These notes are discounted by the banks, and the merchant is then put in possession of another $100,000 which he again ships and thus he proceeds in an endless circle, so long as the banks by discounting his notes enable him to send the coin and tempt him to do so by keeping up prices here by their excessive issues. The banks, therefore, begin by diminishing or withdrawing these artificial facilities, leaving the persons directly concerned in this trade to act as they please with their own funds, but not with the funds of the banks. The immediate consequence is that the auctioneers can no longer advance the money for entire cargoes; that they no longer sell for credit but for cash; that the price of goods falls; that instead of being sold in large masses they are sold slowly and in small parcels, so that the importer is not able to remit the proceeds in large amounts. This diminishes the demand for bills and for specie to send abroad. * * * Time is thus gained until the arrival of the southern exchange which will supply the demand without the aid of coin and then everything resumes its accustomed course."
Upon this occasion it suited the Bank to stand off from the market, and Biddle made the following exposition of the policy which it had pursued. As we shall see, on other occasions, when it suited his purpose to adopt the policy of interference and paternal control, he found grounds for that as good as those he here gives for the let-alone policy.[1]
He says that the exportations of specie in the winter of 1827-8, and the imports of goods were very large. The cotton bills were late in coming forward, so that the demands for payment fell on the vaults of the Bank. "Such an effect was to be averted without loss of time. The directors of the Bank of the United States, as was their natural duty, were the first to perceive the danger, and the Bank was immediately placed in a situation of great strength and repose." He thinks that but for the restrictions placed by the Bank of the United States on the local banks the latter would, within the previous six weeks, have been brought to the verge of insolvency. He says that the people are extragavant and contract debts imprudently. "The Bank of the United States is invoked to assume that which whoever attempts deserves the ruin he will suffer. It is requested to erect itself into a special providence, to modify the laws of nature, and to declare that the ordinary fate of the heedless and improvident shall not be applied to the United States. * * * But if the Bank of the United States blends any sense with its tenderness, it will do nothing of all this." The most remarkable passage in the essay, however, is the one which describes banking on a mixed currency. The writer was a master of the art he described, and the literary merit is so high that the passage is fit to be incorporated in a text book of the subject. "The law of a mixed currency of coin and paper is that when, from superabundance of the mixed mass, too much of the coin part leaves the country, the
- ↑ See page 208.
