BANKS DIRECT CAPITAL

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LC

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Speculation was but little understood at the time, and the
boundary line between unwholesome speculation in commodities
and their normal marketing was a perplexing one. There are
limits within which speculation is doubtless legitimate and honorable,
 Colwell thought at the close of our period, but it is too
tempting a field not to be occupied by many “actuated by fraud,
by a greedy spirit, by rashness, by the spirit of competition, and
by sheer infatuation.” “The tendency of speculation,” he added,
less acceptably, “is undoubtedly to widen the range of fluctuations,
 not only in the prices of the articles operated upon, but
also of many others.” Prices may be enhanced “for many years.”!
Speculation was usually taken to imply little more than an enlarged
 scale of activity such as attended periods of prosperity and
rising prices.>

Bank loans were criticized not only on the basis of objections
to the classes of undertakings for which they were most readily
available, but also with reference to the selection of individual
borrowers. Those who regarded banks as the go-between of borrower
 and lender, usually explained that they remedy the defect
that individuals with surplus cash to lend would not ordinarily
know whom to trust. Not all were willing to concede the banks
greater ability in determining this. Hamilton, who overlooked
but few of the current objections and arguments in favor of banks,
took the orthodox position that they would seek, in their own
interests, to lend to those who would use the funds prudently and
well; and that bankers were best able to determine who had the

! Colwell, Ways and Means of Payment (1850), pp. 532, 533.
* Antipathy toward speculation is, of course, reflected in the Federal Reserve
Act, with its discrimination against the collateral call loan and its purpose to lessen
the financial dominance of New York. To some extent this was intensified by the
undoubted financial evils associated with the call-loan market as it developed under
the peculiar circumstances of the National Banking system. The local banks of
France appeal to prejudice against speculation in their attempt to cope with the
encroachments of the great credit companies. Patronage of the local institutions is
urged in order to avoid centralization of capital in Paris for use in encouraging speculation
 rather than commerce and industry. (See Liesse, Evolution of Credit and
Banks in France, p. 220.) The early writers had commodity speculation in mind,
however; the present-day aversion is rather to stock speculation.