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and the tailor his hats; that the shoemaker buys wheat, and the farmer shoes. If each were to undertake to make all he wanted, they would all be ruined. By a division of labor, their industry and capital are more productive, and their wealth is increased. It is precisely the same in regard to nations. The true policy, therefore, is for each nation to buy or to make only as it can do either to best advantage. The cost will always indicate when it would be profitable for a nation to do either the one or the other.
Again, it is important to keep in view that the protection of one class is equally adverse to the interests of all classes that do not en. joy the same privilege. Now, it has been the error of Political Econo. mists to consider the Protective System as opposed only, or chiefly, to the agricultural interest. But this is a narrow view of the case. Protective duties are equally against all who enjoy no protection: it raises the profits of the protected branches above the profit of all branches not protected. For the makers of unprotected goods have to contend in the market for labor with those who, of course, can outbid them, because their profits are raised unnaturally high by the duties, and yet they have not the same opportunity of raising their prices; since, before their profits are raised to an equality with the profits of the protected articles, they must, infallibly, from the nature of things, be undersold by foreigners. Of this we have had an illustration the past year, in the importation of foreign grain. The next thing we shall hear of, probably, will be, that our farmers and unprotected me. chanics will claim protection too. Indeed, it has already commenced. In the state of Maine the legislature have recently granted a bounty on the production of wheat; and it is gravely suggested to do the same thing in other states. So Congress forces industry and capital into manufacturing investments, by duties, and the states force it back again to agriculture by bounties; the interpretation of which is, that we pay ten dollars a yard for cloth that we might get for five, for the special privilege of paying twelve dollars a barrel for flour, that we might get for six.
We have spent more time upon this part of our subject than we at first-intended. But these views are important, because they accord with other principles on which our objections to the excessive encouragement of manufactures are founded. And, moreover, it wa's necessary to see the ground on which the liberal system is sustained, in order to discover the harmony that prevails among all the diversified interests of the nation. If it be proved that the excessive en. couragement of manufactures is actually injurious to national wealth and industry, it will readily occur to the mind of the reader, that it is not less opposed to all her other interests. The nature of manufac. turing pursuits must be deleterious to a community. They tend to injure the morals, the health, and the domestic qualifications of the operatives. They produce a roving, unsettled disposition, and are thus injurious to good habits. The females are unfitted by physical condition, as well as by ignorance of domestic affairs, to be either wives, mothers, or housekeepers. It interferes most deplorably with the comfort, happiness, and improvement of society at large. By the scarcity of domestic assistance it occasions, our domestic wants are but half supplied ; our wives obliged to spend their time in the kitchen,
VOL. VIII.- October, 1837. 36
when their services are wanted elsewhere; our children are left to themselves, their minds and manners, as well as persons, neglected, or they are sent to incompetent schools, where they learn more evil than good, because their mothers cannot attend to them; and the fathers are obliged to perform various trivial offices, by which time is consumed that might be much more profitably employed both to themselves and others. The scarcity of labor is the constant cry of the country; and the serious distress it occasions is felt by all, but appreciated in its extensive bearings only by a few. It is felt universally in the manufacturing states, and it exerts a disastrous influence upon the whole routine of domestic and social life, and upon the mental, moral, and religious interests of the community.
We have dwelt so long on this part of our subject, on account of its great importance, its extensive relations, and especially the atten. tion it has excited in this country. Instead of saying less, we should be inclined to say much more, did we think the pr nt occasion would justify it. We fear, however, that we should exhaust the patience of the reader. Meanwhile the remainder of the volume claims our notice, for at least a few passing remarks.
In book second, the author treats on Exchange. He exhibits the laws of the social state which render exchange necessary; and sets forth the general doctrines of exchange. In this book, too, is naturally included the interesting subject of money as a medium of ex. change. On this branch there is, I believe, nothing new. It is only a repetition of what we find in Say and others on the same subject. In fact, no addition was necessary, and it was susceptible of no improvement.
But the chapter on banks and paper currency the reader will find worthy of serious attention. Of the several works on banking which we have seen, none can be compared with this. For perspicuity and simplicity of language and arrangement; for soundness of thought; and, we may add, for candor in his statements; we think Dr. Wayland has no rival in this point. He has curtailed the facts, indeed, of Smith and Say; but he has supplied their place by more valuable matter. He has given whatever was important from other writers, and superadded much that is original, and especially valuable ; because it enables the mere tyro to understand the subject as he never could by the most laborious study of our former text-books. We have here clearly set forth the necessity, the nature, and utility of banks; the sources of their profits; the advantages and disadvantages of a paper circulation; and the agency of government in respect to the currency. This whole subject is treated coolly and practically; and we think, to all who are not biased by some favorite theory, it will be found altogether satis. factory.
As, however, banking is of such general interest and of such great importance, it may not be uninteresting to take a brief view of the nature of its operations. In this we shall only lay down some of the principal features, and refer those to our author who desire to obtain a more intimate acquaintance with the subject.
1. Banks make the specie go farther. For every hard dollar in its vaults a bank can issue two, three, or perhaps four dollars in notes. Hence, with specie in the country amounting to some thirty
three millions, we have a circulation amounting to upwards of one hundred millions. The solvency of a bank does not depend upon the amount of specie it contains, but on its general capital.
2. The currency furnished by banks is more economical and convenient than specie.
1. It is more economical, because there is less loss of value by the destruction of bank paper than by the destruction of gold and silver; and by substituting paper, the precious metals may be used in values of another form.
2. It is more convenient, because it is more portable, less liable to robbery and destruction in transportation, and much less expensive.
3. Banks afford a convenient medium through which merchants may collect their distant debts. What would be the risk, loss of time, and cost, of receiving debts by the transmission of specie ; and how much specie would be kept out of circulation by the act of transportation, or in various ways lost or destroyed? Now the whole business of exchange can be done through the banks “by a dash of the pen,” and almost without risk or expense.
4. Banks afford a convenient place in which merchants and others can deposite their surplus funds without withdrawing their money from circulation. If there were no banks, every person must keep on hand as much specie as would meet his current demands; and this would render it dead stock, and so much loss to the community, beside increasing the temptation to robbery and house-breaking. Now he can place it in the bank, where provision is made for its security. Besides, while in the bank it can be kept in trade by the dir ors; and it is not dead stock, as it would be in private hands.
5. Banks afford great facilities to industry by discounting notes and making loans. A person has on hand a note for a thousand dollars, due in three months. Meanwhile he is in immediate want of funds. He takes his note to the bank and gets the cash, minus the interest for the time it has to run; viz., three months. Or, a mechanic or merchant has skill and industry, but wants capital. The bank, on his furnishing adequate security, will advance the capital on loan. The bank, therefore, performs the functions of a loan-office.
6. The advantage of banks as loan-offices over individuals is, that they collect into one place the scattered surplus funds of the community, and, by doing business on a larger scale, can do it with less expense ; i. e., with less consumption of time and labor. And, moreover, as the bank directors are selected for their skill in financial affairs, and their knowledge of the pecuniary condition of their neighborhood, they generally know whom to trust and what security to demand. Many private persons place their surplus funds in the banks to be loaned by the directors, whereby the community is benefited, who would be afraid to loan it on their own judgment. Thus widows and minors, and persons unskilled in finances, can buy bank stock, who would be incompetent to manage their own loans.
7. Banks save a great deal of time, and labor, and friction of coin, by the facilities they afford in making payments between individuals. If payments had to be made in specie, how much would it cost a merchant, in time and labor, to count over and minutely examine fifty thousand dollars? And suppose all the payments in a large commercial city had to go through this process, how much dead loss would it occasion ? Now, a merchant gives a check upon his banker, and the specified amount is transferred from one to the other by an entry in the books of the bank, while not a dollar of the money is fingered.
Thus, banks come under the general and important principle of the division of labor. A hundred persons find it cheaper to employ a bank to transact their money affairs for them than to do it themselves, and it costs the nation less. The individuals profit by the knowledge and skill which are acquired by those who devote themselves to a single branch of business, just as in all other cases.
These are some of the leading advantages of the banking system. By applying them and looking at their bearings, the reader will see how it is that the system has such an influence on national prosperity. Every one will see that they adjust the amount of the currency to a nation's demands; they economize capital; they collect the idle funds together and turn them to profitable account; they save time and labor ; they furnish facilities to industry by loans and discounting; and, in all these ways, stimulate national production.
Hence, it is not surprising that nations enjoying great commercial prosperity should have early felt the need of those facilities which banks afford. The ancients, as we are informed, found some accommodation in bills of exchange; but only a very small part of that supplied by banks. In that period, however, they could be more easily dispensed with, on account of the greater proportion which the amount of precious metals in use bore to the demands of trade. That the proportion was greater than now is evident from the fact, that while the quantity of silver and gold in the world is now ten times greater, its value is only three times depreciated. Were there no greater demands for it now than then, it would have sunk to one-tenth of its former value; but the wonderful expansion of trade has prevented its sinking lower than to one-third. The demand, therefore, has increased faster than the supply, in the ratio of ten to three. Now there was no method, as far as we see, of meeting this increased demand but by the institution of banks. Hence, in all countries distinguished for commerce, opulence, and general comfort and enjoyment, banks have been instituted and paper money
used. They seem to be inseparably connected with a high degree of commercial prosperity, and great productiveness of human industry. We may cite as evidences, on the one hand, Eng. land, Scotland, and the United States, who use a paper currency; and, on the other, Spain, Portugal, and Italy, who have only
a specie circulation, and are proverbially poor and degraded. France seems to occupy a middle ground; for the institution of her bank gave a wonderful impulse to trade and industry,* which are now fettered and restricted, if our information be correct, by the want of a sufficient circulation.
The consequences of abolishing paper money may be very easily gathered from what has been said. Its first effect would be to raise the value of money just in proportion as it would diminish the quan
* See Stoddard on the Banking Institutions of Europe and America.
tity. Suppose our specie to be one-third the amount of our circulation: let bank notes be banished, and the value of money will rise, or 'the prices of all other things will fall, just two-thirds. The effect on existing contracts would be deplorable. If a person had paid two-thirds of the purchase money on any property, it would then only sell for the remainder. Of course he would lose what was already paid. If a person had previously borrowed a thousand dollars, he would have to pay what would be equivalent to three thousand; since one thousand would go as far, and be as difficult to procure, as three thousand were at the time of the loan.
But what would be the effect of limiting bank notes to a given sum, say of twenty dollars? This measure evidently could not create silver and gold. It could only draw from the banks the specie necessary to replace the notes that would be called in. Now, to substitute specie for all the notes under twenty dollars, would require more specie than the country contains. Thus the banks, being bereft of their specie, which forms the basis of their circulation, would be obliged to close business. The result, therefore, so far as I can see, would be the same as prohibiting bank notes altogether. The same objection, however, would not exist, I apprehend, against prohibiting notes under three, or perhaps five dollars. True, it might create a little inconvenience at first, but it would be more than repaid by the advantages resulting. The principal of these would be the greater steadiness it would give to money prices, by an increase of the amount of specie in circulation. The fluctuations in the money market could not be as sudden or as violent if there were such an addition made to the permanent currency.
“But banks," we are told, “have been abused.” And so has every other human advantage. But it is worthy of observation, that the benefits of banking are necessary and inevitable; the evils and abuses are only contingent and avoidable. Let them, therefore, be placed under such legislative restriction as shall guard, as far as possible, against the evils; and for the rest we must trust to the capacity and integrity of the directors, just as we confide in men in all other kinds of business.
“But banks,” says another, “should be on the credit of the government.” Then they will most assuredly be abused. When did governments ever conduct pecuniary affairs with as much economy and security as individuals ? All government transactions are necessarily expensive ; and as the risk encountered would not affect the rulers individually and personally, the security would be thereby diminished. It is well known, that as long as the Bank of France was in private hands, it continued to prosper. In 1718 the king took the bank into his own hands, and it was thenceforward carried on by government. In two years it exploded, and came near overwhelming the throne in its ruin. Such was the issue of governmental banking. On the contrary, the Bank of England, which has always been managed by a company under a charter from the king, has remained, notwithstanding the vicissitudes and embarrassments through which it has passed, and the burdens thrown upon it by a government immensely in debt, in successful operation to this day, and is likely to continue so while the government itself shall endure. But we hasten to a conclusion. The third book is devoted to the