BANKS AND CRISES.*
Ma. CONANT chose one of the most interesting subjects that aan engage the attention of a practical economist when he set himself to the compilation of his history of banks of issue. The efforts of mankind to assist its productive eapa,city and economise the use of its store of bullion by means of banking currency are a most instructive study, and the failures, crises, and spasms of depression that were caused by the mistakes that were made while the principles on which such a currency should be based were being tentatively groped after, have still a lesson to teach to modern bank managers.
To English readers the subject is largely one of historical and academic interest, since in these islands banking has progressed beyond the note-issuing stage, and the bulk of our commercial payments are made in cheques. As Mr. Conant says : "The use of checks or other instruments of credit than bank-notes usually obtains the widest development where the modern commercial system of credit and of business has attained its highest form," and hence it is that in England the bank-note has ceased to be an important form of credit. But it is not so elsewhere, and since, as our historian points out, "the governing principle of banking is that mobility should be given to capital by the best means which will be accepted by the community, and bank-notes afford this means in new countries and those in which bank- ing is undeveloped," it is evident that any one who wishes to know the history and methods of the banking systems of other countries must study the story of the bank-note.
• A History of Modern Banks of Inns: with an Account of the Economic Crises of the Present Century. By Charles A. Conant. London : G. P. Putnam's Bons.
Mr. Conant's work will make the path of such an inquirer straight and easy. The subject, it need hardly be said, is an enormous one, and the five hundred and seventy-five closely printed pages of this book take a good deal of reading. But it shows all the lucidity and masterly grip of the matter in hand that distinguishes the work of the best American economists, and the writer's rare capacity for sticking to his subject and avoiding vain digressions has enabled him to present in a comparatively moderate compass a clear account of note-issuing banks from the dawn of their history, and to add a very interesting examination of recent financial crises.
A good deal of space is devoted to the history of the Bank of England. The early struggles of this august institution are always interesting to modern readers, and there is some- thing inexpressibly ludicrous about some of the shifts to which it was put in the days of its youth. Here is an amusing picture of the Bank's experiences during the South Sea crisis :—
"The South Sea stock was forced upward to a preposterous figure under the influence of the same fever of speculation which raged at about the same time in France over the Mississippi scheme, but capital was soon sunk in this and other unproductive enterprises, and the reaction wrecked the credit of the company, and came near wrecking that of the bank. The directors of the South Sea Company appealed to the bank for help, goldsmiths and private bankers began to fail, and a rim upon the bank itself began, which was only staved off by payments in light sixpences and shillings and by engaging men to fill up the line, draw money, and re-deposit it at another window. Fortunately the festival of Michaelmas, during which the bank was usually closed, intervened, and when it was over the public alarm had subsided."
If the bimetallists are in need of new arguments, now that their favourite one has been dispelled by the rise in wheat, they may find one in this fact, that the Bank of England once saved its credit by meeting demands in shillings and sixpences. Mr. Conant discusses at some length Peel's Act of 1844, by which a hard-and-fast line was drawn beyond which the Bank might not issue notes against securities, and, like most other economists, condemns it in theory, on the ground that a currency must above all things be elastic ; but observes that its practical result was beneficial, in that the note-issuing monopoly conferred by it upon the Bank forced the business community to a higher stage of banking develop- ment by compelling them to use cheques.
It need hardly be said, however, that the fullest and most interesting chapters of this book are those which deal with American banking, both because Mr. Conant here has his foot upon his native heath, and because a comprehension of the position of the United States currency is essential to those who wish to follow intelligently the vagaries of con- temporary politics in the Republic. It is interesting to note that from the very beginning of banking in the United States its career has been chequered by that fatal mixture of politics and finance which has been the source of so much evil on the other side of the Atlantic, and that jealousy of the foreign shareholder made its appearance very early in the story. In 1811 we find a proposal for the renewal of the charter of the Bank of the United States opposed bitterly owing to "the fact that about eighteen hundred of the two thousand five hundred shares were held abroad A type of this sort of opposition was the speech of Mr. Desha, of Kentucky, in the House on February 12th, 1811, in which he declared that this accumulation of foreign capital was one of the engines for overturning civil liberty, and that he had no doubt George III. was a principal stockholder, and would authorise his agent in this country to bid millions for a renewal of the charter." But it was not the suspicious presence of foreign shareholders on the register that killed this useful institution, but the exigencies of domestic politics. Mr. Conant says that "the Bank of the United States fell because so great an institution in a representative republic could not escape political entangle- ments and the suspicion of abuse of political power." We find that in 1829 President Jackson delivered a Message, which was "in the nature of a thunderbolt from a clear sky," pointing out that both the constitutionality and expediency of the law creating the Bank were well questioned, and that it had failed in the object of establishing a uniform and sound currency. The reason for Jackson's apparently unjustified attack upon the Bank was a complaint by a politician that "the manager of the branch at Portsmouth, New Hampshire, had shown partiality to the political opponents of General Jackson;" but Mr. Conant decides that, in truth, this branch manager "had excited hostility by his energetic contraction of discounts at Portsmouth, and his efforts to correct previous mismanagement." Truly a most extraordinary episode in bank- ing history,—an energetic branch manager displeases the local customers by instituting reform and curtailing over-indulgence in the matter of banking facilities; his action is taken up by political wirepullers, and they succeed in bringing about a Presidential thunder-clap, and ultimately the downfall of the Bank, which, had it survived, might have laid up a store of tradition and experience that would have saved the Republic from countless currency calamities.
Even more startling were some of the experiences of the States under the system of State banks. The following extracts sketch the instructive history of the Bank of the State of Alabama :—
"The purpose of the founders of the bank was to distribute the bank money as evenly as possible among the people of the
State The president and twelve directors were chosen by the General Assembly, and the choice of directors for the branch banks increased the number annually chosen to between sixty and seventy. Candidates for the Assembly were compelled to promise their supporters liberal loans in case of election, and to exact pledges from candidates for the directorship that the loans should be granted. One of the hotel-keepers of Tuscaboosa succeeded in securing an election as director in 1832, and his hotel swarmed with members of the Legislature and persons desiring to borrow money, who hoped to secure his support in the negotiation of loans. Four other hotel-keepers realised that they were conducting business under a heavy handicap, and secured their own election as directors in 1834. A director could not afford to refuse a discount requested by a member of the Legislature. . . . Those were 'flush times' in Alabama, and so complete was the intoxication of the people with the paper- money craze that the General Assembly on January 9, 1836, passed an Act abolishing direct taxation in the State and setting aside $100,000 of the bank money to defray the expenses of the State government. The crisis of 1837 led to an investigation of the discounts, and it was found that over $6,000,000 were worth- less."
We have only succeeded in glancing at some of the leading features of this very interesting and tersely written work, and must conclude by saying that it covers its very wide field adequately and thoroughly, and that its perusal will repay not only those who are practically concerned with banking, but all who wish to understand the monetary posi- tion of modern States, which is in most cases one of the best keys to their political condition.
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