PRINCIPLES OF NOTE ISSUE 145 
their notes.! And Smith’s argument that less specie would be 
expelled from the country if none but large notes were authorized, 
was inconsistent with his other doctrine that the issue of paper 
money is advantageous because it displaces a costly currency 
with an inexpensive one.” It is the fears of depositors, rather than 
of note-holders, that tend to produce runs;? and of the note- 
holders, those having the larger denominations present their 
claims first, as evidenced by the greater rapidity with which 
large notes return from circulation. Replacing the small notes 
in circulation with gold and silver coins would accomplish no 
improvement, since the banks could gain possession of that metal- 
lic money for their reserves only by contracting their loans, and 
the country would suffer equally from the withdrawal of a certain 
quantity of media of payment, whether in the form of notes or of 
coins.® 
H. C. Carey disposed of the issue with accustomed ease. 
Laissez faire is a maxim as applicable in banking as elsewhere. 
““One-dollar notes will not be used unless the benefit derived from 
them exceed the cost of furnishing them, and if it do so, their use 
's beneficial to the whole community.’’ ® Colwell, consistently 
with his minimizing of the importance of specie, gave little weight 
to the argument that small notes should be prohibited to in- 
! Hildreth, Banks, Banking, and Paper Currencies (1840), pp. 183, 184. 
? Ibid., p. 187. Smith, it should be said, also stated that commerce and industry 
are less secure when “suspended upon the Daedalian wings of paper money,” than 
when they travel upon the solid ground of gold and silver. Wealth of Nations, 
book II, chap. 2 (vol. i, p. 304). 
® Hildreth, op. cit., p. 18s. 
4 Ibid., p. 192. 
® Ibid., p. 189. Barnard urged a similar point: “If you present a five dollar bill 
at the counter of a bank for coin, you do little to facilitate the transaction by having 
five dollars of silver already in your pocket.” Speeches (1838), PP- 15, 26. It must 
be remembered, however, that the withdrawal of gold from bank reserves requires, 
prima facie, a contraction of the media of payment in proportion to the number of 
paper units based upon each unit of reserve, and that decreasing the relative use of 
fiduciary currency would lessen this tendency to magnify the influence of specie 
exports. Or, from Barnard’s point of view, a bank would not need to contract its 
loans to a like extent if its debtors made repayment in larger measure with metallic 
money. 
¢ H. C. Carey, The Credit System, etc. (1838), p. 117; Cp. Letlers to the President 
1857), p. 15.