176 BANKING THEORIES IN UNITED STATES

tive of overtrading, and caused the volume of media of payment
to be adjusted to the requirements of the community.! The New
York bank commissioners warned, in their report of 1840, that
banks should “confine themselves strictly to paper of a business
character to be paid at maturity.” “It may be assumed as an
undeniable axiom in the business of banking,” they asserted three
years later, on returning to the subject of accommodation loans
of paper money, “that such issues are always excess; and that in
precise proportion to their amount they derange the just relations
of currency and trade.” 2
The argument for “business paper” did not go unchallenged.
Mathew Carey questioned the theory that loans against real
paper are liquid in the aggregate.* To bar accommodation loans
would be to deny bank credit to a large proportion of merchants,
since but a minor fraction of their business gives rise to discountable
 paper.! Gouge, in his earlier works, was inclined to doubt
that accommodation loans have any more mischievous an influence
 than real loans,® although, as we shall see, he later changed
his opinion. Carroll believed that accommodation paper is innocent
 of the evils commonly attributed to it. Loans against accommodation
 and real notes alike are harmful if made by a bank
extending credit in excess of its capital and time deposits.® The
Connecticut bank commissioners wrote in 1841 that the

! Tucker, Theory of Money and Banks (1839), pp. 166, 167. Note that it was not
a question of the superior qualities of the acceptance as compared with the promissory
 note with which Tucker and his contemporaries dealt, but of loans against
paper, whether buyer’s or seller’s, arising out of a commercial transfer of property,
as compared with accommodation loans bearing no evidence that they were to be
used to finance a transaction already concluded.
2 Report (1843), U. S. House of Representatives, 29th Congress, 1st Session,
Document 226, p. 274.
8 M. Carey, Desultory Reflections (1810), p. 15. Carey, however, meant by “real
notes’ simply paper arising out of a bona fide transfer of goods regardless of the
salability and rapidity of turnover of the latter. He used stocks and bonds as an
illustration.
* Carey, Letter to Bronson (1816), Essays on Banking, p. 131.
5 Gouge, Short History of Paper Money (1833), pp. 50, 51.
6 C. H. Carroll, “Financial Heresies,” Hunt's Merchants’ Magazine (Sept.,
1860), xiii, 317-310.