CHAPTER 1X
BANKS DIRECT CAPITAL INTO UNDESIRABLE CHANNELS
Banks of no assistance to farmers. — Their loans encourage speculation primarily
— Possibilities of discrimination in making loans.
In regarding banks as reservoirs into which idle surpluses of cash
flow, to be distributed to those who are in a position to employ
them profitably, it was usually implied, if not explicitly stated,
that the distribution was such as to benefit the community. If
banks were to be regarded as lending more than the funds they
receive from stockholders and depositors, the wisdom, or lack of
wisdom, with which their loans were made, became correspondingly
more important. Not all were ready to grant their confidence
in the judgment of the banker.
The late eighteenth-century critics found fault not so much
with the positive aspect of bank loans, as with the type of borrowing
that was denied. Thus, in the discussion of the Bank of North
America, a criticism that received no little attention — and it has
a familiar ring to-day — was the charge that banks are prejudicial
to the farmer, partly because their scenes of operation must
necessarily be in the city, and partly because their loans, it was
already recognized, are too short for agricultural purposes. The
pampering effect of colonial land banks and land-bank theory
may well have lent intensity to this plaint. It was accompanied
at times by a Physiocratic reverence for agriculture which
Ricardian economics has not completely dispelled even to this
day.
The opponents of the Bank of North America insisted that the
attractive dividends which banks offered tended to lead to their
usurping all investable funds, to the exclusion of all classes of
loans other than those made by the banks themselves. T his was
held to affect the farmer, and landowners in general, most adversely.!
Robert Morris, Pelatiah Webster, and Thomas Paine
1 M. Carey, Debates and Proceedings (1786), p. 25; Barton, True Interest of the
TTwited States (1786). reprinted in the American Museum, ii, 33. James Sullivan
