Page:A History of Banking in the United States.djvu/211

 remainder must be preserved by diminishing the paper part, so as to make the mixed mass more valuable in proportion. It is the capacity of diminishing the paper which protects it. Its value consists in its elasticity; its power of alternate expansion and contraction to suit the state of the community, and when it loses its flexibility it no longer contains within itself the means of its own defense and is full of hazard. In truth, the merit of a bank is nearly in proportion to the degree of this flexibility of its means." If a bank lends on long terms with renewals, its debts cannot be called in at once, while its notes are payable on demand. "This is the general error of banks who do not always discriminate between two things essentially distinct in banking, a debt ultimately secure and a debt certainly payable." If a bank which lends only on short business paper finds its coin called for, it lends less every day than what is paid in. "The operation proceeds thus: by issuing no new notes, but requiring something from your debtors, you oblige them to return to you the bank notes you lent them or their equivalents. This makes the bank notes scarcer; this makes them more valuable; this makes the goods for which they are generally exchanged less valuable, the debtor in his anxiety to get your notes being willing to sell his goods at a sacrifice; this brings down the prices of goods and makes everything cheaper. Then the remedy begins. The foreigner, finding that his goods must be sold so low, sends no more; the American importer, finding that he cannot make money by importing them, imports no more. The remainder of the coin of course is not sent out after new importations, but stays at home and finds better employment in purchasing these cheap articles, and when the foreigner hears of this state of things, he sends back the coin he took away. * * * We therefore get back our coin by diminishing our paper and it will stay until drawn away by another superabundance of paper. Such is the circle which a mixed currency is always describing. Like the power of steam, it is eminently useful in prudent hands, but of tremendous hazard when not controlled, and the practical wisdom in managing it lies in seizing the proper moment to expand and contract it, taking care, in working with such explosive materials, whenever there is doubt, to incline to the side of safety."

This is the art of the "complete banker" of the period. It describes the bankers in full possession of an "elastic currency," and manipulating it to the full limit of its capacity of vibration. How could any business firm, which relied on bank accommodations, traverse ten years of it?

From 1820 to 1826 the Bank did very little business in New England, New York, or the South and West. From 1826 to 1832 it did a very large business in the Mississippi Valley, but still little in New England or New York. After 1832 its business was more evenly distributed over the country.

In 1830, the Bank of the United States began to draw bills on England to be negotiated beyond the Cape of Good Hope, thus diminishing the export