Page:A History of Banking in the United States.djvu/281

 a strong conviction was felt by the best students of finance that the rules by which it was governed were not adequate or correct. Accordingly, when the bank charter was renewed, in 1832, power was reserved to modify it after 1840. The general principle of management for the Bank, as it was stated to the Committee of 1832, by Horsley Palmer, was, when the exchange was at par, "to invest and retain in securities bearing interest a given proportion of the deposits, and the value received for the notes in circulation, the remainder being held in coin and bullion." The proportion was two-thirds securities and one-third bullion. In the flood of pamphlets which was produced in the discussion of the following years, this rule was shown to be nugatory. Many interesting and important points in the doctrines of banking and currency were developed in this discussion, and the doctrines were established upon which the Bank act of 1844 was constructed. Among the most important of these doctrines for our present purpose, we may notice the following: An inflation or contraction of the currency does not have that prompt and direct effect upon prices and enterprise which they are popularly supposed to have. We may turn, therefore, with greater confidence to the great extension of production, and the great changes in the industrial organization as real causes.

The increased power in production, with the attendant movements of commerce, stimulated enterprise, or as it is commonly called, speculation. This new impulse was felt in every direction. It constituted a great demand for capital, and it went on inevitably to produce aberrations and extravagances. It also produced a new demand for raw materials, which in the next stage took the shape of new enterprises in opening land and mines. The most important of all these effects for the United States was a new demand for cotton. Cotton was at that time the commanding article in the foreign trade of the United States. In value it constituted from 35 to 55 per cent. of the exports of the United States, and therefore might be regarded as the chief thing with which we paid for our imports. It was a natural monopoly. Its value rose steadily in spite of a very rapid increase in production. Inasmuch as the facts in this connection will demand our attention frequently as we pursue the history of this period, the following statistics of the production, in million pounds, and of the annual average price, in cents, will be found useful for reference.