INTRODUCTION

CHARACTERISTICS OF THE PERIOD — RELATIVITY OF ITS
BANKING THEORIES AND PRACTICES

THE theories of banking that prevailed in the United States
before 1820 were, in general, wretchedly primitive. Colonial
discussions had dealt largely with paper money emitted by the
government, or by the land banks that we have learned to associate
 with the period. Such tracts as considered paper money
redeemable in specie referred almost invariably to post notes.
Accordingly, what progress was made in the theory of banking
had little bearing upon more than the most elementary principles
 of commercial banking of the modern type.
Not until about 1820 does the knowledge of banking principles
in this country seem to have reached a degree of development
comparable to that found in the Wealth of Nations. Smith’s doctrine
 that the use of paper money effects an economy by releasing
metallic money for export was, apparently, scarcely known much
before 1810. A decade later, exports of metallic money were still
being explained in terms of Smith’s vague overflow of the ““channels
 of circulation,” in apparent obliviousness of the work, at the
beginning of the century, of Boyd and Thornton and later English
writers in substituting an explanation in terms of the definite and
clear-cut mechanism of rising prices, diminishing exports, and increasing
 imports.! The notion that a certain fixed quantity of
currency is necessary to circulate the annual product of each
country’s industry underlay the views of almost all the writers.
Those who, in common with Douglass and others of the preceding

L Precursors of Smith, notably Hume and Harris, had explained the distribution
of the precious metals in terms of the quantity theory, but Smith had not adopted
their ideas. Thornton and the other immediate predecessors of Ricardo had brought
the doctrine anew to the general attention. See Hollander, “Development of the
Theory of Money from Smith to Ricardo,” Quarterly Journal of Economics, XXv,
420—470.