MODERATING THE CYCLE 211
Commissioners of Maine in their report of 1844 warned of the
dangers of an adverse balance of trade, asserting that when a
considerable drain of specie results, the banks “must cease to
discount,” although the commissioners realized that a panic in
the money market would result.! And Francis Bowen, after ex-
plaining the necessity of curtailing loans in a crisis, added that
“the bolder policy, sometimes adopted, of increasing rather than
diminishing the discounts at such a crisis, in order to lessen the
distress, and thereby stop the panic, resembles the plan of crowd-
ing all sail on a ship in a storm, in the hope thereby of keeping
off a lee-shore, though the increased strain thus put upon the
vessel may leave her a dismantled hulk on the waters.” *
If no great progress was made in formulating rules for a general
credit policy, more satisfactory advance was achieved with regard
to criticism of certain specific practices in the banking system
that were peculiarly liable to aggravate crises. Especially was
this true after the revulsion of 1857. Criticism was now focused,
as never before, upon the banks in New York, into which the
surplus reserves of the country already tended to flow. As early
as 1837 the New York bank commissioners, after explaining how
the Scotch banks kept their reserves on deposit in London, re-
marked: “Their relative situation we suppose to be very similar
to that of our Western banks to New York.” 3 In the eighteen-
forties and fifties ““ Eastern deposites’” seem to have been an item
of considerable magnitude in the balance statements of the banks
of at least several of the Western states, while the bank commis-
sioners of the New England states were taking cognizance, from
time to time, of the practice of their banks of keeping a secondary
reserve on deposit at New York and Boston. The Connecticut
commissioners commented upon the matter in 1841 and re-
peatedly thereafter, cautioning in 1848 that, “although a bank
may have a large amount of what is denominated specie funds,
1 U. S. House of Representatives, 29th Congress, 1st Session, Document 226,
. 36.
’ : Bowen, Principles of Political Economy (1856), p. 347.
3 Report of January 27, 1837, in U. S. House of Representatives, 25th Congress,
2d Session, Document 79, p. 238.
