BANKS CAUSE PRICE FLUCTUATIONS 63 
by the experience of all banks,” the president of the second Bank 
of the United States wrote, ‘‘that their operations must neces- 
sarily be regulated by those of the banks in their immediate 
vicinity; otherwise those which are the most prudent or parsi- 
monious, will become the creditors of those who are the most 
liberal or extravagant; the consequence of which is an immediate 
specie responsibility.” ! That no check on an inflation by all the 
banks in common was involved, was equally clear. Many re- 
garded increase in the number of banks as a boon, in that it 
multiplied the agencies that found it to their interest to send 
home the notes of each bank. No one seems to have recognized 
that diffusion of the power of issuing notes made the securing of 
their redemption so difficult, and the efforts of any one bank so 
insignificant, as to take away the incentive of competition in 
returning the notes of rival institutions. 
Those who denied that bank notes cause price disorders, we 
have suggested, did so not only on the ground that convertibility 
prevents overissue, but also in the belief that the manner in 
which the notes are put into circulation obviates any such possi- 
bility. “There is no more danger of the nation’s being over- 
stocked with bank credits,” thought Dr. Eric Bollman, “than 
there is of its being overstocked with loaves of bread.... A 
bank, therefore, can make no mistake as long as it discounts 
good paper, and this it will do for its own sake.” 2 That the de- 
mand for circulating medium is limited, and in turn limits the 
supply, was his opinion. 
Raymond, on the other hand, thought that “so long as banks 
are permitted to manufacture as much money as they can loan 
with safety, there will be an excessive issue of paper currency, 
unless some further restraint than that of paying specie for their 
* William Jones, “Letter to the Secretary of the Treasury’ (November 11, 1818), 
American State Papers, Finance, iii, 289. Oliver Wolcott, Hamilton’s successor as 
Secretary of the Treasury, observed that the banking systems of the several coun- 
tries must tend to expand and contract pari passu, so that any strenuous deflation 
by the Bank of England affects us and may cause a depression here. Remarks on the 
State of the Currency, etc. (1820), pp. 4, 5, 32. 
* Bollman, Paragraphs on Banks (1810), p. 59.