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inflexible routine. In this form, however, the public bank had no
longer the power to adapt itself to the needs of commerce in a
rapidly changing world ; nor was it saved from loss of both cash
and credit by the hand of the government. Even without the
shock of the French Revolution, then, and without the final order
for liquidation from Napoleon, it is not probable that its importance
could have continued long. The Bancogiro, like the Bank of
Amsterdam, could have found no place in the nineteenth century.



1 66 ESSAYS



Postscript



In the article on the origin and nature of the Bank of Venice,
the remark was made that the history of the Bancogiro from its
establishment in 1619 has never been written; and it was added
that, although much material exists, " nobody has thought it worth
while to follow the bank carefully through its vicissitudes, and it is
not certain that the gain from doing so would be great." The
writer of the article regrets that by his failure to observe the mono-
graph // Banco Giro di Vcnczia of Professor Soresina^ he has
done injustice to a valuable work and a meritorious writer.

Professor Soresina, in preparation for his work, made a labo-
rious examination of the material existing in the Marcian Library
and in the Archives of the Frari, and appears to have thoroughly
explored these sources. This investigation enabled him to make
a careful review of a period of Venetian banking history which
the present writer was obhged to dismiss in two pages, and to
present a body of information as to the actual operations of the
bank far more important than had ever before been made public.
The course of legislation with respect to the bank is followed
closely, some statements of account which have survived are pre-
sented, and several documents of great interest are given in full.
Among these are the offer made by Giovanni Vendramin, in 16 19,
to supply the mint with a large amount of silver, which led to
the establishment of the Bancogiro, and the text of the act which
closed the Banco di Rialto in 1637.

In several particulars the accurate information secured by
Soresina corrects or explains statements previously current as to
the affairs of the bank, and particularly with respect to its sus-
pensions of payment. The period beginning with 1630, in which
the bank was supposed to have suspended payment perhaps more
than once, now appears to have witnessed a continuous suspension
from 1630 to 1666, when the opening of the cash office put an end
to the forced payment by transfer of bank credits. Ji" was to this
long .suspension, then, that Matthew Lewis referred in his " Large
Model of a Bank" in 1678 as the expenditure of all the cash in
the bank "in the late Turkish wars." The effort in 1630 to take

1 Quarterly Journal of Economics, ]7i.x\\xi.xy, 1893.

2 Amailc-o Soresina, " II lianco (Jiro di Venezia." Venice, 1889. 8vo, pp. 94.



THE BANK OF VENICE 167

measures a saldare ed estingiiere il Banco appears to have con-
templated, not the closing of the bank, but provision for extin-
guishing its debt, which was then overwhelming. Of a suspension
of the bank in 1691, mentioned by McLeod and others, Soresina
gives no notice ; nor was any trace found by Signor Siboni in the
documents at the Frari.^ On the contrary, the cash office ap-
pears to have remained open from 1666 to 171 3.

The second long suspension then began, which ended with
the second reopening of the office in 1739. The date of this failure,
which had been incorrectly given by the present writer as 171 7,
shows that the occurrences of which Cantillon received informa-
tion (" Essai sur le Commerce," pp. 409-412) related to the second,
and not to an earlier suspension ; and the measures which he
mentions, without dates, as taken for the purpose of raising the
credit of the bank, are apparently the steps taken for that pur-
pose in 1 71 8, and described by Soresina (page 41).

1 Giornale degli EconomisH, September, 1892, p. 292, note.



ACCOUNTS OF THE FIRST BANK OF THE UNITED

STATES 1

The first Bank of the United States was obliged by its charter
to report its condition to the Treasury Department as often as
required, not exceeding once a week. It is well known that Mr.
J. J. Knox, when Comptroller of the Currency, found that the
existing records do not show that any formal reports were ever
made. Two balanced statements were given to Congress by Mr.
Gallatin, one in March, 1809, and the other in January, 181 1 ; and
it has sometimes been assumed that these were the only reports
ever made.

That Mr. Knox's search in the Treasury Department brought
no reports to light proves but little. The Treasury Department,
it will be recollected, was burned when Washington was occupied
by the British forces in August, 18 14; and it was burned again in
March, 1833. The official statements made to Congress as to the
documents and books lost and saved on these two occasions raise
a presumption that any such reports, if in existence at the time of
either conflagration, would not have been among the papers saved,
the effort being made in both cases to save primarily what was
needed for the current public service. The failure, therefore, to
discover at the present time a set of papers, which even in 18 14
had only an historical value, cannot be regarded, under the cir-
cumstances, as having any weight.

There are, however, many pieces of evidence scattered in
the public documents tending to show that the bank was required
by the Treasury Department to make frequent report of its con-
dition, and that it did so in obedience to the law.

The most complete account which we have is that which was
sent to the House in January, 181 1, as above stated, and is given
in " State Papers on Finance," Vol. II., page 468. This state-
ment, made in much detail, is said by Mr. Gallatin in the letter

^ Quarterly Journal of Economics, July, 1892.
168



ACCOUNTS OF THE FIRST BANK OF THE UNITED STATES 169

communicating it to be " extracted from the latest returns received
at this office from the bank." It was then one of a series. The
return of 1809 above referred to, printed ibid., page 352, although
a balanced account, is given in round numbers and has been stig-
matized as an account " trumped up " ; but Mr. Gallatin's letter
transmitting it states expressly that the amount of the principal
items " is taken on a medium," — that is, it is an averaged account,
and no more "trumped up " than the averaged accounts now pub-
lished weekly by the clearing-house. Mr. Gallatin's language
shows that he preferred to give an averaged account, because it
better represented the ordinary condition of the bank than the
actual figures at the date of his report ; and, as the question before
Congress related to a renewal of the charter, it was the ordinary
condition of the bank which Congress most needed to understand.
For the present purpose, however, the important point is that, in
making a statement " taken on a medium," Mr. Gallatin probably
had before him the various detailed statements of which this
medium is the average. In one other instance we have direct
evidence that an account of the bank was in possession of the
government. In Gallatin's " Writings," Vol. I., page 59, Jeffer-
son writes to Gallatin, November 11, 1801, giving a comparative
table of certain items in the accounts of the Bank of the United
States and of banks in several of the principal cities. If we take
the items relating to the Bank of the United States and arrange
them in their proper form, we find that they make up an account
as follows : —

Liabilities Resources

Capital, $10,000,000 Discounts, .... $12,150,000

Undivided Profits, . . 40,000 Six per cent and ad-
Notes, 5,200,000 vauce to government, 5,460,000

Deposits, Due from banks, . . 1,450,000

Government, . . . 3,560,000 Specie, 5,000,000

Individual, . . . 5,240,000



$ 24,040,000 $ 24,060,000

It is sufficiently evident that Jefferson in this case had a balanced
account of the bank which he simplified by throwing off the thou-
sands, this process causing the discrepancy which appears in the
totals of debit and credit.



170 ESSAYS

Besides these references to other statements than those now
known to exist, there are numerous significant allusions to be
found in Gallatin's correspondence and in the debates in Congress
upon the proposed renewal of the charter. Thus, in Gallatin's
"Writings," Vol. I., page 80, we have Gallatin, in June, 1802,
comparing the condition of the Bank of Pennsylvania with that of
the Bank of the United States. To cite only one passage from
the debates, we find Mr. Finley, on April 30, 18 10, saying in the
course of his speech that " the Secretary of the Treasury has, for
the time being, had authority by law to inspect the directors of the
bank, and did do it, and obtained weekly returns of its situation."
In Gallatin's communication to the House, January 10, 181 1, in
" State Papers on Finance," Vol. II., page 460, there are significant
references to " the returns made to the Treasury," and " the offi-
cial statements transmitted in conformity with . . . the charter,"
and the like. And in Mr. Gallatin's well-known " Considerations
on the Currency and Banking System," published in 183 1, we find
him making a general statement as to the proportion which the
loans made and stocks owned by the bank bore to its capital for
the whole of its existence, — a statement which a man of his cau-
tion would not have made without full documentary evidence. In
short, there is ample reason to believe that, when the stockholders
declared in their petition for a renewal of the charter, in April,
1808, "that the confidence of the government [was] founded upon
a constant knowledge of the interior management and condition
of the bank," they told the truth. Indeed, it is inconceivable that
they should have made this statement to a Congress in which their
opponents had the majority, if there had been any possibility of a
denial.

That the accounts given to the Treasury Department were not
made public, as they would be in our own day, is not surprising,
when we see the different view then commonly held as to giving
publicity to such statements. For example, in Jefferson s letter of
November, 1801, referred to above, it will be observed that he
suggests that statements from the state banks should be general-
ized, and the total of the yearly average should be presented to
Congress. " It would give us," he says, "the benefit of their and
of the public observations, and betray no secret as to any particu-
lar bank." And it will be recollected that at that period the



ACCOUNTS OF THE FIRST BANK OF THE UNITED STATES 1 71

Bank of England, on which the Bank of the United States was
closely modelled, made no publication of its accounts, and that it
was not until 1834 that even a quarterly statement was required to
be made. In the earlier part of the century the public could learn
nothing as to the condition of the bank, except the selected facts
cautiously given out in Parliamentary investigations. Mr. Tooke,
in his evidence before the committee of 1832, in " Parliamentary
Documents," 1831-1832, Vol. VL, described the accounts thus given
of the cash held by the bank at some critical periods as " mysti-
cal " ; and some important witnesses, even in 1832, maintained that
to give the bank accounts to the public, especially to state the
amount of buUion held, might be a mischievous practice. It is not
surprising, then, that the accounts of the first Bank of the United
States down to 181 1 were regarded as confidential. That under
the seal of confidence they were regularly made, from an early
period and probably for the whole of the bank's existence, seems
to be more than probable.



DEPOSITS AS CURRENCY!

In the discussions upon the various phases of the currency
question during the last twenty years, the popular dread of con-
traction and its consequences has seldom been appealed to in vain.
Congress has been a good index of public opinion in this respect,
and in Congress there has steadily been an element which seemed
to have grasped the idea of a connection between contraction and
falling prices, as the one and sufficient key to the practical ques-
tions which were to be settled. To this fact were due the weak
legislation of 1874, to go back no farther, and the necessity in
1875 of so framing the Resumption Act as to leave its meaning
open to opposite constructions and its operation uncertain — a
necessity which Mr. Sherman, in carrying the bill through the
Senate, did not seek to disguise. Nothing else than a deep con-
viction in Congress that "the people would not stand contraction "
can explain the fact that the act of May 31, 1878, "to forbid the
further retirement of legal tender notes," was carried through the
House of Representatives under a suspension of the rules and
without a word of discussion, the decision of the question as to the
meaning of resumption and the perpetuity of the legal tender
issues being treated as of less consequence than the appointment
of a doorkeeper. And, in the discussions of the national banking
system, the same dread of contraction, or of a supposed popular
fear of contraction, constantly appears, and shapes the expedients
offered by the opponents, and sometimes by the friends, of the
present system.

This, however, brings forward in a convenient form the ques-
tion. What is the currency of which the contraction is thus
dreaded .'' In the resumption discussions, it was assumed that,
apart from specie, the legal tender and bank-notes make up the
currency ; the amount of each kind outstanding was anxiously
computed, and the increase or diminution of the aggregate

^ Quarterly Journal of Econotiiits, ]v\\', 1887.
172



DEPOSITS AS CURRENCY



173



noted as a decisive fact. And so, too, in later discussions, the
sinking of bank-note issues, while the legal tenders are constant
in amount, is often treated as a portent, the lesson of which is
either the remodelling and renewing of the system or the substitu-
tion of government paper for bank-notes, as may be preferred.
Without attempting a formal statement of the constituents of the
currency, the writer wishes to recall the fact that there is a kind
of bank circulation more important than bank-notes, and that the
theorems of currency cannot be correctly applied if this is ignored.

The ease with which we ignore deposits as a part of the cur-
rency seems the more remarkable, when we consider that few men
in business fail to recognize the true meaning of this form of bank
liability ; that it is a circulating medium in as true a sense and in
the same sense as the bank-note, and that, like the bank-note, it is
created by the bank and for the same purposes. McLeod's remark,
that "every bank is a bank of issue," may seem a hard saying:
still, every man of affairs would be found applying it in practice
and recognizing the essential truth contained in it in a tolerably
distinct manner ; and probably one reason for the moderate interest
which practical men are apt to take in discussions of currency is,
that such discussions so commonly deal with what experience shows
to be only a part of the essential elements of any actual question.

It is interesting to observe that, in the early efforts to deal with
the subject of credit currency in this country, the greatest of the
financiers on each side recognized plainly and constantly the
true significance of bank deposits. Hamilton at the start made
a statement which could hardly be improved upon : —

Every loan which a bank makes is, in its first shape, a credit given to the
borrower in its books, the amount of which it stands ready to pay, either in its
own notes or in gold or silver, at his option. But, in a great number of cases, no
actual payment is made in either. The borrower frequently, by a check or order,
transfers his credit to some other person, to whom he has a payment to make ;
who, in his turn, is as often content with a similar credit, because he is satisfied
that he can, whenever he pleases, either convert it into cash or pass it to some
other hand, as an equivalent for it. And in this manner the credit keeps circu-
lating, performing, in every stage, the office of money, till it is extinguished by a
discount with some person who has a payment to make to the bank to an equal
or greater amount.^

1 "Report on a National Bank" (1790), iii. 128, of Hamilton's "Works" (Lodge's
edition).



174



ESSAYS



Gallatin was quite as explicit as Hamilton, stating his proposi-
tion more than once,^ with a wide interval of time, substantially
as follows : —

The bank-notes and the deposits rest precisely on the same basis, t . . We
can in no respect whatever perceive the slightest difference between the two ; and
•we cannot, therefore, but consider the aggregate amount of credits payable on
demand, standing on the books of the several banks, as being part of the cur-
rency of the United States. This, it appears to us, embraces not only bank-
notes, but all demands upon banks payable at sight, and including their drafts
and acceptances.

These citations, embodying a principle which perhaps stands
in little need of formal exposition, show plainly enough how far
much of our discussion and even of our legislation has drifted
from the position taken at the outset. The current of our legisla-
tion for years has not only treated note issue as the subject of
chief interest, but has often proceeded on the theory that nothing
else need be considered ; and the debate, in Congress and out, has
run chiefly upon the greenback and the bank-note. This absorp-
tion of all interest by the inferior constituent of our credit currency
is easily explained. Besides the apparent ease of legislating upon
note issues and the obvious difficulty of legislation upon deposits,
the notes were, in the earlier decades of our history, the more
important of the two. The comparative sparseness of population
and the imperfect development of the banking habit, in a new
and more slowly advancing country and in a less advanced age
than the present, created an early preference for the currency
which passes from hand to hand, and discouraged the use of that
which implies a resort to the bank. Even in the abnormal years
1809 and 181 1, when all business was stagnant as the result of the
embargo and subsequent non-intercourse, the note circulation of
the Bank of the United States was little below its debt to indi-
vidual depositors, as shown by the only statements of that institu-
tion ever given to Congress ; and, in the accounts even of the best
developed state banks of that date, the notes have clearly the first
place. The figures collected by Gallatin for 1820 and 1829 show
the same preponderance of note circulation. The returns collected
by the Treasury for many years, under the resolution of July, 1832,

1 Sec his report to the Senate (March 3, 1809), in " State Papers, Finance," ii. 351 ;
and his essay on the " Currency and Banking System," " Writings," iii. 267, 268.



DEPOSITS AS CURRENCY



175



show that it was not until 1855 that the deposits of the banks
taken in the aggregate rose above their circulation. Even under
such special circumstances as those of Massachusetts, the notes
continued to be the more important element until 1858, with the
exception of an irregular period from 1806 to 1823, and two or
three scattered years of exceptional conditions.^

And not only were the notes practically the more important
during these years, but events riveted the attention of the public
upon them. The suspension of specie payments at the close of the
second war with Great Britain, the history of the second Bank of
the United States and the struggle for its recharter, and the hard-
money movement which finally led to the independent treasury
system, all tended to keep the notes in the foreground, and to give
the impression that banking is synonymous with note issue, as the
old acts of Parliament treated it. The long-continued suspension
of 1 86 1 and the later controversies, turning primarily on the ques-
tions raised by the greenbacks, but involving the bank-notes, have
easily and naturally followed the same line.

Our experience resembles that of other countries in this respect.
Even in England, where modern deposit banking had its earliest
development and has reached its highest point, and where for more
than forty years legislation has set the note circulation apart in
such a way as to bring into the strongest possible relief the cur-
rency function of deposits, there is the same trouble in realizing a
patent fact, and, if we may trust Bagehot, from the same cause : —

Probably up to 1830 in England, or thereabouts, the main profit of banks was
derived from the circulation ; and for many years after that the deposits were
treated as very minor matters, and the whole of so-called banking discussion
turned on questions of circulation. We are still living in the debris of that con-
troversy ; for, as I have so often said, people can hardly think of the structure of
Lombard Street except with reference to the paper currency and to the act of
1844, which regulates it now.'^

Even a writer usually so much in sympathy with the practical
movement of the times as Jevons, in his " Money and the Mecha-
nism of Exchange," shows a singular inability to free himself from
the old notion that money and bank-notes are nearly all that need

1 See Gallatin, ''Writings," iii. 291, 296; and Report of the Comptroller of the
Currency, 1876, pp. 38-46, and Appendix.
- " Lombard Street," p. 85.



176 ESSAYS

be dealt with in treating of currency. The real importance, how-
ever, of the neglected element is shown by the pubHshed returns.
At the close of 1886 the total note issue of the United Kingdom,
including that of the Banks of England and Ireland and of all
private banks and joint-stock banks, was slightly over ;^50,ooo,ooo.i
At nearly the same date the deposit accounts of the joint-stock
banks of the kingdom, nearly all shown by published accounts,
amounted to ^446,800,000, and the "other deposits " of the Bank
of England to ^29,000,000 : so that, with allowance for private
banks and others for which estimates only can be had, it is prob-
able that there was an aggregate of ^560,000,000 to ;!^570,ooo,ooo.2
The chief expansible element of the currency, on which the growth
of English domestic trade and the adjustment of a constantly
swelHng mass of transactions have mainly depended, has been this
vast system of transferable credits, which still waits for its due
share of attention in economic discussion.

England is still cumbered by the debris of the old controversies
over note issue, but the continental countries are still in the heat of
controversy itself. The question as to the close monopoly held by
the Bank of France and the monopoly held by groups of banks in
Germany and Italy, together with the imperfect development of
what we have called the banking habit, has curiously narrowed
all current discussion as to " banks of issue," and has made ques-
tions of banking seem to turn upon the kind of evidence by which
the existence of similar debts may happen to be certified. The
whole continent is, in fact, in much the same stage as England and
the United States before 1830 as regards practical methods. The
** account current " holds its place in the statements of the conti-
nental banks, but the place is not an important one. The check has
helped to introduce the clearing-house ; but progress is slow, and
the scale of operations — while it shows a gain of convenience for
the banks concerned — does not indicate the use of the machinery
as a vital part of the circulating system of a country. Continental
writers, therefore, have naturally done even less than English
toward setting the deposit and check system in its true light.^

'^ Journal of Statistical Society, March, 1887, pp. 251, 252.
2 See Economist, May 21, 1887.

' Courtois, who recognizes with tolerable ilistinctness the similarity between the
issue of notes and the opening of a deposit account, makes the naive remark : " On a



DEPOSITS AS CURRENCY I//

In making the inquiry as to the share taken by deposits in
the active circulation of the United States, we happily have a good
source of information in the reports of the Comptroller of the
Currency. These reports give, with precision, five times a year
the circulation and deposits of all the national banks ; and from
these statements a sufficiently fair average for any year or any six



Online LibraryCharles Franklin DunbarEconomic essays → online text (page 19 of 40)