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kind. It is in connection with the power to issue notes in the nature of currency, that the other functions become valuable; and it is this last power which offers the chief inducement to every bank, and without which their charters as banks would never have been asked or accepted.
3. We will be enabled then to advance our argument by considering thirdly, the effect of a suspension of specie payments upon each of these great functions which the bank has undertaken to perform, and by ascertaining whether the trust confided to the bank has been abused or fulfilled in each or any of them.
And first, as to making discounts. A suspension of specie payment is a confession by the bank that specie is more valuable than its notes. Before a suspension specie is exchanged on demand for these notes. After the suspension they refuse to pay specie in exchange for their notes. An individual then who receives a discount from a bank in a state of suspension delivers to the bank his own note, which, by law, is payable in coin, and receives from the bank its notes in exchange, without any diminution for their depreciated state. Throughout the whole course of the suspension the banks paid out their notes upon discounts at precisely the same rates as though they were exchangeable for coin; and the individual who received them had at once to submit to a loss of from three to ten per cent. to convert them into a legal currency. This, according to the decision of the Supreme Court of the United States, was a usurious transaction, and a plain violation of their charters. See Gaither v. Farmers' Bank, 1 Peters, 41. Bank of the United States v. Owens, 2 Peters, 527.
The only measure of value which can be applied to money transactions is coin; and a party making a loan, and paying in depreciated paper, as though it were at par, actually receives, in addition to the legal interest, the difference between coin and the depreciated paper. Discounting in this manner by a suspended bank, therefore, not only violates its charter, but holds out the strongest inducement to the bank to continue such violation of the trust confided to them. If the bank be solvent, and capable of acting otherwise, it is a wilful perversion of the power entrusted to it, to make discounts for the accommodation of the public; and if the bank be insolvent, then it is a fraud upon the public to make discounts, or to continue to do any business, which increases its liabilities, and more especially where dividends are paid to the stockholders. In either case it comes clearly within the rule of forfeiture.
But, further, so completely is this public trust perverted by a suspension of specie payments, that what, under other circumstances, would be a public benefit, is converted into a nuisance. The admitted proximate cause of all suspensions is a redundant paper currency; and the obvious remedy is, to prune this redundancy; to reduce the over issues
to the legitimate standard; to stop new business; and diminish the old. In this state of things, if the bank make a discount, an addition is necessarily made to the already redundant issues; and new poison is thus sent forth into the body politic, through the very organ which was created to give life and health to its action.
Secondly, let us next proceed to consider the effect of a suspension of specie payments upon the objects contemplated in the function of receiving deposits.
By the law of the land, as established in The Bank of Kentucky v. Wister, 2 Peters, 318, every deposit is payable in gold and silver. But the first effect of a suspension, it is plain, must be the depreciation of bank notes below the standard of coin; and the individual, therefore, who is paid by the bank with depreciated notes, for a deposit, which he is entitled to receive in coin, is actually subjected to a loss of the difference in value between the notes and the coin; whilst the bank makes a profit of that difference at his expense.
It is said, that the individual is not bound to submit to the loss, but may, by an appeal to the laws, receive his payment in legal coin. This answer is mere mockery of a most disastrous condition, and, when examined, evinces still more strongly the necessity of public interference. By force of the charters of the banks themselves, and of the privileges which they enjoy, the business of the country becomes concentrated in them. All other currency disappears; and while these institutions exist, all the specie in the country becomes absorbed in their vaults. No one finds it an object to undertake discounts, or receive deposits; and the accumulation of capital, caused by the grant of the bank charters, in the banks themselves, drives every other competitor from the market. They thus become the sole channels, through which the circulation is carried on, and, in virtue of the public confidence, become possessed of all the circulating medium, either as depositaries, or as issuers. In this state of things, to propose to the individual, to leave with the bank his deposit, or to hold their notes until they are sued, is virtually to bid all business cease, and to paralyze every limb in the body politic. The bank has got the advantage, and the individual is compelled to submit to its terms. And this is the very case which calls most loudly for the intervention of public justice. For the State itself has been the innocent cause of the mischief, by creating such institutions, and giving them power to produce such a condition of things; and the State alone is able to cope with them. The individual, for the time, particularly amidst the confused and disastrous trials which accompany a suspension, is bound hand and foot, and must yield to the necessity of the case. Under these circumstances, it is a moral necessity which controls the depositor. The law is too slow to help him, and he is in fact so hemmed in by circumstances, as to be glad to get his deposit upon any terms.
But how stands the case between the bank and the public? Is this a discharge of the trust reposed in the bank? Is this a just exercise of the power confided to it, of providing for the country a proper place of deposit for their money? Is it not, in fact, a perversion of the end of the institution? And consider the effect during a state of suspension. Would any individual venture to deposit coin in a bank, which had published a declaration that it would no longer redeem its obligation in coin? As a place of deposit, then, the bank no longer exists; and the merchant is left suddenly to seek elsewhere, that safe place of deposit for his moneys, which the bank undertook to supply, as a consideration for its charter. If it be said, that the bank continues to receive notes on deposit, the answer is, that this is but a portion of its duty, and furnishes no excuse for the failure as to its other duty.
But even as to receiving notes on deposit, this is a fallacious defense. So long as there is some standard of value every one is able to proceed upon certainty. A note for one hundred dollars means one hundred silver dollars. But when that standard is rejected and a deposit is received by a bank of one hundred dollars in paper, according to what rate shall that deposit be paid out? The notes of the bank itself fluctuate from day to day. So also do the notes of other banks. In fact, they are no longer currency, but have become articles of commerce, and the depositor must now take the hazard of a speculation in which of these articles it may please the bank to return him his deposit. Is this the state of things which the public intended by granting the charter for a bank of deposit? Is this a fulfilment of the end of its institution? Is this a performance of the trust upon which the bank was created? Most assuredly it cannot be so regarded.
I come now, in the third place, to consider the last and most important end for which banks are created by public authority.
The Bank of South Carolina was chartered as far back as the year 1800, while the country was yet fully mindful of all those evils which had been inflicted upon it by a disordered currency. The extreme suffering which had been undergone from continental money, bills of credit and paper medium had opened the eyes of all to the great advantages of a sound currency. It had been found, after all trials, that none could be relied upon unless immediately convertible into gold and silver. The inducement, therefore, which banks held out, of supplying so important a want, drew at once, from the public, corresponding grants of privileges; and in every section of the Union, a bank-note currency, immediately convertible into coin, became the established medium of trade. Such a currency was found more convenient even than coin, and its regulation and management was yielded up to the banks, and became a great public trust in their hands. This view of the subject is taken by Mr. Justice Spencer, in deliver
ing his opinion in the case of the Utica Insurance Company, 15 Johns. 386, and he expressly calls this power to issue notes a great public trust.
In South Carolina it is placed by the law upon the high ground of a special privilege. By the act of 1814, all corporations are prohibited from issuing notes in the nature of currency, except where such power is given to chartered banks. 8 Sts. at Large, 33, 4. And the result is, that the banks enjoy a right, which is denied to every other corporation; amounting in precise terms, to what we have termed a franchise, or privilege, for the exercise of which the bank is responsible. And so it was adjudged, under the New York banking law, in the case already cited of the Utica Insurance Company.
The nature and value of this bank-note currency may still further be shown by considering the footing which it had acquired in law. In Miller v. Race, 1 Bur. 457, Lord Mansfield declares bank notes to be money as much so as a guinea, and to the same effect is the declaration of Lord Ellenborough in Knight v. Criddle, 9 East, 48; so in New York in Handy v. Dobbin, 12 Johns, R. 220; and the same view of the subject is taken in United States Bank v. Bank of Georgia, 10 Wheat, 346. In the case, too, of Briscoe v. Bank of Kentucky, 11 Peters, 258, so high is the footing upon which Mr. Justice Story in his dissenting opinion puts them, and so near to actual coin, that he considers the banks unconstitutional which exercise the right of issuing them.
Again there is another class of cases which declare that bank notes are a legal tender in payment of debts, unless specially objected to at the time-a privilege which has never been allowed to individual notes. In fact, the whole course of trade had established it as the understanding of all that payments between individuals were always expected to be made in bank notes, and thus has placed them upon the footing of an acknowledged currency.
Such being the rank which bank notes held in the affairs and business of the country, the undertaking to furnish them as a currency, was, manifestly, the grand object at which the public aimed in creating banks. Few persons are aware of the great expense to which the country willingly subjects itself for the attainment of this most desirable end; and as the inquiry is germain to the main argument before us, it is proper to bring this point, although a political subject, to the view of the court. It will enable them to measure the magnitude of the interests involved.
In the issue of bank notes, a bank changes its character from being a lender, to becoming a borrower, of money. Every bank note in the pocket of an individual is, in fact, a loan by him of its amount to the bank, until he passes it to some other person; and then it becomes in the same manner, a loan from him to whom it is passed. The result is, that 'the whole amount of notes, issued by the banks, is so much borrowed by
them from a part of the public at large, and without interest; and this amount the banks lend to another portion of the public at the rate of six per cent. interest.
These two portions of the public, it will be perceived, stand entirely in different relations to the bank; and inasmuch as the borrowers from the banks are much fewer in number than those who hold their notes, the latter constitute much the largest portion of the community. Those who borrow from the bank, too, it may be fairly assumed, make, from some source of profit, the interest which they pay for the loan, and so receive a compensation. But that larger portion of the community, which hold the notes of the banks as a currency, are losing the interest thereon, without any return, and therefore bear the whole burthen of this currency. The banks themselves reap a profit upon the whole, the sole consideration for which is, the soundness of the currency which they undertake to furnish.
It is this profit which furnishes the inducement to banking. At the time of the suspension, the issues of the banks in Charleston amounted, together, to about $3,700,000, the annual interest of which is $222,000. If to this be added the issues of the country banks, the aggregate is about $6,000,000, bearing an annual interest of $360,000. And thus an amount nearly equal to the whole general taxes of the State is paid by the community to the banks every year, for which no sort of equivalent is received, but the benefits which the State is supposed to derive from them as banking corporations.
Even to this large sum should be added something more for the deposits which stand in each bank; for, in relation to the community, the banks are also debtors for the deposits; and as they pay no interest on them, they stand in the same relation with the issues under another name. The statements furnished upon which these calculations are based do not enable us to ascertain how much of the issues of one bank are included in the deposits in another. I have, therefore, not undertaken to unite this uncertainty with what is certain upon the other calculation. But it is plain that as at the time of the suspension these deposits amounted to three million of dollars, something more should be added; and the total profits which the banks in South Carolina were actually deriving from the community at the time of the suspension must have amounted to at least $400,000.
Surely, then, the State must have set a high value upon this public trust when they were content to pay more for its discharge than for the whole machinery of the State government. The benefit expected in return from the banks consists in maintaining a sound currency, and removing the evils which had been suffered under the system of bills of credit. It is true that by no process could the State free itself from every part of this burthen; for, if the currency were specie alone.