86 BANKING THEORIES IN UNITED STATES

While we are indebted, then, to those who called a halt to the
discreditable notion that expansion of the circulating medium
through the issue of bank notes implies a direct creation of capital,
we must hold that they did not fully dispose of the matter by
saying that a mere depreciation of the monetary standard is involved.
 That not a few who held this view seem to have seen,
though dimly, a little further, has already been indicated. Thus
Condy Raguet maintained most staunchly that banks can but
lend the money which their stockholders and depositors could,
with somewhat greater trouble, lend directly, and that credit
expansion on the part of banks has no significance other than the
depreciation of the monetary standard. Yet he opened the way
to a more satisfactory analysis of bank credit when he suggested
that a bank note might be considered as “a draft in favor of the
borrower, given by a bank upon the public at large, to deliver
him a certain amount of capital of any description he may want.”’!
A rather important qualification, this, of his statement on a later
page of the same work that “nothing but capital, that is, something
 possessing an intrinsic value [such as metallic money], can
possibly be the means of setting industry in motion.” 2
So severe a critic of banking as was Gouge in his earlier writings
 ® contended at one moment that banks can but lend what
they have received, and at the next moment explained that the
expansion of bank credit gives the borrowers a larger purchasing
power, forcing prices upward through keener competitive bidding.
Industry and speculation are stimulated, and business prosperity
prevails. “So far it has the same effect as an increase of real
money — as an increase of real wealth”; and nothing could be
finer. in Gouge’s opinion, if prices could only continue to rise inaccepted

 at par in trade when local banks receive them only at a discount. Hence,
small surpluses of them will be kept at home, representing so much idle capital, instead
 of being deposited in banks to seek active employment. A National Bank or
No Bank (1842), p- 27-1
 Raguet, Currency and Banking (1839), p- 96. Cp. The Examiner and Journal of
Political Economy, ii, 339.
2 Raguet, 0p. cit., p. 124.
3 Gouge was one of the most thorough students of our early banking and also one
of its keenest and most influential critics. In later life he modified to some extent
his antipathy toward banks.