Banking on Convertible Currency

56 HISTORY OF AMERICAN CURRENCY. BANKING ON CONVERTIBLE CURRENCY. We come now to the period in which the currency consisted more or less of banknotes, nominally convertible, issued by chartered banks. The system to which it has most analogy is that of the Scotch banks, although of these latter only three are chartered, the others being jointstock companies and partnerships. We shall have abundant proof that this system of free banking requires, as its indispensable conditions, moderation, sagacity, and scientific knowledge on the part of the bankers. Without these qualities in the managers, it is as wild as any scheme of paper money. Men who believe that " banking " consists in making paper issues and loaning them, making them as large as possible and stimulating them by all artificial means, and discouraging conversion as much as possible, may, as we shall see, bring down more ruin on the community by this engine than by any other.

The Bank of North America had already been founded. Its success in earning dividends led to other similar enterprises. Massachusetts charHISTORY OF AMERICAN CURRENCY. 57 tered the Massachusetts Bank in 1784. Soon after, a bank was chartered in New York and another in Maryland. PAPER MONEY AND THE FEDERAI CONSTITUTION. In 1787 the Federal constitution was framed. It contains a clause that no State shall " coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts." The framers of the document thus fixed their condemation of the old paper system, and the people, smarting under recent experiences, acquiesced. It was proposed in the constitutional convention to give to Congress the right to emit bills of credit, but the proposition was defeated nine States to two. (Madison Papers, III. 1,344.) Two questions have been raised under this clause : 1. Can a State authorize banks to do what it cannot do itself? As the confederation had already chartered the Bank of North America, it does not seem that the " bills of credit " were understood to cover bank notes. The courts have held that a State may authorize bank issues when 58 HISTORY OF AMERICAN CURRENCY.