BANKING POLICY

179

Nor did he make the point any less damaging to the principle at
issue by his contention that the expansion is more properly to be
described as one of individual credit than of bank credit, and that
the fault lies rather with speculation than with excessive bank
accommodation. He conceded much force to the objection that
the “high confidence which enables the parties to make such large
purchases on the strength of their own bills or notes, would not
exist, but for the facility of converting them into bank paper,”
but rested content with the argument that the primary responsibility
 is that of the business man and the speculator.
That the matter of founding our banking operations upon short
real paper is by no means settled, every reader of our recent
literature realizes. The dogma that banking based upon paper
representing completed commercial transactions is largely selfregulative
 underlies, in no small measure, the Federal Reserve
Act and the regulations and policies of the Federal Reserve
Board. The accepted bill of exchange has received a more complete
 identification with the proper type of loan than it had in the
earlier discussion, but the problems at issue are essentially the
same. It seems to be quite generally agreed that loans against
paper resting upon particular transactions, already consummated,
are more conducive to sound banking. But upon the doctrine
that such advances automatically conform to the just needs of
trade, the experience of recurrent business cycles has shed damaging
 light. We have found that its validity was gravely questioned
 by a few thoughtful men nearly a century ago.

In the latter-day controversy, it has already been suggested,
considerable emphasis has been placed upon the mere form of
commercial paper, the bill of exchange falling heir to the supposed
virtues of real paper, while the promissory note has been criticized
in part because of its liability to be in essence accommodation
paper. In fact, the dispute has become quite specifically one
concerning the desirability of substituting sellers’ paper for the
buyers’ paper that has been prevailing in our domestic trade.
Before the Civil War bills of exchange played a large part in
financing our domestic trade. Abundant evidence of this is found