IQ0 BANKING THEORIES IN UNITED STATES

RE
Rl ONY

Willard Phillips explained in 1819.! Everyone depends more or
less upon the ability and punctuality of his debtors for the means
of meeting his own engagements, with the result that their failure
may occasion his own. Distress and insolvency thus tend to
spread cumulatively. Rae, also, regarded this feature of the use
of credit as of prime importance.?
Finally, some emphasized the fact that the use of credit instruments
 in normal times furnishes a substitute for money, so
that, when in troublous times cash payments are insisted upon in
lieu of credit formerly extended, the financial stringency becomes
all the more acute.?
Most of those who laid stress on the credit system in seeking
the origin of crises made this but part of a more complete explanation.
 Edward Everett, however, went further. “If I mistake
not,” he wrote, ‘the distress of the year 1857 was produced by
an enemy more formidable than hostile armies; hy a pestilence
more deadly than fever or plague; by a visitation more destructive
 than the frosts of Spring or the blights of Summer. I believe
that it was caused by a mountain load of Debt.” * The payment
of interest upon the huge amount of indebtedness — personal,
business, and public — had proved too great a strain. The
remedy was simple — keep out of debt.®
Changes in the state of confidence in the business world were
usually associated with the credit system in explaining crises.
Thus we read that ‘‘a mercantile mania” followed the return of
peace after the War of 1812, preparing the way for the distress of
1819.5 Phillips described banks as “barometers to show the state
of the commercial atmosphere,” for “business will have its floods
1 Phillips, “Review of Seybert’s Statistical Annals,” North American Review
(1819), ix, 229. Cp. Mathew Carey, Essays on Banking (1816), p. 67.
2 Rae, New Principles, etc. (1834), as edited by Mixter, under the title, Sociological
 Theory of Capital (1905), pp. 304, 305. Cp. Gouge, Short History of Paper
Money (1833), pp. 25, 26.
3 Gallatin, Considerations on the Currency and Banking of the United States (1831),
PP. 34, 35; Anon., “The Public Distress,” American Quarterly Review (1834), XV,
510-514, cic.
4 Edward Everett, The Mount Vernon Papers (1859), p. 167.
8 1bid.,p. 177.
6 John M’Cready, Review of Trade (1820), p. 20.