A Treatise on Currency and Banking

Condy Raguet wrote A Treatise on Currency and Banking to settle what an American bank owed the person holding its note. His answer is that a note payable on demand is a debt payable in coin, and that the banks of his day issued such debts while escaping the remedies any creditor could press against a merchant. The treatise first appeared in 1839; this recommendation follows the revised second edition of 1840, which the Mises Institute offers as a digital presentation of a later Kelley facsimile: A Treatise on Currency and Banking.

Raguet accepts paper money that can be redeemed. A note exchangeable for coin lets a town trade with paper while its surplus gold and silver go abroad to buy goods, and he allows a bank to lend demand deposits when depositors agree. Redemption needs enforcement, though. Banks that present each other's notes for coin in daily settlement drain reserves from any rival that lends too freely, provided coin stays free to leave the country. He rejects any fixed multiple of capital or reserves as a safe limit and asks for statutes that forfeit the charters of banks refusing payment and that forbid small notes.

The suspensions of 1837 and 1839 put this logic under strain, and Raguet calls a general suspension by its plainer name, a general bankruptcy. A trader in trouble asks his creditors for more time and pays interest if they grant it. The suspended banks took that extension by force, and Raguet argues that most solvent banks delayed resumption because lending other people's money while refusing interest on it was profitable. A footnote records one contrary announcement: when the Darien branch at Milledgeville stopped a second time in March 1839, its directors gave notice that the bank would pay seven percent on sums of a hundred dollars or more deposited in its bills during the suspension. Suspended notes could keep some value, he observes, because borrowers needed them to repay the banks.

Raguet draws a narrower line around what a bank may issue than around what it may lend. Its own capital can go into mortgages or public securities, but its notes should rest on short bills arising from sales of merchandise, paper he contends moves with trade and cannot feed inflation or overtrading. That real bills contention is disputed, and in our judgment a bill drawn on goods sold at prices already raised by easy credit looks as commercial as any other. Raguet does recognize other limits: a prudent bank suffers when its neighbors overissue, and a metallic currency still feels war and failed harvests.

The statistical chapters count those claims. Raguet wanted every bank to publish quarterly statements on the same dates, separating liabilities payable at once from those payable later. Because a note drawn from one bank and deposited in another would appear twice, his count from the Treasury's return for late 1836 adds circulation to deposits and subtracts the notes of other banks on hand, arriving at about $223 million. Coin in bank vaults stays out of the sum, since the deposits or notes through which it entered the banks are already counted, while coin in the public's pockets comes on top of the total without any reliable measure. The return also mixed demand liabilities with post notes and deferred deposits, so even that figure would overstate the currency by whatever was deferred, and Raguet notes that the return itself fails to balance.

Raguet preferred unlimited personal liability for bank owners but, judging it unlikely to pass, endorsed New York's general banking law. Under it, any qualifying association could open a bank after lodging approved public bonds or mortgages with the comptroller, who registered its notes. Noteholders gained that security, while depositors stayed ordinary creditors. Raguet advised the new banks to place nearly all their capital in fixed securities and to lend deposits on short business paper, lest a panic deliver them into the comptroller's hands, though short paper protects little once a panic halts repayment. The comptroller's report in Appendix J records falling bond prices and a risk of insufficient collateral, and it calls the system an experiment that needs a longer test. It reports one bank wound up with its billholders paid and two more expected, and it treats a treasury advance as an unenacted proposal. Raguet knew the newest statutes through press abstracts alone.

Together, the suspension chapters and the New York appendix test two remedies Raguet relied on: clearing between rivals lapses when the banks stop together, and pledged collateral is worth what the bonds fetch. The treatise suits a reader asking how antebellum Americans tried to make a promise to pay coin enforceable, and who can follow period balance sheets and statutes.