ters,' a judicious and well written performance, and apparently the production of one familiar with banking, both in theory and practice.

'While the only bank notes in circulation were payable in Boston, they were preferred to specie both in town and country; but from the moment the notes issued by the banks of places at even small distances, made their appearance, the question arose, whether they should be received at the Boston banks; the practice was fluctuating, sometimes at par, sometimes at a small discount. The country banks considered it a great hardship, that the Boston banks should send home their bills and demand specie for them, instead of putting them in circulation again. Public opinion took the side of the country banks; and the Boston banks, very unadvisedly, gave up receiving the bills of out of town banks altogether. The consequence was, that the bills of country banks obtained the entire circulation even within the town of Boston. The Boston banks had given them credit and currency, their solvency was not doubted, and for all common purposes, they became equally current with the bills of the Boston banks, which were only necessary for the purpose of making payments at those banks. A double currency was thus introduced, the one called 'foreign money,' or current money,' -the other 'Boston money;' the difference being, for several years, about one per cent. It was deemed a sort of heresy to call this difference a discount on country bills; it was a premium on Boston money,- a scarce commodity, only wanted for particular purposes; precisely as the difference in England, between Bank of England notes and guineas, at the period of the greatest depreciation, was held to be a premium on gold.

This state of things introduced a new branch of business and a new set of men, that of money brokers, whose business it was to exchange these currencies, one for the other, reserving to themselves a commission of about of one per cent.; or, in the language of the day, giving a premium of 3 per cent. for Boston money, and selling it at a premium of one per cent. While the quantity of foreign money continued moderate, it was thus kept afloat by the demand for circulation; as persons wanting money to send into the country, or for other purposes, where foreign money would be received, would buy and employ this cheaper currency, rather than use the more valuable bills of the Boston banks. But the business of issuing these notes being a profitable one, the supply, ere long, exceeded the demand; and as the channels of circulation overflowed, the brokers began to send the bills home for payment.

'The state of the currency became the subject of general complaint, the brokers were denounced, as the authors of the mischief, as the cause of scarcity of money, and the country banks made no scruple of throwing every obstacle in the way of their operations. It is a well known principle, that where a currency is tolerated, composed of materials depreciated in different degrees, the inferior or most depreciated currency, will eventually expel, not only the pure, but also the less depreciated parts of the currency, and this equally, whether it consist of paper or metal; the mass of the community being wholly insensible to the process of depreciation going on. In conformity with this principle, the nearest banks were naturally called on first, and it was soon discovered, that a bank could be made profitable, in proportion to its distance from Boston, and the difficulty of access to it. The establishment of distant banks became a matter of speculation, the favorite locations being the remote parts of Maine and New Hampshire.' pp. 10-12.

The writer then gives an account of the establishment of the Boston Exchange Office, the increase of the discount on foreign money to four and even five per cent., and the failure in 1809, of a great number of the country banks in Massachusetts, Maine, and New Hampshire. He proceeds:

'No change of system followed, with the exception, that a law of the state, taking effect in 1810, imposed a penalty of two per cent. a month, on every bank, refusing, or delaying payment of their bills when demanded, which has had the effect of securing punctual payment, except in cases of acknowledged bankruptcy.

'For some years after the explosion of 1809, the amount of bills of distant banks in circulation was moderate; and in 1814, the New England Bank adopted the measure of receiving the bills of all the banks in New England, at a discount varying according to distance, but in no case exceeding one per cent.; and on condition of a sufficient permanent deposit being kept good, they were returned to the banks issuing them, at the same rate of discount; the bills of banks not keeping such deposit, were sent home for payment. This arrangement was the source of considerable profit to the New England Bank, which induced other banks to become competitors for the deposits of the country banks, and for a few years the discount was fluctuating from 2 to 4 per cent. In 1824, the present system was adopted, by which the bills of all the banks in New England are received in Boston at par. The system is this certain banks in Boston have contributed a sum agreed on, to a common fund; and, in consideration of the use of that fund,

one of them, the Suffolk, undertakes to receive all New England bills from the associated banks as cash, and collect them from the country banks. The mode of doing it is as follows: the country banks are invited to keep a fund in deposit at the Suffolk Bank, for the redemption of their bills, and by doing so, it becomes a very simple operation to both parties. If they decline, the bills are sent home for payment, in which case nothing is received but specie. The trouble and inconvenience attending this mode of payment, soon induce the country bank to yield to its true interest, and keep up the deposit; since, thereby, it can keep in circulation a larger amount of bills than it would otherwise be safe to attempt. 'Under this system, the character of the currency has become wholly unexceptionable; all New England bank notes are virtually redeemable in specie, at par, at the counters of the associated banks, in Boston, and this equally, whether the banks issuing the notes agree to it or not. It was, in fact, the subject of great complaint with many country banks, that their bills should thus be raised in value to an equality with specie against their own con

sent.

'It is in fact apparent, that, in all the changes of our currency, the quality of being exchangeable for specie in Boston, has been that on which every bank note has depended for circulation. No matter whether the specie has been advanced by friend or foe, by broker or banker, at par or at a discount, it was the fact, or the belief, that money could be had for it at Boston, which alone has given it general currency. It is true, that, up to 1824, the currency has been depreciated; and the measure of that depreciation has always been the rate which it was necessary to pay in Boston, to convert that currency into specie. During the first period, from 1800 to 1809, the paper dollar of country banks was gradually depreciating from one hundred to ninety-five cents, according to the price which a Boston broker would give for it. So, from 1814 to near 1824, the currency was nearly uniform at about ninetynine cents to the dollar, because that sum would be paid for it by the New England Bank in Boston. During the first period, the currency was depreciated; and to that evil was added another, uncertainty or fluctuation in the amount of that depreciation; during the latter period, depreciation was the only evil, the rate being nearly uniform.' pp. 14-17.

The great power which the banks have of issuing notes, which are in practice the circulating medium of the country,

and the great dangers to which the community is exposed if this power be improperly exercised, have very generally made the privilege of issuing such notes a subject of legislative regulation. It is no doubt true that if the issuing these notes were freely permitted to all individuals and associations, the good sense and sagacity of the people would do much for their own protection; still it is believed that great and obvious evils would ensue which might in some degree be prevented by legislative interposition. The direct loss to the community by the failure of persons engaged in issuing notes, would, under such circumstances, be greater than at present, and a large part of it would fall upon the laboring classes; and besides, the fluctuations in business, arising from the sudden diminution or increase of the amount of the circulating medium, would be greater than at present.

In Massachusetts various measures have been resorted to, for the protection of the community against the dangers arising from an ill-regulated currency. Those which are now in force are well deserving attention.

By an act passed in 1799, it is provided as follows: That from and after the passing of this act, no person shall subscribe to, or become a member of any association, institution, or company, or proprietor of any bank or fund, for the purpose of issuing notes, receiving deposits, making discounts, or transacting any other business which incorporated banks may or do transact, by force of their respective acts of incorporation, unless such person shall be authorized by law so to do. And if any person not authorized, shall hereafter subscribe, or become a member or proprietor as aforesaid, he shall forfeit and pay, for every such offence, the sum of one thousand dollars, to be recovered by any person who shall sue therefor, in an action of debt; one half thereof to his own use, and the other half to the use of this Commonwealth. And all notes and securities for the payment of money or delivery of property, made or given to any such association, institution, or company, not authorized as aforesaid, shall be null and void.'

Since the passage of this law no person or association ́ can exercise any powers of a bank, without special authority from the legislature. The propriety of prohibiting any persons who please from receiving deposits and making discounts, may well be questioned. It is not perceived that these branches of

banking, which may be exercised distinctly from the issue of bank notes, require this sort of regulation. The community runs no more risk from individuals receiving deposits and loaning money, than from the exercise of any other commercial business. It seems, therefore, inexpedient to restrain the employment of capital for these purposes. The evil to be remedied is that of individuals issuing their own notes to circulate as money. The prevention of this evil does not require the entire prohibition of all banking operations. The writer of the pamphlet to which we have already referred, opposes with great ability the prohibition to receive deposits and make loans.

The legislature, having thus confined banking to institutions incorporated and regulated by itself, governs all the banks which it incorporates by one general law. The statute of 1829, before mentioned, embraces most of the provisions of former laws, with some few alterations and additions. It is not, therefore, a new system, but merely a revision of the former one. Having, in an early number of our journal,' presented a full abstract of this statute, we shall not repeat any of its provisions in this place, except those which we propose to examine.

The first provision in the statute bearing upon the present subject, is that contained in the third section, which provides that no bank shall go into operation, make discounts, loan money, emit bills or promissory notes, until fifty per centum, at least, of its capital stock shall have been paid in gold and silver money, and existing in its vaults, which shall have been examined by three commissioners appointed by the governor, whose duty it shall be, at the expense of the bank, to examine and count the money actually in the vaults, and to ascertain, by the oaths of a majority of the directors of said bank, that its capital has been paid in by the stockholders of said bank, toward payment for their respective shares and not for any other purpose, and that it is intended to have it therein remain as part of said capital, and to return a certificate thereof to the governor; and no loan shall be made to any stockholder until the full amount of his shares shall have been paid into the bank; and it shall not be lawful for any bank to have owing to it, on loan on a pledge of its own stock, a greater amount than fifty per centum of its capital stock actually paid in; and no part of the capital

1 Am. Jurist, Vol. I, p. 369.