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could not affect the interests of others, any more than an individual. As they are now conducted, their capabilities of evil are very large; so much so, as to make it a source of continual anxiety to every business man. It required, as we remember, all the power that President Jackson was possessed of, to crush the great United States Bank, which had at its head a man well worthy to represent and enforce the immense power, for evil or good, belonging to an insufficiently restricted banking institution such as that. Jackson soon saw, with a just apprehension, the powers belonging to one man, possessing so much capital, centred in one institution, and over which he alone had the control. It was to prevent this ever being the case again, that he recommended the establishment of small banks throughout the country; assuming that they would be kept in check by the general opposition and competition which would exist amongst them; and that, working thus as competitors, they would not be likely to employ their concentrated powers to deprive the community of those rights and privileges so essential to the common interest and safety. He also entertained the opinion that, whilst we are increasing the number of banks, we are also increasing the mutual interest existing between them and the people. We believe his judgment to be correct in every particular, however its application may have been marred by inadequate application to details.
We will now consider those objections to the establishments of banks, which we think of most importance and to be most worthy of public attention. They consist of the following serious charges, as popularly made, viz:
That, they have a tendency to increase usury.
That, they retard or prevent other kinds of loaning.
That, they induce over trading.
That, they increase the number of ignorant adventurers in speculation, bolster up their fictitious credit, and thus enable them to practice and continue their impositions upon the public; and
\That, they directly, or indirectly, influence the exportation of gold and silver.
Now, if such charges can be made out against banking insti
tutions, their benefits must be of a very superior nature to induce us to countenance them, or to reconcile us to the evils which they generate. But, it is our opinion that these charges cannot be maintained against banking institutions, which are properly restricted in their powers. It is not the principles of banking that we condemn, but the false systems on which they are now too frequently carried on. Let us look, however, to these charges in general, and see by what sort of evidence they are sustained.
First.—That they have a tendency to increase usury.
We have said, elsewhere, that banks have the power of enforcing punctuality in the payments of sums due them from others. This, necessarily, in certain cases, must compel the debtor to resort to usurious borrowing, or else lose his credit with the bank. The bank is not chargeable with this evil, unless it has, by its excessive discounts, instigated the debtor to extend his own business wildly, and far beyond his available resources. It is also contended, that, inasmuch as bank stocks pay a much better dividend than the same amount of money would, if made use of in the ordinary way of loaning, men are better satisfied to invest their surplus capital in banks than to loan it out themselves to the community generally; and that, when it gets into the hands of the banks, it is only loaned to a particular few, to the exclusion of the many; having the effect to make the rich richer, and the poor poorer. The feebler naturally goes to the wall, and is driven, by the necessity of his situation, to apply to the usurer to obtain such money as he may need, let it cost him what it may. The bank that creates the appetite which it refuses to pacify, is a moral mischief; but even where chargeable with this offence, the mischief is of but small consequence, in comparison to the effects of a money pressure which has been produced by its over-issues. The prostration following the artificial stimulus, is an evil of more mischievous magnitude, when it operates upon a whole community, as, in such cases, it always must.
Now, in this connection, we admit that banks are placed in the same position with individuals, during a pressure in the money market, or while it is approaching one. Their own liabilities are equally subject to the rule of promptness in business with those of individuals. We yield the point cheerfully; but we claim that, at least one half the panics which visit us, from time to time, originate through causes arising from improper management on the part of the banks; and, sometimes, when the management thereof has been, with a view, on the part of the officers, to increase the profits of their stockholders. This is done, first—by making use of their funds to oppress other institutions, so that they may run their issues out of the market, and place their own in it. This awakens a feeling of resentment on the part of those oppressed, and they all engage in the warfare with their means, instead of using them for the benefit of the public. Before this contention arises, money may be easy enough. Many are induced to extend their business, in consequence of great bank facilities; and the crisis resulting from this private struggle among the banks takes them unawares. There is no reason for a crisis of a public or social nature, that they can see—there is no lack of resources in the community—no lack of credit among themselves; but they are the victims, and suffer from the greedy competition of the banks. Unprepared for the unexpected crisis, they are forced into the clutches of the usurer, and must pay exorbitantly to uphold a credit which no act of their own has shaken.
Secondly.—The banks operate hurtfully by making use of their fur.ds at remote districts, where they pay them a better interest, instead of distributing them among their own citizens. They thus serve as agents to drain the local capital from the very people for whose use it was designed in their establishment, and send it away for the benefit of others. This is a practice common to almost every bank in the Union; because it has proven a source of profit to them, both by the increase of their issues and the amount of their rates of interest. For this we cannot blame them, no more than we can individuals, unless it be for a want of patriotism in behalf of their own business community. Trade is naturally selfish, and it would be absurd to ask them to pay no regard to their own interest, and to sacrifice it entirely to ours. Such liberality is not to be expected from any class of business men. If we wish to remedy this evil, we must apply proper restrictions to them, when we invest them with the powers of banking. If, then, they accept our conditions, we can exercise a power of restraint, and can coerce their obedience in various ways—by penalties, by forfeiture of charter, and the repeal or modification of the usury laws.
Thirdly.—Banks, by an over-issue of their notes during a season of plenty, and by increasing their discounts because they are overstocked with money received from their depositors, suffer with the rest, and are equally enfeebled, when a reaction takes place. Their shortsightedness brings its penalties upon their own shoulders. To relieve themselves in such periods, they contract suddenly both their issues and discounts, and thus compel their customers to seek a new market, which extends the pressure still farther, until it becomes universal. Therefore, we claim that, as banks are now established and managed, they are directly or indirectly chargeable with the panic, the crisis, and their fruits, the increase of usury.
Again:—That they retard or prevent other kinds of loaning.
We have, we think, sufficiently shown elsewhere, that they have the power of drawing and concentrating the capital of the country away from those channels in which it might lie idle and non-productive; but we claim that, although this is the case, yet, by reason of their anxiety to increase their own issues, they are induced to make use of both their capital and deposits in other ways than those which would be of benefit to their own community; and that they are thus made instruments to take from us those means which would be otherwise distributed among us by private loans. Their immensely concentrated capital, also, enables them to enter into large enterprises through their agents, whether in the districts where they are situated, or in remote places; and thus do they frequently divert from us the money, which, if in the hands of the stockholders individually, would necessarily seek investment entirely among our own people. It has been claimed, as an argument in their favour, that banks, in their formation, draw capital from foreign sources. Such is, no doubt, the case; but are not those who thus furnish it, always drawing a profit from our labour, which constitutes a large amount periodically drawn from the capital and circulation of the community? There is, no doubt, a use in the money thus borrowed from abroad, but it is not without its corresponding injuries.
There is no doubt that banks, as now established, can, and are made, materially to affect the money market of almost every community to a greater or less extent, and change the ordinary channels of loaning.
Again:—That they induce over-trading
This charge has been treated of in part, already, in a former paragraph. All experience has taught us, that, when the supply of money exceeds our legitimate demand, such a state of affairs is produced by every over-issue of bank paper. When our products are excessive, the banks are better able to extend their issues; because, the greater the supply of products, the more money is required to effect its transfers. The banks, having an eye to business, perceive the opportunity of increasing their issues, and are not long in taking advantage of it. They enlarge their facilities by increasing their discounts, which induces eager crowds to enter into the field of speculation. This increases correspondingly the demand for, and, as a consequence, the price of commodities, and still further the fictitious demand for money. The banks, stimulating others, are themselves stimulated, and continue to supply the funds, until they begin to fear for themselves the inevitable consequences of over-issuing, and are thus induced to check, suddenly, their further advances. The panic is thus begun, andjthe recoil is proportioned strictly to the previous excitement. This causes a reactionary movement in the produce market; the advancing strides of speculation are stayed in their full career, and trade, after going through an ordeal of terror, slowly commences its return back to its proper level, but not without leaving ruin and desolation everywhere along the path of its eccentric progress. Thousands are suddenly made bankrupt, who were before in affluent circumstances.