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BANK OF VIRGINIA.—William K. Gordon, Esq., has been elected Cashier of the Branch Bank of Virginia, at Fredericksburg; in place of W.J. Roberts, Esq., deceased.
Erie BANK.—General Reed has issued a circular, dated at Erie, on the 23d May, from which we make the following extract:
“Every effort is making to redeem the bills and pay the indebtedness of the bank. I am glad to receive the paper upon all debts, bonds and mortgages due me, and will be most happy to exchange any property I have, real or personal, at its lowest cash value, for Erie Bank bills. I have not purchased one dollar of the paper at a discount, but am daily giving other funds in change to those who have small sums, and require it for immediate use. I am willing at all times, and have never resused, to give my paper, or secure to the satisfaction of the holder, the ultimate payment-principal and interest—of any amount of the bills of the bank. I have arranged with the Erie Canal Company--on my personal liability
: -that for the next thirty days the paper will be received for all tolls on the canal from Erie to Beaver. Since the suspension, I have myself paid thirty-three thousand dollars of the bank's liabilities, and shall continue my efforts until the entire circulation is taken up. I am willing to make any sacrifices in my property to effect this object. All that is asked ottle bill-holder is, not to make sacrifices, and to allow time for the ultimate payment of all the paper.”
BANK OF THE STATE OF GEORGIA.—Alexander Porter, Esq., has been elected President of the Bank of the State of Georgia, at Savannah: and J. K. Tefft, Esq., elected Cashier in place ot' M1. Porter.
Washington County BANK.—Daniel Weisel, Esq., has been elected President of the Washington County Bank, at Williamsport, MJ.,) in place of John R. Dall, Esq.
COMMERCIAL CAPITAL OF GREAT BRITAIN.
From the London Economist.
We have long observed, in the manner in which a large portion of the commerce of this country has been conducted, a great disregard to what we would term the first principles of commercial science; which, up to the present tiine, are but ill defined, little understood, and, we fear, as a system, not much acted upon. An examination of the manner in which these principles have been neglected may prove satisfactory, by showing that these great and obvious evils to which the country has recently been exposed, are not the result of risks necessarily attached to commerce, but have arisen from errors which, being once clearly defined and understood, may in future be more easily divided.
For some time past we have taken much pains to explain the distinction between fixed and floating capital, and to show the extreme danger to which the country in general, and individuals in particular, have become exposed, by speculations in investments in which capital, to an inconvenient extent, has become fixed. The disturbance at the present moment between the just proportions of each, is shown in a remarkable way by the low and depressed value of one and the high price of the other. While the value of fi.red capital is every day sinking, that of floating capital is every day rising. We think we shall be able to show that, to a disregard to this distinction, we may mainly attribute, not only the immediate difficulties of the country, which have at this particular juncture led to the commercial failures referred to, but also the original cause, why these houses, with all the capital and wealth which have been invested in them, have been unable to resist the pressure of the times. By way of illustration, we shall shortly refer to the progress which has been made in the science of banking, and to the beneficial consequences which have resulted therefrom to the country at large, as well as to bankers themselves; and which will be found, upon consideration, to arise entirely from a regard to the distinction referred to.
Thirty years ago the greatest ignorance prevailed as to what constituted a proper “banking security.” It is not difficult to understand that —inasmuch as the capital with which a banker carries on his business is chiefly derived from the deposits of his customers, placed with him only on the faith of his credit, and liable to be called for at a moment's notice, either as the wants of his customers or their loss of confidence in him may dictate—a banker could not be in a position to meet these demands, unless he kept his money in such securities as were easily convertible. To constitute a good banking security, it is not therefore alone necessary that it is ultimately safe and secure—it is quite as necessary that it is of such a character as at all times to be easily convertible, and of such short dates, that the repayment of advances is constantly taking place by bills or loans becoming due, in order that the banker may have it always in his power to curtail his advances or to convert a portion of his securities into money, as circumstances may require. It is thus that, while short-dated first class bills of exchange, having no other guarantee for their payment than personal credit, constitute the best banking securities—while mortgages upon real prop :rty, however safe ultimately, are most objectionable and dangerous securities for bankers; although to the capitalist seeking a permanent investment the latter is infinitely preferable to the former. Prior to 1825 tiis distinction was litle understood or acted upon. In those days nothing was more common than for country bankers to advance their deposits and the money representing the circulation of their notes, in mortgages to neighboring landlords and mill-owners; and even the Bank of England, committing the same error, was the mortgagee of the estates of many of our principal nobility. The great panic of that year was the first event which called public attention particularly to this subject. At that period hundreds of bankers suspended payment, lost their credit, and were ultimately ruined, solely from having disregarded this necessary principle in their business. When a demand was made upon them for the repayment of their deposits or the payment
of their notes, their funds being locked up in inconvertible securities, however safe ultimately, were of no avail at the moment; and thus it was that so many of the bankers who at the time suspended payment, ultimately paid their liabilities in full. With abundance of property, many firms were plunged into the bankrupt list, only from a disregard to the proper description of securities in which they had invested their money. From that time, the question of what constituted proper banking securities became discussed, gradually understood, and defined; but it is not many years since the Bank of England finally called in all its loans on the mortgage of real property. It has been to a recognition of this principle and a better understandiug of their business, that the greater safety of bankers since that period is to be ascribed, far more than to any Act of Parliament pretending to impose prudent restrictions on banking. In London we do not believe there is a single banker who now does not implicitly follow this rule, and we believe it is very generally followed in the country also; but it has been curious to observe that nearly all the banks which have failed, even of late years, have been guilty of a neglect of this rule, having advanced large sums upon real property, and often of the worst kind. However, one of the greatest steps ever taken in the science of banking, was the discovery and admission of what constituted proper banking securitics.
What was done for banking by the panic of 1925 remains to be done for commerce in 1817. The question is yet to be determined and carried into practice before our commercial science can be called perfect, or its practice safe—What constitutes a proper mercantile security? The position of a merchant is essentially that of a mere agent between the producer and consumer, either in the same or in different countries, whether he buys and sells upon his own account, or whether he trades only on commission. In either case, a large capital may be advantageously, legitimately, and, with ordinary prudence, with certain profit, employed. But beyond his own capital, the merchant may, and always does, trade on his credit. His capital and his credit are required to convey commodities from the place of their production to that of their consumption, and they may be further usefully employed in affording certain facilities to the parties engaged in their production or their distribution to the consumer, in the form either of advances to the one, or of credits to the other. But as the very nature of his business necessarily involves a continuous repetition of transactions, it is above all things necessary that his capital should never lose the character of floating, and become fixed. Whether he buys, or whether he makes advances on produce in a foreign country, the annual income of the country in its expenditure is virtually pledged to replace the capital at home, advanced abroad; though, perhaps, through the intermediate agency of the capital of the broker and the several dealers through whom goods pass from the importer to the consumer. The merchant may, and perfectly legitimately, facilitate the operations of the producer in a variety of ways to the advantage of both; but he should never lose sight of the great essential character of every advance which he makes. They should always be upon commodities which are in the due course of trade saleable for consumption, so that his capital is again certain to be returned within a moderate period from the current expenditure of the country, thus preserving it floating. And the greater extent to which the merchant avails himself of his own credit in his transactions, he is bound the more scrupulously to observe the rule, that he never locks up capital in any way in which it will not quickly be returned, and for which he holds in the meantime a security which of itself will guarantee that return.
For example, it is quite legitimate for a merchant residing at home to advance his capital on produce consigned to him from abroad, or for a merchant abroad to advance his capital to the producer on the spot, in anticipation of the future sales of the produce, prior to its shipment; and it may even be legitimate to make advances on a growing crop, especially when the state of the law admits of an assignment of property in that state, and secures its delivery, and when the commodity does not require to pass through a manufacturing process before it is ready for market. But beyond this point it is impossible the merchant can pass without great hazard, or at least without accepting what cannot be called a good t mercantile security.” Up to that point the re-payment of his capital is guaranteed by the ultimate sale of the produce; and, excepting in the last case, prior to the delivery of the produce, he holds, either in the form of bills of lading, dock warrants, or bills of exchange, securities representing his advances until the actual capital is again returned to him. But the moment a merchant passes this point in his advances to producers, the moment he lends money for the purchase of implements, or machinery, or land, or its improvement on the security of the estate and its plant, that moment he has invested his money in a fixed in place of a floating security, which is inconsistent with his occupation as a merchant, and is calculated to be productive of great danger in the case of pressure on the money market, especially if he is otherwise availing himself much of his own credit in his business.
From a neglect of this plain rule in commerce, there have been greater losses sustained than from any other cause.
The ruin which overwhelmed the largest and most eminent houses which ever existed in India, in 1830, was referable only to that error. The houses of Messrs. Palmer and Co., Messrs. Ferguson and Co., and Messrs. Mackintosh and Co., the stoppage of which in 1830 inflicted such a shock on our Indian trade, were all immediately traceable to an advance of their own capital, and that intrusted to them by others, on such illegitimate commercial securities as we have now alluded to. The majority of the indigo factories throughout India really belonged to those houses; a large number of which, owing to the facilities offered by them, had been opened in parts of the country and under circumstances which could not be profitable. For many years past there has scarcely been a failure of a single West India house of any importance which has not been directly traceable to the same cause. And now, it is evident that these eminent firms, whose recent stoppages have excited so much regret, have been brought into their present position entirely from the same error. They have not confined their investments to mercantile securities, but they have, to a great extent, converted their legitimate floating capital into fixed capital abroad, in securities which are wholly unmarketable here, and which were only of any value as long as they were sustained and cultivated by
the credit which they had acquired. Messrs. Reid, Irving, and Co., are understood to have sunk in sugar plantations in the Mauritius alone, £600,900; and Messrs. Gower, Nephews, and Co. are understood to have similarly sunk, in the same island, upwards of £200,000; while Messrs. Cockerell and Co. have been implicated in indigo factories in India. It is not difficult to understand the sort of irresistible means by which houses become implicated in such securities, and get their capital inconveniently locked up. First, a merchant advances on the produce of the planter; next, competition and the urgent requests of the planter induce him to advance on the growing crop before it is in. All experience has proved that the first advance of this kind becomes the precursor of other advances, which are necessary in order to secure the first. It has invariably been the case under such circumstances, that one advance after another has proved necessary, until the estates, thus overburdened, have become, if not nominally, yet really, the property of the merchant; and his capital, in place of being available in the variety of forms in which it is while retained in proper mercantile securities, in bills of lading, dock warrants, or bills of exchange, is fonnd, on the arrival of a period of pressure, to be locked up in unavailable securities abroad. And ihus, like the bankers in 1825, houses who show large balances of property in their own favour, are reduced to the painful necessity of suspending payment.
It is, no donbt, necessary for the success of a commercial house that its transactions, even though confined to stricily correct principles, should be conducted with ability and discretion; and even then unforeseen accidents may happen, sudden changes may take place in the value of property, or large and unexpected losses may be incurred through others, as we have witnessed in some instances during the past week; but we are firmly of opinion that if commercial houses were rigidly to confine themselves to strictly commercial transactions, that, with the exercise of ordinary prudence, misfortunes such as we have witnessed during the last fortnight would seldom occur, or, when they did, the cause in such case would be palpable, easily recognised, and explained.
After 1847, the commercial community will recognise as much the necessity of confining their investments to strictly mercantile securities, as bankers did, after 1825, to banking securities; and will, as a daily and constant habit, observe the difference between floating and fixed capital.
A writer in the Spectator makes some observations on the above remarks, which, if they confirm the principle laid down, point attention to some facts connected with the subject, which ought not to be overlooked.
6 Some persons have indulged in strictures more or less severe upon the great houses that have lately failed; and they evince a disposition to enact, as a rule by which the prudence of merchants shall hereafter be judged, that mercantile securities must be confined, like banking securities, to such obligations as shall revolve in a circle and be periodically replaced. The fall of these houses is doubtless traceable in some measure to the advances made upon securities which have proved to be inconvertible. But this disappointment is not a necessary consequence of the nature of these securities. Mortgages upon good sugar estates, pay