Banking theories in the United States before 1860

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Monograph

Identifikator:: 1755492553

URN:: urn:nbn:de:zbw-retromon-133529

Document type:: Monograph

Author:: Miller, Harry Edward http://d-nb.info/gnd/1055250875

Title:: Banking theories in the United States before 1860

Place of publication:: Cambridge

Publisher:: Harvard University Press

Year of publication:: 1927

Scope:: XI, 240 S.

Digitisation:: 2021

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: Part IV. Banking policy and the business cycle

Collection:: Economics Books

BANKING POLICY [77 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 busi- ness. It cannot be doubted that there is a class of borrowers of limited busi- ness whose requests for bank favors are small and infrequent, and for whom some accommodation, by way of renewal, is proper.! The Massachusetts commissioners in 1839 also cautioned the banks against excessive refusal of accommodation loans. A few writers advanced a very significant criticism of the doc- trine that bank credit could have no harmful effect if issued only in response to the demands of commerce as evidenced by the offer of real paper for discount. Raguet, in a remarkable analysis of the causes of commercial crises, pointed out that a liberal loan policy, leading to rising prices, stimulates trade activity. A sellers’ market results, and “purchases are made for no other reason, than that the buyers suppose they can sell the next day at a profit.” Transfers of goods for speculative purpose become numerous. ‘Every new sale of commodities and property on credit creates new promissory notes, and these create a new de- mand for discounts.” And so the cycle goes cumulatively on, until bank reserves become too slight and the inevitable check upon expanding credit brings disaster.? C. F. Adams gave essentially the same explanation in discuss- ing the crisis of 1837. Expanding note issues enhance prices and, therefore, profits rise. Business activity increases, and the rising prices, taken together with more frequent transfers of the same article, occasion a larger volume of real paper, the discount of which renews the process.* And Gouge, who later modified his original hostility toward banks and practically accepted the doc- trine that no evil would result if discounting were but confined to real paper, retained sufficient of his earlier bias to protest that he would still prefer to dispense with credit banks altogether. Just as trade could not be disturbed if carried on by barter of commod- ' Connecticut, Report of Bank Commissioners (1841), in U. S. House of Repre- sentatives, 29th Congress, 1st Session, Document 226, p. 210. * Raguet, “Principles of Banking,” Free Trade Advocate (1829), ii, 7. Raguet gave a similar account in Currency and Banking (18309), pp. 134-137. 8 C. F. Adams, Reflections, etc. (1837), pp. 9-12.

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