178 BANKING THEORIES IN UNITED STATES
ities, so it could not become disordered if conducted by means of
bank notes issued in the discount of business paper originating in
completed commercial exchanges. The bank currency would, in
that case, be ‘the exact representative of the value of those
commodities.” Accommodation loans, for the purchase of real
estate or the payment of taxes, and like purposes, introduce disturbances.!
Yet in one essay Gouge recognized, practically in the
language of Raguet and Adams, although not so clearly, the
tendency of business dealings themselves to become unwholesomely
inflated.
One more significant writer remains to be examined. Consistently
with his general thesis that bank notes should be issued
in accordance with the so-called “banking principle,” their quantity
being regulated simply by the requirements of business,
Stephen Colwell was a staunch advocate of loans against real
paper. Such loans cause the volume of bank credit to vary in
harmony with that of trade itself, and are self-liquidating.® So
completely did Colwell accept this theory, that he regarded the
restraint of convertibility into specie on demand as both unnecessary
and undesirable.! Yet he was too acute a thinker to accept
the doctrine unqualifiedly. In one pregnant passage he granted
that bills of exchange and promissory notes representing genuine
commercial transactions may themselves be undesirably multiplied.
In seasons of confidence, when men’s notes are freely received for the
commodities of trade, the first step towards the evils of undue expansion is
a great issue of bills of exchange and promissory notes of merchants and
dealers, who thus multiply their engagements, without immediately increasing
the quantity of goods in the market; and these bills and notes being,
for the convenience of the holders, converted into banknotes, an increase of
circulation takes place, which is called an expansion.’
1 Gouge, “Principles of Commercial Banking,” Journal of Banking (1841), pp.
37, 69, 82; and “Commercial Banking,” Hunt's Merchants’ Magazine (1843), viii,
313.
2 Idem, “Free Banking,” Journal of Banking (1842), p. 388.
3 Ways and Means of Payment (1859), pp. 450, 451.
* Supra, Chapter XII.
5 Colwell, 0p. cit., p. 534.
