Page:A History of Banking in the United States.djvu/61

 In 1814 the New England Bank adopted the plan of receiving the bills of all the banks in New England at a discount varying according to distance, but in no case exceeding one per cent., and on condition of a sufficient permanent deposit being maintained, they were returned to the banks at the price at which they were bought. The bills of banks which did not keep a deposit were sent home for payment. The other banks competed with the New England Bank for these deposits, and thus diminished the discount.

In the story of the early Massachusetts banks we see the first development of the antagonism between commercial banking and agricultural banking. In the larger towns of that State city industries were beginning. They could support banks of discount and deposit with short paper. Persons who were fitting out ships or tilling land could not use ninety day paper. Loans to farmers always had the character of accommodation paper with renewals, although a mortgage would give ultimate security. The Bank Commissioners of Connecticut, in 1841, expressed the opinion that "the practice of some banks to confine their discounts exclusively to business paper or paper that is subject to no renewal, is a great innovation, and denies to a worthy class of borrowers those facilities and advantages to which they are entitled in common with those of more various and extended business." True bank note circulation could not be maintained by the country banks, but if they could get a distant circulation they could live on an abuse of issue-banking. The jealousy of the rural population in respect to banks led them to insist on inserting in bank charters a provision that a certain fraction of the capital should be loaned on mortgage of land. We shall presently see the antagonism, which here arose between parts of the same State, marking the relations of parts of the Union.

We observe that a bank was conceived of primarily as a means of creating wealth. Every one wanted a share in its beneficent operation. If the Legislature created it, all the people ought to participate in its blessings. To do justice to this notion we must not forget that the banks then existing had been organized very generally on stock notes, and if they succeeded, were mines of wealth to their owners. A generation later, as we shall see below, people came to say that banks were a curse to all agricultural interests and persons. We shall see that, in the history of banks in this country it has been a question of paramount importance: What is the utility of banks to farmers and how is it to be realized? From the standpoint of commercial banking with ninety day paper, a loan to a farmer for a year with a stipulated renewal was bad banking, but, on the other hand, such a loan could never answer the purpose of a farmer. Repayment within a year is, for him, vexatious and impracticable. He needs loans for years or for an unlimited period. Never until modern institutions of credit suited to the necessities of the case grew up did this antagonism of facts, interests, and institutions pass away.

The incident of the Farmers' Exchange Bank led the Legislature of Rhode Island to pass a law, fining any officer of a bank $50 for every check, note,