BANKS INCREASE THE COUNTRY’S CAPITAL 35

their capital, they would perform an even greater service, upon
the same principle, by loaning to ten times the amount of their
capital, and, indeed, to any extent to which the finding of solvent
borrowers would permit.!
Condy Raguet, in a report as chairman of a committee of the
Pennsylvania Senate, disposed in similar fashion of the opinion,
“almost universally entertained,” that the issue of bank notes
increases the community’s capital. A bank note, or bank deposit,
is not in itself real capital. Nor does the issue of a promise to
pay that is acceptable as money make the latter more plentiful,
except to the borrower and during the interval in which prices
are rising to the new level indicated by the enlarged currency.
Raguet dilated upon the point in the many writings his prolific
pen has given us? Gallatin, in an essay that seems to have
served as a more or less authoritative statement of the sounder
views prevalent at the time, adopted the same position; * as did
Gouge, in a work no less influential than Gallatin’s, though far
less favorable toward banks.

Writers who regarded the inflation of the currency by means
of bank notes as an augmentation of the country’s capital, could
hardly have failed to accept, occasionally, the somewhat more
deceptive fallacy that makes the rate of interest dependent upon
the supply of money. The notion, commonly held by the Mercantilists,
 that increasing the quantity of money reduces the rate
of interest, was used by many of the colonial writers as an argument
 for the issue of paper money. One of them based upon it
the interesting suggestion that the value of money be stabilized
L Elements, ii, 132.
2 The Examiner and Journal of Political Economy (18353), ii, 337-339, contains
the report, which was made in 1821.
3 “Principles of Banking,” Free Trade Advocate (July 4, 1829), ii, 7; Currency and
Banking (1839), pp. 95, 96.
4 Gallatin, Considerations on the Currency and Banking of the United States (1831),

Pp. 20-23.
5 Gouge, Short History of Paper Money and Banking in the United States (1833),
p- 45. Cp., for further examples, Amasa Walker, The Nature and Uses of Money
and Mixed Currency (1857), pp- 41, 42; C. H. Carroll, “Specie Prices and Results,”
Hunt's Merchants’ Magazine (October, 1857), p. 429.