MODERATING THE CYCLE 213 
Edmund Dwight, in 1851, had called attention to the distinct 
characteristics of the deposits of the New York banks, in so far 
as they consisted of balances due to interior banks. The creditor 
banks, Dwight observed, regarded these deposits as “specie 
funds,” relying upon them largely for means of meeting unusual 
demands for specie. Hence it behooved the New York banks to 
keep an extra large reserve ratio, as do the central banks of 
Europe.! Dwight now reiterated his ideas after the catastrophe 
of 1857. Our panics, he declared, are not accidental; they are due 
to the inherent weaknesses of our banking system. 
The law of interest is always urging towards the last point of expansion, 
and that of necessity and safety hurrying them [the banks] back to contrac- 
tion. The limit of expansion is not fixed by statute, nor by any rule of sound 
banking. The only recognized limit is danger — immediate and pressing 
danger — and the mode of contraction, therefore, suits the cause; it is run 
for life, and its motto is sauve qui peut.2 
Could the New York banks be induced to keep but eight or ten 
millions of dollars of additional cash, much distress would be 
avoided. For lack of that surplus lending power the nerve-center 
of our financial system ceased to function when most sorely 
the banks for meeting the needs of their local borrowers. (Connecticut Bank 
Commission, Report, 1848, in U. S. House of Representatives, 3oth Congress, 1st 
Session, Document 77, p. 179; New Hampshire Bank Commission, Report [1849], 
p. 15). Unfortunately the New York money market was not well organized to give 
a good account of itself in performing these functions as a financial center. 
The Connecticut commissioners in 1844 also referred to the unwholesome effect 
that the accumulation, in times of ease, of outside funds in New York might have 
in fostering excessive speculation. (Report, 1844, U. S. House of Representatives, 
209th Congress, 1st Session, Document 226, p. 234.) 
A curious commentary on New York’s financial position, rather fortuitously 
prophetic, was contained in the reflections of the New York Herald on the crisis of 
1857. Each crisis, this journal observed, had resulted in strengthening New York’s 
position as the country’s financial center. “The late struggle of 1857 was in a great 
degree between New York and London, and has terminated to the advantage of the 
former city. And the time must ere long arrive, when New York, and not London, 
will become the financial centre, not only of the New World, but also to a great 
extent, of the Old World.” (Quoted by D. M. Evans, in History of the Commercial 
Crisis, 1851-58 (London, 1859), p. 114. 
t Dwight, “The Progressing Expansion,” Hunt's Merchants’ Magazine (1851), 
XXV, 152. 
? Idem, “The Financial Revulsion and the New York Banking System,” Hunt's 
Merchants’ Magazine (Feb., 1858), xxxviii, 158.