The Journal of Banking
by William M. Gouge,



Volume I. Number 14.
Wednesday, January 5, 1842.

Commercial Banking.

In some of our previous numbers we endeavored to show the difference between banking on commercial principles, and banking on the principles commonly adopted in this country.  We now commence the history of a bank which was conducted on commercial principles for twenty-five years;  during which time it made but one bad debt, and that of only fifty dollars.  It then changed its mode of operation, and in five years became bankrupt.

As the writer is an old and experienced banker, we hope his remarks will receive the attention which they merit, from gentlemen who have the management of banking institutions.

To paper-money banks, even when conducted on the principles laid down in this article, there are, as we shall endeavor to show, in future numbers, very strong objections.  But we firmly believe, that if our banks generally were conducted on those principles, the system would be shorn of half its evils.  Banks so conducted, whatever other evils they would inflict on the community, would never stop specie payments.



History of the Bank of ----

To the Editor of the Journal of Banking.

Sir:-- In a conversation held with you at Washington some time since, I endeavored to enforce and illustrate my views of the sound and legitimate principles of banking, by narrating the operations of a banking institution with which I had, for a long period, been in some measure connected.  I now proceed, in compliance with your request, to furnish you with a brief history of the bank to which I then referred.  The narrative, mainly from memory, will be found substantially accurate.

The bank was chartered in October, 1806.  Its charter contained the ordinary provisions found in bank charters;  its capital was $200,000, divided into 1,000 shares of $200 each: the first board of nine directors was chosen on 3d of February, 1807.  On the same day, out of this number, a gentleman, who held a large and controlling interest as a stockholder, and gave a direction to its affairs for a quarter of a century afterwards, was chosen President, without compensation.  The cashier was elected on the 24th of March following, at an annual salary of $700, with the use, free of rent, of the dwelling part of the banking house.  The bank was opened for business, pursuant to public notice, on the 21st of May, 1807;  and a rule established on that very day, of the following import:

No paper offered at this bank for discount will be accepted, having more than sixty days to run to maturity.

Every note or bill discounted must be paid at maturity.

No renewal or new discount will be made in substitution for, or in aid of the payment of an existing indebtedness.

There was no set form of by-laws enacted.  This simple, searching, and effective rule stood alone, the solitary but inflexible rule for the administration of its affairs.  In the outset, some of its debtors, regarding "a bank" rather in the light of a benevolent, than of a money making institution, and as possessing recognized special claims on public and legislative favor, and therefore bound to accommodate the public, (a heresy, alike fatal to the country and to banks,) denounced the rule as most arbitrary and "unaccommodating," and, in a few cases, a resort to legal proceedings was found necessary to coerce its observance.  The rule however was enforced, and its requirements obeyed.

There was no other bank in the county, and being established in a populous town, the centre of trade for a large and productive district, its operations were, in the highest degree, salutary and gratifying.  It induced, and indeed compelled its dealers to carry out the same conservative principle in all their private transactions.  Each individual conducted his business not on borrowed bank credit, but on his own capital, and thus brought the amount of his transactions within his own means;  short credits and quick returns were characteristic of the transactions of the neighborhood.

The bank, you will understand, instituted no impertinent inquisition into the origin or object of the paper offered for discount.  Parties being satisfactory, it was invariably "done."  Experience had taught the directors, that the rule requiring absolute payment at the end of sixty days, would, in its operation, necessarily confine their discounts to real business paper --representing actual transfers of property out of the hands of the payee into those of the payer;  the payer received, in consideration of his note, the property purchased;  which he practically held in trust for the security of the holder of his note.

I have said that this rule confined discounts to paper representing values -- the commodities of the country, and limited the transactions of its customers to their own capital;  for no prudent man, having adequate credit to obtain a discount, and requiring actual capital, would venture to embark in an enterprise on borrowed bank credit, which he knew would be withdrawn and must be returned, at the end of sixty days.  The bank, in short, only cashed sales.  To the men of business, enlightened by the events of the past few years, who were, during the period of which I am speaking, among the customers of this bank, it will soon be apparent that the steadiness and sobriety which was infused into all the transactions of the neighborhood, was owing, in some degree at least, to the influence of this, at that time, very popular moneyed institution.  The gains of the people, which were then the fruit of honest and patient industry, and well considered economy, were not, it is true, sudden and spasmodic, but sure and steady.

It was ascertained, soon after the bank was fairly in operation, that its ability to discount, had no sort of connection with, or dependence on, the amount of its capital.  A currency fully equal to the demands of trade was sustained, and more could not have been sustained whether the capital was one thousand or one million of dollars.  Its circulating notes were issued only in exchange for business paper representing commodities in transitu, and were, as I have already observed, practically secured by a lien on those commodities.

Once in every sixty days, the whole debt due to the bank was cancelled by payment.  One sixtieth part being thus paid in, restored to the bank daily, either its own bills or bills of other banks.  As every new discount carried out only the credit of this bank --not that of other institutions, for prompt and actual payment was required of their bills-- it is obvious that its circulation supplanted that of other banks dealing in renewals or "accommodation paper;"  because their paper, as fresh discounts were comparatively few, seldom went into circulation.  To compensate for the less circulation, the cause not being understood, agents were furnished with bills of those banks, by their directors, with orders to exchange them with merchants and trades people;  and even travellers were annoyed by numerous applications --without effecting their object for any length of time, as they were soon returned from whence they issued.

There was no attempt made by the bank to regulate trade or exchanges;  but it was itself regulated by them.  The bank was the servant of trade, not its master.  The circulation of the bank vibrated widely.  At certain seasons, when the products of the country were coming forward to market, it expanded largely;  at others, it shrunk within very narrow limits, as the records of the bank will show.

I have said that the ability to discount was not influenced by the amount of its capital.  The possession of capital was of no use except to inspire confidence.  This being once fully established, (and its manner of conducting business contributed to this far more than its capital,) the latter was found a great inconvenience --a source of real annoyance, because its investment involved a responsibility which it was thought could be discharged with equal safety and greater advantage by the stockholders, in their individual capacities, to whom it belonged, and through whom it would find its way into the hands of the producing classes.  It was therefore determined to restore it to them, retaining only so much as was deemed adequate to the security of those holding the engagements of the Bank.  Accordingly, in pursuance of a vote taken at a meeting of stockholders on the 3d of July, 1816, and with the consent of the Legislature previously obtained for that purpose, one-half of the capital stock ($100,000) was paid back to the stockholders in gold and silver or its equivalent, leaving $100,000 of the same article or its equivalent, in possession of the bank.  One half of the capital of the bank was thus distributed among the stockholders, in aid of the productive industry of the country, which required actual capital for long and fixed periods, and not bank credit;  while the latter continued to be employed as a facility to the trading community in transferring commodities.

This disposition of its capital was alike beneficial to the country and the bank;  to the country, because it augmented the national wealth by increasing the products of labor --to the bank, because it called for an enlarged but legitimate issue of its currency (the only real source of profit which a bank possesses over other modes of investing capital) to transfer this increased amount to market.

The bank continued its operations, adhering to the rule governing its discounts, but was still suffering from the annoyance of unemployed capital;  and while on the one hand, it was considered an act of justice to its creditors that it should retain in its possession, for their security, the remaining half of its original capital: it was, on the other hand, due to the stockholders, that it should be kept securely invested in some shape.  To employ it in discounting commercial paper, experience had shown, was not sagacious;  as the bank's credit, which cost nothing, already supplied all the demands of trade;  and adding its capital would either compel it to retire an equal amount of that credit;  or else, by inflating the currency, expand prices, promote extravagance and speculation, and thus endanger the solvency of its customers, whose engagements the bank held.  Accordingly, to protect itself, by protecting its customers, and in order to avoid the trouble and risquè of temporary investments, the bank lent on bond and mortgage $25,000 of its remaining capital, at six per cent. interest, in pursuance of the following resolution, which will be found on its minutes:

"September 28, 1821.  Whereas the demands for money are not sufficient at the present time to employ, in the legitimate objects of banking, all the funds of this institution, therefore

"Resolved, That ****, Esq., be authorized to loan, on mortgage, at a rate which shall produce to this institution an interest of six per cent. per annum, a sum, not exceeding twenty-five thousand dollars;  and on such real security as he shall deem to be perfectly ample --the loans to be for a period not exceeding five years."

This investment being made, recourse was had to temporary loans on fixed securities, which were soon abandoned, and a further sum, nearly equal to the residue of its capital was subsequently permanently lent on the security of bonds and mortgages.  The bank meanwhile continued its regular business from year to year, the proceeds of bills discounted supplying it with means more than sufficient to redeem its own issues.

[To be continued.]

History of the Bank of ___

Concluded in issue 15.

There was, as there ever will be --even under a currency purely metallic-- occasional and temporary enhancement of prices not warranted by the laws of supply and demand;  and a corresponding increase in the amount of currency became necessary to carry on exchanges: but that unerring monitor, when left free and uncontrolled --the state of foreign exchanges-- gave seasonable admonition of a dangerous excess;  and the instant that the shipment of precious metals commenced, the Bank's discounts were lessened, prices gently reduced to a point of safety which was immediately and easily attained, and so far as this bank was concerned, its condition was, at all times, kept impregnable.  Dealing in business paper alone, its "bills discounted" were elastic and flexible, and its contraction acted immediately on the prices of commodities.  As its customers operated on their own capital, and not on bank credit, the restriction of its circulation did not break the merchant, before it could reach the exportable commodities, but acted directly on the latter.

The melancholy spectacle of the failure of seven hundred trading houses in the city of New-York in 1837-'38, would never have occurred, had all the banks adhered to the rule of discounts of short business paper only, and not renewable.  It was the withdrawment of the bank credit, on which merchants had traded as if it had been capital, that produced this mischief;  and before the banks could reach the commodities over the ruins of mercantile credit, both themselves and their victims fell into one common slough of insolvency;  and to the firmness of the State Legislature of New York are we indebted for that continued contraction of bank issues, which reduced the price of commodities, and brought the precious metals back from Europe, into her commercial metropolis, and thus restored the equilibrium.

Such was the practice of the hank to which my narrative refers, anterior to the year 1832.  And now what was the result of its operations to its stockholders, and what was its effect on the trading community, whose transactions it controlled ?  I will answer these questions, according to my recollection.

First.  For twenty-five years down to the year 1832, the bank redeemed all its engagements in specie on demand;  and during the war, being unable to enforce the collection of its debts from other banks and its own customers, in season to redeem its circulation, it actually entered the market and bought the precious metals at a premium varying from 3 to 22 per cent. to meet its own engagements, although it held claims on other solvent banks far beyond the whole amount of its issues, which banks took refuge from the payment of their debts in a general suspension, and actually refused to exchange issues unless the difference between them was paid to them.  There never was a note of this bank dishonored.

Second.  The dividends of the bank, while in operation, averaged ten per cent. on the whole capital employed.

Third.  The entire loss of the bank on discounted paper, for a period of twenty-five years, was 50 dollars !!

Fourth.  The whole expense of administration of the affairs of the bank, exclusive of rent for the first two years, was less than one thousand dollars: the cashier's salary, the only paid officer, who performed all the duties, being $700 annually;  and contingencies, such as stationary and fuel being about $250.  On the 5th of July, 1809, in consideration of the increased labor of the cashier, his salary was enlarged to $1000;  and the whole business of the bank was conducted by him (the directors, who were real stockholders, but not borrowers, superintending the discounts) and the entire expenses of the bank, including the cashier's salary from 1809 to 1832 (twenty-two years) did not exceed $1500 annually, exclusive of rent. -- No discount was ever made by the cashier, unless previously authorized by the board of Directors.

Fifth.  There was not, within my knowledge, a single failure among the regular dealers with the bank from 1807 to 1832, a period of a quarter of a century! during which time, the war and the commercial crises of 1819 and 1825 created great commercial distress.  Insolvency among the dealers with this institution would have been regarded as prima facie evidence of dishonesty or culpable mismanagement -- and a debtor who contracted an obligation without having at the time some reliable means of payment, was considered a gambler.

Sixth.  At any period while the bank was in operation, its affairs could be wound up, its bills receivable all collected, and the stock returned, and banking house sold on four months notice;  and without loss.

Such was the condition of the bank down to 1832, but very different was the sequel.  That eminent Belles Lettres scholar, but most consummate charlatan in finance, Mr. Biddle, in the vain hope of extorting a renewal of his charter, suddenly enlarged his discounts nearly forty millions of dollars, amounting, including local discounts and bills of exchange, on the 1st of May, 1832, to $70,428,700;  and a contemporaneous increase of facilities by the local banks, took place.  Every body then became a speculator --the farmer left his plough in the furrow --the mechanic abandoned is tools --the manufacturer stopped his spindles --the lawyer laid aside his brief --the doctor dropped his pestle --even the divine quitted the sacred desk, and the whole nation was suddenly transformed from a great, moral, industrious and frugal people, into an army of gamblers.

The customers of our bank partook of the general infection --became clamorous for "more money" --demanded "accommodation" --insisted that our town was already retrograding, or, what was the same in effect, all other places were advancing faster in the career of prosperity.  The directors yielded to the clamor.  In vain did the president portray the evils of departing from the rules which had sustained both the bank and its customers for a period of twenty-five years through great commercial difficulties.  He told them he would sooner risque his life at sea in a ship without a rudder, than his character and fortune in a bank dealing in accommodation notes --that, of the two, he would rather find a counterfeit than an accommodation note, among the bills receivable.-- He was reproached as being quite behind the age, and as belonging to a school then utterly extinct.  He was told that the resources of the country were increased, and largely increasing, and required more bank capital;  and in order to maintain the popularity of the institution, it must accommodate" its customers.  Finding resistance in vain, the president finally told the board that, with a view of preserving unbroken the harmony which had subsisted for so long a period, during which time he had not voted on his own stock, but relied on moral arguments and the test of experience to sustain his counsels, he would now make a proposition, either to purchase out their interest or sell his own as a stockholder, and forever dissolve his connection with the institution;  and on fixing his terms, his interest was purchased, and his stock that day for the first time in twenty-five years transferred.

The principles and policy that had governed the institution were thenceforward changed.  The permanent investment of its capital was no longer continued, but it was employed in discounts;  notes were discounted with the understanding of renewal, on receipt of five or ten per cent. on each extension.  The borrowers from the bank turned speculators, and converted their pasture ground into town lots, which were readily sold, as such, at extravagant prices;  products rose, and every countenance beamed with joy and gladness.  The president was then carefully and constantly reminded of the fact that he belonged to an old school, and not to the present enterprising generation.

And now for the sequel.  In a very brief period, the bank was compelled to resort to New-York brokers, to borrow money on a pledge of its bills discounted, to redeem its own circulation, over which a notarial protest was held in suspense for twenty-four hours !  And

In about four years the bank stopped payment and was declared insolvent.  Its paper, which had been redeemed for more than a quarter of a century in gold and silver, was sold at a heavy discount: its whole capital and outstanding circulating bills were represented by unavailable assets.

I submit to your judgment whether, if all the banks in the United States had then adopted the principles of banking that governed this institution, the country would not have been saved from the loss and disgrace which have now overtaken it.

An Old Fashioned Man.


To the question put to us by our correspondent, we unhesitatingly reply, that if all the banks in the country had been conducted on the principles he has so ably enforced, not one of them would have suspended specie payments.  All the notes issued by them would then have been the representatives of bills of exchange, and the bills of exchange in the port folios of the banks, would have been the representatives of commodities in the hands of dealers.  By the sale of their commodities, the merchants would have been able duly to discharge their debts to the banker, and thereby have enabled the banks to redeem their issues.  Banks so conducted would never be under the necessity of stopping specie payments.

Yet we must be permitted to observe--

1st.  That permanently investing the capital of a bank in something different from business paper, is not of itself sufficient to secure regularity in banking operations.  The whole capital of the Bank of England is permanently invested in Government securities.  Yet the Bank of England, by its contractions and expansions, deranges the commercial operations of Great Britain and the United States, and, through them, the commercial operations of the whole world.

2ndly.  That the private and joint stock banks of England and Scotland, make it a general rule to discount nothing but business paper, and to make prompt settlements with one another.  Yet paper money banking in England and Scotland has produced evils inferior only to those it has produced in the United States.

The result of experience in Great Britain, is, then, that so long as Bank and State are united, even conducting the great body of banks on commercial principles, will not prevent those fluctuations which are so pernicious to communities.  Whenever Government borrows bank credit, or receives bank notes in payment of public dues, bank issues are made to meet fiscal in addition to commercial demands.  Notes are consequently issued which are not the representatives of commodities that can be sold in time to redeem the issues.  The effect of every embarrassment that Government experiences, does also, by necessity, extend to the whole body of merchants.

In justice to our correspondent, it is proper to observe, that he nowhere insists on the proper investment of bank capital in permanent securities, as being of itself sufficient to insure regularity in banking.  On the contrary, he contends that while the capital should be thus permanently invested, the credit dealings of banks, or those founded on their deposits and circulation, should be confined to business paper.  The two principles should be taken together.  We deem it incumbent on us to guard against the first being taken separately, and as of itself sufficient, especially since some vague notion of this kind seems to have led to the adoption of the wretched system known in the State of New York under the name of "Free Banking."

In further justice to our correspondent, we must remark, that he is well aware of the importance of separating Bank and State, in order that our Banks generally may be conducted on commercial principles.  But he had not room for an argument on this point;  and did not perhaps consider it necessary.

There are, as we stated in our last, serious objections to paper money banks even when conducted on commercial principles, and there would be such objections, even if Bank and State were separated, if the issue of notes of a less denomination than fifty or a hundred dollars were permitted.  But we will not press these objections just now.  Paper money banks exist, and will, it is to be feared, continue for years to exist.  While it is a duty to labor for the substitution of hard money banks in their place, it is also a duty to endeavor to alleviate the evils which paper money banking produces.  We cannot, therefore, too urgently recommend to the conductors of our present banking institutions, an attention to the principles which our correspondent so ably illustrates and enforces.  Without strict attention to them, the banks in New England, New York, and South Carolina, will not be able long to sustain specie payments.

_______________




Visitation of Corporations.

Allow me to call attention to the law of corporations, as respects their visitation.  It is part of the common law of England, and as such prevails here.  Common sense and common law unite in prescribing control to them.  Every thing human, from the Supreme Government down, is liable to deviate from the end of its establishment.  And hence, with great propriety, the law says, all corporations are subject to visitation, and to be called to account and punished as they deserve.  Have all our honorable governors known this ?  It is done in England by the king through his court;  and by analogy should be done here by the governor through the supreme court.

I confess I view with some pleasure, the attention of grand juries, in various places, called to the state of society.  Not of course from the least personal unkindness to the individuals inculpated, or with any disposition to pronounce judgment against them, (for I am totally unacquainted with the facts,) but from the sound and salutary principles involved in the step.  A grand jury is one of the most dignified bodies known to our institutions.  It is the hand-maid of Liberty.  Constituted as it is, and limited as is its power, (confined to accusation) it has every claim to regard.  Let Grand Juries throughout the country wake up to a sense of their duties.


The Tariff Question.

This is beginning to create new excitement.  Let the currency question be properly settled, and the tariff question will give us no trouble.

So long as our present paper-money system lasts, no protective tariff can be effective;  because, just in proportion as the duties are raised on imports, will the banks increase their issues;  and just in that proportion will imports increase, and exports diminish.

Give us hard money, and no protective tariff will be necessary.


Hoarded Specie.

The Bank of Ireland has not paid out any guineas, since the year 1820, yet it has in the last twenty years remitted to the Bank of England, guineas of the value of £612,000, or upwards of three million dollars.  These guineas have been received by the bank in Dublin, and its branches in various parts of Ireland, on deposit, or in payment of debts;  and most of them bear the mark of having been hoarded.

So much specie is hoarded in Pennsylvania, that it is thought by many that, if the use of bank notes should be discontinued to-morrow, the prices of most articles would soon rise to nearly their present rates, merely through the gold and silver coins which would then be brought out of their hiding places.


State Paper Money.

The last eight pages of this number are occupied with the history of the paper money issued in this country previous to the revolutionary war.

The incidents therein contained, at all times interesting, are particularly so at this moment, when some of the States have recommenced the issue of governmental paper money, and when others may be expected to follow their example.

In Pennsylvania, respect enough has been paid to the letter of the constitution of the United States, to employ the banks as go-betweens, and to call the bills they issue as agents of the State, by the name of a loan.  Such an evasion of the constitution is, however, likely to produce as much evil as would be produced by an open violation of that instrument.  Since the issue of these state bills of credit began, the whole mass of our paper currency has undergone a depreciation of several per cent.: and that the depreciation has not been greater, has been solely owing to the inability to force into circulation as large an amount of these State bills of credit as the authors of the measure originally contemplated.

In Indiana, State treasury notes have been issued, to the amount of about one million five hundred thousand dollars.  These profess to bear interest: but as many of them are for as small amounts as five dollars, the interest on each of then for short periods is hardly appreciable.  Treasury notes for large amounts, and bearing interest, do not often, when issued by a government in credit, become currency.  They are hoarded by capitalists as profitable investments.  But treasury notes of such small denominations as are issued in Indiana, are just as effective as the old fashioned bills of credit, in driving gold and silver out of circulation.

In one respect, this modern State paper-money differs from the old.  It is not, as yet, a legal tender in payment of private debts.  We say-- as yet.  How long it will be before laws will be passed to compel creditors to receive this, or to receive nothing, we shall not undertake to predict.  This State paper-money, and the bills of suspended banks are now the only practical tender in Pennsylvania.  It requires but one step more to make them a legal tender.  Certain provisions in the United States' constitution, do, indeed, stand in the way of this: but such provisions are apt to be but little regarded, when the moral constitution of a whole people is perverted.


Fall of Prices.

The editor of the Charleston (S.C.) Patriot thinks that "a decline in the price of commodities, equivalent to a fall in them generally of twenty-five per cent., will occur in the next two years.  This is a discouraging prospect;  but until a decline of prices takes place, that will stimulate exportation and check importation, we will not have reached a sound condition of monetary affairs."

This is a pleasant prospect, truly.  A fall of prices of 25 per cent.!  And for what ?  That we may get rid of the cause of violent fluctuations of prices ?  No: but simply that the banks may start fair in commencing a new series of expansions and contractions.


The Fiscal Bank.

If we should insert at length the bill lately reported by the Secretary of the Treasury, it would fill several pages of this Journal, and then the probability is, that though all our readers would look at it, not one in ten would read it.  We must, therefore, resort to some other mode of giving them, or endeavoring to give them, a clear idea of the character of the proposed Fiscal Bank, and this will, perhaps, be most readily done by showing wherein it agrees with, and wherein it differs from, the late Bank of the United States.

The Fiscal Bank is to be founded entirely on the credit and resources of Government.  The United States Bank was founded partly on the credit and resources of Government: and partly on the means furnished by private individuals.

The Fiscal Bank is to be governed by a Board of Directors, improperly called a Board of Exchequer, whose seat of power is to be at Washington.  The United States Bank was governed by a Board of Directors, whose seat of power was at Philadelphia.

Part of the Directors of the United States Bank were appointed by the President with the advice of the Senate, and part were chosen by the stockholders.  All the Directors of the Fiscal Bank, are to be appointed by the President with the advice of the Senate, the Secretary of the Treasury and the Treasurer of the United States, being ex-officio members of the Board.

The United States Bank had between twenty and thirty branches.  The Directors of the Fiscal Bank are to be authorized to establish two branches or agencies, in each State, and as many more as Congress may direct.

The Board of Directors of the United States Bank at Philadelphia appointed the directors and officers of the branches.  The Directors of the Fiscal Bank at Washington are, in point of fact, to do the same, as it is to be made the duty of the Secretary of the Treasury to appoint the officers of the agencies on the recommendation of the so called Board of Exchequer.

The Board of Directors of the U. States Bank at Philadelphia, fixed the compensation of the officers of the branches, and prescribed bye-laws for their regulation.  In like manner are the compensations of the officers of the agencies, and the bye-laws for their government, to be fixed by the Directors of the Fiscal Bank at Washington.

The Bank of the United States was the general agent of the Government of the United States for receiving, safe keeping, disbursing and transmitting the public money, for paying pensions, for receiving subscriptions to public loans, paying interest on the same, &c. &c.  The Fiscal Bank is to perform all these functions.

The United States Bank and its branches, issued notes of various denominations, from five dollars to one thousand, which were redeemable only at the place of issue, though receivable every where in payment of dues to Government.  The Fiscal Bank is to issue notes of like denominations, in like manner receivable, and in like manner redeemable.

Payments were made by the United States Bank either in its own notes, or gold and silver coin, at the option of the public creditor, and sometimes in the notes of other specie paying banks.  In like manner are payments to public creditors to be made by the Fiscal Bank and its agencies.

The Fiscal Bank and its agencies are to receive on deposit, gold and silver coin, in an amount not exceeding fifteen millions, and grant certificates of the same, which are to be redeemable only at the place of deposit.  On all such deposits, a premium not exceeding ½ per cent. is to be paid.  The United States Bank had this power, but did not choose to exercise it.

The United States Bank had unlimited power to grant local discounts, and to deal in domestic exchanges, selling at the highest price it could get, and buying at the lowest.  The powers of the Fiscal Bank are, in this respect, to be restricted.  It is to have no power to grant local discounts.  Any of its agencies may sell drafts on any other of its agencies, but the premium is not to exceed the cost of transporting specie from place to place, and in no instance to amount to more than two per cent.  It is also to buy bills of exchange, (if not payable in the same State, or within ___ miles of the place where drawn) provided, if on places not more than five hundred miles distant, the bills of exchange are not for longer time than thirty days from date, and if on places more than five hundred miles distant, they are not at longer time than thirty days from sight.  No more than 6 per cent, per annum interest, and the necessary cost of transporting specie, never exceeding two per cent., is to be paid by the Fiscal Bank or its agencies in purchasing any bills of exchange.

No Fiscal Agency is to deal in bills of exchange, or receive private deposites in any State where such practices may be prohibited by the laws of the State.  Herein the powers of the Fiscal Bank are more circumscribed than were those of the United States Bank.

Weekly settlements are to be made with banks in its neighborhood, by the Fiscal Bank and each of its agencies.  Such settlements used to be made by the United States Bank and its branches.

All dues to the United States may be paid in gold and silver coin, notes of the Fiscal Bank and its agencies, or in notes of specie paying banks, immediately convertible into specie at the place where received.  Similar to this was the practice under the Bank of the United States.

The United States Bank was not required to keep on hand any certain amount of specie.  It is to be made the duty of the Fiscal Bank and each of its agencies, so to limit its issues that the amount of gold and silver on hand, shall, at all times, be equal to one-third the amount of such issues outstanding.  In practice, this will be found impossible.

The United States Bank had power to issue notes to an unlimited amount, but for many years its circulation was little more than four millions, and in five of its most prosperous years, it amounted to only sixteen millions.  The Fiscal Bank is to have power to issue notes to the amount of fifteen millions.  But this is only to begin with.  Congress may increase this amount ad libitum.

United States Government stock formed part of the resources of the United States Bank.  The same kind of stock is to form part of the resources of the Fiscal Bank.  Power is to be given to the Bank at Washington to issue certificates of stock to an amount not exceeding five millions, at a rate not exceeding five per cent.  This is to begin with.  At least five millions more would have to be issued in each year to sustain the bank in its operations.

Part of the profits of the United States Bank went to the United States Government, and part to private stockholders.  All the profits of the Fiscal Bank, after paying the expenses of the institution, and reserving two million as a contingent fund, are to go to the U. States Government.

The Fiscal Bank is to keep in separate books the accounts of Government, and the accounts of private individuals.  So did the United States Bank.

None of the officers of the Fiscal Bank or its agencies, are to have any dealings with it on their private account.  Herein they are to be deprived of a power which many of the officers of the United States Bank exercised greatly to their own advantage.

Full and exact accounts of the proceedings of the Fiscal Bank and its agencies are to be kept, and an abstract of the same is to be presented to Congress at the commencement of each session.  So did the United States Bank.

Defaults on the part of officers of the United States Bank, were, in most cases, treated as mere breaches of trust.  Defaults on the part of officers of the Fiscal Bank are to be punished with fine and imprisonment.

In places where it is not deemed expedient to establish agencies, the Fiscal Bank is to have power to appoint State banks to act as its agents.  The United States Bank had the same power and exercised it.

Suits were brought by the United States Bank in its own name.  Suits are to be brought by the Fiscal Bank in the name of the United States.

The United States Bank was a corporation: and the Fiscal Bank is to be a corporation, but a corporation of a peculiar character.  The Secretary of the Treasury and the Treasurer of the United States are to be ex-officio members or the Board at Washington, and they can, at any time, be dismissed from office by the President, either with or without cause.  But the three Commissioners, who will form the majority of the Board, are to have certain vested rights.  Their regular term of office is to be for six years, subject to such arrangements as will cause one vacancy to occur in the board at the end of every two years.  But they are not to be removed from office, except "for physical inability, incompetency, or neglect, or violation of duty."  As the burden of proof, if he should wish to remove them, would rest on the President, then gentlemen, if once snug in their offices, might consider themselves secure therein, however they might conduct themselves.

So also the officers of the agencies are to have their vested rights, but they are to last not for six years only, but for life.  They are not to be removed, "except for physical inability, or incompetency, or neglect, or violation of duty," and then the burden of proof is to rest on the Secretary of the Treasury.  In Pennsylvania, our justices of the peace used to hold their offices nominally "during good behaviour."  But this was found in practice to be for life, and "during" even "the worst behaviour."

This corporation can, however, be at any time dissolved, the President, the House and the Senate concurring therein: and herein it differs from the United States Bank, as that had a charter which some maintain should be regarded in the light of a contract.

There are two grand objections to this scheme of a Fiscal Bank, or Exchequer, as it is called.

The first is, that it is un-constitutional.

The object of the framers of the constitution was that ours should be a hard money government.  This Fiscal Bank scheme will, if carried into effect, convert the government into a paper-money government;  and this in face of the fact, that the Federal Convention, when such a proposition was made to it, expressly refused to give the United States Government the power to issue paper money.

The scheme is, moreover, unconstitutional, inasmuch as it takes the money of the United States out of the treasury, and puts it under the control of a board of brokers, to be by them employed in fostering private speculations;  an application of the public funds which, we will venture to say, never once entered into the conception of the framers of the constitution.

The second grand objection to the scheme is, that it is an utter variance with the best established principles of political economy.  The true object of government is simply to protect men in the enjoyment of their rights.  Let this object be once attained, and individuals will do for themselves that which so many are looking in vain for government to do for them.

As a general rule, it may be laid down, that while corporations conduct their affairs much worse than individuals, governments conduct their affairs much worse than corporations.  If paper-money banking, therefore, when carried on by corporations, has produced great evil, much greater evil will it produce, if carried on by Government.

For other, and more specific objections to the scheme, we refer to the remarks in our last number on the Presidents Message.  Also, to the observations in No. 9, (pages 131, 132) soon after the scheme was first shadowed forth in the columns of The Madisonian.  Also, to the remarks in No. 2, (pages 21 and 22) on Mr. Ewing's and Mr. Clay's fiscal bills.  As a National Bank does not cease to be a National Bank, because private individuals are not allowed to be stockholders, many of the objections brought against Mr. Clay's and Mr. Ewing's schemes, are equally applicable to the present, though this is brought forward under different auspices.

In connection with this subject, some passages in the two vetoes of President Tyler may be read with advantage.  The first will be found in No. 5, of this Journal, page 66. The second in No. 6, page 89.  A bank is a bank of discount, whether it deals in bills of exchange only, or bills of exchange and local paper also.  Such bills of exchange as would be presented to our Fiscal Bank, would, in all probability, be far more objectionable than most of the accommodation notes that are discounted by our State banks.

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The United States Revenue.

The receipts into the Treasury, during the year 1841, according to returns for the first three quarters, and estimates for the fourth quarter, were $30,410,167.77.  But as of this amount $13,264,354.58 consisted of borrowed money, the proper revenue for the year was little more than seventeen millions.  Of this sum, the customs yielded $14,847,557.44: the lands $1,454,062.06: old bank debts and miscellaneous, $844,183.46.

According to the same estimates and returns, the expenditures in the different branches of the public service, civil, military and naval, amounted, in the year 1841, to $28,396,994.98.  From which it seems that the revenue proper falls short of the expenditure in an amount exceeding nine million dollars.

As a redemption took place, during the year, of treasury notes and other evidences of public debt, the nett increase of the national debt was less than eight millions.  But this left nothing in the Treasury at the end of the year.

It is contemplated that the receipts during the year 1842, will amount to nineteen millions from the customs, and one hundred and fifty thousand dollars from miscellaneous sources.  This will be the whole of the proper revenue of government, if the proceeds of the public lands are distributed among the States.  If the expenditures for the civil, military, and naval service, amount to only as much as they did last year, there must be another nett addition of seven millions and a half to the national debt.  If the customs do not amount to more than they did in 1841, or, if the recommendations of some of the heads of department be acted on, the addition to the national debt will not fall short of fourteen millions.

So we go.  Bank credit is exhausted and State credit is exhausted.  All that now remains to be done, is to exhaust United States credit.

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The United States Bank.

The presentment made by the Grand Jury, involving accusations against Nicholas Biddle, and others, has, as was expected, been quashed by the Court.  It is alleged that the parties should have had a hearing by a committing magistrate before their case was brought before the Grand Jury.

The matter will not drop here.  It is a maxim of law that "there is no wrong without a remedy."  Charters have heretofore been supposed to afford ample protection to bank officers whatever wrongs they might commit.  But corporate abuses have of late been so frequent, that public indignation is aroused: and our lawyers are now exerting their ingenuity to discover remedies for the wrongs which bank creditors and stockholders have suffered through the misconduct of bank officers.

In the present case, the Grand Jury, in another presentment, under date of December 30th, after defending the course they had taken, proceed to make the following remarks.

"This transaction has no parallel in the history of our country, and a failure of such magnitude was never before known in the world: it has inured the credit of our City and State abroad, and dishonored their proud name.  If the profligate abuse of investments is to be considered in society as a mere breach of trust, and the squandering of the funds of our public charities, left by benevolent persons for the general good, cannot be protected by the arm of the law --if the aged are to be deprived of their support, accumulated by years of industry,-- the widow to be impoverished and the orphan to be left destitute-- the sooner the community is convinced of it the better.

"The excitement of the public mind, in consequence of these repeated abuses, and the doubtful management of other institutions, call for prompt and decisive action by our courts of justice to bring these persons, if guilty, to punishment."

Several of the politicians who were in debt to the United States Bank, have, it is said, made settlements: in what manner is not stated.

Mr. John M. Riddle, one of the persons sued by the Bank, has made an affidavit, in which he declares that "he never endorsed either of the instruments, on which this suit is brought, and that no other person or persons by his authority, or with his knowledge and consent, endorsed the same for him;  and he had no knowledge of the existence of said notes, or any of them, till he received notice of their protest."

The notes are three in number, and for sums amounting in all to $100,717;  two of them purporting to be drawn by Cheyney Hickman, and one by C. Hickman & Co.

This Mr. Hickman was a Government Director of the Bank;  and one who, after the charter granted to it by the United States had expired, was retained in his position of Director through the influence of Mr. Biddle.  Some time since he found it convenient to migrate to South America.

It is believed that many more of the notes in the possession of the Bank, will, on examination, be found to be forgeries.

Suits have been brought by the holders of the United States Bank post notes, against Mr. Samuel Mason and Mr. George W. Fairman, to whose order the said notes are payable, and by whom they have been endorsed.  They were clerks in the bank, and they have put in affidavits stating that these endorsements were mere clerical acts, and not designed to create any contracts between them and any other persons, and that it was so understood by the community generally.

The cases will be brought before a jury.

The annual meeting of the stockholders was held January 3d.  The meeting was rather boisterous.  The "regular" ticket for directors, succeeded in opposition to the "Biddle" ticket;  and a resolution was passed to set aside the last two assignments made by the Bank.  This resolution is subject to the action of another meeting to be held in February next.


Virginia.

Soon after the Legislature assembled, Mr. Scott of Fauquier, brought forward a resolution to relieve the banks from the liability to pay 12 per cent. on all notes dishonored by them after the first of January, 1842.  At first the House, by a majority of five votes, rejected Mr. Scott's resolution.  But, the result shows that time only was wanting for bank influence to have its usual effect.  In a few days afterwards, an act was passed exactly according to Mr. Scott's liking.  It extends the privileges the banks enjoy under the suspension act, till the 1st of April next;  and before that time arrives, another act granting a further extension, probably will be passed.


Indiana.

The Legislature of Indiana has passed a stop law, and has under consideration, a relief law, or law to prevent property being sold for less than a certain portion of its appraised value.

The Foreign News.

Great distress prevails in England, and "bread or blood" is said to be the awful inscription of some of the banners displayed in the provincial towns.

Many failures have taken place on the Continent.  At Moscow it is said two hundred and fifty, and at Petersburg, nearly as many.  Russia, our readers will recollect, is a paper money country.  One silver ruble is there worth as much as 3½ paper rubles.


The Stock Market.

Arkansas stock has been sold at New York as low as 13 for 100 paid.  Illinois six per cents. have been sold for less than 17;  and Indiana five per cents. equally low.

Throughout the States there appears to be a disposition openly to repudiate all those State bonds which have been fraudulently negotiated;  and the effect of this is to cast discredit on the state securities generally.  Till the necessary investigations shall have been made, it is impossible to tell the extent of the frauds that have been committed by fund commissioners, in collusion with banks and brokers.

Nor is this all.  A meeting has been held in this city, in which resolutions have been passed, declaring that in as much as the Constitution of Pennsylvania gives the Legislature no power to incur debts, the people are under no obligation to pay them.  How far this feeling may extend we know not;  but a formal repudiation of the debts of some of the States would seem, under present circumstances, to be little more than an idle ceremony.

We not long since met with the remark in a European paper, that when capitalists cease to lend, governments cease to pay interest.  This is true even as regards England.  If the capitalists of Great Britain should cease for a single year, nay even for six months, to make loans on exchequer bills, the government of Great Britain would be as unable as the states of Indiana and Illinois to pay interest on its funded debt.  As long as foreign and domestic capitalists were willing to advance to the states such sums annually as exceeded the interest on the state debts, the interest was paid punctually.  They now refuse to make any further advances, and the ability of the states to pay interest ceases accordingly.

The interest due on the Maryland debt on the 1st of January was not paid.  That due by Pennsylvania on the 1st of February may be paid in part, or in full;  but it is the opinion of many of our most intelligent citizens, that the payment of the interest due in August, 1842, and February, 1843, will be postponed.