36 BANKING THEORIES IN UNITED STATES
by so regulating the issue of bills of credit as to keep the rate of
interest at six per cent.!
Hamilton was one of the victims of this economic heresy. He
approached the problem in attempting to combat the contention
of some writers 2 that banks tend to raise the rate of interest because
 of their insistence upon punctual repayment of loans. Hamilton
 conceded that this requirement by banks sometimes obliges
““ those who have adventured beyond both their capital and their
credit, to procure money, at any price, and, consequently, to
resort to usurers for aid.” But, by inculcating habits of punctuality,
 banks reduce the number of occasions upon which traders
are forced to resort to usurers due to the failure of their creditors
to make prompt payments.? Moreover, he added,

If it be evident, that usury will prevail or diminish, according to the proportion
 which the demand for borrowing bears to the quantity of money at
market to be lent; whatever has the property just mentioned [of increasing
the quantity of media of payment], whether it be in the shape of paper or
coin, by contributing to render the supply more equal to the demand, must
tend to counteract the progress of usury.

The view that banks reduce the interest rate by increasing the
quantity of currency was in harmony, of course, with Hamilton’s
belief that capital is created in the process of inflating the circulating
 medium.
For some time we continue to meet with such statements as
that, “Increasing the quantity of money to be lent, without a
similar increase in the quantity to be borrowed, must necessarily
reduce the interest.” ® Gallatin, however, after stating that bank

1 [Hugh Vance], “Inquiry into the Nature and Uses of Money” (1740), in
Reprints, iii, 402, 420.
2 See Gouverneur Morris, Address on the Bank of North America (1785),
Sparks’s Life of Morris, iii, 440.
3 Hamilton, Report on a National Bank (1790), American State Papers, Finance,
i, 609.
4 Ibid.
5 Davies, Bank Torpedo (1810), p. 35. For further illustrations of the opinion
that banks reduce the interest rate by making money more plentiful, see Suggestions
on the President's Message (1815), p. 4; Blodget, Economica (1806), p. 161. An
early example is to be found in the paper which Benjamin Franklin contributed, as
a young man, to the cause of paper currency. See “A Modest Inquiry into the
Nature and Necessity of a Paper Currency” (1720). in the Works of Franklin, ii, 272.