96 BANKING THEORIES IN UNITED STATES

necessary qualities.! Quite a different view was taken by the
committee on banking of the Pennsylvania Senate in 1821. Having
 observed that banks can but lend what they receive from
stockholders and depositors, the committee declared that it
weld be better were the latter to lend their money directly.
Were it not for the intervention of banks, the people’s capital
would naturally find its way into the most profitable channels.
Now, banks either merely assist what would be done even if they
were not in existence, or they divert capital from its most productive
 employment. The committee believed the latter to be
more probable.” That the views of its chairman, Condy Raguet,
were largely adopted in the report in this respect, as in most
others, is shown by Raguet’s later writings, in which he held that
banks, through their loans, place the unskilled and the reckless
on a par in purchasing power with the skilled and cautious.’
Gouge held the same opinion. “All Banking can do, is, to take
this loanable capital out of the hands of its owners, and place it
under the control of irresponsible corporations,” the directors of
which have little regard for any but their own personal interests
and those of their favorites. “Great facilities are thereby afforded
 to many men for borrowing, to whom no man ought to
lend. They are led by Bank loans to engage in business for which
they are not fitted by either nature or education.” * Combined
with the notion of poor judgment in lending, we have here the
charge of partiality. This criticism of banks was made from the

1 Hamilton, Report on a National Bank (1790), American State Papers,
Finance, i, 69, 70.
2 The report is to be found in the Examiner and Journal of Political Economy for
1833, ii, 337-343. Direct loans by the owners of the capital were also favored because
 they would permit of long loans on personal security, suitable to the financing
of permanent enterprises.
3 Raguet, ‘Principles of Banking,” Free Trade Advocate (1829), ii, 7. Adam
Smith thought that “a bank which lends money, perhaps, to five hundred different
people, the greater part of whom the directors can know very little about, is not
likely to be more judicious in the choice of its debtors, than a private person who
lends out his money among a few persons whom he knows, and in whose sober and
frugal conduct he thinks he has good reason to confide.” (Wealth of Nations, book
11, chap. 2, vol. i, p. 138.)
4 Gouge. Short History of Paper Money, etc. (1833), pPp- 36, 37, 45-