JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

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JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The QuarterlyThe question whether the demand liabilities of banks should be offset by short term self-liquidating assets or by long term assets with the quality of marketability, or shiftability, may be said to have had its origin, so far as American experience is concerned, in a controversy that arose a century and a half ago over the credit policy of the first banks in this country. At least until 1842, the question continued to be an active one. It is therefore more than a current problem, and it involves social, economic, and political considerations that make it more than a matter of banking technique.The first banks in this country definitely specialized in short term self-extinguishing credit, and exercised a function that was almost purely monetary. But under the pressure of demand for long term crediti.e., for permanent capitalby an aggressive and growing population, this specialization rapidly broke down. In some quarters, most notably in New Orleans, where there was a great concentration of commercial activity, the pressure was resisted, and banking was staunchly confined to the monetary function. Elsewhere, however, specialization in short term credit was abandoned, and the banks attempted to supply simultaneously both the circulating medium that the country required and a large part of its 79 This content downloaded from 188.72.127.178 on Tue, 17 Jun 2014 13:26:40 PM All use subject to JSTOR Terms and Conditions 80 QUARTERLY JOURNAL OF ECONOMICS permanent capital, especially that part required by the state, by agriculture, and by small scale enterprise.These developments did not come about easily. Instead, during the first sixty years of American bankingsay from 1782 to 1842 -there was a continuous and irrational conflict over the need for a circulating medium and the need for permanent capital. And during these years the course of banking for the next century seems to have been determined. It was a conflict which Gallatin and some of his contemporaries recogmzed, but could do little to allay. It involved the fundamental question of what the function of a banking system should bea question that legislation inveterately avoided and that after a hundred and fifty years of banking experience is apparently more unsettled than it was at the start.The Bank of North Americathe first bank in the country in a modern sensewas organized in 1782 by Philadelphia merchants. Its practice was strictly commercial. It discounted only paper which had not more than forty-five days to run, and which was based on actual sales of goods. It did not grant renewals. It refused to lend on mortgages. ...

More than forty years have passed since Catteral's monograph on the second Bank of the United States was published, and, though that account has never been superseded, it antedates all recent literature on central banking and therefore presents inadequately the public purposes of the bank. Furthermore, it includes nothing about the bank's Pennsylvania successor, which failed, and thus omits the denouement of Biddle's conflict with Jackson. The inevitable effect of the failure, in the rough justice of history, was to make Jackson seem right and Biddle wrong; and this impression, especially in the absence of attention to the purpose and functions of the bank, seems in recent years to have been strengthened. I think it needs correction.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The Quarterly SUMMARY I. The business and political situation in 1839, 605. -II. Early sales of postnotes and foreign exchange in the New York and Boston markets, 607, heavy drafts on the New York balances, 609; gathering difficulties in Europe, 609; suspension of the Bank of the United States, 611; the Rothschilds' assistance, 612. -III. Discussion of the episode by Biddle and others, 614; passing of financial primacy to Wall Street, 616; significance of the episode, 617.