174 BANKING THEORIES IN UNITED STATES

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fitted by borrowing even if special machinery were set up by the
government for the purpose of making loans to them, because of
the “lowness of agricultural profits, and the want of that habit
of punctuality so carefully observed and exacted in mercantile
transactions.” ! C. F. Adams, Gallatin, and Colwell, were other
prominent writers who laid great stress on the importance of preserving
 an orderly stream of maturities by avoiding loans for long
intervals and by refusing to make advances with the understanding
 that renewal would be granted.
A number of writers made an exception of the investment of the
bank’s own capital. McVickar and Lord favored its permanent
investment in government bonds and in mortgages, on the theory
that a bank should utilize only its credit in commercial loans, a
steady procession of maturing loans preserving the bank’s assets
in a liquid condition. The capital of a bank has the sole function
of affording added security to creditors. This purpose is best
served by withholding the capital from the risks of commercial
loans, placing it instead in some high-grade investments, such as
government stocks and mortgages.? Gallatin, Raguet, and Gouge
maintained similar views.! Usually the Bank of England, with
all its capital represented by government debt, and the two Banks
of the United States, with three-quarters of their capitals paid in
in that form, were referred to as examples.
Charles Francis Adams, on the other hand, contended that the
necessity of keeping assets liquid applied with no less force to the
employment of a bank’s capital than to the use of its credit.
“The first duty of the bank which emits bills of credit, is to be

1 Cooper, Lectures (1826), p. 40.
2 C.F. Adams, Further Reflections, etc. (1837), pp. 9, 10; Gallatin, Suggestions”
(1841), Writings, iii, 376; Colwell, Ways and Means of Payment (1859), pp. 496-500,
 505.
3 McVickar, “Hinge on Banking” (1827), Financial Register, ii, 325-327; Lord,
Principles (1829), pp. 57-62. Both McVickar and Lord had also some confused
ideas that if a bank used but its credit in loans and discounts the needs of trade
would regulate the volume of circulation, whereas if capital were also used in
making commercial advances, excessive issue would result.
4 Gallatin, Considerations (1831), pp. 71, 40; Raguet, Financial Register (May 11,
1838), ii, 7, 8; Currency and Banking (1839), pp. 85-88; Gouge, Journal of Banking
(1841), p. 38; and Hunt's Merchants’ Magazine (1843), viii, 313.