Bank Commissioners of Ohio, in 1842, in the bitter retrospect of the previous five years, quoted these words in order to say: "The experience of more than half a century since this opinion was expressed has failed to convince the American people that gold and silver are to be regarded as dead stock, except when placed in banks as a basis for the issue of their paper. This idea that gold and silver acquire life, activity and productiveness, only when placed in banks as a basis for paper issues, rests upon the assumption that bank notes, to an indeterminate extent, may be thrown into circulation, and that a proportionate increase will be given to the commercial, manufacturing, and agricultural interests of the country." Out of the same period of sack-cloth and ashes, when delusions had been dispelled and things appeared in their naked truth, the Governor of Ohio said: "The great error which prevails on this subject [banks of issue] has its origin in the common, vague impression that we are dependent on the bank paper system for the supply of a sufficient quantity of the circulating medium, and that, without bank paper, commerce would not flourish, business would stagnate, and the country cease to advance in prosperity and improvement. This fallacy is the chief cause of that superstitious attachment to the paper system which with some has become idolatry:" "Vain indeed would be the attempt to hedge in the circulating medium of a country and pump it up to fullness by the ministry of banking institutions."
Hamilton also laid great stress on the function of banks to make loans to the government in case of financial exigency, and also to help tax payers to pay taxes. Loans to government lock up the capital of a bank and make it cease to be, as a bank. Although a bank might loan capital for the payment of duties (the case, in fact, which Hamilton puts in illustration), it certainly would not lend a man means to pay his personal taxes, which are an irrecoverable expenditure. These two points belong under the head of the political functions and benefits of a national bank. They were very prominent amongst Hamilton's motives for wanting one. Furthermore, without dilating upon it, he put into a very concise and pointed statement his view of the political philosophy of a national bank. It "is not a mere matter of private property, but a political machine of the greatest importance to the State." The history of the first Bank of the United States, and still more that of the second one, is a most instructive experiment to test the validity of this conception of such an institution under the political and social circumstances of the United States.
Finally he makes an argument against two of the pet ideas which we have already seen so active in connection with financial devices from the first settlement of the country—namely, the notion of paper issues on land security, and the notion of banking by the State, as a means of profit by which public expenditures may be provided for without taxation. His arguments on these points apparently had no effect, for we shall find that these two notions held sway for fifty years more, and were more destructive to the happiness and prosperity of one section after another than pestilence or famine.
