The Journal of Banking
by William M. Gouge,


Vol. I., No. 16,
Philadelphia,
Wednesday, February 2, 1842.

Usury.

In a recent debate on the usury laws in the Senate of Ohio, Mr. Leonard said that "he had been a borrower for the last twenty years, and during the last fifteen years scarce a day had elapsed without his being indebted to the banks.  He had paid all sorts of interest, up to five dollars a day for the use of six hundred, and had found from experience that it was better to borrow money at home at ten per cent., than go to a bank and get it at six per cent.  A moment's reflection will convince any Senator of this.  The expense of travelling to a bank, renewing the note, &c. &c., will make more than the difference of interest."

Mr. Leonard, it seems, has paid interest sometimes at the rate of three hundred per cent. per annum !

His observation that it is better for the farmer to borrow money at home at ten per cent., than to borrow from a bank at six per cent., is well deserving of attention.  Few reflect properly on the indirect expenses of borrowing from banks: and still fewer on the great advantages that would have resulted to the country, if three-fourths of the capital used in sustaining banks, had been lent to farmers, mechanics, and merchants, on bond and mortgage, or other adequate security.


Evidences of Public Debt.

In some of the papers, too great importance appears to be attached to the different forms which evidences of the public debt may assume.  Treasury notes of large amounts, and bearing the market rate of interest, differ less from Certificates of Stock than many imagine.  The former may be compared to the promissory notes given by farmers and mechanics, having but a year to run;  the latter, to the bonds and mortgagee given by the same individuals, and not redeemable for a term of years.  The chief difference between them is, that Treasury-notes are at all times receivable in payment of dues to Government, while Certificates of Stock are not.

If Treasury notes are exchanged for bank notes or bank deposits, they produce as injurious effects on banking operations, as are produced by direct loans of bank credit to government, represented by stock certificates.  But some persons having claims on Government, will be willing to receive Treasury notes in satisfaction of such claims;  and just to this extent do we separate Bank and State when we resort to this method of borrowing.


United States Credit.

If the credit of the United States Government should sink as low as that of some of the States, the most deplorable consequences would ensue. --Perhaps the Union would be dissolved: perhaps the country would be inundated afresh with continental money.

To raise the credit of the Federal Government, a retrenchment of expenditures is absolutely neceseary.  Having parted with its lands, it has now no source of revenue but the customs;  and these will yield but a limited amount.  Increasing the duties on most articles, instead of increasing, would diminish the revenue: for, as justly observed by Adam Smith, "in the arithmetic of the customs, two and two do not always make four."  Increasing the rates of duties too much, will diminish regular importations, and encourage smuggling, and thus diminish the revenue.

In the present state of the country, the people would not submit to an excise or a direct tax, to supply the wants of the United States Government.  They find the taxes they have to pay for State, County, City, and Township purposes, quite oppressive.

Since, then, the Federal Government has no source of revenue but in the Customs, and these can be made to yield only a limited amount, the duty of commencing the work of retrenchment is imperative.  Without it, it will not be easy long even to borrow such small sums as will be requisite to keep the wheels of Government in motion.  According to some estimates we have seen, the revenue of Government during the present year, will be about ten millions, and the expenditures about thirty millions.  What private individual could hope long to maintain his credit, if his regular expenditure exceeded in this ratio his regular income ?

The expenditures of the Federal Government have unfortunately been adapted to a scale of "surplus revenue," and it will be very difficult to reduce them as low as they ought to be reduced.  But if the work is commenced in earnest, it may be effected.  The chief leak holes will be found in the Navy, War, and Indian Departments.  It is through these the public money runs out, as they afford the best opportunities for political jobbing.  When these leak holes are stopped, the credit of Government may be re-established.


Exchanges.

At Columbus, Ohio, as well as at Columbus, Georgia, the practice has been introduced of making specie the basis in quoting the rates of exchange.  At the former place, bills of exchange on New York are at three per cent. premium in silver coin;  but as American gold of the new coinage bears there a premium of two per cent. in silver, exchange on New York, if paid for in gold, is at a premium of only one per cent.  If the local currency of Columbus were made the standard, exchange on New York would appear to be at 13½ per cent, premium, for 10½ is the rate of discount of the notes of the Columbus banks when purchased with silver coin.

This practice of making specie the basis in quoting rates of exchange and prices of bank notes ought to be generally adopted.  Show the people the true rates of exchange, and you put an end to the clamor for an Exchange Regulator to be established by Government.


Political Economy.

Of the little disposition our countrymen have for a systematic study of this important science, we have evidence in the fact that but one edition of Adam Smith's work has ever been published in the United States.  Think of that.  A nation of three million "white men" requiring but one edition of Adam Smith's work, in half a century !

Of Say's Treatise, many editions have been issued;  but this is chiefly owing to its having been adopted as a text book in the colleges, and of a study of it being requisite to enable young men to take their degrees.

Our countrymen are so eager in the pursuit of wealth, that they have not leisure to study the laws which regulate its production and distribution.  Hence the reason that so many of their schemes for growing rich fail in their very inception.  Hence the reason that we have so much legislation about subjects on which we should have no legislation at all, if the few and simple natural laws which regulate the production and distribution of wealth were properly understood by the people and their representatives.


"The Anti-Bank Democrat."

We have received the first number of a periodical bearing this title, published at Poughkeepsie, N.Y., and conducted by "An Association of Democrats of Dutchess County."  It is in octavo form, double column, 16 pages in each number, and is to be issued once a month.  Subscription price, 75 cents per annum.

The articles it contains are sound in principle: but we can express no opinion on those passages in which certain politicians, in the State of New York, are accused of acting inconsistently with their professed principles, because we know nothing of those gentlemen, or of their conduct.  If those accusations are well founded, we have only to say that certain politicians in New York are very much like certain others in Pennsylvania.  Nothing is more common than for men, before they are elected to office, to profess great abhorrence of paper money corporations, and after they are in office use these corporations to strengthen their own power, and increase their own riches.

Every man who professes Democracy, or Republicanism in any form, appears to us to act inconsistently with his professed principles, if he supports the present system of banking.  It is of little moment that such a Democrat, or such a Republican, is opposed to an ecclesiastical aristocracy.  It is impossible to establish such an aristocracy in a country like ours, where the people are divided into various sects, several of which are nearly equal to each other in number and influence.  Such an aristocracy, moreover, suits not the genius of the times.  It is with difficulty it sustains itself in England.

Of equally little moment is it, if such Democrat, or such Republican, is opposed to an order of military nobility.  It is impossible to establish such an order in a country where every man knows the use of fire arms, and all are aware of the evils of military government.

Of equally little moment is it, if such Democrat, or such Republican, is opposed to a landed aristocracy.  It is impossible to have a landed aristocracy in a country so extensive as ours, and where the laboring classes are not bound to certain estates as in Russia.

Such Democrats, or such Republicans, as are opposed to only such forms of aristocracy as cannot possibly exist in the United States, are hardly worthy of the name.  If they support our present banking system, they support a paper money aristocracy, the only kind of aristocracy that can possibly exist in the United States, and one, in our humble opinion, in no respect preferable to the different orders of aristocracy that prevail in Europe.



Chinese Paper Money.

Noveaux Melanges Asiatiques

During the spring of the year 1236, a grand assembly of princes was held in China.  The emperor, the celebrated Tschingis Khan, took at the banquet a cup of wine, and offering it to Thsu Thsai, said to him --"O wise minister, without whose aid China would not be in our power, this very day a proposal has been made to me to create paper money."  "At the time of Tschang-Zung," rejoined Thsu-Thsai, "paper commenced to be circulated in concurrence with coin.  A minister lived then who gained much wealth by means of the paper money;  on which account he retained the nick name of the Paper Lord.  Matters were carried to such a length that ten thousand notes of paper money would scarce buy a cake.  The people suffered severely, and the State itself was ruined.  We ought to keep this instance before our eyes;  and if paper money is to be coined now, no more than the amount of 100,000 ounces of silver should be put in circulation."


Intrinsic Value.

It is an old remark that no errors of opinion are so hard of correction as those that relate to the currency;  and we sometimes almost despair of ever seeing them corrected.  It is true, indeed, that the operations of banks in the present day make even those feel who cannot reason.  But not a few of those who feel sensibly the effects of the present system, and have the power to reason, will not make a proper use of that power.

Thus, a gentleman of much thought and reading on other subjects, told us, not long since, that gold and silver had no intrinsic value, inasmuch as they could not be eat or drunk, and as bank paper also had no intrinsic value, one would serve the purposes of money as well as the other.

If nothing but what can be eat or drunk possesses intrinsic value, houses and lands must be struck out of the inventory of wealth.  So, also, must clothes and furniture, wagons and ships, and indeed every thing except the contents of the pantry and the provision cellar.

Gold and silver coins have an intrinsic value, or a value inherent in the very materials of which they are composed.  Convert your coin into bullion, and you will find that it will bring as much, or nearly as much in the market, as before you put it into the melting pot.  There is great demand for gold and silver in the useful and ornamental arts, and to this, chiefly, they owe their value in commerce.

Bank notes have no intrinsic value.  There is no value, or at least none worth speaking of, inherent in the materials of which they are composed.  They may be of equal value in the market with gold and silver, but even then their value is entirely adscititious, being dependant on an opinion that those who have issued them, have the disposition and the ability to give in exchange for these notes gold and silver, or something else possessing inherent value.

Counterfeit notes, till their true character is discovered, have as much value in the market as genuine notes, or even as gold and silver --but their value is entirely supposititious.

Those who can form distinct ideas of value as inherent in some subject, as attached to it from its connection with some other subject, and as erroneously supposed to be attached to it, will never confound intrinsic value with adscititious, or the latter with supposititious.  They will consequently be as far from confounding metallic money with paper, as they will be from confounding genuine notes with spurious.


Paper Money and Specie.

Money performs two functions.  The first is that of a measure of value;  the second is that of a circulating medium.  It is from not properly distinguishing between them, that many men, in other respects of good sense, are altogether in the dark in relation to the difference between paper money and metallic.

At any given time, and at any given place, paper money may as a mere circulating medium, serve the same purposes as gold and silver.  This is true, whether the paper is on a par with specie, or greatly depreciated, with only this difference, that, in the latter case, a greater nominal amount will be required to effect an equal number of exchanges.  Suppose it to be depreciated fifty per cent.  Even then ten paper dollars will serve the same purposes as a local commercial medium as five silver dollars.

Now, if all our enterprises were begun and ended on the same day, and if no one town or township had any trading intercourse with any other, this paper would perform the other function of money, namely, that of a measure of value, just as well as gold and silver.  It would, at least, with the exception of cases like that of the Girard Bank, the notes of which were, at nine o'clock on Wednesday morning, on a par with other Philadelphia currency, and by eleven o'clock at 20 per cent. discount.

But it is impossible for us to begin and end our enterprises on the same day.  It requires months for the farmer to plough the ground, to sow his seed, to reap his crop, and to bring it to market.  So, also, does it require months for the manufacturer to spin his wool, to weave it, and to dress his cloth.  Between the time of commencing and concluding these enterprises, such variations take place in our paper measures of value, that both farmers and manufacturers are not unfrequently ruined.

So in the purchase of real estate.  It is always estimated at the time of purchase by the quantity of notes in circulation;  and most purchases seem to be made when the banks are in a high state of inflation.  But before the time for the second, third, or fourth payment arrives, there is a contraction of currency, and the purchaser is ruined.

This is not the only disadvantage that arises from the use of paper money.  The inhabitants of the different parts of the United States must carry on a commercial intercourse with one another, and they have no common measure of value by which to adjust their transactions.  Every merely local currency, necessarily has more or less of a merely local value.

If our bushels, our yard sticks, and our pound weights varied from day to day, from month to month, and from year to year, and were never the same in any two places at the same time, greater confusion in dealings could hardly be produced than is caused by paper money as a measure of value.

Now, this function of a measure of value, which paper money cannot adequately perform, gold and silver money will.

The cost of producing gold and silver, and the variations of the supply and demand, vary so little, that for all practical purposes, they may be regarded as of fixed value.  Hence their admirable adaptation for measuring the value of other things.

With gold and silver money we should have measures of value which would be the same when we commence our enterprises, and when we bring them to a conclusion.  We should also have the same measures of value all over the country.  Till we adopt gold and silver as our exclusive measures of value, (we do not say our exclusive commercial medium,) we shall have nothing but confusion in trade, and injustice in dealings.


Laws of Currency.

One of the laws of currency (not a law established by Congress or by any State Legislature, but a natural law,) is, that a medium of less value will always displace that of greater value.  Thus it was found impossible in England to make sovereigns circulate concurrently with one pound notes;  and in Pennsylvania, to make silver dollars circulate concurrently with dollar notes.  In England the one pound notes displaced the sovereigns;  and in Pennsylvania, the dollar notes displaced the dollars.

Another law of currency is, that if paper money be driven out of use, metallic money will take its place.  Thus in England, no sooner was the issue of one pound notes prohibited, than sovereigns began to circulate.  And in Pennsylvania, in 1828, when the circulation of small notes was prohibited, specie flowed in, in abundance.

The two cities of Philadelphia and Baltimore afford at the present moment striking illustrations of these laws of currency.

When the banks suspended specie payments in October, 1839, the Baltimore and Ohio Rail Road Company, and other institutions, and some private individuals, began to issue notes for the fractional parts of a dollar, and the citizens of Baltimore consented to receive them.  The consequence is, that in Baltimore, small silver change is a scarcity.  The small notes have driven it out of circulation.

In Philadelphia, on the contrary, the laws against the issue of notes for the fractional parts of a dollar, were rigidly enforced;  and as a consequence, enough silver change has been retained in circulation to serve the purposes of retail trade.  This has been done, although the discount on the notes of the Philadelphia banks has exceeded that on the notes of the banks of Baltimore.

Such facts as these, ought to convince even those who cannot reason, and are incapable of understanding principles.  Here are two cities, not a hundred miles apart.  One has a trash currency of notes for 12½ cents, and even 6¼ cents.  The other has a sound silver currency for all transactions of a less amount than one dollar.  And the cause of the difference in the currencies of the two cities, is to be found in what has just been stated.

To have an adequate supply of real money, nothing more is requisite than to create a demand for it.  And to create a demand for it, nothing more is requisite than to drive paper money out of circulation.

The law of currency, by which paper money displaces specie, is pleasantly illustrated by Thomas Moore, in one of his "Odes on Cash, Corn, and Catholics."  We subjoin it, hoping the principle will be more deeply impressed, if it is enforced at the same time in both prose and verse.  The "Parson Van," mentioned by the poet, it may not be amiss to observe, is Mr. Vansittart, once Chancellor of the British Exchequer.  The "Palais Royal" is a large building in Paris, part of the patrimonial estate of the present king of France.  Some of the rooms in it are, or were, let out to brokers, and others to gamblers.

Dialogue Between a Sovereign and a One Pound Note.
'O ego non felix, quam tu fugis, ut pavet acres Agna lupos, capreæ que leones." --Horace.
Said a Sovereign to a Note,
In the pocket of my coat,
When they met in a neat purse of leather,
"How happens it, I prithee,
"That though I'm wedded with thee,
"Fair Pound, we can never live together.

"Like your sex, fond of change,
"With Silver you can range,
"And of lots of young six-pences be mother;
"While with me -- upon my word,
"Not my Lady or my Lord
"Of W_st_th see so little of each other!"

The indignant Note replied,
(Lying crumpled by his side,)
"Shame, shame, it is yourself that roam, Sir---
"One cannot look askance,
"But, whip! you're off to France,
"Leaving nothing but old rags at home, Sir.

"Your scampering began
"From the moment Parson Van,
"Poor man, made us one in Love's fetter;
" 'For better or for worse'
"Is the usual marriage curse,
"But ours is all worse, and no better.

"In vain are laws passed,
"There's nothing holds you fast,
"Tho' you know, sweet Sovereign, I adore you;---
"At the smallest hint in life
"You forsake your lawful wife,
"As other Sovereigns did before you.

"I flirt with Silver, true,
"But what can ladies do,
"When disowned by their natural protectors ?
"And as to falsehood, stuff !
I shall soon be false enough,
"When I get among those wicked Bank Directors."

The Sovereign smiling on her
Now swore upon his honor
To be henceforth domestic and loyal:
But, within an hour or two,
I sold him to a Jew,
And he's now at No. 10, Palais Royal.


The Bankrupt Act.

Though the banks are specially exempted from all the pains and penalties of the bankrupt act, its indirect operation on them may be attended with consequences of great importance.

After banks have suspended specie payments, their notes still possess a value in the market, if the debtors to the bank are solvent;  and more especially if bank notes are receivable in payment of public dues.  So powerful in Great Britain was the operation of these two causes combined, that for some time after the suspension of specie payments by the Bank of England, its notes actually remained on a par with specie.  Specie could not be got in exchange for them from the bank, and yet specie in large amounts could be obtained for them from merchants and brokers, without paying any premium.

Inconvertible paper is not received in payment of dues to the United States, but it is received in payment of dues to the State, City, and County Governments.  To this it owes no small part of its value.  But its value may be said to be founded on the demand for it on the part of the debtors to the banks.

Another cause of the value of inconvertible paper, is to be found in the general want of a circulating medium of some kind.  And, as where there are two kinds of circulating medium, that which is of the least value always displaces the other, the demand for inconvertible paper, provided it be not so much depreciated as no longer to serve as a currency, is just as intense as the demand for real money for immediate uses.  No man, under such circumstances, takes the pains to inquire into the solvency of the banks that issue the paper.  The only point that he deems worthy of consideration, is, whether he can pass it away to some one else.

The foundation, however, of the value of inconvertible paper, may, as has already been stated, be said to rest on the demand for it to pay bank debts.  Let all the debtors to the banks become unable or unwilling to pay, and their notes will become worthless.  Let only one-fourth of them become insolvent, and the notes of the banks may sink many per cent.  A very small excess of such paper sometimes causes a great fall in its value.

We are speaking in general terms.  Besides debts due to it from individuals, a bank may have stocks and other assets.  It may, by a pledge, or a sale of these stocks, or other property, raise the means of keeping up the credit of its circulating paper.  Or, all its capital being gone, it may, by carefully concealing the fact, raise money by post notes.  By such contrivances the Bank of the United States appears to have sustained the credit of its circulation for several years.  The Commercial Bank of New York obtained the means of settling its balances with other banks by selling its own notes to the brokers at a discount.  Bankrupt banks may, also, like bankrupt individuals, sustain their credit for a time by a system of drawing and re-drawing.

note:
Report of the Committee of Ways and Means of the Legislature of Pennsylvania, on the currency and finances of the Commonwealth:  Mr. Keating, chairman: read in the House of Representatives, March 1, 1834.

As an evidence of the extent to which this confidence has been carried, the Committee ask leave to state one or two facts well known to them.  For many years past, while the governments of Spanish America were the scene of frequent changes of rulers, and of occasional revolutions involving the fortunes and credit of the commercial men of the country, great difficulties and risks were experienced in the purchase and sale of bills of Exchange.  And such as had money to remit to those countries were unwilling to purchase bills [however good the drawers here might be,] lest they should be protested abroad.  In such a case it was once suggested to deposit the money in the Bank of the United States, and to take drafts of the mother Bank upon one of its branches, for the amount payable at sight.  The transaction proved to be a highly advantageous one.  Such was the confidence in the character of the institution, that these and subsequent drafts of a similar nature, commanded a high premium in the foreign market, and were sold several per cent. higher than the best private bills in the country.  The reputation of the Bank is still so high, that a person recently returned from Mexico reports, that United States Bank notes of $100 are at a premium of four per cent.  In the island of Cuba these notes are constantly in demand at two per cent. advance, for the purpose of remittances; and a highly respectable merchant in Philadelphia has assured the committee, that "when in London, he saw bills of Exchange of the United States Bank, drawn on London, that had been negotiated in Canton, and had before reaching London, been transmitted as remittances to Manilla, Batavia, Calcutta, Madras, Alexandria, Marseilles, Hamburg, &c. &c. and after circulating for twenty-eight to thirty-six months, throughout the Eastern Hemisphere, made their appearance in London where they were paid."

Such are the character and standing of this institution, recognized by all commercial men throughout the world, as second to none in the importance and magnitude of its operations, in the fidelity and ability of its direction, in the purity and brillianey of its unsullied honor.

All these modes of sustaining bank credit, seem now, however, to be nearly exhausted.  What amount can the banks raise by the pledge or sale of stocks ?  Who will lend them money on their post notes ?  And in the general distrust which is now entertained of paper money institutions, must not most of the expedients by which they have in ordinary times sustained their credit, prove no longer available ?

In this state of things the bankrupt act begins to operate, and though it was not intended that such should be its effect, it will undoubtedly sweep off the assets of not a few of the banks.  Many men who have been struggling hard for years to pay the interest of bank debts, will take advantage of this act to get rid of both principal and interest.  The demand, then, for bank notes wherewith to pay bank debts, will be considerably diminished, and the value of the bank notes will fall accordingly.  After they have undergone a certain degree of depreciation, they will cease to be receivable in payment of dues to the State, City, and County Governments.  Then the demand for them as a circulating medium ceases;  and the only value they will have, will be such as will be founded on the prospect of their ultimate redemption --such value as have at present the notes of the United States Bank, and of other once flourishing institutions.

Now, it is impossible to say how many banks will be affected by the causes herein set forth.  Some may sustain the first shock, and expire one, two, or three years afterwards, from the effects of the blow.  Instances frequently occur, where the paper of a particular bank, is, in one week, on a par with silver, and in the next at fifty per cent. discount.  May there not be many such cases before twelve months more shall elapse ?

Let it not be supposed that every bank debtor who appears to be solvent, is actually so.  It is said that if the names of some of those who are preparing to take advantage of the bankrupt act, should be publicly proclaimed, such consternation would be felt on 'Change, as might for a time put an end to all credit transactions.

Neither let it be supposed that all bank debtors who think themselves solvent, will prove to be so, three months or six months after the bankrupt act shall have been in operation.  The said act will sweep away an immense mass of debts due to individuals as well as to banks, and thus incapacitate another numerous class of bank debtors from complying with their engagements.

It is the opinion of some sagacious men that the bankrupt act will be just as effective in winding up the banks, as it could be if they were directly included in its provisions.

What, it may be asked, with such a prospect before us, should be done with our immense mass of inconvertible paper ?

The best use that we can think of, is that of paying old debts with it.  Let it pass round in this way, as rapidly as possible.  In time of panic a single ten dollar note has been traced through ten hands in one day.  With our one or two hundred millions of inconvertible paper, (including rail road orders, "shinplasters," &c., &c.,) we may, in the course of the next few months, discharge an immense amount of outstanding obligations, many of which, if not paid in this way, will never be paid at all.


Banking in Old Times.

There are those who think, or seem to think, that paper money banking produces pernicious consequences, only because Nicholas Biddle, or men of his character, have the management of banking institutions.  If such persons will candidly read the history of banking from 1790 to 1811, they will find that long before these men were in the field of action, the system produced evils the same in character, though not in degree, that it does now.  They will find this history in the latter part of the present number, pages 249-252.

The history of the Farmers' Exchange Bank of Gloucester, Rhode Island, will be found particularly edifying.  It is hardly to be matched by the story of the Brandon Bank, or that of any other institution of modern days.  On a bona fide capital of only three thousand dollars, the bank sustained itself for five years, issued notes to an amount which cannot be ascertained: and had, when the "blow up" took place, a circulation of nearly $600,000.

Andrew Dexter, the great man of the Farmers' Exchange Bank, and whom so many modern financiers appear to have taken for their model, died a few years since at Mobile, in, we believe, humble, if not indigent circumstances.  Many other incidents in the chapter here referred to, will be found interesting, and in reading them, we beg the reader to recollect that they all occurred when we had a great "National Regulator of Exchanges and Currency," and that one the wisdom of whose management has never been called in question.  In this period the old Bank of the United States was in operation.


A Special Embassy.

Lord Ashburton is about to sail from England to this country, as a special Embassador, ostensibly to settle the various points in dispute between Great Britain and the United States;  but, in reality, as is believed, to see whet can be done towards securing the vast sums which British capitalists have invested in American securities.  Little can result from this mission.  The money which British capitalists sent to this country, has been sunk in useless works, and foolish speculations.  As an old and experienced banker, Lord Ashburton ought to have known the uncertainty of every thing in a paper money country, and not have trusted his own money and that of his friends in the hands of "the financiers" of the Western continent.


Bank Failures.

The Farmers' and Mechanics Bank of Rochester, N.Y., the Chesapeake Bank of Baltimore, and the Girard Bank of Philadelphia, are broken.

The first mentioned of these is one of "the free banks" of New York.  The second is one of eleven banks that were incorporated by the Legislature of Maryland in the December session of 1835.  The third, and most important of the three, is a bank that was formed in this city, after the decease of Stephen Girard.  It took his name, rented his old banking house, and its ostensible object was especially to "accommodate" his old customers.

At first it professed to discount nothing but business paper: but there were some "bold financiers" connected with it, who soon extended its operations to other things.  It became united with the United States Government: and was one of the original "pet banks."  "The surplus revenue" afforded the manegers abundant materials for the display of their financial abilities.  Money, it is said, was lent in large amounts, to the Directors and others, wherewith to speculate in western stocks and western lands.  It was, in short, a land jobbing and stock jobbing, and not a commercial bank.

The fate that has befallen it, would, in the natural order of things, have befallen it long ago: but for the principle adopted by our stronger banks of not issuing their own paper, but of trading on that of other institutions.  They continued to receive the notes of the Girard on deposit, and to pay them out at their counter, though the knowing ones were well aware of the internal rottenness of the institution.  The stock, however, fell rapidly;  and some of the brokers began to enter into engagements to deliver the notes ninety days hence, at a discount of five per cent.

Suddenly, on Wednesday morning, the Northern Liberties Bank "threw out" the notes of the Girard, that is, refused to receive them any longer on deposit.  One after another of the other banks imitated this example.  In due time, the news spread among the holdere of the notes;  and they assembled in crowds at the Girard Bank, demanding redemption of the paper, not in specie, but in the notes of less suspicious institutions.  The officers of the Bank gave other paper in return for their five dollar notes, but candidly confessed their inability to give any that would circulate in exchange for their notes of larger denominations.

Thus in a few hours did "the best currency in the world" cease to be currency at all, not through a panic seizing the people, but simply through a panic seizing the officers of the Northern Liberties Bank.  There appears to have been no concert of action on the part of the banks on this occasion --no predetermination among them enerally to discredit the issues of the Girard.  Indeed, we believe, that after seeing the effect this action produced, they repented of it, but their repentance came two hours too late.


The Pennsylvania Bank.

In our judgment, this institution should be classed with the broken banks;  but a gentleman of no small eminence in the bank circles, seemed quite indignant when we told him so: and, we shall, therefore, in hopes of satisfying him and others of his way of thinking, give this bank a small chapter "all to itself."

It is the oldest bank in Pennsylvania, with the exception of the Bank of North America.  Its capital is 2,500,000 dollars, and it is the fiscal agent of the State of Pennsylvania.  From this bank, the holders of State stocks were expecting to receive their interest due on the 1st of February, amounting to 800,000 or 900,000 dollars.

On Saturday morning, January 29th, the other banks refused to receive its notes on deposit.  This increased the run upon it.  Through the whole of the day, the pressure of the crowd was very great: but it paid all demands made on it, till 3 o'clock in the afternoon.

On Monday morning, notice was given that the bank would be closed for the present, as an injunction was about to be served on it at the instance of the Governor.  In the course of the morning, an injunction was duly served.

Our readers can now judge for themselves, whether the Bank of Pennsylvania is broken or not.  It still owes 300,000 dollars to private depositors, and 300,000 to holders of its notes, besides what it owes to public creditors.  The other banks refuse to receive its paper, and its doors have been closed by public authority.

The Directors, it is understood, made no objection to the serving of the injunction.  Perhaps they suggested it.

The gentleman who was unwilling that this should be classed with the broken banks, maintained that it had been considerably relieved by the run on Saturday;  inasmuch as it had paid off great part of its note holders and depositors, in the trash currency received in payment of the public revenue.  We must, however, regard every bank as broken, that cannot pay promptly all just demands upon it.  Whether its officers close its doors of their own inclination, or whether they are closed by public authority, is of little moment.


Frederick E. Whiting, Esq., late cashier of the Gallipolis Bank, and who has escaped from prison in Ohio, is described by the Sheriff of Gallia county, as "about five feet eight inches high, very talkative, fair complexion, sandy hair, red whiskers, high eyes, a chubby, good looking financier."  The Alexandria Index understands that a man answering to this description has been arrested, and is now lodged in Fairfax county jail, Va.

Bank Riot.

The riot, mentioned in our last, as having occurred at Cincinnati, was followed by one on the next day at Louisville.  Mr. Lougee, who had rendered himself obnoxious by his connection with the "shinplaster" business, had an establishment at Louisville.  The mob entered that, and destroyed books and papers.  The "valuables" had previously been removed by the Cashier.


Philadelphia.

We have had "as pretty a little panic" in this city, as any lover of the paper money system could desire.  As what was "money" on one day was not "money" on the day following ----nay, as what was "money" in one hour, was not "money" in the next, the question with each man was what he should do with his "money."  The over-conscientious used it in paying their debts, a movement to which they were, perhaps, prompted, in part, by the consideration that in the course of a short time their "money" might no longer serve that purpose.  Those who had no debts to pay, lent their "money" to their friends.  The alarm, of course, spread into the country, and the country dealers for miles round hastened to the city, to get rid of their "money."

Then there was "a run" on the banks.  Not a run for "specie," for none was visible.  But, what seems ludicrous, a run to exchange one bit of paper for another bit of paper.  The banks, however, with the exception of the Girard and the Pennsylvania, all stood this run bravely.  At one time it was reported that the Camden had given way.  This occasioned no small alarm among those mechanics who had been saving the notes of this institution to pay their journeymen at the end of the week, just as the Bank of Pennsylvania had been saving 300,000 dollars in Girard notes to pay the dividends on the State stock.  On Monday the run was confined to the Penn Township and Moyamensing Banks;  and the wags say, (we know not with what truth,) that the Moyamensing met the run by paying out the notes of the Penn Township, and the Penn Township by paying out the notes of the Moyamensing.

Business was, in a great degree suspended. --And yet we have heard of but one failure of any moment, that of Alexander Benson & Co, Stock brokers and Exchange merchants.  A few months ago, their assets exceeded their liabilities in a quarter of a million.

Delegates from the banks have had meetings, and made arrangements, and hereafter we are to have "a most excellent currency."  Each bank is to issue its own notes exclusively, of the denominations of $20 and upwards: and each is to make prompt settlements with the others, paying balances in specie, or "in commercial bills, not having more than 45 days to run."  A safety fund is, moreover, to be formed;  to which each of the large banks is to contribute $100,000;  and each of the small, $50,O00.  The contributions are to be specie, treasury notes, for equally satisfactory security."

Thus, our "money" for wholesale transactions, is to consist of paper, not representing coin, but of paper representing debts, not arrived at maturity.  For small transactions, our "money" is to consist of State bills of credit, and the notes of the suspended country banks.  Part of the agreement is, however, that the banks shall resume specie payments on the 1st of August.

The United States, the Pennsylvania, the Girard, and the Schuylkill Banks, are excluded from this arrangement.


Incidents.

The two boys of the name of Pitcher, who committed extensive forgeries on the house of Eyre & Massey of this city, have been arrested in England, and compelled to disgorge their ill-gotten gains.

A broker of the name of Metford, in Wall street, N.Y., has been committing forgeries of mercantile notes.  He has confessed his guilt.

About 355 persons, owing debts to the amount about one million dollars, have applied for the benefit of the insolvent laws at the present session of the Court of Common Pleas for the County of Philadelphia.  This is, we are told, about the average amount of debt liquidated by our insolvent laws four times a year.  Philadelphia city and county contain about one sixty-eighth part of the population of the Union.  If insolvencies in other parts of the country bear a like proportion to population, the amount of debt discharged in this way must amount in a year to upwards of two hundred and seventy million dollars.


Pennsylvania.

As the funds of the State were in the Bank of Pennsylvania, the semi-annual dividend, due on the 1st of February, could not be paid.


Bank Notes.

So great was the confusion, that the Commercial List of Saturday, omitted its usual tables of the price of bank notes and specie, and the rates of exchange.  On Monday, Bank of Pennsylvania notes were at a discount of from 15 to 20 per cent. for specie;  Girard, 25 to 30;  United States, 50.  Our "currency" was at a discount of 10 per cent. for specie, though exchange on New York was offered at 7½.