PRINCIPLES OF NOTE ISSUE 143
his £5 note wide circulation may yet engage in banking if small
enough notes be permitted. Small notes pass mainly into the
hands of the poor and any loss from their unsoundness is, accordingly,
more regrettable. And, finally, there will be a less complete
displacement of specie from circulation if no notes of small denomination
are allowed.!
Legislation restricting the denominations of notes dates practically
from the beginning of our bank laws,? and agitation of the
problem began quite as early.® It was pointed out by those who
would suppress small notes that they are more liable to be unsound
because they are received with less discrimination than
notes of higher value, thus lending themselves more readily to the
operations of the unscrupulous banker and of the counterfeiter; *
and that losses from bad notes, in the case of small denominations,
fall chiefly upon the poor.® The commonest argument was that
the prohibition of small notes would help to keep some specie in
circulation. Such notes remain in circulation longer, making it
easier for banks to maintain an excessive issue. They cause metallic
money to leave the channels of circulation and flow into the
vaults of the banks, whence, “being already collected, it is silently
and suddenly withdrawn; and before the public at large can have
any sufficient notice of its being gone, the banks are obliged to
stop their issue, and the paper previously in circulation is withdrawn
also, being returned to the banks by their debtors.” ?
Small notes, since they are held largely by the poor and less informed
people, increase the danger of an alarmist run upon the
banks for payment.8
Before 1850, five or ten dollars seem to have been the minimum
' Wealth of Nations, book II, chap. 2 (vol. i, pp. 305-307).
* See Dewey, State Banking Before the Civil War, pp. 63-73.
* [Witherspoon], Essay on Money (1786), pp. 49, 54, for example. Niles bitterly
lubbed the small notes of the times “filthy dowlass.” Register (1825), xxix, 177.
* Raguet, Report of 1821, Examiner, ii, 341; Lord, Principles (1829), p. 115.
5 Cooper, Lectures (1826), p. 147; Gallatin, Considerations (1831), p. 57; etc.
> [Witherspoon], Essay on Money (1786), p. 54. M’Cready, Review of Trade
(1820), p. 40; Appleton, Examination of the Banking System (1831), p. 47.
" Lord, Principles (1829), p- 113. See Hildreth’s answer in Banks, Banking, and
Paper Currencies (1840), pp. 103, 104.
8 Southern Review (Nov., 1831), viii, 25.
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