourse is, gradually to influence the negotiations of private bankers, by raising to them the rate of interest for the use of its currency.

A farther, and not an unimportant consideration, as a guarantee for the security of such a public bank, will be the general interest that must naturally exist in every wellregulated community, to protect the solidity of an institution so absolutely essential to the prosperity and welfare of the whole.

When private banking associations are relieved of the burthen which, by no means, ought to be imposed on and assumed by them, their prosperity or misfortune has no general or immediate bearing on the public; but, like other commercial establishments, their influences are confined to their respective limited spheres. It is at this independency, I anticipate, as a maxim of fiscal excellence in our momentary affairs, that we must, sooner or later, arrive; but whether this is to be the result of convulsion, or sound legislative counsel, may be well worthy the considerate attention of those with whom our dearest rights and interests have been intrusted. The experiment we have now on hand, I respectfully predict, will speedily prove an entire failure; and consequently the earlier this subject is dispassionately examined, the more easily can the neccessary remedy be applied.

·

In reference to the propriety of giving a full exposure of the affairs of the bank: On this subject there has been much discussion. It has been questioned whether frequent publicity of the condition of banks might not have a tendency to weaken their stability, by subjecting them to suspicion from erroneous estimates, and thus exposing them to invidious attacks; but if this be true, as referring to the compound character and condition of banks, being purveyors of the currency on which their discounts are predicated, it cannot apply to an institution established solely to give a currency on an intelligent and responsible foundation.

Of such a bank of issues, the better its principles and means are known, the more sure and perfect will be the public confidence in its stability, and consequently, proportionably greater permanency will be given to the national prosperity.

In this country we only want information; and that system which proposes the easiest way of acquiring it, will be sure to command the greatest respect. Can any man estimate what is the present amount of paper circulation in this state, or either of the others? The commissioners' reports afford but a very slender data on which to predicate a satisfactory calculation, and the occasional treasury reports are even less conclusive. When these official examinations are about to take place, temporary preparations are always made for the scrutiny; and as soon as it is over, the original condition is immediately resumed. Was not this position fully exemplified by the bank commissioners' report previous to the suspension of specie payments in 1837, when every thing was triumphantly proclaimed to be in a state of perfect soundness? If you take from the private banks the power to issue paper as money, you will require no inquisitorial commissioners, interfering with private negotiations.

That the issue of paper is not essential to the prosperity of our private banks, we have the experience of those in the city of New-York, whose circulation scarcely exceeds their specie; and yet they make from four to six per cent. semi-annual dividends, and our trust companies even greater. I do not, however, pretend to say that such dividends could be realized, if the currency were established on a sound basis; I am rather inclined to the opinion that the fluctuations afford the occasion, and improve the opportunity, for profitable speculation. There seems to be some secret alchemy in the present contrivance to render bank operations so peculiarly productive; buying and selling stocks, perhaps in other terms, stock gambling.

The next subject for explanation is the limitation of the dividends on the capital of the private stockholders in the bank of issues.

It is very evident, that an association possessing the exclusive right to furnish a circulating medium, must be a monopoly; and being created by an act of legislation, common justice would require that any surplus, beyond a fair compensation for the use of private capital, should enure to the benefit of the public revenue. Whoever becomes a 29

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226

Hamilton on the Subject of Banks and the Currency.

stockholder, by subscription or purchase, does it voluntarily, and has no cause for complaint; but independent of this consideration, the limitation is intended to operate as a check to speculative movements by the direction of the bank, inasmuch as it destroys any sinister inducement for misconduct.

It is in this limitation, as in the direct representation of the government, that the public converts this body into an agency, to administer with the greatest fidelity and wisdom the most delicate and imposing attribute of sovereignty — the money-making power. In peace and in war, in commercial prosperity or distress, the currency of such a bank would remain the same. As such a power could be most potent in advancing the general interests, it would, if abused, prove most despotic. It would therefore be unsafe and impolitic to be entrusted entirely in the keeping of government managers, and can only be judiciously deposited where the jealousy and keen-sightedness of private interests will have a proper influence. The public will have in the capital invested a guaranty for the faithful discharge of the trust, while the private stockholders will have a perfect security through the preponderating control of their immediate representatives.

The propriety of locating the bank of issues in the city of New-York can admit of no reasonable opposition.

In the commercial emporium of the state, the wants of the money market will be best understood. There the exchanges, domestic and foreign, are concentrated; and to and from which almost every financial negotiation ultimately tends. As these are paramount influences, they cannot fail to be conclusive to every intelligent mind.

It now remains to be shown in what manner the notes of the bank of issues are to be substituted for the present anomalous currency.

The modus operandi by which this bank of issues is to go into operation, will, I imagine, be much less difficult than is experienced by ordinary associations. The subscription to the capital stock being complete, and payments having been made in specie or the paper in circulation, the state bank would stand in a corresponding situation with all others. The bank would then organize its direction, and prepare its notes or bills for public use; the next movement would be, either to require a gradual specie redemption of the private bank notes, or, as an accommodation to those institutions, it might issue to them its own notes, charging a moderate interest for the loan. In some instances the private banks would recal their circulation and pay specie, preferring to contract their business to the legitimate operations of real capital: but others, less independent, would adopt the alternative, and pay for the use of their own credit. In either case the facilities of the state bank would be increased.

The legislature of New York having reserved the right to repeal, alter, or modify all the safety fund bank charters, it will be easy to cause their notes to be withdrawn; and, if it were constitutional to prohibit the circulation of notes of all banks under the denomination of five dollars, with equal propriety the restriction might be extended to those of a higher value. The powers of the legislature need not be confined to the provisions heretofore employed to compel the withdrawal of the notes under five dollars; there could be other enactments still more efficient; the courts of justice might be closed against those banks whose notes were voluntarily continued in circulation after a reasonable notice.

The state could refuse to receive payment of dues, or discharge the claims on the treasury, in any other currency than in specie, or the notes of the state bank; the discredit thus thrown on every other currency, and the direct credit given to the state bank, would produce a paramount preference for its issues. In farther aid of the circulation of the state bank paper, the branch agencies would be employed in the purchase of exchange, and, by agreement, paying for the same in its notes. An important auxiliary for the extension of its emissions would be found in making loans on, or investments in, productive stocks.

If it should be objected that the operation of the system now proposed would curtail the profits of chartered institutions, the appropriate reply is, that public policy requires a change. The duty of the legislature is to protect the community, even at the sacrifice of private interests. This is the constitutional foundation of our revenue and license enactment; but, in the present case, the representatives of the people only transfer an exclusive privilege temporarily conferred on favored individuals, to a public institution, intended to promote the general welfare. As our currency now stands, an enormous contribution is constantly levied on the many for the benefit of the few, while such facilities are given to successful forgery as to render the banks almost accessory to crime.

If corresponding banks should be established in the other states, they would afford a complete basis for the successful employment of a national bank, similarly restricted and organized.

While there is no country on the face of the globe that presents such promising prospects as the United States, whether we refer to the character of the population, or the natural advantages of soil, location, and climate; yet, notwithstanding these claims to superiority, our onward course is cramped and embarrassed through the influence of an improvident, unconstitutional, and imbecile currency.

MERCANTILE LAW.

ART. VII-THE LEGAL PROTECTION OF GOOD FAITH.*

In a community of merchants, good faith hardly admits of eulogy. In the operations of a rich and rapid commerce, great confidence must be often reposed in others, without the minute caution necessary to a perfect protection against fraud or unfairness. Commerce, in the walks of her grandeur, is unwilling to linger at every stopping place, to turn from every small obstacle, and to distrust every one whom she meets. She fears that were she obliged so to do, one half of her vigor would be lost, and all glory stripped from her; that enterprise, her best attendant, would be fettered; that her longsighted sagacity would be necessarily exchanged for minute vision; and instead of planning expeditions to bring home the riches of distant countries, commerce fears lest she should be confined to petty schemes of traffic, or debased by the arts which deceit begets of suspicion.

It is from absolute necessity rather than from considerations of utility merely, that a commercial society makes good faith a cardinal virtue; indeed, it goes farther, it considers it so indispensable as to treat it as a military people do courage, deeming its want the deepest disgrace, while its possession is but an ordinary merit.

But the moral virtues comprised in our idea of good faith do no less elevate it in our estimation. It imports all that is sacred in truth, all that is severe and self denying in integrity, all that is estimable in social communion. To be just, true, and unsuspicious of evil in our own purposes, and to be frank, unreserved, and faithful in our communications with others, form a combination of things which are truly "honest, lovely, and of good report," and which receive divine commendation.

It becomes an interesting inquiry, then, to consider how far this excellent commercial virtue, and this great moral quality, forms a ground of legal protection. And this inquiry is the more interesting, because, in actual life, it chiefly arises in cases of misfortune and loss. If no difficulty occurs, if bargains turn out favorably, neither party needs to agitate the questions arising out of good or bad faith in the making of them. But if we buy something, and find ourselves losing by a defect of title or by a vice of quality, our first reflections are as to the good or bad faith of the transaction out of which the loss arose. We appeal to our own good faith in the matter as that which ought to have insured us protection, and which should entitle us to indemnity or redress; we appeal to the good faith of those with whom we have dealt, not to subject us, acting in fairness and without blame, to a loss; we appeal to others for their sympathy in our misfortune, holding up our good faith as the signal for their attention; we appeal to them for indignation against that want of good faith to which our misfortune may have been owing. And

* A lecture read before the Mercantile Library Association of New York, and now first published in the Merchants' Magazine, by request of the Board of Directors.