Cyclopædia of Political Science, Political Economy, and the Political History of the United States
BANK NOTES. We do not propose here to examine the part which bank notes play in the circulation of wealth, nor to inquire how far and in what cases they deserve the name of paper money which is sometimes given to them. We purpose only to show what constitutes a bank note, and how it may be recognized.
—Such are the two requisites of a bank note which essentially distinguish it from all other classes of commercial paper. All other paper falls due at a fixed date stated on its face, and can be transferred only by indorsement, so that the actual bearer is always required to show the signature of the transferer. A bank note may pass from one hand to another without indorsement, and is made payable any day.
—It has been contended, however, that a bank note should bear on its face something more. Emile Vincans, a distinguished French lawyer, says that a note made payable to the bearer and at sight, requires something else to make it a bank note. It would not, he says, be entitled to this designation, if it were issued by a private house or a simple merchant. There is some truth in this statement.
—It is certain that the bank note, viewed in its material conditions, has no other distinctive character than that which we have described; but it is none the less true that the bank note derives part of its power, and consequently part of its virtue, as a circulating medium, from the character of the establishment whence it is issued. If it were issued by a private citizen, it would hardly be accepted by the public; it could not be made to pass for ready money, and it would always be returned to the office whence it was issued, to be converted into specie. It would then but poorly answer the purpose intended by it. The attempt has been made in some countries, especially in Scotland, where the issuance of so-called bank notes is optional with everybody; and it has proved that an operation of this nature is not safe for individuals or private business firms, however wealthy they may be. It is not safe even for corporations organized on a small scale. In England, by virtue of a clause introduced in the charter of the bank of London, in 1708, the issue of bank notes was forbidden to companies composed of more than six partners. The consequence was that small companies which engaged in these operations were exposed to frequent disasters. But this does not affect the character of a bank note the essential requisites of which, that it be payable to the bearer and at sight, always remain the same.
—We may inquire whether it is a great advantage to a banking house to possess the exclusive power to issue notes of this kind, and whether this exclusive right is an important privilege of the bank. There can be no doubt about this. No other form of obligation presents the same advantages to the company which issues it. Notes made payable to the bearer and at sight, are the only ones which can circulate everywhere without any drawback or disadvantage, and which, therefore, can remain in circulation for an indefinite time, answering the same purpose as specie. The exclusive right to issue notes payable to the bearer and at sight, is therefore equivalent to the exclusive right to raise a public loan, by substituting notes for coin in the circulation.
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